<PAGE> 1
1933 Act Registration No. 2-78440
1940 Act Registration No. 811-3517
As filed with the Securities and Exchange Commission on December 29, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 28 /X/
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 29 /X/
(Check appropriate box or boxes)
---------
THE PILOT FUNDS
(Exact name of registrant as specified in charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
800-717-4568
---------
Copy to:
George O. Martinez, Esq. Phil Newman, Esq
BISYS Fund Services, Inc. Goodwin, Procter & Hoar
3435 Stelzer Road Exchange Place
Columbus, Ohio 43219 Boston, Massachusetts 02109
(Name and Address of Agent for Service of Process)
---------
It is proposed that this filing will become effective
(check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on November 15, 1995 pursuant to paragraph (b)
/ / 60 days, after filing pursuant to paragraph (a)
/ / on November 15, 1995, pursuant to paragraph (a), of Rule 485.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24f-2. REGISTRANT HAS FILED A RULE 24f-2 NOTICE
FOR THE FISCAL YEAR ENDED AUGUST 31, 1995 ON OCTOBER 30, 1995.
THE TOTAL NUMBER OF PAGES IS _____ . THE EXHIBIT INDEX IS ON PAGE _____ .
<PAGE> 2
THE PILOT FUNDS
(Pilot 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 International Equity Fund,
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)
---------
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER IN PART A PROSPECTUS CAPTION
--------------------- ------------------
<S> <C>
1. Cover Page .................................... Cover Page
2. Synopsis ...................................... Not Applicable
3. Condensed Financial Information ............... Financial Highlights
4. General Description of Registrant ............. Cover Page; Investment Objectives, Policies and
Risk Factors; The Pilot Family of Funds
5. Management of the Fund ........................ The Business of the Fund - Fund Management
5A. Management's Discussion of Fund Performance ... Not Applicable
6. Capital Stock and Other Securities ............ Investing in The Pilot Funds - Dividends and
Distributions; The Pilot Family of Funds; The
Business of the Fund - Tax Implications
7. Purchase of Securities Being Offered .......... Investing in The Pilot Funds - How to Buy Shares;
Investing in The Pilot Funds - Explanation of Sales
Price; Investing in The Pilot Funds - Exchange
Privileges
8. Redemption or Repurchase ...................... Investing in The Pilot Funds - How to Sell Shares;
Investing in The Pilot Funds - Exchange Privilege
9. Pending Legal Proceedings ..................... Not Applicable (all Funds)
</TABLE>
2
<PAGE> 3
THE PILOT FUNDS
---------
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NUMBER IN PART B INFORMATION CAPTION
--------------------- -------------------
<S> <C>
10. Cover Page .................................... Cover Page
11. Table of Contents ............................. Table of Contents
12. General Information and History ............... Organization and Capitalization
13. Investment Objectives and Policies ............ Investment Policies and Practices of the Funds;
Investment Restrictions
14. Management of the Fund ........................ Trustees and Officers
15. Control Persons and Principal Holders
of Securities ................................. Trustees and Officers; Organization and
Capitalization
16. Investment Advisory and Other Services ........ Investment Adviser, Administrator, Distributor
and Transfer Agent; Matters Relating to Class A
Shares and Class B Shares; Portfolio Transactions;
Custodian and Subcustodian; Independent
Accountants and Counsel
17. Brokerage Allocation .......................... Portfolio Transactions
18. Capital Stock and Other Securities ............ Organization and Capitalization; Matters Relating
to Class A Shares and Class B Shares
19. Purchase, Redemption and Pricing of Securities
Being Offered ................................. Net Asset Value; Matters Relating to Class A
Shares and Class B Shares; Additional Purchase
and Redemption Information
20. Tax Status .................................... Tax Information
21. Underwriters .................................. Investment Adviser, Administrator, Distributor
and Transfer Agent
22. Calculation of Performance Data ............... Calculation of Performance Quotations
23. Financial Statements
</TABLE>
3
<PAGE> 4
|
| 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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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.
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("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.
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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.
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<PAGE> 15
- --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
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<PAGE> 16
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
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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> 18
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
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<PAGE> 19
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> 20
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> 21
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> 22
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> 23
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
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<PAGE> 24
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> 25
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> 26
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> 27
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> 28
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.
- ---------------------------------------------------------------
23
<PAGE> 29
PILVP1295P
<PAGE> 30
Financial
Direction December 29, 1995
LOGO
The
Pilot
Funds
PROSPECTUS ENCLOSED
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
Class A Shares and
Class B Shares
<PAGE> 31
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY................................................................................... 3
FINANCIAL HIGHLIGHTS.............................................................................. 6
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS.................................................. 8
Pilot Growth and Income Fund................................................................. 8
Pilot Equity Income Fund..................................................................... 8
Pilot Intermediate U.S. Government Securities Fund........................................... 9
Pilot U.S. Government Securities Fund........................................................ 9
Pilot Intermediate Municipal Bond Fund....................................................... 9
Pilot Municipal Bond Fund.................................................................... 9
PORTFOLIO INSTRUMENTS AND PRACTICES............................................................. 10
RISK FACTORS.................................................................................... 16
FUNDAMENTAL LIMITATIONS......................................................................... 17
INVESTING IN THE PILOT FUNDS...................................................................... 18
HOW TO BUY SHARES............................................................................... 20
HOW TO SELL SHARES.............................................................................. 23
TRANSACTION RULES............................................................................... 24
SHAREHOLDER SERVICES............................................................................ 26
DIVIDENDS AND DISTRIBUTIONS..................................................................... 29
DISTRIBUTION AND SERVICE ARRANGEMENTS............................................................. 30
THE PILOT FAMILY OF FUNDS......................................................................... 31
THE BUSINESS OF THE FUND.......................................................................... 31
FUND MANAGEMENT................................................................................. 31
TAX IMPLICATIONS................................................................................ 33
MEASURING PERFORMANCE........................................................................... 34
</TABLE>
<PAGE> 32
THE PILOT FUNDS
LOGO
PROSPECTUS FOR CLASS A SHARES AND CLASS B 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 SECURITIES capital through investments securities and less principal
primarily in U.S. Government volatility than normally associated
securities and repurchase with a long- term fund.
agreements. The Fund will generally
have an average weighted maturity of
from three to ten years.
- ----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES Current income and preservation of Current income from U.S. Government
capital through investments securities and are willing to accept
primarily in U.S. Government fluctuations in price and yield.
securities and repurchase
agreements. The Fund will generally
have an average weighted maturity of
from five to thirty years.
- ----------------------------------------------------------------------------------------------------------
INTERMEDIATE MUNICIPAL Current income free of federal Current income that is free from
BOND income 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 Current income that is free from
income 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> 33
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 two classes of shares from which investors may choose
in 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. Class A Shares are sold with a
front-end sales charge; Class B shares are sold with a deferred sales charge.
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> 34
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services.
Below is information regarding the Funds' shareholder transaction expenses and
the operating expenses which the Funds expect to incur during the current fiscal
year on their Class A and Class B Shares. Examples based on this information are
also provided.
<TABLE>
<CAPTION>
GROWTH EQUITY INTERMEDIATE
AND INCOME INCOME U.S. GOVERNMENT
FUND FUND SECURITIES FUND
------------------ ------------------ ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases
(as a percentage of offering price)......... 4.50%(1) None 4.50%(1) None 4.00%(1) None
Sales Charge Imposed on Reinvested
Dividends................................... None None None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)............... None 4.50%(2) None 4.50%(2) None 4.00%(3)
Exchange Fee.................................. 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(4)............................ 0.50% 0.50% 0.50% 0.50% 0.35% 0.35%
Rule 12b-1/Distribution Payments.............. 0.25% 1.00% 0.25% 1.00% 0.15% 1.00%
Other Expenses................................ 0.25% 0.25% 0.25% 0.25% 0.22% 0.22%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses After Fee
Waivers and Expense Reimbursements(4)....... 1.00% 1.75% 1.00% 1.75% 0.72% 1.57%
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE
U.S. GOVERNMENT MUNICIPAL BOND MUNICIPAL BOND
SECURITIES FUND FUND FUND
------------------ ------------------ ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases
(as a percentage of offering price)......... 4.50%(1) None 4.00%(1) None 4.50%(1) None
Sales Charge Imposed on Reinvested
Dividends................................... None None None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)............... None 4.50%(2) None 4.00%(3) None 4.50%(2)
Exchange Fee.................................. 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(4)............................ 0.40% 0.40% 0.40% 0.40% 0.45% 0.45%
Rule 12b-1/Distribution Payments.............. 0.20% 1.00% 0.15% 1.00% 0.20% 1.00%
Other Expenses................................ 0.22% 0.22% 0.18% 0.18% 0.22% 0.22%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses After Fee
Waivers and Expense Reimbursements(4)....... 0.82% 1.62% 0.73% 1.58% 0.87% 1.67%
===== ===== ===== ===== ===== =====
</TABLE>
- ------------
(1) Reduced sales charges may be available. See "Shareholder Services--Front-End
Sales Charge Reductions."
(2) This amount applies to redemptions during the first year. The charge
decreases .50% annually to 2.50% for redemptions made during the fifth year
and then decreases .75% to 1.75% for redemptions made during the sixth year.
No deferred sales charge is charged for redemptions made after the sixth
year. See "How to Buy Shares-- Explanation of Sales Price."
3
<PAGE> 35
(3) This amount applies to redemptions during the first year. The charge
decreases .50% annually to 2.00% for redemptions made during the fifth year
and then decreases .75% to 1.25% for redemptions made during the sixth year.
No deferred sales charge is charged for redemptions made after the sixth
year. See "How to Buy Shares-- Explanation of Sales Price."
(4) 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 0.75%, 0.75%, 0.55%, 0.55%, 0.55% and
0.55% 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 Class A Shares and Class B Shares of
the Funds during the current fiscal year. Absent waivers and expense
reimbursements, the total operating expenses for the Funds would be 1.40%
and 2.15% for Class A Shares and Class B Shares, respectively, of the Pilot
Growth and Income Fund; 1.39% and 2.14% for Class A Shares and Class B
Shares, respectively, of the Pilot Equity Income Fund; 1.12% and 1.87% for
Class A Shares and Class B Shares, respectively, of the Pilot Intermediate
U.S. Government Securities Fund; 1.12% and 1.87% for Class A Shares and
Class B Shares, respectively, of the Pilot U.S. Government Securities Fund;
1.06% and 1.81% for Class A Shares and Class B Shares, respectively, of the
Pilot Intermediate Municipal Bond Fund; and 1.11% and 1.86% for Class A
Shares and Class B Shares, respectively, of 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. You should note that any
fees that are charged by the Funds' Adviser, its affiliates or any other
institutions directly to their customer accounts for services related to an
investment in the Funds are in addition to and not reflected in the fees and
expenses described above.
BECAUSE OF THE DISTRIBUTION PAYMENTS PAID BY THE FUNDS AS SHOWN IN THE ABOVE
TABLE, LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED BY THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
4
<PAGE> 36
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 AFTER YEARS AFTER YEARS AFTER YEARS AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PILOT GROWTH AND INCOME FUND
Class A Shares(1)................... $ 55 $ 75 $ 98 $ 162
Class B Shares
Assuming complete redemption at
end of period(2)............. $ 63 $ 90 $ 120 $ 206
Assuming no redemption......... $ 18 $ 55 $ 95 $ 206
PILOT EQUITY INCOME FUND
Class A Shares(1)................... $ 55 $ 75 $ 98 $ 162
Class B Shares
Assuming complete redemption at
end of period(2)............. $ 63 $ 90 $ 120 $ 206
Assuming no redemption......... $ 18 $ 55 $ 95 $ 206
PILOT INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
Class A Shares(1)................... $ 47 $ 62 $ 78 $ 126
Class B Shares
Assuming complete redemption at
end of period(2)............. $ 56 $ 80 $ 106 $ 187
Assuming no redemption......... $ 16 $ 50 $ 86 $ 187
PILOT U.S. GOVERNMENT SECURITIES FUND
Class A Shares(1)................... $ 48 $ 65 $ 84 $ 137
Class B Shares
Assuming complete redemption at
end of period(2)............. $ 56 $ 81 $ 108 $ 192
Assuming no redemption......... $ 16 $ 51 $ 88 $ 192
PILOT INTERMEDIATE MUNICIPAL BOND FUND
Class A Shares(1)................... $ 47 $ 62 $ 79 $ 127
Class B Shares
Assuming complete redemption at
end of period(2)............. $ 56 $ 80 $ 106 $ 188
Assuming no redemption......... $ 16 $ 50 $ 86 $ 188
PILOT MUNICIPAL BOND FUND
Class A Shares(1)................... $ 49 $ 67 $ 86 $ 143
Class B Shares
Assuming complete redemption at
end of period(2)............. $ 57 $ 83 $ 111 $ 198
Assuming no redemption......... $ 17 $ 53 $ 91 $ 198
</TABLE>
- ------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
The Example shown above should not be considered a representation of future
investment returns or operating expenses.
5
<PAGE> 37
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
- --------------------------------------------------------------------------------
Pilot Equity Income Fund
<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
1995--Pilot Shares................... 16.69% 0.75% 4.12% 37% $ 98,607 1.14%
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
1995--Pilot Shares................... 3.73%
1995--Class A Shares(a).............. 3.31
1995--Class B Shares(b).............. 2.49
- --------------------------------------------------------------------------------
Pilot Intermediate U.S. Government Securities Fund
<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
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
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>
6
<PAGE> 38
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 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)
--------- ------------- ------------- --------- ---------- -------------
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 (LOSS)
TO AVERAGE
NET ASSETS(D)
-------------
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
</TABLE>
- --------------------------------------------------------------------------------
Pilot Intermediate Municipal Bond 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>
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>
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> <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>
RATIO OF NET
INVESTMENT
INCOME (LOSS)
TO AVERAGE
NET ASSETS(D)
-------------
<S> <C>
1995--Pilot Shares................... 4.67%
1995--Class A Shares(e).............. 4.27
</TABLE>
- --------------------------------------------------------------------------------
Pilot Municipal Bond 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>
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>
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> <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>
RATIO OF NET
INVESTMENT
INCOME (LOSS)
TO AVERAGE
NET ASSETS(D)
-------------
<S> <C>
1995--Pilot Shares................... 5.44%
1995--Class A Shares(a).............. 5.02
1995--Class B Shares(f).............. 4.29
</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 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.
7
<PAGE> 39
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The Pilot Funds use 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 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 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.
- ---------------
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.
8
<PAGE> 40
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 ("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
9
<PAGE> 41
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.
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
10
<PAGE> 42
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
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)
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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 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
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<PAGE> 44
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 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
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(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.
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
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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 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
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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 will limit their investments in securities which are restricted
as to disposition to 10% of their net assets. 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, 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
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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.
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 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.
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INVESTING IN THE PILOT FUNDS
Getting Your Investment Started
Investing in The Pilot Funds is quick and convenient. Fund Shares may be
purchased either through the account you maintain with Boatmen's Investment
Services, Inc., another broker-dealer or certain other institutions or from The
Pilot Funds directly. Fund shares are distributed by Pilot Funds Distributors,
Inc. (the "Distributor"). The Distributor is located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
You may choose to invest through your Boatmen's Investment Services account
where an Account Representative can advise you in selecting among The Pilot
Funds. Whether you currently have a Boatmen's Investment Services account or
wish to open one, your Pilot Funds investment can be executed within a few
minutes by telephone or, if you prefer, during a consultation with an Investment
Officer of Boatmen's Investment Services, Inc. Call The Pilot Funds at
800/71-PILOT to arrange a consultation scheduled at your convenience.
Clients of Boatmen's Investment Services, Inc. and other institutions (such as
broker-dealers) that have entered into agreements with the Distributor ("Service
Organizations") may purchase shares through their accounts at their Service
Organization and should contact the Service Organization directly for
appropriate purchase instructions. Share purchases (and redemptions) made
through Boatmen's Investment Services, Inc. or another Service Organization are
effected only on days the particular institution and the Fund involved are open
for business. When shares are purchased through Boatmen's Investment Services,
Inc. or another Service Organization, a fee may be charged by those institutions
for providing administrative services in connection with your investment.
Should you wish to establish an account directly with The Pilot Funds, please
refer to the purchase options described under "Opening and Adding to Your Pilot
Funds Account".
Payments for Fund shares must normally be in U.S. dollars and in order to avoid
fees and delays should be drawn on a U.S. bank. Please remember that The Pilot
Funds retains the right to reject any purchase order.
Your Alternative Purchase Options
Your purchases of Fund shares are subject to either a front-end or back-end
sales charge. You may elect to have the sales charge deducted at the time of
your investment--on the "front-end"--or choose to defer the sales charge until
your investment is redeemed--on the "back-end". This back-end sales charge
declines over time and is known as a "contingent deferred sales charge." If you
decide to pay the sales charge at the time you make your investment, your
purchase will be made in Class A Shares, whereas if you prefer to pay the sales
charge when you redeem your investment, your purchase will be made in Class B
Shares. Once you have held Class B Shares for six years, you do not pay the
contingent deferred sales charge when you redeem those shares.
Characteristics of Class A Shares and Class B Shares
Class A Shares and Class B Shares differ primarily in their sales charge
structures and distribution arrangements, including ongoing distribution fees.
The classes may also have differing transfer agency and other fees, although the
Funds currently do not intend to allocate such fees on a class basis. You should
understand that the purpose and function of the sales charge structures and
distribution arrangements for both Class A Shares and Class B Shares are the
same.
Class A Shares: Class A Shares are sold at their net asset value plus a
front-end sales charge of up to 4.50% (4.00% for the Pilot Intermediate U.S.
Government Securities Fund and Pilot Intermediate Municipal Bond Fund). (See
"How to Buy Shares--Explanation of Sales Price".) This front-end sales charge
may be reduced or waived in some cases. (See "Transaction Rules" and
"Shareholder Services--Front-End Sales Charge Reductions.") Class A Shares are
subject to ongoing distribution fees at an annual rate of up to 0.25% of a
Fund's average daily net assets attributable to its Class A Shares.
Class B Shares: Class B Shares are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the shares
are redeemed within six years of investment. (See "How to Buy Shares--
Explanation of Sales Price".) Class B Shares are subject to ongoing distribution
fees at an annual rate of up to 1.00% of a Fund's average daily net assets
attributable to its Class B Shares. These ongoing fees, which are higher than
those charged on Class A Shares, will cause Class B Shares to have a higher
expense ratio and pay lower dividends than Class A Shares.
18
<PAGE> 50
Eight years after purchase, Class B Shares will convert automatically to Class A
Shares. The conversion relieves a shareholder of Class B Shares of the higher
ongoing expenses charged to those shares, after enough time has passed to allow
the Distributor to recover approximately the amount it would have received if a
front-end sales charge had been charged.
The conversion from Class B Shares to Class A Shares takes place at net asset
value, so you receive dollar-for-dollar the same value of Class A Shares as you
had of Class B Shares. The conversion occurs eight years after the beginning of
the calendar month in which the shares are purchased. As a result of the
conversion, the converted shares are relieved of the distribution fees borne by
Class B Shares, although they are subject to the distribution fees borne by
Class A Shares.
Class B Shares of a Fund acquired through a reinvestment of dividends or
distributions from that Fund (as discussed under "Dividends and Distributions")
are also converted at the earlier of two dates--eight years after the beginning
of the calendar month in which the reinvestment occurred or the date of
conversion of the most recently purchased Class B Shares that were not acquired
through reinvestment of dividends or distributions. For example, if you make a
one-time purchase of Class B Shares of a particular Fund, and subsequently
acquire additional Class B Shares of that Fund only through reinvestment of
dividends and/or distributions from that Fund, all of your Class B Shares in
that Fund, including those acquired through reinvestment, will convert to Class
A Shares of that Fund on the same date.
Considerations In Choosing Between Class A And
Class B Shares
The decision as to which share class may be more beneficial for you depends, in
part, on the amount and intended length of your investment. Due to the lower
ongoing distribution fees on Class A Shares, the dividends for those shares will
be higher than the Class B Shares. However, since a front-end sales charge is
deducted from your purchase at the time of your investment, not all of your
purchase amount will purchase shares. Thus, the same initial investment will
purchase more Class B Shares than Class A Shares of the same Fund. In addition,
Class B Shares are subject to a contingent deferred sales charge.
Since large investors may qualify for a reduced front-end sales charge (see
"Shareholder Services--Front-End Sales Charge Reductions"), such investors
should consider making their purchase in Class A Shares.
Because of these possible front-end sales charge reductions, purchases in excess
of $100,000 may be more advantageous to you if made in Class A Shares rather
than Class B Shares. In any event The Pilot Funds will not accept any order of
$250,000 or more for Class B Shares. In addition, regardless of whether you
qualify for a reduced front-end sales charge, if you expect to hold your
investment for an extended period of time, you might still consider purchasing
Class A Shares because the accumulated higher ongoing expenses, together with
the contingent deferred sales charge, of the Class B Shares will exceed the
amount of the front-end sales charge and ongoing distribution fees related to
Class A Shares.
On the other hand, you might decide, because you would be subject to higher
front-end charges or for other reasons, that it would be more advantageous for
you to have all of your purchase amount invested immediately in Fund shares,
even though you would also be subject to higher ongoing distribution fees. These
higher ongoing fees might be offset by any return you receive from the
additional shares you originally purchased as a result of not having to pay a
front-end sales charge. You should note however, that a Fund's future returns
cannot be predicted, and that there is no assurance that such returns, if any,
would compensate for those higher ongoing expenses. You should also remember
that you would be subject to any applicable contingent deferred sales charge
during the first six years of your investment in Class B Shares.
If You Have Questions
If you are investing in The Pilot Funds through an account with Boatmen's
Investment Services, Inc. or another Service Organization, you may choose to
speak directly with your assigned Account Representative or contact person at
such organization. If you are a direct investor with The Pilot Funds and need
assistance with your account, a Pilot Funds service representative is available
to
19
<PAGE> 51
answer your questions by calling the appropriate toll-free numbers listed below.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALL FOR INFORMATION
- -------------- ------------------------------------
<S> <C>
800/71-PILOT Regarding the Funds' investment
8:00 am to objectives and policies or for
7:00 pm information about opening an account
Central time (including information regarding the
Funds' alternative purchase
options). Information on changing
your Pilot Funds' services, and
Statements of Additional
Information, are also available at
this number.
- ----------------------------------------------------
800/227-3654 To obtain your account balance or to
7:30 am to request a telephone transaction.
4:00 pm
Central time
- ----------------------------------------------------
</TABLE>
You should note that neither The Pilot Funds nor its service contractors will be
responsible for any loss or expense for acting upon telephone instructions that
are believed to be genuine. In attempting to confirm that telephone instructions
are genuine, The Pilot Funds will use procedures considered reasonable.
The Pilot Funds will send you the following statements and reports to provide
you with current information on the status of your account:
<TABLE>
<S> <C>
Confirmation Statements After every transaction
(other than an Automatic
Investment Plan transaction
or dividend credit) that
affects your account
balance or your account
registration.
Account Statements On a quarterly basis
detailing year to date
activity for each of your
accounts.
Financial Reports Every six months. To reduce
The Pilot Funds' expenses,
only one copy of most Fund
reports will be mailed to
your household, even if you
have more than one account
in a Fund.
</TABLE>
HOW TO BUY SHARES
This section provides you with pertinent information on how to buy Fund shares.
Further information can be found under "Transaction Rules". Before investing you
will need to decide whether to purchase Class A Shares (which are sold with a
front-end sales charge) or Class B Shares (which are sold without a front-end
sales charge but are subject to a contingent deferred sales charge). See "Your
Alternative Purchase Options".
<TABLE>
<CAPTION>
MINIMUM INVESTMENT
-----------------------------
TO OPEN ADDITIONAL
ACCOUNT INVESTMENTS
------------- -------------
<S> <C> <C>
Regular Account........ $1,000 $100
Automatic Investment
Plan................. $100 $100
Employee*--Regular
Accounts............. $500 $100
Employee*--Automatic
Investment Plan...... $100 $50
Tax-Sheltered
Retirement Plans..... $500 $50
Exchange Transactions.. $1,000 $500
</TABLE>
- ------------
*Applies to employees of the Adviser and its affiliates.
OPENING AND ADDING TO YOUR PILOT FUNDS ACCOUNT
As described above under "Getting Your Investment Started," you may purchase
Fund shares through Boatmen's Investment Services, Inc. or another Service
Organization. Direct investments in The Pilot Funds may also be made in a number
of different ways, as shown in the following chart. Simply choose the method
that is most convenient for you. Any questions you have can be answered by
calling the appropriate toll-free number indicated above under "If You Have
Questions".
20
<PAGE> 52
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
DIRECTLY WITH THE PILOT FUNDS HELD DIRECTLY WITH THE PILOT FUNDS
--------------------------------------- ---------------------------------------
<S> <C> <C>
By Mail to: -- Complete an Account Application and -- Make your check payable to the
The Pilot Funds, mail it, along with a check payable particular Fund in which you are
c/o BISYS Fund Services to the Fund in which you are investing and mail it to the address
Dept. L-1709 investing, to the address on the on the left.
Columbus, OH 43260-1709 left. -- Please include your account number
on your check.
-- Or use the convenient form attached
to your regular Fund statement.
- -------------------------------------------------------------------------------------------------------------
In Person to: -- Deliver the Account Application and -- Deliver your check payable to the
BISYS Fund Services your check payable to the particular particular Fund in which you are
3435 Stelzer Road Fund in which you are investing to investing to the address on the left.
Columbus, OH 43219-3035 the address on the left. -- Please include your account number
on your check.
- -------------------------------------------------------------------------------------------------------------
By Wire to: -- Ask your bank to send immediately -- Ask your bank to wire immediately
State Street Bank and available funds by wire. available funds as described at left,
Trust Company -- The wire should say that you are except that the wire should note that
Boston, MA opening a new Fund account (if an it is to make a subsequent purchase
ABA No. 011000028 Account Application Form is not rather than to open a new account.
Re: Pilot Funds Incoming received for a new account within 30 -- Please include your Fund account
Wire Account days after the wire is received, number.
DDA No. 52165420 dividends and redemption proceeds from
For further credit to: the account will be subject to back-up
Fund and account number withholding). The wire should say that
the purchase is to be in your name.
-- Include your name, address and
taxpayer identification number.
Indicate the name of the Fund in
which you are investing. Investors
should also indicate share class
selection.
Consult your bank for information on remitting funds by
wire and associated bank charges.
- -------------------------------------------------------------------------------------------------------------
Automatic Investment -- You must first complete an Account -- Call 800/71-PILOT to find out how to
(allows regular investment Application and select the Automatic set up this service.
without ongoing paperwork) Investment Plan option. -- Additional purchases will then
-- Call 800/71-PILOT for more automatically be made as directed by
information. you.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 53
Explanation of Sales Price
The public offering price for each class of shares is based upon net asset value
per share plus, in the case of Class A Shares, a front-end sales charge. Net
asset value per share for each class of each Fund will be determined by adding
the value of the Fund's investments, cash and other assets attributable to the
class, subtracting the Fund's liabilities attributable to that class, and then
dividing the result by the number of shares in the class that are outstanding.
The assets of each Fund are valued at market value or, if market quotes cannot
be readily obtained, fair value is used as determined by the Board of Trustees.
Debt securities held by these Funds that have sixty days or less until they
mature are valued at amortized cost, which generally approximates market value.
The per share net asset values of Class A Shares and Class B Shares will diverge
due to the different distribution expenses borne by the classes. More
information about valuation can be found in the Funds' Statement of Additional
Information, which is available upon request.
Net asset value is computed as of 3:00 P.M., Central time, on all days the New
York Stock Exchange (the "Exchange") is open for trading, which is Monday
through Friday except for holidays (scheduled Exchange holidays for 1996 are New
Years Day (observed), President's Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Thanksgiving Day and Christmas Day (observed)). On
those days when the Exchange closes early as a result of such day being a
partial holiday or otherwise, the right is reserved to advance the time on that
day by which purchase and redemption requests must be received.
CLASS A SHARES: THE FRONT-END SALES CHARGE OPTION. The front-end sales charge
for Class A Shares of the Funds begins at 4.50% (4.00% for the Pilot
Intermediate U.S. Government Securities Fund and Pilot Intermediate Municipal
Bond Fund) and may decrease as the amount you invest in Class A Shares
increases, as shown in the following two charts:
<TABLE>
<CAPTION>
PILOT GROWTH AND INCOME FUND
PILOT EQUITY INCOME FUND
PILOT U.S. GOVERNMENT SECURITIES FUND
PILOT MUNICIPAL BOND FUND
---------------------------------------------
PER SHARE
AS A PERCENTAGE OF DEALAERS
-------------------------- ALLOWANCE AS A
NET ASSET PERCENTAGE OF
AMOUNT OF TRANSACTION OFFFERING PRICE VALUE OFFERING PRICE
--------------------- --------------- --------- --------------
<S> <C> <C> <C>
Less than $100,000......... 4.50 4.71 4.00
$100,000 to $249,999....... 3.75 3.90 3.25
$250,000 to $499,999....... 3.00 3.09 2.50
$500,000 to $999,999....... 2.00 2.04 1.75
$1,000,000 to $2,499,999... 1.00 1.01 0.90
$2,500,000 and over........ 0.00 0.00 0.00
</TABLE>
<TABLE>
<CAPTION>
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
PILOT INTERMEDIATE MUNICIPAL BOND FUND
--------------------------------------------------
PER SHARE
AS A PERCENTAGE OF DEALAERS
---------------------------- ALLOWANCE AS A
NET ASSET PERCENTAGE OF
AMOUNT OF TRANSACTION OFFFERING PRICE VALUE OFFERING PRICE
--------------------- --------------- --------- --------------
<S> <C> <C> <C>
Less than $100,000....... 4.00 4.17 3.50
$100,000 to $249,999..... 3.25 3.36 2.75
$250,000 to $499,999..... 2.50 2.56 2.00
$500,000 to $999,999..... 1.50 1.52 1.25
$1,000,000 to $2,499,999. 1.00 1.01 0.90
$2,500,000 and over...... 0.00 0.00 0.00
</TABLE>
It is possible that the dealers reallowance shown in the tables above may change
over time. Further reductions in the sales charges shown above are also
possible--please see "Shareholder Services--Sales Charge Reductions".
CLASS B SHARES: THE CONTINGENT DEFERRED SALES CHARGE OPTION. Although you pay no
front-end sales charge on Class B Shares, if you redeem those shares within six
years after the date you purchased them, the shares will be subject to a
contingent deferred sales charge at the rates set forth in the charts below. The
sales charge is charged on the lesser of the net asset value on the redemption
date or the original cost of the shares being redeemed. As a result, no sales
charge is charged on any increase in the principal value of your shares.
The amount of any contingent deferred sales charge will be different depending
on the number of years that elapse between the time you pay for Class B Shares
and the time those shares are redeemed. Solely for purposes of determining the
number of years from the time of payment for your share purchase, all payments
during a
22
<PAGE> 54
month will be aggregated and deemed to have been made on the first day of the
month.
<TABLE>
<CAPTION>
PILOT GROWTH AND INCOME FUND
PILOT EQUITY INCOME FUND
PILOT U.S. GOVERNMENT SECURITIES FUND
PILOT MUNICIPAL BOND FUND
- ---------------------------------------------------------------
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
- ------------------------------- -------------------------------
<S> <C>
One............................ 4.50%
Two............................ 4.00%
Three.......................... 3.50%
Four........................... 3.00%
Five........................... 2.50%
Six............................ 1.75%
After Six Years................ 0.00%
</TABLE>
<TABLE>
<CAPTION>
PILOT INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
PILOT INTERMEDIATE MUNICIPAL BOND FUND
- ---------------------------------------------------------------
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
- ------------------------------- -------------------------------
<S> <C>
One............................ 4.00%
Two............................ 3.50%
Three.......................... 3.00%
Four........................... 2.50%
Five........................... 2.00%
Six............................ 1.25%
After Six Years................ 0.00%
</TABLE>
When you sell your Class B Shares, your order is processed to minimize the
amount of the contingent deferred sales charge that will be charged. Class B
Shares are redeemed first from those shares that are not subject to a contingent
deferred sales charge (i.e., shares held longer than six years and shares that
were acquired through reinvestment of dividends or distributions or that qualify
for other deferred sales charge waivers) and after that from the Class B Shares
you have held the longest.
For example, assume you purchased 100 Class B Shares at $10 a share (for a total
cost of $1,000), three years later the shares have a net asset value of $12 per
share and during that time you acquired 10 additional shares through dividend
reinvestment. If you then make your first redemption of 50 shares (resulting in
proceeds of $600, 50 shares x $12 per share), the first 10 shares redeemed will
not be subject to the contingent deferred sales charge because they were
acquired through reinvestment of dividends. With respect to the remaining 40
shares redeemed, the contingent deferred sales charge is charged at $10 per
share (because the original purchase price of $10 per share is lower than the
current net asset value of $12 per share). Therefore, only $400 of the $600 you
received from selling your shares will be subject to the contingent deferred
sales charge, at a rate of 3.50% (3.00% for the Pilot Intermediate U.S.
Government Securities Fund and Pilot Intermediate Municipal Bond Fund), the
applicable rate in the third year after purchase. The proceeds from the
contingent deferred sales charge that you may pay upon redemption go to the
Distributor, which may use such amounts to defray the expenses associated with
the distribution-related services involved in selling Class B Shares. The
contingent deferred sales charge, along with the ongoing distribution fees paid
with respect to Class B Shares, enables those shares to be purchased without the
imposition of a front-end sales charge.
From time to time, the Fund's distributor will make or allow additional payments
or promotional incentives in the form of cash or other compensation such as
trips to sales seminars, tickets to sporting and other entertainment events and
gifts of merchandise to firms that sell shares of the Fund.
HOW TO SELL SHARES
The Pilot Funds makes it easy to sell, or "redeem" your shares. If you purchased
your shares through an account at Boatmen's Investment Services, Inc. or another
Service Organization, you may redeem shares in accordance with the instructions
pertaining to that account. If you purchased your shares through an account at
Boatmen's Investment Services, Inc. or another Service Organization and you,
yourself, appear on The Pilot Funds' books as the shareholder of record, you may
redeem shares by mail, phone or hand delivery as described below; however, you
must contact Boatmen's Investment Services, Inc. or your other Service
Organization if you wish to redeem your shares by another method. If you
purchased your shares directly from The Pilot Funds, you have the ability to
redeem shares by any of the methods described below. Requests must be signed by
you and by each other owner of the account (for joint accounts). Except for a
contingent deferred sales charge that may be charged on Class B shares, The
Pilot Funds imposes no charges when you redeem shares.
23
<PAGE> 55
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
HOW TO REDEEM SHARES ADDITIONAL LIMITATIONS
------------------------------------ ------------------------------------
<S> <C> <C>
By Mail to: -- Send a signed request (each -- Requests greater than $50,000 per
The Pilot Funds, owner, including each joint owner, day must be signature guaranteed.
c/o BISYS Fund Services must sign) to the Transfer Agent
Dept. L-1709 at the address on the left. -- You should refer to "Transaction
Columbus, OH 43260-1709 Rules" below for additional
-- Be sure to include both the name limitations.
of the particular Fund whose shares
you are selling and your account
number.
- -----------------------------------------------------------------------------------------------------------
By Wire: -- After you have signed up for wire -- The Transfer Agent may act upon
redemption privileges on the such a request from any person
Account Application, you may representing himself or herself to
instruct the Transfer Agent to be you and reasonably believed by
wire your redemption proceeds to the Transfer Agent to be genuine.
your bank account by sending a
request in writing or by phone -- The transaction amount must be a
(800/844-1235). $1,000 minimum.
-- This privilege may be subject to
limits regarding frequency and
overall amount.
- -----------------------------------------------------------------------------------------------------------
In Person to: -- Deliver your written request -- Requests must be signed by each
BISYS Fund Services directly to the Transfer Agent at owner, including each joint owner.
3435 Stelzer Road the address on the left.
Columbus, OH 43219-3035 -- Requests greater than $50,000 per
day must be signature guaranteed.
- -----------------------------------------------------------------------------------------------------------
Automatic Withdrawal -- Withdrawals begin after you have -- Your account must have a total
(permits automatic signed up for this service (either net asset value of at least $5,000.
withdrawal on the account application or in a
of pre-arranged amount) subsequent letter to the Transfer -- The transaction amount must be at
Agent). least a $50 minimum.
-- Call 800/71-PILOT for more
information.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Redemption requests are processed when received in proper form by The Pilot
Funds at the net asset value per share next determined after such receipt
(subject to the contingent deferred sales charge for Class B Shares).
TRANSACTION RULES
THE PURCHASE PROCEDURES differ depending on whether you place your order
directly with The Pilot Funds or use Boatmen's Investment Services, Inc. or
another Service Organization.
IF YOU PLACE AN ORDER FOR FUND SHARES directly with the Fund, in proper form and
accompanied by payment, it will be processed upon receipt by the Transfer Agent.
An order in proper form will also be processed upon receipt by the Transfer
Agent where Boatmen's Investment Services, Inc. or another Service Organization
undertakes to pay for the order in immediately available funds wired to the
Transfer Agent by the close of business the next Business Day. If the Transfer
Agent receives your order and, where required, payment by 3 p.m., Central time,
your shares will be purchased at the public offering price calculated on that
day. Otherwise, your shares will be purchased at the public offering price
determined as of 3 p.m., Central time, on the next Business Day.
IF YOU PLACE AN ORDER FOR FUND SHARES THROUGH BOATMEN'S INVESTMENT SERVICES,
INC. OR ANOTHER SERVICE ORGANIZATION, and you place your order in proper form on
any Business Day in accordance with their procedures, your purchase will be
processed at the public offering price calculated at 3 p.m. Central time on that
day, if Boatmen's Investment Services, Inc. or your other Service Organization
then sends your order to the Transfer Agent before the end of its Business Day
(which is normally 4 p.m. Central time). Boatmen's Investment Services, Inc. or
your other Service Organization must promise to send to the Transfer Agent
24
<PAGE> 56
immediately available funds in the amount of the purchase price within five
business days.
WIRE PURCHASES AND REDEMPTIONS. If you purchase shares by wire, you must file an
Account Application before any of those shares can be redeemed. You should
contact your bank (which will need to be a commercial bank that is a member of
the Federal Reserve System) for information about sending and receiving funds by
wire, including any charges by your bank for these services. The Pilot Funds may
decide at any time to no longer permit wire redemptions.
MISCELLANEOUS PURCHASE INFORMATION. You must specify at the time of investment
whether you are purchasing Class A Shares or Class B Shares. Federal regulations
require that you provide a certified taxpayer identification number whenever you
open or reopen an account. Share certificates will not be issued. If your check
does not clear, a fee may be imposed by the Transfer Agent. The minimum initial
investment in the Fund by employees of Boatmen's or its affiliates is $500. The
minimum amount required for subsequent investments is $100, except in connection
with certain investment programs.
MISCELLANEOUS REDEMPTION INFORMATION. The Pilot Funds usually makes payment for
the shares that you redeem within Three Business Days after it receives your
request in proper form. SHARES PURCHASED BY CHECK FOR WHICH A REDEMPTION REQUEST
HAS BEEN RECEIVED WILL NOT BE REDEEMED UNLESS THE CHECK PAYMENT USED FOR
INVESTMENT HAS CLEARED, WHICH MAY TAKE UP TO SEVEN BUSINESS DAYS.
When redeeming shares in the Funds, you should indicate whether you are
redeeming Class A Shares or Class B Shares. If you own Class A Shares and Class
B Shares of the same Fund, Class A Shares will be redeemed first unless you
request otherwise.
Certain types of redemption requests will need to include a signature guarantee
for each name in which the account is registered. Signature guarantees must
accompany redemption requests for: (i) an amount in excess of $50,000 per day,
(ii) any amount if the redemption proceeds are to be sent elsewhere than the
address of record on The Pilot Funds' books, or (iii) an amount of $50,000 or
less if the address of record has been on The Pilot Funds' books for less than
sixty days, although the Transfer Agent reserves the right to require signature
guarantees on all redemptions. Signature guarantees are designed to protect both
you and The Pilot Funds from fraud. To obtain a signature guarantee you should
visit a bank, trust company, credit union, savings association, broker-dealer or
other member of a national securities exchange, or other eligible guarantor
institution. (Notaries public cannot provide signature guarantees.) Guarantees
must be signed by an authorized person at one of these institutions, and be
accompanied by the words "Signature Guarantee".
If you experience difficulty in contacting the Transfer Agent to redeem shares
by phone, for example because of unusual market activity, you are urged to
consider redeeming your shares by mail or in person.
THE VALUE OF SHARES THAT ARE REDEEMED IN A FUND may be more or less than their
original cost, depending on the Fund's current net asset value. In addition, if
you are redeeming Class B Shares you may be subject to a contingent deferred
sales charge, which will be deducted from the proceeds of your redemption.
THE PILOT FUNDS RESERVES THE RIGHT TO INVOLUNTARILY REDEEM AN ACCOUNT (other
than a tax-sheltered retirement plan account) if, after thirty days' written
notice, the account's net asset value falls and remains below a $1,000 minimum
due to share redemptions and not market fluctuations.
In unusual circumstances The Pilot Funds may make payment in readily marketable
portfolio securities at their market value equal to the redemption price.
In certain situations or for certain individuals or entities, the front-end
sales charge for Class A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales efforts required to attract such
investments. In order to receive the sales charge waiver, you must explain the
status of your investment at the time of purchase. No sales charge is charged on
reinvested dividends or distributions. Likewise, there is no front-end sales
charge on (1) any purchase by Boatmen's, Concord, any of their affiliates or
their respective officers, partners, directors or employees (including retired
employees), any Trustee or officer of The Pilot Funds and designated family
members of any of the above individuals, (2) any purchase by any registered
representative or full-time employee of broker-dealers or Service Organizations
having agreements with the Distributor pertaining to the sale and/or servicing
of Fund shares (and their spouses and minor children) to the extent permitted by
such organizations, (3) any purchase by any state, county or city, or any
instrumentality, department, authority or agency thereof, which is prohibited by
applicable investment laws from paying a sales load or commission, (4) any
purchase by a registered investment adviser who is purchasing shares for its own
account or for accounts for which it is authorized to make investment decisions
(i.e., a discretionary account), (5) any shares issued in connection with
reorganizations with or acquisitions of the assets of other organizations, (6)
under certain circumstances, any purchase of shares pursuant to the
Reinstatement Privilege described below under
25
<PAGE> 57
"Shareholder Services", (7) under certain circumstances, any purchase of shares
as a result of the Cross-Reinvestment Privilege described below under
"Shareholder Services", (8) under certain circumstances, any purchase of Fund
shares with the proceeds from a recent redemption of shares of any other
non-money market investment portfolio of another investment company, provided
that any purchase must be made within 60 days of such redemption and that a copy
of the account statement showing such redemption must accompany the purchase
request, (9) any purchase of shares offered through a registered broker-dealer
as part of a wrap product, (10) exchanges where the shares being exchanged are
non-money market fund shares that came from the distribution of assets held in a
qualified trust agency or custodian account maintained with the trust department
of Boatmen's or its affiliates, (11) any purchase of Fund shares by a
shareholder who purchased Pilot Class A Shares of the Pilot International Equity
Fund for an account prior to June 1, 1994 and who qualified for a reduced sales
charge on its purchases made prior to that date, and who has continuously held
shares of the Fund, and (12) any purchase of Fund shares by a shareholder who
was a record or beneficial holder of shares of Kleinwort Benson International
Equity Fund, a series of Kleinwort Benson Investment Strategies, on July 12,
1993, and who became directly or indirectly a beneficial owner of the Pilot
International Equity Fund (the "Fund") as a result of a reorganization between
the two funds (the "Reorganization"), and who has continuously held shares of
the Pilot International Equity Fund. For more information or to determine
eligibility for any of these waivers, contact The Pilot Funds at 800/71-PILOT.
CERTAIN TYPES OF REDEMPTIONS MAY ALSO QUALIFY FOR AN EXEMPTION FROM THE
CONTINGENT DEFERRED SALES CHARGE. To receive one of the first three exemptions
listed below, you must explain the status of your redemption at the time you
redeem your shares. The contingent deferred sales charge with respect to Class B
Shares is not charged on (1) exchanges described under "Shareholder Services--
Exchange Privileges"; (2) redemptions in connection with minimum required
distributions from IRA, 403(b)(7) and Qualified Plan accounts due to the
shareholder reaching age 70 1/2; (3) redemptions in connection with a
shareholder's death or disability (as defined in the Internal Revenue Code); and
(4) involuntary redemptions as a result of an account's net asset value
remaining below $1,000 after thirty days' written notice. In addition, no
contingent deferred sales charge is charged on shares acquired through the
reinvestment of dividends or distributions.
YOUR PILOT FUND ACCOUNT
SHAREHOLDER SERVICES
The Pilot Funds provides a variety of ways to make managing your investments
more convenient. Some of these methods require you to request them on your
Account Application or you may request them after opening an account by sending
a signature guaranteed letter of instruction to the Transfer Agent.
Tax-Sheltered Retirement Plans
The Funds are available for investment by tax-sheltered retirement plans,
including Individual Retirement Accounts although the Municipal Bond Funds may
not be appropriate investments for such plans. See your Account Representative
for details on eligibility and other information. Consult your tax adviser with
specific reference to your own situation. No minimum initial investment or
additional investment requirement applies to purchases in connection with
tax-sheltered retirement plans.
EXCHANGE PRIVILEGES AMONG THE PILOT FUNDS
You may sell your Fund shares and buy other shares of The Pilot Funds by calling
the Transfer Agent at 800/227-3654 or sending a written exchange request to the
Transfer Agent at The Pilot Funds, c/o BISYS Fund Services, Dept. L-1709,
Columbus, OH 43260-1709. Specifically, Class A Shares of a Fund may be exchanged
for Class A Shares of any other Fund and Class B Shares of a Fund may be
exchanged for Class B Shares of any other Fund. Class A Shares purchased with a
front-end sales charge may be exchanged without the need to pay any additional
front-end charge on the shares acquired through the exchange. Class B Shares may
be exchanged without the payment of any contingent deferred sales charge at the
time the exchange is made. In determining the holding period for calculating the
contingent deferred sales charge payable on redemption of Class B Shares, the
holding period of the shares originally held will be added to the holding period
of the shares acquired through exchange.
If you have a qualified trust, agency or custodian account with Boatmen's or its
affiliates, and your shares are to be held in that account, you may also
exchange your current Class A Shares in a Fund for Pilot Shares in the same
Fund. Conversely, Pilot Shares may be exchanged for Class A Shares of the same
Fund in connection with the distribution of assets held in such a qualified
trust, agency or custodian account. These exchanges are made without a sales
charge at the net asset value of the respective share classes.
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A minimum initial investment of $1,000 must be made to establish an account into
which exchange proceeds will be invested. The minimum amount required for any
subsequent exchanges into the newly established account is $100. Exchanges may
have tax consequences. Please consult your tax adviser for further information.
If you are opening a new account in a different Fund by exchange, the shares
being exchanged must be at least equal in value to the minimum investment for
the Fund in which the account is being opened. The particular class of shares
you are exchanging into must be registered for sale in your state.
Additional information regarding exchanges can be obtained by reading the
Statement of Additional Information. The Exchange Privilege may be modified or
terminated at any time. At least 60 days' notice will be given to shareholders
of any material modification or termination of the Exchange Privilege except
where notice is not required by the Securities and Exchange Commission.
A shareholder who purchased Pilot Class A Shares of the Pilot International
Equity Fund (the "International Equity Fund") as part of a wrap fee program and
who has continuously held shares of the International Equity Fund, may exchange
Pilot Class A Shares in the International Equity Fund for Class A shares of any
other fund in the Pilot Family of Funds without paying any front-end sales
charge on the shares acquired through the exchange.
A shareholder who purchased Pilot Class A Shares of the Fund for an account
prior to June 1, 1994 and who qualified for a sales charge exemption or waiver
on its purchases made prior to that date, and who has continuously held shares
of the Fund, may exchange Pilot Class A Shares in the International Equity Fund
for Class A shares of any other fund in the Pilot Family of Funds without paying
any front-end sales charge on the shares acquired through the exchange after
such date so long as (i) such account remains open on the books of the Trust or
(ii) such investor continues to qualify for one of the sales load exemptions
described above.
A shareholder who was a record or beneficial holder of shares of Kleinwort
Benson International Equity Fund, a series of Kleinwort Benson Investment
Strategies, and who become directly or indirectly a beneficial owner of shares
of the Pilot International Equity Fund (the "Fund") as a result of a
reorganization between the two funds, and who has continuously held shares of
the Fund, may exchange Pilot Class A Shares or Class A shares of any fund in the
Pilot Family of Funds for Pilot Class A Shares or Class A shares of any other
fund without paying a front-end sales charge on the shares acquired through the
exchange after July 12, 1993 so long as such account remains open on the books
of the Trust.
AUTOMATIC INVESTMENT PLAN
(requires your request)
One easy way to pursue your financial goals is to invest money regularly. The
Pilot Funds offers the Automatic Investment Plan--a convenient service that lets
you transfer money from your bank account into your Fund account automatically,
on a schedule of your choice.
At your option, your bank account will be debited in a particular amount that
you have specified, and Fund shares will be automatically purchased at regular
intervals. Your bank account must be a checking, NOW or bank money market
account maintained at a domestic financial institution which is an Automated
Clearing House member. Your institution must also permit automated withdrawals
(which may be subject to a fee by that institution). A minimum initial
investment of $100 is required for Automatic Investment Plans and the minimum
amount required for subsequent investments is $100. The minimum amount required
for subsequent investments as part of the Plan for employees of Boatmen's or its
affiliates is $50.
The Automatic Investment Plan is one means by which you may use "DOLLAR COST
AVERAGING" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Funds whose price per share fluctuates.
Instead of trying to time market performance, a fixed dollar amount is invested
in Fund shares at predetermined intervals. This may help you to reduce your
average cost per share because the agreed upon fixed investment amount allows
more shares to be purchased during periods of lower share prices and fewer
shares during periods of higher prices. In order to be effective, Dollar Cost
Averaging should usually be followed on a sustained, consistent basis. You
should be aware, however, that shares bought using Dollar Cost Averaging are
made without regard to their price on the day of investment or to market trends.
While regular investment plans do not guarantee a profit and will not protect
you against loss in a declining market, they can be a good way to invest for
retirement, a home, educational expenses and other long-term financial goals.
You may cancel your Automatic investments or change the amount of purchase at
any time by mailing written notification to the Transfer Agent at The Pilot
Funds, c/o BISYS Fund Services, Dept. L-1709, Columbus, OH 43260-1709. You may
also implement the Dollar Cost Averaging method on your own initiative. The
Pilot Funds may modify or terminate the Automatic Investment Plan
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at any time or charge a service fee, although no such fee currently is
contemplated.
AUTOMATIC WITHDRAWAL PLAN
(requires your request)
The Pilot Funds offers a convenient way of withdrawing funds from your
investment portfolio. You may request regular monthly, quarterly, semi-annual or
annual withdrawals in any amount above $50 provided the particular Fund account
you are withdrawing from has a minimum current balance of at least $5,000. The
automatic withdrawal will be made on the first or fifteenth day of the month.
Purchases of additional shares concurrently with withdrawals are ordinarily not
advantageous for share classes that charge a sales charge. Use of the Plan may
also be disadvantageous for Class B Shares during the first six years a share is
held, due to the potential need to pay a contingent deferred sales charge.
FRONT-END SALES CHARGE REDUCTIONS
YOU MAY BE ENTITLED TO LOWER FRONT-END SALES CHARGES ON CLASS A SHARES OF THE
FUNDS THROUGH RIGHT OF ACCUMULATION, STATEMENT OF INTENTION AND QUANTITY
DISCOUNTS.
Right of Accumulation. When buying Class A Shares, your current aggregate
investment determines the amount of any front-end sales charge that you pay. If
your current aggregate investment in Class A Shares accumulates to $100,000 or
beyond, the sales percentage charged to you on subsequent investments is
decreased as shown in the Section entitled "Class A Shares: The Front-End Sales
Charge Option". Your current aggregate investment is the accumulated combination
of your immediate investment along with the shares that you beneficially own in
any Fund on which you paid a front-end sales charge (including shares that carry
no front-end sales charge but were obtained through an exchange and can be
traced back to shares that were acquired with such a charge).
EXAMPLE
If you beneficially own Class A Shares of the Funds or shares of The Pilot
Funds' money market funds that can be traced back to the purchase of shares
carrying a front-end sales charge (or any combination of such shares) with an
aggregate value of $90,000 and then buy Class A Shares of the Pilot U.S.
Government Securities Fund with a current value of $10,000, you would pay a
front-end sales charge of 3.75% (the charge applicable to a $100,000 purchase)
on your $10,000 purchase.
To qualify for a reduced front-end sales charge, you or your Service
Organization must notify the Transfer Agent at the time of investment. The
reduced sales charge is subject to confirmation of your holdings through a check
of appropriate records.
Statement of Intention. This Statement provides the means for you to receive a
reduced front-end sales charge on all of your investments in Class A Shares,
whether they are made in one or more transactions. The Statement of Intention is
your commitment to acquire an aggregate investment for $100,000 or more. You
should read the Statement of Intention, which you can obtain by calling
800/71-PILOT, as you will be bound by its terms.
While signing a Statement of Intention does not bind you to purchase, or The
Pilot Funds to sell, the full amount indicated at the front-end sales charge in
effect at the time of signing, you must complete the intended purchase to obtain
the reduced sales charge.
When you sign a Statement of Intention, the Transfer Agent is authorized to hold
in escrow a sufficient number of shares which can be redeemed to make up any
difference in the sales load on the amount actually invested. After the terms of
the Statement of Intention are fulfilled, the escrow will be released.
Within a 13-month period beginning up to 90 days prior to the date of its
execution, the Class A Shares you purchase may be used as a credit toward the
completion of the Statement of Intention. The investments you make during the
period receive the discounted sales charge based on the full amount of your
investment commitment. A shareholder may include the value of all Class A Pilot
Funds shares on which a sales load has previously been paid as an "accumulation
credit" toward the completion of the Statement, but a price readjustment will be
made to reflect any reduced front-end sales charge applicable to shares
purchased only during the 90-day period prior to the submission of your
Statement of Intention.
If your aggregate investment exceeds the amount indicated in your Statement, an
adjustment will be made to reflect any further reduced sales charge applicable
to your excess investment. The adjustment will be in the form of additional
Class A Shares credited to your account at the then current offering price
applicable to a single purchase of the total amount of the total purchase.
Quantity Discounts. As you can see by looking at the table in the Section
entitled "Class A Shares: The Front-End Sales Charge Option", larger purchases
in Class A Shares may result in lower front-end sales charges to you. If
requested, purchases by you, your spouse and your minor children will be
combined when computing the applicable front-end sales charge.
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CROSS-REINVESTMENT PRIVILEGE
You may want to have your dividends received from a Fund automatically invested
in shares of any other Fund or any of The Pilot Funds' other investment
portfolios. Investments will be made at a price equal to the net asset value of
the acquired shares next determined after receipt of the distribution proceeds
by the Transfer Agent. No sales load will be charged on such investments. In
order to qualify for the Cross-Reinvestment Privilege, the value of your account
in the acquired fund must equal or exceed the acquired fund's minimum initial
investment requirement. There are no subsequent investment requirements for
amounts to which dividends are directed nor are service fees currently charged
for effecting these transactions. The election to cross-reinvest dividends will
not affect the tax treatment of such dividends, which will be treated as
received by you and then used to purchase shares of the acquired fund.
REINSTATEMENT PRIVILEGE
If you are a Class A shareholder in a Fund, you may reinvest all or any portion
of your redemption proceeds in Class A shares of any other Fund without paying a
sales load. Shares so acquired will be purchased at a price equal to the net
asset value next determined after the Transfer Agent receives a reinstatement
request and payment. If you wish to use this privilege, you must submit a
written reinstatement request to the Transfer Agent stating that you are
eligible to use the privilege. The reinstatement request and payment must be
received within 90 days of the trade date of the redemption and the shares
redeemed must have been held for at least 30 days before the redemption. The
reinstatement privilege may be exercised once annually by a Class A shareholder,
except that there is no such limit as to the availability of this privilege in
connection with transactions the sole purpose of which is to reinvest the
proceeds at net asset value in a tax-sheltered retirement plan.
Generally, exercising the reinstatement privilege will not affect the character
of any gain or loss realized on a redemption for federal income tax purposes.
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules. Also in certain instances,
shareholders may not be permitted to take into account sales charges incurred on
the original purchase of shares in computing their taxable gain or loss. Consult
your tax adviser for additional information.
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. You
will automatically receive dividends and distributions in additional shares of
the same share class of a Fund for which the dividend or distribution was
declared, unless you specifically elect to receive payments in cash or elect the
Cross-Reinvestment Privilege described above under "Shareholder Services". Your
election and any subsequent change should be made in writing to: The Pilot Funds
[name of Fund, including Class A or Class B Shares, as applicable], c/o BISYS
Fund Services, Dept. L-1709, Columbus, OH 43260-1709.
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 Transfer Agent receives
the election.
When are dividends and distributions declared and paid?
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
FUND ARE 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 an investor's
shares in a particular share class 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.
The dividends and distributions paid by each Fund on its Class A and Class B
Shares are calculated in the same manner, but because of the differing
distribution expenses
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borne by the different share classes, the dividends on those classes are
expected to differ.
DISTRIBUTION AND SERVICE
ARRANGEMENTS
The Pilot Funds has adopted Distribution Plans for its Class A and Class B
Shares.
UNDER THESE PLANS THE DISTRIBUTOR RECEIVES PAYMENTS FOR DISTRIBUTION AND SUPPORT
SERVICES. The Distribution Plan for Class A Shares authorizes payments to the
Distributor and Service Organizations for personal services provided to Class A
shareholders and/or the maintenance of shareholder accounts. Payments under the
Distribution Plan for Class B Shares will also be used to pay for sales
commissions and other fees payable to the Distributor and to Service
Organizations and other broker-dealers who sell Class B Shares, and may include
interest on such amounts that are not initially repaid by The Pilot Funds.
PAYMENTS UNDER THE DISTRIBUTION PLAN FOR CLASS A SHARES MAY NOT EXCEED 0.25% (on
an annual basis) of the average daily net asset value of the shares to which
such Plan relates. If more money is due the Distributor than it can collect in
any month because of this limitation, the unpaid amount may be carried forward
until it can be paid. Similarly, if in any month the Distributor does not expend
the entire amount to which it would otherwise be entitled, this amount may be
used as a credit and drawn upon to permit the payment of expenses in the future.
Neither of these amounts, however, is payable beyond the fiscal year in which
they accrue.
DISTRIBUTION PAYMENTS UNDER THE DISTRIBUTION PLAN FOR CLASS B SHARES MAY NOT
EXCEED 1.00% (on an annual basis) of the average daily net asset value of the
Class B Shares. Not more than 0.25% of such value will be used to compensate
Service Organizations for personal services provided to Class B shareholders
and/or the maintenance of shareholder accounts. Not more than 0.75% of such
value will be paid to the Distributor as reimbursement for commissions and
transaction fees of up to 4.00% (which amount may change over time) of the net
asset value per share of the Class B Shares purchased by clients of the
Distributor, Service Organizations and other broker-dealers who sell such Shares
as well as expenses related to other promotional and distribution activities.
The distribution payments under this Plan have been structured to provide you
the option of purchasing Fund shares without the need to pay a front-end sales
charge. The purpose and function of the contingent deferred sales charge and
distribution fee for Class B Shares is the same as the front-end sales charge
and distribution fee for Class A Shares. In both cases the sales charge and
distribution fee are used to pay and provide compensation for the distribution
of Fund shares.
Actual distribution expenses paid by the Distributor with respect to Class B
Shares for any given year may exceed the distribution fees and contingent
deferred sales charges received with respect to those Shares. These excess
expenses may be reimbursed by a Fund or its Class B shareholders out of
contingent deferred sales charges and distribution payments in future years as
long as the Distribution Plan for Class B Shares is in effect.
Distribution payments under the Plans are subject to the requirements of a rule
under the Investment Company Act of 1940 known as Rule 12b-1. The distribution
fee and any sales charge applicable to a particular class will not be used to
assist the distribution of any other class.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds and other Funds
of the Group. Compensation may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more Funds of
the Group, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. The Distributor, at
its expense, currently conducts an annual sales contest for dealers in
connection with their sales of Shares of the Funds. Dealers may not use sales of
a Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
IF YOU ARE A CLIENT OF BOATMEN'S INVESTMENT SERVICES, INC. OR ANOTHER SERVICE
ORGANIZATION, YOU SHOULD NOTE that they may charge you a separate fee for
administrative services in connection with investments in Fund shares and may
impose minimum customer account and other requirements. These fees and
requirements would be in addition to those imposed by the Funds under the Plans
or otherwise. If you are investing through Boatmen's Investment Services, Inc.
or another Service Organization, please refer to their program materials for any
additional special provisions or conditions that may be different from those
described in this Prospectus (for example, some or all of the services and
privileges described may not be available to you). Boatmen's Investment
Services, Inc. and
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<PAGE> 62
the other Service Organizations have the responsibility of transmitting purchase
orders and required funds, and of crediting their customers' accounts following
redemptions, in a timely manner in accordance with their customer agreements and
this Prospectus.
Investors may note that federal banking laws currently limit the securities
activities of banks. It is possible that a bank might be prohibited from acting
as a Service Organization in the future. If this were to happen, the bank's
shareholder clients would be permitted by the Funds to remain shareholders. The
Funds' method of operations might, however, change and such shareholders might
not be able to avail themselves of the services provided by their banks. No
adverse financial consequences are expected to occur to these shareholders from
any such event.
THE PILOT FAMILY OF FUNDS
The Pilot Funds was organized on July 15, 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 (Class A Shares, Class B Shares and Pilot
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.
Class A and Class B Shares of the Funds are described in this prospectus. These
Funds also offer Pilot Shares solely to Boatmen's and its affiliated banks,
acting on behalf of themselves and their customers. Pilot Shares are sold
without a front-end or contingent deferred sales charge to qualified
shareholders. Shares of each class bear their pro rata portion of all operating
expenses paid by the Funds, except certain payments under the Funds'
Distribution Plans applicable only to Class A or Class B Shares.
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 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.
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.
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<PAGE> 63
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, OH 43219-3035.
MORE ABOUT BOATMEN'S. Founded in 1889, Boatmen's, a trust company organized
under the laws of Missouri, provides a broad range of trust and investment
services for individuals, privately and publicly held 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 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 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
32
<PAGE> 64
expenses charged by State Street for these services. Certain officers of The
Pilot Funds, namely Messrs. Martin Dean, Lester J. Lay, George O. Martinez and
William J. Tomko and Ms. Susan L. West officers of The Pilot Funds, are also
employees and/or officers of Concord, The Distributor or an affiliate.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the 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 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
33
<PAGE> 65
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 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
34
<PAGE> 66
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.
The Funds may provide quotes of total returns and yields WITHOUT REFLECTING A
FRONT-END SALES CHARGE, which quotations will, of course, be higher than
quotations that do reflect such a sales charge.
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 Indexes, the Merrill Lynch Bond Indexes, the Wilshire 5000 Equity Indexes
or the Consumer Price Index.
Special information for investors in the Municipal Bond Funds:
You may find it particularly useful to compare the tax-free yields of the Funds
to the equivalent yields from taxable investments. For an investor in a low tax
bracket, it may not be helpful to invest in a tax-exempt investment if a higher
after-tax yield can be achieved from a taxable instrument.
The following table illustrates the differences between hypothetical tax-free
yields and tax-equivalent yields for different tax brackets. You should be
aware, however, that tax brackets can change over time and that your tax adviser
should be consulted for specific yield calculations. (The federal tax brackets
and rates below are those currently available for 1994.)
<TABLE>
<CAPTION>
TAX EXEMPT YIELD
----------------------------------------------------------
TAXABLE INCOME 4.00% 4.50% 5.00%
- ---------------------------------------------------------- ---------------- ---------------- ----------------
FEDERAL
SINGLE RETURN JOINT RETURN BRACKET EQUIVALENT TAXABLE YIELD
- ----------------- ----------------- ---------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Not over $22,750 Not over $38,000 15.000% 4.71% 5.29% 5.88%
22,751- 55,100 38,001- 91,850 28.000% 5.56% 6.25% 6.94%
55,101-115,000 91,851-140,000 31.000% 5.80% 6.52% 7.25%
115,001-250,000 140,001-250,000 36.000% 6.25% 7.03% 7.81%
Over 250,000 Over 250,000 39.600% 6.62% 7.45% 8.28%
<CAPTION>
SINGLE RETURN 5.50% 6.00% 6.50% 7.00% 7.50%
- ----------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Not over $22,750 6.47% 7.06% 7.65% 8.24% 8.82%
22,751- 55,100 7.64% 8.33% 9.03% 9.72% 10.42%
55,101-115,000 7.97% 8.70% 9.42% 10.14% 10.87%
115,001-250,000 8.59% 9.38% 10.16% 10.94% 11.72%
Over 250,000 9.11% 9.93% 10.76% 11.59% 12.42%
<CAPTION>
SINGLE RETURN 8.00%
- ----------------- ----------------
<S> <C>
Not over $22,750 9.41%
22,751- 55,100 11.11%
55,101-115,000 11.59%
115,001-250,000 12.50%
Over 250,000 13.25%
</TABLE>
These yields are for illustrative purposes only. The tax brackets do not take
into account the effect of reductions in the deductibility of itemized
deductions for taxpayers with adjusted gross income over $111,800 or the
possible effect of the federal alternative minimum tax. Additionally, effective
brackets and equivalent taxable yields could be higher than those shown.
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.
35
<PAGE> 67
PILVAB1295P
<PAGE> 68
- ----------------------------------------------------------------
- -----
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
ADMINISTRATION
SHARES
DECEMBER 29, 1995
The
Pilot
Funds
Prospectus enclosed
<PAGE> 69
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................................................................... 13
U.S. Government Securities........................................................................ 13
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
ADMINISTRATION PLAN................................................................................... 18
INVESTING IN THE PILOT FUNDS.......................................................................... 19
Getting Your Investment Started................................................................... 19
HOW TO BUY SHARES..................................................................................... 19
Tax-Sheltered Retirement Plans.................................................................... 20
Explanation of Sales Price........................................................................ 20
HOW TO SELL SHARES.................................................................................... 21
Payment of Redemption Proceeds and Dividends...................................................... 21
EXCHANGES............................................................................................. 21
TRANSACTION RULES..................................................................................... 22
DIVIDENDS AND DISTRIBUTIONS........................................................................... 22
Where do your dividends and distributions come from?.............................................. 22
What are your dividend and distribution options?.................................................. 23
When are dividends and distributions declared and paid?........................................... 23
THE PILOT FAMILY OF FUNDS............................................................................. 23
THE BUSINESS OF THE FUND.............................................................................. 25
FUND MANAGEMENT....................................................................................... 25
Service Providers................................................................................. 25
Expenses.......................................................................................... 26
Fee Waivers....................................................................................... 27
TAX IMPLICATIONS...................................................................................... 27
MEASURING PERFORMANCE................................................................................. 28
Performance comparisons........................................................................... 28
</TABLE>
<PAGE> 70
THE PILOT FUNDS
LOGO
PROSPECTUS FOR ADMINISTRATION 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> 71
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 Administration 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 Service Organization, 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> 72
The Funds are particularly designed for customers of Boatmen's, its affiliates
and certain other participating banks and financial institutions ("Service
Organizations") 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> 73
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>
ADMINISTRATION 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
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (2)
(As a percentage of average net assets)
Management Fees (1)....................... 0.15% 0.15% 0.20% 0.20%
Account Administration Fees (4)........... 0.25% 0.25% 0.25% 0.25%
Other Expenses (5)........................ 0.13% 0.13% 0.13% 0.26%
---- ---- ---- ----
Total Operating Expenses (1)......... 0.53% 0.53% 0.58% 0.71%
==== ==== ==== ====
</TABLE>
EXAMPLE (3): Assume that the annual return and redemption 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
Administration Shares.................... $ 5 $ 17 $ 30 $ 66
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
Administration Shares.................... 5 17 30 66
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
Administration Shares.................... 6 19 32 73
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
Administration Shares.................... 7 23 40 88
</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> 74
- ------------
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. For the period January 1, 1996 until July 1, 1996, Boatmen's
has agreed to 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
"Fund Management."
(3) The information set forth in the Table and Example relates only to
Administration Shares of the Funds. Pilot Shares and Investor Shares are
subject to different fees and expenses. See "The Pilot Family of Funds."
Pilot Shares pay no 12b-1 or account administration fees. 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 Pilot Shares and Investor Shares are the same
as for Administration Shares.
(4) Service Organizations, other than broker-dealers, may charge other fees to
their customers who are the beneficial owners of Administration Shares in
connection with their customer accounts. See "Administration Plan."
(5) The table does not reflect the allocation of any miscellaneous "class
expenses" (e.g., certain printing and registration expenses).
5
<PAGE> 75
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> 76
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
<FN>
- ------------
(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.
</TABLE>
7
<PAGE> 77
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 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................. 5.47% 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)
<FN>
- ------------
(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.
</TABLE>
8
<PAGE> 78
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 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, 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)
<FN>
- ------------
(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.
</TABLE>
9
<PAGE> 79
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 RATIO OF NET
RATIO OF INVESTMENT NET ASSET 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, 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)
<FN>
- ------------
(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.
</TABLE>
10
<PAGE> 80
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
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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 Missouri Pilot 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.
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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 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
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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
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
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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.
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
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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.
- --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
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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 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
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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 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.
ADMINISTRATION PLAN
Each Fund has adopted an Administration Plan with respect to the Administration
Shares which authorizes the Fund to compensate Boatmen's, its affiliates and
other Service Organizations for providing account administration services to
their customers who are beneficial owners of such Shares. Each Fund will enter
into agreements with Service Organizations which purchase Administration Shares
on behalf of their customers ("Service Agreements"). The Service Agreements will
provide for compensation to the Service Organizations in an amount up to .25%
(on an annualized basis) of the average daily net asset value of the
Administration Shares of the applicable Fund attributable to or held in the name
of the Service Organization for its customers. The services provided by the
Service Organization may include acting as a Shareholder of record, maintaining
account records for their customers, and processing orders to purchase, redeem
and exchange Administration Shares for their customers.
For the fiscal years ended August 31, 1994 and 1995, the Funds incurred Service
Organization fees at the annual rate of 0.25% and 0.25%, respectively, of each
Fund's average daily net assets attributable to Administration Shares.
Holders of Administration Shares of a Fund will bear all expenses and fees paid
to Service Organizations for their services with respect to such Shares as well
as any other expenses which are directly attributable to such Shares.
Service Organizations, other than broker-dealers, may charge other fees to their
customers who are the beneficial owners of Administration Shares in connection
with their customer accounts. These fees would be in addition to any amounts
received by the Service Organizations under a Service Agreement and would be for
services other than those provided under such an Agreement. Under the terms of
such Service Agreements, Service Organizations are required to provide their
customers with a schedule of fees charged to such customers which relate to the
investment of customers' assets in Administration Shares. This schedule will be
provided at the time of any investment and whenever changes to the schedule are
made.
Each Fund will accrue payments made pursuant to a Service Agreement daily. The
Funds will receive a prospective undertaking from each Service Organization
eliminating that portion of such service payments which is necessary to assure
that the service payments which are required to be accrued to the Administration
Shares on any day do not exceed the income to be accrued to such Shares on that
day.
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All inquiries of beneficial owners of Administration Shares should be directed
to such owners' Service Organization.
Payments for Fund shares must normally be in U.S. dollars and in order to avoid
fees and delays should be drawn on a U.S. bank. Please remember that The Pilot
Funds retains the right to reject any purchase order.
INVESTING IN THE PILOT FUNDS
Getting Your Investment Started
Investing in The Pilot Funds is quick and convenient. Fund Shares may be
purchased either through the account you maintain with Boatmen's Investment
Services, Inc. ("BIS") or other Service Organization or by a fiduciary account
where purchases of Administration Shares of a Fund are made as directed by
Boatmen's or other Service Organization. See "How to Buy Shares" below. Fund
shares are distributed by Pilot Funds Distributors, Inc., (the "Distributor").
The Distributor is located at 3435 Stelzer Road Columbus, Ohio 43219-3035.
You may choose to invest your BIS account where an Account Representative can
advise you in selecting among the Pilot Funds. Whether you currently have a BIS
account or wish to open one, your Pilot Funds investment can be executed within
a few minutes by telephone or, if you prefer, during a consultation with an
Investment Officer of BIS. Call BIS at 800/469-5999 to speak with an Account
Representative, to place a Pilot Funds transaction or to arrange a consultation
scheduled at your convenience.
Clients of BIS and other institutions such as broker-dealers that have entered
into agreements with the Distributor ("Service Organizations") may purchase
shares through their accounts at their Service Organization and should contact
such Service Organization directly for appropriate purchase instructions. Share
purchases (and redemptions) made through BIS or another Service Organization are
effected only on Business Days. When shares are purchased through BIS or another
Service Organization, a fee may be charged by those institutions for providing
administrative services in connection with your investment.
The Pilot Funds will send you the following statements and reports to provide
you with current information on the status of your account:
<TABLE>
<S> <C>
Confirmation Statements After every transaction that
affects your account balance.
Account Statements Either monthly, quarterly or
annually depending on the
Fund in which you invest or
the type of account you hold.
Financial Reports Every six months. To reduce
The Pilot Funds' expenses,
only one copy of most Fund
reports will be mailed to
your household, even if you
have more than one account in
a Fund.
</TABLE>
HOW TO BUY SHARES
This section provides you with pertinent information on how to buy Fund shares.
Further information can be found under "Transaction Rules." As set forth above,
Administration Shares of the Funds are offered exclusively to customers of
Boatmen's, its affiliates and to customers of other participating Service
Organizations. Administration Shares may be purchased on any Business Day (as
defined below) at the net asset value next determined after receipt by the
Transfer Agent from the Service Organization 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 and other participating Service Organizations
have 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 other Service Organization as directed by
the customer in an application form executed prior to the customer's first
purchase of Administration Shares, except in the case of purchases by a
fiduciary account where purchases of Administration Shares of a Fund are made as
directed by Boatmen's or other Service Organization.
A customer of Boatmen's or other Service Organization (other than a fiduciary
account) may direct Boatmen's
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or such Service Organization to invest automatically any cash income balance and
any cash principal balance of the customer's account in Administration Shares of
a Fund. This automatic investment will occur on each Business Day for each
balance in its entirety. A 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 income balance and any cash principal
balance of the customer's account in Administration 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. Investors who wish to obtain
additional information concerning investment procedures or a Fund's current
yield 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 Administration 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. Shares are deemed to have been purchased
when an order becomes effective and are entitled to income commencing on that
day.
It is the responsibility of Service Organizations 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 Service Organization 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 purchaser'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.
Tax-Sheltered Retirement Plans
Shares of the Funds may be purchased for Individual Retirement Accounts ("IRAs")
for individuals and their non-employed spouses who desire to make limited
contributions, including rollovers, to a tax deferred retirement program and if
eligible, receive a federal income tax deduction for amounts contributed. For
information about an IRA application with the Funds, contact your Service
Organization.
Explanation of Sales Price
Administration Shares of the Funds are sold at net asset value. NET ASSET VALUE
PER SHARE is determined on each Business Day (as defined below) 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 Administration
Shares, subtracting the Fund's liabilities attributable to those shares, and
then dividing the result by the number of Administration 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
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<PAGE> 90
Asset Value" in the Statement of Additional Information.
HOW TO SELL SHARES
The Pilot Funds makes it easy to sell, or "redeem" your shares. If you purchased
your shares through an account at BIS or another Service Organization, you may
redeem shares in accordance with the instructions pertaining to that account.
Payment of Redemption Proceeds and Dividends
If a redemption request is received by the Transfer Agent from Boatmen's or
another Service Organization 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
Administration Shares to be redeemed do not earn income on that day, but the
proceeds will be available in the Shareholder's account at Boatmen's or another
Service Organization, or will be available by check at the election of a
Shareholder on the same day (if it is a Business Day). If a redemption request
is received after that time, the Administration 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 Boatmen's or another Service Organization 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. Boatmen's and other Service Organizations have undertaken
to arrange for the timely transmittal to the Transfer Agent of redemption
requests and the timely crediting to Shareholders' accounts at Boatmen's and
other Service Organizations of redemption proceeds. In order to effect timely
transmittals and crediting, Service Organizations may establish earlier times by
which redemption directions must be received by them. Service Organizations have
undertaken to advise Shareholders if earlier times are established.
EXCHANGES
Administration Shares of the Fund may be exchanged for Class A Shares of any
other fund of the Pilot Family of Funds, unless otherwise determined by the
Trustees at the time any new funds become available at the net asset value next
determined plus any applicable sales charge, by calling your Service
Organization. However, if a sales charge has previously been paid on the
investment represented by the exchanged shares (i.e., the shares to be exchanged
were originally issued in exchange for shares on which a sales charge was paid),
the exchange will be made at net asset value. Administration Shares of the Fund
purchased through dividend and/or capital gains reinvestment may be exchanged
for Class A Shares of a Pilot Fund without a sales charge. 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 your Service
Organization. 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 Service Organizations 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 any Service Organization 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. All exchanges are
subject to the minimum investment requirements, if any, of The Pilot Funds into
which the shares are being exchanged. Exchanges are available only in states
where the exchange may legally be made. An exchange fee may be imposed or
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<PAGE> 91
the exchange privilege may be modified or withdrawn at any time on 60 days'
written notice.
TRANSACTION RULES
The right of a Shareholder to redeem Shares and the date of payments by the
Funds may be suspended (a) for any period during which the New York Stock
Exchange is closed, other than the customary weekends or holidays, or trading in
the markets the Funds normally utilize is closed or is restricted as determined
by the SEC, (b) during any emergency, as determined by the SEC, as a result of
which it is not reasonably practicable for the Funds to dispose of instruments
owned by it or fairly to determine the value of its net assets, or (c) for such
other period as the SEC may by order permit for the protection of the
Shareholders of the Funds.
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 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 investment in the Funds. In
addition, the Funds reserve the right to adopt by action of the Trustees a
policy pursuant to which it may without Shareholder approval redeem upon not
less than 30 days' notice (a) Shares in an account which have a value below
$500, or such other amount as the Trustees may designate at the time the policy
is adopted (and during the notice period Shareholders will have the opportunity
to bring the value of their accounts up to the designated amount) or (b) all of
a Fund's Shares if such Shares have an aggregate value below a designated amount
and if the Trustees determine that it is not practical, efficient or advisable
to continue the operation of the Fund and that any applicable requirements of
the 1940 Act have been complied with. As of the date of this Prospectus, no such
policy has been adopted. While, as indicated above, the Trustees have the
authority to adopt, and thereafter to change from time to time, such a policy,
they will not do so without providing at least 30 days' notice to the
Shareholders.
The Funds reserve the right to reject any purchase order (including exchanges)
for any reason. 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.
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
Year's 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.
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
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<PAGE> 92
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 and the service fee specifically allocated to the
Funds.
What are your dividend and distribution options?
Income dividends and capital gain distributions will be reinvested in additional
shares of the same Fund or at the election of the Shareholder will be paid in
cash. Any election to receive cash or to reinvest in additional Shares will be
administered by your Service Organization 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.
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 Administration Shareholders, monthly. Net
short-term capital gains, if any, will be distributed in accordance with the
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.
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
(Administration Shares, Investor Shares and Pilot Shares) in these Funds.
Information regarding The Pilot Funds' other portfolios may be obtained by
contacting The Pilot Funds or the Distributor.
Each Administration Share, Investor Share and Pilot Share of the Fund represents
an equal proportionate interest in the assets belonging to the Fund. It is
contemplated that most Shares will be held in accounts of which the record owner
is a bank or other institution acting as nominee for its customers who are 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
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<PAGE> 93
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 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.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds and other Funds
of the Group. Compensation may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more Funds of
the Group, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. The Distributor, at
its expense, currently conducts an annual sales contest for dealers in
connection with their sales of Shares of the Funds. Dealers may not use sales of
a Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
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.
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<PAGE> 94
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, OH 43219.
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 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 on behalf of each Fund, 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
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<PAGE> 95
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.
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
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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 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
27
<PAGE> 97
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.
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 Administration Shares, Investor Shares
and Pilot 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.
28
<PAGE> 98
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
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 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 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.
29
<PAGE> 99
PILMMA1295P
<PAGE> 100
- ----------------------------------------------------------------
- -----
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
INVESTOR SHARES
DECEMBER 29, 1995
The
Pilot
Funds
Prospectus enclosed
<PAGE> 101
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
SERVICE PLAN......................................................................................... 18
INVESTING IN THE PILOT FUNDS......................................................................... 19
Getting Your Investment Started.................................................................. 19
HOW TO BUY SHARES.................................................................................... 19
Tax-Sheltered Retirement Plans................................................................... 20
Explanation of Sales Price....................................................................... 20
HOW TO SELL SHARES................................................................................... 21
Payment of Redemption Proceeds and Dividends..................................................... 21
EXCHANGES............................................................................................ 21
TRANSACTION RULES.................................................................................... 22
DIVIDENDS AND DISTRIBUTIONS.......................................................................... 23
Where do your dividends and distributions come from?............................................. 23
What are your dividend and distribution options?................................................. 23
When are dividends and distributions declared and paid?.......................................... 23
THE PILOT FAMILY OF FUNDS............................................................................ 23
THE BUSINESS OF THE FUND............................................................................. 25
FUND MANAGEMENT...................................................................................... 25
Service Providers................................................................................ 25
Expenses......................................................................................... 26
Fee Waivers...................................................................................... 27
TAX IMPLICATIONS..................................................................................... 27
MEASURING PERFORMANCE................................................................................ 28
Performance comparisons.......................................................................... 28
</TABLE>
<PAGE> 102
THE PILOT FUNDS
LOGO
PROSPECTUS FOR INVESTOR 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> 103
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 Investor 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 Service Organization, 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> 104
The Funds are particularly designed for customers of Boatmen's, its affiliates
and certain other participating banks and financial institutions ("Service
Organizations") 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> 105
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>
INVESTOR 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%
12b-1 Fees (4).......................... 0.50% 0.50% 0.50% 0.50%
Other Expenses (5)...................... 0.13% 0.13% 0.13% 0.26%
-------- ----------- ------- -------
Total Operating Expenses (1)....... 0.78% 0.78% 0.83% 0.96%
======== =========== ======= =======
</TABLE>
EXAMPLE (3): Assume that the annual return and redemption 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 SHORT-TERM U.S. TREASURY FUND
Investor Shares............................ $ 8 $ 25 $ 43 $ 97
PILOT SHORT-TERM DIVERSIFIED ASSETS FUND
Investor Shares............................ 8 25 43 97
PILOT SHORT-TERM TAX-EXEMPT DIVERSIFIED FUND
Investor Shares............................ 8 26 46 103
PILOT MISSOURI SHORT-TERM TAX-EXEMPT FUND
Investor Shares............................ 10 31 53 118
</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> 106
- ---------------
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. 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
"Fund Management".
(3) The information set forth in the Table and Example relates only to Investor
Shares of the Funds. Pilot Shares and Administration Shares are subject to
different fees and expenses. See "The Pilot Family of Funds". Pilot Shares
pay no 12b-1 or account administration fees. Administration Shares do not
pay a Rule 12b-1 fee but pay an account administration fee of up to .25 of
1% of average daily net assets. All other Fund expenses related to Pilot
Shares and Administration Shares are the same as for Investor Shares.
(4) Service Organizations, other than broker-dealers, may charge other fees to
their customers who are the beneficial owners of Investor Shares in
connection with their customer accounts. See "Service Plan".
(5) The table does not reflect the allocation of any miscellaneous "class
expenses" (e.g., certain printing and registration expenses).
BECAUSE OF THE DISTRIBUTION PAYMENTS PAID BY THE FUND AS SHOWN IN THE ABOVE
TABLE, LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED BY THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
5
<PAGE> 107
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> 108
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> 109
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> 110
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 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, 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> 111
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 RATIO OF NET
RATIO OF INVESTMENT NET ASSET 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, 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> 112
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 the value 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 the value 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> 113
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 periods of 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
12
<PAGE> 114
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities. Some U.S. Government Securities, such as Treasury bills,
notes and bonds, which differ only in their interest rates, maturities and times
of issuance, are supported by the full faith and credit of the United States.
Others, such as obligations issued or guaranteed by U.S. Government agencies,
authorities or instrumentalities, are supported 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
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of the security and costs associated with delay and enforcement of the
repurchase agreement. In 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.
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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
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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
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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
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POLICIES AND PRACTICES OF THE MISSOURI TAX-EXEMPT 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.
SERVICE PLAN
Each Fund has adopted a Service Plan (the "Plan") with respect to the Investor
Shares which authorizes the Fund to compensate Boatmen's, its affiliates and
other Service Organizations for providing account administration and Shareholder
liaison services to their customers who are beneficial owners of such Shares.
Each Fund will enter into agreements with Service Organizations which purchase
Pilot Investor Shares on behalf of their customers ("Service Agreements"). The
Service Agreements will provide for compensation to the Service Organization in
an amount up to .50% (on an annualized basis) of the average daily net asset
value of the Investor Shares of the applicable Fund attributable to or held in
the name of the Service Organization for its customers. The services provided by
the Service Organizations may include acting as a Shareholder of record,
maintaining account records for its customers, processing orders to purchase,
redeem and exchange Investor Shares for its customers, responding to inquiries
from prospective and existing Shareholders and assisting customers with
investment procedures.
For the fiscal years ended August 31, 1994 and 1995, the Funds incurred Service
Organization fees at the annual rate of .50% and .50%, respectively, of each
Fund's average daily net assets attributable to Investor Shares.
Holders of Investor Shares of a Fund will bear all expenses and fees paid to
Service Organizations with respect to such Shares as well as any other expenses
which are directly attributable to such Shares.
Service Organizations, other than broker-dealers, may charge other fees to their
customers who are the beneficial owners of Investor Shares in connection with
their customer accounts. These fees would be in addition to any amounts received
by the Service Organization under a Service Agreement and would be for services
other than those provided under such an Agreement. Under the terms of such
Service Agreements, Service Organizations are required to provide their
customers with a schedule of fees charged to such customers which relate to the
investment of customers' assets in Investor Shares. This schedule will be
provided at the time of any investment and whenever changes to the schedule are
made.
The Funds will accrue payments made pursuant to a Service Agreement daily. The
Funds will receive a prospective undertaking from each Service Organization
eliminating that portion of such service payments which is necessary to assure
that the service payments which are required to be accrued to the Investor
Shares on any day do not exceed the income to be accrued to such Shares on that
day.
The Funds have adopted the Plan in accordance with the provisions of Rule 12b-1
under the Investment Company Act of 1940 which regulates circumstances under
which an investment company may directly or
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indirectly bear expenses relating to the distribution of its shares. Continuance
of the Plan must be approved annually by a majority of the Trustees of the Funds
and by a majority of the non-interested Trustees. The Plan requires that
quarterly written reports of amounts spent under the Plan and the purposes of
such expenditures be furnished to and reviewed by the Trustees. The Plan may not
be amended to increase materially the amount which may be spent thereunder
without approval by a majority of the outstanding shares of the Funds. All
material amendments to the Plan will require approval by a majority of the
Trustees of the Funds and of the non-interested Trustees.
All inquiries of beneficial owners of Investor Shares should be directed to such
owners' Service Organization.
Payments for Fund shares must normally be in U.S. dollars and in order to avoid
fees and delays should be drawn on a U.S. bank. Please remember that The Pilot
Funds retains the right to reject any purchase order.
INVESTING IN THE PILOT FUNDS
Getting Your Investment Started
Investing in The Pilot Funds is quick and convenient. Fund Shares may be
purchased either through the account you maintain with Boatmen's Investment
Services, Inc. ("BIS") or other Service Organization or by a fiduciary account
where purchases of Investor Shares of a Fund are made as directed by Boatmen's
or other Service Organization. See "How to Buy Shares" below. Fund shares are
distributed by Pilot Funds Distributors, Inc., (the "Distributor"). The
Distributor is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
You may choose to invest your BIS account where an Account Representative can
advise you in selecting among the Pilot Funds. Whether you currently have a BIS
account or wish to open one, your Pilot Funds investment can be executed within
a few minutes by telephone or, if you prefer, during a consultation with an
Investment Officer of BIS. Call BIS at 800/469-5999 to speak with an Account
Representative, to place a Pilot Funds transaction or to arrange a consultation
scheduled at your convenience.
Clients of BIS and other institutions such as broker-dealers that have entered
into agreements with the Distributor ("Service Organizations") may purchase
shares through their accounts at their Service Organization and should contact
such Service Organization directly for appropriate purchase instructions. Share
purchases (and redemptions) made through BIS or another Service Organization are
effected only on Business Days. When shares are purchased through BIS or another
Service Organization, a fee may be charged by those institutions for providing
administrative services in connection with your investment.
The Pilot Funds will send you the following statements and reports to provide
you with current information on the status of your account:
<TABLE>
<S> <C>
Confirmation Statements After every transaction that
affects your account balance.
Account Statements Either monthly, quarterly or
annually depending on the
Fund in which you invest or
the type of account you hold.
Financial Reports Every six months. To reduce
The Pilot Funds' expenses,
only one copy of most Fund
reports will be mailed to
your household, even if you
have more than one account in
a Fund.
</TABLE>
HOW TO BUY SHARES
This section provides you with pertinent information on how to buy Fund shares.
Further information can be found under "Transaction Rules". As set forth above,
Investor Shares of the Funds are offered exclusively to customers of Boatmen's,
its affiliates and to customers of other participating Service Organizations.
Investor Shares may be purchased on any Business Day (as defined below) at the
net asset value next determined after receipt by the Transfer Agent from the
Service Organization 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 and other
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participating Service Organizations have 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 other
Service Organization as directed by the customer in an application form executed
prior to the customer's first purchase of Investor Shares, except in the case of
purchases by a fiduciary account where purchases of Investor Shares of a Fund
are made as directed by Boatmen's or other Service Organization.
A customer of Boatmen's or other Service Organization (other than a fiduciary
account) may direct Boatmen's or such Service Organization to invest
automatically any cash income balance and any cash principal balance of the
customer's account in Investor Shares of a Fund. This automatic investment will
occur on each Business Day for each balance in its entirety. A 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 income balance and any cash principal balance of the customer's account in
Investor 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. Investors who wish to obtain additional information concerning
investment procedures or a Fund's current yield 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 Investor 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. Shares are deemed to have been purchased
when an order becomes effective and are entitled to income commencing on that
day.
It is the responsibility of Service Organizations 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 Service Organization 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 purchaser'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.
Tax-Sheltered Retirement Plans
Shares of the Funds may be purchased for Individual Retirement Accounts ("IRAs")
for individuals and their non-employed spouses who desire to make limited
contributions, including rollovers, to a tax deferred retirement program and if
eligible, receive a federal income tax deduction for amounts contributed. For
information about an IRA application with the Funds, contact your Service
Organization.
Explanation of Sales Price
Investor Shares of the Funds are sold at net asset value. Net asset value per
share is determined on each Business Day (as defined below) 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 Investor
Shares, subtracting the Fund's liabilities attributable to those shares, and
then dividing the result by the number of Investor Shares in the Fund
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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.
HOW TO SELL SHARES
The Pilot Funds makes it easy to sell, or "redeem" your shares. If you purchased
your shares through an account at BIS or another Service Organization, you may
redeem shares in accordance with the instructions pertaining to that account.
Payment of Redemption Proceeds and Dividends
If a redemption request is received by the Transfer Agent from Boatmen's or
another Service Organization 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
Investor Shares to be redeemed do not earn income on that day, but the proceeds
will be available in the Shareholder's account at Boatmen's or another Service
Organization, or will be available by check at the election of a Shareholder on
the same day (if it is a Business Day). If a redemption request is received
after that time, the Investor 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 Boatmen's or another Service Organization 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. Boatmen's and other Service Organizations have undertaken to arrange
for the timely transmittal to the Transfer Agent of redemption requests and the
timely crediting to Shareholders' accounts at Boatmen's and other Service
Organizations of redemption proceeds. In order to effect timely transmittals and
crediting, Service Organizations may establish earlier times by which redemption
directions must be received by them. Service Organizations have undertaken to
advise Shareholders if earlier times are established.
EXCHANGES
Investor Shares of the Fund may be exchanged for Class B Shares of any other
fund of the Pilot family of Funds, unless otherwise determined by the Trustees
at the time any new funds become available at the net asset value next
determined plus any applicable sales charge, by calling your Service
Organization. However, if a sales charge has previously been paid on the
investment represented by the exchanged shares (i.e., the shares to be exchanged
were originally issued in exchange for shares on which a sales charge was paid),
the exchange will be made at net asset value. Investor Shares of the Fund
purchased through dividend and/or capital gains reinvestment may be exchanged
for Class B Shares of a Pilot Fund without a sales charge. 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 your Service
Organization. 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 Service Organizations 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 or Transfer Agent or any Service Organization will be responsible
for the
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authenticity of exchange instructions received by telephone; thus, the total
risk of loss for unauthorized transactions is on the investor. All exchanges are
subject to the minimum investment requirements, if any, of The Pilot Funds into
which the shares are being exchanged. 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.
TRANSACTION RULES
The right of a Shareholder to redeem Shares and the date of payments by the
Funds may be suspended (a) for any period during which the New York Stock
Exchange is closed, other than the customary week ends or holidays, or trading
in the markets the Funds normally utilize is closed or is restricted as
determined by the SEC, (b) during any emergency, as determined by the SEC, as a
result of which it is not reasonably practicable for the Funds to dispose of
instruments owned by it or fairly to determine the value of its net assets, or
(c) for such other period as the SEC may by order permit for the protection of
the Shareholders of the Funds.
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 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 investment in the Funds. In
addition, the Funds reserve the right to adopt by action of the Trustees a
policy pursuant to which it may without Shareholder approval redeem upon not
less than 30 days' notice (a) Shares in an account which have a value below
$500, or such other amount as the Trustees may designate at the time the policy
is adopted (and during the notice period Shareholders will have the opportunity
to bring the value of their accounts up to the designated amount) or (b) all of
a Fund's Shares if such Shares have an aggregate value below a designated amount
and if the Trustees determine that it is not practical, efficient or advisable
to continue the operation of the Fund and that any applicable requirements of
the 1940 Act have been complied with. As of the date of this Prospectus, no such
policy has been adopted. While, as indicated above, the Trustees have the
authority to adopt, and thereafter to change from time to time, such a policy,
they will not do so without providing at least 30 days' notice to the
Shareholders.
The Funds reserve the right to reject any purchase order (including exchanges)
for any reason. 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.
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
Year's 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.
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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 and the service fee
specifically allocated to the Funds.
What are your dividend and distribution options?
Income dividends and capital gain distributions will be reinvested in
additional shares of the same Fund or at the election of the Shareholder will
be paid in cash. Any election to receive cash or to reinvest in additional
Shares will be administered by your Service Organization 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.
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 Investor Shareholders, monthly. Net
short-term capital gains, if any, will be distributed in accordance with the
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 fiscal year, its long-term capital gains, if any.
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 (Investor
Shares, Administration Shares and Pilot Shares) in these Funds. Information
regarding The Pilot Funds' other portfolios may be obtained by contacting The
Pilot Funds or the Distributor.
Each Investor Share, Administration Share and Pilot Share of the Fund represents
an equal proportionate interest in the assets belonging to the Fund. It is
contemplated that most Shares will be held in accounts of which the record owner
is a bank or other institution acting as nominee for its customers who are 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
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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 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.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds and other Funds
of the Group. Compensation may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more Funds of
the Group, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. The Distributor, at
its expense, currently conducts an annual sales contest for dealers in
connection with their sales of Shares of the Funds. Dealers may not use sales of
a Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
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.
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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, OH 43219-3035.
MORE ABOUT BOATMEN'S. Founded in 1889, Boatmen's, a trust company organized
under the laws of Missouri, provides a broad range of trust and investment
services for individuals, privately and publicly held 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 on behalf of each Fund, 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 each Advisory Agreement, 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
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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.
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. Concord has entered into an agreement with State
Street to perform certain services, such as the calculation of net asset value
of the Funds' shares and dividend and capital gains distributions to
shareholders, and maintaining the Funds' books and records. 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
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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 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
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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.
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 Investor Shares, Administration Shares
and Pilot 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
28
<PAGE> 130
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
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 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 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.
29
<PAGE> 131
PILMMI1295P
<PAGE> 132
- ----------------------------------------------------------------
- -----
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
- ------------
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> 139
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> 140
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> 141
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> 142
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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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
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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
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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.
23
<PAGE> 157
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
24
<PAGE> 158
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> 159
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> 160
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> 161
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
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PILMMP1295P
<PAGE> 163
FINANCIAL
DIRECTION December 29, 1995
LOGO PILOT INTERNATIONAL
EQUITY FUND
Class A Shares
The
Pilot
Funds
PROSPECTUS ENCLOSED
<PAGE> 164
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
EXPENSE SUMMARY.................................................................................... 2
FINANCIAL HIGHLIGHTS............................................................................... 3
INVESTMENT OBJECTIVE AND RISK FACTORS.............................................................. 5
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES................................................ 5
U.S. Government Securities.................................................................... 5
U.S. and Foreign Bank Obligations............................................................. 5
Forward Commitments and When-Issued Securities................................................ 5
Common and Preferred Stocks................................................................... 6
Convertible Securities........................................................................ 6
Small Capitalization Companies................................................................ 6
Foreign Securities............................................................................ 6
Investing in Emerging Markets................................................................. 6
American/European Depository Receipts......................................................... 7
Forward Foreign Currency Exchange Contracts................................................... 7
Currency Swaps................................................................................ 7
Repurchase Agreements......................................................................... 7
Lending of Portfolio Securities............................................................... 8
Options Transactions.......................................................................... 8
Futures Contracts and Options on Futures Contracts............................................ 8
Other Information............................................................................. 9
INVESTMENT LIMITATIONS............................................................................. 9
INVESTING IN THE PILOT FUNDS....................................................................... 9
HOW TO BUY SHARES.................................................................................. 10
HOW TO SELL SHARES................................................................................. 12
TRANSACTION RULES.................................................................................. 13
SHAREHOLDER SERVICES............................................................................... 15
Tax Sheltered Retirement Plans................................................................ 15
EXCHANGE PRIVILEGES AMONG THE PILOT FUNDS.......................................................... 16
Automatic Investment Plan..................................................................... 16
Automatic Withdrawal Plan..................................................................... 17
Front-End Sales Charge Reductions............................................................. 17
Right of Accumulation......................................................................... 17
Example....................................................................................... 17
Statement of Intention........................................................................ 17
Cross-Reinvestment Privilege.................................................................. 17
Reinstatement Privilege....................................................................... 18
DIVIDENDS AND DISTRIBUTIONS........................................................................ 18
Where do your dividends and distributions come from?.......................................... 18
What are your dividend and distribution options?.............................................. 18
When are dividends and distributions declared and paid?....................................... 18
DISTRIBUTION ARRANGEMENTS.......................................................................... 18
THE PILOT FAMILY OF FUNDS.......................................................................... 19
THE BUSINESS OF THE FUND........................................................................... 20
FUND MANAGEMENT.................................................................................... 20
TAX IMPLICATIONS................................................................................... 22
MEASURING PERFORMANCE.............................................................................. 23
</TABLE>
<PAGE> 165
THE PILOT FUNDS
LOGO
PROSPECTUS FOR CLASS A SHARES
OF THE
PILOT INTERNATIONAL EQUITY FUND
December 29, 1995
- --------------------------------------------------------------------------------
The Pilot Funds is an open-end, management investment company (a "mutual fund")
consisting of multiple portfolios. This prospectus relates solely to the
offering of shares of the Pilot International Equity Fund, formerly known as the
Pilot Kleinwort Benson International Equity Fund (the "Fund"). Boatmen's Trust
Company ("Boatmen's") serves as the Fund's investment adviser. Kleinwort Benson
Investment Management Americas Inc. ("Kleinwort Benson") serves as the Fund's
investment manager. Pilot Funds Distributors, Inc. serves as the Fund's
distributor, and its parent, Concord Holding Corporation, serves as the Fund's
administrator.
The investment objective of the Fund is to provide long-term capital growth by
investing primarily in equity securities of companies domiciled in countries
outside the United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin. The Fund may invest up to 35% of its total assets
in issuers domiciled in developing countries. This Prospectus describes Class A
Shares of the Pilot International Equity Fund.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BOATMEN'S TRUST COMPANY OR ANY OF ITS AFFILIATES AND ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUND INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE AMOUNT OF
DIVIDENDS PAID BY THE FUND WILL VARY. BOATMEN'S TRUST COMPANY SERVES AS
INVESTMENT ADVISER TO THE FUND, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH PILOT FUNDS DISTRIBUTORS INC., THE FUND'S DISTRIBUTOR.
This Prospectus describes concisely the information about the Fund that you
should know before investing. Please read it carefully and keep it for future
reference.
More information about the Fund is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. The
Statement of Additional Information can be obtained free upon request by calling
800/71-PILOT, by calling your service organization or by writing Pilot Funds
Distributors, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035. The Statement
of Additional Information, as it may be revised from time to time, is dated
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.
- --------------------------------------------------------------------------------
1
<PAGE> 166
EXPENSE SUMMARY (1)
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services.
Below is information regarding the Fund's shareholder transaction expenses and
the operating expenses which the Fund expects to incur during the next twelve
months on its Class A Shares. Examples based on this information are also
provided.
CLASS A SHARES (2)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PILOT
INTERNATIONAL
EQUITY
FUND
-------------
<S> <C>
Maximum Sales Load Imposed on Purchases (3)............................................ 4.50%
Maximum Sales Load Imposed on Reinvested Dividends..................................... None
Redemption Fees (4).................................................................... None
Exchange Fees (5)...................................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees........................................................................ 0.80%
Rule 12b-1/Distribution Payments....................................................... 0.25%
Other Expenses......................................................................... 0.37%
-----
Total Operating Expenses............................................................... 1.42%
=====
</TABLE>
EXAMPLE OF EXPENSES (2)
You would pay the following Fund expenses on a hypothetical $1,000 investment
(including the sales load), assuming a 5% annual return and redemption at the
end of each time period. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY VARY DEPENDING UPON A VARIETY OF
FACTORS, INCLUDING THE ACTUAL PERFORMANCE OF THE FUND, WHICH MAY BE GREATER OR
LESS THAN 5%.
<TABLE>
<S> <C>
One Year............................................................... $ 59
Three Years............................................................ $ 88
Five Years............................................................. $ 119
Ten Years.............................................................. $ 208
</TABLE>
- ------------
(1) The purpose of this Table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly
or indirectly.
(2) The information set forth in the Table and Example relates only to the Class
A Shares of the Fund. Pilot Shares are subject to different fees and
expenses. See "The Pilot Family of Funds." Pilot Shares pay no account
administration or 12b-1 fees. All other Fund expenses related to Pilot
Shares are the same as for Class A Shares. No sales load is imposed on
purchases of Pilot Shares.
(3) As a percentage of the offering price. No sales load is imposed on purchases
by certain classes of investors. See "How to Buy Shares."
(4) A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. See "How to Sell Shares."
(5) Reinvestments of dividends and distributions in shares of the other Funds
(including the Money Market Funds as defined herein) and automatic exchanges
pursuant to the Automatic Exchange Program are without charge. In addition,
six exchanges are permitted without charge in each twelve month period. A
fee of $12.50 may be charged for each subsequent exchange during such
period. See "Exchanges."
2
<PAGE> 167
PILOT INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following data with respect to a Share of the Pilot International Equity
Fund, formerly known as the Pilot Kleinwort Benson International Equity Fund,
outstanding during the period ended August 31, 1995 has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference and attached to the Statement of Additional
Information, and should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Statement of
Additional Information. This annual report also contains performance information
and is available upon request and without charge by writing to the address on
the front of this Prospectus. Prior to a tax-free reorganization effective July
12, 1993, the Pilot Kleinwort Benson International Equity Fund was a separate
portfolio of Kleinwort Benson Investment Strategies and known as the Kleinwort
Benson International Equity Fund. The following financial highlights also
present historical information of the Kleinwort Benson International Equity Fund
prior to July 12, 1993. The Kleinwort Benson International Equity Fund was
advised solely by Kleinwort Benson Investment Management Americas Inc., formerly
Kleinwort Benson International Investment Limited for those periods.
The following data with respect to a Share of the Kleinwort Benson International
Equity Fund of Kleinwort Benson Investment Strategies outstanding for each of
the seven years in the period ended December 31, 1992 have been audited by Ernst
& Young LLP, independent auditors, as indicated in their report incorporated by
reference and attached to the Statement of Additional Information, and should be
read in conjunction with the financial statements and related notes incorporated
by reference and attached to the Statement of Additional Information.
The Pilot Shares were first issued by the Pilot Kleinwort Benson International
Equity Fund during July, 1993. Accordingly, there are no financial highlights
with respect to the Fund for such shares for periods prior to such dates. The
financial highlights presented below for periods prior to July 12, 1993
represent historical information for shares of the Kleinwort Benson
International Equity Fund which became Pilot Administration Shares pursuant to a
tax-free reorganization effected on July 12, 1993. Effective August 21, 1995 the
Administration Class Shares of the Fund were redesignated as the Class A Shares
of the Fund. The Class A Shares will be subject to additional fees (Distribution
Plan Fees), as well as a front-end sales load of up to 4.5% of the offering
price.
- --------------------------------------------------------------------------------
3
<PAGE> 168
<TABLE>
PILOT INTERNATIONAL EQUITY FUND
------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF
THE PERIODS INDICATED
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------------------------
NET REALIZED
AND
UNREALIZED TOTAL
NET REALIZED GAIN (LOSS) INCOME
NET ASSET NET AND UNREALIZED ON FOREIGN (LOSS)
VALUE AT INVESTMENT GAIN (LOSS) ON CURRENCY FROM
BEGINNING INCOME INVESTMENT RELATED INVESTMENT
OF PERIOD (LOSS) TRANSACTIONS(C) TRANSACTIONS OPERATIONS
--------- ---------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------
1995--Pilot Shares.................................... $ 16.34 $ 0.13(i) $ (0.22)(i) $ 0.39(i) $ 0.30
1995--Class A Shares(j)............................... 16.29 0.08(i) (0.22)(i) 0.39(i) 0.25
1994--Pilot Shares.................................... 14.14 0.11(i) 1.65(i) 0.59(i) 2.35
1994--Administration Shares........................... 14.13 0.07(i) 1.65(i) 0.59(i) 2.31
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- -------------------------------------
1993--Pilot Shares(d)................................. 13.15 (0.01)(i) 1.10(i) (0.10)(i) 0.99
1993--Administration Shares(a)(b)..................... 11.85 0.02(i) 2.51(i) (0.25)(i) 2.28
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- --------------------------------------
1992--Administration Shares........................... 12.29 0.04(i) (0.46)(i) -- (0.42)
1991--Administration Shares........................... 12.65 0.06 1.36 -- 1.42
1990--Administration Shares........................... 15.58 0.12 (2.40) -- (2.28)
1989--Administration Shares........................... 14.66 0.07 3.22 -- 3.29
1988--Administration Shares........................... 13.21 (0.01) 2.73 -- 2.72
1987--Administration Shares........................... 22.92 -- 2.11 -- 2.11
1986--Administration Shares........................... 17.95 0.02 9.13 -- 9.15
1985--Administration Shares........................... 11.87 0.02 6.28 -- 6.30
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
----------------------------
NET REALIZED
GAIN ON
INVESTMENTS
AND
FOREIGN NET ASSET
NET CURRENCY VALUE AT PORTFOLIO
INVESTMENT RELATED END OF TOTAL TURNOVER
INCOME TRANSACTIONS PERIOD RETURN(E) RATE
---------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------
1995--Pilot Shares.................................... $(0.11) $ (0.29) $16.24 2.08% 35.91%
1995--Class A Shares(j)............................... (0.11) (0.29) 16.14 1.77 35.91
1994--Pilot Shares.................................... -- (0.15) 16.34 16.75 35.40
1994--Administration Shares........................... -- (0.15) 16.29 16.48 35.40
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- -------------------------------------
1993--Pilot Shares(d)................................. -- -- 14.14 7.53(f) 26.65(f)(h)
1993--Administration Shares(a)(b)..................... -- -- 14.13 19.24(f) 26.65(f)(h)
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- --------------------------------------
1992--Administration Shares........................... (0.02) -- 11.85 (3.42) 58.55
1991--Administration Shares........................... (0.08) (1.70) 12.29 11.81 51.88
1990--Administration Shares........................... (0.14) (0.51) 12.65 (14.77) 52.00
1989--Administration Shares........................... (0.22) (2.15) 15.58 22.99 61.54
1988--Administration Shares........................... -- (1.27) 14.66 21.03 54.84
1987--Administration Shares........................... -- (11.82) 13.21 9.28 58.98
1986--Administration Shares........................... -- (4.18) 22.92 52.62 76.35
1985--Administration Shares........................... (0.06) (0.16) 17.95 54.03 73.32
</TABLE>
<TABLE>
<CAPTION>
RATIO OF RATIO OF
EXPENSES INVESTMENT
TO INCOME NET ASSETS
AVERAGE (LOSS) AT END OF
NET TO AVERAGE PERIOD
ASSETS NET ASSETS (IN 000'S)
-------- ---------- ----------
<S> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------
1995--Pilot Shares.................................... 1.18% 0.82% $363,212
1995--Class A Shares(j)............................... 1.42 0.50 27,625
1994--Pilot Shares.................................... 1.12 0.75 307,561
1994--Administration Shares........................... 1.37 0.48 44,990
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- -------------------------------------
1993--Pilot Shares(d)................................. 1.31(g) (0.56)(g) 195,548
1993--Administration Shares(a)(b)..................... 2.17(g) 0.25(g) 55,816
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- --------------------------------------
1992--Administration Shares........................... 1.78 0.35 56,358
1991--Administration Shares........................... 1.79 0.45 65,939
1990--Administration Shares........................... 1.82 0.76 72,007
1989--Administration Shares........................... 2.00 0.39 80,224
1988--Administration Shares........................... 2.31 (0.07) 59,864
1987--Administration Shares........................... 1.72 0.01 53,800
1986--Administration Shares........................... 1.49 0.10 92,592
1985--Administration Shares........................... 1.94 0.15 41,290
<FN>
- ------------
(a) Prior to a tax-free organization into Pilot Administration shares effective July 12, 1993, the Pilot Kleinwort Benson
International Equity Portfolio was a separate portfolio of Kleinwort Benson investment Strategies known as Kleinwort Benson
International Equity Fund. The predecessor portfolio was advised by Kleinwort Benson International Investment Limited and had
a December 31 fiscal year-end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subjected to an Administration plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and unrealized gain (losses) from foreign currency
related transactions were included in net realized and unrealized gain (losses) on investment transactions. Effective January
1, 1993, realized and unrealized gain (losses) from Foreign currency related transactions are disclosed separately from net
realized and unrealized gain (losses) on investment transactions.
(d) Pilot shares were initially issued on July 26, 1993.
(e) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, a
complete redemption of the investment at the net asset value at the end of the period and no sales charges. Total return
would be reduced if sales charges were taken f or the Pilot Administration shares.
(f) Not annualized
(g) Annualized
(h) Calculated on a portfolio-wide level and excludes the transfer of assets effective on August 6, 1993.
(i) Calculated based on the average shares outstanding methodology.
(j) Effective August 21, 1995 the Administration Class Shares were redesignated as the Class A Shares.
</TABLE>
4
<PAGE> 169
THE PILOT INTERNATIONAL EQUITY FUND USES A VARIETY OF DIFFERENT INVESTMENTS AND
INVESTMENT TECHNIQUES IN SEEKING TO ACHIEVE THE FUND'S INVESTMENT OBJECTIVE. THE
FUND DOES NOT USE ALL OF THE INVESTMENTS AND INVESTMENT TECHNIQUES DESCRIBED IN
THE FOLLOWING SECTIONS. THE FUND IS NOT DESIGNED TO BE A COMPLETE INVESTMENT
PROGRAM BUT CAN BE APPROPRIATE AS PART OF A COMPLETE INVESTMENT STRATEGY. YOU
SHOULD CONSIDER WHETHER THE FUND MEETS YOUR INVESTMENT GOAL. ALTHOUGH THE FUND
ATTEMPTS TO ATTAIN ITS INVESTMENT OBJECTIVE, THERE CAN BE NO ASSURANCE IT WILL
BE SUCCESSFUL.
SHAREHOLDER APPROVAL IS NOT REQUIRED TO CHANGE THE INVESTMENT OBJECTIVE OF THE
FUND. HOWEVER, SHAREHOLDERS WILL BE GIVEN AT LEAST 30 DAYS' PRIOR WRITTEN NOTICE
IN THE EVENT OF A CHANGE IN THE FUND'S OBJECTIVE. UNLESS OTHERWISE STATED, EACH
INVESTMENT POLICY DESCRIBED BELOW MAY BE CHANGED AT ANY TIME BY THE PILOT FUNDS'
BOARD OF TRUSTEES WITHOUT SHAREHOLDER APPROVAL.
INVESTMENT OBJECTIVE AND RISK FACTORS
The investment objective of the Fund is to provide long-term capital growth by
investing primarily in equity securities of companies domiciled in countries
outside the United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin. Under normal circumstances, the Fund will invest
at least 65% of its total assets in foreign equity securities, including
securities convertible into equity securities and in securities which are listed
on major stock exchanges. The Fund may purchase the stock of small and large
capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Trustees, Russia and the Middle East. Debt
securities, if any, purchased by the Fund will be rated in the top two
categories by a nationally recognized statistical rating organization ("NRSRO")
or, if unrated, determined by Kleinwort Benson to be of comparable quality. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
debt and equity securities of U.S. issuers. Debt securities in which the Fund
may invest include short-term and intermediate-term obligations of corporations,
foreign governments and international organizations (such as the International
Bank for Reconstruction and Development (the "World Bank")), including money
market instruments.
Investments and investment techniques in which the Fund may invest include
common stocks (including securities convertible into common stocks) of foreign
issuers and rights to purchase common stock, options and futures contracts on
securities, securities indexes and foreign currencies, securities lending and
repurchase agreements. These and other securities in which the Fund may invest
are further described below.
DESCRIPTION OF SECURITIES
AND INVESTMENT TECHNIQUES
- --U.S. Government Securities. The Fund may purchase obligations of the U.S.
Government. These obligations are issued or guaranteed as to principal or
interest by the U.S. Government, its agencies, authorities or instrumentalities
("U.S. Government Securities"). Some U.S. Government securities, such as
Treasury bills, notes and bonds, which differ only in their interest rates,
maturities and times of issuance, are supported by the full faith and credit of
the United States. Others, such as obligations issued or guaranteed by U.S.
Government agencies, authorities or instrumentalities, are supported by (a) the
full faith and credit of the U.S. Government (such as securities of the Small
Business Administration), (b) the right of the issuer to borrow from the
Treasury (such as securities of the Federal Home Loan Banks), (c) the
discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association),
or (d) only the credit of the issuer. No assurance can be given that the U.S.
Government will continue to provide financial support to U.S. Government
agencies, authorities or instrumentalities.
- --U.S. and Foreign Bank Obligations. The Fund may invest in domestic bank
obligations of banks that have total assets in excess of $1 billion and are
subject to U.S. Government regulation, and in certificates of deposit issued by
Federal Deposit Insurance Corporation (FDIC) members that have total assets less
than $1 billion, provided that the principal amounts of such certificates are
fully covered by FDIC insurance. The Fund may invest in U.S. dollar-denominated
foreign bank obligations of foreign banks that have total assets in excess of
$10 billion, are among the 75 largest foreign banks in total assets, have
branches or agencies in the U.S. and meet other criteria established by the
Fund's Trustees. The Fund may also invest in other bank obligations.
- --Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. The Fund is
required to hold and maintain in a segregated account with the Funds' custodian
or subcustodian until the settlement date, cash, U.S. Government securities or
other high grade liquid debt obligations in an amount sufficient
5
<PAGE> 170
to meet the purchase price. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. Securities
purchased or sold on a when-issued or forward commitment basis involve a risk of
loss if the value of the security to be purchased decreases prior to the
settlement date or if the value of the security to be sold increases prior to
the settlement date. Although the Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of a when-issued security or
forward commitment prior to settlement if Boatmen's, or Kleinwort Benson, deems
it appropriate to do so and such disposition may give rise to a capital gain and
loss.
- --Common and Preferred Stocks. Common stocks are generally more volatile than
other securities. Preferred stocks share some of the characteristics of both
debt and equity and are generally preferred over common stocks with respect to
dividends and in liquidation.
- --Convertible Securities. The Fund may invest in convertible securities, which
may offer higher income than the common stocks into which they may be converted.
All convertible securities purchased by the Fund will be rated in the top two
categories by an NRSRO or, if unrated, determined by Kleinwort Benson to be of
comparable quality. Convertible securities (which may be current or zero coupon
securities) are bonds, notes, debentures, preferred stocks or other securities
which may be converted or exchanged at a stated or determinable exchange ratio
into shares of common stock. Prior to their conversion, convertible securities
have general characteristics similar to non-convertible securities. While
convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality, they may reflect changes in the
value of the underlying common stock. Convertible securities generally entail
less credit risk than the issuer's common stock because they rank senior to
common stock.
- --Small Capitalization Companies. The Fund may invest in smaller, lesser-known
companies which Kleinwort Benson believes offer greater growth potential than
larger, more mature, better-known firms. Investing in the securities of such
companies, however, may also involve greater risk and the possibility of greater
portfolio price volatility. Among the reasons for the greater price volatility
of these small company and unseasoned stocks are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitivity of small companies to changing economic
conditions. For example, these companies are associated with higher investment
risk than that normally associated with larger firms due to the greater business
risks of small size and limited product lines, markets, distribution channels
and financial and managerial resources.
- --Foreign Securities. The Fund may invest in foreign securities which are
denominated in foreign currencies. Investment in foreign securities may present
a greater degree of risk than investment in domestic securities because of less
publicly-available financial and other information, less securities regulation,
different accounting standards, lower trading volume and market volatility,
difficulties in enforcing obligations, potential imposition of foreign
withholding and other taxes (including withholding on dividends or interest paid
to the Fund), war, expropriation or other adverse governmental or economic
actions. Furthermore, the settlement period of securities transactions may be
longer in foreign markets than in domestic markets, delivery of securities
without payment therefor may be required and transactions may involve
non-negotiable brokerage commissions. Purchases of foreign securities by the
Fund will usually be made in foreign currencies and, as a result, the Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar. In addition,
the Fund's performance may be favorably or unfavorably affected by changes in
exchange rates or exchange rate controls, which may include suspension of the
ability to transfer currency from a given country. These risks generally are of
greater concern in developing countries.
The Fund may acquire U.S. dollar denominated obligations of the World Bank.
Obligations of the World Bank are supported by subscribed but unpaid commitments
of its member countries; there is no assurance that these commitments will be
fulfilled in the future.
- --Investing in Emerging Markets. The Fund may also invest up to 35% of its total
assets in one or more countries with emerging economies. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America,
Africa and, subject to approval by the Board of Trustees, Russia and the Middle
East. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of the Fund's investments in those countries and the
availability to the Fund of additional investments in those
6
<PAGE> 171
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make the Fund's investment in such countries illiquid and more
volatile than investments in most other non-major U.S. markets, and the Fund may
be required to establish special custodial or other arrangements before making
certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value of
prospects of an investment in such issuers.
- --American/European Depository Receipts. The Fund may invest indirectly in the
securities of foreign issuers through sponsored or unsponsored ADRs and EDRs or
other securities representing securities of companies based in countries other
than the United States. Transactions in these securities may not necessarily be
settled in the same currency as the underlying securities which they represent.
Ownership of unsponsored ADRs and EDRs may not entitle the Fund to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs or EDRs. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets. ADRs and EDRs also involve certain risks of
other investments in foreign securities.
- --Forward Foreign Currency Exchange Contracts. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") for hedging and to
seek to increase total return and to purchase or sell currency in connection
with purchases and sales of foreign securities. A forward contract is
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency for an agreed price at a future date, which may be any fixed
number of days from the date of the contract. A forward contract may be for a
single price or for a range of prices. The Fund may be required to segregate
assets, consisting of cash, U.S. Government securities or other high grade
liquid debt obligations to cover forward contracts that require it to purchase
foreign currency.
The purpose of entering into these contracts is to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. At the same time, such contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. When Kleinwort Benson believes that the currency of a specific
country may deteriorate against another currency, it may enter into a forward
contract to sell the less attractive currency and buy the more attractive one
("cross-hedging"). The amount in question could be less than or equal to the
value of the Fund's securities denominated in the less attractive currency. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors, including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than that performance it would have had had it not
engaged in forward contracts.
- --Currency Swaps. The Fund may enter into currency swaps for hedging purposes
and to seek to increase total return. Currency swaps involve the exchange of
rights to make or receive payments in specified currencies. Since currency swaps
are individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its currency swap positions.
Currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If Kleinwort Benson is incorrect in its
forecasts of market values and currency exchange rates, the investment
performance of the Fund would be less favorable than it would be if this
investment technique were not used.
- --Repurchase Agreements. The Fund may enter into repurchase agreements with
banks and selected broker-dealers. A repurchase agreement is an agreement under
which the Fund purchases securities and the seller agrees to repurchase the
securities within a particular time at a specified price. The repurchase price
will exceed the original purchase price, the difference being income to the
Fund, and will be unrelated to the interest rate on the purchased securities.
The Fund's custodian or subcustodian will maintain custody of the purchased
securities for the duration of the agreement. The value of the purchased
securities, including accrued interest, will at all times exceed the value of
the repurchase agreement. In the event of bankruptcy of the seller or failure of
the seller to repurchase the securities as agreed, the Fund could suffer losses,
including loss of interest on or principal of the security and costs associated
with delay and enforcement of the repurchase agreement.
7
<PAGE> 172
- --Lending of Portfolio Securities. The Fund may seek to increase its total
return by lending portfolio securities. Under present regulatory policies, such
loans may be made to institutions, such as broker-dealers, and are required to
be secured continuously by collateral in cash, U.S. Government securities or
other high grade liquid debt obligations maintained on a current basis at an
amount at least equal to the market value of the securities loaned. As with
other extensions of credit there are risks of delay in recovering, or even loss
of rights in, the collateral should the borrower of the securities fail
financially. However, the loans will be made only to firms deemed by Boatmen's
or Kleinwort Benson to be of good standing, and when, in the judgment of
Boatmen's or Kleinwort Benson, the consideration which may be earned currently
from securities loans of this type justifies the attendant risk. If securities
loans are made, it is intended that the value of the securities loaned would not
exceed 30% of the value of the total assets of the Fund.
- --Options Transactions. The Fund may purchase and sell (write) call and put
options on securities. Such options are agreements by the Fund in exchange for a
premium to sell or purchase securities at a specified price if the option is
exercised on or before a set date. Put options on securities will be written
only when the underlying securities are ones which the Fund could otherwise
purchase. Risks associated with writing covered options include the possible
inability to effect closing transactions at favorable prices and an appreciation
limit on the securities set aside for settlement. Call options will be sold
(written) only when the underlying securities are ones which the Fund holds.
The Fund may purchase and sell (write) call and put options on securities to
hedge against the risk of unfavorable price movements adversely affecting the
value of the securities the Fund holds or intends to buy.
The Fund may also purchase and sell (write) call and put options on securities
indexes to hedge against the risk of unfavorable price movements in securities.
Options on securities indexes are similar to options on securities except that
the holder of an option on an index has the right, in return for the premium
paid, to buy from (in the case of a call) or sell (in the case of a put) the
writer of the option the cash value of the index (rather than the security
underlying the option) at a specified exercise price at any time during the term
of the option.
The Fund may also purchase and sell options on currencies to seek to increase
total return and to protect against declines in the dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. The Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to the Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
The Fund is required to segregate assets, consisting of cash, U.S. Government
securities or other high grade liquid debt obligations in an amount equal to the
value of its obligations unless offsetting positions are maintained.
- --Futures Contracts and Options on Futures Contracts. For bona fide hedging or
other permissible risk management purposes, such as protecting the price or
interest rate of a security it holds or intends to buy the Fund may enter into
futures contracts on securities and securities indexes and may purchase and sell
(write) call and put options on these futures contracts. The Fund may also enter
into futures contracts on currencies and may enter into futures contracts and
related options for purposes of seeking to increase total return, consistent
with the regulations of the Commodities Futures Trading Commission.
Hedging and other risk-management transactions are undertaken to reduce or
eliminate any of several kinds of price fluctuation risk. For example, put
options on securities futures might be purchased to protect against declines in
the market values of debt securities occasioned by higher interest rates and
securities-index futures might be sold to protect against a general decline in
the value of securities of the type that comprise the index. Currency futures
might be sold to protect against declines in the value of currencies in which
portfolio securities are denominated. If these hedging transactions are
successful, the futures or options positions taken by the Fund will rise in
value by an amount which approximately offsets the decline in the value of the
portion of a portfolio that is being hedged. Such decline in value might be
caused by a decline in the market value of portfolio securities.
The Fund may lose the expected benefit of futures transactions if securities
prices move in an unanticipated manner. Such unanticipated changes may also
result in poorer overall performance for the Fund than the performance it would
have had had it not entered into any futures transactions. In addition, changes
in the value of the Fund's futures and options positions may not prove to be
perfectly or even highly correlated with changes in the value of its portfolio
securities. This could limit the Fund's
8
<PAGE> 173
ability to hedge effectively against interest rate or market risk or both and
give rise to additional risks. There is no assurance of market liquidity for
purposes of closing out positions in futures contracts and options on futures
contracts; if such positions cannot be closed, the Fund may incur losses in
excess of its initial margin deposits.
The Fund will incur brokerage costs and will be required to post and maintain
"margin" as a good-faith deposit against performance of its obligations under
futures contracts and options thereon. In addition, the Fund is required to
segregate assets, consisting of cash, U.S. Government securities or other high
grade liquid debt obligations in an amount equal to the value of the instruments
underlying futures contracts and options thereon.
- --Other Information. The Funds have adopted certain procedures under the 1940
Act which enable the Fund to purchase certain instruments during the existence
of an underwriting or selling syndicate of which The Boatmen's National Bank of
St. Louis or Kleinwort Benson, is a member relating to the instruments. These
procedures establish, among other things, certain limitations on the amount of
securities which may be purchased in any single offering and on the amount of
the Fund's assets which may be invested in any single offering. Accordingly, in
view of such entities' active role in the underwriting of securities, the Fund's
ability to purchase securities in the primary market may from time to time be
limited.
The Fund changes its portfolio securities for investment consideration and not
for trading purposes.
INVESTMENT LIMITATIONS
Certain of the investment policies of the Fund may not be changed without a vote
of holders of a majority of the Fund's outstanding shares. Policies requiring
such a vote to effect a change are known as "fundamental". Some of the
fundamental limitations are summarized below, and all of the Fund's fundamental
limitations are set out in greater detail in the Statement of Additional
Information, which is available upon request.
1. The Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry
(with certain limited exceptions, including investments in U.S. Government
securities or tax-exempt obligations of state and municipal governments and
their agencies and authorities). For purposes of this restriction, foreign
governments are considered to be separate industries.
2. The Fund may not invest (with certain limited exceptions, including U.S.
Government securities) more than 5% of the value of the Fund's total assets in
the securities of a single issuer, except that up to 25% of each Fund's total
assets can be invested without regard to such 5% limitation (such 5% limitation
shall not apply to repurchase agreements collateralized by U.S. Government
securities).
3. The Fund may not borrow money except as a temporary measure and then only in
amounts not exceeding 5% of the value of the Fund's total assets or from banks
or in connection with reverse repurchase agreements provided that immediately
after such borrowing, all borrowings of the Fund do not exceed one-third of the
Fund's total assets and no purchases of portfolio instruments will be made while
such Fund has borrowings outstanding in an amount exceeding 5% of its total
assets.
4. The Fund may not make loans, except to the extent that the lending of
portfolio securities and purchase of debt obligations in accordance with the
Fund's investment objective and policies and the entry into repurchase
agreements with banks, brokers, dealers and other financial institutions may be
deemed to be loans.
The Fund has no current intention (which may be changed without shareholder
approval) of purchasing restricted securities, except those securities which can
be offered and sold to "qualified institutional buyers" pursuant to Rule 144A
and which the Funds' Trustees determine are traded in a liquid market. The Fund
may invest up to 15% of the value of its net assets in illiquid securities,
including restricted securities. Risks associated with investing in restricted
securities include the risk that the lack of an active secondary market and
resale restrictions may result in the inability of the Fund to sell a security
at a fair price and may substantially delay the sale of a security that the Fund
seeks to sell. Issuers whose securities are publicly traded are also not subject
to the same disclosure and other legal requirements as are applicable to issuers
with publicly traded securities.
INVESTING IN THE PILOT FUNDS
Getting Your Investment Started
Investing in the Pilot Funds is quick and convenient. Fund Shares may be
purchased either through the account you maintain with participating banks,
trust companies and other institutions (Service Organizations) or through
Boatmen's Investment Services, Inc. Fund shares are distributed by Pilot Funds
Distributors, Inc. (the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
You may choose to invest your Boatmen's Investment Services account where an
Account Representative can advise you in selecting among the Pilot Funds.
Whether
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<PAGE> 174
you currently have a Boatmen's Investment Services account or wish to open one,
your Pilot Funds investment can be executed within a few minutes by telephone
or, if you prefer, during a consultation with an Investment Officer of Boatmen's
Investment Services. Call Boatmen's Investment Services at 800/469-5999 to speak
with an Account Representative, to place a Pilot Funds transaction or to arrange
a consultation scheduled at your convenience.
Clients of Boatmen's Investment Services and other Service Organizations may
purchase shares through their accounts at their Service Organization and should
contact such Service Organization directly for appropriate purchase
instructions. Share purchases (and redemptions) made through Boatmen's
Investment Services or another Service Organization are effected only on days
the particular institution and the Fund involved are open for business. When
shares are purchased through Boatmen's Investment Services or another Service
Organization, a fee may be charged by those institutions for providing
administrative services in connection with your investment.
Payments for Fund shares must normally be in U.S. dollars and in order to avoid
fees and delays should be drawn on a U.S. bank. Please remember that The Pilot
Funds retains the right to reject any purchase order.
If You Have Questions
If you are investing in The Pilot Funds through an account with Boatmen's
Investment Services or another Service Organization, you may choose to speak
with your assigned Account Representative or contact person at such
organization. If you are a direct investor with The Pilot Funds and need
assistance with your account, a Pilot Funds service representative is available
to answer your questions by calling the appropriate toll-free numbers listed
below.
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
CALL FOR INFORMATION
- --------------- -----------------------------------
<S> <C>
800/71-PILOT Regarding the Fund's investment
8:00 am to objectives and policies or for
7:00 pm information about opening an
Central time account (including information
regarding the Fund's alternative
purchase options). Information on
changing your Pilot Fund's
services, and Statements of
Additional Information, are also
available at this number.
- -----------------------------------------------------
800/227-3654 To obtain your account balance or
8:00 am to to request a telephone transaction.
5:00 pm
Central time
</TABLE>
- ---------------------------------------------------------------
You should note that neither The Pilot Funds nor its service contractors will be
responsible for any loss or expense for acting upon telephone instructions that
are believed to be genuine. In attempting to confirm that telephone instructions
are genuine, The Pilot Funds will use procedures considered reasonable.
The Pilot Funds will send you the following statements and reports to provide
you with current information on the status of your account:
<TABLE>
<S> <C>
Confirmation Statements After every transaction that
affects your account balance or
your account registration.
Account Statements Either monthly, quarterly or
annually depending on the Fund in
which you invest or the type of
account you hold.
Financial Reports Every six months. To reduce The
Pilot Funds' expenses, only one
copy of most Fund reports will be
mailed to your household, even if
you have more than one account in
a fund.
</TABLE>
HOW TO BUY SHARES
This section provides you with pertinent information on how to buy Fund shares.
Further information can be found under "Transaction Rules".
Class A Shares of the Fund are offered to customers of participating banks,
trust companies and other institutions (Service Organizations) whose customers
have ordered the Service Organization to purchase Class A Shares for their
accounts. Investors who are not customers of an approved Service Organization
will be referred to Boatmen's Investment Services in order to purchase Class A
Shares. It is expected that all direct purchasers of Class A Shares will be
Service Organizations.
OPENING AND ADDING TO YOUR PILOT FUNDS ACCOUNT
As described above under "Getting Your Investment Started," you may purchase
Fund shares through Boatmen's Investment Services, Inc. or another Service
Organization. Direct investments in The Pilot funds may also be made in a number
of different ways, as shown in the following chart. Simply choose the method
that is most convenient for you. Any questions you have can be answered by
calling the appropriate toll-free number indicated above under "If You Have
Questions".
10
<PAGE> 175
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TO ADD TO AN ACCOUNT
TO OPEN AN ACCOUNT HELD DIRECTLY WITH THE
DIRECTLY WITH THE PILOT FUNDS PILOT FUNDS
------------------------------------- -------------------------------------
<S> <C> <C>
By Mail to: -- Complete an Account Application -- Make your check payable to the
The Pilot Funds and mail it, along with a check particular Fund in which you are
c/o BISYS Fund Services payable to the Fund in which you investing and mail it to the
Dept. L-1709 are investing, to the address on address on the left.
Columbus, OH 43260-1709 the left.
-- Please include your account number
on your check.
-- Or use the convenient form
attached to your regular Fund
statement.
- ------------------------------------------------------------------------------------------------------------
In Person to: -- Deliver the Account Application -- Deliver your check payable to the
BISYS Fund Services and your check payable to the Fund particular Fund in which you are
3435 Stelzer Road in which you are investing to the investing to the address on the
Columbus, OH 43219-3035 address on the left. left.
-- Please include your account number
on your check.
- ------------------------------------------------------------------------------------------------------------
By Wire to: -- Ask your bank to send immediately -- Ask your bank to wire immediately
State Street Bank and Trust available funds by wire. available funds as described at
Co. left, except that the wire should
Boston, MA -- The wire should say that you are note that it is to make a
ABA No. 011000028 opening a new Fund account (if an subsequent purchase rather than to
Re: Pilot Account Application Form is not open a new account.
International Equity Fund received for a new account within
DDA No. 9904-885-2 30 days after the wire is received, -- Please include your Fund account
For further credit to: dividends and redemption proceeds number.
Account Name and Number from the account will be subject to
back-up withholding). The wire
should say that the purchase is to
be in your name.
-- Include your name, address and
taxpayer identification number.
Indicate the name of the Fund in
which you are investing. Investors
should also indicate share class
selection.
Consult your bank for information on remitting funds by wire and associated
bank charges
- ------------------------------------------------------------------------------------------------------------
Automatic Investment (allows -- You must first complete an Account -- Call 800/71-PILOT to find out how
regular investment without Application and select the to set up this service.
ongoing paperwork) Automatic Investment Plan option.
-- Additional purchases will then
-- Call 800/71-PILOT for more automatically be made as directed
information. by you.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 176
Explanation of Sales Price
Offering Price
The offering price is the next determined NET ASSET VALUE PER SHARE plus a sales
load, if any, paid at the time of purchase of Class A Shares of the Fund as
shown in the following table:
<TABLE>
<CAPTION>
MAXIMUM
SALES LOAD DEALER ALLOWANCE
AS PERCENTAGE OF AS PERCENTAGE OF
---------------------------- -------------------
AMOUNT OF PURCHASE
(INCLUDING SALES
LOAD, OFFERING NET AMOUNT
IF ANY) PRICE INVESTED OFFERING PRICE
- --------------------- ------------- ------------- -------------------
<S> <C> <C> <C>
Less than $100,000... 4.50% 4.71% 4.00%
$100,000 up to (but
less than)
$250,000............ 3.75% 3.90% 3.25%
$250,000 up to (but
less than)
$500,000............ 3.00% 3.09% 2.50%
$500,000 up to (but
less than) $1
million............. 2.00% 2.04% 1.75%
$1 million up to (but
less than) $2.5
million............. 1.00% 1.01% 0.90%
$2.5 million or
more................ 0.00% 0.00% 0.00%
</TABLE>
Net Asset Value
The net asset value per share for each class of the Fund for purposes of both
purchase and redemption of shares will be determined by adding the value of the
Fund's investments, cash and other assets attributable to the class, subtracting
the Fund's liabilities attributable to that class and then dividing the result
by the number of shares in the class that are outstanding. The assets of the
Fund are valued at market value or, if market quotes cannot be readily obtained,
fair value is used as determined by the Board of Trustees. Debt securities held
by these Funds that have sixty days or less until they mature are valued at
amortized cost, which generally approximates market value. Net Asset value is
computed as of 3:00 P.M., Central time, on all days the New York Stock Exchange
(the "Exchange") is open for trading, which is Monday through Friday except for
holidays (scheduled Exchange holidays for 1996 are New Year's Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.) On those days when the Exchange closes early as a result of
such day being a partial holiday or otherwise, the right is reserved to advance
the time on that day by which purchase and redemption requests must be received.
Class A Shares of the Fund are sold at their public offering price. The Fund's
public offering price is based on the net asset value per share of the Fund next
determined after such purchase, plus the applicable sales load. The Fund
receives the net asset value, while the sales load is paid to Pilot Funds
Distributors, Inc. as distributor. Pilot Funds Distributors, Inc. may reallow a
portion of the sales load to a Service Organization for the sale of Class A
Shares. The sales load may vary depending on the size of the purchase and the
number of Class A Shares that the investor already owns, or any arrangement to
purchase additional Class A Shares during a 13-month period or special purchase
programs. A brief description of these arrangements under which the sales load
may be reduced or eliminated is set forth below under "Right of Accumulation"
and "Statement of Intention." Complete details of how investors may purchase
Class A Shares at reduced sales loads under a Statement of Intention or Right of
Accumulation are available from the Service Organizations.
HOW TO SELL SHARES
The Pilot Funds makes it easy to sell, or "redeem" your shares. If you purchased
your shares through an account at Boatmen's Investment Services, Inc. or another
Service Organization, you may redeem shares in accordance with the instructions
pertaining to that account. If you purchased your shares through an account at
Boatmen's Investment Services, Inc. or another Service Organization and you,
yourself, appear on The Pilot Funds' books as the shareholder of record, you may
redeem shares by mail, phone or hand delivery as described below; however, you
must contact Boatmen's Investment Services, Inc. or your other Service
Organization if you wish to redeem your shares by another method. If you
purchased your shares directly from The Pilot Funds, you have the ability to
redeem shares by any of the methods described below. Requests must be signed by
you and by each other owner of the account (for joint accounts). The Pilot Funds
imposes no charges when you redeem shares.
12
<PAGE> 177
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
HOW TO REDEEM SHARES ADDITIONAL LIMITATIONS
------------------------------------- -------------------------------------
<S> <C> <C>
By Mail to: -- Send a signed request (each owner, -- Requests greater than $50,000 per
The Pilot Funds including each joint owner, must day must be signature guaranteed.
c/o BISYS Fund Services sign) to the Transfer Agent at the
Dept. L-1709 address on the left. -- You should refer to "Transaction
Columbus, OH 43260-1709 Rules" below for additional
-- Be sure to include both the name limitations.
of the particular Fund whose shares
you are selling and your account
number.
- ------------------------------------------------------------------------------------------------------------
By Wire: -- After you have signed up for wire -- The Transfer Agent may act upon
redemption privileges on the such a request from any person
Account Application, you may representing himself or herself to
instruct the Transfer Agent to wire be you and reasonably believed by
your redemption proceeds to your the Transfer Agent to be genuine.
bank account by sending a request
in writing or by phone -- The transaction amount must be a
(800/227-3654). $1,000 minimum.
-- This privilege may be subject to
limits regarding frequency and
overall amount.
- ------------------------------------------------------------------------------------------------------------
In Person to: -- Deliver your written request -- Requests must be signed by each
BISYS Fund Services directly to the Transfer Agent at owner, including each joint owner.
3435 Stelzer Road the address on the left.
Columbus, OH 43219-3035 -- Requests greater than $50,000 per
day must be signature guaranteed.
- ------------------------------------------------------------------------------------------------------------
Systematic Withdrawal -- Withdrawals begin after you have -- Your account must have a total net
(permits automatic signed up for this service (either asset value of at least $5,000.
withdrawal of pre-arranged on the account application or in a
amount) subsequent letter to the Transfer -- The transaction amount must be at
Agent). least $50 minimum.
-- Call 800/71-PILOT for more
information.
Consult your bank for information on remitting funds by wire and associated
bank charges
- ------------------------------------------------------------------------------------------------------------
</TABLE>
TRANSACTION RULES
THE PURCHASE PROCEDURES differ depending on whether you place your order
directly with The Pilot Funds or use Boatmen's Investment Services or another
Service Organization.
Purchases and sales should be made for long-term investment purposes only and
not for short-term trading. The Funds and its Service Organizations each reserve
the right to restrict purchases of Shares (including exchanges) when a pattern
of frequent purchases and sales made in response to short-term fluctuations in
the Fund's share price appears evident. Additionally, the Funds reserve the
right to reject any purchase order (including exchanges) that is not received in
"good order." The Funds also reserve the right to establish a minimum initial or
subsequent investment requirement or both and to change that requirement with
respect to any investor or class of investors. The minimum initial investment in
the Fund for customers of a Service Organization is $1,000, except in connection
with tax sheltered retirement plans or automatic investment plan accounts, and
except that this requirement may be waived at the discretion of the Funds'
officers. The minimum amount required for subsequent investments is $100, except
in connection with certain investment programs.
IF YOU PLACE AN ORDER FOR FUND SHARES in proper form, it will be processed upon
receipt by the Transfer Agent where Boatmen's Investment Services or another
Service Organization undertakes to pay for the order in immediately available
funds wired to the Transfer Agent by
13
<PAGE> 178
the close of business the next Business Day. If the Transfer Agent receives your
order and, where required, payment by 3 p.m., Central time, your shares will be
purchased at the public offering price calculated on that day. Otherwise, your
shares will be purchased at the public offering price determined as of 3 p.m.,
Central time, on the next Business Day.
IF YOU PLACE AN ORDER FOR FUND SHARES THROUGH BOATMEN'S INVESTMENT SERVICES OR
ANOTHER SERVICE ORGANIZATION, and you place your order in proper form on any
Business Day in accordance with their procedures, your purchase will be
processed at the public offering price calculated at 3 p.m., Central time on
that day, if Boatmen's Investment Services or your other Service Organization
then sends your order to the Transfer Agent before the end of its Business Day
(which is normally 4 p.m., Central time.) Boatmen's Investment Services or your
other Service Organization must promise to send to the Transfer Agent
immediately available funds in the amount of the purchase price within three
business days.
MISCELLANEOUS PURCHASE INFORMATION. Federal regulations require that you provide
a certified taxpayer identification number whenever you open or reopen an
account. Share certificates will not be issued. If your check does not clear, a
fee may be imposed by the Transfer Agent. If shares are purchased with a check
that does not clear, the purchase will be cancelled and the purchaser will be
subject to any losses or fees incurred in the transaction.
MISCELLANEOUS REDEMPTION INFORMATION. The Pilot Funds usually makes payments for
the shares that you redeem within seven days after it receives your request in
proper form. Shares purchased by check for which a redemption request has been
received will not be redeemed unless the check used for investment has cleared,
which may take up to seven business days or more. If the purchaser purchases
shares by Federal Funds wire the purchaser may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
Certain types of redemption requests will need to include a signature guarantee
for each name in which the account is registered. Signature guarantees must
accompany redemption requests for: (i) an amount in excess of $50,000 per day,
(ii) any amount if the redemption proceeds are to be sent elsewhere than the
address of record on The Pilot Funds' books, or (iii) an amount of $50,000 or
less if the address of record has been on The Pilot Funds' books for less than
sixty days, although the Transfer Agent reserves the right to require signature
guarantees on all redemptions. Signature guarantees are designed to protect both
you and The Pilot Funds from fraud. To obtain a signature guarantee you should
visit a bank, trust company, credit union, savings association, broker-dealer or
other member of a national securities exchange, or other eligible guarantor
institution. (Notaries public cannot provide signature guarantees.) Guarantees
must be signed by an authorized person at one of these institutions, and be
accompanied by the words "Signature Guarantee".
If you experience difficulty in contacting the Transfer Agent to redeem shares
by phone, for example because of unusual market activity, you are urged to
consider redeeming your shares by mail or in person.
THE VALUE OF SHARES THAT ARE REDEEMED IN A FUND may be more or less than their
original cost, depending on the Fund's current net asset value.
THE FUNDS MAY SUSPEND THE RIGHT OF A SHAREHOLDER TO REDEEM SHARES and may
suspend the date of payments by the Funds (a) for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or if trading in the markets the Funds normally utilizes is closed or
is restricted as determined by the Securities and Exchange Commission ("SEC"),
(b) during any emergency, as determined by the SEC, as a result of which it is
not reasonably practicable for the Funds to dispose of instruments owned by it
or fairly to determine the value of its net assets, or (c) for such other period
as the SEC may by order permit for the protection of the Shareholders of the
Funds.
The Funds reserve the right to adopt by action of the Trustees a policy pursuant
to which it may without Shareholder approval redeem upon not less than 60 days'
notice (a) Shares in an account which have a value below $500, or such other
amount as the Trustees may designate at the time the policy is adopted
(provided, however, that the Funds will not redeem Shares when, due to a change
in the net asset value of the Shares, the value of a Shareholder's account drops
below such designated minimum amount; and provided further that during the
notice period Shareholders will have the opportunity to bring the value of their
accounts up to the designated amount) or (b) all of the Fund's Shares if such
Shares have an aggregate value below a designated amount and if the Trustees
determine that it is not practical, efficient or advisable to continue the
operation of the Fund and that any applicable requirements of the 1940 Act have
been complied with. As of the date of this Prospectus, no such policy has been
adopted. While, as indicated above, the Trustees have the authority to adopt,
and thereafter to change from time to time, such a policy, they will not do so
without providing at least 60 days' notice to the Shareholders.
14
<PAGE> 179
In unusual circumstances The Pilot Funds may make payment in readily marketable
portfolio securities at their market value equal to the redemption price.
In order to maximize earnings on the Fund, the Fund tries to be invested as
completely as is practicable. Accordingly, orders for Class A Shares received by
a Service Organization by 3:00 p.m., Central time, on Business Days are executed
at the net asset value next calculated after receipt of the order, plus a sales
load, if any. Different Service Organizations may establish different times by
which purchase orders must be received by them in order to ensure timely
transmittal of purchase orders to the Transfer Agent and payments to the
Custodian or the Funds.
The purchase price must be paid by a Service Organization by wiring Federal
Funds to the Custodian or by forwarding a check to Pilot International Equity
Fund, c/o BISYS Fund Services, Dept. L-1709, Columbus, OH 43260-1709. Payment
must be received within three business days of receipt of the purchase order.
Boatmen's Investment Services and other participating Service Organizations have
undertaken to arrange for the timely transmittal of purchase orders to the
Transfer Agent and of payments to the Custodian or the Funds. Purchases may be
made through a customer's account at Boatmen's, its affiliates or other Service
Organizations.
Additional purchases may be made at any time through Service Organizations or
directly with the Funds' Transfer Agent, c/o The Pilot Funds, Pilot
International Equity Fund, Dept. L-1709, Columbus, OH 43260-1709.
In certain situations or for certain individuals or entities, the front-end
sales charge for Class A Shares of the Fund may be waived either because of the
nature of the investor or the reduced sales efforts required to attract such
investments. No sales charge is charged on reinvested dividends or
distributions. Likewise, there is no front-end sales charge on (1) any purchase
by Boatmen's, Concord, any of their affiliates or their respective officers,
partners, directors or employees (including retired employees), any Trustee or
officer of The Pilot Funds and designated family members of any of the above
individuals, (2) any purchase by any registered representative or full-time
employee of broker-dealers or Service Organizations having agreements with the
Distributor pertaining to the sale and/or servicing of Fund shares (and their
spouses and minor children) to the extent permitted by such organizations, (3)
any purchase by any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales load or commission, (4) any purchase by a registered
investment adviser who is purchasing shares for its own account or for accounts
for which it is authorized to make investment decisions (i.e., a discretionary
account), (5) any shares issued in connection with reorganizations with or
acquisitions of the assets of other organizations, (6) under certain
circumstances, any purchase of shares pursuant to the Reinstatement Privilege
described below under "Shareholder Services", (7) under certain circumstances,
any purchase of shares as a result of the Cross-Reinvestment Privilege described
below under "Shareholder Services", (8) any purchase of Fund shares with the
proceeds from a recent redemption of shares of any other non-money market
investment portfolio of another investment company, provided that any purchase
must be made within 60 days of such redemption and that a copy of the account
statement showing such redemption must accompany the purchase request, (9) any
purchase of shares offered through a registered broker-dealer as part of a wrap
product, and (10) exchanges where the shares being exchanged are non-money
market fund shares that came from the distribution of assets held in a qualified
trust agency or custodian account maintained with the trust department of
Boatmen's or its affiliates.
In order to receive the sales charge waiver, a purchaser must certify its
eligibility for a waiver to their Service Organization on its application form
and must certify on such form that it will notify the Service Organization if,
at the time of additional purchases, it is no longer eligible for a waiver. The
Transfer Agent and Service Organizations reserve the right to request additional
certification or information from a purchaser in order to verify that such
purchaser is eligible for a waiver. From time to time, the Funds' distributor or
a Service Organization may make expense reimbursements for special training of
registered representatives in group meetings or to help pay the expenses of
sales contests. In some instances, promotional incentives to dealers may be
offered only to certain dealers who have sold or may sell significant amounts of
Fund shares.
SHAREHOLDER SERVICES
The Pilot Funds provides a variety of ways to make managing your investments
more convenient. Some of these methods require you to request them on your
Account Application or you may request them after opening an account by sending
a signature guaranteed letter of instruction to the Transfer Agent.
Tax Sheltered Retirement Plans
The Fund will offer Class A Shares for purchase by retirement plans, including
Individual Retirement Account Plans for individuals and their non-employed
spouses.
Detailed information concerning these plans and copies of the plans will be
available from Service Organizations. This
15
<PAGE> 180
information should be read carefully, and consultation with an attorney or tax
adviser is advisable. The information will set forth the service fee charged for
retirement plans and describe the federal income tax consequences of
establishing a plan. Under all plans, dividends and distributions will be
automatically reinvested in additional shares of the same fund or, if so
directed by the shareholder, in cash, in shares of another fund or in
Administration Shares of a Money Market Fund. An initial investment minimum of
$500 applies to purchases in connection with tax-sheltered retirement plans.
EXCHANGE PRIVILEGES AMONG THE PILOT FUNDS
You may sell your Fund shares and buy other shares of The Pilot Funds by calling
the Transfer Agent at 800/227-3654 or sending a written exchange request to the
Transfer Agent at The Pilot Funds, Pilot International Equity Fund, c/o BISYS
Fund Services, Dept. L-1709, Columbus, OH 43260-1709. Specifically, Class A
Shares of the fund may be exchanged for Class A Shares of any other fund of the
Pilot Family of Funds. Class A Shares purchased with a front-end sales charge
may be exchanged without the need to pay any additional front-end charge on the
shares acquired through the exchange.
If you have a qualified trust, agency or custodian account with the trust
department of Boatmen's or its affiliates, and your shares are to be held in
that account, you may also exchange your current Class A Shares in the Fund for
Pilot Shares in the same Fund. Conversely, Pilot Shares may be exchanged for
Class A Shares of the Fund in connection with the distribution of assets held in
such a qualified trust, agency or custodian account. These exchanges are made
without a sales charge at the net asset value of the respective share classes.
Exchanges may have tax consequences for you. Consult your tax adviser for
further information.
If you are opening a new account in a different Fund by exchange, the shares
being exchanged must be at least equal in value to the minimum investment for
the Fund in which the account is being opened. The particular class of shares
you are exchanging into must be registered for sale in your state.
Additional information regarding exchanges can be obtained by reading the
Statement of Additional Information. The Exchange Privilege may be modified or
terminated at any time. At least 60 days' notice will be given to shareholders
of any material modification or termination of the Exchange Privilege except
where notice is not required by the SEC.
AUTOMATIC INVESTMENT PLAN
(requires your request)
One easy way to pursue your financial goals is to invest money regularly. The
Pilot Funds offers the Automatic Investment Plan--a convenient service that lets
you transfer money from your bank account into your Fund account automatically,
on a schedule of your choice.
At your option, your bank account will be debited in a particular amount that
you have specified, and Fund shares will be automatically purchased at regular
intervals. Your bank account must be a checking, NOW or bank money market
account maintained at a domestic financial institution which is an Automatic
Clearing House member. Your institution must also permit automated withdrawals
(which may be subject to a fee by that institution). A minimum initial
investment of $100 is required for Automatic Investment Plans and the minimum
amount required for subsequent investments is $100. The minimum amount required
for initial and subsequent investments as part of the Plan for employees of
Boatmen's or its affiliates is $50.
The Automatic Investment Plan is one means by which you may use "Dollar Cost
Averaging" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Funds whose price per share fluctuates.
Instead of trying to time market performance, a fixed dollar amount is invested
in Fund shares at predetermined intervals. This may help you to reduce your
average cost per share because the agreed upon fixed investment amount allows
more shares to be purchased during periods of lower share prices and fewer
shares during periods of higher prices. In order to be effective, Dollar Cost
Averaging should usually be followed on a sustained, constant basis. You should
be aware, however, that shares bought using Dollar Cost Averaging are made
without regard to their price on the day of investment or to market trends.
While regular investment plans do not guarantee a profit and will not protect
you against loss in a declining market, they can be a good way to invest for
retirement, a home, educational expenses and other long-term financial goals.
You may cancel your Automatic investments or change the amount of purchase at
any time by mailing written notification to the Transfer Agent at Department
L-1709 Columbus, OH 43260-1709. You may also implement the Dollar Cost Averaging
method on your own initiative. The Pilot Funds may modify or terminate the
Automatic Investment Plan at any time or charge a service fee, although no such
fee currently is contemplated.
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AUTOMATIC WITHDRAWAL PLAN
(requires your request)
The Pilot Funds offers a convenient way of withdrawing funds from your
investment portfolio. You may request regular monthly, quarterly, semi-annual or
annual withdrawals in any amount above $50 provided the Fund account you are
withdrawing from has a minimum current balance of at least $5,000. There is no
minimum withdrawal amount required for automatic withdrawals by employees of
Boatmen's or its affiliates. The automatic withdrawal will be made on the first
or fifteenth day of the month. Purchases of additional shares concurrently with
withdrawals are ordinarily not advantageous for share classes that charge a
sales charge.
FRONT-END SALES CHARGE REDUCTIONS
YOU MAY BE ENTITLED TO LOWER SALES LOAD CHARGES ON CLASS A SHARES OF THE FUND
THROUGH RIGHT OF ACCUMULATION, STATEMENT OF INTENTION AND QUANTITY DISCOUNTS.
Right of Accumulation. When buying Class A Shares, your current aggregate
investment determines the amount of any sales load that you pay. If your current
aggregate investment plus the purchase price of the new investment in Class A
Shares accumulates to the requisite amount or beyond, the sales percentage
charged to you on subsequent investments is decreased. Your current aggregate
investment is the accumulated combination of your immediate investment along
with the Class A Shares that you beneficially own in the Fund alone or in
combination with Class A Shares of other funds of the Pilot Family of Funds
(excluding Administration Shares of the Money Market Funds not acquired by
exchange from other funds.) Class A Shares purchased without the imposition of a
sales charge may not be aggregated with Class A Shares purchased subject to a
sales charge. Class A Shares of the Fund and Class A shares of other funds of
the Pilot Family of Funds purchased (i) by an individual, his spouse and his
children, and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for such right of accumulation and,
if qualifying, the applicable sales level.
EXAMPLE
If a Class A Shareholder owns Class A Shares with a current market value of
$75,000 and purchases additional Class A Shares with a purchase price of
$25,000, the sales load for the $25,000 purchase would be the rate applicable to
a single purchase of $100,000.
To qualify for a reduced sales load charge, you or your Service Organization
must notify the Transfer Agent at the time of investment. The reduced sales
charge is subject to confirmation of your holdings through a check of
appropriate records.
Statement of Intention. This Statement provides the means for you to receive a
reduced sales load on all of your investments in Class A Shares, whether they
are of the Fund alone or in combination with Class A Shares of the Funds
(excluding the Money Market Funds). The Statement of Intention is your
commitment to acquire an aggregate investment for $100,000 or more within a
13-month period. You should read the Statement of Intention, which you can
obtain by calling 800/71-PILOT, as you will be bound by its terms.
While signing a Statement of Intention does not bind you to purchase, or The
Pilot Funds to sell, the full amount indicated at the sales load in effect at
the time of signing, you must complete the intended purchase to obtain the
reduced sales load.
When you sign a Statement of Intention, the Transfer Agent is authorized to hold
in escrow a sufficient number of shares which can be redeemed to make up any
difference in the sales load on the amount actually invested. After the terms of
the Statement of Intention are fulfilled, the escrow will be released.
Within a 13-month period beginning up to 90 days prior to the date of its
execution, the Class A Shares you purchase may be used as a credit toward the
completion of the Statement of Intention. The investments you make during the
period receive the discounted sales charge based on the full amount of your
investment commitment. A shareholder may include the value of all Pilot Fund
Class A Shares on which a sales load has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made to reflect any reduced sales load applicable to shares
purchased only during the 90-day period prior to the submission of your
Statement of Intention.
If your aggregate investment exceeds the amount indicated in your Statement, an
adjustment will be made to reflect any further reduced sales load applicable to
your excess investment. The adjustment will be in the form of additional Class A
Shares credited to your account at the then current offering price applicable to
a single purchase of the total amount of the total purchase.
CROSS-REINVESTMENT PRIVILEGE
You may want to have your dividends, capital gains distributions, or both,
received from a Fund automatically invested in shares of any other Fund or any
of The Pilot
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Funds' other investment portfolios. Investments will be made at a price equal to
the net asset value of the acquired shares determined after receipt of the
distribution proceeds by the Transfer Agent. No sales load will be charged on
such investments. In order to qualify for the Cross-Reinvestment Privilege, the
value of your account in the acquired fund must equal or exceed the acquired
fund's minimum initial investment requirement. There are no subsequent
investment requirements for amounts to which dividends and capital gains
distributions are directed nor are service fees currently charged for effecting
these transactions. The election to cross-reinvest dividends or distributions
will not affect the tax treatment of such dividends and capital gains
distributions, which will be treated as received by you and then used to
purchase Class A Shares of the acquired fund.
REINSTATEMENT PRIVILEGE
If you are a Class A shareholder in the Fund, you may reinvest all or any
portion of your redemption proceeds (plus that amount necessary to acquire a
fractional share to round off your purchase to the nearest full share) in Class
A Shares of any other Fund without paying a sales load. Shares so acquired will
be purchased at a price equal to the net asset value next determined after the
Transfer Agent receives a written purchase order indicating that the Shares are
eligible for reinstatement at net asset value by a Shareholder's Service
Organization and payment. If you wish to use this privilege, you must submit a
written reinstatement request to the Transfer Agent stating that you are
eligible to use the privilege. The reinstatement request and payment must be
received within 90 days of the trade date of the redemption and the shares must
have been held for at least 30 days before the redemption. The reinstatement
privilege may be exercised once annually by a Class A Shareholder, except that
there is no such limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.
A reinstating Shareholder may realize a gain or loss for federal tax purposes as
a result of such redemption. If the redemption occurs within ninety (90) days
after the original purchase of Class A Shares, any sales load paid on the
original purchase cannot be taken into account by a Class A Shareholder
reinstating at net asset value for purposes of determining gain or loss realized
on the redemption, but instead will be added to the tax basis of the Class A
Shares received in the reinstatement, provided that Shares of the Fund into
which the reinstatement is made are subject to a sales load on initial
purchases. To the extent that any loss is realized and the Class A Shares of the
Funds are purchased within thirty (30) days before or after the redemption, some
or all of the loss will not be allowed as a deduction depending upon the number
of Class A Shares purchased. Shareholders should consult their own tax advisers
concerning the tax consequences of reinstatement.
DIVIDENDS AND DISTRIBUTIONS
Where do your dividends and distributions come from?
The Fund's net investment income consists of the excess of (i) certain accrued
interest, (ii) accretion of discount (including both original issue and market
discount, if any, on certain portfolio securities) and (iii) any income of the
Fund from sources other than capital gains, over (iv) the amortization of market
premium on certain portfolio securities and (v) the estimated expenses of the
Fund, including a proportionate share of the general expenses of the Funds.
What are your dividend and distribution options?
A Class A Shareholder may elect on his or her application form to have
dividends, capital gains distributions or both either paid in cash or reinvested
in shares of the same fund or one of the other funds, as described under
"Shareholder Services--Cross-Reinvestment Privilege." Such reinvestments will be
made at the net asset value per share. This election may be changed upon written
notice to the Service Organization at any time prior to the record date for a
particular dividend or distribution. If no election is made, all dividends and
capital gain distributions will be reinvested in the same Fund. The election to
reinvest dividends and distributions paid by the Fund in additional Class A
Shares of the Fund or any other fund of the Pilot Family of Funds will not
affect the tax treatment of such dividends and distributions, which will be
treated as received by the shareholder and then used to purchase shares of the
Fund or another fund of the Funds. Any election to reinvest in additional Shares
or to receive cash will be administered by the Shareholder's Service
Organization in a manner arranged for the Fund.
When are dividends and distributions declared and paid?
The Fund intends to declare and pay dividends from net investment income at
least annually.
DISTRIBUTION ARRANGEMENTS
The Pilot Funds has adopted a Distribution Plan for its Class A Shares.
Under the Plan 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
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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 Plan are subject to the requirements of a rule
under the Investment Company Act of 1940 known as Rule 12b-1. The distribution
fee and any sales charge applicable to a particular class will not be used to
assist the distribution of any other class.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds and other Funds
of the Group. Compensation may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more Funds of
the Group, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. The Distributor, at
its expense, currently conducts an annual sales contest for dealers in
connection with their sales of Shares of the Funds. Dealers may not use sales of
a Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
THE PILOT FAMILY OF FUNDS
The Pilot Funds was organized on July 15, 1992 as a Massachusetts business trust
under the name Centerland Fund. On June 1, 1994, its name was changed to The
Pilot Funds. The Pilot Funds is a mutual fund of the type known as an "open-end
management investment company." A mutual fund permits an investor to pool his or
her assets with those of others in order to achieve economies of scale, take
advantage of professional money managers and enjoy other advantages
traditionally reserved for large investors. The Trustees of the Funds are
responsible for the overall management and supervision of its affairs. The
Agreement and Declaration of Trust permits the Board of Trustees of The Pilot
Funds to create separate series or portfolios of shares. To date, twelve
portfolios have been established. The Agreement and Declaration of Trust also
permits the Board of Trustees to classify or reclassify any series or portfolio
of shares into one or more classes and to establish additional portfolios in the
future. The Trustees have authorized the issuance of an unlimited number of
shares available to selected investors, in each of three share classes (Class A
Shares, which are referred to as the Administration Shares in the Money Market
portfolios, Class B Shares, which are referred to as Investor Shares in the
Money Market portfolios and are not currently available in the Pilot
International Equity Fund, and Pilot Shares) in the Funds. Information regarding
The Pilot Funds' other portfolios may be obtained by contacting The Pilot Funds
or the Distributor.
Class A Shares of the Fund are described in this prospectus. Each Class A Share
and Pilot Share, of the Fund represents an equal proportionate interest in the
assets belonging to the Fund. It is contemplated that most Shares will be held
in accounts of which the record owner is a bank or other institution acting as
nominee for its customers who are beneficial owners of the Shares. Pilot Shares
may be purchased for accounts held in the name of an institution that is not
compensated by the Funds for services provided to the institution's customers.
Class A Shares may be purchased for accounts held in the name of an institution
that provides certain account administration services to its customers,
including maintenance of account records and processing orders to purchase,
redeem and exchange Class A Shares. Please refer to the Statement of Additional
Information for the Class A Shares for a more complete description of such
services. Shares of each class may be exchanged only for Shares of the same
class in another fund. Except as described herein, the two 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.
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
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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.
THE BUSINESS OF THE FUND
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF THE PILOT FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
SERVICE PROVIDERS
Adviser: BOATMEN'S TRUST COMPANY (referred to as "Boatmen's" or the "Adviser")
manages the investment portfolio of the Fund, selecting the investments and
making purchase and sale orders. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. The mailing address is P.O. Box 14737
at that address.
Investment Manager: KLEINWORT BENSON INVESTMENT MANAGEMENT AMERICAS INC.
(referred to as "Kleinwort Benson"), formerly Kleinwort Benson International
Investment Limited, serves as investment manager to the Fund. It is located at
200 Park Avenue, New York, New York 10166.
Administrator: CONCORD HOLDING CORPORATION (referred to as "Concord"), is
responsible for coordinating the Fund's efforts and generally overseeing the
operation of the Fund's business. Concord's principal offices are located at
3435 Stelzer Road, Columbus, Ohio 43219-3035.
Distributor: Each Fund's shares are sold on a continuous basis by the
Distributor, PILOT FUNDS DISTRIBUTORS, INC. (referred to as the "Distributor"),
a registered broker-dealer and a wholly-owned subsidiary of Concord that is
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Custodian: STATE STREET BANK AND TRUST COMPANY (referred to as "State Street")
is responsible for holding the investments purchased by each Fund. State Street
is located at 225 Franklin Street, Boston, Massachusetts 02110.
Transfer Agent: BISYS FUND SERVICES, INC. (referred to as the "Transfer Agent")
is the transfer and dividend disbursing agent of the Fund. It maintains the
account records of all shareholders and administers the distribution of all
income earned as a result of investing in the Fund. The Transfer Agent is
located at 3435 Stelzer Road, Columbus, OH 43219-3035.
MORE ABOUT BOATMEN'S. Founded in 1889, Boatmen's a trust company, organized
under the laws of Missouri, provides a broad range of trust and investment
services for individuals, privately and publicly held business, governmental
units, pension and profit sharing plans and other institutions and
organizations. As of June 30, 1995, Boatmen's and its affiliates managed nearly
$83 billion in assets ($45 billion over which they had investment discretion and
$38 billion over which they did not have investment discretion).
Boatmen's Bancshares, Inc., Boatmen's parent, is a registered bank holding
company which owns substantially all of the outstanding capital stock of
numerous commercial banks located in Illinois, Iowa, Kansas, Missouri, New
Mexico, Oklahoma, Tennessee and Texas, a mortgage banking company, a credit life
insurance company, a federal savings bank in Arkansas and a limited service bank
in Delaware.
Under its Advisory Agreement with the Funds on behalf of each of the Funds,
Boatmen's supervises the activities of Kleinwort Benson, the investment manager.
Boatmen's pays all costs incurred by it in connection with the performance of
its duties under the Advisory Agreement other than the cost (including taxes and
brokerage commissions, if any) of securities purchased for the Fund.
Boatmen's has designated the following portfolio manager as being primarily
responsible for the management of the Fund. Michael E. Kenneally, CFA is a
Senior Vice President and Director of Research. In addition to his
responsibilities in connection with the management of the international
portfolios, including the Fund, Mr. Kenneally is responsible for all fundamental
and quantitative research as well as the management of all small capitalization
and growth-style portfolios.
MORE ABOUT KLEINWORT BENSON. Kleinwort Benson is the SEC registered investment
management subsidiary of the London-based Kleinwort Benson Group plc, a holding
company for a merchant banking group whose origins date back to 1792. Kleinwort
Benson has offices in London, Hong Kong and Tokyo and may utilize the general
expertise of Kleinwort Benson Group plc and its affiliates in respect of, for
example, economic analyses and predictions and market developments and trends.
Since it commenced operations in 1980, Kleinwort Benson has managed investment
accounts, primarily for institutions in North America, comprised of equity,
fixed income and balanced portfolios. These portfolios as a
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general rule consist principally of foreign securities. As of September 30,
1994, Kleinwort Benson had approximately $3.6 billion of assets under
management.
MORE ABOUT CONCORD. Concord is a Delaware corporation that was organized in 1987
to provide administrative services to mutual funds. Concord currently functions
as administrator for over $30 billion in mutual fund assets. Under its
Administration Agreement with the Fund, Concord provides a wide range of such
services to the Funds, including maintaining the Funds' offices, providing
statistical and research data, coordinating the preparation of reports to
shareholders, calculating or providing for the calculation of the net asset
values of Fund shares and dividends and capital gain distributions to
shareholders, and performing other administrative functions necessary for the
smooth operation of the Funds. The Funds bear all fees and expenses charged by
State Street for these services. Certain officers of The Pilot Funds, namely
Messrs. Martin Dean, Lester J. Lay, George O. Martinez and William J. Tomko and
Ms. Susan L. West, officers of The Pilot Funds, are also employees and/or
officers of Concord, the Distributor or an affiliate.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the 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.
As compensation for the services rendered to the Funds by Boatmen's as
investment adviser, and the assumption by Boatmen's of the expenses related
thereto, Boatmen's is entitled to a fee computed daily and payable monthly at an
annual rate equal to .80 of 1% of the average daily net assets of the Fund. For
the period from September 1, 1994 through August 31, 1995, Boatmen's was paid at
the above rate. For the fiscal years ended August 31, 1994 and 1995, Boatmen's
received $2,422,559 and $2,828,628 in advisory fees, respectively.
Effective June 1, 1995, pursuant to approval from shareholders received at a
Special Meeting held on May 24, 1995, as compensation for the services rendered
by Kleinwort Benson as investment manager to the Fund, Kleinwort Benson is
entitled to a fee, paid by Boatmen's directly out of Boatmen's advisory fee,
computed daily and payable monthly at an annual rate equal to .40 of 1% up to
$325,000,000 and .25 of 1% of such assets in excess of $325,000,000, on an
annualized basis. Prior to June 1, 1995, Kleinwort Benson was entitled to a fee,
computed daily and payable monthly at an annual rate equal to .80 of 1% of such
assets up to $65,000,000, .40 of 1% of such assets in excess of $65,000,000 and
less than $325,000,000, and .25 of 1% of such assets in excess of $325,000,000.
For the period from August 31, 1993 through August 31, 1994, the compensation
received by Kleinwort Benson constituted .48 of 1% of the Fund's average daily
net assets. For the fiscal year ended August 31, 1995, the fee paid by Boatmen's
to Kleinwort Benson America was $1,535,377, which equaled .43 of 1% of the
Fund's average daily net assets. Under the terms of the Investment Management
Agreement among the Funds, Kleinwort Benson and Boatmen's, Kleinwort Benson,
subject to the general supervision of the Funds' Board of Trustees and
Boatmen's, manages the investment operations of the Fund and the composition of
the Fund's assets, including the purchase, retention and disposition thereof.
With respect to the Fund, all investment decisions are made by a committee
consisting of personnel of Kleinwort Benson. No one person is responsible for
recommendations to that committee.
For its services as administrator, Concord is entitled to an administration fee
from The Pilot Funds which is calculated based on the net assets of all of the
investment portfolios of The Pilot Funds combined. Under the Administration
Agreement, each Fund pays its pro-rata share of an annual fee to Concord,
computed daily and payable monthly, of .115 of 1% of The Pilot Funds' average
net assets up to $1.5 billion, .110 of 1% of The Pilot Funds' average net assets
on the next $1.5 billion and .1075 of 1% of The Pilot Funds' average net assets
in excess of $3 billion. These amounts may be reduced pursuant to fee waivers by
Concord. Any such fee waivers may be terminated by Concord at any time. For the
fiscal year ended August 31, 1994 and 1995, the Fund paid administration fees to
Concord in the amount of $295,477 and $386,949, respectively.
The Funds are responsible for all expenses incurred by the Fund, other than
those expressly borne by Boatmen's, Kleinwort Benson, Concord or the Transfer
Agent under the Advisory, Investment Management, Administration or Transfer
Agency Agreements. Such expenses include, the fees payable to Boatmen's, Concord
and the Transfer Agent, the fees and expenses of the Fund's custodian, brokerage
fees and commissions, any portfolio losses, state and federal registration fees
for the qualifying Fund Shares under federal or state securities laws,
organization expenses, membership fees in investment-company organizations,
taxes, interest, costs of liability insurance, fidelity bonds, indemnification
or contribution, any costs, expenses or losses arising out of any liability of,
or claim for damages or other relief asserted against, the Funds for violation
of any law, legal and auditing and tax fees and expenses, expenses of preparing
and setting in type prospectuses, statements of additional information, proxy
material, reports and notices and the printing and distributing of the same to
the Fund's Shareholders and
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regulatory authorities, compensation and expenses of its Trustees and
extraordinary expenses incurred by the Funds. The fees payable to Kleinwort
Benson are paid by Boatmen's directly out of Boatmen's advisory fee.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Boatmen's and the Fund's other service providers, as well as
by certain mandatory expense limits imposed by some state securities regulators.
However, as to any amounts voluntarily waived or reimbursed, the service
providers retain the ability to be reimbursed by the Fund for such amounts prior
to fiscal year end. These waivers and reimbursements would increase the yield to
investors when made but would decrease yields if the Fund were required to
reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING THE FEDERAL INCOME TAX TREATMENT
OF DIVIDENDS AND DISTRIBUTIONS MADE TO YOU.
The Fund intends to elect to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, as amended, (the "Code"). As a
regulated investment company, the Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. In addition, as a regulated
investment company, the Fund generally will not incur a federal income or excise
tax on any investment company taxableincome and net capital gains that are
distributed to its Shareholders in accordance with certain timing requirements
of the Code.
Dividends of investment company taxable income, which generally includes the
excess of net short-term capital gains over net long-term capital losses,
dividends and interest (including original issue discount and market discount),
less expenses, will be taxable to Shareholders as ordinary income. If a portion
of the income of the Fund consists of dividends paid by U.S. corporations, a
portion of the dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of the excess of net long-term
capital gains over net short-term capital losses, if any, which are designated
as "capital gains dividends" by the Fund will be taxable as long-term capital
gains regardless of how long the Shareholders have held their Shares. These tax
consequences will apply regardless of whether distributions are received in cash
or reinvested in Shares. Distributions declared in October, November or December
with a record date in such month and paid in January of the following year are
taxable to Shareholders as if received on December 31 of the year declared.
Shareholders will be informed about the amount and character of distributions
received from the Fund for federal income tax purposes, including any
distributions that may constitute a return of capital.
Investments in zero coupon securities and other original issue discount
obligations will result in income to the Fund each year equal to a portion of
the excess of the face value of the securities over their issue price, even
though the Fund receives no cash interest payments from the securities.
Any gain or loss realized by a Shareholder upon the sale or other disposition of
Shares, or upon receipt of a distribution in complete liquidation of the Fund,
generally will be a capital gain or loss which will be long-term or short-term,
generally depending upon the Shareholder's holding period for the Shares.
Individuals and certain other classes of Shareholders may be subject to 31%
withholding of federal income tax on taxable distributions if they fail to
furnish the Fund with their correct taxpayer identification number and certain
certifications regarding their tax status or if they are otherwise subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against a Shareholder's U.S. federal income tax
liability.
If the Fund invests in foreign securities it may be subject to foreign
withholding taxes on income earned on such securities and may be unable to pass
through to Shareholders the ability to claim foreign tax credits and deductions
with respect to such taxes. Certain gains and losses which are attributable to
fluctuations in the value of foreign currency are treated as ordinary income and
losses. These gains and losses may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to Shareholders as ordinary
income.
In addition to federal taxes, a Shareholder may be subject to state and local
taxes on payments received from the Fund. A state tax exemption may be available
in some states to the extent distributions of the Fund are derived from interest
on certain direct U.S. Government obligations or on obligations of the
particular state.
Shareholders should consult their own tax advisers concerning these matters.
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Further information relating to tax consequences is contained in the Statement
of Additional Information.
MEASURING PERFORMANCE
Performance information provides you with a method of measuring and monitoring
your investments. The Fund may quote its performance in advertisements or
shareholder communications. The performance for each class of shares of a Fund
is calculated separately from the performance of the Fund's other classes of
shares.
Understanding performance measures:
TOTAL RETURN for the Fund may be calculated on an AVERAGE ANNUAL TOTAL RETURN
basis or an AGGREGATE TOTAL RETURN BASIS. Average annual return reflects the
average annual percentage change in value of an investment over the measuring
period. Aggregate total return reflects the total percentage change in value of
an investment over the measuring period. Both measures assume the reinvestment
of dividends and distributions.
The Fund may provide quotes of total returns and yields WITHOUT REFLECTING A
SALES LOAD, which quotations will, of course, be higher than quotations that do
reflect such a sales charge.
Performance comparisons:
The Fund may compare its total returns to that of mutual funds with similar
investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Total return data as reported in national financial publications such as Money,
Forbes, Barron's, The Wall Street Journal and The New York Times, as well as in
publications of a local or regional nature, may be used for comparison.
Total returns for the Fund may be compared to indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Lehman Brothers
Bond Index, the Merrill Lynch Bond Index, the Wilshire 5000 Equity Index or the
Consumer Price Index.
INVESTMENT RESULTS OF THE FUND ARE BASED ON HISTORICAL PERFORMANCE AND
PERFORMANCE QUOTATIONS WILL FLUCTUATE. YOU SHOULD NOT CONSIDER QUOTATIONS TO BE
REPRESENTATIVE OF FUTURE PERFORMANCE. YOU SHOULD ALSO REMEMBER THAT PERFORMANCE
IS GENERALLY A FUNCTION OF THE KIND AND QUALITY OF INVESTMENTS HELD IN A
PORTFOLIO, PORTFOLIO MATURITY, OPERATING EXPENSES AND MARKET CONDITIONS. FEES
THAT BOATMEN'S INVESTMENT SERVICES OR ANOTHER SERVICE ORGANIZATION MAY CHARGE
DIRECTLY TO ITS CUSTOMER ACCOUNTS IN CONNECTION WITH AN INVESTMENT IN THE FUNDS
WILL NOT BE INCLUDED IN THE FUND'S CALCULATIONS OF TOTAL RETURN. INQUIRIES
REGARDING THE FUND MAY BE DIRECTED TO THE DISTRIBUTOR AT 3435 STELZER ROAD,
COLUMBUS, OHIO 43219-3035.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUND INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
23
<PAGE> 188
PILIEA1295P
<PAGE> 189
- -----FINANCIAL
DIRECTION December 29, 1995
LOGO
The
Pi lot
Funds
PROSPECTUS ENCLOSED
PILOT INTERNATIONAL
EQUITY FUND
Pilot Shares
<PAGE> 190
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................................................... 2
FINANCIAL HIGHLIGHTS.................................................................................. 4
INVESTMENT OBJECTIVE AND RISK FACTORS................................................................. 5
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES................................................... 5
U.S. Government Securities....................................................................... 5
U.S. and Foreign Bank Obligations................................................................ 5
Forward Commitments and When-Issued Securities................................................... 5
Common and Preferred Stocks...................................................................... 6
Convertible Securities........................................................................... 6
Small Capitalization Companies................................................................... 6
Foreign Securities............................................................................... 6
Investing in Emerging Markets.................................................................... 6
American/European Depository Receipts............................................................ 7
Forward Foreign Currency Exchange Contracts...................................................... 7
Currency Swaps................................................................................... 7
Repurchase Agreements............................................................................ 7
Lending of Portfolio Securities.................................................................. 7
Options Transactions............................................................................. 8
Futures Contracts and Options on Futures Contracts............................................... 8
Other Information................................................................................ 9
INVESTMENT LIMITATIONS................................................................................ 9
INVESTING IN THE PILOT FUNDS.......................................................................... 9
HOW TO BUY SHARES..................................................................................... 9
HOW TO SELL SHARES.................................................................................... 10
Payment of Redemption Proceeds and Dividends..................................................... 11
EXCHANGE PRIVILEGE.................................................................................... 11
DIVIDENDS AND DISTRIBUTIONS........................................................................... 11
Where do your dividends and distributions come from?............................................. 11
How are dividends and distributions declared and paid?........................................... 11
When are dividends and distributions declared and paid?.......................................... 11
THE PILOT FAMILY OF FUNDS............................................................................. 11
THE BUSINESS OF THE FUND.............................................................................. 12
FUND MANAGEMENT....................................................................................... 12
TAX IMPLICATIONS...................................................................................... 14
MEASURING PERFORMANCE................................................................................. 15
</TABLE>
<PAGE> 191
THE PILOT FUNDS
LOGO
PROSPECTUS FOR PILOT SHARES
OF THE
PILOT INTERNATIONAL EQUITY FUND
December 29, 1995
- --------------------------------------------------------------------------------
The Pilot Funds is an open-end, management investment company (a "mutual fund")
consisting of multiple portfolios. This prospectus relates solely to the
offering of shares of the Pilot International Equity Fund, formerly known as the
Pilot Kleinwort Benson International Equity Fund (the "Fund"). Boatmen's Trust
Company ("Boatmen's") serves as the Fund's investment adviser. Kleinwort Benson
Investment Management Americas Inc. ("Kleinwort Benson") serves as the Fund's
investment manager. Pilot Funds Distributors, Inc. serves as the Fund's
distributor, and its parent, Concord Holding Corporation, serves as the Fund's
administrator.
The investment objective of the Fund is to provide long-term capital growth by
investing primarily in equity securities of companies domiciled in countries
outside the United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin. The Fund may invest up to 35% of its total assets
in issuers domiciled in developing countries. This Prospectus describes Pilot
Shares of the Pilot International Equity Fund.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BOATMEN'S TRUST COMPANY OR ANY OF ITS AFFILIATES AND ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUND INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE AMOUNT OF
DIVIDENDS PAID BY THE FUND WILL VARY. BOATMEN'S TRUST COMPANY SERVES AS
INVESTMENT ADVISER TO THE FUND, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH PILOT FUNDS DISTRIBUTORS, INC., THE FUND'S DISTRIBUTOR.
THIS PROSPECTUS DESCRIBES CONCISELY THE INFORMATION ABOUT THE FUND THAT YOU
SHOULD KNOW BEFORE INVESTING. PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
MORE INFORMATION ABOUT THE FUND IS CONTAINED IN A STATEMENT OF ADDITIONAL
INFORMATION THAT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
STATEMENT OF ADDITIONAL INFORMATION CAN BE OBTAINED FREE UPON REQUEST BY CALLING
800/71-PILOT, BY CALLING YOUR INSTITUTION OR BY WRITING PILOT FUNDS
DISTRIBUTORS, INC., 3435 STELZER ROAD, COLUMBUS, OHIO 43219-3035. THE STATEMENT
OF ADDITIONAL INFORMATION, AS IT MAY BE REVISED FROM TIME TO TIME, IS DATED
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.
- --------------------------------------------------------------------------------
1
<PAGE> 192
EXPENSE SUMMARY (1)
SHAREHOLDER TRANSACTION EXPENSES are charges you pay directly when buying or
selling shares of the Fund.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services.
Below is information regarding the Fund's shareholder transaction expenses and
the operating expenses which the Fund expects to incur during the next twelve
months on its Pilot Shares. Examples based on this information are also
provided.
PILOT SHARES (2)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PILOT INTERNATIONAL
EQUITY FUND
-------------------
<S> <C>
Maximum Sales Load Imposed on Purchases...................................................... None
Maximum Sales Load Imposed on Reinvested Dividends........................................... None
Redemption Fees.............................................................................. None
Exchange Fees................................................................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees.............................................................................. 0.80%
Other Expenses (3)........................................................................... 0.38%
-----
Total Operating Expenses................................................................ 1.18%
=====
</TABLE>
Example of Expenses (2)
You would pay the following Fund expenses on a hypothetical $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES;
ACTUAL EXPENSES MAY VARY DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THE
ACTUAL PERFORMANCE OF THE FUND, WHICH MAY BE GREATER OR LESS THAN 5%.
<TABLE>
<S> <C>
One Year.............................................................................. $ 12
Three Years........................................................................... $ 37
Five Years............................................................................ $ 65
Ten Years............................................................................. $ 143
</TABLE>
- ---------------
Notes:
(1) The purpose of this Table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly
or indirectly.
(2) The information set forth in the Table and Example relates only to Pilot
Shares of the Fund. Class A Shares of the Fund are subject to different fees
and expenses, as well as a front-end sales load of up to 4.5% of the
offering price. See "The Pilot Family of Funds". Class A Shares pay a
distribution fee of up to .25 of 1% of average daily net assets. All other
Fund expenses related to Class A Shares are the same as for Pilot Shares.
(3) Other expenses have been restated for the fiscal year ended August 31, 1995
and include certain miscellaneous "class expenses" (i.e., certain printing,
registration and per account transfer agency expenses). The Pilot Funds has
requested a private letter ruling from the Internal Revenue Service to the
effect that the allocation of such expenses on a class basis will not result
in preferential dividends. Such expenses will not be allocated on a class
basis until receipt of the ruling, which it is anticipated will occur during
the current fiscal year.
2
<PAGE> 193
PILOT INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following data with respect to a Share of the Pilot International Equity
Fund, formerly known as the Pilot Kleinwort Benson International Equity Fund,
outstanding during the period ended August 31, 1995 has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference and attached to the Statement of Additional
Information, and should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Statement of
Additional Information. This annual report also contains performance information
and is available upon request and without charge by writing to the address on
the front of this Prospectus. Prior to a tax-free reorganization effective July
12, 1993, the Pilot Kleinwort Benson International Equity Fund was a separate
portfolio of Kleinwort Benson Investment Strategies and known as the Kleinwort
Benson International Equity Fund. The following financial highlights also
present historical information of the Kleinwort Benson International Equity Fund
prior to July 12, 1993. The Kleinwort Benson International Equity Fund was
advised solely by Kleinwort Benson Investment Management Americas Inc., formerly
Kleinwort Benson International Investment Limited for those periods.
The following data with respect to a Share of the Kleinwort Benson International
Equity Fund of Kleinwort Benson Investment Strategies outstanding for each of
the seven years in the period ended December 31, 1992 have been audited by Ernst
& Young LLP, independent auditors, as indicated in their report incorporated by
reference and attached to the Statement of Additional Information, and should be
read in conjunction with the financial statements and related notes incorporated
by reference and attached to the Statement of Additional Information.
The Pilot Shares were first issued by the Pilot Kleinwort Benson International
Equity Fund during July, 1993. Accordingly, there are no financial highlights
with respect to the Fund for such shares for periods prior to such dates. The
financial highlights presented below for periods prior to July 12, 1993
represent historical information for shares of the Kleinwort Benson
International Equity Fund which became Pilot Administration Shares pursuant to a
tax-free reorganization effected on July 12, 1993. Effective August 21, 1995 the
Administration Shares were redesignated as the Class A Shares of the Fund. Class
A Shares will be subject to additional fees (Distribution Plan Fees), as well as
a front-end sales load of up to 4.5% of the offering price.
- --------------------------------------------------------------------------------
3
<PAGE> 194
PILOT INTERNATIONAL EQUITY FUND
------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH OF
THE PERIODS INDICATED
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------------------------
NET REALIZED
AND
UNREALIZED TOTAL
NET REALIZED GAIN (LOSS) INCOME
NET ASSET NET AND UNREALIZED ON FOREIGN (LOSS)
VALUE AT INVESTMENT GAIN (LOSS) ON CURRENCY FROM
BEGINNING INCOME INVESTMENT RELATED INVESTMENT
OF PERIOD (LOSS) TRANSACTIONS(C) TRANSACTIONS OPERATIONS
--------- ---------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- ------------------------------------------------------
1995--Pilot Shares.................................... $ 16.34 $ 0.13(i) $ (0.22)(i) $ 0.39(i) $ 0.30
1995--Class A Shares(j)............................... 16.29 0.08(i) (0.22)(i) 0.39(i) 0.25
1994--Pilot Shares.................................... 14.14 0.11(i) 1.65(i) 0.59(i) 2.35
1994--Administration Shares........................... 14.13 0.07(i) 1.65(i) 0.59(i) 2.31
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- ------------------------------------------------------
1993--Pilot Shares(d)................................. 13.15 (0.01)(i) 1.10(i) (0.10)(i) 0.99
1993--Administration Shares(a)(b)..................... 11.85 0.02(i) 2.51(i) (0.25)(i) 2.28
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- ------------------------------------------------------
1992--Administration Shares........................... 12.29 0.04(i) (0.46)(i) -- (0.42)
1991--Administration Shares........................... 12.65 0.06 1.36 -- 1.42
1990--Administration Shares........................... 15.58 0.12 (2.40) -- (2.28)
1989--Administration Shares........................... 14.66 0.07 3.22 -- 3.29
1988--Administration Shares........................... 13.21 (0.01) 2.73 -- 2.72
1987--Administration Shares........................... 22.92 -- 2.11 -- 2.11
1986--Administration Shares........................... 17.95 0.02 9.13 -- 9.15
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
--------------------------
NET REALIZED
GAIN ON
INVESTMENTS
AND
FOREIGN
NET CURRENCY
INVESTMENT RELATED
INCOME TRANSACTIONS
---------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- ------------------------------------------------------
1995--Pilot Shares.................................... $(0.11) $ (0.29)
1995--Class A Shares(j)............................... (0.11) (0.29)
1994--Pilot Shares.................................... -- (0.15)
1994--Administration Shares........................... -- (0.15)
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- ------------------------------------------------------
1993--Pilot Shares(d)................................. -- --
1993--Administration Shares(a)(b)..................... -- --
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- ------------------------------------------------------
1992--Administration Shares........................... (0.02) --
1991--Administration Shares........................... (0.08) (1.70)
1990--Administration Shares........................... (0.14) (0.51)
1989--Administration Shares........................... (0.22) (2.15)
1988--Administration Shares........................... -- (1.27)
1987--Administration Shares........................... -- (11.82)
1986--Administration Shares........................... -- (4.18)
<CAPTION>
RATIO OF
NET NET
ASSET RATIO OF INVESTMENT
VALUE EXPENSES INCOME NET ASSETS
AT PORTFOLIO TO AVERAGE (LOSS) AT END OF
END OF TOTAL TURNOVER NET TO AVERAGE PERIOD
PERIOD RETURN(E) RATE ASSETS NET ASSETS (IN 000'S)
------- --------- ------ ---------- ---------- ----------
FOR THE YEAR ENDED AUGUST 31,
- ------------------------------------------------------
1995--Pilot Shares....................................$16.24 2.08% 35.91% 1.18% 0.82% $363,212
1995--Class A Shares(j)............................... 16.14 1.77 35.91 1.42 0.50 27,625
1994--Pilot Shares.................................... 16.34 16.75 35.40 1.12 0.75 307,561
1994--Administration Shares........................... 16.29 16.48 35.40 1.37 0.48 44,990
FOR THE EIGHT MONTHS ENDED AUGUST 31,
- ------------------------------------------------------
1993--Pilot Shares(d)................................. 14.14 7.53 (f 26.65 (f)(h) 1.31(g) (0.56)(g) 195,548
1993--Administration Shares(a)(b)..................... 14.13 19.24 (f 26.65 (f )(h) 2.17(g) 0.25(g) 55,816
FOR THE YEARS ENDED DECEMBER 31,(A)(B)
- ------------------------------------------------------
1992--Administration Shares........................... 11.85 (3.42) 58.55 1.78 0.35 56,358
1991--Administration Shares........................... 12.29 11.81 51.88 1.79 0.45 65,939
1990--Administration Shares........................... 12.65 (14.77) 52.00 1.82 0.76 72,007
1989--Administration Shares........................... 15.58 22.99 61.54 2.00 0.39 80,224
1988--Administration Shares........................... 14.66 21.03 54.84 2.31 (0.07) 59,864
1987--Administration Shares........................... 13.21 9.28 58.98 1.72 0.01 53,800
1986--Administration Shares........................... 22.92 52.62 76.35 1.49 0.10 92,592
</TABLE>
- ------------
<TABLE>
<S> <C>
<CAPTION>
(a) Prior to a tax-free reorganization into Pilot Administration shares effective July 12, 1993, the Pilot Kleinwort Benson
International Equity Portfolio was a separate portfolio of Kleinwort Benson Investment Strategies known as Kleinwort Benson
International Equity Fund. The predecessor portfolio was advised by Kleinwort Benson International Investment Limited and
had a December 31 fiscal year-end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subjected to an Administration plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and unrealized gain (losses) from foreign currency
related transactions were included in net realized and unrealized gain (losses) on investment transactions. Effective
January 1, 1993, realized and unrealized gain (losses) from Foreign currency related transactions are disclosed separately
from net realized and unrealized gain (losses) on investment transactions.
(d) Pilot shares were initially issued on July 26, 1993.
(e) Assumes investment at net asset value at the beginning of the period, reinvestment of all dividends and distributions, a
complete redemption of the investment at the net asset value at the end of the period and no sales charges. Total return
would be reduced if sales charges were taken for the Pilot Administration shares.
(f ) Not annualized.
(g) Annualized.
(h) Calculated on a portfolio-wide level and excludes the transfer of assets effective on August 6, 1993.
(i) Calculated based on the average shares outstanding methodology.
(j) Effective August 21, 1995 the Administration Class Shares were redesignated as the Class A Shares.
</TABLE>
4
<PAGE> 195
The Pilot International Equity Fund uses a variety of different investments and
investment techniques in seeking to achieve the Fund's investment objective. The
Fund does not use all of the investments and investment techniques described in
the following sections. The Fund is not designed to be a complete investment
program but can be appropriate as part of a complete investment strategy. You
should consider whether the Fund meets your investment goal. Although the Fund
attempts to attain its investment objective, there can be no assurance it will
be successful.
SHAREHOLDER APPROVAL IS NOT REQUIRED TO CHANGE THE INVESTMENT OBJECTIVE OF THE
FUND. HOWEVER, SHAREHOLDERS WILL BE GIVEN AT LEAST 30 DAYS' PRIOR WRITTEN NOTICE
IN THE EVENT OF A CHANGE IN THE FUND'S OBJECTIVE. UNLESS OTHERWISE STATED, EACH
INVESTMENT POLICY DESCRIBED BELOW MAY BE CHANGED AT ANY TIME BY THE PILOT FUNDS'
BOARD OF TRUSTEES WITHOUT SHAREHOLDER APPROVAL.
INVESTMENT OBJECTIVE AND RISK FACTORS
The investment objective of the Fund is to provide long-term capital growth by
investing primarily in equity securities of companies domiciled in countries
outside the United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin. Under normal circumstances, the Fund will invest
at least 65% of its total assets in foreign equity securities, including
securities convertible into equity securities and in securities which are listed
on major stock exchanges. The Fund may purchase the stock of small and large
capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Trustees, Russia and the Middle East. Debt
securities, if any, purchased by the Fund will be rated in the top two
categories by a nationally recognized statistical rating organization ("NRSRO")
or, if unrated, determined by Kleinwort Benson to be of comparable quality. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
debt and equity securities of U.S. issuers. Debt securities in which the Fund
may invest include short-term and intermediate-term obligations of corporations,
foreign governments and international organizations (such as the International
Bank for Reconstruction and Development (the "World Bank")), including money
market instruments.
Investments and investment techniques in which the Fund may invest include
common stocks (including securities convertible into common stocks) of foreign
issuers and rights to purchase common stock, options and futures contracts on
securities, securities indexes and foreign currencies, securities lending and
repurchase agreements. These and other securities in which the Fund may invest
are further described below.
DESCRIPTION OF SECURITIES AND INVESTMENT
TECHNIQUES
- --U.S. Government Securities. The Fund may purchase obligations of the U.S.
Government. These obligations are issued or guaranteed as to principal or
interest by the U.S. Government, its agencies, authorities or instrumentalities
("U.S. Government Securities"). Some U.S. Government securities, such as
Treasury bills, notes and bonds, which differ only in their interest rates,
maturities and times of issuance, are supported by the full faith and credit of
the United States. Others, such as obligations issued or guaranteed by U.S.
Government agencies, authorities or instrumentalities, are supported by (a) the
full faith and credit of the U.S. Government (such as securities of the Small
Business Administration), (b) the right of the issuer to borrow from the
Treasury (such as securities of the Federal Home Loan Banks), (c) the
discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association),
or (d) only the credit of the issuer. No assurance can be given that the U.S.
Government will continue to provide financial support to U.S. Government
agencies, authorities or instrumentalities.
- --U.S. and Foreign Bank Obligations. The Fund may invest in domestic bank
obligations of banks that have total assets in excess of $1 billion and are
subject to U.S. Government regulation, and in certificates of deposit issued by
Federal Deposit Insurance Corporation (FDIC) members that have total assets less
than $1 billion, provided that the principal amounts of such certificates are
fully covered by FDIC insurance. The Fund may invest in U.S. dollar-denominated
foreign bank obligations of foreign banks that have total assets in excess of
$10 billion, are among the 75 largest foreign banks in total assets, have
branches or agencies in the U.S. and meet other criteria established by the
Fund's Trustees. The Fund may also invest in other bank obligations.
- --Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. The Fund is
required to hold and maintain in a segregated account with the Funds' custodian
or subcustodian until the settlement date, cash, U.S. Government securities or
other high grade liquid debt obligations in an amount sufficient to meet the
purchase price. Alternatively, the Fund may enter into offsetting contracts for
the forward sale of other securities that it owns. Securities purchased or sold
on a when-issued or forward commitment basis involve a risk of loss if the
5
<PAGE> 196
value of the security to be purchased decreases prior to the settlement date or
if the value of the security to be sold increases prior to the settlement date.
Although the Fund would generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if Boatmen's, or Kleinwort Benson, deems it appropriate to
do so and such disposition may give rise to a capital gain and loss.
- --Common and Preferred Stocks. Common stocks are generally more volatile than
other securities. Preferred stocks share some of the characteristics of both
debt and equity and are generally preferred over common stocks with respect to
dividends and in liquidation.
- --Convertible Securities. The Fund may invest in convertible securities, which
may offer higher income than the common stocks into which they may be converted.
All convertible securities purchased by the Fund will be rated in the top two
categories by an NRSRO or, if unrated, determined by Kleinwort Benson to be of
comparable quality. Convertible securities (which may be current or zero coupon
securities) are bonds, notes, debentures, preferred stocks or other securities
which may be converted or exchanged at a stated or determinable exchange ratio
into shares of common stock. Prior to their conversion, convertible securities
have general characteristics similar to non-convertible securities. While
convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality, they may reflect changes in the
value of the underlying common stock. Convertible securities generally entail
less credit risk than the issuer's common stock because they rank senior to
common stock.
- --Small Capitalization Companies. The Fund may invest in smaller, lesser-known
companies which Kleinwort Benson believes offer greater growth potential than
larger, more mature, better-known firms. Investing in the securities of such
companies, however, may also involve greater risk and the possibility of greater
portfolio price volatility. Among the reasons for the greater price volatility
of these small company and unseasoned stocks are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitivity of small companies to changing economic
conditions. For example, these companies are associated with higher investment
risk than that normally associated with larger firms due to the greater business
risks of small size and limited product lines, markets, distribution channels
and financial and managerial resources.
- --Foreign Securities. The Fund may invest in foreign securities which are
denominated in foreign currencies. Investment in foreign securities may present
a greater degree of risk than investment in domestic securities because of less
publicly-available financial and other information, less securities regulation,
different accounting standards, lower trading volume and market volatility,
difficulties in enforcing obligations, potential imposition of foreign
withholding and other taxes (including withholding on dividends or interest paid
to the Fund), war, expropriation or other adverse governmental or economic
actions. Furthermore, the settlement period of securities transactions may be
longer in foreign markets than in domestic markets, delivery of securities
without payment therefor may be required and transactions may involve
non-negotiable brokerage commissions. Purchases of foreign securities by the
Fund will usually be made in foreign currencies and, as a result, the Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar. In addition,
the Fund's performance may be favorably or unfavorably affected by changes in
exchange rates or exchange rate controls, which may include suspension of the
ability to transfer currency from a given country. These risks generally are of
greater concern in developing countries.
The Fund may acquire U.S. dollar denominated obligations of the World Bank.
Obligations of the World Bank are supported by subscribed but unpaid commitments
of its member countries; there is no assurance that these commitments will be
fulfilled in the future.
- --Investing in Emerging Markets. The Fund may also invest up to 35% of its total
assets in one or more countries with emerging economies. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America,
Africa and, subject to approval by the Board of Trustees, Russia and the Middle
East. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of the Fund's investments in those countries and the
availability to the Fund of additional investments in those countries. The small
size and inexperience of the securities markets in certain of such countries and
the limited volume of trading in securities in those countries may make the
Fund's investment in such countries illiquid and more volatile than investments
in most other non-major U.S. markets, and the Fund may be required to establish
special custodial or other arrangements before making certain investments in
those countries. There may be little
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financial or accounting information available with respect to issuers located in
certain of such countries, and it may be difficult as a result to assess the
value of prospects of an investment in such issuers.
- --American/European Depository Receipts. The Fund may invest indirectly in the
securities of foreign issuers through sponsored or unsponsored ADRs and EDRs or
other securities representing securities of companies based in countries other
than the United States. Transactions in these securities may not necessarily be
settled in the same currency as the underlying securities which they represent.
Ownership of unsponsored ADRs and EDRs may not entitle the Fund to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs or EDRs. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets. ADRs and EDRs also involve certain risks of
other investments in foreign securities.
- --Forward Foreign Currency Exchange Contracts. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") for hedging and to
seek to increase total return and to purchase or sell currency in connection
with purchases and sales of foreign securities. A forward contract is
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency for an agreed price at a future date, which may be any fixed
number of days from the date of the contract. A forward contract may be for a
single price or for a range of prices. The Fund may be required to segregate
assets, consisting of cash, U.S. Government securities or other high grade
liquid debt obligations to cover forward contracts that require it to purchase
foreign currency.
The purpose of entering into these contracts is to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. At the same time, such contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. When Kleinwort Benson believes that the currency of a specific
country may deteriorate against another currency, it may enter into a forward
contract to sell the less attractive currency and buy the more attractive one
("cross-hedging"). The amount in question could be less than or equal to the
value of the Fund's securities denominated in the less attractive currency. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors, including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than that performance it would have had had it not
engaged in forward contracts.
- --Currency Swaps. The Fund may enter into currency swaps for hedging purposes
and to seek to increase total return. Currency swaps involve the exchange of
rights to make or receive payments in specified currencies. Since currency swaps
are individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its currency swap positions.
Currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If Kleinwort Benson is incorrect in its
forecasts of market values and currency exchange rates, the investment
performance of the Fund would be less favorable than it would be if this
investment technique were not used.
- --Repurchase Agreements. The Fund may enter into repurchase agreements with
banks and selected broker-dealers. A repurchase agreement is an agreement under
which the Fund purchases securities and the seller agrees to repurchase the
securities within a particular time at a specified price. The repurchase price
will exceed the original purchase price, the difference being income to the
Fund, and will be unrelated to the interest rate on the purchased securities.
The Fund's custodian or subcustodian will maintain custody of the purchased
securities for the duration of the agreement. The value of the purchased
securities, including accrued interest, will at all times exceed the value of
the repurchase agreement. In the event of bankruptcy of the seller or failure of
the seller to repurchase the securities as agreed, the Fund could suffer losses,
including loss of interest on or principal of the security and costs associated
with delay and enforcement of the repurchase agreement.
- --Lending of Portfolio Securities. The Fund may seek to increase its total
return by lending portfolio securities. Under present regulatory policies, such
loans may be made to institutions, such as broker-dealers, and are required to
be secured continuously by collateral in cash, U.S. Government securities or
other high grade liquid debt obligations maintained on a current basis at an
amount at least equal to the market value of the securities loaned. As with
other extensions of credit there are risks of delay in recovering, or even loss
of rights in, the collateral should the borrower of the securities fail
financially. However, the
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loans will be made only to firms deemed by Boatmen's or Kleinwort Benson to be
of good standing, and when, in the judgment of Boatmen's or Kleinwort Benson,
the consideration which may be earned currently from securities loans of this
type justifies the attendant risk. If securities loans are made, it is intended
that the value of the securities loaned would not exceed 30% of the value of the
total assets of the Fund.
- --Options Transactions. The Fund may purchase and sell (write) call and put
options on securities. Such options are agreements by the Fund in exchange for a
premium to sell or purchase securities at a specified price if the option is
exercised on or before a set date. Put options on securities will be written
only when the underlying securities are ones which the Fund could otherwise
purchase. Risks associated with writing covered options include the possible
inability to effect closing transactions at favorable prices and an appreciation
limit on the securities set aside for settlement. Call options will be sold
(written) only when the underlying securities are ones which the Fund holds.
The Fund may purchase and sell (write) call and put options on securities to
hedge against the risk of unfavorable price movements adversely affecting the
value of the securities the Fund holds or intends to buy.
The Fund may also purchase and sell (write) call and put options on securities
indexes to hedge against the risk of unfavorable price movements in securities.
Options on securities indexes are similar to options on securities except that
the holder of an option on an index has the right, in return for the premium
paid, to buy from (in the case of a call) or sell (in the case of a put) the
writer of the option the cash value of the index (rather than the security
underlying the option) at a specified exercise price at any time during the term
of the option.
The Fund may also purchase and sell options on currencies to seek to increase
total return and to protect against declines in the dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. The Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to the Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
The Fund is required to segregate assets, consisting of cash, U.S. Government
securities or other high grade liquid debt obligations in an amount equal to the
value of its obligations unless offsetting positions are maintained.
- --Futures Contracts and Options on Futures Contracts. For bona fide hedging or
other permissible risk management purposes, such as protecting the price or
interest rate of a security it holds or intends to buy, the Fund may enter into
futures contracts on securities and securities indexes and may purchase and sell
(write) call and put options on these futures contracts. The Fund may also enter
into futures contracts on currencies and may enter into futures contracts and
related options for purposes of seeking to increase total return, consistent
with the regulations of the Commodities Futures Trading Commission.
Hedging and other risk-management transactions are undertaken to reduce or
eliminate any of several kinds of price fluctuation risk. For example, put
options on securities futures might be purchased to protect against declines in
the market values of debt securities occasioned by higher interest rates and
securities-index futures might be sold to protect against a general decline in
the value of securities of the type that comprise the index. Currency futures
might be sold to protect against declines in the value of currencies in which
portfolio securities are denominated. If these hedging transactions are
successful, the futures or options positions taken by the Fund will rise in
value by an amount which approximately offsets the decline in the value of the
portion of a portfolio that is being hedged. Such decline in value might be
caused by a decline in the market value of portfolio securities.
The Fund may lose the expected benefit of futures transactions if securities
prices move in an unanticipated manner. Such unanticipated changes may also
result in poorer overall performance for the Fund than the performance it would
have had had it not entered into any futures transactions. In addition, changes
in the value of the Fund's futures and options positions may not prove to be
perfectly or even highly correlated with changes in the value of its portfolio
securities. This could limit the Fund's ability to hedge effectively against
interest rate or market risk or both and give rise to additional risks. There is
no assurance of market liquidity for purposes of closing out positions in
futures contracts and options on futures contracts; if such positions cannot be
closed, the Fund may incur losses in excess of its initial margin deposits.
The Fund will incur brokerage costs and will be required to post and maintain
"margin" as a good-faith deposit against performance of its obligations under
futures contracts and options thereon. In addition, the Fund is required to
segregate assets, consisting of cash, U.S. Government securities or other high
grade liquid debt obligations in an
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amount equal to the value of the instruments underlying futures contracts and
options thereon.
- --Other Information. The Funds have adopted certain procedures under the 1940
Act which enable the Fund to purchase certain instruments during the existence
of an underwriting or selling syndicate of which The Boatmen's National Bank of
St. Louis or Kleinwort Benson is a member relating to the instruments. These
procedures establish, among other things, certain limitations on the amount of
securities which may be purchased in any single offering and on the amount of
the Fund's assets which may be invested in any single offering. Accordingly, in
view of such entities' active role in the underwriting of securities, the Fund's
ability to purchase securities in the primary market may from time to time be
limited.
The Fund changes its portfolio securities for investment consideration and not
for trading purposes.
INVESTMENT LIMITATIONS
Certain of the investment policies of the Fund may not be changed without a vote
of holders of a majority of the Fund's outstanding shares. Policies requiring
such a vote to effect a change are known as "fundamental". Some of the
fundamental limitations are summarized below, and all of the Fund's fundamental
limitations are set out in greater detail in the Statement of Additional
Information, which is available upon request.
1. The Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry
(with certain limited exceptions, including investments in U.S. Government
securities or tax-exempt obligations of state and municipal governments and
their agencies and authorities). For purposes of this restriction, foreign
governments are considered to be separate industries.
2. The Fund may not invest (with certain limited exceptions, including U.S.
Government securities) more than 5% of the value of the Fund's total assets in
the securities of a single issuer, except that up to 25% of each Fund's total
assets can be invested without regard to such 5% limitation (such 5% limitation
shall not apply to repurchase agreements collateralized by U.S. Government
securities).
3. The Fund may not borrow money except as a temporary measure and then only in
amounts not exceeding 5% of the value of the Fund's total assets or from banks
or in connection with reverse repurchase agreements provided that immediately
after such borrowing, all borrowings of the Fund do not exceed one-third of the
Fund's total assets and no purchases of portfolio instruments will be made while
such Fund has borrowings outstanding in an amount exceeding 5% of its total
assets.
4. The Fund may not make loans, except to the extent that the lending of
portfolio securities and purchase of debt obligations in accordance with the
Fund's investment objective and policies and the entry into repurchase
agreements with banks, brokers, dealers and other financial institutions may be
deemed to be loans.
The Fund has no current intention (which may be changed without shareholder
approval) of purchasing restricted securities, except those securities which can
be offered and sold to "qualified institutional buyers" pursuant to Rule 144A
and which the Funds' Trustees determine are traded in a liquid market. The Fund
may invest up to 15% of the value of its net assets in illiquid securities,
including restricted securities. Risks associated with investing in restricted
securities include the risk that the lack of an active secondary market and
resale restrictions may result in the inability of the Fund to sell a security
at a fair price and may substantially delay the sale of a security that the Fund
seeks to sell. Issuers whose securities are publicly traded are also not subject
to the same disclosure and other legal requirements as are applicable to issuers
with publicly traded securities.
INVESTING IN THE PILOT FUNDS
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"), 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") and certain other participating banks and institutions. 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 Fund 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.
Institutions may
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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.
If, by 3:00 p.m., Central time, a purchase order is received by Boatmen's, the
price per Share will be based on the net asset value computed on the Business
Day the purchase order is received. 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 customer's 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.
Pilot Shares are sold without a sales load. A salesperson and any other person
entitled to receive compensation for selling Class A Shares of the Fund may
receive different compensation.
As used in this prospectus, the term "Business Day" refers to those days when
the New York Stock Exchange is open for business, which is Monday through Friday
except for holidays (scheduled Exchange holidays for 1996 are New Years Day,
Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day). 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 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
including exchanges for any reason or to waive the minimum initial investment
requirement. The Pilot 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 Fund 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 the 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. Portfolio securities
are valued based on market quotations or, if quotations are not readily
available, at fair value as determined in good faith under procedures adopted by
The Pilot Funds' Board of Trustees.
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 Fund's 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 Pilot Funds' responsibilities under
the Investment Company Act of 1940. 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 Pilot 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.
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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. Redemptions by fiduciary accounts are made as an Institution
directs.
Payment of Redemption Proceeds and Dividends
If a redemption request is received in "good order" by Boatmen's before 3:00
p.m., Central time, redemption proceeds will normally be credited to the
Shareholder's account with Boatmen's or its affiliate on the next Business Day.
Neither the Funds nor the 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.
EXCHANGE PRIVILEGE
Pilot Shares of the Fund may be exchanged for Pilot Shares of any other fund of
the Pilot Family of Funds at the net asset value next determined after receipt
by Boatmen's of the exchange instructions. Customers of Boatmen's and its
affiliates may effect exchanges by calling their Boatmen's account
representative. Prior to the completion of any exchange, investors must have the
Prospectus of the fund into which they are exchanging. 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. 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 each 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, the Transfer Agent, the Distributor nor
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 be legally made. 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.
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.
When are dividends and distributions declared and paid?
The Fund intends to declare and pay dividends from net investment income at
least annually.
THE PILOT FAMILY OF FUNDS
The Pilot Funds was organized on July 15, 1992 as a Massachusetts business trust
under the name Centerland Fund. On June 1, 1994, its name was changed to The
Pilot Funds. The Pilot Funds is a mutual fund of the type known as an "open-end
management investment company". A mutual fund permits an investor to pool his or
her assets with those of others in order to achieve economies of scale, take
advantage of professional money managers and enjoy other advantages
traditionally reserved for large investors. The Trustees of the Funds are
responsible for the overall management and supervision of its affairs. The
Agreement and Declaration of Trust permits the Board of Trustees of The Pilot
Funds to create separate series or portfolios of shares. To date, twelve
portfolios have been established. The Agreement and Declaration of Trust also
permits the Board of Trustees to classify or reclassify any series or portfolio
of shares into one or more classes and to establish additional portfolios in the
future. The Trustees have authorized the issuance of an unlimited number of
shares available to selected investors, in each of three share classes (Pilot
Shares, Class A Shares, which are referred to as the Administration Shares in
the Money Market Portfolios, and
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Class B Shares, which are referred to as Investor Shares in the Money Market
Portfolios and are not currently available in the Pilot International Equity
Fund) in the Funds. Information regarding The Pilot Funds' other portfolios may
be obtained by contacting The Pilot Funds or the Distributor.
Pilot Shares of the Fund are described in this prospectus. Each Pilot Share,
Class A Share and Class B Share of a Fund represents an equal proportionate
interest in the assets belonging to that Fund. It is contemplated that most
Shares will be held in accounts of which the record owner is a bank or other
institution acting as nominee for its customers who are beneficial owners of the
Shares. Pilot Shares may be purchased for accounts held in the name of an
institution that is not compensated by the Funds for services provided to the
institution's customers. Class A Shares may be purchased for accounts held in
the name of an institution that provides certain account administration services
to its customers, including maintenance of account records and processing orders
to purchase, redeem and exchange Class A Shares. Please refer to the Statement
of Additional Information for the Class A Shares for a more complete description
of such services. Shares of each class may be exchanged only for Shares of the
same class in another fund. Except as described herein, the two 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.
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.
THE BUSINESS OF THE FUND
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF THE PILOT FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
SERVICE PROVIDERS
Adviser: BOATMEN'S TRUST COMPANY (referred to as "Boatmen's" or the "Adviser")
manages the investment portfolio of the Fund, selecting the investments and
making purchase and sale orders. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. The mailing address is P.O. Box 14737
at that address.
Investment Manager: KLEINWORT BENSON INVESTMENT MANAGEMENT AMERICAS INC.
(referred to as "Kleinwort Benson"), formerly Kleinwort Benson International
Investment Limited, serves as investment manager to the Fund. It is located at
200 Park Avenue, New York, New York 10166.
Administrator: CONCORD HOLDING CORPORATION (referred to as "Concord"), is
responsible for coordinating the Fund's efforts and generally overseeing the
operation of the Fund's business. Concord's principal offices are located at
3435 Stelzer Road, Columbus, Ohio 43219-3035.
Distributor: Each Fund's shares are sold on a continuous basis by the
Distributor, PILOT FUNDS DISTRIBUTORS, INC. (referred to as the "Distributor"),
a registered broker-dealer and a wholly-owned subsidiary of Concord that is
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Custodian: STATE STREET BANK AND TRUST COMPANY (referred to as "State Street")
is responsible for holding the investments purchased by each Fund. State Street
is located at 225 Franklin Street, Boston, Massachusetts 02110.
Transfer Agent: BISYS FUND SERVICES, INC. (referred to as the "Transfer Agent")
is the transfer and dividend disbursing agent of the Fund. It maintains the
account records of all shareholders and administers the distribution of all
income earned as a result of investing in the Fund. The Transfer Agent is
located at 3435 Stelzer Road, Columbus, 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 business, governmental
units, pension and profit sharing plans and other institutions and
organizations. As of June 30, 1995, Boatmen's and its affiliates managed nearly
$83 billion in assets ($45 billion over which they had investment discretion and
$38 billion over which they did not have investment discretion).
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Boatmen's Bancshares, Inc., Boatmen's parent, is a registered bank holding
company which owns substantially all of the outstanding capital stock of
numerous commercial banks located in Arkansas, Illinois, Iowa, Kansas, Missouri,
New Mexico, Oklahoma, Tennessee and Texas, a mortgage banking company, a credit
life insurance company, a federal savings bank in Arkansas and a limited service
bank in Delaware.
Under its Advisory Agreement with the Funds on behalf of each of the Funds,
Boatmen's supervises the activities of Kleinwort Benson, the investment manager.
Boatmen's pays all costs incurred by it in connection with the performance of
its duties under the Advisory Agreement other than the cost (including taxes and
brokerage commissions, if any) of securities purchased for the Fund.
Boatmen's has designated the following portfolio manager as being primarily
responsible for the management of the Fund. Michael E. Kenneally, CFA is a
Senior Vice President and Director of Research. In addition to his
responsibilities in connection with the management of the international
portfolios, including the Fund, Mr. Kenneally is responsible for all fundamental
and quantitative research as well as the management of all small capitalization
and growth-style portfolios.
MORE ABOUT KLEINWORT BENSON. Kleinwort Benson is the Securities and Exchange
Commission (the "SEC") registered investment management subsidiary of the
London-based Kleinwort Benson Group plc, a holding company for a merchant
banking group whose origins date back to 1792. Kleinwort Benson has offices in
London, Hong Kong and Tokyo and may utilize the general expertise of Kleinwort
Benson Group plc and its affiliates in respect of, for example, economic
analyses and predictions and market developments and trends.
Since it commenced operations in 1980, Kleinwort Benson has managed investment
accounts, primarily for institutions in North America, comprised of equity,
fixed income and balanced portfolios. These portfolios as a general rule consist
principally of foreign securities. As of September 30, 1994, Kleinwort Benson
had approximately $3.6 billion of assets under management.
MORE ABOUT CONCORD. Concord is a Delaware corporation that was organized in 1987
to provide administrative services to mutual funds. Concord currently functions
as administrator for over $30 billion in mutual fund assets. Under its
Administration Agreement with the Fund, Concord provides a wide range of such
services to the Funds, including maintaining the Funds' offices, providing
statistical and research data, coordinating the preparation of reports to
shareholders, calculating or providing for the calculation of the net asset
values of Fund shares and dividends and capital gain distributions to
shareholders, and performing other administrative functions necessary for the
smooth operation of the Funds. The Funds bear all fees and expenses charged by
State Street for these services. Certain officers of The Pilot Funds, namely
Messrs. Martin Dean, Lester J. Lay, George O. Martinez and William J. Tomko and
Ms. Susan L. West, officers of The Pilot Funds, are also employees and/or
officers of Concord, the Distributor or an affiliate.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the 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.
As compensation for the services rendered to the Funds by Boatmen's as
investment adviser, and the assumption by Boatmen's of the expenses related
thereto, Boatmen's is entitled to a fee computed daily and payable monthly at an
annual rate equal to .80 of 1% of the average daily net assets of the Fund. For
the period from September 1, 1994 through August 31, 1995, Boatmen's was paid at
the above rate. For the fiscal years ended August 31, 1994 and 1995, Boatmen's
received $2,422,559 and $2,828,628 in advisory fees, respectively.
Effective June 1, 1995, pursuant to approval from Shareholders received at a
Special Meeting held on May 24, 1995, as compensation for the services rendered
by Kleinwort Benson as investment manager to the Fund, Kleinwort Benson is
entitled to a fee, paid by Boatmen's directly out of Boatmen's advisory fee,
computed daily and payable monthly at an annual rate equal to .40 of 1% up to
$325,000,000 and .25 of 1% of such assets in excess of $325,000,000, on an
annualized basis. Prior to June 1, 1995, Kleinwort Benson was entitled to a fee,
computed daily and payable monthly at an annual rate equal to .80 of 1% of such
assets up to $65,000,000, .40 of 1% of such assets in excess of $65,000,000 and
less than $325,000,000, and .25 of 1% of such assets in excess of $325,000,000.
For the period from August 31, 1993 through August 31, 1994, the compensation
received by Kleinwort Benson constituted .48 of 1% of the Fund's average daily
net assets. For the fiscal year ended August 31, 1995, the fee paid by Boatmen's
to Kleinwort Benson America was $1,535,377, which equaled .43 of 1% of the
Fund's average daily net assets. Under the terms of the Investment Management
Agreement among the Funds, Kleinwort Benson and Boatmen's, Kleinwort Benson,
subject to the general supervision of the Funds' Board of Trustees and
Boatmen's, manages the investment operations of the Fund and the composition of
the Fund's assets, including the purchase, retention and disposition thereof.
With respect to
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the Fund, all investment decisions are made by a committee consisting of
personnel of Kleinwort Benson. No one person is responsible for recommendations
to that committee.
For its services as administrator, Concord is entitled to an administration fee
from The Pilot Funds which is calculated based on the net assets of all of the
investment portfolios of The Pilot Funds combined. Under the Administration
Agreement, each Fund pays its pro rata share of an annual fee to Concord,
computed daily and payable monthly, of .115 of 1% of The Pilot Funds' average
net assets up to $1.5 billion, .110 of 1% of The Pilot Funds' average net assets
on the next $1.5 billion and .1075 of 1% of The Pilot Funds' average net assets
in excess of $3 billion. These amounts may be reduced pursuant to fee waivers by
Concord. Any such fee waivers may be terminated by Concord at any time. For the
fiscal years ended August 31, 1994 and 1995, the Fund paid administration fees
to Concord in the amount of $295,477 and $386,949, respectively.
The Funds are responsible for all expenses incurred by the Fund, other than
those expressly borne by Boatmen's, Kleinwort Benson, Concord or the Transfer
Agent under the Advisory, Investment Management, Administration or Transfer
Agency Agreements. Such expenses include, the fees payable to Boatmen's, Concord
and the Transfer Agent, the fees and expenses of the Fund's custodian, brokerage
fees and commissions, any portfolio losses, state and federal registration fees
for the qualifying Fund Shares under federal or state securities laws,
organization expenses, membership fees in investment-company organizations,
taxes, interest, costs of liability insurance, fidelity bonds, indemnification
or contribution, any costs, expenses or losses arising out of any liability of,
or claim for damages or other relief asserted against, the Funds for violation
of any law, legal and auditing and tax fees and expenses, expenses of preparing
and setting in type prospectuses, statements of additional information, proxy
material, reports and notices and the printing and distributing of the same to
the Fund's Shareholders and regulatory authorities, compensation and expenses of
its Trustees and extraordinary expenses incurred by the Funds. The fees payable
to Kleinwort Benson are paid by Boatmen's directly out of Boatmen's advisory
fee.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Boatmen's and the Fund's other service providers, as well as
by certain mandatory expense limits imposed by some state securities regulators.
However, as to any amounts voluntarily waived or reimbursed, the service
providers retain the ability to be reimbursed by the Fund for such amounts prior
to fiscal year end. These waivers and reimbursements would increase the yield to
investors when made but would decrease yields if the Fund were required to
reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING THE FEDERAL INCOME TAX TREATMENT
OF DIVIDENDS AND DISTRIBUTIONS MADE TO YOU.
The Fund intends to elect to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code, as amended, (the "Code"). As a
regulated investment company, the Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. In addition, as a regulated
investment company, the Fund generally will not incur a federal income or excise
tax on any investment company taxable income and net capital gains that are
distributed to its Shareholders in accordance with certain timing requirements
of the Code.
Dividends of investment company taxable income, which generally includes the
excess of net short-term capital gains over net long-term capital losses,
dividends and interest (including original issue discount and market discount),
less expenses, will be taxable to Shareholders as ordinary income. If a portion
of the income of the Fund consists of dividends paid by U.S. corporations, a
portion of the dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of the excess of net long-term
capital gains over net short-term capital losses, if any, which are designated
as "capital gains dividends" by the Fund will be taxable as long-term capital
gains regardless of how long the Shareholders have held their Shares. These tax
consequences will apply regardless of whether distributions are received in cash
or reinvested in Shares. Distributions declared in October, November or December
with a record date in such month and paid in January of the following year are
taxable to Shareholders as if received on December 31 of the year declared.
Shareholders will be informed about the amount and character of distributions
received from the Fund for federal income tax purposes, including any
distributions that may constitute a return of capital.
Investments in zero coupon securities and other original issue discount
obligations will result in income to the Fund each year equal to a portion of
the excess of the face value of the securities over their issue price, even
though the
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<PAGE> 205
Fund receives no cash interest payments from the securities.
Any gain or loss realized by a Shareholder upon the sale or other disposition of
Shares, or upon receipt of a distribution in complete liquidation of the Fund,
generally will be a capital gain or loss which will be long-term or short-term,
generally depending upon the Shareholder's holding period for the Shares.
Individuals and certain other classes of Shareholders may be subject to 31%
withholding of federal income tax on taxable distributions if they fail to
furnish the Fund with their correct taxpayer identification number and certain
certifications regarding their tax status or if they are otherwise subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against a Shareholder's U.S. federal income tax
liability.
If the Fund invests in foreign securities it may be subject to foreign
withholding taxes on income earned on such securities and may be unable to pass
through to Shareholders the ability to claim foreign tax credits and deductions
with respect to such taxes. Certain gains and losses which are attributable to
fluctuations in the value of foreign currency are treated as ordinary income and
losses. These gains and losses may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to Shareholders as ordinary
income.
In addition to federal taxes, a Shareholder may be subject to state and local
taxes on payments received from the Fund. A state tax exemption may be available
in some states to the extent distributions of the Fund are derived from interest
on certain direct U.S. Government obligations or on obligations of the
particular state.
Shareholders should consult their own tax advisers concerning these matters.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
MEASURING PERFORMANCE
Performance information provides you with a method of measuring and monitoring
your investments. The Fund may quote its performance in advertisements or
shareholder communications. The performance for each class of shares of a Fund
is calculated separately from the performance of the Fund's other classes of
shares.
Understanding performance measures:
TOTAL RETURN for the Fund may be calculated on an AVERAGE ANNUAL TOTAL RETURN
basis or an AGGREGATE TOTAL RETURN basis. Average annual return reflects the
average annual percentage change in value of an investment over the measuring
period. Aggregate total return reflects the total percentage change in value of
an investment over the measuring period. Both measures assume the reinvestment
of dividends and distributions.
The Fund may provide quotes of total returns and yields WITHOUT REFLECTING A
SALES LOAD, which quotations will, of course, be higher than quotations that do
reflect such a sales charge.
Performance comparisons:
The Fund may compare its total returns to that of mutual funds with similar
investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Total return data as reported in national financial publications such as Money,
Forbes, Barron's, The Wall Street Journal and The New York Times, as well as in
publications of a local or regional nature, may be used for comparison.
Total returns for the Fund may be compared to indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Lehman Brothers
Bond Index, the Merrill Lynch Bond Index, the Wilshire 5000 Equity Index or the
Consumer Price Index.
INVESTMENT RESULTS OF THE FUND ARE BASED ON HISTORICAL PERFORMANCE AND
PERFORMANCE QUOTATIONS WILL FLUCTUATE. YOU SHOULD NOT CONSIDER QUOTATIONS TO BE
REPRESENTATIVE OF FUTURE PERFORMANCE. YOU SHOULD ALSO REMEMBER THAT PERFORMANCE
IS GENERALLY A FUNCTION OF THE KIND AND QUALITY OF INVESTMENTS HELD IN A
PORTFOLIO, PORTFOLIO MATURITY, OPERATING EXPENSES AND MARKET CONDITIONS. FEES
THAT BOATMEN'S INVESTMENT SERVICES OR ANOTHER INSTITUTION MAY CHARGE DIRECTLY TO
ITS CUSTOMER ACCOUNTS IN CONNECTION WITH AN INVESTMENT IN THE FUNDS WILL NOT BE
INCLUDED IN THE FUND'S CALCULATIONS OF TOTAL RETURN. INQUIRIES REGARDING THE
FUND MAY BE DIRECTED TO THE DISTRIBUTOR AT 3435 STELZER ROAD, COLUMBUS, OHIO
43219-3035.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUND INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
15
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PILIEP1295P
<PAGE> 207
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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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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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
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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
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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
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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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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> 222
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> 223
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> 224
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.
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<PAGE> 225
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
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<PAGE> 226
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:
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<PAGE> 227
(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
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<PAGE> 228
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%
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<PAGE> 229
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>
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<PAGE> 230
<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> 231
<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> 232
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> 233
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,
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<PAGE> 234
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
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<PAGE> 235
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> 236
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
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<PAGE> 237
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:
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<PAGE> 238
<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
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<PAGE> 239
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
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<PAGE> 240
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> 241
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> 242
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> 243
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> 244
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> 245
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> 246
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> 247
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> 248
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> 249
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,
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<PAGE> 250
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
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<PAGE> 251
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.
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<PAGE> 252
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.
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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.
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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
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<PAGE> 255
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,
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<PAGE> 256
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.
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<PAGE> 257
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>
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<PAGE> 258
<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> 259
<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> 260
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> 261
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> 262
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> 263
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> 264
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> 265
THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219
________________________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1995
ADMINISTRATION 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 Administration 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 Administration Shares for the benefit of
their customers, or by writing to Pilot Funds Distributors Inc., 3435 Stelzer
Road, Columbus, Ohio 43219.
<PAGE> 266
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Administrator, Distributor and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
CALCULATION OF YIELD QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ORGANIZATION AND CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CUSTODIAN AND SUBCUSTODIANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
INDEPENDENT ACCOUNTANTS AND COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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<TABLE>
<S> <C>
ADMINISTRATION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
APPENDIX: DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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<PAGE> 268
ADMINISTRATION 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 to early withdrawal penalties which
vary depending upon market conditions and the remaining
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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.
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<PAGE> 270
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 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
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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
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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 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
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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 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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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.
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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 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
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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 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
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change in the person income of Missouri for the second previous fiscal year, or
by 1% of total state revenues, 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 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.
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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 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
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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.
(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
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<PAGE> 283
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, 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).
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<PAGE> 284
(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.
(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
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<PAGE> 285
is caused by, an acquisition or encumbrance of securities or assets of, or
borrowings on behalf of, one of the Funds.
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, D&K
8000 Maryland Avenue Wholesale Drug, Inc., a
Suite 1190 distributor of
St. Louis, Missouri 63105 pharmaceutical 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
660 S. Euclid, Box 8003 Financial Officer of
St. Louis, Missouri 63110 Washington University School
of Medicine since 1983.
Henry O. Johnston (58) Trustee President of Fordyce Four,
9650 Clayton Road Incorporated, a corporation
St. Louis, Missouri 63124 engaged in the acquisition
and management of personal
investments.
</TABLE>
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<PAGE> 286
<TABLE>
<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 Pulitzer
Publishing Company since
1986.
Susan L. West* (36) President Chief Operating Officer,
125 West 55th Street July 1993 to date; prior
New York, New York 10019 thereto, Executive Vice
President of Concord Holding
Corporation.
William J. Tomko (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 Holding
New York, New York 10019 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>
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<PAGE> 287
<TABLE>
<S> <C> <C>
George O. Martinez (36) Secretary Senior Vice President and
3435 Stelzer Road Director of Legal and Compliance
Columbus, Ohio 43219 Services of BISYS Fund Services,
Inc. since April 1995. Prior
thereto, Vice President and
Associate General Counsel of
Alliance Capital Management L.P.
Sheldon A. Jones (57) Assistant Secretary Partner of the law firm of
Ten Post Office Square South Dechert Price & Rhoads.
Boston, Massachusetts 02109
</TABLE>
The Agreement and Declaration of Trust of the Funds (the "Trust
Agreement") provides that, subject to its provisions, the business of the Funds
shall be managed by the Trustees. The Trust Agreement provides that: (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to their general supervision, advisory and administration services and duties,
and also including distribution, custodian, transfer and dividend disbursing
agency, Shareholder servicing and accounting services and duties, (b) a Trustee
shall be liable for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, and for
nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law, and (c) subject to the preceding clause, the Trustees are not
responsible or liable for any neglect or wrongdoing of any officer or any
person referred to in clause (a).
Certain of the Trustees and officers and the organizations with which
they are associated have had in the past, and/or may have in the future,
transactions with Boatmen's, its parent Boatmen's Bancshares Inc., 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.
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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 and
Compensation Benefits Upon Benefits Upon Fund Complex
Name of Person From Registrant Retirement Retirement Paid to Persons
<S> <C> <C> <C> <C>
J. Hord Armstrong, III $14,000 0 0 $14,000
David 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 are not "interested persons" 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 fiscal 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.
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.
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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
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 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 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.
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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 such Funds 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.
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<PAGE> 291
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.
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
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<PAGE> 292
particular amount of shares. No compensation is payable by the Funds to PFD
for its distribution services.
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
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<PAGE> 293
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 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.
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<PAGE> 294
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 Exchange holidays
for 1996 are: New Year's 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).
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
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<PAGE> 295
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.
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 a hypothetical account having a balance of exactly one Share at the
beginning of a seven-day period.
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<PAGE> 296
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:
Effective Yield = [(base period return + 1)(365/7)] - 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 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 (formerly known as Centerland Shares, Centerland
Administration Shares and Centerland Service Shares, respectively). Each type
of Share is subject to different fees and expenses and may have differing
yields for the same period.
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<PAGE> 297
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% 4.79% 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%
<FN>
____________________
* Assuming such Shares had been outstanding and are subject to
maximum service fees.
</TABLE>
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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 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 total 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
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following calendar year. Such distributions will be taxable to Shareholders in
the calendar year in which the distributions are declared.
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.
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<PAGE> 300
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 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
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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.
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
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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 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.
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.
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<PAGE> 303
The Declaration of Trust provides that the Trustees of the Funds shall
not be liable for any action taken by them in good faith, and that they shall
be fully protected in relying in good faith upon the records of the Funds and
upon reports made to the Funds by persons selected in good faith by the
Trustees as qualified to make such reports. The Declaration of Trust further
provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law. The Declaration of Trust provides that the Funds will
indemnify 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.
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ADMINISTRATION PLAN
Each Fund has adopted an administration plan (the "Plan") with respect
to the Administration Shares which will authorize the Funds to compensate
certain institutions ("Service Organizations") for providing certain account
administration services to their customers who are beneficial owners of such
Shares. Pursuant to the Plan, each Fund will enter into agreements with
Service Organizations which purchase Administration Shares on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may: (a) aggregate and process purchase, exchange and redemption
requests from customers and place net purchase, exchange and redemption orders
with the Funds' distributor; (b) provide clients with a service that invests
the assets of their accounts in Administration Shares pursuant to specific or
pre-authorized instructions; (c) process dividend payments from the Funds on
behalf of clients and assist clients in changing dividend options, account
designations and addresses; (d) provide and maintain elective services such as
check writing and wire transfer services; (e) act as sole Shareholder of record
and nominee for clients; (f) maintain account records for clients; (g) issue
confirmations of transactions; (h) provide subaccounting with respect to
Administration Shares beneficially owned by clients or the information to the
Funds necessary for subaccounting; (i) if required by law, forward shareholder
communications from the Funds (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
clients; and (j) provide other similar administrative services.
As compensation for such services, each Fund will pay each Service
Organization a service 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
each Fund attributable to or held in the name of such Service Organization.
For the fiscal years ended August 31, 1995, August 31, 1994 and August 31,
1993, with respect to each Fund then in existence, the amount of the
administration fees paid by each Fund to Service Organizations was:
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<TABLE>
<CAPTION>
Fund 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C>
Pilot Short-Term U.S.
Treasury Fund $353,371 $232,476 $205,039
Pilot Short-Term Diversified
Assets Fund $703,026 $858,564 $858,052
Pilot Missouri Short-Term Tax-
Exempt Fund (1) $ 7,552 $ 1,173 $ 0
Pilot Short-Term Tax-Exempt
Diversified Fund (1) $ 23,899 $ 2,587 $ 0
<FN>
__________________________
(1) Commenced operations on February 16, 1993.
</TABLE>
The Funds have adopted the Plan pursuant to Rule 12b-1 under the 1940
Act, except that holders of Administration Shares do not enjoy the voting
rights specified in Rule 12b-1. Rule 12b-1, which was adopted by the SEC under
the 1940 Act, regulates the circumstances under which an investment company
such as the Funds may bear expenses associated with the distribution of its
Shares. In particular, such an investment company cannot engage directly or
indirectly in financing any activity which is primarily intended to result in
the sale of Shares issued by the company unless it has adopted a plan pursuant
to, and complies with the other requirements of, such Rule. The Funds believe
that fees paid for the services provided in the Plan and described above are
not expenses incurred primarily for effecting the distribution of
Administration Shares.
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Funds in connection with the investment of fiduciary
funds in Administration Shares. Service Organization's, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the Securities and Exchange Commission,
the Department of Labor or State Securities Commissions, are urged to consult
legal advisers before investing fiduciary assets in Administration Shares. In
addition, under some state securities laws, banks and other financial
institutions purchasing Administration Shares on behalf of their customers may
be required to register as dealers.
The Trustees of the Funds, including a majority of the Trustees who
are not interested persons of the Funds and who have no direct or indirect
financial interest in the operation of such Plan or the related Service
Agreements, voted: (a) to continue the Plan and Service Agreements at a meeting
called for the purpose of voting on such Plan and Service Agreements on October
20, 1993 and (b) to revise the Plan and Service Agreements, effective March 31,
1994, at a meeting called for the purpose of voting on such Plan and Service
Agreements on March 3-4, 1994. The Trustees voted to continue the Plan and
Service Agreements at a meeting called for the purpose of voting on such Plan
and Service Agreements on May 19, 1995. The Plan and Service Agreements will
remain in effect until May 31, 1996 and will continue in effect thereafter only
if such continuance is specifically approved annually by a vote of the Trustees
in the manner described
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<PAGE> 306
above. All material amendments of the Plan must also be approved by the
Trustees in the manner described above. The Plan may be terminated at any time
by a majority of the Trustees as described above or by vote of a majority of
the outstanding Administration Shares of the affected Fund. The Service
Agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Trustees as described above or by a vote of a
majority of the outstanding Administration Shares of the affected Fund on not
more than 60 days' written notice to any other party to the Service Agreements.
The Service Agreements shall terminate automatically if assigned. So long as
the Plan is in effect, the selection and nomination of those Trustees who are
not interested persons shall be committed to the discretion of the
non-interested members of the Board of Trustees. The Trustees have determined
that, in their judgment, there is a reasonable likelihood that the Plan will
benefit the Funds and holders of Administration Shares of such Funds. In the
Trustees' quarterly review of the Plan and Service Agreements, they will
consider their continued appropriateness and the level of compensation provided
therein.
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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:
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MIG-1--Notes bearing this designation are of the best quality
enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG-2--Notes bearing this designation are of favorable quality, with
all security elements accounted for, but lacking the undeniable strength of the
preceding grade. Market access for refinancing, in particular, is likely to be
less well-established.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to the
external liquidity with no or limited legal recourse to the 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.
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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.
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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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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THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219
- -----------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1995
INVESTOR 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 Investor 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 Investor Shares for the benefit of their customers,
or by writing to Pilot Funds Distributors Inc., 3435 Stelzer Road, Columbus,
Ohio 43219.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
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 . . 24
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Administrator, Distributor and Transfer Agent . . . . . . . . . 26
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 28
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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
SERVICE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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APPENDIX: DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . 41
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INVESTOR 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
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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.
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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.
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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 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
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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 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
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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 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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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.
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
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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 fee without the approval of the required
majority of voters; however, the Missouri Supreme Court
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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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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 revenues, 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 voter
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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
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than 10% of the value of its net assets in securities which are illiquid, which
may include restricted 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.
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(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.
(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
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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, 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).
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(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.
(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.
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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.
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, D&K
8000 Maryland Avenue Wholesale Drug, Inc.,
Suite 1190 a distributor of
St. Louis, Missouri 63105 pharmaceutical
products, since 1987.
David Holford Benson* (57) Trustee Chairman, Kleinwort
Kleinwort Benson Limited Charter Investment
P.O. Box 560 Trust plc. since
20 Fenchurch Street March 1992.
London EC3 P3DB Non-Executive
Director of Kleinwort
Benson Group plc.
(formerly Vice
Chairman).
Lee F. Fetter (42) Chairman Chief Operating and
660 S. Euclid, Financial Officer of
Box 8003 Washington University
St. Louis, Missouri 63110 School of Medicine
since 1983.
Henry O. Johnston (58) Trustee President of Fordyce
9650 Clayton Road Four, Incorporated, a
St. Louis, Missouri 63124 corporation engaged
in the acquisition
and management of
personal investments.
</TABLE>
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<TABLE>
<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
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.
Vice President
William J. Tomko (36)
3435 Stelzer Road Vice President, BISYS
Columbus, Ohio 43219 Fund Services, Inc.
Martin 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 Vice President,
125 West 55th Street Treasurer 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.
George O. Martinez (36) Secretary Senior Vice President
3435 Stelzer Road and Director of Legal
Columbus, Ohio 43219 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.
</TABLE>
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<TABLE>
<S> <C> <C>
Sheldon A. Jones (57) Assistant Secretary Partner of the law
Ten Post Office Square South & Rhoads.
Boston, Massachusetts 02109
</TABLE>
The Agreement and Declaration of Trust of the Funds (the "Trust
Agreement") provides that, subject to its provisions, the business of the Funds
shall be managed by the Trustees. The Trust Agreement provides that: (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to their general supervision, advisory and administration services and duties,
and also including distribution, custodian, transfer and dividend disbursing
agency, Shareholder servicing and accounting services and duties, (b) a Trustee
shall be liable for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, and for
nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law, and (c) subject to the preceding clause, the Trustees are not
responsible or liable for any neglect or wrongdoing of any officer or any
person referred to in clause (a).
Certain of the Trustees and officers and the organizations with which they
are associated have had in the past, and/or may have in the future,
transactions with Boatmen's, its parent Boatmen's Bancshares Inc., 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.
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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)
Total Compen-
Pension or sation From
Aggregate Retirement Estimated Registrant and
Compensation Benefits Upon Annual Benefits Fund Complex Paid
Name of Person From Registrant Retirement Upon Retirement 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 Trust 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 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.
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.
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<PAGE> 335
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
Fund'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 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
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<PAGE> 336
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 such Funds 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.
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.
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<PAGE> 337
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.
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
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<PAGE> 338
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 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
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<PAGE> 339
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 Exchange
holidays for 1996 are: New Year's 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).
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
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<PAGE> 340
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.
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
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<PAGE> 341
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 a 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 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.
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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> 343
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 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 total 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
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<PAGE> 344
following calendar year. Such distributions will be taxable to Shareholders in
the calendar year in which the distributions are declared.
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.
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<PAGE> 345
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 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
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<PAGE> 346
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.
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
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<PAGE> 347
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 Assets
Fund, the Pilot Short-Term U.S. Treasury Fund, the Pilot Short-Term Tax-Exempt
Diversified Fund and the Pilot 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. 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.
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<PAGE> 348
The Declaration of Trust provides that the Trustees of the Funds shall not
be liable for any action taken by them in good faith, and that they shall be
fully protected in relying in good faith upon the records of the Funds and upon
reports made to the Funds by persons selected in good faith by the Trustees as
qualified to make such reports. The Declaration of Trust further provides that
the Trustees will not be liable for errors of judgment or mistakes of fact or
law. The Declaration of Trust provides that the Funds will indemnify 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,
independent public accountants, contained in the 1995 Annual Report of the
Funds are hereby incorporated by reference and attached hereto.
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<PAGE> 349
SERVICE PLAN
The Funds have adopted a service plan (the "Plan") with respect to the
Investor Shares (formerly known as Centerland Service Shares) which will
authorize the Funds to compensate certain institutions ("Service
Organizations") for providing certain account administration and Shareholder
liaison services to their customers who are or may become beneficial owners of
such Shares. Pursuant to the Plan, the Funds will enter into agreements with
Service Organizations which purchase Investor Shares on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may: (a) aggregate and process purchase, exchange, and redemption
requests from customers and place net purchase, exchange and redemption orders
with the Funds' distributor; (b) process dividend payments from the Funds on
behalf of customers and assist customers in changing dividend options, account
designations and addresses; (c) act as sole Shareholder of record and nominee
for customers; (d) maintain accounts and records for Investor Shares owned by
each customer; (e) issue confirmations concerning customer orders to purchase,
redeem and exchange Investor Shares; (f) provide subaccounting with respect to
Investor Shares beneficially owned by customers or the information to the Funds
necessary for subaccounting; (g) if required by law, forward shareholder
communications from the Funds (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; (h) provide other similar administrative services; (i) provide
customers with a service that invests the assets of their accounts in Investor
Shares pursuant to specific or pre-authorized instructions; and (j) provide and
maintain elective services such as check writing and wire transfer services.
As compensation for such services, the Funds will pay each Service
Organization a service 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 Fund
attributable to or held in the name of such Service Organization. For the
fiscal years ended August 31, 1995, August 31, 1994 and August 31, 1993, with
respect to each Fund then in existence, the amount of the service fees paid to
Service Organizations was:
<TABLE>
<CAPTION>
Fund 1995 1994 1993
<S> <C> <C> <C>
Pilot Short-Term U.S. Treasury Fund $732,261 $874,086 $991,237
Pilot Short-Term Diversified
Assets Fund $173,029 $191,522 $170,830
Pilot Missouri Short-Term
Tax-Exempt Fund $ 51,152 $ 48,495 $ 46,817
Pilot Short-Term Tax-Exempt
Diversified Fund (1) $ 17 $ 0 $ 0
</TABLE>
(1) Commenced operations in January 1995.
The Funds have adopted the Plan pursuant to Rule 12b-1 under the 1940 Act.
Rule 12b-1, which was adopted by the SEC under the 1940 Act, regulates the
circumstances under which an investment company such as the Funds may bear
expenses associated with the distribution of its Shares. In particular, such an
investment company cannot engage directly or indirectly in financing any
activity which is primarily intended to result in the sale of Shares issued by
the company unless it has adopted a plan pursuant to, and complies with the
other requirements of, such Rule.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. Should future legislative or administrative action or judicial
or
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<PAGE> 350
administrative decisions or interpretations prohibit or restrict the
activities of one or more of the Service Organizations in connection with the
Funds, such Service Organizations might be required to alter materially or
discontinue the services performed under their Service Agreements. If one or
more of the Service Organizations were restricted from effecting purchases or
sales of Pilot Shares automatically pursuant to pre-authorized instructions,
for example, effecting such transactions on a manual basis might affect the
size and/or growth of the Fund. In addition, state securities laws on this
issue may differ from the interpretations of federal law expressed herein and
banks and other financial institutions purchasing Investor Shares on behalf of
their customers may be required to register as dealers pursuant to state law.
Any such alteration or discontinuance of services could require the Trustees of
the Funds to consider changing the Funds' method of operations or providing
alternative means of offering Investor Shares to customers of such Service
Organizations, in which case the operation of the Funds, their size and/or
growth might be significantly altered. It is not anticipated, however, that any
alteration of the Funds' operations would have any effect on the net asset
value per Share or result in financial losses to any Shareholder.
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Funds in connection with the investment of fiduciary
funds in Investor Shares. Service Organizations, including banks regulated by
the Comptroller of the Currency, the Federal Reserve Board or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or State Securities Commissions, are urged to consult legal
advisers before investing fiduciary assets in Investor Shares.
The Plan was approved by the holders of Investor Shares of each Fund on
August 31, 1992. The Trustees of the Funds, including a majority of the
Trustees who are not interested persons of the Funds and who have no direct or
indirect financial interest in the operation of such Plan or the related
Service Agreements, voted: (a) to continue the Plan and Service Agreements at a
meeting called for the purpose of voting on such Plan and Service Agreements on
October 20, 1993, and (b) to revise the Plan and Service Agreements, effective
March 31, 1994, at a meeting called for the purpose of voting on such Plan and
Service Agreements on March 3-4, 1994. The Trustees voted to continue the Plan
and Service Agreements at a meeting called for the purpose of voting on such
Plan and Service Agreements on May 19, 1995. The Plan and Service Agreements
will remain in effect until May 31, 1996 and will continue in effect thereafter
only if such continuance is specifically approved annually by a vote of the
Trustees in the manner described above. The Plan may not be amended to
increase materially the amount to be spent for the services described therein
without approval of the Shareholders of the affected Fund, and all material
amendments of the Plan must also be approved by the Trustees in the manner
described above. The Plan may be terminated at any time by a majority of the
Trustees as described above or by vote of a majority of the outstanding
Investor Shares of the affected Fund. The Service Agreements may be terminated
at any time, without payment of any penalty, by vote of a majority of the
Trustees as described above or by a vote of a majority of the outstanding
Investor Shares of the affected Fund on not more than 60 days' written notice
to any other party to the Service Agreements. The Service Agreements shall
terminate automatically if assigned. So long as the Plan is in effect, the
selection and nomination of those Trustees who are not interested persons shall
be committed to the discretion of the non-interested members of the Board of
Trustees. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the Funds and holders of
Investor Shares of such Funds. In the Trustees' quarterly review of the Plan
and Service Agreements, they will consider their continued appropriateness and
the level of compensation provided therein.
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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:
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MIG-1--Notes bearing this designation are of the best quality enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
MIG-2--Notes bearing this designation are of favorable quality, with all
security elements accounted for, but lacking the undeniable strength of the
preceding grade. Market access for refinancing, in particular, is likely to be
less well-established.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to the
external liquidity with no or limited legal recourse to the 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.
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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.
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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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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THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219
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STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1995
PILOT SHARES
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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> 356
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
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APPENDIX: DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . 40
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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
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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.
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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
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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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<PAGE> 362
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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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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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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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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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
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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.
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(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,
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<PAGE> 373
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.
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<PAGE> 374
(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.
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<PAGE> 375
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>
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<PAGE> 376
<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>
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<PAGE> 377
<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.
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<PAGE> 378
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.
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<PAGE> 379
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
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<PAGE> 380
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.
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<PAGE> 381
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> 382
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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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> 384
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> 385
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> 386
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> 387
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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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> 389
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> 390
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> 391
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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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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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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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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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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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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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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THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219-3035
________________________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29,1995
CLASS A SHARES
________________________________________________________________________________
The Pilot Funds (the "Funds") is an open-end, management investment
company (or mutual fund) consisting of twelve portfolios, one of which
portfolios (the "Fund") is offered hereby. The Fund is:
Pilot International Equity Fund (formerly Pilot Kleinwort Benson
International Equity Fund)
Boatmen's Trust Company ("Boatmen's") serves as the investment adviser
to the Fund. Kleinwort Benson Investment Management Americas Inc., formerly
Kleinwort Benson International Investment Limited, ("Kleinwort Benson") serves
as the investment manager to the Pilot International Equity Fund. Pilot Funds
Distributors, Inc. ("PFD") serves as the Fund's distributor, and its parent,
Concord Holding Corporation ("Concord"), serves as the Fund's administrator.
This Statement of Additional Information is not a Prospectus, and
should be read in conjunction with the Prospectus for the Class A Shares,
formerly known as the Administration Shares, (the "Prospectus"), dated December
29, 1995, as may be amended or supplemented from time to time, which may be
obtained without charge by writing to Pilot Funds Distributors, Inc., 3435
Stelzer Road, Columbus, Ohio 43219-3035 or by calling your Service
Organization.
<PAGE> 399
TABLE OF CONTENTS
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INVESTMENT POLICIES AND PRACTICES OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Custodial Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Corporate Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S. and Foreign Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Forward Commitments and When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
REITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Forward Foreign Currency
Exchange Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Currency Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Other Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Options on Securities and Indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Options on Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Futures Contracts on Securities and Indexes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Futures Contracts on Foreign Currencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Options on Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Limitations on Use of Futures Transactions and Risk Considerations . . . . . . . . . . . . . . . . . . . . . . 14
Restricted and Other Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risks of Specialized Investment Techniques Abroad. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Combined Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Use of Segregated and Other Special Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Other Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INVESTMENT ADVISER, MANAGER, ADMINISTRATOR,
DISTRIBUTOR AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Adviser and Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Administrator, Distributor and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CALCULATION OF PERFORMANCE QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ORGANIZATION AND CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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CUSTODIAN AND SUBCUSTODIANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
INDEPENDENT ACCOUNTANTS AND COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
DESCRIPTION OF COMMERCIAL PAPER RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
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INVESTMENT POLICIES AND PRACTICES OF THE FUND
The following discussion elaborates on the description of the Fund's
investment policies and practices contained in the Prospectus. Except as set
forth below, the investment policies and limitations described in this
Statement of Additional Information are not fundamental and may be changed
without Shareholder consent.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. Securities
guaranteed as to principal or interest by the U.S. Government, its agencies,
authorities or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments
or their agencies that are so guaranteed. The secondary market for certain of
these participations is limited. If such participations are illiquid they will
not be purchased.
U.S. Government securities include principal and interest components
of securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts.
These receipts evidence ownership of future interest payments, principal
payments or both on certain notes or bonds issued by the U.S. Government, its
agencies, authorities or instrumentalities.
CUSTODIAL RECEIPTS
The Fund may also acquire custodial receipts that evidence ownership
of future interest payments, principal payments or both on certain U.S.
Government notes or bonds. Such notes and bonds are held in custody by a bank
on behalf of the owners. These custodial receipts are known by various names,
including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as
illiquid securities.
CORPORATE DEBT SECURITIES
The Fund may invest in short-term and intermediate-term corporate debt
securities of both foreign and domestic issuers of all types and maturities,
such as bonds, debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts and commercial paper. Corporate debt
securities may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer;
participation based on revenue, sales or profits; or the purchase of common
stock or warrants in a unit transaction (where corporate debt obligations and
common stock are offered as a unit).
Corporate debt securities purchased by the Fund, if any, will be rated
in the top two categories by a Nationally Recognized Statistical Rating
Organization ("NRSRO"). Corporate debt securities that are not rated may be
purchased by the Fund if they are determined to be of comparable quality by or
under the direction of the Board of Trustees of the Funds. Consistent with
prudent investment management, if the rating of any corporate debt security
held by the Fund
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<PAGE> 402
falls below such ratings then consideration shall be given as to whether it
should be sold. A description of these ratings is attached in an Appendix
to this Statement of Additional Information.
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. The Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. The Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of
certificates of deposit (or any higher principal amount which in the future may
be fully covered by FDIC insurance) of any one of those issuers. Fixed time
deposits are obligations which are payable at a stated maturity date and bear a
fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the Fund, but they may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Fund's right to transfer a beneficial interest
in the deposit to a third party.
The Fund will limit its investment in securities of foreign banks in
accordance with Section 12 of the Investment Company Act of 1940 (the "1940
Act"), the applicable rules thereunder and interpretations thereof of the staff
of the Securities and Exchange Commission (the "SEC").
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
The Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by the Fund to purchase or sell securities at a future date. The
price of the underlying securities (usually expressed in terms of yield) and
the date on which the securities will be delivered and paid for (the settlement
date) are fixed at the time the transaction is negotiated. When-issued
purchases and forward commitment transactions are negotiated directly with the
other party, and such commitments are not traded on exchanges.
The Fund will purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after entering into it. The Fund also
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. The Fund may realize a capital
gain or loss in connection with these transactions.
When the Fund purchases securities on a when-issued or forward
commitment basis, the Fund's custodian or subcustodian will maintain in a
segregated account cash, U.S. Government securities or other high grade liquid
debt obligations having a value (determined daily) at least equal to the amount
of the Fund's purchase commitments. In the case of a forward commitment to
sell portfolio securities subject to such commitment, the custodian or
subcustodian will hold the portfolio securities themselves in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Fund will maintain sufficient assets at all times to cover its
obligations under when-issued purchases and forward commitments.
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REITS
Securities issued by real estate investment trusts (REITs) bear
certain unique risks. These include the same market risks as those affecting
the real estate industry, such as fluctuations in interest rates and changes in
tax laws. REITs' underlying assets are illiquid and often not diversified, and
REITs are highly dependent upon management skill. REITs also are subject to
heavy cash flow dependency, defaults by borrowers, self-liquidation and the
possibility of failing to qualify for special tax treatment and other
regulatory exemptions. For so long as it remains a restriction of the
Wisconsin Securities Department, the Funds may not purchase securities issued
by REITs in excess of 10% of the Fund's total assets.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, such as bonds, notes,
debentures, preferred stocks and other securities that may be converted into
common stock. All convertible securities purchased by the Fund will be rated
in the top two categories by an NRSRO or, if unrated, determined by Kleinwort
Benson to be of comparable quality. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so may
not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock, although typically not as much as the price of
the underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of
course, like all debt securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may
default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, are senior
in right of payment to all equity securities, and convertible preferred stock
is senior to common stock, of the same issuer. However, convertible bonds and
convertible preferred stock typically have lower coupon rates than similar
non-convertible securities. Convertible securities may be issued as fixed
income obligations
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that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and
are sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
FOREIGN SECURITIES
The Fund may invest in foreign securities. Because foreign companies
generally are not subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those applicable
to domestic companies, there may be less publicly available information about a
foreign company than about a domestic company. Many foreign stock markets,
while growing in volume of trading activity, have substantially less volume
than the New York Stock Exchange (the "Exchange"), and securities of some
foreign companies are less liquid and more volatile than securities of domestic
companies. Similarly, volume and liquidity in most foreign bond markets is less
than in United States markets and at times, volatility of price can be greater
than in United States markets. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been
times when settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. Also, delivery of securities
before payment may be required in some countries. The inability of the Fund to
make intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or,
if the Fund has entered into a contract to sell the security, in possible
liability to the purchaser. Fixed commissions on some foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges, although
the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There
is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers and listed companies in foreign
countries than in the United States. Communications between the United States
and foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments, which
could affect United States investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. The management of the Fund seeks to mitigate the risks
associated with the foregoing considerations through diversification and
continuous professional management.
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may invest in forward foreign currency exchange contracts
("forward contracts") for hedging and to seek to increase total return. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
The maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit. Closing purchase transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.
The Fund may also enter into a forward contract to sell a currency
that is linked to a currency that Kleinwort Benson believes to be less
attractive and buy a currency that Kleinwort Benson believes to be more
attractive (or a currency that is linked to currency that Kleinwort Benson
believes to be more attractive). The amount in question would not exceed the
value of the Fund's securities denominated in the less attractive currency. For
example, if the Austrian Schilling is linked to the German Deutsche Mark (the
"D-mark"), the Fund holds securities denominated in Austrian Schillings and
Kleinwort Benson believes that the value of Schillings will decline against the
British Pound, the Fund may enter into a contract to sell D-marks and buy
Pounds. This practice is referred to as "proxy hedging." Proxy hedging
involves the risk that the amount of currencies involved may not equal the
value of the Fund's securities denominated in the currency expected to
deteriorate and improperly anticipated currency movements could result in
losses to the Fund. Further, there is the risk that the linkage between
various currencies may change or be eliminated.
The reasons forward contracts would be used are described under
"Futures Contracts on Foreign Currencies" below. The Fund's activities
involving forward contracts may be limited by the requirements of Subchapter M
of the Internal Revenue Code for qualification as a regulated investment
company.
CURRENCY SWAPS
The Fund may enter into currency swaps for hedging purposes and to
seek to increase total return. Inasmuch as swaps are entered into for good
faith hedging purposes or are offset by a segregated account as described
below, the Fund and Kleinwort Benson believe that swaps do not constitute
senior securities as defined in the 1940 Act and, accordingly, will not treat
them as being subject to the Fund's borrowing restrictions. The net amount of
the excess, if any, of the Fund's obligations over its entitlements with
respect to each currency swap will be accrued on a daily basis and an amount of
cash or liquid high grade debt securities (i.e., securities rated in one of the
top three ratings categories by an NRSRO or, if unrated, deemed by Kleinwort
Benson to be of comparable credit quality) having an aggregate net asset value
at least equal to such accrued excess will be maintained in a segregated
account by the Fund's custodian. The Fund will not enter into any currency
swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is considered to be investment
grade by Kleinwort Benson.
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If there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with the markets for other
similar instruments which are traded in the interbank market. However, the
staff of the SEC takes the position that currency swaps are illiquid
investments that are subject to the Fund's 15% limitation on such investments.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with selected
brokers-dealers, banks or other financial institutions. A repurchase agreement
is an arrangement under which the purchaser (i.e., the Fund) purchases a U.S.
Government or other high quality short-term debt obligation (the "Obligation")
and the seller agrees at the time of sale to repurchase the Obligation at a
specified time and price.
Custody of the Obligation will be maintained by the Fund's custodian
or subcustodian. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
Repurchase agreements pose certain risks for all entities, including
the Fund, that utilize them. Such risks are not unique to the Fund but are
inherent in repurchase agreements. The Fund seeks to minimize such risks by,
among others, the means indicated below, but because of the inherent legal
uncertainties involved in repurchase agreements, such risks cannot be
eliminated.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation. It is not clear whether
for other purposes a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller.
If in the event of bankruptcy or insolvency proceedings against the
seller of the Obligation, a court holds that the Fund does not have a perfected
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Fund would be at risk of losing some
or all of the principal and income involved in the transaction. To minimize
this risk, the Fund utilizes custodians and subcustodians that Kleinwort Benson
believes follow customary securities industry practice with respect to
repurchase agreements, and Kleinwort Benson analyzes the creditworthiness of
the obligor, in this case the seller of the Obligation. But because of the
legal uncertainties, this risk, like others associated with repurchase
agreements, cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Such a delay may involve
loss of interest or a decline in price of the Obligation.
Apart from risks associated with bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the security.
However, if the market value of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including accrued
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interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price.
Certain repurchase agreements which provide for settlement in more
than seven days can be liquidated before the nominal fixed term on seven days
or less notice. Such repurchase agreements will be regarded as illiquid
instruments.
The Fund may also enter into repurchase agreements with any party
deemed creditworthy by Kleinwort Benson, including foreign banks and
broker-dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
securities which the Fund may purchase.
LENDING OF PORTFOLIO SECURITIES
The Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as broker-dealers, and are required to be secured
continuously by collateral in cash, U.S. Government securities or other high
grade liquid debt obligations maintained on a current basis at an amount at
least equal to the market value of the securities loaned. Such loans will be
terminable at any time.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may invest
in securities issued by other investment companies within the limits prescribed
by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more
than 5% of the value of its total assets will be invested in the securities of
any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Trust as a whole. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that a Fund bears in connection with its own operations.
The Investment Adviser has agreed to remit to the respective investing fund
fees payable to it under its respective investment advisory agreement with an
affiliated money market fund to the extent such fees are based upon the
investing fund's assets invested in shares of the affiliated money market fund.
OPTIONS ON SECURITIES AND INDEXES
The Fund also may purchase and sell options on securities that the
Fund may buy and on securities indexes.
The Fund may purchase and sell over-the-counter options to the extent
consistent with the Fund's limitation on investments in restricted securities.
Trading in over-the-counter options is subject to the risk that the other party
will be unable or unwilling to close-out options purchased or sold by the
Fund.
An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium paid, the right to buy from (in the case
of a call) or sell to (in the case of a put) the seller ("writer") of the
option the security underlying the option (or the cash value of the index) at a
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specified exercise price at any time during the term of the option. The writer
of an option on a security has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security. Upon exercise,
the writer of an option on an index is obligated to pay the difference between
the closing price of the index and the exercise price of the option, expressed
in dollars, times a specified multiple (the "multiplier"). (An index is
designed to reflect specified facets of a particular financial or securities
market, a specified group of financial instruments or securities, or certain
economic indicators.)
If an option written by the Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by the Fund expires unexercised, the Fund realizes a capital
loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an option may be closed out by an offsetting purchase or sale of an
option of the same series (type, exchange, underlying security or index,
exercise price and expiration). There can be no assurance, however, that a
closing purchase or sale transaction can be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option and will realize a capital loss if it is more. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain, or if it is less,
the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position. If the Fund were unable to
close out an option it had purchased on a security, it would have to exercise
the option to realize any profit or the option may expire worthless. If the
Fund were unable to close out a covered call option it had written on a
security, it would not be able to sell the underlying security unless the
option expired without exercise. As a writer of a covered call option, the
Fund forgoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call. If trading were
suspended in an option purchased by the Fund, the Fund would not be able to
close out the option. If restrictions on exercise were imposed, the Fund might
be unable to exercise an option it had purchased. Except to the extent that a
call option on an index written by the Fund is covered by an option on the same
index purchased by the Fund, movements in the index may result in a loss to the
Fund; however, such losses may be mitigated by changes in the value of the
Fund's securities during the period the option was outstanding.
OPTIONS ON CURRENCIES
The Fund may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
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FUTURES CONTRACTS ON SECURITIES AND INDEXES
The Fund may enter into futures contracts on securities and futures
contracts based on securities indexes, which futures are traded on exchanges
that are licensed and regulated by the Commodity Futures Trading Commission
("CFTC") or, consistent with CFTC regulations, on foreign exchanges. The Fund
will do so to hedge against anticipated changes in securities values that would
otherwise have an adverse effect upon the value of portfolio securities or upon
securities to be acquired and to increase total return. Futures contracts and
related options entered into by the Fund will be entered into consistent with
CFTC regulations.
The Fund may take a "short" position in the futures markets by selling
contracts for the future delivery of securities in order to hedge against an
anticipated decline in stock prices. Such futures contracts may include
contracts for the future delivery of securities held by the Fund or securities
with price-fluctuation characteristics similar to those of its portfolio
securities. If, in the opinion of Kleinwort Benson, there is a sufficient
degree of correlation between price trends for the Fund's securities and
futures contracts based on indexes, the Fund may also enter into such futures
contracts as part of its hedging strategy. When hedging of this character is
successful, any depreciation in the value of the Fund's securities will
substantially be offset by appreciation in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
purchase of particular securities in the future, but expects the price then
available in the securities market to be less favorable than prices that are
currently available in the futures markets. The Fund expects that, in the
normal course, it will terminate the long futures position when it makes the
anticipated purchase; under unusual market conditions, however, a long futures
position may be terminated without the corresponding purchase of securities.
Futures contracts involve brokerage costs, which may be less than 1%
of the contract price, and require parties to the contract to make "margin"
deposits to secure performance of the contract. The Fund will be required to
deposit as margin into a segregated custodial account (held subject to the
claims of the Fund's futures broker) an amount of cash or liquid securities
equal to approximately 2% to 5% of the value of each futures contract. This
initial margin is in the nature of a performance bond or good faith deposit on
the contract. The Fund's position in the futures market will be
marked-to-market on a daily basis; the Fund may subsequently be required to
make "variation" margin payments depending upon whether its futures position
declines or rises in value. Positions taken in the futures markets are not
usually held until the expiration of the contract but, instead, are normally
liquidated through offsetting transactions, which may result in a profit or a
loss. Nevertheless, the Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for it to
do so. A clearing corporation associated with the exchange on which futures
contracts are traded assumes responsibility for closing out contracts and
guarantees that, if the contract is still open, the sale or purchase of
securities will be performed on the settlement date.
Futures contracts on securities indexes do not require the physical
delivery of securities, but merely provide for profits and losses resulting
from changes in the market value of a contract to be credited or debited at the
close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date a final cash settlement occurs and
the futures positions are simply closed out. Changes in the market value of a
particular futures contract reflect changes in the value of the securities
comprising the index on which the futures contract is based. Futures contracts
based on securities indexes currently are actively traded on the Chicago Board
of Trade, the Chicago Mercantile Exchange, the New York Futures Exchange and
the Kansas City Board of Trade.
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FUTURES CONTRACTS ON FOREIGN CURRENCIES
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price established when the position is taken. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the Chicago Mercantile Exchange.
The Fund may enter into foreign currency futures contracts in several
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a foreign security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of interest payments on such a
security which it holds, the Fund may desire to "lock in" the U.S. dollar price
of the security or the U.S. dollar equivalent of such interest payments, as the
case may be. By entering into a futures contract for the purchase or sale, for
a fixed amount of U.S. dollars, of the amount of foreign currency involved in
the underlying transactions, the Fund will attempt to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the obligation is purchased or sold, or on which the interest
payment is declared, and the date on which such payments are made or received.
Second, when Kleinwort Benson believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar (or sometimes against another currency), the Fund may enter into a
futures contract to sell, for a fixed dollar or other currency amount, foreign
currency approximating the value of some or all of the securities held by the
Fund which are denominated in that currency. The precise matching of the
futures contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the contract is entered into and the
date it expires.
Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, Kleinwort Benson believes that it is important
for the Fund to have the flexibility to enter into foreign currency futures
contracts when it determines that the best interest of the Fund will be served.
OPTIONS ON FUTURES CONTRACTS
The Fund may also purchase and sell (write) call and put options on
futures contracts, which options are traded on exchanges that are licensed and
regulated by the CFTC, or, consistent with CFTC regulations, on foreign
exchanges or in the over-the-counter market or privately negotiated. A "call"
option on a futures contract gives the purchaser the right, in return for the
premium paid, to buy a futures contract (assume a long position) at a specified
exercise price, by exercising the option at any time before the option expires.
A "put" option gives the purchaser the right, in return for the premium paid,
to sell a futures contract (assume a "short" position), for a specified
exercise price, by exercising the option at any time before the option expires.
Upon the exercise of a call, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder)
at the option exercise price, which will presumably be lower than the then
current market price of the contract in the futures market. Upon exercise of a
put, the writer of the option is obligated to purchase the futures contract
(deliver a "short" position to the option holder) at the option exercise price,
which will presumably be higher than the then current market price of the
contract in the futures market. When a person exercises an option
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and assumes a long futures position, in the case of a call, or a short futures
position, in the case of a put, his gain will be credited to his futures margin
account, while the loss suffered by the writer of the option will be debited to
his account. However, as with the trading of futures contracts, most
participants in the options markets do not seek to realize their gains or
losses by exercising their option rights. Instead, the holder of an option
will usually realize a gain or loss by buying or selling an offsetting option
at a market price that will reflect an increase or a decrease from the premium
originally paid.
Options on futures contracts can be used by the Fund to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts. If the Fund purchases an option on a futures contract, it
may obtain benefits similar to those that would result if it held the futures
position itself. But, in contrast to a futures transaction in which only
transaction costs are involved, benefits received in an option transaction in
the event of a favorable market movement will be reduced by the amount of the
premium paid as well as by transaction costs. In the event of an adverse
market movement, however, in contrast to the full market risk of a futures
position, the Fund will not be subject to a risk of loss on the option
transaction beyond the amount of the premium it paid plus its transaction
costs. Consequently, the Fund may benefit from an increase in the value of its
portfolio that would have been more completely offset if the hedge had been
effected through the use of a futures contract.
If the Fund writes options on futures contracts, it will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will gain the amount of the
premium, which may partially offset unfavorable changes in the value of its
portfolio securities held in, or to be acquired for, the Fund. If the option
is exercised, the Fund will incur a loss in the option transaction, which will
be reduced by the amount of the premium it has received. Such loss may
partially offset favorable changes in the value of its portfolio securities.
LIMITATIONS ON USE OF FUTURES TRANSACTIONS AND RISK CONSIDERATIONS
The Fund will incur brokerage fees in connection with its futures
transactions, and will be required to deposit and maintain funds with its
broker as margin to guarantee performance of its futures obligations. In
addition, while futures contracts will be traded to reduce certain risks,
futures trading itself entails certain other risks. Thus, while the Fund may
benefit from the use of such contracts, unanticipated changes in securities or
currency values may result in a poorer overall performance from the Fund than
if it had not entered into any futures contracts. Some futures contracts may
not have a broad and liquid market, in which case the contracts may not be able
to be closed at a fair price and the Fund may lose in excess of the initial
margin deposit. Moreover, in the event of an imperfect correlation between the
futures contract and the portfolio position that is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss.
Tax-related requirements may limit the extent to which the Fund may
engage in futures and related options transactions.(See "TAX INFORMATION.")
RESTRICTED AND OTHER ILLIQUID SECURITIES
The Fund may purchase securities that are not registered under the
Securities Act of 1933 or have some other legal or contractual restriction on
resale in the principal market where the security is traded ("restricted
securities"), but can be offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933. However, the Fund will not
invest
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<PAGE> 412
more than 15% of the value of its net assets in illiquid securities, including
restricted securities, unless the Funds' Board of Trustees determines, based
upon a continuing review of the trading markets for the specific Rule 144A
security, that such restricted security is liquid. The Trustees may adopt
guidelines and delegate to Kleinwort Benson the daily function of determining
and monitoring liquidity of securities. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
Because it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
RISKS OF SPECIALIZED INVESTMENT TECHNIQUES ABROAD
The above described specialized investment techniques, when engaged in
abroad, may not be regulated as effectively as when engaged in the United
States; may not involve a clearing mechanism and related guarantees; and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors;
(ii) lesser availability than in the United States of data on which to make
trading decisions; (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and (v) lesser
trading volume.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions ("component"
transactions), instead of a single transaction, as part of a single hedging
strategy when, in the opinion of Kleinwort Benson, it is in the best interest
of the Fund to do so and where underlying hedging strategies are permitted by
the Fund's investment policies. A combined transaction, while part of a single
hedging strategy, may contain elements of risk that are present in each of its
component transactions. (See above for the risk characteristics of certain
transactions.)
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate
the Fund to provide cash, securities or currencies to complete such
transactions will result in that Fund either segregating assets in an account
with, or on the books of, the Funds' custodian, or otherwise "covering" the
transaction as described below. For example, a call option written by the Fund
will require the Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or
liquid assets sufficient to meet the obligation by purchasing and delivering
the securities if the call is exercised. A call option written on an index
will require the Fund to have portfolio securities that correlate with the
index. A put option written by the Fund also will require the Fund to have
available assets sufficient to purchase the securities the Fund would be
obligated to buy if the put is exercised.
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<PAGE> 413
A forward foreign currency contract that obligates the Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations.
Such a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, the Fund will hold cash,
U.S. Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, the Fund could own securities substantially
replicating the movement of the particular index.
In the case of a futures contract, the Fund must deposit initial
margin and variation margin, as often as daily if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require the Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other
means consistent with applicable regulatory policies. The Fund may enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a
put option sold by the Fund. Moreover, instead of segregating assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Of course, the offsetting transaction must
terminate at the time of or after the primary transaction.
OTHER INFORMATION
Kleinwort Benson Investment Management Americas Inc. is a
wholly-owned, independent subsidiary of Kleinwort Benson Group plc. The Fund
may hold securities of companies with respect to which Kleinwort Benson Group
plc or its affiliates (including, without limitation, Kleinwort Benson Limited)
(collectively, the "Kleinwort Benson Group") provides investment banking,
financial advisory or other services, has other confidential relationships,
maintains a position or makes a market or otherwise may have an interest. For
good commercial and legal reasons, nonpublic information (a) which becomes
available to any member of the Kleinwort Benson Group through its relationships
or for any other reason cannot be passed on to Kleinwort Benson Investment
Management Americas Inc. or to the Funds or used for the benefit of the Fund;
and (b) which becomes available to Kleinwort Benson Investment Management
Americas Inc. for any reason cannot be passed on to the Funds or used for the
benefit of the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which
may not be changed with respect to the Fund without the approval of the holders
of a majority of the Fund's outstanding voting Shares.
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<PAGE> 414
As used in this Statement of Additional Information, with respect to
matters required by the provisions of the 1940 Act to be submitted to
Shareholders, the term "majority of the outstanding Shares" of either the Funds
or the Fund means the vote of the lesser of: (i) 67% or more of the Shares of
the Funds or Fund present at a meeting, if the holders of more than 50% of the
outstanding Shares of the Funds or Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding Shares of the Funds or Fund.
As a matter of fundamental policy, the Fund may not:
(1) Purchase securities of any issuer if immediately after such purchase
the value of the Fund's investments in issuers conducting their
principal business activity in any one industry would exceed 25% of
the value of the Fund's total assets, provided that: (a) the gas,
electric, water and telephone businesses will be considered separate
industries; (b) the personal credit and business credit businesses
will be considered separate industries; (c) wholly-owned finance
companies will be considered to be in the industry of their parents if
their activities are primarily related to financing the activity of
their parents; (d) foreign governments will be considered separate
industries; and (e) there is no limitation with respect to or arising
out of investments in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities or tax-exempt
obligations of state and municipal governments and their agencies and
authorities.
(2) Make loans, except to the extent that the lending of portfolio
securities and purchase of debt obligations in accordance with
the Fund's investment objective and policies and the entry into
repurchase agreements with banks, brokers, dealers and other financial
institutions may be deemed to be loans.
(3) Borrow money, except: (a) as a temporary measure, and then only in
amounts not exceeding 5% of the value of the Fund's total
assets, (b) from banks, or (c) in connection with reverse repurchase
agreements, provided that immediately after any such borrowing all
borrowings of the Fund do not exceed one-third of the Fund's total
assets. While the Fund has borrowings outstanding in an amount
exceeding 5% of its total assets the Funds will not make any purchases
of portfolio instruments for the Fund. The Funds may not borrow money
from Boatmen's Bancshares, Inc. or any majority-owned subsidiary
thereof.
(4) Purchase or sell real estate (except securities secured by real
estate or interests therein, securities issued by real estate
investment trusts and securities of companies that deal in real estate
or mortgages), commodities or commodity contracts relating to physical
commodities or oil and gas interests (although the Fund may invest in
companies that own or invest in such interests) except that the Fund
may invest up to 10% of its net assets in gold bullion, or invest in
companies for the purpose of exercising control or management. The
Funds reserve freedom of action to hold and to sell real estate
acquired as a result of the Funds' ownership of securities.
(5) Act as an underwriter of securities (except as the Funds may be
deemed to be an underwriter under the Securities Act of 1933) in
connection with the purchase and sale of instruments or make short
sales of securities unless the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold
short.
(6) Mortgage, pledge or hypothecate more than one-third of the
Fund's assets, except to secure permitted borrowings.
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<PAGE> 415
(7) Purchase the securities of any issuer other than the U.S.
Government, its agencies or instrumentalities, if immediately
after such purchase, more than 5% of the value of the Fund's total
assets would be invested in any one issuer except that: (a) up to 25%
of the value of its total assets may be invested without regard to such
5% limitation, and (b) such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the U.S. Government, its
agencies or instrumentalities. For purposes of this restriction, a
guaranty of an instrument will be considered a separate security
(subject to certain exclusions allowed under the 1940 Act).
(8) Issue senior securities, except: (a) as appropriate to evidence
indebtedness that it is permitted to incur and (b) for Shares of
the separate classes or series of the Funds, provided that collateral
arrangements with respect to currency-related contracts, futures
contracts, options or other permitted investments, including deposits
of initial and variation margin, are not considered to be the issuance
of senior securities for the purpose of this restriction.
OTHER INVESTMENT POLICIES
As a matter of non-fundamental policy, which may be changed by the
Trustees without Shareholder approval, the Fund may not:
(a) Invest in any securities that would cause more than 15% of its
net assets at the time of such investment to be invested in
securities that are not readily marketable or restricted securities
(for these purposes restricted security means a security with a legal
or contractual restriction on resale in the principal market in which
the security is traded but does not include liquid Rule 144A
securities), including repurchase agreements maturing in more than
seven days, and any other assets for which a bona fide market does not
exist at the time of purchase or subsequent valuation;
(b) Purchase securities of any one issuer if as a result more than
10% of the voting securities of such issuer would be held by the Fund;
(c) Purchase securities issued by any other open-end investment
company, except in the open market where no commission or profit
to a sponsor or dealer results from the purchase other than customary
brokerage commissions or except when such purchase is part of a merger
or consolidation or except shares of no-load "money market" investment
companies advised by one of the Funds' investment advisers or an
affiliate thereof;
(d) Write put and call options, unless each option is "covered,"
the underlying securities are ones that the Fund is permitted to
purchase, each option is traded in a liquid market and the aggregate
value of the securities underlying the calls or obligations underlying
the puts determined as of the date an option is sold shall not exceed
25% of the Fund's net assets;
(e) Purchase futures contracts or options on futures contracts for
non-hedging purposes if immediately after the purchase the value
of the aggregate initial margin with respect to all futures contracts
(both for receipt and delivery) entered into on behalf of the Fund
(including foreign currency futures contracts) and premiums paid for
options on futures contracts, will exceed 5% of the fair market value
of its total assets;
(f) Purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value
of the Fund's net assets or more than 2% of its net
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<PAGE> 416
assets in warrants that are not listed on the New York or American
Stock Exchanges or on an exchange with comparable listing requirements
(for this purpose, warrants attached to securities will be deemed to
have no value);
(g) Borrow for investment leverage purposes, except in connection
with permitted reverse repurchase agreements, but solely for
extraordinary or emergency purposes and to facilitate management of the
Funds' portfolio by enabling the Funds to meet redemption requests when
the liquidation of portfolio instruments is deemed to be
disadvantageous or not possible. In the event the net assets of the
Fund fall below 300% of its borrowings, the Funds will promptly reduce
the borrowings of the Fund in accordance with the 1940 Act;
(h) Purchase securities on margin or make short sales unless, by
virtue of the ownership of other securities, it has the right to
obtain securities equivalent in kind and amount to the securities sold
and, if the right is conditional, the sale is made upon the same
conditions, except in connection with arbitrage transactions and except
that the Fund may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that the Fund may make
initial and variation margin payments in connection with transactions
in futures contracts and options on futures contracts.
With regard to restriction (g) above, the Funds may have to sell a
portion of the Fund's investments at a time when it may be disadvantageous to
do so. With respect to fundamental investment restriction (4), investment in
real estate limited partnerships is prohibited.
In addition to the above restrictions, so long as it remains a policy
of the Ohio Division of Securities, the Fund may not purchase or retain the
securities of an issuer if, to the 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.
Moreover, so long as it remains a restriction of the Ohio Division of
Securities, the Fund will not purchase securities of any issuer with a record
of less than three years' continuous operations, including predecessors, except
U.S. Government securities and obligations issued or guaranteed by any foreign
government or its agencies or instrumentalities, if such purchase would cause
the investments of the Fund in all such issuers to exceed 15% of the Fund's
total assets. In addition, for so long as it remains a restriction of the Ohio
Division of Securities, the Fund will treat securities eligible for resale
under Rule 144A as subject to the Funds' restriction on investing in restricted
securities.
In addition, so long as it remains a restriction of the Arkansas or
Wisconsin Securities Department, the Fund will not purchase securities of any
issuers with a record of less than three years continuous operations, including
predecessors, except U.S. Government securities, securities of such issuers
which are rated by at least one nationally recognized statistical rating
organization, municipal obligations and obligations issued or guaranteed by any
foreign government or its agencies or instrumentalities, if such purchase would
cause the investments of the Fund in all such issuers to exceed 5% of the total
assets of the Fund taken at market value. Further, as long as it remains a
restriction of the Wisconsin Securities Department, the Fund will invest not
more than 10% of its total assets in restricted securities. Also, for so long
as it remains a restriction of the Wisconsin Securities Department, the Funds
may not purchase securities issued by REITs in excess of 10% of the Fund's
total assets.
For so long as it remains a restriction of the Arkansas Securities
Department, the Fund will not purchase puts, calls, straddles, spreads or any
combination thereof if the value of the Fund's aggregate investment in such
securities exceeds 5% of its total assets.
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<PAGE> 417
Also, with respect to investments in investment company securities,
the Funds will comply with Section 12(d) of the 1940 Act and the rules
thereunder.
For purposes of the foregoing fundamental and non-fundamental
limitations, any limitation that involves a maximum percentage shall not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings on behalf of, the Fund.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Funds is
set forth below. Trustees and officers deemed to be "interested persons" of
the Funds for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position(s) with Funds During Past 5 Years
- ----------------- ----------------------- -------------------
<S> <C> <C>
J. Hord Armstrong, III (54) Trustee Chairman and CEO,
8000 Maryland Avenue D&K Wholesale Drug, 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
660 S. Euclid, Box 8003 Financial Officer of
St. Louis, Missouri 63110 Washington University School
of Medicine since 1983.
Henry O. Johnston (58) Trustee President of Fordyce Four,
9650 Clayton Road Incorporated, a corporation
St. Louis, Missouri 63124 engaged in the acquisition and
management of personal investments.
</TABLE>
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<PAGE> 418
<TABLE>
<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,
125 West 55th Street July 1993 to date; prior
New York, New York 10019 thereto, Executive Vice
President of Concord Holding
Corporation.
William J. Tomko (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>
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<PAGE> 419
<TABLE>
<S> <C> <C>
George O. Martinez (36) Secretary Senior Vice President
3435 Stelzer Road and Director of Legal and
Columbus, Ohio 43219 Compliance Services of BISYS Fund
Services, Inc. since April 1995.
Prior thereto, Vice President and
Associate General Counsel of
Alliance Capital Management, L.P.
Sheldon A. Jones (57) Assistant Secretary Partner of the law firm of
Ten Post Office Square South Dechert Price & Rhoads.
Boston, Massachusetts 02109
</TABLE>
The Agreement and Declaration of Trust of the Funds (the "Trust
Agreement") provides that, subject to its provisions, the business of the Funds
shall be managed by the Trustees. The Trust Agreement provides that: (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to their general supervision, advisory and administration services and duties,
and also including distribution, custodian, transfer and dividend disbursing
agency, Shareholder servicing and accounting services and duties, (b) a Trustee
shall be liable for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, and for
nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law, and (c) subject to the preceding clause, the Trustees are not
responsible or liable for any neglect or wrongdoing of any officer or any
person referred to in clause (a).
Certain of the Trustees and officers and the organizations with which
they are associated have had in the past, and/or may have in the future,
transactions with Boatmen's, its parent, Boatmen's Bancshares Inc, Kleinwort
Benson, Concord and their respective affiliates. The Funds have been advised
by such Trustees and officers that all such transactions have been and are
expected to be ordinary transactions, and that the terms of such transactions,
including all loans and loan commitments by such persons, have been and are
expected to be substantially the same as the prevailing terms of comparable
transactions with other customers.
Each officer holds comparable positions with certain other investment
companies for which Concord and its affiliates serve as administrator and/or
distributor.
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<PAGE> 420
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)
Total
Pension or Compensation
Aggregate Retirement Estimated Annual From Registrant
Compensation Benefits Upon Benefits Upon Fund Complex
Name of Person From Registrant Retirement Retirement Paid to Persons
-------------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
J. Hord Armstrong, III $14,000 0 0 $14,000
David 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 meeting attended by such Trustee. The compensation paid to the Chairman
is $9,500 and $750 for each Trustee meeting attended. Each of the
non-interested Trustees is entitled to reimbursement for out-of-pocket
expenses. Compensation paid to the Trustees who are considered interested
persons is paid directly by the investment adviser. Trustees' fees during the
period ended August 31, 1995 distributed to or accrued for the account of the
non-interested Trustees (four persons) amounted to approximately $53,000, which
amount represented the total compensation paid by the Funds to the Trustees
during that year.
INVESTMENT ADVISER, MANAGER, ADMINISTRATOR,
DISTRIBUTOR AND TRANSFER AGENT
THE ADVISER AND MANAGER
Boatmen's Trust Company, a subsidiary of Boatmen's Bancshares, Inc.,
P.O. Box 14737, 100 North Broadway, St. Louis, Missouri 63178-4737, acts as
investment adviser to the Fund pursuant to an Investment Advisory Agreement
(the "Advisory Agreement") between the Fund and Boatmen's. As adviser,
Boatmen's is responsible for the management of the Fund's assets pursuant to an
Advisory Agreement between the Fund and Boatmen's.
Kleinwort Benson Investment Management Americas, Inc., 200 Park
Avenue, New York, New York 10166, serves as investment manager to the Fund
pursuant to an Investment Management Agreement among Kleinwort Benson,
Boatmen's and the Fund. As investment manager, Kleinwort Benson manages the
investment operations of the Fund and the composition of the Fund's assets,
including the purchase, retention and sale thereof.
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<PAGE> 421
The Fund has no present intention of purchasing any securities issued
by Boatmen's, Boatmen's Bancshares, Inc. or any of its affiliates. Mr. Henry
O. Johnston, a Trustee of the Funds, owns shares amounting to less than
one-tenth of one percent (.001%) of the outstanding shares of common stock of
Boatmen's Bancshares, Inc.
Under its Advisory Agreement with the Fund, Boatmen's provides
guidelines for Kleinwort Benson, the investment manager, with regard to
investment strategy and the allocation of assets among countries and
currencies, monitors compliance with such guidelines, reviews selection and
monitors performance of foreign subcustodians, periodically reviews pricing of
portfolio securities, and makes periodic reports to the Funds' Board of
Trustees.
The Advisory Agreement provides that, subject to Section 36 of the
1940 Act, Boatmen's will not be liable for any error of judgment or mistake of
law or for any loss suffered by the Funds, except liability to the Funds or its
Shareholders to which Boatmen's would otherwise be subject by reason of its
willful misfeasance, bad faith or gross negligence in the performance of, or
its reckless disregard of, its obligations and duties under the Agreement. The
Agreement provides that the Funds will indemnify Boatmen's against certain
liabilities, including liabilities under the Federal securities laws, or, in
lieu thereof, contribute to resulting losses.
As compensation for the services rendered to the Funds by Boatmen's as
investment adviser, and the assumption by Boatmen's of the expenses related
thereto, Boatmen's is entitled to a fee, computed daily and payable monthly, at
an annual rate equal to .80 of 1% of the average daily net assets of the Fund.
While this fee is higher than the advisory fee paid by most mutual funds it is
believed to be comparable to advisory fees paid by many funds having similar
objectives and policies. For the period from July 12, 1993 through
August 31, 1993, Boatmen's received a fee of $158,136 for services rendered to
Fund under the Advisory Agreement, for the period September 1, 1993 to
August 31, 1994, received a fee of $2,422,559 for such services, and for the
period September 1, 1994 through August 31, 1995, received a fee of $2,828,628
for such services.
In connection with the foregoing services, Boatmen's bears all costs
incurred by it in connection with the performance of its duties, other than the
cost (including taxes and brokerage commission, if any) of securities purchased
for the Fund.
Kleinwort Benson's fee is paid by Boatmen's directly out of Boatmen's
advisory fee. The Funds are responsible for all expenses incurred by the
Funds, other than those expressly borne by Boatmen's, Kleinwort Benson, Concord
Holding Corporation, PFD, Concord and Concord Financial Services, Inc. under
the Advisory, Investment Management, Distribution, Administration or Transfer
Agency Agreements. Such expenses include, without limitation, the fees payable
to Boatmen's, Concord and Concord Financial Services, Inc., fees and expenses
incurred in connection with membership in investment company organizations, the
fees and expenses of the Funds' custodian and fund accounting agent, 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, 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 the 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'
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<PAGE> 422
agreements with Boatmen's and Kleinwort Benson provide that the Fund is
entitled to be reimbursed on a pro rata basis based on Boatmen's and Kleinwort
Benson's respective share of the fees paid by the Funds to Boatmen's for
investment advisory services, to the extent required by these expense
limitations. As of the date hereof, the most restrictive expense limitation
imposed by state securities administrators of which the Funds are aware
provides that annual expenses (as defined) may not exceed 2 1/2% of the first
$30,000,000 of the Fund's average net assets, plus 2% of the next $70,000,000
of such assets, plus 1-1/2% of such assets in excess of $100,000,000, provided
that (under the Missouri expense limitation) the aggregate annual expenses of
every type paid or incurred by the Fund or its Shareholders, must be
substantially comparable with the aggregate annual operating and advisory
expenses incurred by other investment companies with similar objectives and
operating policies.
The Advisory Agreement between Boatmen's and the Fund was approved by
the sole holder of outstanding Shares of the Fund, The Goldman Sachs Group,
L.P., on July 12, 1993. The Advisory Agreement for the Fund was last approved
by the Trustees, including the "non-interested" Trustees, on August 21, 1995.
The Advisory Agreement will remain in effect until May 31, 1997 and will
continue in effect thereafter only if such continuance is specifically approved
at least annually: (1) by the vote of a majority of the outstanding Shares of
the Fund (as defined under "Investment Restrictions") or by the Trustees of the
Funds, and by the vote of a majority of the "non-interested" Trustees. The
Advisory Agreement will terminate automatically if assigned (as defined in the
1940 Act), and is terminable at any time without penalty by the Trustees of the
Funds or by vote of a majority of the outstanding Shares of the Fund (as
defined under "Investment Restrictions") on 60 days' written notice to
Boatmen's, and by Boatmen's on 60 days' written notice to the Funds.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company
continuously engaged in the issuance of its shares, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers. Boatmen's is a state-chartered
trust company. Boatmen's believes that it may perform the services
contemplated by its agreement with the Funds without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as future judicial or administrative decisions or
interpretations of current and future statutes and regulations, could prevent
Boatmen's from continuing to perform such services for the Funds.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Boatmen's in connection with the provision of
services on behalf of the Funds, the Funds might be required to alter
materially or discontinue its arrangements with Boatmen's and change its method
of operations. It is not anticipated, however, that any change in the Funds'
method of operations would affect the net asset value per share of the Fund or
result in a financial loss to any shareholder. Moreover, if current
restrictions preventing a bank from legally sponsoring, organizing, controlling
or distributing shares of an open-end investment company were relaxed, the
Funds expect that Boatmen's would consider the possibility of offering to
provide some or all of the services now provided by Concord and PFD. It is not
possible, of course, to predict whether or in what form such restrictions might
be relaxed or the terms upon which Boatmen's might offer to provide services
for consideration by the Trustees.
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<PAGE> 423
The terms of the Investment Management Agreement among Kleinwort
Benson, Boatmen's and the Fund provide that Kleinwort Benson, subject to
supervision of the Funds' Board of Trustees and Boatmen's, manages the
investment operations of the Fund and the composition of the Fund's assets,
including the purchase, retention and disposition thereof. The Investment
Management Agreement provides that, subject to Section 36 of the 1940 Act,
Kleinwort Benson will not be liable for any error of judgment or mistake of law
or for any loss suffered by the Funds, except liability to the Funds or its
Shareholders to which Kleinwort Benson would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of, or
its reckless disregard of, its obligations and duties under the Agreement. The
Agreement provides that the Funds will indemnify Kleinwort Benson against
certain liabilities, including liabilities under the Federal securities laws,
or, in lieu thereof, contribute to resulting losses.
At its regular meeting held on August 21, 1995, the Board of Trustees
of The Pilot Funds approved a new investment management agreement between
Kleinwort Benson Investment Management Americas Inc., Boatmen's Trust Company
and the Pilot Kleinwort Benson International Equity Fund. This action was
necessary because of the anticipated acquisition of Kleinwort Benson by
Dresdner Bank AG ("Dresdner") which would, pursuant to the terms of the current
agreement, result in a termination of that agreement as required by the
Investment Company Act of 1940.
As compensation for Kleinwort Benson's services, Kleinwort Benson is
entitled to a fee paid by Boatmen's directly out of Boatmen's advisory fee
computed daily and payable monthly, at an annual rate equal to, effective June
1, 1995, .40 of 1% up to $325,000,000 and .25 of 1% of such assets in excess of
$325,000,000, on an annualized basis. Prior to June 1, 1995, Kleinwort Benson
was entitled to a fee, computed daily and payable monthly at an annual rate
equal to .80 of 1% of the Fund up to $65,000,000, .40 of 1% of such assets in
excess of $65,000,000 and .25 of 1% of such assets in excess of $325,000,000.
For the period from July 12, 1993 through August 31, 1993, the investment
management fee paid by Boatmen's to Kleinwort Benson was $114,903, which
equaled .58 of 1% of the Fund's average daily net assets. For the fiscal year
ended August 31, 1994, the fee paid by Boatmen's to Kleinwort Benson was
$1,465,815 which equaled .48 of 1% of the Fund's average daily net assets. For
the fiscal year ended August 31, 1995, the fee paid by Boatmen's to Kleinwort
Benson was $1,535,377, which equaled .43 of 1% of the Fund's average daily net
assets. The rate used to determine fees payable pursuant to the new Investment
Management Agreement is identical to the rate in the existing Investment
Management Agreement. All fees and expenses are accrued daily and deducted
before declaration of dividends to shareholders.
THE ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
Concord Holding Corporation ("Concord"), with principal offices at
3435 Stelzer Road, Columbus, Ohio 43219-3035, was organized in June of 1987.
Concord also serves as administrator to several other investment companies.
Concord provides administrative services for the Fund as described in
its Prospectus pursuant to an Administration Agreement dated as of March 31,
1994. The Agreement will continue in effect with respect to the Fund until May
31, 1996 and thereafter will be automatically extended as to the Fund for
successive periods of three years, provided that such continuance is
specifically approved: (a) by a vote of a majority of those members of the
Board of Trustees of the Funds who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Board of Trustees of the
Funds or by vote of a majority of the outstanding voting securities of the
Fund. The Agreement is terminable by the Board of Trustees of the Funds with
regard to the Fund, without the payment
C:\TEMP\CLASSA.PIL -26-
<PAGE> 424
of any penalty, at any time if for cause. "Cause" shall mean a material breach
by Concord of its obligations under the Agreement which shall not have been
cured within 60 days after the date on which Concord shall have received
written notice setting forth in detail the facts alleged to give rise to the
breach.
For its services under the Administration Agreement, Concord is
entitled to receive an administration fee from the Funds, which is calculated
based on the net assets of all Funds combined. Under the Administration
Agreement, each Fund pays its pro rata share of an annual fee to Concord,
computed daily and payable monthly, of .115 of 1% of the Funds' average net
assets up to $1.5 billion, .110 of 1% of the Funds' average net assets on the
next $1.5 billion, and .1075 of 1% of the Funds' average net assets in excess
of $3 billion. From time to time, Concord may waive fees or reimburse the Funds
for expenses, either voluntarily or as required by certain state securities
laws. For the period March 31, 1994 to August 31, 1994, the Funds paid Concord
$295,477 for the performance of administrative services during such period.
For the fiscal year September 1, 1994 through August 31, 1995, the Fund paid
Concord $386,949 for the performance of administrative services during such
period.
Prior to March 31, 1994, Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman, Sachs & Co. served as administrator to
the Funds. For the fiscal period from July 12, 1993 through August 31, 1993
the Funds paid GSAM, pursuant to the Administration Agreement then in effect,
$19,767 for the performance of administrative services rendered during such
period.
Concord will bear all expenses in connection with the performance of
its services under the Administration Agreement for the Funds with the
exception of fees charged by State Street Bank and Trust Company for certain
fund accounting services which are borne by the Funds.
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<PAGE> 425
The Administration Agreement provides that Concord shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Fund in
connection with the matters to which the Agreement relates except a loss
resulting from willful misfeasance, bad faith or negligence in the performance
of Concord's duties or from the reckless disregard by Concord of its
obligations and duties thereunder.
Pilot Funds Distributors, Inc. ("PFD"), a wholly-owned subsidiary of
Concord, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, acts as the
exclusive distributor of the shares of the Fund pursuant to a Distribution
Agreement with the Funds dated as of March 31, 1994. Shares are sold on a
continuous basis by PFD as agent, although PFD is not obligated to sell any
particular amount of shares.
The Distribution Agreement with PFD will continue in effect with
respect to the Fund until May 31, 1996 and thereafter will be automatically
extended for successive terms of one year, provided that such continuance is
specifically approved: (a) by a majority of those members of the Board of
Trustees who are not interested persons of the Funds and who have no direct or
indirect financial interest in the operation of any plan that has been adopted
by the Funds pursuant to Rule 12b-1 under the 1940 Act ("Plan") or in any
agreement entered into in connection with such plans ("Disinterested
Trustees"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Funds or by vote of a majority of the outstanding voting securities of the
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.
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 Fund. The Plan was approved, by
holders of a majority of the Class A shareholders, at a special meeting of
shareholders held on November 30, 1995.
The Distributor is also entitled to payments 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.
Services provided by Service Organizations pursuant to the
Distribution Plan may include, among other things: (i) establishing and
maintaining accounts and records relating to Clients that beneficially own
Class A 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.
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<PAGE> 426
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 Class A Shares. If in any month the Distributor expects 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 the 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 the
Distribution Plan may not be "carried forward" beyond the end of the fiscal
year in which such amounts or credits due are accrued.
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 Plan permits, 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 are subject to Rule 12b-1 (the
"Rule") under the 1940 Act. Payments under the Distribution Plan are also
subject to 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 Plan
provides that a report of the amounts expended under the Plan, 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 Plan for Class A
Shares provides that it may not be amended to increase materially the costs
Class A Shares of the Fund bear for distribution pursuant to the Distribution
Plan without shareholder approval, and provides 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, but
vote case in person at a meeting called for the purpose of considering such
amendments (the "Disinterested Trustees"). In addition, as long as the
Distribution Plan for the Class A Shares is in effect, the nomination of the
Trustees who are not interested persons of the Trust (as defined in the 1940
Act) must be committed to the non-interested Trustees.
The Board of Trustees of the Trust has concluded that there is a
reasonable likelihood that the Plan will benefit the Fund's Class A
Shareholders. The Plan is subject to annual re-approval by a majority of the
Disinterested Trustees of the Trust and is terminable at any time with respect
to the Fund by a vote of a majority of such Trustees or, with respect to the
Distribution Plan, by vote of the holders of a majority of the Class A Shares.
Any agreement entered into pursuant to the Distribution Plan with a Service
Organization is terminable with respect to the 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 Class A Shares of such Fund, by the Distributor or
by the Service Organization. An agreement will also terminate automatically in
the event of its assignment.
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<PAGE> 427
Banks may act as Service Organizations and receive payments under the
Distribution Plan as described. The Glass-Steagall Act and other applicable
laws, among other things, prohibit banks from engaging in the business of
underwriting securities. If a bank were prohibited from acting as a Service
Organization, changes in the operation of the Funds might occur and a
shareholder serviced by such bank might no longer be able to avail himself or
herself of any automatic investment or other services than being provided by
the bank. It is not expected that shareholders would suffer any adverse
financial consequences as a result of these occurrences.
The Trust understands that Boatmen's and its affiliates and/or some
Service Organizations may charge their clients a direct fee for services in
connection with their investments in the Funds. These fees would be in
addition to any amounts which might be received under the Plan. Small,
inactive long-term accounts involving such additional charges may not be in the
best interest of shareholders.
BISYS Fund Services, Inc. (the "Transfer Agent") is the transfer and
dividend disbursing agent of the Fund. It maintains the account records of all
shareholders and administers the distribution of all income earned as a result
of investing in the Fund. The Transfer Agent is located at 3435 Stelzer Road,
Columbus, Ohio 43219. For the fiscal year September 1, 1994 through August 31,
1995, Concord Financial Services, Inc., the Fund's former transfer agent,
received a fee of $51,775 in the capacity of transfer agent.
PORTFOLIO TRANSACTIONS
Kleinwort Benson is responsible for decisions to buy and sell
securities for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a securities exchange are effected through brokers
who charge a negotiated commission for their services. Orders may be directed
to any broker including, to the extent and in the manner permitted by
applicable law.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount.
In placing orders for portfolio securities of the Fund, Kleinwort
Benson is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that Kleinwort Benson will
seek to execute each transaction at a price and commission, if any, which
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances. In seeking such execution, Kleinwort Benson will use its best
judgment in evaluating the terms of a transaction, and will give consideration
to various relevant factors, including, without limitation, the size and type
of the transaction, the nature and character of the market for the security,
the confidentiality, speed and certainty of effective execution required for
the transaction, the general execution and operational capabilities of the
broker-dealer, the reputation, reliability, experience and financial condition
of the firm, the value and quality of the services rendered by the firm in this
and other transactions, and the reasonableness of the spread or commission, if
any.
While Kleinwort Benson generally seeks reasonably competitive spreads
or commissions, the Fund will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, Kleinwort Benson
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of the Fund, Kleinwort
C:\TEMP\CLASSA.PIL -30-
<PAGE> 428
Benson, or its other clients. Such research and investment services are those
which brokerage houses customarily provide to institutional investors and
include statistical and economic data and research reports on particular
companies and industries. Such services are used by Kleinwort Benson in
connection with all of its investment activities, and some of such services
obtained in connection with the execution of transactions for the Fund may be
used in managing other investment accounts. Conversely, brokers furnishing
such services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than those of the Fund; and the
services furnished by such brokers may be used by Kleinwort Benson in providing
investment management services for the Funds.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees of the Funds.
In certain instances there may be securities which are suitable for
one or more of the other clients of Kleinwort Benson. Investment decisions for
the Fund and for Kleinwort Benson's other clients are made with a view toward
achieving their respective investment objectives. It may happen that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more client when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment
adviser, particularly when the same security is suitable for the investment
objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as
far as the Fund is concerned. The Funds believe that over time its ability to
participate in volume transactions will produce superior executions for the
Fund.
The anticipated annual portfolio turnover rate of the Fund is expected
to be 100%. The Portfolio turnover rate for the Fund for the fiscal years
ended August 31, 1994 and August 31, 1995 was 35.4% and 35.9%, respectively.
The Fund will not engage in purchasing securities for short-term trading
purposes.
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<PAGE> 429
For the fiscal years ended August 31, 1994 and August 31, 1995, the
brokerage commissions paid by the Fund were as follows:
<TABLE>
<CAPTION>
Total Total Amount Brokerage
Total Brokerage of Transactions Commissions
Brokerage Commissions On Which Paid To
Commissions Paid To Commissions Brokers Providing
Paid Affiliated Persons Were Paid Research
---------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Fiscal Year from
September 1, 1994
through
August 31, 1995 $781,228 $0 (1) $291,172,320 (2) $0
Fiscal Year from
September 1, 1993
through
August 31, 1994 $1,484,166 $0 (1) $154,608,502 (2) $0
<FN>
(1) Percentage of total commissions paid.
(2) Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
</TABLE>
During the fiscal year ended August 31, 1994, the Fund did not acquire
or sell securities issued by its regular broker-dealers.
NET ASSET VALUE
The net asset value per Share of the Fund is determined by the Fund's
custodian at 3:00 p.m., Central time (4:00 p.m., Eastern time), on each
Business Day as defined in the Prospectus. In the event that the New York
Stock Exchange or the national securities exchange on which stock options are
traded adopt different trading hours on either a permanent or temporary basis,
the Trustees of the Funds will reconsider the time at which net asset value is
computed. In addition, the Fund may compute its net asset value as of any time
permitted pursuant to any exemption, order or statement of the SEC or its
staff.
Portfolio securities of the Fund are valued as follows: (a) securities
that are traded on any U.S. or foreign stock exchange or the National
Association of Securities Dealers NASDAQ System ("NASDAQ") are valued at the
last sale price on that exchange or NASDAQ prior to the Fund's valuation time;
if no sale occurs, securities traded on a U.S. exchange or NASDAQ are valued at
the mean between the closing bid and closing asked price and securities traded
on a foreign exchange will be valued at the official bid price; (b)
over-the-counter stocks not quoted on NASDAQ are valued at the last sale price
prior to the Fund's valuation time or, if no sale occurs, at
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<PAGE> 430
the mean between the last bid and asked price; (c) debt securities are
valued by a pricing service selected by Kleinwort Benson and approved
by the Trustees of the Funds, which prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those
prices are deemed by Kleinwort Benson to be representative of market
values at the Fund's valuation time; (d) options and futures contracts
are valued at the last sale price on the market prior to the Fund's
valuation time where any such option or futures contract is
principally traded; (e) forward foreign currency exchange contracts
are valued at their respective current fair market values, supplied by
a dealer in such contracts prior to the Fund's valuation time,
determined on the basis of prices supplied by a dealer in such
contracts; and (f) all other securities and other assets, including
debt securities, for which prices are supplied by a pricing agent but
are not deemed by Kleinwort Benson to be representative of market
values, but excluding money market instruments with a remaining
maturity of sixty days or less and including restricted securities and
securities for which no market quotation is available, are valued at
fair value as determined in good faith pursuant to procedures
established by the Trustees of the Funds, including use of a valuation
committee. Money market instruments held by the Fund with a remaining
maturity of sixty days or less will be valued by the amortized cost
method.
Fund securities traded on more than one United States national
securities exchange or foreign securities exchange are valued at the last sale
price on each business day prior to the Fund's valuation time on the exchange
representing the principal market for such securities. The value of all assets
and liabilities expressed in foreign currencies will be converted into U.S.
dollar values at the rates of such currencies against U.S. dollars last quoted
by any major bank between the buying and selling rates of such currencies
against U.S. dollars last quoted by any major bank. If such quotations are not
available, the rate of exchange will be determined in good faith by or under
procedures established by the Trustees of the Funds.
Trading in securities on European and Far Eastern securities exchanges
and on over-the-counter markets is normally completed well before the close of
business on each business day of the Funds. In addition, European or Far
Eastern securities trading generally or in a particular country or countries
may not take place on all business days in the United States. Furthermore,
trading takes place in various foreign markets on days which are not business
days in the United States and days on which the Fund's net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the Fund's valuation
time will not be reflected in the Fund's calculation of net asset values unless
Kleinwort Benson deems that the particular event would materially affect net
asset value, in which case an adjustment will be made.
The proceeds received by the Fund and each additional portfolio
established by the Trustees of the Funds for each issue or sale of its shares,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically
allocated to such Fund and constitute the underlying assets of that Fund. The
underlying assets of such Fund will be segregated on the books of account, and
will be charged with the liabilities of such Fund and a share of the general
liabilities of the Funds. Expenses with respect to the Fund are generally
allocated in proportion to the net asset values of the respective portfolios
except where allocations of direct expenses can otherwise be fairly made. In
addition, certain distribution, administration and service fees will be borne
exclusively by the class to which they relate.
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<PAGE> 431
REDEMPTIONS
The Funds may suspend the right of redemption of Shares of the Fund
and may postpone payment: (i) for any period 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 the 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 PERFORMANCE QUOTATIONS
From time to time, quotations of the Fund's performance may be
included in advertisements, sales literature or reports to Shareholders or
prospective investors. These performance figures may be calculated in the
following manner:
A. Average Annual Total Return is the average annual compounded rate of
return for the periods of one year and the life of the Fund, ended on
the last day of a recent calendar quarter. Average annual total
return quotations reflect changes in the price of the Fund's Shares
and assume that all dividends and capital gains distributions during
the respective periods were reinvested in the Fund's Shares. Average
annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over such
periods according to the following formula (average annual total
return is then expressed as a percentage):
T = (ERV/P)(1/n) - 1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
A. Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period.
Cumulative total return quotations reflect changes in the price of a
Fund's Shares and assume that all dividends and capital gains
distributions during the period were reinvested in Shares of the
applicable Fund. Cumulative total return is calculated by finding the
cumulative rates of a return of a hypothetical investment over such
periods, according to the following formula (cumulative total return
is then expressed as a percentage):
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<PAGE> 432
C = (ERV/P) - 1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
A. Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total
Return.
A. Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semi-annual compounding of income. Yield is
calculated by dividing the net investment income per Share earned
during the period by the maximum offering price per Share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b + 1)(6) - 1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per Share on the last day
of the period.
Unlike bank deposits or other investments that pay a fixed yield or
return for a stated period of time, the return for the Fund will fluctuate from
time to time and does not provide a basis for determining future returns.
Return is a function of portfolio quality, composition, maturity and market
conditions, as well as the expenses allocated to the Fund. The return of the
Fund may not be readily comparable to other investment alternatives because of
differences in the foregoing variables and the methods used to value portfolio
securities, compute expenses and calculate return.
Average annual total return, cumulative total return, total return and
yield are calculated separately for Pilot Shares and Class A Shares. Pilot
Shares and Class A Shares are subject to different fees and expenses and may
have different performance for the same period.
For periods prior to July 12, 1993 the performance information for the
Pilot International Equity Fund is actually the performance for the Kleinwort
Benson International Equity Fund of Kleinwort Benson Investment Strategies, all
of the assets of which were acquired by the Pilot International Equity Fund in
exchange for Class A Shares in a reorganization effective July 12, 1993. The
Pilot International Equity Fund did not commence operations until that date.
The Kleinwort Benson International Equity Fund was advised solely by Kleinwort
Benson prior to that date.
The average annual total return for share classes outstanding August
31, 1995 of the Pilot International Equity Fund with respect to Pilot Shares
and Class A Shares for the one, five and ten-year periods ended August 31,
1995, assuming such Shares had been outstanding and subject to maximum service
fees and that the maximum sales charge had been assessed is shown below:
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<PAGE> 433
For the period prior to July 12, 1993, the information
reflects the performance of the Kleinwort Benson International Equity
Fund.
<TABLE>
<CAPTION>
Average Annual Total Return
----------------------------------------------------------
One Year Five Years Ten Years
-------------- ---------------- ---------------
<S> <C> <C> <C>
Pilot International Equity Fund
Pilot Shares 2.08% 4.10% 15.65%
Class A Shares -2.81% 2.89% 14.83%
</TABLE>
The average annual total return for share classes outstanding August
31, 1995 of the Fund with respect to Pilot Shares and Class A Shares for the
one, five and ten-year periods ended August 31, 1995, assuming such Shares had
been outstanding and subject to maximum service fees and that no sales charge
had been assessed is shown below:
For the period prior to July 12, 1993, the information reflects the
performance of the Kleinwort Benson International Equity Fund.
<TABLE>
<CAPTION>
Average Annual Total Return
----------------------------------------------------------
One Year Five Years Ten Years
-------------- ---------------- ---------------
<S> <C> <C> <C>
Pilot International Equity Fund
Pilot Shares 2.08% 4.10% 15.65%
Class A Shares 1.77% 3.83% 15.36%
</TABLE>
From time to time, the Funds may publish an indication of one or more
Funds' past performance as measured by independent sources, such as Lipper
Analytical Services, Incorporated, Weisenberger Investment Companies Service,
Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Money, Personal Investor, Sylvia Porter's Personal
Finance and The Wall Street Journal.
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<PAGE> 434
TAX INFORMATION
The Fund intends to elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Such qualification does not involve supervision of management or
investment practices by any governmental agency or bureau.
In order to qualify as a regulated investment company, the Fund must,
among other things: (a) derive at least 90% of its annual gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (such as gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its annual gross income from the sale
or other disposition of: (i) stock or securities, (ii) options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies), or (iii) foreign currencies (or foreign currency options, futures
or forward contracts) not directly related to the Fund's principal business of
investing in stock or securities (or options and futures with respect to stocks
or securities), held less than three months (the "30% Limitation"); and (c)
diversify its holdings so that, at the end of each quarter of its taxable year:
(i) at least 50% of the market value of the Fund's total assets is represented
by cash and cash items (including receivables), U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets is
invested in the securities (other than U.S. Government securities and
securities of other regulated investment companies) of any one issuer.
The Fund, as a regulated investment company, generally should not be
subject to federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) and net capital gains (the
excess of net long-term capital gains over net short-term capital losses) which
are distributed to Shareholders in any taxable year, provided that the Fund
distributes at least 90% of its investment company taxable income and its net
tax-exempt interest income, if any, each taxable year. In order to avoid a 4%
federal excise tax, the Fund must distribute (or be deemed to have distributed)
by December 31 of each calendar year at least 98% of its ordinary income (not
taking into account any capital gains or losses) for such year, at least 98% of
the excess of its capital gains over its capital losses (adjusted for certain
ordinary losses) computed on the basis of the one-year period ending on
October 31 of such year, and any ordinary income and capital gains for previous
years that were not distributed during those years. A distribution will be
treated as having been paid on December 31 of the current calendar year if it
is declared by the Fund in October, November or December with a record date in
such a month and paid during January of the following calendar year. Such
distributions will be taxable to Shareholders in the calendar year in which the
distributions are declared.
Dividends paid out of the Fund's investment company taxable income
will be treated as ordinary income in the hands of Shareholders. If a portion
of the Fund's income consists of dividends paid by U.S. corporations, a portion
of the dividends paid by the Fund may qualify for the corporate
dividends-received deduction. Distributions of net capital gains, if any,
which are designated as capital gain dividends are taxable to Shareholders as
long-term capital gain, regardless of the length of time the Shares of the Fund
have been held by such Shareholders, and are not eligible for the corporate
dividends-received deduction. Net capital gains for a taxable year are
computed by taking into account any capital loss carry-forward of the Fund.
C:\TEMP\CLASSA.PIL -37-
<PAGE> 435
Distributions of investment company taxable income and net capital
gains will be taxable as described above, whether received in additional Shares
or in cash. Shareholders electing to receive distributions in the form of
additional Shares will have a cost basis in each Share so received equal to the
net asset value of such Share on the reinvestment date.
Investments by the Fund in zero coupon securities will result in
income to the Fund equal to a portion of the excess of the face value of the
securities over their issue price (the "original issue discount") each year
that the securities are held, even though the Fund receives no cash interest
payments. This income is included in determining the amount of income which
the Fund must distribute to maintain its status as a regulated investment
company and to avoid the payment of federal income tax and the 4% excise tax.
Gain derived by the Fund from the disposition of any market discount
bonds (i.e., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price), including tax-exempt market
discount bonds, held by the Fund will be taxed as ordinary income to the extent
of the accrued market discount on the bonds, unless the Fund elects to include
the market discount in income as it accrues.
The taxation of equity options and over-the-counter options on debt
securities is governed by Code Section 1234. Pursuant to Code Section 1234,
the premium received by the Fund for selling a put or call option is not
included in income at the time of receipt. If the option expires, the premium
is short-term capital gain to the Fund. If the Fund enters into a closing
transaction, the difference between the amount paid to close out its position
and the premium received is short-term capital gain or loss. If a call option
written by the Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by the
Fund, if the option is sold, any resulting gain or loss will be a capital gain
or loss, and will be long-term or short-term, depending upon the holding period
of the option. If the option expires, the resulting loss is a capital loss and
is long-term or short-term, depending upon the holding period of the option.
If the option is exercised, the cost of the option, in the case of a call
option, is added to the basis of the purchased security and, in the case of a
put option, reduces the amount realized on the underlying security in
determining gain or loss.
Certain options, futures contracts and forward contracts in which the
Fund may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses; however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income
or loss. Also, section 1256 contracts held by the Fund at the end of each
taxable year (and, generally, for purposes of the 4% excise tax, on October 31
of each year) are "marked-to-market" (that is, treated as sold at fair market
value), resulting in unrealized gains or losses being treated as though they
were realized.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to its Shareholders.
C:\TEMP\CLASSA.PIL -38-
<PAGE> 436
The Fund may make one or more of the elections available under the
Code which are applicable to straddles. If the Fund makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may operate to accelerate the recognition of gains or losses from
the affected straddle position.
Because the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
The 30% Limitation and the diversification requirements applicable to
the Fund's assets may limit the extent to which the Fund will be able to engage
in transactions in options, futures contracts and forward contracts.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its Shareholders
as ordinary income.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The
distribution or gain so allocated to any taxable year of the Fund, other than
the taxable year of the excess distribution or disposition, would be taxed to
the Fund at the highest ordinary income rate in effect for such year, and the
tax would be further increased by an interest charge to reflect the value of
the tax deferral deemed to have resulted from the ownership of the foreign
company's stock. Any amount of distribution or gain allocated to the taxable
year of the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be taxable to the
Fund to the extent distributed by the Fund as a dividend to its Shareholders.
The Fund may be able to make an election, in lieu of being taxable in
the manner described above, to include annually in income its pro rata share of
the ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in the Fund's investment company
taxable income and net capital gain which, to the extent distributed by the
Fund as ordinary or capital gain dividends, as the case may be, would not be
taxable to the Fund. In order to make this election, the Fund would be
required to obtain certain annual information from the foreign investment
companies in which it invests, which in many cases may be difficult to obtain.
Alternatively, the Fund may be able to elect to mark to market its foreign
investment company stock, resulting in the stock being treated as sold at fair
market value on the last business day of each taxable year. Any resulting gain
would be reported as ordinary income, and any resulting loss would not be
recognized.
C:\TEMP\CLASSA.PIL -39-
<PAGE> 437
Any gain or loss realized by a Shareholder upon the sale or other
disposition of Shares, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including Shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the Shares.
In such a case, the basis of the Shares acquired will be adjusted to reflect
the disallowed loss. Any loss realized by a Shareholder on a disposition of
Shares held by the Shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the Shareholder with respect to such Shares.
The Fund may be subject to foreign withholding taxes on its
investments in certain securities of foreign entities. These taxes may be
reduced under the terms of applicable tax treaties, and the Fund intends to
satisfy any procedural requirements to qualify for benefits under these
treaties. In the event that more than 50% of the value of its total assets at
the close of a taxable year is composed of stock or securities of foreign
corporations, a Fund may make an election under Code Section 853 to permit its
Shareholders (subject to limitations) to claim a credit or deduction on their
federal income tax returns for their pro rata portion of qualified taxes paid
by that Fund in foreign countries. In the event such an election is made,
Shareholders would be required to include their pro rata portion of such taxes
in gross income and may be entitled to claim a foreign tax credit or deduction
for the taxes, subject to certain limitations under the Code. Shareholders who
are precluded from taking such credits or deductions will nevertheless be taxed
on their pro rata share of the foreign taxes included in their gross income,
unless they are otherwise exempt from federal income taxes.
The Fund will be required to report to the Internal Revenue Service
(the "IRS") all taxable distributions (except in the case of certain exempt
Shareholders). Under the backup withholding provisions of Code Section 3406,
all such distributions may be subject to withholding of federal income tax at
the rate of 31%. This tax generally would be withheld if: (a) the payee fails
to furnish the Fund with the payee's taxpayer identification number ("TIN")
under penalties of perjury, (b) the IRS notifies the Fund that the TIN
furnished by the payee is incorrect, (c) the IRS notifies the Fund that the
payee has failed to properly report interest or dividend income to the IRS, or
(d) when required to do so, the payee fails to certify under penalties of
perjury that it is not subject to backup withholding. An individual's TIN is
his or her social security number. The Funds may refuse to accept an
application that does not contain any required TIN or certification that the
number provided is correct. If the withholding provisions are applicable, any
distributions, whether taken in cash or reinvested in Shares, will be reduced
by the amounts required to be withheld. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the Shareholder's
U.S. federal income tax liability. Investors may wish to consult their tax
advisors about the applicability of the backup withholding provisions.
All distributions, whether received in Shares or cash, must be
reported by each Shareholder on his or her federal income tax return. Each
Shareholder should consult his or her own tax adviser to determine the state
and local tax consequences of an investment in the Fund.
The foregoing discussion relates solely to U.S. federal income tax law
as it applies to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Each Shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and
non-U.S. tax consequences of ownership of Shares of the Fund, including the
possibility that such a Shareholder may be subject to a U.S. withholding tax at
a rate of 30% (or a lower rate under an applicable U.S. income tax treaty) on
certain distributions.
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<PAGE> 438
STATE AND LOCAL
The Fund may be subject to state or local taxes in jurisdictions in
which the Fund may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Fund and
its Shareholders under such laws may differ from their treatment under Federal
income tax laws. Also, an investment in the Fund may have different tax
consequences for Shareholders than would a direct investment in the securities
held by the Fund. Shareholders should consult their own tax advisers
concerning these matters. For example, in such states or localities, it may be
appropriate for Shareholders to review with their tax advisers the state income
tax consequences of investment by the Fund in securities issued or guaranteed
as to principal and interest by the U.S. Government or its various agencies or
instrumentalities, portfolio repurchase agreements, and securities loans.
ORGANIZATION AND CAPITALIZATION
The Pilot Funds is a Massachusetts business trust established under
the laws of the Commonwealth of Massachusetts by an Agreement and Declaration
of Trust dated July 15, 1982, as amended (the "Declaration of Trust") under the
name Centerland Fund. On June 1, 1994, the name of the Funds was changed to
The Pilot Funds. Each Shareholder is deemed to have expressly assented and
agreed to the terms of the Declaration of Trust and is deemed to be a party
thereto. The authorized capital of the Funds consists of an unlimited number
of units of beneficial interest which are referred to as "Shares" in this
Statement of Additional Information. The Trustees have authority under the
Declaration of Trust to create and classify Shares of beneficial interest in
separate series ("Funds") without further action by Shareholders. The Trustees
have established twelve Funds, one of which is offered herein and known as the
Pilot International Equity Fund. Each Share of the Fund has a par value of
$.001. It represents an equal proportionate interest in the Fund with each
other Share, and is entitled to such distributions out of the income belonging
to the Fund as are declared by the Trustees. Upon the liquidation of the Fund,
Shareholders thereof are entitled to share pro rata in the net assets belonging
to the Fund available for distribution. The Declaration of Trust further
authorizes the Trustees to classify or reclassify any series or Fund of Shares
into one or more classes. The Trustees have authorized the issuance of three
classes of each of the Funds: Pilot Shares, Class A Shares and Investor
Shares. Each Pilot Share, Class A Share and Investor Share is entitled to one
vote per Share; however, separate votes will be taken by the Fund or class 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.
As of the date of this Statement of Additional Information, the
Trustees and officers of the Funds owned beneficially less than 1% of the
outstanding shares of the Fund.
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<PAGE> 439
SHAREHOLDER AND TRUSTEE LIABILITY
The Pilot Funds is an entity of the type commonly known as a
"Massachusetts business trust," which is the form in which many mutual funds
are organized. Shareholders of such a trust may, under certain circumstances,
be held personally liable as partners for the obligations of the trust. The
Declaration of Trust contains an express disclaimer of Shareholder liability
for acts or obligations of the Funds. Notice of such disclaimer will normally
be given in each agreement, obligation or instrument entered into or executed
by the Funds or the Trustees. The Declaration of Trust provides for
indemnification by the relevant Fund for any loss suffered by a Shareholder as
a result of an obligation of the Fund. The Declaration of Trust also provides
that the Funds shall, upon request, assume the defense of any claim made
against a Shareholder for any act or obligation of the Funds, and satisfy any
judgment thereon. Thus, the risk of a Shareholder incurring financial loss on
account of Shareholder liability is limited to circumstances in which the Fund
is unable to meet its obligations. The Trustees believe that, in view of the
above, the risk of personal liability of Shareholders is not material.
The Declaration of Trust provides that the Trustees of the Funds shall
not be liable for any action taken by them in good faith, and that they shall
be fully protected in relying in good faith upon the records of the Funds and
upon reports made to the Funds by persons selected in good faith by the
Trustees as qualified to make such reports. The Declaration of Trust further
provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law. The Declaration of Trust provides that the Funds will
indemnify Trustees and officers of the Funds against liabilities and expenses
reasonably incurred in connection with litigation in which they may be involved
because of their positions with the Funds, unless it is determined, in the
manner provided in the Declaration of Funds, that they have not acted in good
faith in the reasonable belief that, in the case of conduct in their official
capacity with the Funds, their conduct was in the best interests of the Funds
and that, in all other cases, their conduct was at least not opposed to the
best interest of the Funds (and that, in the case of any criminal proceeding,
they had no reasonable cause to believe that the conduct was unlawful).
However, nothing in the Declaration of Trust or the By-Laws protects or
indemnifies Trustees or officers against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office.
CUSTODIAN AND SUBCUSTODIANS
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110 is the custodian of the Fund's assets and
also maintains the Funds' accounting records. State Street has established a
network of foreign subcustodians to hold certain foreign securities purchased
by the Fund, and The Northern Trust Company, 50 South LaSalle Street, Chicago,
Illinois 60675, as subcustodian to hold cash and handle certain wire receipts
and transfers of funds.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Arthur Andersen LLP, independent public accountants, One International
Place, Boston, Massachusetts 02110, have been selected as auditors of the Fund.
In addition to providing audit services, Arthur Andersen LLP prepares the
Funds' federal and state tax returns and provides consultation and assistance
on accounting, internal control and related matters. The financial statements
and related report of Arthur Andersen LLP contained in the 1995 Annual Report
of the Funds and the financial statements and related report of Ernst & Young
LLP, independent auditors, contained in the 1992 Annual Report of Kleinwort
Benson Investment Strategies relating to its Kleinwort Benson International
Equity Fund series, are hereby incorporated by reference.
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<PAGE> 440
Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts 02109,
serves as general counsel to the Funds.
MISCELLANEOUS
The following table indicates each additional person known by the Fund
to own beneficially 5% or more of the Class A Shares as of December 12, 1995.
<TABLE>
<CAPTION>
Percent of Total Outstanding
Name and Address Number of Shares Shares of Class
- ---------------- ---------------- ---------------------------------
<S> <C> <C>
Blush & Co. 139,154 8%
P. O. Box 976
New York, NY 10268
Fox & Co. 100,851 6%
P. O. Box 976
New York, NY 10268
</TABLE>
FINANCIAL STATEMENTS
The financial statements and related report of Arthur Andersen LLP
contained in the 1995 Annual Report of the Funds are hereby incorporated by
reference and attached hereto.
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<PAGE> 441
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which made the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers, 1, 2, and 3 in the Aa, A and Baa
categories. The modifier 1 indicates that the security ranks in the higher end
of the applicable category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of the category.
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG"). The
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in long-term borrowing risk are of lesser importance in the
short run. Symbols used will be as follows:
MIG-1--Notes bearing this designation are of the best quality
enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG-2--Notes bearing this designation are of favorable
quality, with all security elements accounted for, but lacking the
undeniable strength of the preceding grade. Market access for
refinancing, in particular, is likely to be less well established.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors should
be alert to the fact that the source of payment may be limited to the external
liquidity with no or limited legal recourse to the
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<PAGE> 442
issuer in the event the demand is not met. VMIG-1, VMIG-2 and VMIG-3
ratings carry the same definitions as MIG-1, MIG-2 and MIG-3,
respectively.
STANDARD & POOR'S CORPORATION
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. This rating indicates an extremely strong capacity to pay interest and
repay principal.
AA: Debt rated AA also has a very strong capacity to pay interest and
repay principal, and in the majority of instances it differs from AAA issues
only in small degree. The ratings in AA may be modified by the addition of a
plus ("+") or minus ("-") sign to show relative standing within the major
rating categories.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Municipal notes issued since July 29, 1984 are rated "SP-1," "SP-2,"
and "SP-3." The designation SP-1 indicates a very strong capacity to pay
principal and interest. A plus ("+") sign is added to those issues determined
to possess overwhelming safe characteristics. An SP-2 designation indicates a
satisfactory capacity to pay principal and interest, while an SP-3 designation
indicates speculative capacity to pay principal and interest.
DUFF & PHELPS
AAA: Instruments rated AAA are of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+, AA, AA-: Instruments bearing these designations are of high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
A+, A, A-: Protection factors for instruments bearing these
designations are average but adequate. However, risk factors are more variable
and greater in period of economic stress.
BBB+, BBB, BBB-: Protection factors for instruments bearing these
designations are below average but still considered sufficient for prudent
investment. There is considerable variability in risk during economic cycles.
Preferred stocks are rated on the same scale as bonds but the
preferred rating gives weight to its more junior position in the capital
structure. Structured Financings are also rated on this scale.
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FITCH INVESTORS SERVICE, INC.
AAA: Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A: Bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefor impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus ("+") and minus ("-") signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used within the "AAA" category. Ratings are
placed on FitchAlert to notify investors of an occurrence that is likely to
result in a rating change and the likely direction of such change. These are
designated as "Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evaluating," where ratings may be raised or lowered.
FitchAlert is relatively short-term and should be resolved within 12 months.
IBCA, INC.
AAA: Obligations rated AAA are obligations for which there is the
lowest expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial such that adverse changes in business,
economic, or financial conditions are likely to increase investment risk
significantly.
AA: Obligations rated AA are obligations for which there is a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.
A: Obligations rated A are obligations for which there is a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic, or
financial conditions may lead to increased investment risk.
BBB: Obligations rated BBB are obligations for which there is
currently a low expectation of investment risk. Capacity for timely repayment
of principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.
"+" or "-" may be appended to denote relative status within major
rating categories. Rating Watch highlights an emerging situation which may
materially affect the profile of a rated corporation.
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DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICES, INC.
P-1: Issuers have a superior capacity for repayment of short-term
promissory obligations. Prime-1 or P-1 repayment capacity will normally be
evidenced by the following characteristics:
Leading market positions in well established industries.
High rates of return on funds employed.
Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2: Issuers have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
P-3: Issuers have an acceptable ability for repayment of senior
short-term obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements and may
require relatively high financial leverage. Adequate alternate liquidity is
maintained.
STANDARD & POOR'S CORPORATION
A-1: Standard & Poor's Commercial Paper ratings are current
assessments of the likelihood of timely payment of debts having an original
maturity of no more than 365 days. The A-1 designation indicates the degree of
safety regarding timely payment is very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus ("+")
sign designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
DUFF & PHELPS
DUFF 1 plus: These instruments bear the highest certainty of timely
payment. Short-term liquidity including internal operating factors and/or
ready access to alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations.
DUFF 1: These instruments bear very high certainty of timely payment.
Liquidity factors are excellent and supported by strong fundamental protection
factors. Risk factors are minor.
DUFF 1 MINUS: These instruments bear high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
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DUFF 2: These instruments bear good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing
internal funds needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
DUFF 3: These instruments bear satisfactory liquidity and other
protection factors which qualify an issue as to investment grade. Risk factors
are larger and subject to more variation. Nevertheless, timely payment is
expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
FITCH INVESTORS SERVICE, INC.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade.
LOC: The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.
IBCA, INC.
A1+: Obligations supported by the highest capacity for timely
repayment.
A1: Obligations supported by a very strong capacity for timely
repayment.
A2: Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic, or financial conditions.
B1: Obligations supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
"+" or "-" may be appended to denote relative status within major
rating categories. Rating Watch highlights an emerging situation which may
materially affect the profile of a rated corporation.
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THE PILOT FUNDS
3435 Stelzer Road
Columbus, Ohio 43219-3035
________________________________________________________________________________
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 twelve portfolios, one of which
portfolios (the "Fund") is offered hereby. The Fund is:
Pilot International Equity Fund (formerly Pilot Kleinwort Benson
International Equity Fund)
Boatmen's Trust Company ("Boatmen's") serves as the investment adviser
to the Fund. Kleinwort Benson Investment Management Americas Inc., formerly
Kleinwort Benson International Investment Limited, ("Kleinwort Benson") serves
as the investment manager to the Pilot International Equity Fund. Pilot Funds
Distributors, Inc. ("PFD") serves as the Fund's distributor, and its parent,
Concord Holding Corporation ("Concord"), serves as the Fund's administrator.
This Statement of Additional Information is not a Prospectus, 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 by writing to Pilot Funds
Distributors, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035 or by calling
your Service Organization.
<PAGE> 447
TABLE OF CONTENTS
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INVESTMENT POLICIES AND PRACTICES OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Custodial Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Corporate Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S. and Foreign Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Forward Commitments and When-Issued Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
REITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Forward Foreign Currency Exchange Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Currency Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Other Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Options on Securities and Indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Options on Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Futures Contracts on Securities and Indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Futures Contracts on Foreign Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Options on Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Limitations on Use of Futures Transactions and Risk Considerations . . . . . . . . . . . . . . . . . . . . . . . 14
Restricted and Other Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risks of Specialized Investment Techniques Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Combined Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Use of Segregated and Other Special Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Other Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INVESTMENT ADVISER, MANAGER, ADMINISTRATOR,
DISTRIBUTOR AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Adviser and Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Administrator, Distributor and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CALCULATION OF PERFORMANCE QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ORGANIZATION AND CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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CUSTODIAN AND SUBCUSTODIANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
INDEPENDENT ACCOUNTANTS AND COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
DESCRIPTION OF COMMERCIAL PAPER RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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INVESTMENT POLICIES AND PRACTICES OF THE FUND
The following discussion elaborates on the description of the Fund's
investment policies and practices contained in the Prospectus. Except as set
forth below, the investment policies and limitations described in this
Statement of Additional Information are not fundamental and may be changed
without Shareholder consent.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. Securities
guaranteed as to principal or interest by the U.S. Government, its agencies,
authorities or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments
or their agencies that are so guaranteed. The secondary market for certain of
these participations is limited. If such participations are illiquid they will
not be purchased.
U.S. Government securities include principal and interest components
of securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts.
These receipts evidence ownership of future interest payments, principal
payments or both on certain notes or bonds issued by the U.S. Government, its
agencies, authorities or instrumentalities.
CUSTODIAL RECEIPTS
The Fund may also acquire custodial receipts that evidence ownership
of future interest payments, principal payments or both on certain U.S.
Government notes or bonds. Such notes and bonds are held in custody by a bank
on behalf of the owners. These custodial receipts are known by various names,
including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as
illiquid securities.
CORPORATE DEBT SECURITIES
The Fund may invest in short-term and intermediate-term corporate debt
securities of both foreign and domestic issuers of all types and maturities,
such as bonds, debentures, notes, equipment lease certificates, equipment trust
certificates, conditional sales contracts and commercial paper. Corporate debt
securities may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer;
participation based on revenue, sales or profits; or the purchase of common
stock or warrants in a unit transaction (where corporate debt obligations and
common stock are offered as a unit).
Corporate debt securities purchased by the Fund, if any, will be rated
in the top two categories by a Nationally Recognized Statistical Rating
Organization ("NRSRO"). Corporate debt securities that are not rated may be
purchased by the Fund if they are determined to be of comparable quality by or
under the direction of the Board of Trustees of the Funds. Consistent with
prudent investment management, if the rating of any corporate debt security
held by the Fund
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falls below such ratings then consideration shall be given as to whether
it should be sold. A description of these ratings is attached in an Appendix to
this Statement of Additional Information.
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. The Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. The Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of
certificates of deposit (or any higher principal amount which in the future may
be fully covered by FDIC insurance) of any one of those issuers. Fixed time
deposits are obligations which are payable at a stated maturity date and bear a
fixed rate of interest. Generally, fixed time deposits may be withdrawn on
demand by the Fund, but they may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have a market, there are no
contractual restrictions on the Fund's right to transfer a beneficial interest
in the deposit to a third party.
The Fund will limit its investment in securities of foreign banks in
accordance with Section 12 of the Investment Company Act of 1940 (the "1940
Act"), the applicable rules thereunder and interpretations thereof of the staff
of the Securities and Exchange Commission (the "SEC").
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
The Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by the Fund to purchase or sell securities at a future date. The
price of the underlying securities (usually expressed in terms of yield) and
the date on which the securities will be delivered and paid for (the settlement
date) are fixed at the time the transaction is negotiated. When-issued
purchases and forward commitment transactions are negotiated directly with the
other party, and such commitments are not traded on exchanges.
The Fund will purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after entering into it. The Fund also
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. The Fund may realize a capital
gain or loss in connection with these transactions.
When the Fund purchases securities on a when-issued or forward
commitment basis, the Fund's custodian or subcustodian will maintain in a
segregated account cash, U.S. Government securities or other high grade liquid
debt obligations having a value (determined daily) at least equal to the amount
of the Fund's purchase commitments. In the case of a forward commitment to
sell portfolio securities subject to such commitment, the custodian or
subcustodian will hold the portfolio securities themselves in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Fund will maintain sufficient assets at all times to cover its
obligations under when-issued purchases and forward commitments.
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REITS
Securities issued by real estate investment trusts (REITs) bear
certain unique risks. These include the same market risks as those affecting
the real estate industry, such as fluctuations in interest rates and changes in
tax laws. REITs' underlying assets are illiquid and often not diversified, and
REITs are highly dependent upon management skill. REITs also are subject to
heavy cash flow dependency, defaults by borrowers, self-liquidation and the
possibility of failing to qualify for special tax treatment and other
regulatory exemptions. For so long as it remains a restriction of the
Wisconsin Securities Department, the Funds may not purchase securities issued
by REITs in excess of 10% of the Fund's total assets.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, such as bonds, notes,
debentures, preferred stocks and other securities that may be converted into
common stock. All convertible securities purchased by the Fund will be rated
in the top two categories by an NRSRO or, if unrated, determined by Kleinwort
Benson to be of comparable quality. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so may
not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock, although typically not as much as the price of
the underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of
course, like all debt securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may
default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, are senior
in right of payment to all equity securities, and convertible preferred stock
is senior to common stock, of the same issuer. However, convertible bonds and
convertible preferred stock typically have lower coupon rates than similar
non-convertible securities. Convertible securities may be issued as fixed
income obligations
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<PAGE> 452
that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and
are sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
FOREIGN SECURITIES
The Fund may invest in foreign securities. Because foreign companies
generally are not subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those applicable
to domestic companies, there may be less publicly available information about a
foreign company than about a domestic company. Many foreign stock markets,
while growing in volume of trading activity, have substantially less volume
than the New York Stock Exchange (the "Exchange"), and securities of some
foreign companies are less liquid and more volatile than securities of domestic
companies. Similarly, volume and liquidity in most foreign bond markets is less
than in United States markets and at times, volatility of price can be greater
than in United States markets. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been
times when settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. Also, delivery of securities
before payment may be required in some countries. The inability of the Fund to
make intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or,
if the Fund has entered into a contract to sell the security, in possible
liability to the purchaser. Fixed commissions on some foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges, although
the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There
is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers and listed companies in foreign
countries than in the United States. Communications between the United States
and foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments, which
could affect United States investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self- sufficiency and balance
of payments position. The management of the Fund seeks to mitigate the risks
associated with the foregoing considerations through diversification and
continuous professional management.
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may invest in forward foreign currency exchange contracts
("forward contracts") for hedging and to seek to increase total return. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
The maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit. Closing purchase transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.
The Fund may also enter into a forward contract to sell a currency
that is linked to a currency that Kleinwort Benson believes to be less
attractive and buy a currency that Kleinwort Benson believes to be more
attractive (or a currency that is linked to currency that Kleinwort Benson
believes to be more attractive). The amount in question would not exceed the
value of the Fund's securities denominated in the less attractive currency. For
example, if the Austrian Schilling is linked to the German Deutsche Mark (the
"D-mark"), the Fund holds securities denominated in Austrian Schillings and
Kleinwort Benson believes that the value of Schillings will decline against the
British Pound, the Fund may enter into a contract to sell D-marks and buy
Pounds. This practice is referred to as "proxy hedging." Proxy hedging
involves the risk that the amount of currencies involved may not equal the
value of the Fund's securities denominated in the currency expected to
deteriorate and improperly anticipated currency movements could result in
losses to the Fund. Further, there is the risk that the linkage between
various currencies may change or be eliminated.
The reasons forward contracts would be used are described under
"Futures Contracts on Foreign Currencies" below. The Fund's activities
involving forward contracts may be limited by the requirements of Subchapter M
of the Internal Revenue Code for qualification as a regulated investment
company.
CURRENCY SWAPS
The Fund may enter into currency swaps for hedging purposes and to
seek to increase total return. Inasmuch as swaps are entered into for good
faith hedging purposes or are offset by a segregated account as described
below, the Fund and Kleinwort Benson believe that swaps do not constitute
senior securities as defined in the 1940 Act and, accordingly, will not treat
them as being subject to the Fund's borrowing restrictions. The net amount of
the excess, if any, of the Fund's obligations over its entitlements with
respect to each currency swap will be accrued on a daily basis and an amount of
cash or liquid high grade debt securities (i.e., securities rated in one of the
top three ratings categories by an NRSRO, or, if unrated, deemed by Kleinwort
Benson to be of comparable credit quality) having an aggregate net asset value
at least equal to such accrued excess will be maintained in a segregated
account by the Fund's custodian. The Fund will not enter into any currency
swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is considered to be investment
grade by Kleinwort Benson.
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If there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with the markets for other
similar instruments which are traded in the interbank market. However, the
staff of the SEC takes the position that currency swaps are illiquid
investments that are subject to the Fund's 15% limitation on such investments.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with selected
brokers-dealers, banks or other financial institutions. A repurchase agreement
is an arrangement under which the purchaser (i.e., the Fund) purchases a U.S.
Government or other high quality short-term debt obligation (the "Obligation")
and the seller agrees at the time of sale to repurchase the Obligation at a
specified time and price.
Custody of the Obligation will be maintained by the Fund's custodian
or subcustodian. The repurchase price may be higher than the purchase price,
the difference being income to the Fund, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Fund together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
Repurchase agreements pose certain risks for all entities, including
the Fund, that utilize them. Such risks are not unique to the Fund but are
inherent in repurchase agreements. The Fund seeks to minimize such risks by,
among others, the means indicated below, but because of the inherent legal
uncertainties involved in repurchase agreements, such risks cannot be
eliminated.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation. It is not clear whether
for other purposes a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller.
If in the event of bankruptcy or insolvency proceedings against the
seller of the Obligation, a court holds that the Fund does not have a perfected
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Fund would be at risk of losing some
or all of the principal and income involved in the transaction. To minimize
this risk, the Fund utilizes custodians and subcustodians that Kleinwort Benson
believes follow customary securities industry practice with respect to
repurchase agreements, and Kleinwort Benson analyzes the creditworthiness of
the obligor, in this case the seller of the Obligation. But because of the
legal uncertainties, this risk, like others associated with repurchase
agreements, cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Such a delay may involve
loss of interest or a decline in price of the Obligation.
Apart from risks associated with bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the security.
However, if the market value of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including accrued
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interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price.
Certain repurchase agreements which provide for settlement in more
than seven days can be liquidated before the nominal fixed term on seven days
or less notice. Such repurchase agreements will be regarded as illiquid
instruments.
The Fund may also enter into repurchase agreements with any party
deemed creditworthy by Kleinwort Benson, including foreign banks and
broker-dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
securities which the Fund may purchase.
LENDING OF PORTFOLIO SECURITIES
The Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as broker-dealers, and are required to be secured
continuously by collateral in cash, U.S. Government securities or other high
grade liquid debt obligations maintained on a current basis at an amount at
least equal to the market value of the securities loaned. Such loans will be
terminable at any time.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may invest
in securities issued by other investment companies within the limits prescribed
by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more
than 5% of the value of its total assets will be invested in the securities of
any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Trust as a whole. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that a Fund bears in connection with its own operations.
The Investment Adviser has agreed to remit to the respective investing fund
fees payable to it under its respective investment advisory agreement with an
affiliated money market fund to the extent such fees are based upon the
investing fund's assets invested in shares of the affiliated money market fund.
OPTIONS ON SECURITIES AND INDEXES
The Fund also may purchase and sell options on securities that the Fund
may buy and on securities indexes.
The Fund may purchase and sell over-the-counter options to the extent
consistent with the Fund's limitation on investments in restricted securities.
Trading in over-the-counter options is subject to the risk that the other party
will be unable or unwilling to close- out options purchased or sold by the
Fund.
An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium paid, the right to buy from (in the case
of a call) or sell to (in the case of a put) the seller ("writer") of the
option the security underlying the option (or the cash value of the index) at a
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specified exercise price at any time during the term of the option. The writer
of an option on a security has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security. Upon exercise,
the writer of an option on an index is obligated to pay the difference between
the closing price of the index and the exercise price of the option, expressed
in dollars, times a specified multiple (the "multiplier"). (An index is
designed to reflect specified facets of a particular financial or securities
market, a specified group of financial instruments or securities, or certain
economic indicators.)
If an option written by the Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by the Fund expires unexercised, the Fund realizes a capital
loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an option may be closed out by an offsetting purchase or sale of an
option of the same series (type, exchange, underlying security or index,
exercise price and expiration). There can be no assurance, however, that a
closing purchase or sale transaction can be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option and will realize a capital loss if it is more. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain, or if it is less,
the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position. If the Fund were unable to
close out an option it had purchased on a security, it would have to exercise
the option to realize any profit or the option may expire worthless. If the
Fund were unable to close out a covered call option it had written on a
security, it would not be able to sell the underlying security unless the
option expired without exercise. As a writer of a covered call option, the
Fund forgoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call. If trading were
suspended in an option purchased by the Fund, the Fund would not be able to
close out the option. If restrictions on exercise were imposed, the Fund might
be unable to exercise an option it had purchased. Except to the extent that a
call option on an index written by the Fund is covered by an option on the same
index purchased by the Fund, movements in the index may result in a loss to the
Fund; however, such losses may be mitigated by changes in the value of the
Fund's securities during the period the option was outstanding.
OPTIONS ON CURRENCIES
The Fund may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
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FUTURES CONTRACTS ON SECURITIES AND INDEXES
The Fund may enter into futures contracts on securities and futures
contracts based on securities indexes, which futures are traded on exchanges
that are licensed and regulated by the Commodity Futures Trading Commission
("CFTC") or, consistent with CFTC regulations, on foreign exchanges. The Fund
will do so to hedge against anticipated changes in securities values that would
otherwise have an adverse effect upon the value of portfolio securities or upon
securities to be acquired and to increase total return. Futures contracts and
related options entered into by the Fund will be entered into consistent with
CFTC regulations.
The Fund may take a "short" position in the futures markets by selling
contracts for the future delivery of securities in order to hedge against an
anticipated decline in stock prices. Such futures contracts may include
contracts for the future delivery of securities held by the Fund or securities
with price-fluctuation characteristics similar to those of its portfolio
securities. If, in the opinion of Kleinwort Benson, there is a sufficient
degree of correlation between price trends for the Fund's securities and
futures contracts based on indexes, the Fund may also enter into such futures
contracts as part of its hedging strategy. When hedging of this character is
successful, any depreciation in the value of the Fund's securities will
substantially be offset by appreciation in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
purchase of particular securities in the future, but expects the price then
available in the securities market to be less favorable than prices that are
currently available in the futures markets. The Fund expects that, in the
normal course, it will terminate the long futures position when it makes the
anticipated purchase; under unusual market conditions, however, a long futures
position may be terminated without the corresponding purchase of securities.
Futures contracts involve brokerage costs, which may be less than 1%
of the contract price, and require parties to the contract to make "margin"
deposits to secure performance of the contract. The Fund will be required to
deposit as margin into a segregated custodial account (held subject to the
claims of the Fund's futures broker) an amount of cash or liquid securities
equal to approximately 2% to 5% of the value of each futures contract. This
initial margin is in the nature of a performance bond or good faith deposit on
the contract. The Fund's position in the futures market will be
marked-to-market on a daily basis; the Fund may subsequently be required to
make "variation" margin payments depending upon whether its futures position
declines or rises in value. Positions taken in the futures markets are not
usually held until the expiration of the contract but, instead, are normally
liquidated through offsetting transactions, which may result in a profit or a
loss. Nevertheless, the Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for it to
do so. A clearing corporation associated with the exchange on which futures
contracts are traded assumes responsibility for closing out contracts and
guarantees that, if the contract is still open, the sale or purchase of
securities will be performed on the settlement date.
Futures contracts on securities indexes do not require the physical
delivery of securities, but merely provide for profits and losses resulting
from changes in the market value of a contract to be credited or debited at the
close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date a final cash settlement occurs and
the futures positions are simply closed out. Changes in the market value of a
particular futures contract reflect changes in the value of the securities
comprising the index on which the futures contract is based. Futures contracts
based on securities indexes currently are actively traded on the Chicago Board
of Trade, the Chicago Mercantile Exchange, the New York Futures Exchange and
the Kansas City Board of Trade.
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FUTURES CONTRACTS ON FOREIGN CURRENCIES
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price established when the position is taken. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the Chicago Mercantile Exchange.
The Fund may enter into foreign currency futures contracts in several
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a foreign security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of interest payments on such a
security which it holds, the Fund may desire to "lock in" the U.S. dollar price
of the security or the U.S. dollar equivalent of such interest payments, as the
case may be. By entering into a futures contract for the purchase or sale, for
a fixed amount of U.S. dollars, of the amount of foreign currency involved in
the underlying transactions, the Fund will attempt to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the obligation is purchased or sold, or on which the interest
payment is declared, and the date on which such payments are made or received.
Second, when Kleinwort Benson believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar (or sometimes against another currency), the Fund may enter into a
futures contract to sell, for a fixed dollar or other currency amount, foreign
currency approximating the value of some or all of the securities held by the
Fund which are denominated in that currency. The precise matching of the
futures contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the contract is entered into and the
date it expires.
Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, Kleinwort Benson believes that it is important
for the Fund to have the flexibility to enter into foreign currency futures
contracts when it determines that the best interest of the Fund will be served.
OPTIONS ON FUTURES CONTRACTS
The Fund may also purchase and sell (write) call and put options on
futures contracts, which options are traded on exchanges that are licensed and
regulated by the CFTC, or, consistent with CFTC regulations, on foreign
exchanges or in the over-the-counter market or privately negotiated. A "call"
option on a futures contract gives the purchaser the right, in return for the
premium paid, to buy a futures contract (assume a long position) at a specified
exercise price, by exercising the option at any time before the option expires.
A "put" option gives the purchaser the right, in return for the premium paid,
to sell a futures contract (assume a "short" position), for a specified
exercise price, by exercising the option at any time before the option expires.
Upon the exercise of a call, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder)
at the option exercise price, which will presumably be lower than the then
current market price of the contract in the futures market. Upon exercise of a
put, the writer of the option is obligated to purchase the futures contract
(deliver a "short" position to the option holder) at the option exercise price,
which will presumably be higher than the then current market price of the
contract in the futures market. When a person exercises an option
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and assumes a long futures position, in the case of a call, or a short futures
position, in the case of a put, his gain will be credited to his futures margin
account, while the loss suffered by the writer of the option will be debited to
his account. However, as with the trading of futures contracts, most
participants in the options markets do not seek to realize their gains or
losses by exercising their option rights. Instead, the holder of an option
will usually realize a gain or loss by buying or selling an offsetting option
at a market price that will reflect an increase or a decrease from the premium
originally paid.
Options on futures contracts can be used by the Fund to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts. If the Fund purchases an option on a futures contract, it
may obtain benefits similar to those that would result if it held the futures
position itself. But, in contrast to a futures transaction in which only
transaction costs are involved, benefits received in an option transaction in
the event of a favorable market movement will be reduced by the amount of the
premium paid as well as by transaction costs. In the event of an adverse
market movement, however, in contrast to the full market risk of a futures
position, the Fund will not be subject to a risk of loss on the option
transaction beyond the amount of the premium it paid plus its transaction
costs. Consequently, the Fund may benefit from an increase in the value of its
portfolio that would have been more completely offset if the hedge had been
effected through the use of a futures contract.
If the Fund writes options on futures contracts, it will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will gain the amount of the
premium, which may partially offset unfavorable changes in the value of its
portfolio securities held in, or to be acquired for, the Fund. If the option
is exercised, the Fund will incur a loss in the option transaction, which will
be reduced by the amount of the premium it has received. Such loss may
partially offset favorable changes in the value of its portfolio securities.
LIMITATIONS ON USE OF FUTURES TRANSACTIONS AND RISK CONSIDERATIONS
The Fund will incur brokerage fees in connection with its futures
transactions, and will be required to deposit and maintain funds with its
broker as margin to guarantee performance of its futures obligations. In
addition, while futures contracts will be traded to reduce certain risks,
futures trading itself entails certain other risks. Thus, while the Fund may
benefit from the use of such contracts, unanticipated changes in securities or
currency values may result in a poorer overall performance from the Fund than
if it had not entered into any futures contracts. Some futures contracts may
not have a broad and liquid market, in which case the contracts may not be able
to be closed at a fair price and the Fund may lose in excess of the initial
margin deposit. Moreover, in the event of an imperfect correlation between the
futures contract and the portfolio position that is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss.
Tax-related requirements may limit the extent to which the Fund may
engage in futures and related options transactions.(See "TAX INFORMATION.")
RESTRICTED AND OTHER ILLIQUID SECURITIES
The Fund may purchase securities that are not registered under the
Securities Act of 1933 or have some other legal or contractual restriction on
resale in the principal market where the security is traded ("restricted
securities"), but can be offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933. However, the Fund will not
invest
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more than 15% of the value of its net assets in illiquid securities, including
restricted securities, unless the Funds' Board of Trustees determines, based
upon a continuing review of the trading markets for the specific Rule 144A
security, that such restricted security is liquid. The Trustees may adopt
guidelines and delegate to Kleinwort Benson the daily function of determining
and monitoring liquidity of securities. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
Because it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
RISKS OF SPECIALIZED INVESTMENT TECHNIQUES ABROAD
The above described specialized investment techniques, when engaged in
abroad, may not be regulated as effectively as when engaged in the United
States; may not involve a clearing mechanism and related guarantees; and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors;
(ii) lesser availability than in the United States of data on which to make
trading decisions; (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and (v) lesser
trading volume.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions ("component"
transactions), instead of a single transaction, as part of a single hedging
strategy when, in the opinion of Kleinwort Benson, it is in the best interest
of the Fund to do so and where underlying hedging strategies are permitted by
the Fund's investment policies. A combined transaction, while part of a single
hedging strategy, may contain elements of risk that are present in each of its
component transactions. (See above for the risk characteristics of certain
transactions.)
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate
the Fund to provide cash, securities or currencies to complete such
transactions will result in that Fund either segregating assets in an account
with, or on the books of, the Funds' custodian, or otherwise "covering" the
transaction as described below. For example, a call option written by the Fund
will require the Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or
liquid assets sufficient to meet the obligation by purchasing and delivering
the securities if the call is exercised. A call option written on an index
will require the Fund to have portfolio securities that correlate with the
index. A put option written by the Fund also will require the Fund to have
available assets sufficient to purchase the securities the Fund would be
obligated to buy if the put is exercised.
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A forward foreign currency contract that obligates the Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations.
Such a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, the Fund will hold cash,
U.S. Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, the Fund could own securities substantially
replicating the movement of the particular index.
In the case of a futures contract, the Fund must deposit initial
margin and variation margin, as often as daily if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require the Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other
means consistent with applicable regulatory policies. The Fund may enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a
put option sold by the Fund. Moreover, instead of segregating assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Of course, the offsetting transaction must
terminate at the time of or after the primary transaction.
OTHER INFORMATION
Kleinwort Benson Investment Management Americas Inc. is a
wholly-owned, independent subsidiary of Kleinwort Benson Group plc. The Fund
may hold securities of companies with respect to which Kleinwort Benson Group
plc or its affiliates (including, without limitation, Kleinwort Benson Limited)
(collectively, the "Kleinwort Benson Group") provides investment banking,
financial advisory or other services, has other confidential relationships,
maintains a position or makes a market or otherwise may have an interest. For
good commercial and legal reasons, nonpublic information (a) which becomes
available to any member of the Kleinwort Benson Group through its relationships
or for any other reason cannot be passed on to Kleinwort Benson Investment
Management Americas Inc. or to the Funds or used for the benefit of the Fund;
and (b) which becomes available to Kleinwort Benson Investment Management
Americas Inc. for any reason cannot be passed on to the Funds or used for the
benefit of the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which
may not be changed with respect to the Fund without the approval of the holders
of a majority of the Fund's outstanding voting Shares.
C:\TEMP\PILOT.SHA -16-
<PAGE> 462
As used in this Statement of Additional Information, with respect to
matters required by the provisions of the 1940 Act to be submitted to
Shareholders, the term "majority of the outstanding Shares" of either the Funds
or the Fund means the vote of the lesser of: (i) 67% or more of the Shares of
the Funds or Fund present at a meeting, if the holders of more than 50% of the
outstanding Shares of the Funds or Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding Shares of the Funds or Fund.
As a matter of fundamental policy, the Fund may not:
(1) Purchase securities of any issuer if immediately after such purchase
the value of the Fund's investments in issuers conducting their
principal business activity in any one industry would exceed 25% of
the value of the Fund's total assets, provided that: (a) the gas,
electric, water and telephone businesses will be considered separate
industries; (b) the personal credit and business credit businesses
will be considered separate industries; (c) wholly-owned finance
companies will be considered to be in the industry of their parents if
their activities are primarily related to financing the activity of
their parents; (d) foreign governments will be considered separate
industries; and (e) there is no limitation with respect to or arising
out of investments in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities or tax-exempt
obligations of state and municipal governments and their agencies and
authorities.
(2) Make loans, except to the extent that the lending of
portfolio securities and purchase of debt obligations in accordance
with the Fund's investment objective and policies and the entry into
repurchase agreements with banks, brokers, dealers and other financial
institutions may be deemed to be loans.
(3) Borrow money, except: (a) as a temporary measure, and then
only in amounts not exceeding 5% of the value of the Fund's total
assets, (b) from banks, or (c) in connection with reverse repurchase
agreements, provided that immediately after any such borrowing all
borrowings of the Fund do not exceed one-third of the Fund's total
assets. While the Fund has borrowings outstanding in an amount
exceeding 5% of its total assets the Funds will not make any purchases
of portfolio instruments for the Fund. The Funds may not borrow money
from Boatmen's Bancshares, Inc. or any majority-owned subsidiary
thereof.
(4) Purchase or sell real estate (except securities secured by
real estate or interests therein, securities issued by real estate
investment trusts and securities of companies that deal in real estate
or mortgages), commodities or commodity contracts relating to physical
commodities or oil and gas interests (although the Fund may invest in
companies that own or invest in such interests) except that the Fund
may invest up to 10% of its net assets in gold bullion, or invest in
companies for the purpose of exercising control or management. The
Funds reserve freedom of action to hold and to sell real estate
acquired as a result of the Funds' ownership of securities.
(5) Act as an underwriter of securities (except as the Funds may
be deemed to be an underwriter under the Securities Act of 1933) in
connection with the purchase and sale of instruments or make short
sales of securities unless the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold
short.
(6) Mortgage, pledge or hypothecate more than one-third of the
Fund's assets, except to secure permitted borrowings.
C:\TEMP\PILOT.SHA -17-
<PAGE> 463
(7) Purchase the securities of any issuer other than the U.S.
Government, its agencies or instrumentalities, if immediately after
such purchase, more than 5% of the value of the Fund's total assets
would be invested in any one issuer except that: (a) up to 25% of the
value of its total assets may be invested without regard to such 5%
limitation, and (b) such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the U.S. Government, its
agencies or instrumentalities. For purposes of this restriction, a
guaranty of an instrument will be considered a separate security
(subject to certain exclusions allowed under the 1940 Act).
(8) Issue senior securities, except: (a) as appropriate to
evidence indebtedness that it is permitted to incur and (b) for Shares
of the separate classes or series of the Funds, provided that
collateral arrangements with respect to currency-related contracts,
futures contracts, options or other permitted investments, including
deposits of initial and variation margin, are not considered to be the
issuance of senior securities for the purpose of this restriction.
OTHER INVESTMENT POLICIES
As a matter of non-fundamental policy, which may be changed by the
Trustees without Shareholder approval, the Fund may not:
(a) Invest in any securities that would cause more than 15% of
its net assets at the time of such investment to be invested in
securities that are not readily marketable or restricted securities
(for these purposes restricted security means a security with a legal
or contractual restriction on resale in the principal market in which
the security is traded but does not include liquid Rule 144A
securities), including repurchase agreements maturing in more than
seven days, and any other assets for which a bona fide market does not
exist at the time of purchase or subsequent valuation;
(b) Purchase securities of any one issuer if as a result more
than 10% of the voting securities of such issuer would be held by the
Fund;
(c) Purchase securities issued by any other open-end
investment company, except in the open market where no commission or
profit to a sponsor or dealer results from the purchase other than
customary brokerage commissions or except when such purchase is part of
a merger or consolidation or except shares of no-load "money market"
investment companies advised by one of the Funds' investment advisers
or an affiliate thereof;
(d) Write put and call options, unless each option is "covered,"
the underlying securities are ones that the Fund is permitted to
purchase, each option is traded in a liquid market and the aggregate
value of the securities underlying the calls or obligations underlying
the puts determined as of the date an option is sold shall not exceed
25% of the Fund's net assets;
(e) Purchase futures contracts or options on futures contracts
for non-hedging purposes if immediately after the purchase the value of
the aggregate initial margin with respect to all futures contracts
(both for receipt and delivery) entered into on behalf of the Fund
(including foreign currency futures contracts) and premiums paid for
options on futures contracts, will exceed 5% of the fair market value
of its total assets;
(f) Purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the value of
the Fund's net assets or more than 2% of its net
C:\TEMP\PILOT.SHA -18-
<PAGE> 464
assets in warrants that are not listed on the New York or American
Stock Exchanges or on an exchange with comparable listing requirements
(for this purpose, warrants attached to securities will be deemed to
have no value);
(g) Borrow for investment leverage purposes, except in
connection with permitted reverse repurchase agreements, but solely for
extraordinary or emergency purposes and to facilitate management of the
Funds' portfolio by enabling the Funds to meet redemption requests when
the liquidation of portfolio instruments is deemed to be
disadvantageous or not possible. In the event the net assets of the
Fund fall below 300% of its borrowings, the Funds will promptly reduce
the borrowings of the Fund in accordance with the 1940 Act;
(h) Purchase securities on margin or make short sales unless, by
virtue of the ownership of other securities, it has the right to obtain
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions,
except in connection with arbitrage transactions and except that the
Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that the Fund may make initial
and variation margin payments in connection with transactions in
futures contracts and options on futures contracts.
With regard to restriction (g) above, the Funds may have to sell a
portion of the Fund's investments at a time when it may be disadvantageous to
do so. With respect to fundamental investment restriction (4), investment in
real estate limited partnerships is prohibited.
In addition to the above restrictions, so long as it remains a policy
of the Ohio Division of Securities, the Fund may not purchase or retain the
securities of an issuer if, to the 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.
Moreover, so long as it remains a restriction of the Ohio Division of
Securities, the Fund will not purchase securities of any issuer with a record
of less than three years' continuous operations, including predecessors, except
U.S. Government securities and obligations issued or guaranteed by any foreign
government or its agencies or instrumentalities, if such purchase would cause
the investments of the Fund in all such issuers to exceed 15% of the Fund's
total assets. In addition, for so long as it remains a restriction of the Ohio
Division of Securities, the Fund will treat securities eligible for resale
under Rule 144A as subject to the Funds' restriction on investing in restricted
securities.
In addition, so long as it remains a restriction of the Arkansas or
Wisconsin Securities Department, the Fund will not purchase securities of any
issuers with a record of less than three years continuous operations, including
predecessors, except U.S. Government securities, securities of such issuers
which are rated by at least one nationally recognized statistical rating
organization, municipal obligations and obligations issued or guaranteed by any
foreign government or its agencies or instrumentalities, if such purchase would
cause the investments of the Fund in all such issuers to exceed 5% of the total
assets of the Fund taken at market value. Further, as long as it remains a
restriction of the Wisconsin Securities Department, the Fund will invest not
more than 10% of its total assets in restricted securities. Also, for so long
as it remains a restriction of the Wisconsin Securities Department, the Funds
may not purchase securities issued by REITs in excess of 10% of the Fund's
total assets.
For so long as it remains a restriction of the Arkansas Securities
Department, the Fund will not purchase puts, calls, straddles, spreads or any
combination thereof if the value of the Fund's aggregate investment in such
securities exceeds 5% of its total assets.
C:\TEMP\PILOT.SHA -19-
<PAGE> 465
Also, with respect to investments in investment company securities,
the Funds will comply with Section 12(d) of the 1940 Act and the rules
thereunder.
For purposes of the foregoing fundamental and non-fundamental
limitations, any limitation that involves a maximum percentage shall not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings on behalf of, the Fund.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Funds is
set forth below. Trustees and officers deemed to be "interested persons" of
the Funds for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position(s) with Funds During Past 5 Years
- ----------------- ----------------------- -------------------
<S> <C> <C>
J. Hord Armstrong, III (54) Trustee Chairman and CEO,
8000 Maryland Avenue D&K Wholesale Drug, Inc., a
Suite 1190 distributor of
St. Louis, Missouri 63105 pharmaceutical 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 Group
London EC3 P3DB plc. (formerly Vice Chairman).
Lee F. Fetter (42) Chairman Chief Operating and
660 S. Euclid, Box 8003 Financial Officer of
St. Louis, Missouri 63110 Washington University School
of Medicine since 1983.
Henry O. Johnston (58) Trustee President of Fordyce Four,
9650 Clayton Road Incorporated, a corporation
St. Louis, Missouri 63124 engaged in the acquisition and
management of personal
investments.
</TABLE>
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<PAGE> 466
<TABLE>
<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,
125 West 55th Street July 1993 to date; prior
New York, New York 10019 thereto, Executive Vice
President of Concord Holding
Corporation.
William J. Tomko (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>
C:\TEMP\PILOT.SHA -21-
<PAGE> 467
<TABLE>
<S> <C> <C>
George O. Martinez (36) Secretary Senior Vice President
3435 Stelzer Road and Director of Legal and
Columbus, Ohio 43219 Compliance Services of BISYS
Fund Services, Inc. since
April 1995. Prior thereto,
Vice President and Associate
General Counsel of Alliance
Capital Management, L.P.
Partner of the law firm of
Sheldon A. Jones (57) Assistant Secretary Dechert Price & Rhoads.
Ten Post Office Square South
Boston, Massachusetts 02109
</TABLE>
The Agreement and Declaration of Trust of the Funds (the "Trust
Agreement") provides that, subject to its provisions, the business of the Funds
shall be managed by the Trustees. The Trust Agreement provides that: (a) the
Trustees may enter into agreements with other persons to provide for the
performance and assumption of various services and duties, including, subject
to their general supervision, advisory and administration services and duties,
and also including distribution, custodian, transfer and dividend disbursing
agency, Shareholder servicing and accounting services and duties, (b) a Trustee
shall be liable for his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, and for
nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law, and (c) subject to the preceding clause, the Trustees are not
responsible or liable for any neglect or wrongdoing of any officer or any
person referred to in clause (a).
Certain of the Trustees and officers and the organizations with which
they are associated have had in the past, and/or may have in the future,
transactions with Boatmen's, its parent, Boatmen's Bancshares Inc., Kleinwort
Benson, Concord and their respective affiliates. The Funds have been advised
by such Trustees and officers that all such transactions have been and are
expected to be ordinary transactions, and that the terms of such transactions,
including all loans and loan commitments by such persons, have been and are
expected to be substantially the same as the prevailing terms of comparable
transactions with other customers.
Each officer holds comparable positions with certain other investment
companies for which Concord and its affiliates serve as administrator and/or
distributor.
C:\TEMP\PILOT.SHA -22-
<PAGE> 468
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)
Total
Pension or Compensation
Aggregate Retirement Estimated Annual From Registrant
Compensation Benefits Upon Benefits Upon Fund Complex
Name of Person From Registrant Retirement Retirement Paid to Persons
-------------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
J. Hord Armstrong, III $14,000 0 0 $14,000
David 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 meeting attended by such Trustee. The compensation paid to the Chairman
is $9,500 and $750 for each Trustee meeting attended. Each of the
non-interested Trustees is entitled to reimbursement for out-of-pocket
expenses. Compensation paid to the Trustees who are considered interested
persons is paid directly by the investment adviser. Trustees' fees during the
period ended August 31, 1995 distributed to or accrued for the account of the
non-interested Trustees (four persons) amounted to approximately $53,000, which
amount represented the total compensation paid by the Funds to the Trustees
during that year.
INVESTMENT ADVISER, MANAGER, ADMINISTRATOR,
DISTRIBUTOR AND TRANSFER AGENT
THE ADVISER AND MANAGER
Boatmen's Trust Company, a subsidiary of Boatmen's Bancshares, Inc.,
P.O. Box 14737, 100 North Broadway, St. Louis, Missouri 63178- 4737, acts as
investment adviser to the Fund pursuant to an Investment Advisory Agreement
(the "Advisory Agreement") between the Fund and Boatmen's. As adviser,
Boatmen's is responsible for the management of the Fund's assets pursuant to an
Advisory Agreement between the Fund and Boatmen's.
Kleinwort Benson Investment Management Americas, Inc., 200 Park
Avenue, New York, New York 10616, serves as investment manager to the Fund
pursuant to an Investment Management Agreement among Kleinwort Benson,
Boatmen's and the Fund. As investment manager, Kleinwort Benson manages the
investment operations of the Fund and the composition of the Fund's assets,
including the purchase, retention and sale thereof.
C:\TEMP\PILOT.SHA -23-
<PAGE> 469
The Fund has no present intention of purchasing any securities issued
by Boatmen's, Boatmen's Bancshares, Inc. or any of its affiliates. Mr. Henry
O. Johnston, a Trustee of the Funds, owns shares amounting to less than
one-tenth of one percent (.001%) of the outstanding shares of common stock of
Boatmen's Bancshares, Inc.
Under its Advisory Agreement with the Fund, Boatmen's provides
guidelines for Kleinwort Benson, the investment manager, with regard to
investment strategy and the allocation of assets among countries and
currencies, monitors compliance with such guidelines, reviews selection and
monitors performance of foreign subcustodians, periodically reviews pricing of
portfolio securities, and makes periodic reports to the Funds' Board of
Trustees.
The Advisory Agreement provides that, subject to Section 36 of the
1940 Act, Boatmen's will not be liable for any error of judgment or mistake of
law or for any loss suffered by the Funds, except liability to the Funds or its
Shareholders to which Boatmen's would otherwise be subject by reason of its
willful misfeasance, bad faith or gross negligence in the performance of, or
its reckless disregard of, its obligations and duties under the Agreement. The
Agreement provides that the Funds will indemnify Boatmen's against certain
liabilities, including liabilities under the Federal securities laws, or, in
lieu thereof, contribute to resulting losses.
As compensation for the services rendered to the Funds by Boatmen's as
investment adviser, and the assumption by Boatmen's of the expenses related
thereto, Boatmen's is entitled to a fee, computed daily and payable monthly, at
an annual rate equal to .80 of 1% of the average daily net assets of the Fund.
While this fee is higher than the advisory fee paid by most mutual funds it is
believed to be comparable to advisory fees paid by many funds having similar
objectives and policies. For the period from July 12, 1993 through
August 31, 1993, Boatmen's received a fee of $158,136 for services rendered
to the Pilot International Equity Fund under the Advisory Agreement, for the
period September 1, 1993 to August 31, 1994, received a fee of $2,422,559 for
such services, and for the period September 1, 1994 through August 31, 1995,
received a fee of $2,828,628 for such services.
In connection with the foregoing services, Boatmen's bears all costs
incurred by it in connection with the performance of its duties, other than the
cost (including taxes and brokerage commission, if any) of securities purchased
for the Fund.
Kleinwort Benson's fee is paid by Boatmen's directly out of Boatmen's
advisory fee. The Funds are responsible for all expenses incurred by the
Funds, other than those expressly borne by Boatmen's, Kleinwort Benson, Concord
Holding Corporation, PFD, Concord and Concord Financial Services, Inc. under
the Advisory, Investment Management, Distribution, Administration or Transfer
Agency Agreements. Such expenses include, without limitation, the fees payable
to Boatmen's, Concord and Concord Financial Services, Inc., fees and expenses
incurred in connection with membership in investment company organizations, the
fees and expenses of the Funds' custodian and fund accounting agent, 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, 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 the 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'
C:\TEMP\PILOT.SHA -24-
<PAGE> 470
agreements with Boatmen's and Kleinwort Benson provide that the Fund is
entitled to be reimbursed on a pro rata basis based on Boatmen's and Kleinwort
Benson's respective share of the fees paid by the Funds to Boatmen's for
investment advisory services, to the extent required by these expense
limitations. As of the date hereof, the most restrictive expense limitation
imposed by state securities administrators of which the Funds are aware
provides that annual expenses (as defined) may not exceed 2 1/2% of the first
$30,000,000 of the Fund's average net assets, plus 2% of the next $70,000,000
of such assets, plus 1/2% of such assets in excess of $100,000,000, provided
that (under the Missouri expense limitation) the aggregate annual expenses of
every type paid or incurred by the Fund or its Shareholders, must be
substantially comparable with the aggregate annual operating and advisory
expenses incurred by other investment companies with similar objectives and
operating policies.
The Advisory Agreement between Boatmen's and the Fund was approved by
the sole holder of outstanding Shares of the Fund, The Goldman Sachs Group,
L.P., on July 12, 1993. The Advisory Agreement for the Fund was last approved
by the Trustees, including the "non-interested" Trustees, on August 21, 1995.
The Advisory Agreement will remain in effect until May 31, 1997 and will
continue in effect thereafter only if such continuance is specifically approved
at least annually: (1) by the vote of a majority of the outstanding Shares of
the Fund (as defined under "Investment Restrictions") or by the Trustees of the
Funds, and by the vote of a majority of the "non-interested" Trustees. The
Advisory Agreement will terminate automatically if assigned (as defined in the
1940 Act), and is terminable at any time without penalty by the Trustees of the
Funds or by vote of a majority of the outstanding Shares of the Fund (as
defined under "Investment Restrictions") on 60 days' written notice to
Boatmen's, and by Boatmen's on 60 days' written notice to the Funds.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company
continuously engaged in the issuance of its shares, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers. Boatmen's is a state-chartered
trust company. Boatmen's believes that it may perform the services
contemplated by its agreement with the Funds without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as future judicial or administrative decisions or
interpretations of current and future statutes and regulations, could prevent
Boatmen's from continuing to perform such services for the Funds.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Boatmen's in connection with the provision of
services on behalf of the Funds, the Funds might be required to alter
materially or discontinue its arrangements with Boatmen's and change its method
of operations. It is not anticipated, however, that any change in the Funds'
method of operations would affect the net asset value per share of the Fund or
result in a financial loss to any shareholder. Moreover, if current
restrictions preventing a bank from legally sponsoring, organizing, controlling
or distributing shares of an open-end investment company were relaxed, the
Funds expect that Boatmen's would consider the possibility of offering to
provide some or all of the services now provided by Concord and PFD. It is not
possible, of course, to predict whether or in what form such restrictions might
be relaxed or the terms upon which Boatmen's might offer to provide services
for consideration by the Trustees.
C:\TEMP\PILOT.SHA -25-
<PAGE> 471
The terms of the Investment Management Agreement among Kleinwort
Benson, Boatmen's and the Fund provide that Kleinwort Benson, subject to
supervision of the Funds' Board of Trustees and Boatmen's, manages the
investment operations of the Fund and the composition of the Fund's assets,
including the purchase, retention and disposition thereof. The Investment
Management Agreement provides that, subject to Section 36 of the 1940 Act,
Kleinwort Benson will not be liable for any error of judgment or mistake of law
or for any loss suffered by the Funds, except liability to the Funds or its
Shareholders to which Kleinwort Benson would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of, or
its reckless disregard of, its obligations and duties under the Agreement. The
Agreement provides that the Funds will indemnify Kleinwort Benson against
certain liabilities, including liabilities under the Federal securities laws,
or, in lieu thereof, contribute to resulting losses.
At its regular meeting held on August 21, 1995, the Board of Trustees
of The Pilot Funds approved a new investment management agreement between
Kleinwort Benson Investment Management Americas Inc., Boatmen's Trust Company
and the Pilot Kleinwort Benson International Equity Fund. This action was
necessary because of the anticipated acquisition of Kleinwort Benson by
Dresdner Bank AG ("Dresdner") which would, pursuant to the terms of the current
agreement, result in a termination of that agreement as required by the
Investment Company Act of 1940.
As compensation for Kleinwort Benson's services, Kleinwort Benson is
entitled to a fee paid by Boatmen's directly out of Boatmen's advisory fee
computed daily and payable monthly, at an annual rate equal to, effective June
1, 1995, .40 of 1% up to $325,000,000 and .25 of 1% of such assets in excess of
$325,000,000, on an annualized basis. Prior to June 1, 1995, Kleinwort Benson
was entitled to a fee, computed daily and payable monthly at an annual rate
equal to .80 of 1% of the Fund up to $65,000,000, .40 of 1% of such assets in
excess of $65,000,000 and .25 of 1% of such assets in excess of $325,000,000.
For the period from July 12, 1993 through August 31, 1993, the investment
management fee paid by Boatmen's to Kleinwort Benson was $114,903, which
equaled .58 of 1% of the Fund's average daily net assets. For the fiscal year
ended August 31, 1994, the fee paid by Boatmen's to Kleinwort Benson was
$1,465,815 which equaled .48 of 1% of the Fund's average daily net assets. For
the fiscal year ended August 31, 1995, the fee paid by Boatmen's to Kleinwort
Benson was $1,535,377, which equaled .43 of 1% of the Fund's average daily net
assets. The rate used to determine fees payable pursuant to the new Investment
Management Agreement is identical to the rate in the existing Investment
Management Agreement. All fees and expenses are accrued daily and deducted
before declaration of dividends to shareholders.
THE ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
Concord Holding Corporation ("Concord"), with principal offices at
3435 Stelzer Road, Columbus, Ohio 43219-3035, was organized in June of 1987.
Concord also serves as administrator to several other investment companies.
Concord provides administrative services for the Fund as described in
its Prospectus pursuant to an Administration Agreement dated as of March 31,
1994. The Agreement will continue in effect with respect to the Fund until May
31, 1996 and thereafter will be automatically extended as to the Fund for
successive periods of three years, provided that such continuance is
specifically approved: (a) by a vote of a majority of those members of the
Board of Trustees of the Funds who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Board of Trustees of the
Funds or by vote of a majority of the outstanding voting securities of the
Fund. The Agreement is terminable by the Board of Trustees of the Funds with
regard to the Fund, without the payment
C:\TEMP\PILOT.SHA -26-
<PAGE> 472
of any penalty, at any time if for cause. "Cause" shall mean a material breach
by Concord of its obligations under the Agreement which shall not have been
cured within 60 days after the date on which Concord shall have received
written notice setting forth in detail the facts alleged to give rise to the
breach.
For its services under the Administration Agreement, Concord is
entitled to receive an administration fee from the Funds, which is calculated
based on the net assets of all Funds combined. Under the Administration
Agreement, each Fund pays its pro rata share of an annual fee to Concord,
computed daily and payable monthly, of .115 of 1% of the Funds' average net
assets up to $1.5 billion, .110 of 1% of the Funds' average net assets on the
next $1.5 billion, and .1075 of 1% of the Funds' average net assets in excess
of $3 billion. From time to time, Concord may waive fees or reimburse the Funds
for expenses, either voluntarily or as required by certain state securities
laws. For the period March 31, 1994 to August 31, 1994, the Funds paid Concord
$295,477 for the performance of administrative services during such period.
For the fiscal year ended September 1, 1994 through August 31, 1995, the Funds
paid Concord $386,949 for the performance of administrative services during
such period.
Prior to March 31, 1994, Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman, Sachs & Co. served as administrator to
the Funds. For the fiscal period from July 12, 1993 through August 31, 1993
the Funds paid GSAM, pursuant to the Administration Agreement then in effect,
$19,767 for the performance of administrative services rendered during such
period.
Concord will bear all expenses in connection with the performance of
its services under the Administration Agreement for the Funds with the
exception of fees charged by State Street Bank and Trust Company for certain
fund accounting services which are borne by the Funds.
C:\TEMP\PILOT.SHA -27-
<PAGE> 473
The Administration Agreement provides that Concord shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Fund in
connection with the matters to which the Agreement relates except a loss
resulting from willful misfeasance, bad faith or negligence in the performance
of Concord's duties or from the reckless disregard by Concord of its
obligations and duties thereunder.
Pilot Funds Distributors, Inc. ("PFD"), a wholly-owned subsidiary of
Concord, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, acts as the
exclusive distributor of the shares of the Fund pursuant to a Distribution
Agreement with the Funds dated as of March 31, 1994. Shares are sold on a
continuous basis by PFD as agent, although PFD is not obligated to sell any
particular amount of shares. No compensation is payable by the Fund to PFD for
its distribution services.
The Distribution Agreement with PFD will continue in effect with
respect to the Fund until May 31, 1996 and thereafter will be automatically
extended for successive terms of one year, provided that such continuance is
specifically approved: (a) by a majority of those members of the Board of
Trustees who are not interested persons of the Funds and who have no direct or
indirect financial interest in the operation of any plan that has been adopted
by the Funds pursuant to Rule 12b-1 under the 1940 Act ("Plan") or in any
agreement entered into in connection with such plans ("Disinterested
Trustees"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Funds or by vote of a majority of the outstanding voting securities of the
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") is the transfer and
dividend disbursing agent of the Fund. It maintains the account records of all
shareholders and administers the distribution of all income earned as a result
of investing in the Fund. The Transfer Agent is located at 3435 Stelzer Road,
Columbus, Ohio 43219. For the fiscal year September 1, 1994 through August 31,
1995, Concord Financial Services, Inc., the Fund's former transfer agent,
received a fee of $51,775 in the capacity of transfer agent.
PORTFOLIO TRANSACTIONS
Kleinwort Benson is responsible for decisions to buy and sell
securities for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a securities exchange are effected through brokers
who charge a negotiated commission for their services. Orders may be directed
to any broker including, to the extent and in the manner permitted by
applicable law.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount.
In placing orders for portfolio securities of the Fund, Kleinwort
Benson is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that Kleinwort Benson will
seek to execute each transaction at a price and commission, if any, which
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances.
C:\TEMP\PILOT.SHA -28-
<PAGE> 474
In seeking such execution, Kleinwort Benson will use its best judgment in
evaluating the terms of a transaction, and will give consideration to various
relevant factors, including, without limitation, the size and type of the
transaction, the nature and character of the market for the security, the
confidentiality, speed and certainty of effective execution required for the
transaction, the general execution and operational capabilities of the
broker-dealer, the reputation, reliability, experience and financial condition
of the firm, the value and quality of the services rendered by the firm in this
and other transactions, and the reasonableness of the spread or commission, if
any.
While Kleinwort Benson generally seeks reasonably competitive spreads
or commissions, the Fund will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, Kleinwort Benson
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of the Fund, Kleinwort
Benson, or its other clients. Such research and investment services are those
which brokerage houses customarily provide to institutional investors and
include statistical and economic data and research reports on particular
companies and industries. Such services are used by Kleinwort Benson in
connection with all of its investment activities, and some of such services
obtained in connection with the execution of transactions for the Fund may be
used in managing other investment accounts. Conversely, brokers furnishing
such services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than those of the Fund; and the
services furnished by such brokers may be used by Kleinwort Benson in providing
investment management services for the Funds.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees of the Funds.
In certain instances there may be securities which are suitable for
one or more of the other clients of Kleinwort Benson. Investment decisions for
the Fund and for Kleinwort Benson's other clients are made with a view toward
achieving their respective investment objectives. It may happen that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more client when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment
adviser, particularly when the same security is suitable for the investment
objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as
far as the Fund is concerned. The Funds believe that over time its ability to
participate in volume transactions will produce superior executions for the
Fund.
The anticipated annual portfolio turnover rate of the Fund is expected
to be 100%. The Portfolio turnover rate for the Fund for the fiscal years
ended August 31, 1994 and August 31, 1995 was 35.4% and 35.9%, respectively.
The Fund will not engage in purchasing securities for short-term trading
purposes.
C:\TEMP\PILOT.SHA -29-
<PAGE> 475
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> 476
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> 477
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> 478
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> 479
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> 480
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> 481
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> 482
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> 483
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> 484
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> 485
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> 486
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> 487
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> 488
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> 489
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> 490
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> 491
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> 492
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> 493
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> 494
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> 495
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> 496
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> 497
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> 498
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> 499
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> 500
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> 501
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> 502
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> 503
THE PILOT FUNDS
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
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 may be reimbursed by a Fund or its Class B Shareholders out of
contingent deferred sales charges and distribution payments in future years as
long as the Distribution Plan for Class B Shares is in effect.
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 U.S. Government and Municipal Bond; and .15
of 1% of the average daily net asset value of Intermediate U.S. Government and
Intermediate Municipal Bond.
4. SECURITIES TRANSACTIONS
For the period ended August 31, 1995, 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......... $ 121,642,971 $ 30,760,467
Equity Income Fund............. 113,118,840 28,725,602
U.S. Government Securities
Fund**....................... 270,426,071 151,425,101
Intermediate U.S. Government
Securities Fund*............. 254,750,018 99,340,897
Municipal Bond Fund............ 148,625,365 11,009,399
Intermediate Municipal Bond
Fund......................... 194,643,040 12,916,242
</TABLE>
- ---------------
* Includes purchases and sales of U.S. Government Securities of $210,322,017
and $86,760,504, respectively.
** 100% of purchases and sales are of U.S. Government Securities.
At August 31, 1995, the cost of each Portfolio's securities for federal income
tax purposes was substantially the same as for financial reporting purposes.
Accordingly, the Portfolios had the following amounts of net unrealized
appreciation and depreciation:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET
------------ ----------- ------------
<S> <C> <C> <C>
Growth and Income
Fund................ $ 13,632,975 $ (826,697) $ 12,806,278
Equity Income Fund.... 11,508,201 (1,009,309) 10,498,892
U.S. Government
Securities Fund..... 8,443,117 (2,908) 8,440,209
Intermediate U.S.
Government
Securities Fund..... 5,220,387 (81,769) 5,138,618
Municipal Bond Fund... 9,220,855 (229,423) 8,911,432
Intermediate Municipal
Bond Fund........... 8,839,196 (4,385) 8,834,811
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
42
<PAGE> 504
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> 505
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> 506
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> 507
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> 508
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> 509
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> 510
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> 511
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> 512
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> 513
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> 514
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> 515
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> 516
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> 517
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> 518
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> 519
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> 520
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> 521
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> 522
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> 523
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> 524
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> 525
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> 526
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> 527
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> 528
- --------------------------------------------------------------------------------
<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> 529
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> 530
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> 531
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> 532
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> 533
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> 534
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> 535
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> 536
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> 537
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> 538
- --------------------------------------------------------------------------------
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> 539
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
COMMON STOCKS--89.9%
ARGENTINA PESO--0.4%
300,855 Naviera Perez Comp "A"
(Telecommunications) $ 1,408,706
-------------
AUSTRALIAN DOLLAR--4.3%
265,000 Ampolex Limited (Energy Sources) 625,592
140,000 Brambles Industries LTD
(Business and Public Services) 1,408,315
209,000 Broken Hill Proprietary Co.
(Energy Sources) 3,032,629
400,000 Mayne Nickless (Transportation-
Road/Rail) 1,918,653
270,000 News Corporation (Broadcasting
and Publishing) 1,550,861
488,440 Pacific Dunlop Limited (Multi-
Industry) 1,153,072
360,001 QBE Insurance Group Limited
(Insurance) 1,550,865
501,250 Western Mining Corp.(Metals- Non
Ferrous) 3,369,051
452,000 Woodside Petroleum (Energy
Sources) 2,110,308
-------------
16,719,346
-------------
BRAZILIAN CRUZIERO--0.0%
2,029,720 Banco Bradesco, S.A. (Banking) 19,554
-------------
BRITISH POUND STERLING--12.5%
422,000 BAA (Transportation-Airlines) 3,360,019
230,000 BOC Group (Chemicals) 2,959,336
539,807 BTR PLC (Multi-Industry) 2,856,964
403,255 British Petroleum PLC (Energy
Sources) 3,023,004
160,000 British Sky Broadcast
(Broadcasting and Publishing) 846,810
306,000 CRH PLC (Building Materials and
Components) 2,119,393
300,000 EMAP (Broadcasting and
Publishing) 2,267,577
300,000 Farnell Electronic PLC
(Electrical Components and
Instruments) 3,124,321
324,421 Granada Group PLC (Leisure and
Tourism) 3,129,406
286,000 Reckitt & Coleman (Food and
Household Products) 2,951,886
- -------------------------------------------------------------
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
349,000 Reuters Holdings PLC (Business
and Public Services) $ 3,033,370
464,281 Royal Bank of Scotland (Banking) 3,343,573
250,000 Security Services PLC (Business
and Public Services) 3,880,180
320,000 Standard Chartered Bank
(Banking) 2,160,484
1,425,000 WPP Group PLC (Broadcasting and
Publishing) 3,605,075
600,000 Williams Holdings (Building
Materials and Components) 2,970,666
190,000 Zeneca Group (Chemicals) 3,302,809
-------------
48,934,873
-------------
DANISH KRONE--0.4%
32,000 Tele Danmark "B"
(Telecommunications) 1,679,775
-------------
FRENCH FRANC--8.4%
31,106 Accor (Leisure and Tourism) 3,889,945
19,102 Alcatel-Alstom, S.A. (Electrical
and Electronics) 1,915,576
31,109 Castorama Dubois
(Merchandising)* 4,926,095
31,109 Castorama Dubois Investments
(Merchandising)* 502,475
17,058 Danone (Food and Household
Products) 2,799,164
7,000 L'Oreal, S.A. (Health and
Personal Care) 1,768,798
20,000 LVMH Moet Hennessy (Beverages
and Tobacco) 3,599,033
20,054 Lyonnaise Des Eaux-Dumez
(Business and Public Services) 1,927,184
22,000 Promodes, S.A. (Merchandising) 5,240,794
18,500 Roussel-UCLAF (Health and
Personal Care) 2,955,131
33,000 TV Francaise (Broadcasting and
Publishing) 3,348,527
-------------
32,872,722
-------------
GERMAN DEUTSCHEMARK--4.8%
13,000 Degussa, A.G. (Miscellaneous
Metals and Commodities) 4,187,462
54,000 Deutsche Bank, A.G. (Banking) 2,498,535
87,900 Deutsche Pfandbrief and Hypo
Bank, A.G. (Banking) 3,743,612
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE> 540
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
2,000 Gehe, A.G. Non-voting (Health
and Personal Care)* $ 884,497
8,000 Gehe, A.G. (Health and Personal
Care)* 3,608,859
3,826 Hochtief, A.G. (Construction and
Housing) 1,905,830
4,000 Weru, A.G. (Construction and
Housing) 1,976,150
-------------
18,804,945
-------------
HONG KONG DOLLAR--4.3%
500,000 China Light and Power Co.
(Utilities-Electric and Gas) 2,454,463
2,500,000 Guangdong Investment (Multi-
Industry) 1,437,153
117,000 HSBC Holdings (Banking) 1,571,890
1,150,000 Hong Kong Telecom
(Telecommunications) 2,079,835
500,000 Hutchison Whampoa (Multi-
Industry) 2,409,249
1,200,000 Shangri-La Asia LTD (Chemicals) 1,309,908
115,800 Sun Hung Kai Properties Limited
(Real Estate) 841,461
250,000 Swire Pacific "A"
(Multi-Industry) 1,873,143
215,000 Television Broadcasts LTD.
(Broadcasting and Publishing) 794,342
300,000 Wharf Holdings (Business and
Public Services) 862,292
3,800,000 Yizheng Chemical Co. (Chemicals) 1,129,053
-------------
16,762,789
-------------
INDONESIAN RUPIAH--0.7%
350,900 Indorama Synthetic (Foreign
Registered) (Textiles and
Apparel) 1,033,425
523,200 PT Astra International (Multi-
Industry) 1,044,553
436,500 PT Inti Indorayon Utama (Forest
Products and Paper) 842,571
-------------
2,920,549
-------------
IRISH PUNT--0.2%
96,000 CRH PLC (Dublin Registered)
(Building Materials and
Components) 664,697
-------------
ITALIAN LIRA--2.4%
200,000 Edison (Energy Sources) 845,591
500,000 Italienne Gas (Societa Italiene)
(Utilities-Electric and Gas) 1,478,553
- -------------------------------------------------------------
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
660,000 SASIB (Machinery and
Engineering) $ 3,107,268
1,300,000 Societe Fiananziaria Telefonica
p.a. ("STET")
(Telecommunications) 3,984,245
-------------
9,415,657
-------------
JAPANESE YEN--24.7%
180,000 Canon Sales Co. Inc. (Business
and Public Services) 4,805,155
250,000 Citizen Watch Co. (Recreation
and Other Consumer Goods) 1,910,095
140,000 Daiichi Pharmaceutical Co., Ltd.
(Health and Personal Care) 1,933,108
700,000 Dainippon Ink and Chemicals,
Inc. (Chemicals) 3,107,293
77,000 Daiwa Industries (Appliances and
Household Durables) 776,537
170,000 Hoya Corp. (Health and Personal
Care) 4,885,957
250,000 INAX Corporation (Building
Materials and Components) 2,493,096
180,000 KAO Corporation (Food and
Household Products) 2,080,393
44,000 Keyence Corp. (Electrical
Components and Instruments) 5,625,447
63,000 Kyocera Corp. (Electrical
Components and Instruments) 5,567,352
160,000 Mitsubishi Bank (Banking) 3,272,988
200,000 NGK Spark Plug Co. (Industrial
Components) 2,638,846
400,000 Nikon Corp. (Recreation and
Other Consumer Goods) 5,482,254
500,000 Nippon Express Co.
(Transportation-Road/Rail) 4,316,252
240,000 Sanwa Bank (Banking) 4,590,365
800,000 Sanyo Electric Co. (Appliances
and Household Durables) 4,418,533
90,000 Secom Co., LTD. (Business and
Public Services) 5,918,994
300,000 Sharp Corp. (Appliances and
Household Durables) 4,265,112
200,000 Shimano Inc. (Transportation-
Road/Rail) 4,050,322
100,000 TDK Corp. (Electrical Components
and Instruments) 5,144,727
363,000 The Nippon Comsys Corp.
(Telecommunications) 5,086,530
600,000 Tokio Marine and Fire
(Insurance) 7,118,749
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE> 541
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
290,000 Toppan Printing Co. (Business
and Public Services) $ 3,974,634
86,500 York-Benimaru Company, Limited
(Merchandising) 2,981,538
-------------
96,444,277
-------------
MALAYSIAN RINGGIT--0.5%
160,000 Telekom Malaysia Berhad
(Telecommunications) 1,122,245
135,000 UTD Engineers (Machinery and
Engineering) 903,607
-------------
2,025,852
-------------
NETHERLANDS GUILDER--5.5%
134,112 Ahold, N.V. (Merchandising) 4,778,938
61,447 Getronics (Data Processing and
Reproduction) 2,634,244
115,760 Philips Electronics, N.V.
(Appliances and Household
Durables) 5,194,946
46,000 Randstad Holdings (Business and
Public Services) 3,216,783
65,749 Wolters Kluwer, N.V.
(Broadcasting and Publishing) 5,797,266
-------------
21,622,177
-------------
NEW ZEALAND DOLLAR--0.4%
650,000 Carter Holt Harvey (Multi-
Industry) 1,479,579
-------------
NORWEGIAN KRONE--0.5%
25,074 Kvaerner Industries, A.S. "A"
(Machinery and Engineering) 976,934
28,000 Kvaerner Industries, A.S. "B"
(Machinery and Engineering) 1,038,573
-------------
2,015,507
-------------
POLISH ZLOTY--0.2%
280,000 Mostostal-Export, S.A.
(Construction and Housing) 735,859
-------------
PORTUGUESE ESCUDA--0.5%
37,000 BCO Commercial Portuguese
(Banking) 457,887
28,000 Corticeira Amorim Gestora
(Building Materials and
Components) 350,919
- -------------------------------------------------------------
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
17,600 Estabelev Jeronimo Martins (Food
and Household Products) $ 822,257
22,000 Sonae Investmentos (Forest
Products and Paper) 500,197
-------------
2,131,260
-------------
SINGAPORAN DOLLAR--3.1%
325,000 City Developments (Real Estate) 1,955,214
290,687 Development Bank of Singapore
Limited (Foreign Registered)
(Banking) 3,313,488
216,000 Fraser and Neave (Food and
Household Products) 2,446,946
36,000 Fraser and Neave, Warrants,
05/27/98 (Food and Household
Products) 179,848
185,000 Genting Berhad (Leisure and
Tourism) 1,614,129
300,000 Keppel (Machinery and
Engineering) 2,406,417
-------------
11,916,042
-------------
SPANISH PESETA--2.8%
76,000 Empresa Nacional de
Electricidad, S.A.
(Utilities-Electric and Gas) 3,944,825
41,000 Gas Natural SDG, S.A.
(Utilities-Electric and Gas) 5,034,285
58,000 Respol (Energy Sources) 1,819,726
-------------
10,798,836
-------------
SWEDISH KRONA--0.8%
200,000 Atlas Copco Atiebolag "A"
(Machinery and Engineering) 3,111,038
-------------
SWISS FRANC--3.9%
5,600 Brown Boveri CIE, A.G.
(Electrical and Electronics) 5,906,722
2,856 Nestle, S.A. (Food and Household
Products) 2,889,182
970 Roche Holdings, A.G. (Health and
Personal Care) 6,496,182
-------------
15,292,086
-------------
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
8
<PAGE> 542
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
THAI BAHT--0.8%
160,000 Bangkok Bank (Foreign
Registered) (Banking) $ 1,787,710
100,000 Electricity Generating (Foreign
Registered)
(Utilities-Electric and Gas) 313,248
160,000 T.P.I. Polene (Foreign
Registered) (Building
Materials and Components) 1,117,318
-------------
3,218,276
-------------
TURKISH LIRE--0.4%
391,500 Migros (Food and Household
Products) 431,607
3,212,208 PT Arcelik (Appliances and
Household Durables) 494,443
6,230,400 Trakya Cam (Building Materials
and Components) 647,987
-------------
1,574,037
-------------
UNITED STATES DOLLAR--7.4%
47,700 Advanced Semiconductor (GDR)
(Electrical and Electronics)* 650,151
102,666 Aracruz Cellose (ADR) (Forest
Products and Paper) 1,231,992
525,000 Cifra, S.A. de C.V. (ADR)
(Merchandising) 643,125
39,694 Companhia Energetica de Mi (ADR)
(Utilities-Electric and Gas)* 889,527
72,000 Corimon CASACA (ADR) (Multi-
Industry) 396,000
99,920 Corporacion Financiera (ADR)
(Financial Services) 1,559,391
34,147 De Beers Consolidated Mines LTD
(ADR) (Miscellaneous Metals
and Commodities) 877,151
78,300 Desc, S.A. de C.V. (ADR) (Multi-
Industry)* 1,252,800
190,000 Elektrim, S.A. (Electrical and
Electronics) 599,199
10,000 Empresa Nacional de
Electricidad, S.A. (ADR)
(Utilities-Electric and Gas) 517,500
50,220 Empresas ICA Sociedad
Controladera, S.A. de C.V.
(ADR) (Utilities-Electric and
Gas) 998,123
440,000 Five Arrows (Multi-Industry) 1,271,600
- -------------------------------------------------------------
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
48,000 Gedeon Richter (Chemicals) $ 798,240
151,450 Grupo Industrial Durango (ADR)
(Forest Products and Paper)* 1,419,844
38,000 Hindalco Ind. ( GDR) (Metal-Non
Ferrous) 1,330,000
20,000 Indian Rayon and Industries
(GDR) (Textiles and Apparel)* 275,000
57,500 Korea Electrical Power (ADR)
(Electrical and Electronics) 1,315,313
50,000 Luxottica Group (ADR)
(Recreation and Other Consumer
Goods) 2,287,497
29,500 Manila Electric Co. (GDS)
(Electrical and Electronics) 1,209,500
148,625 Mavesa, S.A. (ADR) (Food and
Household Products) 542,734
24,700 Philippine Long Distance
Telephone (ADR)
(Telecommunications) 1,553,013
55,000 Reliance Ind. (GDS) (Textiles
and Apparel) 1,031,250
27,069 Samsung Electric Co. (GDS)
(Electrical and Electronics) 1,678,266
220,000 Siderurgica Venezolana (ADR)
(Metals-Non Ferrous) 414,612
53,238 Telefonica de Argentina (ADR)
(Telecommunications) 1,317,641
49,100 Telefonos de Mexico (ADR "L")
(Telecommunications) 1,608,025
67,900 YPF Sociedad (ADR) (Energy
Sources) 1,196,738
-------------
28,864,232
- -------------------------------------------------------------
TOTAL COMMON STOCKS (cost $312,967,573) 351,432,671
- -------------------------------------------------------------
PREFERRED STOCKS--3.0%
AUSTRALIAN DOLLAR--0.2%
135,000 News Corporation (Broadcasting
and Publishing) 698,293
-------------
BRAZILIAN CRUZEIRO--1.3%
112,400,000 Banco Bradesco, S.A.(Banking) 1,082,709
4,000,000 Brasmotor (Appliances and
Household Durables) 1,027,585
731,800 Sider Paulista, Pfd. B (Metals-
Non Ferrous)* 1,409,975
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE> 543
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 2)
- -------------------------------------------------------------
<S> <C>
32,303,683 Telebras (Telecommunications) $ 1,401,255
-------------
4,921,524
-------------
GERMAN DEUTSCHEMARK--1.5%
50,000 Fielmann (Health and Personal
Care) 2,827,939
6,875 GEA, A.G. (Machinery and
Engineering) 2,452,513
2,000 Grohe, A.G. (Construction and
Housing) 538,330
-------------
5,818,782
- -------------------------------------------------------------
TOTAL PREFERRED STOCKS (cost $10,043,158) 11,438,599
- -------------------------------------------------------------
<CAPTION>
Principal
Amount
- -------------------------------------------------------------
<S> <C>
CORPORATE OBLIGATIONS--0.5%
JAPANESE YEN--0.1%
Y50,000,000 Secom Co. Ltd. 4.40%, 9/30/96
(Business and Public Services) 560,499
-------------
UNITED STATES DOLLAR--0.4%
$220,000 Jindal Strips, LTD 4.25%,
3/31/99 (Metals-Non Ferrous) 215,600
780,000 United Micro Systems (Electrical
and Electronics) 1.25%, 6/8/04 1,374,750
-------------
1,590,350
- -------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS (cost $2,068,964) 2,150,849
- -------------------------------------------------------------
<CAPTION>
Principal Value
Amount Description (Note 2)
- -------------------------------------------------------------
<S> <C>
SHORT-TERM OBLIGATIONS--4.6%
EURO-TIME DEPOSIT--4.6%
17,819,000 State Street Bank & Trust Co.,
5.625%, 9/01/95 (cost
$17,819,000) $ 17,819,000
- -------------------------------------------------------------
TOTAL INVESTMENTS--98.0% (cost $342,898,695**) 382,841,119
OTHER ASSETS LESS LIABILITIES--2.0% 7,995,393
- -------------------------------------------------------------
NET ASSETS--100.0% $ 390,836,512
- -------------------------------------------------------------
** Represents cost for financial reporting
purposes and differs from cost basis for
federal income tax purposes by the amount
of losses recognized for financial
reporting purposes in excess of federal
income tax reporting of approximately
$96,000. Cost for federal income tax
purposes differs from value by net
unrealized appreciation of investments as
follows:
Gross unrealized appreciation of investments $ 57,141,615
Gross unrealized depreciation of investments (17,294,655)
- -------------------------------------------------------------
Net unrealized appreciation of investments $ 39,846,960
- -------------------------------------------------------------
</TABLE>
* Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
GDS--Global Depository Shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Forward Foreign Currency Value on Current Unrealized
Exchange Contracts Settlement Date Value Gain
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENCY SOLD:
Deutschemark Expiring 9/21/95 $20,618,114 $ 19,656,844 $ 961,270
Japanese Yen Expiring 9/21/95 23,461,815 20,106,792 3,355,023
Expiring 9/21/95 25,911,020 24,107,633 1,803,387
Netherlands Guilder Expiring 9/21/95 20,638,475 19,638,639 999,836
------------- --------------- ---------------
Total Forward Foreign Currency Exchange Contracts $90,629,424 $ 83,509,908 $ 7,119,516
============= =============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE> 544
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Portfolio of Investments (continued)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock, Preferred Stock and Corporate Obligations
Industry Concentrations
------------------------------------------------------------------------
<S> <C>
Business and Public Services.................................... 8.2%
Banking......................................................... 7.6
Health and Personal Care........................................ 6.7
Telecommunications.............................................. 5.8
Electrical and Electronics...................................... 5.5
Broadcasting and Publishing..................................... 5.2
Merchandising................................................... 5.2
Appliances and Household Durables............................... 4.4
Utilities-Electric and Gas...................................... 4.3
Multi-Industry.................................................. 4.2
Food and Household Products..................................... 4.1
Machinery and Engineering....................................... 4.1
Electrical Components and Instruments........................... 3.8
Chemicals....................................................... 3.5
Energy Sources.................................................. 3.5
Building Materials and Components............................... 2.8
Transportation-Road/Rail........................................ 2.8
Recreation and Other Consumer Goods............................. 2.7
Leisure and Tourism............................................. 2.4
Insurance....................................................... 2.4
Metals-Non Ferrous.............................................. 1.8
Construction and Housing........................................ 1.4
Miscellaneous Metals and Commodities............................ 1.4
Forest Products and Paper....................................... 1.1
Beverages and Tobacco........................................... 1.0
Transportation-Airlines......................................... 0.9
Real Estate..................................................... 0.8
Industrial Components........................................... 0.7
Data Processing and Reproduction................................ 0.7
Textile and Apparel............................................. 0.6
Financial Services.............................................. 0.4
------------------------------------------------------------------------
TOTAL SECURITIES................................................ 100.0%
------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE> 545
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $342,898,695).................................................. $382,841,119
Cash and foreign currency................................................................................ 515,297
Receivable for foreign currency sold..................................................................... 395
Receivable for forward foreign currency exchange contracts............................................... 7,119,516
Receivable for investment securities sold................................................................ 765,352
Foreign taxes receivable................................................................................. 651,587
Dividends receivable..................................................................................... 260,977
Interest receivable...................................................................................... 17,319
Receivable for Portfolio shares sold..................................................................... 418,082
Deferred organization costs and prepaid expenses......................................................... 114,331
Other assets............................................................................................. 132,287
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS............................................................................................. 392,836,262
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Advisory fees payable.................................................................................... 262,558
Administration fees payable.............................................................................. 36,328
Payable for investment securities purchased.............................................................. 1,340,545
Payable for Portfolio shares redeemed.................................................................... 241,261
Administration Service fees payable (Pilot Class A Shares)............................................... 5,746
Other accrued expenses................................................................................... 113,312
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES........................................................................................ 1,999,750
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS............................................................................................... $390,836,512
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE:
PILOT SHARES:
($363,211,814 / 22,371,312 shares of beneficial interest issued and outstanding unlimited number of
shares authorized)..................................................................................... $16.24
- ------------------------------------------------------------------------------------------------------------------------
PILOT CLASS A SHARES:
($27,624,698 / 1,711,244 shares of beneficial interest issued and outstanding unlimited number of
shares authorized)................................................................................... $16.14
Sales charge--4.50% of offering price.................................................................... 0.76
- ------------------------------------------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE................................................................................... $16.90
- ------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par.................................................................... $ 24,083
Additional paid-in capital............................................................................... 331,768,598
Accumulated undistributed net investment income.......................................................... 2,488,507
Accumulated undistributed net realized gains from investment transactions................................ 7,098,235
Accumulated undistributed net realized gains from foreign currency transactions.......................... 2,417,940
Net unrealized appreciation of investments............................................................... 26,723,244
Net unrealized appreciation of translation of assets and liabilities denominated in foreign currencies... 20,315,905
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS, AUGUST 31, 1995.............................................................................. $390,836,512
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
12
<PAGE> 546
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of $766,079 in foreign taxes withheld)................... $ 5,915,820
Interest................................................................ 1,022,408
- ---------------------------------------------------------------------------------------------------
6,938,228
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees........................................................... $2,828,628
Administration fees..................................................... 386,949
Administration Services fees (Pilot Class A Shares)..................... 80,417
Custodian fees and expenses............................................. 591,298
Registration fees....................................................... 72,423
Audit fees.............................................................. 75,480
Transfer agent fees and expenses........................................ 51,775
Amortization of organization expense.................................... 44,000
Reports to shareholders................................................. 25,536
Legal fees.............................................................. 11,082
Trustees' fees.......................................................... 5,194
Other expenses.......................................................... 5,293
- ---------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................................... 4,178,075
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................................... 2,760,153
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN
CURRENCIES:
Net realized gains from investment transactions......................... 7,897,049
Net realized gain from foreign currency transactions.................... 2,930,897
Net change in unrealized appreciation of investments.................... (15,002,978)
Net change in unrealized appreciation of translation of assets and
liabilities denominated in foreign currencies......................... 9,613,918
- ---------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS AND FOREIGN
CURRENCIES............................................................ 5,438,886
- ---------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $ 8,199,039
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
13
<PAGE> 547
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the years ended August 31, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income........................................... $ 2,760,153 $ 2,142,451
Net realized gains from investment transactions................. 7,897,049 9,716,040
Net realized gains (losses) from foreign currency
transactions................................................. 2,930,897 (1,160,666)
Net change in unrealized appreciation of investments............ (15,002,978) 22,711,888
Net change in unrealized appreciation of translation of assets
and liabilities denominated in foreign currencies............ 9,613,918 12,825,751
------------- -------------
Net increase in net assets resulting from operations............ 8,199,039 46,235,464
------------- -------------
DISTRIBUTIONS:
Dividends to shareholders from net investment income:
Pilot Shares.................................................... (2,165,488) --
Pilot Class A Shares............................................ (248,680) --
------------- -------------
Net decrease in net assets from dividends to shareholders from net
investment income............................................... (2,414,168) --
------------- -------------
Distributions to shareholders from net realized gains:
Pilot Shares.................................................... (5,727,080) (2,250,668)
Pilot Class A Shares............................................ (657,682) (517,446)
------------- -------------
Net decrease in net assets from distributions to shareholders from
net realized gains.............................................. (6,384,762) (2,768,114)
------------- -------------
PORTFOLIO SHARE TRANSACTIONS:
Proceeds from shares issued....................................... 93,286,629 144,447,673
Reinvestment of dividends and distributions....................... 7,173,468 2,535,601
Cost of shares redeemed........................................... (61,574,895) (89,263,009)
------------- -------------
Net increase in net assets from Portfolio share transactions.... 38,885,202 57,720,265
------------- -------------
Total Increase in Net Assets...................................... 38,285,311 101,187,615
------------- -------------
NET ASSETS:
Beginning of period............................................... 352,551,201 251,363,586
------------- -------------
End of period (including undistributed net investment income of
$2,488,507 and $1,691,656, respectively)........................ $ 390,836,512 $ 352,551,201
============= =============
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
14
<PAGE> 548
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
1. GENERAL
The Pilot Kleinwort Benson International Equity Fund (the "Portfolio") is a
separate diversified portfolio 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.
The Portfolio offers three classes of shares: Pilot Shares, Pilot Class A Shares
(formerly Pilot Administration Shares) and Pilot Class B Shares. Pilot Shares,
Pilot Class A Shares and Pilot Class B Shares are substantially the same except
that Pilot Class A Shares bear the fees payable under the Portfolio's
Administration Plan, and Pilot Class B Shares bear the fees payable under the
Portfolio's Distribution Plan. As of August 31, 1995, the Pilot Class B Shares
have not been sold by the Portfolio.
Boatmen's Trust Company ("Boatmen's") serves as the Fund's investment adviser.
Kleinwort Benson Investment Management Americas, Inc. ("Kleinwort Benson")
serves as the Portfolio's investment manager. Concord Holding Corporation
("Concord") serves as the Portfolio's administrator. Pilot Funds Distributor,
Inc. (the "Distributor"), a wholly-owned subsidiary of Concord, is the Fund's
distributor. 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 Portfolio in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
A. Investment Valuation
Investments in securities traded on a U.S. or foreign securities exchange or the
NASDAQ system are valued at their last sale or closing price on the principal
exchange on which they are traded or NASDAQ, on the valuation day; if no sale
occurs, securities traded on a U.S. exchange or NASDAQ are valued at the mean
between the closing bid and asked price, and securities traded on a foreign
exchange will be valued at the official bid price. Unlisted equity securities
for which market quotations are available are valued at the mean between the
most recent bid and asked prices.
Debt securities are valued at prices supplied by an independent pricing service,
which reflect broker/dealer-supplied valuations and matrix pricing systems.
Short-term debt obligations maturing in sixty days or less are valued at
amortized cost, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase or, in the case
of securities purchased with more than sixty days until maturity, at their
market value each day until the sixty-first day prior to maturity, and
thereafter assuming a constant amortization to maturity of the difference
between the principal amount due at maturity and such valuation. Restricted
securities, and other securities for which quotations are not readily available,
are valued at fair value using methods approved by the Board of Trustees of the
Fund.
B. Foreign Currency Translations
The books and records of the Portfolio are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment securities, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates; (ii) purchases and sales of
foreign securities, income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.
Net realized and unrealized gain (loss) on foreign currency translations will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and securities; (ii) gains and losses between trade date and
settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from
- ----------------------------------------------------------
- ----------------------------------------------------------
15
<PAGE> 549
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
the difference between amounts of dividends and interest recorded and the
amounts actually received.
C. Forward Foreign Currency Exchange Contracts
The Portfolio is authorized to enter into forward foreign exchange contracts for
the purchase of a specific foreign currency at a fixed price on a future date as
a hedge or cross-hedge against either specific transactions or portfolio
positions. The aggregate principal amounts of the contracts are reflected net in
the Portfolio's Statement of Assets and Liabilities. All commitments are
"marked-to-market" daily at the applicable translation rates and any resulting
unrealized gains or losses are recorded in the Portfolio's financial statements.
The Portfolio records realized gains or losses at the time the forward contract
is offset by entry into a closing transaction or extinguished by delivery of the
currency. Risks may arise upon entering these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. At August 31, 1995, the Fund
had sufficient cash and/or securities to cover any commitments under these
contracts.
D. 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, except that certain
dividends from foreign securities which are not known on the ex-dividend date
are recorded as soon as the Portfolio is informed of the dividend. Interest
income, including accretion of discounts and amortization of premiums on
investments, is accrued daily.
The income of the Portfolio is allocated to the separate classes of shares based
upon their relative net asset value.
E. Dividends to Shareholders
Dividends of the Portfolio are declared and paid annually 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 the Portfolio can be offset by capital loss
carryovers, such gains will not be distributed. Dividends and distributions are
recorded by the Portfolio on the ex-dividend date.
In accordance with Statement of Position 93-2, the Portfolio has reclassified
approximately $451,000, $847,000; and $694,000 between paid-in capital and
accumulated net investment income, accumulated undistributed net realized gain
on investment transactions and accumulated net realized foreign currency loss,
respectively. These reclassifications have no impact on the net asset value of
the Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
F. Federal Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income and capital gains to
its shareholders. Accordingly, no federal tax provision is required.
As of August 31, 1995, the Portfolio has no capital loss carryforwards available
to offset future gains.
G. Deferred Organization Expenses
Organization related costs incurred by the Portfolio are being amortized on a
straight-line basis over a period of five years.
- ----------------------------------------------------------
- ----------------------------------------------------------
16
<PAGE> 550
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
H. Expenses
Expenses incurred by the Fund that do not specifically relate to an individual
portfolio of the Fund are allocated to the portfolios based on each portfolio's
relative net assets. The expenses of the Portfolio (other than expenses incurred
pursuant to the Administration Plan) are allocated to the separate classes of
shares based upon their relative net asset value.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
A. Advisory Agreement
Boatmen's is the Portfolio's investment adviser pursuant to an Investment
Advisory Agreement and supervises the activities of Kleinwort Benson, the
Portfolio's investment manager. As compensation for the services rendered under
the Advisory Agreement and the assumption of the expenses related thereto,
Boatmen's is entitled to a fee, computed daily and payable monthly, at an annual
rate equal to 0.80% of the Portfolio's average daily net assets. From these
fees, Boatmen's pays fees to Kleinwort Benson pursuant to its Investment
Management Agreement.
B. Investment Management Agreement
The Portfolio has entered into an Investment Management Agreement with Kleinwort
Benson and Boatmen's. Under the Investment Management Agreement, Kleinwort
Benson, subject to the general supervision of the Portfolio's Board of Trustees
and Boatmen's, manages the investment operations of the Portfolio. Through May
31, 1995, as compensation for the services rendered pursuant to the Investment
Management Agreement, Kleinwort Benson was entitled to a fee, paid by Boatmen's
directly out of Boatmen's advisory fee, computed daily and payable monthly, at
an annual rate equal to 0.80% of the Portfolio's average daily net assets up to
$65,000,000, 0.40% of the next $260,000,000 of assets and 0.25% of such assets
in excess of $325,000,000. As approved by vote of shareholders on May 24, 1995,
effective June 1, 1995, the Investment Management Agreement was amended such
that Boatmen's will pay Kleinwort Benson at an annual rate equal to 0.40% of the
Portfolio's average daily net assets up to $325,000,000 and 0.25% of such assets
in excess of $325,000,000.
C. Administration Agreement
The Portfolio has 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 the Portfolio. 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.
D. Transfer Agent Agreement
Concord Financial Services ("CFS"), a wholly-owned subsidiary of Concord, is the
transfer agent for the Pilot Shares of the Portfolio. CFS does not receive a fee
for the transfer agent services it provides.
E. Distribution Agreement
The Distributor does not receive a fee under its Distribution Agreement.
4. ADMINISTRATION PLAN
The Portfolio has adopted an Administration Plan (the "Plan"). The Plan allows
for Pilot Class A Shares to compensate service organizations for providing
varying levels of account administration and shareholder liaison services to
customers who are beneficial owners of such shares. The Plan provides for
compensation to the service organizations in an amount up to 0.25% (on an
annualized basis) of the average daily net asset value of the outstanding Pilot
Class A Shares. For the year ended August 31, 1995, the Portfolio paid fees of
$80,417 to various affiliates of Boatmen's pursuant to the Administration Plan.
- ----------------------------------------------------------
- ----------------------------------------------------------
17
<PAGE> 551
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
August 31, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
5. SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding
short-term investments) for the year ended August 31, 1995, were $166,409,684
and $136,541,467, respectively.
6. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Portfolio are summarized below (000 omitted):
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1995
------------------
SHARES AMOUNT
------ --------
<S> <C> <C>
Pilot Shares
Sold................................ 6,037 $ 92,626
Reinvestment of dividends........... 451 6,608
Redeemed............................ (2,937) (44,103)
------- ---------
Net increase-Pilot Shares............... 3,551 55,131
------- ---------
Pilot Class A Shares:
Sold................................ 44 659
Reinvestment of dividends........... 39 566
Redeemed............................ (1,133) (17,471)
------- ---------
Net decrease-Pilot Class A Shares....... (1,050) (16,246)
------- ---------
Net increase in Portfolio Shares........ 2,501 $ 38,885
======= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1994
------------------
SHARES AMOUNT
------ --------
<S> <C> <C>
Pilot Shares
Sold................................ 9,506 $143,331
Reinvestment of dividends........... 146 2,187
Redeemed............................ (4,662) (69,840)
------- ---------
Net increase-Pilot Shares............... 4,990 75,678
------- ---------
Pilot Class A Shares:
Sold................................ 75 1,117
Reinvestment of dividends........... 23 348
Redeemed............................ (1,286) (19,423)
------- ---------
Net decrease-Pilot Class A Shares....... (1,188) (17,958)
------- ---------
Net increase in Portfolio Shares........ 3,802 $ 57,720
======= =========
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
18
<PAGE> 552
PILOT KLEINWORT BENSON INTERNATIONAL EQUITY FUND
------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DISTRIBUTIONS
TO
SHAREHOLDERS
INCOME FROM INVESTMENT OPERATIONS FROM:
--------------------------------------------------- ------
NET
NET REALIZED
NET REALIZED AND
ASSET AND UNREALIZED TOTAL
VALUE UNREALIZED GAINS INCOME
AT NET GAINS (LOSSES) (LOSS)
BEGINNING INVESTMENT (LOSSES) FROM FROM NET
OF INCOME FROM FOREIGN INVESTMENT INVESTMENT
PERIOD (LOSS) INVESTMENTS CURRENCIES(c) OPERATIONS INCOME
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- -----------------------------
1995--Pilot Shares..................... $ 16.34 $ 0.13 (i) $(0.22) (i) $ 0.39 (i) $ 0.30 $(0.11)
1995--Pilot Class A Shares(j).......... 16.29 0.08 (i) (0.22) (i) 0.39 (i) 0.25 (0.11)
1994--Pilot Shares..................... 14.14 0.11 (i) 1.65 (i) 0.59 (i) 2.35 --
1994--Pilot Administration Shares...... 14.13 0.07 (i) 1.65 (i) 0.59 (i) 2.31 --
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1993
- ------------------------------------------
1993--Pilot Shares(d).................. 13.15 (0.01)(i) 1.10 (i) (0.10)(i) 0.99 --
1993--Pilot Administration Shares...... 11.85 0.02 (i) 2.51 (i) (0.25)(i) 2.28 --
FOR THE YEARS ENDED DECEMBER 31,(a)(b)
- --------------------------------------
1992--Pilot Administration Shares...... 12.29 0.04 (i) (0.46) (i) -- (0.42) (0.02)
1991--Pilot Administration Shares...... 12.65 0.06 1.36 -- 1.42 (0.08)
<CAPTION>
DISTRIBUTIONS
TO
SHAREHOLDERS
FROM:
------
RATIO
NET OF
REALIZED NET
GAINS RATIO INVESTMENT
FROM NET OF INCOME NET
INVESTMENT ASSET EXPENSES (LOSS) ASSETS
AND VALUE TO TO AT END OF
FOREIGN AT PORTFOLIO AVERAGE AVERAGE PERIOD
CURRENCY END OF TOTAL TURNOVER NET NET (IN
TRANSACTIONS PERIOD RETURN(e) RATE ASSETS ASSETS 000'S)
------- ------- ------ ----- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31,
- ---------------------------------------
1995--Pilot Shares..................... $ (0.29) $ 16.24 2.08% 35.91% 1.18% 0.82% $ 363,212
1995--Pilot Class A Shares(j).......... (0.29) 16.14 1.77 35.91 1.42 0.50 27,625
1994--Pilot Shares..................... (0.15) 16.34 16.75 35.40 1.12 0.75 307,561
1994--Pilot Administration Shares...... (0.15) 16.29 16.48 35.40 1.37 0.48 44,990
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1993
- ------------------------------------------
1993--Pilot Shares(d).................. -- 14.14 7.53(f) 26.65 (f)(h) 1.31 (g) (0.56)(g) 195,548
1993--Pilot Administration Shares...... -- 14.13 19.24(f) 26.65 (f)(h) 2.17 (g) 0.25 (g) 55,816
FOR THE YEARS ENDED DECEMBER 31,(a)(b)
- ---------------------------------------
1992--Pilot Administration Shares...... -- 11.85 (3.42) 58.55 1.78 0.35 56,358
1991--Pilot Administration Shares...... (1.70) 12.29 11.81 51.88 1.79 0.45 65,939
</TABLE>
- ------------
(a) Prior to a tax-free reorganization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year-end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject to
an Administration plan.
(c) For years preceding the fiscal period ended August 31, 1993, net realized
and unrealized gains (losses) from foreign currencies were included in net
realized and unrealized gains (losses) from investments. Effective January
1, 1993, realized and unrealized gains (losses) from foreign currencies are
disclosed separately from net realized and unrealized gains (losses) on
investments.
(d) Pilot shares were initially issued on July 26, 1993.
(e) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for the
Pilot Administration shares.
(f) Not annualized.
(g) Annualized.
(h) Calculated on a portfolio-wide level and excludes the transfer of assets
effective on August 6, 1993 from a collective trust fund for which
Boatmen's Trust Company served as Trustee.
(i) Calculated based on the average shares outstanding methodology.
(j) The Pilot Administration Shares have been redesignated the Pilot Class A
Shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
19
<PAGE> 553
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of the Pilot Kleinwort Benson International
Equity Fund:
We have audited the accompanying statement of assets and liabilities of the
Pilot Kleinwort Benson International Equity Fund of The Pilot Funds (a
Massachusetts business trust), including the portfolio of investments as of
August 31, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for the periods presented, and the
financial highlights for the periods ended August 31, 1995, 1994 and 1993. 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. The financial
highlights for each of the two years in the period ended December 31, 1992, were
audited by other auditors whose report dated January 29, 1993, expressed an
unqualified opinion on those financial highlights.
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 Kleinwort Benson International Equity Fund as of August 31, 1995, the
results of its operations and the changes in its net assets for the periods
presented and the financial highlights for the periods ended August 31, 1995,
1994 and 1993 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
October 16, 1995
TAX STATUS OF DIVIDENDS (UNAUDITED)
- ------------------------------------
Pilot Kleinwort Benson International Equity Fund has determined that all
distributions paid during the year ended August 31, 1995 were paid from net
investment income and capital gains and are subject to federal income tax.
20
<PAGE> 554
PART C
OTHER INFORMATION
ITEM 11. FINANCIAL DATA SCHEDULES
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
The Financial Statements filed as part of this Registration Statement
are as follows:
Included in the Prospectus:
- Financial Highlights
Included in the Statements of Additional Information:
- Portfolio of Investments for the fiscal year ended
August 31, 1995
- Statements of Assets and Liabilities for the fiscal
year ended August 31, 1995
- Statements of Operations for the fiscal year ended
August 31, 1995
- Statements of Changes in Net Assets for the fiscal year
ended August 31, 1995
- Notes to Financial Statements for the fiscal year ended
August 31, 1995
(b) EXHIBITS
The following exhibits are incorporated herein by reference unless
otherwise noted or are not required to be filed:
1(a). Agreement and Declaration of Trust, dated July 14, 1982, filed
as Exhibit 1 to Registrar's Registration Statement on Form N-1A.
1(b). Form of Amendment No. 1 to Agreement and Declaration of Trust,
dated August 4, 1982, filed as Exhibit 1(a) to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1.
1(c). Amendment No. 2 to Agreement and Declaration of Trust, dated
October 27, 1989, filed as Exhibit 1(b) to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form N-1A.
1(d). Amendment No. 3 to Agreement and Declaration of Trust, dated
January 1, 1991, to Permit Establishment of Mandatory Retirement Age
of Trustees, filed as Exhibit 1(e) to Post-Effective Amendment No. 14
to Registrant's Registration Statement on Form N-1A.
1(f). Amendment to Agreement and Declaration of Trust to Establish
and Designate Shares of the Short-Term Tax-Exempt Portfolio, filed as
Exhibit 1(f) to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A.
1(g). Form of 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. 17 to Registrant's Registration
Statement on Form N-1A.
4
<PAGE> 555
1(h). Amendment to Agreement and Declaration of Trust to Redesignate
Units of the Taxable Bond Portfolio, Intermediate-Term Tax-Exempt
Portfolio, Tax-Exempt Portfolio, Equity Income Portfolio and
International Equity Portfolio, filed as Exhibit 1(h) to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A.
1(i). Amendment to Agreement and Declaration of Trust to Establish
and Designate Shares of the Short-Term Tax-Exempt Diversified
Portfolio, filed as Exhibit 1(i) to Post-Effective Amendment No. 18
to Registrant's Registration Statement on Form N-1A.
1(j). Amendment to Agreement and Declaration of Trust to Redesignate
Shares of the International Equity Portfolio, filed as Exhibit 1(j)
to Post-Effective Amendment No. 19 to Registrant's Registration
Statement on Form N-1A.
1(k). Amendment to Agreement and Declaration of Trust, dated May 27,
1994, to Change the Name of the Trust and to Redesignate Shares and
Classes, filed as Exhibit 1(k) to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A.
1(m). Redesignation of Series, Designation of New Series and
Designation of New Classes, Filed as Exhibit 1(m) to Post-Effective
Amendment No. 23 to Registrant's Registration Statement on Form N-1A.
1(n). Amendment to Agreement and Declaration of Trust to designate
Shares of Small Capitalization Equity Fund - to be filed by
Amendment.
2(a). By-laws, filed as Exhibit 2 to Registrant's Registration
Statement on Form N-1A.
2(b). Amendment to Section 6.3 of the By-laws, filed as Exhibit 2(a)
to Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A.
2(c). Amendment to Section 3.7 of the By-laws, filed as Exhibit 2(b)
to Post-Effective Amendment No. 8 to Registrant's Registration
Statement on Form N-1A.
3. Not applicable.
5(a). Investment Advisory Agreement dated June 1, 1994 between
Registrant, on behalf of the Short-Term Diversified Assets Portfolio,
and Boatmen's Trust Company, filed as Exhibit 5(a) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A.
5(b). Investment Advisory Agreement dated June 1, 1994 between
Registrant, on behalf of the Short-Term U.S. Treasury Portfolio, and
Boatmen's Trust Company, filed as Exhibit 5(b) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A.
5(c). Advisory Agreement between Registrant, on behalf of the
Centerland Kleinwort Benson International Equity Portfolio, and
Boatmen's Trust Company, filed as Exhibit 5(h) to Post-Effective
Amendment No. 21 to Registrant's Registration Statement on Form N-1A.
5(d). Investment Management Agreement among Registrant, on behalf of
the Centerland Benson International Equity Portfolio, Boatmen's
Trust Company and Kleinwort Benson International Investment Limited,
filed as Exhibit 5(i) to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A.
5(e). Investment Advisory Agreement between Registrant on behalf of
the Pilot Small Capitalization Equity Fund, and Boatmen's Trust
Company - to be filed by Amendment.
6(a). Distribution Agreement dated as of March 31, 1994 between
Registrant and Concord Financial Group, Inc., filed as Exhibit 6 to
Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A.
6(b). Rule 18f-3 Multiple Class Plan - filed as Exhibit 6(b) to
Post-Effective Amendment No. 25 to Registrant's Registration
Statement on Form N-1A.
5
<PAGE> 556
7. Not Applicable.
8(a). Custodian Agreement dated November 24, 1982 between Registrant
and State Street Bank and Trust Company, filed as Exhibit 8 to
Post-effective Amendment No. 3 to Registrant's Registration Statement
on Form N-1A.
8(b). Letter agreement dated November 24, 1982 between Registrant
and State Street bank and Trust Company pertaining to fees payable by
Registrant pursuant to the Custodian Agreement, filed as Exhibit 8(a)
to Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A.
8(c). Letter Agreement dated April 4, 1983 between Registrant and
State Street Bank & Trust Company pertaining to the latter's
designation of Bank of America, N.t. and S.A. as its sub-custodian
and certain other matters, filed as Exhibit 8(b) to Post-Effective
Amendment No. 1 to Registrant's Statement on Form N-1A.
8(d). Form of Amendment No. 1 dated January 1, 1985 to the Custodian
Agreement between Registrant and State Street Bank and Trust Company,
filed as Exhibit 8(d) to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Fn Form N-1A.
8(e). Form of Amendment No. 2 dated March 21, 1985 to the Custodian
Agreement between Registrant and State Street Bank and Trust Company,
filed as Exhibit 8(e) to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A.
8(f). Letter Agreement dated August 19, 1986 between Registrant and
State Street Bank and Trust Company pertaining to fees payable by
Registrant pursuant to the Custodian Agreement between Registrant and
State Street Bank and Trust Company, filed as Exhibit 8(e) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement
on Form N-1A.
8(g). Writing Agreement dated June 20, 1987 among State Street Bank
and Trust Company, the Northern Trust Company, and Goldman, Sachs &
Co., filed as Exhibit 8(f) to Post- Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A.
8(h). Form of Letter Agreement between Registrant and State Street
Bank and Trust Company pertaining to the latter's designation of
Security Pacific National Bank as its subcustodian and certain other
matters, filed as Exhibit 8(g) to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A.
8(i). Amendment dated October 20, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company relating
to the use of securities depositories, filed as Exhibit 8(h) to
Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A.
8(j). Amendment dated December 6, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company pertaining
to the appointment of foreign sub-custodians and certain other
matters, filed as Exhibit 8(i) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
8(k). Amendment dated April 19, 1989 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company relating
to so-called "street delivery" custom, filed as Exhibit 8(j) to
Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A.
8(l). Amendment dated September 1, 1989 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company relating
to the indemnification of The Northern Trust Company, filed as
Exhibit 8(k) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A.
8(m). Amendment dated September 1, 1989 to the Wiring Agreement
among State Street Bank and Trust Company, Goldman, Sachs & Co. and
The Northern Trust Company, filed as Exhibit 8(l) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on Form N-1A.
6
<PAGE> 557
8(n). Subcustody Contracts on behalf of the Short-Term Tax- Exempt
Portfolio between (a) State Street Bank and Trust Company and
Manufacturers Hanover Trust Company; and (b) State Street Bank and
Trust Company and Security Pacific National Bank, filed as Exhibit 8
to Post-Effective Amendment No. 15 to Registrant's Registration
Statement on Form N-1A.
9(a). Sub-Administration Agreement dated March 31, 1994 between
Concord Holding Corporation and Goldman, Sachs & Co., filed as
Exhibit 9(b) to Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N1-A.
9(b). Transfer Agency Agreement dated as of June 1, 1994 between
Registrant and Concord Financial Services, Inc., filed as Exhibit
9(c) to Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N1-A.
9(d). Administration Plan of Registrant with respect to the
Administration Class of shares dated May 19, 1991, as revised October
13, 1992, as further revised March 4, 1994 to be effective March 31,
1994, filed as Exhibit 9(e) to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1-A.
9(e). Form of Agreement between Registrant and Service Organizations
with respect to the Administration Plan, filed as Exhibit 9(f) to
Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1-A.
9(f). Form of Agreement and Plan of Reorganization between
Registrant, Kleinwort Benson Investment Strategies Fund and Kleinwort
Benson International Investment Limited, filed as Exhibit 9(e) to
Post-Effective Amendment No. 19 to Registrant's Registration
Statement on Form N-1A.
10. Opinion of Dechert Price & Rhoads, Counsel to Registrant, filed
with Registrant's Notice pursuant to Rule 24f-2 on October 30, 1995.
11. Consents of Arthur Andersen LLP and Ernst & Young LLP - Filed
herewith.
12. Not Applicable.
13. Not Applicable.
14(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-1-A.
14(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-1-A.
14(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-1-A.
14(d). Agreement between Concord Financial Group, Inc. and Service
Organizations with respect to the Distribution Plan for Class A
Shares, filed as Exhibit 15(d) to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1-A.
14(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-1-A.
14(f). Form of Agreement between Concord Financial Group, Inc. and
Service Organizations with respect to the Distribution Plan for Class
B Shares, filed as Exhibit 15(f) to Post-Effective Amendment No. 22
to Registrant's Registration Statement on Form N-1-A.
7
<PAGE> 558
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
See Item 29(a) below.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF DECEMBER 14, 1995
<TABLE>
<CAPTION>
Fund Name Total Active Shareholders
--------- -------------------------
<S> <C>
Municipal Bond
Pilot Shares 21
Class A Shares 27
Class B Shares 19
Intermediate Municipal Bond
Pilot Shares 3
Class A Shares 6
Class B Shares N/A
U.S. Government Securities
Pilot Shares 4
Class A Shares 14
Class B Shares 18
Intermediate U.S. Government Securities
Pilot Shares 13
Class A Shares 27
Class B Shares N/A
Equity Income
Pilot Shares 3
Class A Shares 53
Class B Shares 74
Growth & Income
Pilot Shares 15
Class A Shares 181
Class B Shares 90
Pilot Short Term Diversified Assets Fund
Pilot Shares 5
Administrative Shares 420
Investor Shares 272
Pilot Short Term U.S. Treasury Fund
Pilot Shares 6
Administration Shares 351
Investor Shares 645
Pilot Missouri Tax Exempt Fund
Pilot Shares 352
Administration Shares 15
Investor Shares 48
Pilot Short Term Tax Exempt Diversified Fund
Pilot Shares 1
Administration Shares 23
Investor Shares 1
</TABLE>
<PAGE> 559
<TABLE>
<CAPTION>
Fund Name Total Active Shareholders
--------- -------------------------
<S> <C>
Pilot International Equity Fund
Pilot Shares 17
Class A Shares 1,160
Total: 3,884
</TABLE>
Item 27. INDEMNIFICATION.
Article VI of the Registrant's Agreement and Declaration of Trust provides
for indemnification of the Registrant's Trustees and officers under certain
circumstances. A copy of such Agreement and Declaration of Trust was filed as
Exhibit 1 to Registrant's Statement on Form N- 1A.
Paragraph 8 of each Investment Advisory Agreement between the Registrant
and Boatmen's Trust Company (other than the Advisory Agreement with respect to
the Pilot Kleinwort Benson International Equity Fund) provides for
indemnification of Boatmen's Trust Company or, in lieu thereof, contribution by
the Registrant, under certain circumstances. A copy of the Advisory Agreement
for the Short-Term Diversified Assets, Short-Term U.S. Treasury, Short-Term Tax
Exempt Diversified, and Short-Term Tax Exempt was filed as Exhibits 5(a), 5(b),
5(c), 5(d), to Post-Effective Amendment No. 22 to the Registrant's Registration
Statement on Form N-1A. A copy of the Investment Advisory Agreement for the
Growth and Income, Equity Income, Intermediate U.S. Government Securities, U.S.
Government Securities, Intermediate Municipal Bond and Municpal Bond Portfolios
is filed herewith.
Paragraph 7 of the Advisory Agreement between the Registrant and Boatmen's
Trust Company with respect to the Pilot Kleinwort Benson International Equity
Fund provides for indemnification of Boatmen's Trust Company or, in lieu
thereof, contribution by the Registrant, under certain circumstances. A copy
of the Advisory Agreement was filed as Exhibit 5(f) to Post-Effective Amendment
No. 21 to the Registrant's Registration Statement on Form N-1A.
Kleinwort Benson International Equity Fund, Boatmen's Trust Company and
Kleinwort Benson Investment Management Americas Inc. (formerly Kleinwort Benson
International Investment Limited) provides for indemnification of Kleinwort
Benson Investment Management Americas Inc. or, in lieu thereof, contribution by
the Registrant, under certain circumstances. A copy of the Investment
Management Agreement was filed as Exhibit 5(i) to Post-Effective Amendment No.
21 to Registrant's Registration Statement on Form N-1A.
Article V, Section 3, of the Distribution Agreement between Registrant and
Pilot Funds Distributors, Inc. or its affiliate Concord Financial Group, Inc.
provides for the indemnification of Pilot Funds Distributors, Inc. or its
affiliate Concord Financial Group under certain circumstances. A copy of the
Distribution Agreement was filed as Exhibit 6 to Post-Effective Amendment No.
22 to Registrant's Registration Statement on Form N-1-A.
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.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
The business and other connections of the directors and officers of
Kleinwort Benson Investment Management Americas Inc. formerly Kleinwort Benson
International Investment Limited ("KBI") are listed in the Form ADV of
Kleinwort Benson Investment Management Americas, Inc. as currently on file with
the Commission (File No. 801-15027), the text of which is hereby incorporated
by reference.
The business and other connections of the directors and certain senior
executive officers of Boatmen's Trust Company are:
<TABLE>
<CAPTION>
POSITION WITH
BOATMEN'S TRUST
NAME COMPANY POSITION AND NAME OF OTHER BUSINESS
- ---- ------- -----------------------------------
<S> <C> <C>
Howard F. Baer Director Retired
32 North Kings Highway, Suite 504
St. Louis, Missouri 63108
</TABLE>
<PAGE> 560
<TABLE>
<S> <C> <C>
Clarence C. Barksdale Director Vice Chairman
Washington University
7425 Forsyth Boulevard
Campus Box 1227
St. Louis, Missouri 63105
Gerald D. Blatherwick Director Retired
26 Fordyce Lane
St. Louis, Missouri 63124
Stephen F. Brauer Director President
Hunter Engineering Company
11250 Hunter Drive
Bridgeton, Missouri 63004
Mary L. Burke, Ph.D. Director Head of School
Whitfield School
175 South Mason Road
St. Louis, Missouri 63141
George K. Conant Director Tri-Star Supply, Inc.
10435 Baur Boulevard
St. Louis, Missouri 63132
Andrew B. Craig, III Director Chairman and Chief Executive Officer
Boatmen's Bancshares, Inc.
One Boatmen's Plaza
St. Louis, Missouri 63101
Donald Danforth, Jr. Director President
Danforth Agri-Resources Inc.
700 Corporate Park Drive, Suite 330
St. Louis, Missouri 63105-42099
Martin E. Galt, III Director and Chairman of the Board, President, and
President Chief Executive Officer
Boatmen's Trust Company
100 North Broadway
St. Louis, Missouri 63102
A. William Hager Director Chairman of the Board
Hager Hinge Company
139 Victor Street
St. Louis, Missouri 63104
Samuel B. Hayes, III Director President, Boatmen's Bancshares, Inc.
The Boatmen's National Bank of St. Louis
One Boatmen's Plaza
St. Louis, Missouri 63101
Robert E. Kresko Director Pierre Laclede Center
7701 Forsyth, Suite 680
St. Louis, Missouri 63105
John Peters McCarthy Director Retired
6 Robin Hill Lane
St. Louis, Missouri 63124
James S. McDonnell, III Director Retired
40 Glens Eagles Drive
St. Louis, Missouri 63124
</TABLE>
<PAGE> 561
<TABLE>
<S> <C> <C>
John B. McKinney Director President, Chief Executive Officer
Laclede Steel Company
One Metropolitan Square, 15th Floor
St. Louis, Missouri 63102
Reuben M. Morriss, III Director Retired
10048 Litzsinger Road
St. Louis, Missouri 63124
William C. Nelson Director Chairman, President and Chief Executive Officer
Boatmen's First National Bank of Kansas City
10th & Baltimore
P.O. Box 419038
Kansas City, Missouri 64183
William A. Peck, M.D. Director Executive Vice Chancellor and Dean
Washington University School of Medicine
660 South Euclid Avenue, Box 8106
St. Louis, Missouri 63110
W. R. Persons Director 200 South Bemiston Avenue
Suite 308
St. Louis, Missouri 63105
Jerry E. Ritter Director Executive Vice President, Chief Financial Officer
and Chief Administrative Officer
Anheuser-Busch Companies, Inc.
One Busch Place
St. Louis, Missouri 63118
Louis S. Sachs Director Chairman
Sachs Properties, Inc.
P.O. Box 7104
St. Louis, Missouri 63177
Hugh Scott, III Director Chairman and Chief Executive Officer
Western Diesel Services, Inc.
101 South Hauley, Suite 1910
St. Louis, Missouri 63105
Richard W. Shomaker Director Retired
14181 Woods Mill Cove
Chesterfield, Missouri 63017
Brice R. Smith, Jr. Director Chairman of the Board
Sverdrup Corporation
13723 Riverport Drive
Maryland Heights, Missouri 63043
William D. Stamper Director President
William D. Stamper Company
7777 Bonhomme, Suite 1006
St. Louis, Missouri 63105
Janet M. Weakley Director President
Janet McAfee Inc. Real Estate
9889 Clayton Road
St. Louis, Missouri 63124
Gordon E. Wells Director Retired
3121 West 67th Terrace
Shawnee Mission, Kansas 66208
</TABLE>
<PAGE> 562
<TABLE>
<S> <C> <C>
Eugene F. Williams, Jr. Director Retired
515 Olive Street, Suite 1505
St. Louis, Missouri 63101
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Pilot Funds Distributors, Inc., which is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035, will act as exclusive
distributor for the Registrant. The distributor is registered
with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities
Dealers.
(b) To the best of Registrant's knowledge, the directors and
officers of PFD are as follows:
<TABLE>
<CAPTION>
NAMES POSITIONS AND OFFICES WITH POSITIONS AND
PRINCIPAL BUSINESS ADDRESSES CONCORD FINANCIAL GROUP, INC. OFFICES WITH REGISTRANT
- ---------------------------- ----------------------------- -----------------------
<S> <C> <C>
Richard E. Stierwalt Chairman and None
125 West 55th Street Chief Executive Officer
New York, New York 10019
William B. Blundin Director and Vice Chairman None
125 West 55th Street
New York, New York 10019
Richard E. Dickinson Director None
235 Montgomery Street
San Francisco, CA 94104
Standish O'Grady Director None
One Bush Street
San Francisco, CA 94104
Timothy M. Spicer Managing Director None
235 Montgomery Street
San Francisco, CA 94104
Mary Mugurdichian Managing Director None
125 West 55th Street
New York, NY 10019
Susan L. West Chief Operating Officer President
125 West 55th Street
New York, New York 10019
Ann Bergin Vice President Vice President
125 West 55th Street
New York, New York 10019
Irimga McKay Senior Vice President None
1230 Columbia Street
Fifth Floor, Suite 500
San Diego, CA 92101
</TABLE>
(c) Not Aapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
(1) Concord Holding Corporation, 3435 Stelzer Road, Columbus, Ohio
43219-3035 (Registrant's Declaration of Trust, By-laws and
minute books and records relating to the Administrator).
(2) Pilot Funds Distributors, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219-3035 (records relating to the Distributor).
12
<PAGE> 563
(3) Boatmen's Trust Company, 100 North Broadway, St. Louis,
Missouri 63102 (records relating to Adviser and Subadviser).
(4) Kleinwort Benson Investment Management Americas Inc. 200 Park
Avenue, New York, New York 10166 (records relating to
Investment Manager).
(5) State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171 (records relating to Custodian and
Fund Accounting Agent).
(6) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to Transfer Agent).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to include Management's Discussion
of Fund Performance, as required by Item 5A of Form N-1A, in
the Annual Report to Shareholders of the Small Capitalization
Equity Fund.
13
<PAGE> 564
SIGNATURES
Pursuant to the requirements of the Securities Act 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Columbus and State of Ohio
on the 27th day of December, 1995. The undersigned hereby certifies that this
Amendment meets all the requirements for effectiveness pursuant to paragraph
(b) of Rule 485 under The Securities Act of 1933.
THE PILOT FUNDS
By: /s/ Susan L. West
--------------------------
Susan L. West, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Susan L. West President December 27, 1995
- ------------------------ (Principal Executive
Susan L. West Officer)
/s/ Martin R. Dean Treasurer December 27, 1995
- ------------------------ (Principal Accounting
Martin R. Dean Officer and Principal
Financial Officer)
J. HORD ARMSTRONG, III* Trustee December 27, 1995
- ------------------------
J. Hord Armstrong, III
DAVID HOLFORD BENSON* Trustee December 27, 1995
- ------------------------
David Holford Benson
LEE F. FETTER* Trustee December 27, 1995
- ------------------------
Lee F. Fetter
HENRY O. JOHNSTON* Trustee December 27, 1995
- ------------------------
Henry O. Johnston
L. WHITE MATTHEWS, III* Trustee December 27, 1995
- ------------------------
L. White Matthews, III
NICHOLAS G. PENNIMAN* Trustee December 27, 1995
- ------------------------
Nicholas G. Penniman
/s/ Susan L. West
- ------------------------
Susan L. West, Attorney-
in-fact
</TABLE>
<PAGE> 565
EXHIBITS
EXHIBIT 11(a) Consent of Arthur Andersen LLP
EXHIBIT 11(b) Consent of Ernst & Young LLP
Exhibit 27 Financial Data Schedule(s)
(a) Short Term Diversified Assets Fund (Pilot Shares)
(b) Short Term Diversified Assets Fund (Administration Shares)
(c) Short Term Diversified Assets Fund (Investor Shares)
(d) Equity Income Fund (Pilot Shares)
(e) Growth and Income Fund (Class A Shares)
(f) Growth and Income Fund (Class B Shares)
(g) Growth and Income Fund (Pilot Shares)
(h) Growth and Income Fund (Class A Shares)
(i) Growth and Income Fund (Class B Shares)
(j) Intermediate U.S. Gov't Securities Fund (Pilot Shares)
(k) Intermediate U.S. Gov't Securities Fund (Class A Shares)
(l) Intermediate Municipal Bond Fund (Pilot Shares)
(m) Intermediate Municipal Bond Fund (Class A Shares)
(n) Klienwort Benson Int'l Equity Fund (Pilot Shares)
(o) Klienwort Benson Int'l Equity Fund (Class A Shares)
(p) Missouri Short-Term Tax Exempt Fund (Pilot Shares)
(q) Missouri Short-Term Tax Exempt Fund (Administration Shares)
(r) Missouri Short-Term Tax Exempt Fund (Investor Shares)
(s) Municipal Bond Fund (Pilot Shares)
(t) Municipal Bond Fund (Class A Shares)
(u) Municipal Bond Fund (Class B Shares)
(v) Short-Term U.S. Treasury Fund (Pilot Shares)
(w) Short-Term U.S. Treasury Fund (Administration Shares)
(x) Short-Term U.S. Treasury Fund (Investor Shares)
(y) Short-Term Tax-Exempt Diversified (Pilot Shares)
(z) Short-Term Tax-Exempt Diversified (Administration Shares)
(aa) Short-Term Tax-Exempt Diversified (Investor Shares)
(bb) U.S. Gov't Bond Fund (Pilot Shares)
(cc) U.S. Gov't Bond Fund (Class A Shares)
(dd) U.S. Gov't Bond Fund (Class B Shares)
<PAGE> 1
Exhibit 11(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Pilot Funds:
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 16, 1995
incorporated by reference in Post-Effective Amendment No. 28 and Amendment
No. 29 to Registration Statement File Nos. 2-78440 and 811-3517, respectively.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 26, 1995
<PAGE> 1
Exhibit 11(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Pilot and Pilot Class A Shares' Prospectuses and
"Independent Accountants and Counsel" in the Pilot and Pilot Class A Shares'
Statements of Additional Information and to the incorporation by reference
therein of our report on the financial statements and financial highlights of
Kleinworth Benson International Equity Fund (a series of Kleinworth Benson
Investment Strategies) dated January 29, 1993, included in this Post-Effective
Amendment No. 28 to Registration Statement No. 2-78440 of The Pilot Funds.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
December 26, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NUMBER> 3-1
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 1,324,239,748
<INVESTMENTS-AT-VALUE> 1,324,239,478
<RECEIVABLES> 4,723,873
<ASSETS-OTHER> 82,659
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,329,046,010
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,786,166
<TOTAL-LIABILITIES> 6,786,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,322,181,194
<SHARES-COMMON-STOCK> 1,322,181,194
<SHARES-COMMON-PRIOR> 1,098,090,391
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 78,650
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,322,259,844
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 76,481,246
<OTHER-INCOME> 0
<EXPENSES-NET> 3,963,090
<NET-INVESTMENT-INCOME> 72,518,156
<REALIZED-GAINS-CURRENT> (126,776)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 72,391,380
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 72,636,233
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,079,682,781
<NUMBER-OF-SHARES-REDEEMED> 5,969,699,418
<SHARES-REINVESTED> 13,612,333
<NET-CHANGE-IN-ASSETS> 123,350,843
<ACCUMULATED-NII-PRIOR> 23,205
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 47,630
<GROSS-ADVISORY-FEES> 1,110,554
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,075,628
<AVERAGE-NET-ASSETS> 1,056,624,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 3-2
<NAME> SHORT-TERM DIVERSIFIED ASSETS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 1,324,239,478
<INVESTMENTS-AT-VALUE> 1,324,239,478
<RECEIVABLES> 4,723,873
<ASSETS-OTHER> 82,659
<OTHER-ITEMS-ASSETS> o
<TOTAL-ASSETS> 1,329,046,010
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,786,166
<TOTAL-LIABILITIES> 6,786,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,322,181,194
<SHARES-COMMON-STOCK> 1,322,181,194
<SHARES-COMMON-PRIOR> 1,098,090,391
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 78,650
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,322,259,844
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 76,481,246
<OTHER-INCOME> 0
<EXPENSES-NET> 3,963,090
<NET-INVESTMENT-INCOME> 72,518,156
<REALIZED-GAINS-CURRENT> (126,776)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 72,391,380
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 72,636,233
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,079,682,781
<NUMBER-OF-SHARES-REDEEMED> 5,969,699,418
<SHARES-REINVESTED> 13,612,333
<NET-CHANGE-IN-ASSETS> 123,350,843
<ACCUMULATED-NII-PRIOR> 23,205
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 47,630
<GROSS-ADVISORY-FEES> 1,110,554
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,075,628
<AVERAGE-NET-ASSETS> 231,688,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 1,324,239,478
<INVESTMENTS-AT-VALUE> 1,324,239,478
<RECEIVABLES> 4,723,873
<ASSETS-OTHER> 82,659
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,329,046,010
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,786,166
<TOTAL-LIABILITIES> 6,786,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,322,181,194
<SHARES-COMMON-STOCK> 1,322,181,194
<SHARES-COMMON-PRIOR> 1,098,090,391
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 78,650
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,322,259,844
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 76,481,246
<OTHER-INCOME> 0
<EXPENSES-NET> 3,963,090
<NET-INVESTMENT-INCOME> 72,518,156
<REALIZED-GAINS-CURRENT> (126,776)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 72,391,380
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 72,636,233
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,079,682,781
<NUMBER-OF-SHARES-REDEEMED> 5,969,699,418
<SHARES-REINVESTED> 13,612,333
<NET-CHANGE-IN-ASSETS> 123,350,843
<ACCUMULATED-NII-PRIOR> 23,205
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 47,630
<GROSS-ADVISORY-FEES> 1,110,554
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,075,628
<AVERAGE-NET-ASSETS> 33,948,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 7
<NAME> EQUITY INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 88,958,573
<INVESTMENTS-AT-VALUE> 99,457,465
<RECEIVABLES> 531,787
<ASSETS-OTHER> 79,002
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,068,254
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 437,248
<TOTAL-LIABILITIES> 437,248
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88,106,966
<SHARES-COMMON-STOCK> 88,106,966
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,025,148
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,498,892
<NET-ASSETS> 99,631,006
<DIVIDEND-INCOME> 2,883,232
<INTEREST-INCOME> 552,351
<OTHER-INCOME> 0
<EXPENSES-NET> 529,138
<NET-INVESTMENT-INCOME> 2,906,445
<REALIZED-GAINS-CURRENT> 1,025,148
<APPREC-INCREASE-CURRENT> 10,498,892
<NET-CHANGE-FROM-OPS> 14,430,485
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,906,445
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 9,726,000
<NUMBER-OF-SHARES-REDEEMED> 900,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 99,631,006
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<GROSS-ADVISORY-FEES> 529,800
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 806,460
<AVERAGE-NET-ASSETS> 98,607,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 6-1
<NAME> GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 98,191,117
<INVESTMENTS-AT-VALUE> 111,003,650
<RECEIVABLES> 285,066
<ASSETS-OTHER> 78,652
<OTHER-ITEMS-ASSETS> o
<TOTAL-ASSETS> 111,367,368
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 586,054
<TOTAL-LIABILITIES> 586,054
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,437,169
<SHARES-COMMON-STOCK> 95,437,169
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,531,612
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,812,533
<NET-ASSETS> 110,781,314
<DIVIDEND-INCOME> 1,764,418
<INTEREST-INCOME> 177,408
<OTHER-INCOME> 0
<EXPENSES-NET> 531,133
<NET-INVESTMENT-INCOME> 1,410,693
<REALIZED-GAINS-CURRENT> 2,531,612
<APPREC-INCREASE-CURRENT> 12,812,533
<NET-CHANGE-FROM-OPS> 16,754,838
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,410,693
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,763,000
<NUMBER-OF-SHARES-REDEEMED> 1,205,000
<SHARES-REINVESTED> 2,000
<NET-CHANGE-IN-ASSETS> 110,781,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 537,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 822,194
<AVERAGE-NET-ASSETS> 697,000
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.14
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.58
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 6-2
<NAME> GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 98,191,117
<INVESTMENTS-AT-VALUE> 111,003,650
<RECEIVABLES> 285,066
<ASSETS-OTHER> 78,652
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111,367,368
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 586,054
<TOTAL-LIABILITIES> 586,054
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,437,169
<SHARES-COMMON-STOCK> 95,437,169
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,531,612
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,812,533
<NET-ASSETS> 110,781,314
<DIVIDEND-INCOME> 1,764,418
<INTEREST-INCOME> 177,408
<OTHER-INCOME> 0
<EXPENSES-NET> 531,133
<NET-INVESTMENT-INCOME> 1,410,693
<REALIZED-GAINS-CURRENT> 2,531,612
<APPREC-INCREASE-CURRENT> 12,812,533
<NET-CHANGE-FROM-OPS> 16,754,838
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,410,693
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,763,000
<NUMBER-OF-SHARES-REDEEMED> 1,205,000
<SHARES-REINVESTED> 2,000
<NET-CHANGE-IN-ASSETS> 110,781,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 537,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 822,194
<AVERAGE-NET-ASSETS> 661,000
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.51
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 6-3
<NAME> GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 98,191,117
<INVESTMENTS-AT-VALUE> 111,003,650
<RECEIVABLES> 285,066
<ASSETS-OTHER> 78,652
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111,367,368
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 586,054
<TOTAL-LIABILITIES> 586,054
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,437,169
<SHARES-COMMON-STOCK> 95,437,169
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,531,612
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,812,533
<NET-ASSETS> 110,781,314
<DIVIDEND-INCOME> 1,764,418
<INTEREST-INCOME> 177,408
<OTHER-INCOME> 0
<EXPENSES-NET> 531,133
<NET-INVESTMENT-INCOME> 1,410,693
<REALIZED-GAINS-CURRENT> 2,531,612
<APPREC-INCREASE-CURRENT> 12,812,533
<NET-CHANGE-FROM-OPS> 16,754,838
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,410,693
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,763,000
<NUMBER-OF-SHARES-REDEEMED> 1,205,000
<SHARES-REINVESTED> 2,000
<NET-CHANGE-IN-ASSETS> 110,781,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 537,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 822,194
<AVERAGE-NET-ASSETS> 109,423,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> 0.17
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 7-1
<NAME> GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 88,958,573
<INVESTMENTS-AT-VALUE> 99,457,465
<RECEIVABLES> 531,787
<ASSETS-OTHER> 79,002
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,068,254
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 437,248
<TOTAL-LIABILITIES> 437,248
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88,106,966
<SHARES-COMMON-STOCK> 88,106,966
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,025,148
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,498,892
<NET-ASSETS> 99,631,006
<DIVIDEND-INCOME> 2,883,232
<INTEREST-INCOME> 552,351
<OTHER-INCOME> 0
<EXPENSES-NET> 529,138
<NET-INVESTMENT-INCOME> 2,906,445
<REALIZED-GAINS-CURRENT> 1,025,148
<APPREC-INCREASE-CURRENT> 10,498,892
<NET-CHANGE-FROM-OPS> 14,430,485
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,906,445
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,726,000
<NUMBER-OF-SHARES-REDEEMED> 900,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 99,631,006
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 529,800
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 806,460
<AVERAGE-NET-ASSETS> 311,000
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 1.12
<PER-SHARE-DIVIDEND> 0.18
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.36
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 7-2
<NAME> GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 88,958,573
<INVESTMENTS-AT-VALUE> 99,457,465
<RECEIVABLES> 531,787
<ASSETS-OTHER> 79,002
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,068,254
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 437,248
<TOTAL-LIABILITIES> 437,248
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88,106,966
<SHARES-COMMON-STOCK> 88,106,966
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,025,148
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,498,892
<NET-ASSETS> 99,631,006
<DIVIDEND-INCOME> 2,883,232
<INTEREST-INCOME> 552,351
<OTHER-INCOME> 0
<EXPENSES-NET> 529,138
<NET-INVESTMENT-INCOME> 2,906,445
<REALIZED-GAINS-CURRENT> 1,025,148
<APPREC-INCREASE-CURRENT> 10,498,892
<NET-CHANGE-FROM-OPS> 14,430,485
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,906,445
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,726,000
<NUMBER-OF-SHARES-REDEEMED> 900,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 99,631,006
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 529,800
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 806,460
<AVERAGE-NET-ASSETS> 713,000
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 1.49
<PER-SHARE-DIVIDEND> 0.18
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.34
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 9-1
<NAME> INTERMEDIATE U.S. GOV'T SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 160,232,195
<INVESTMENTS-AT-VALUE> 165,418,540
<RECEIVABLES> 1,228,313
<ASSETS-OTHER> 419,847
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 167,066,700
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,126,572
<TOTAL-LIABILITIES> 1,126,572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 160,150,713
<SHARES-COMMON-STOCK> 160,150,713
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 603,070
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,186,345
<NET-ASSETS> 165,940,128
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,276,472
<OTHER-INCOME> 0
<EXPENSES-NET> 573,495
<NET-INVESTMENT-INCOME> 6,702,977
<REALIZED-GAINS-CURRENT> 603,070
<APPREC-INCREASE-CURRENT> 5,186,345
<NET-CHANGE-FROM-OPS> 12,492,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,702,977
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,405,000
<NUMBER-OF-SHARES-REDEEMED> 1,520,000
<SHARES-REINVESTED> 3,000
<NET-CHANGE-IN-ASSETS> 165,940,128
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 555,911
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 872,706
<AVERAGE-NET-ASSETS> 165,441,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.44
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 9-2
<NAME> INTERMEDIATE U.S. GOV'T SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 160,232,195
<INVESTMENTS-AT-VALUE> 165,418,540
<RECEIVABLES> 1,228,313
<ASSETS-OTHER> 419,847
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 167,066,700
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,126,572
<TOTAL-LIABILITIES> 1,126,572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 160,150,713
<SHARES-COMMON-STOCK> 160,150,713
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 603,070
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,186,345
<NET-ASSETS> 165,940,128
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,276,472
<OTHER-INCOME> 0
<EXPENSES-NET> 573,495
<NET-INVESTMENT-INCOME> 6,702,977
<REALIZED-GAINS-CURRENT> 603,977
<APPREC-INCREASE-CURRENT> 5,186,345
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,702,977
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,405,000
<NUMBER-OF-SHARES-REDEEMED> 1,520,000
<SHARES-REINVESTED> 3,000
<NET-CHANGE-IN-ASSETS> 165,940,128
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 555,911
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 872,706
<AVERAGE-NET-ASSETS> 499,000
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.46
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 11-1
<NAME> INTERMEDIATE MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 185,772,317
<INVESTMENTS-AT-VALUE> 194,607,128
<RECEIVABLES> 2,568,111
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<TOTAL-ASSETS> 197,490,206
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,048,776
<TOTAL-LIABILITIES> 1,048,776
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 187,273,541
<SHARES-COMMON-STOCK> 187,273,541
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 333,078
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,834,811
<NET-ASSETS> 196,441,430
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,653,701
<OTHER-INCOME> 0
<EXPENSES-NET> 807,620
<NET-INVESTMENT-INCOME> 6,846,081
<REALIZED-GAINS-CURRENT> 333,078
<APPREC-INCREASE-CURRENT> 8,834,811
<NET-CHANGE-FROM-OPS> 16,013,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,846,081
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,757,000
<NUMBER-OF-SHARES-REDEEMED> 3,033,000
<SHARES-REINVESTED> 1,000
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<EXPENSE-RATIO> 0.58
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 11-2
<NAME> INTERMEDIATE MUNICIPAL BOND FUND
<S> <C>
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<EXPENSES-NET> 807,620
<NET-INVESTMENT-INCOME> 6,846,081
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<NUMBER-OF-SHARES-SOLD> 21,757,000
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<NET-CHANGE-IN-ASSETS> 196,441,430
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<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 0.73
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 1-1
<NAME> KLIENWORTH BENSON INT'L EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
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<INVESTMENTS-AT-COST> 342898695
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<PAID-IN-CAPITAL-COMMON> 331,792,681
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<ACCUM-APPREC-OR-DEPREC> 47,039,149
<NET-ASSETS> 390,836,512
<DIVIDEND-INCOME> 5,915,820
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<DISTRIBUTIONS-OF-INCOME> 2,414,168
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<NUMBER-OF-SHARES-SOLD> 6,081
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<SHARES-REINVESTED> 490
<NET-CHANGE-IN-ASSETS> 38,285,311
<ACCUMULATED-NII-PRIOR> 1,691,656
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,828,628
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,760,153
<AVERAGE-NET-ASSETS> 363,211,814
<PER-SHARE-NAV-BEGIN> 16.34
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<PER-SHARE-NAV-END> 16.24
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 1-2
<NAME> KLIENWORTH BENSON INT'L EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 342898695
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<OTHER-ITEMS-LIABILITIES> 659,205
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<PAID-IN-CAPITAL-COMMON> 331,792,681
<SHARES-COMMON-STOCK> 24,082,556
<SHARES-COMMON-PRIOR> 21,581,171
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<NET-ASSETS> 390,836,512
<DIVIDEND-INCOME> 5,915,820
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<EXPENSES-NET> 4,178,075
<NET-INVESTMENT-INCOME> 2,760,153
<REALIZED-GAINS-CURRENT> 10,827,946
<APPREC-INCREASE-CURRENT> (5,389,060)
<NET-CHANGE-FROM-OPS> 8,199,039
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<SHARES-REINVESTED> 490
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<ACCUMULATED-NII-PRIOR> 1,691,656
<ACCUMULATED-GAINS-PRIOR> 4,920,638
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 2,828,628
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<GROSS-EXPENSE> 27,624,698
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<PER-SHARE-NAV-BEGIN> 16.29
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.17
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.14
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 4-1
<NAME> MISSOURI SHORT-TERM TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
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<INVESTMENTS-AT-COST> 238,215,229
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<PAYABLE-FOR-SECURITIES> 15,125,475
<SENIOR-LONG-TERM-DEBT> 0
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<PAID-IN-CAPITAL-COMMON> 226,647,717
<SHARES-COMMON-STOCK> 226,647,717
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<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 226,610,587
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,909,075
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<EXPENSES-NET> 1,223,705
<NET-INVESTMENT-INCOME> 8,685,370
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1,021,732,285
<NUMBER-OF-SHARES-REDEEMED> 1,047,146,227
<SHARES-REINVESTED> 2,892,628
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<GROSS-ADVISORY-FEES> 685,1998
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,223,705
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<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 4-2
<NAME> MISSOURI SHORT-TERM TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
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<INVESTMENTS-AT-COST> 238,215,229
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<SENIOR-LONG-TERM-DEBT> 0
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<PAID-IN-CAPITAL-COMMON> 226,647,717
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<SHARES-COMMON-PRIOR> 249,169,031
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<NET-ASSETS> 226,610,587
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,909,075
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<EXPENSES-NET> 1,223,705
<NET-INVESTMENT-INCOME> 8,685,370
<REALIZED-GAINS-CURRENT> (26,998)
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<DISTRIBUTIONS-OF-INCOME> 8,686,586
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<NUMBER-OF-SHARES-SOLD> 1,021,732,285
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<SHARES-REINVESTED> 2,892,728
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<GROSS-EXPENSE> 1,223,705
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.69
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 4-3
<NAME> MISSOURI SHORT-TERM TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 239,215,229
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<PAID-IN-CAPITAL-COMMON> 226,647,717
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<SHARES-COMMON-PRIOR> 249,169,031
<ACCUMULATED-NII-CURRENT> 0
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<NET-ASSETS> 226,610,587
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<EXPENSES-NET> 1,223,705
<NET-INVESTMENT-INCOME> 8,685,370
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<NUMBER-OF-SHARES-SOLD> 1,021,732,285
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<GROSS-EXPENSE> 1,223,705
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 10-1
<NAME> MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
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<INVESTMENTS-AT-COST> 143,254,602
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<PAID-IN-CAPITAL-COMMON> 142,395,854
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<ACCUMULATED-NET-GAINS> 338,880
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<ACCUM-APPREC-OR-DEPREC> 8,991,432
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<PER-SHARE-NAV-END> 10.70
<EXPENSE-RATIO> 0.67
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 10-2
<NAME> MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
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<INVESTMENTS-AT-COST> 143,254,602
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<ACCUMULATED-NET-GAINS> 333,880
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<ACCUM-APPREC-OR-DEPREC> 8,991,432
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<EXPENSES-NET> 736,515
<NET-INVESTMENT-INCOME> 6,200,580
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 10-3
<NAME> MUNICIPAL BOND FUND
<S> <C>
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 2-1
<NAME> SHORT-TERM U.S. TREASURY FUND
<S> <C>
<PERIOD-TYPE> YEAR
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 2-2
<NAME> SHORT-TERM U.S. TREASURY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
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<INVESTMENTS-AT-COST> 1,544,518,135
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<SHARES-COMMON-PRIOR> 1,198,585,498
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<EXPENSES-NET> 3,859,655
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.48
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 2-3
<NAME> SHORT-TERM U.S. TREASURY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
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<PER-SHARE-NAV-END> 1.00
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 5-1
<NAME> SHORT-TERM TAX-EXEMPT DIVERSIFIED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
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<SHARES-COMMON-PRIOR> 391,096,946
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<EXPENSES-NET> 1,143,850
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<NUMBER-OF-SHARES-SOLD> 601,226,465
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 5-2
<NAME> SHORT-TERM TAX-EXEMPT DIVERSIFIED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 5-3
<NAME> SHORT-TERM TAX-EXEMPT DIVERSIFIED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704178
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 8-1
<NAME> US GOVT. BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> THE PILOT FUNDS
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