Registration No. 2-90309
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ ___
Post-Effective Amendment No. 24 X
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 X
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CARILLON FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1876 Waycross Road, Cincinnati, Ohio 45240
(Address of Principal Executive Offices)
(513) 595-2600
(Registrant's Telephone Number)
John F. Labmeier, Esq.
The Union Central Life Insurance Company
P.O. Box 40888
Cincinnati, Ohio 45240
(Name and Address of Agent for Service)
Copy to:
Jones and Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson St., N.W.
Washington, D.C. 20007
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It is proposed that this filing will become effective (check
appropriate box)
__ immediately upon filing pursuant to paragraph (b) of Rule 485
__ on (date) pursuant to paragraph (b) of Rule 485
__ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
__ on (date) pursuant to paragraph (a)(1) of Rule 485
X 75 days after filing pursuant to paragraph (a)(2) of Rule 485
__ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
__ This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
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This amendment No. 24 under the Securities Act of 1933 and
Amendment No. 25 under the Investment Company Act of 1940, to
the Registration Statement on Form N-1A of Carillon Fund, Inc.,
is filed solely to add two prospectuses and statements of
additional information for newly created portfolios and does not
otherwise delete, amend, or supersede any prospectus, statement
of additional information, exhibit, undertaking, or other
information contained in the Registration Statement.
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500 INDEX FUND
S&P MIDCAP 400 INDEX FUND
RUSSELL 2000 SMALL CAP INDEX FUND
NASDAQ 100 INDEX FUND
BALANCED INDEX FUND
LEHMAN AGGREGATE BOND INDEX FUND
EQUITY FUND
MICRO-CAP FUND
BOND FUND
SHORT-TERM GOVERNMENT FUND
HIGH YIELD BOND FUND
EMERGING MARKETS BOND FUND
PROSPECTUSES
DECEMBER 27, 1999
CARILLON FUND, INC.
<PAGE>
December 27, 1999
CARILLON FUND, INC.
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TABLE OF CONTENTS
INTRODUCTION..................................................
FUND PROFILES ................................................
S&P 500 INDEX FUND PROFILE .................................
S&P MIDCAP 400 INDEX FUND PROFILE ..........................
RUSSELL 2000 SMALL CAP INDEX FUND PROFILE ..................
NASDAQ 100 INDEX FUND PROFILE ..............................
BALANCED INDEX FUND PROFILE ...............................
LEHMAN AGGREGATE BOND INDEX FUND PROFILE ..................
EQUITY FUND PROFILE .......................................
MICRO-CAP FUND PROFILE ....................................
BOND FUND PROFILE .........................................
SHORT-TERM GOVERNMENT FUND PROFILE ........................
HIGH YIELD BOND FUND PROFILE ..............................
EMERGING MARKETS BOND FUND PROFILE ........................
FEES AND EXPENSES OF THE FUND ...............................
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS .............
FOREIGN SECURITIES ........................................
FOREIGN CURRENCY TRANSACTIONS .............................
HIGH YIELD BONDS ..........................................
REPURCHASE AGREEMENTS .....................................
REVERSE REPURCHASE AGREEMENTS .............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS ........
OPTIONS ON SECURITIES INDICES .............................
COLLATERALIZED MORTGAGE OBLIGATIONS .......................
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES................
LENDING FUND SECURITIES ...................................
OTHER INFORMATION .........................................
FUND MANAGEMENT .............................................
INVESTMENT ADVISER ........................................
ADVISORY FEE ..............................................
EXPENSES ..................................................
CAPITAL STOCK .............................................
SHAREHOLDER INFORMATION .....................................
PRICING OF FUND SHARES ....................................
PURCHASE OF SHARES ........................................
REDEMPTION OF SHARES ......................................
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ..................
FEDERAL TAXES ...............................................
STATE AND LOCAL TAXES .......................................
PREPARING FOR YEAR 2000 .....................................
S&P, FRANK RUSSELL AND NASDAQ DISCLAIMERS ...................
FINANCIAL HIGHLIGHTS ........................................
APPENDIX A: RATINGS ........................................
CORPORATE BOND RATINGS ....................................
COMMERCIAL PAPER RATINGS ..................................
APPENDIX B: S&P 500, S&P MIDCAP 400, RUSSELL 2000 AND
NASDAQ 100 INDEX RETURNS ..................................
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE.
NEITHER THE SEC NOR ANY STATE HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INTRODUCTION
This prospectus explains the objectives, risks and strategies of
twelve of the twenty-three Funds comprising Carillon Fund, Inc.
("Carillon Fund"). Each Fund Profile below summarizes important
facts about the Fund, including its investment objective,
strategy, risks and past investment performance. More detailed
information about some of the Funds' investment policies and
strategies is provided after the Profiles, along with
information about Fund expenses for each Fund.
The Funds offer their shares, without sales charge, to The Union
Central Life Insurance Company ("Union Central") and its exempt
separate accounts, as well as to other investors. It is
anticipated that Union Central will have voting control of the
Funds. With voting control, Union Central could make
fundamental and substantial changes (such as electing a new
Board of Directors, changing the investment adviser or advisory
fee, changing a Fund's fundamental investment objectives and
policies, etc.) regardless of the views of other shareholders.
INDEX FUNDS
THE S&P 500 INDEX FUND seeks investment results that correspond
to the total return performance of U.S. common stocks, as
represented by the S&P 500 Index.
THE S&P MIDCAP 400 INDEX PORTFOLIO seeks investment results that
correspond to the total return performance of U.S. common
stocks, as represented by the S&P MidCap 400 Index.
THE RUSSELL 2000 SMALL CAP INDEX FUND seeks investment results
that correspond to the investment performance of U.S. common
stocks, as represented by the Russell 2000 Index.
THE NASDAQ 100 INDEX FUND seeks investment results that
correspond to the investment performance of U.S. common stocks,
as represented by the Nasdaq-100 Index.
THE BALANCED INDEX FUND seeks investment results, with respect
to 60% of its assets, that correspond to the total return
performance of U.S. common stocks, as represented by the S&P 500
Index and, with respect to 40% of its assets, that correspond to
the total return performance of investment grade bonds, as
represented by the Lehman Brothers Aggregate Bond Index.
THE LEHMAN AGGREGATE BOND INDEX FUND seeks investment results
that correspond to the total return performance of the bond
market, as represented by the Lehman Brothers Aggregate Bond
Index ("Lehman Bond Index").
MANAGED FUNDS
THE EQUITY FUND seeks primarily long-term appreciation of
capital, without incurring unduly high risk, by investing
primarily in common stocks and other equity securities. Current
income is a secondary objective.
The Micro-Cap Fund seeks long-term appreciation of capital by
investing primarily in the common stocks of domestic companies
with smaller market capitalizations.
THE BOND FUND seeks as high a level of current income as is
consistent with reasonable investment risk, by investing
primarily in long-term, fixed-income, investment-grade corporate
bonds.
THE SHORT-TERM GOVERNMENT FUND seeks to provide a high level of
current income and preservation of capital by investing 100% of
its total assets in bonds issued by the U.S. government and its
agencies.
THE HIGH YIELD BOND FUND seeks high current income and capital
appreciation, secondarily.
THE EMERGING MARKETS BOND FUND seeks income and capital
appreciation.
<PAGE>
FUND PROFILES
S&P 500 INDEX FUND PROFILE
Investment Objective
The S&P 500 Index Fund seeks investment results that correspond
to the total return performance of U.S. common stocks, as
represented by the S&P 500 Index.
Investment Strategies
The S&P 500 Index Fund seeks to substantially replicate the
total return of the securities comprising the S&P 500 Index,
taking into consideration redemptions, sales of additional
shares, and other adjustments described below. Precise
replication of the capitalization weighting of the securities in
the S&P 500 Index is not feasible. The Index Fund will attempt
to achieve, in both rising and falling markets, a correlation of
at least 95% between the total return of its net assets before
expenses and the total return of the S&P 500. A correlation of
100% would represent perfect correlation between the Fund and
index performance. The correlation of the Fund's performance to
that of the S&P 500 should increase as the Fund grows. There
can be no assurance that the Fund will achieve a 95%
correlation.
The S&P 500 Index Fund may invest up to 5% of its assets in
Standard & Poor's Depositary Receipts ("SPDRs "). SPDRs are
units of beneficial interest in a unit investment trust,
representing proportionate undivided interests in a portfolio of
securities in substantially the same weighting as the common
stocks that comprise the S&P 500 Index.
The Fund may invest up to 20% of its assets in S&P 500 Index
futures contracts and options in order to invest uncommitted
cash balances, to maintain liquidity to meet shareholder
redemptions, or minimize trading costs. The Fund may also sell
covered calls on futures contracts or individual securities held
in the Fund.
Although the Adviser will attempt to invest as much of the S&P
500 Index Fund's assets as is practical in stocks included among
the S&P 500 Index and futures contracts and related options, a
portion of the Fund may be invested in money market instruments
pending investment or to meet redemption requests or other needs
for liquid assets. In addition, for temporary defensive
purposes, the Fund may invest in government securities, money
market instruments, or other fixed-income securities, or retain
cash or cash equivalents.
Primary Risks
> Market risk: The S&P 500 Index Fund's total return, like
stock prices generally, will fluctuate within a wide range in
response to stock market trends, so a share of the Fund could
drop in value over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and
periods of falling prices.
> Investment style risk: Stocks of large companies, such as
those listed among the S&P 500 Index occasionally go through
cycles of doing worse (or better) than the stock markets in
general or other types of investments.
> Correlation risk: Because the S&P Index Fund has expenses,
and the S&P 500 Index does not, the Fund may be unable to
replicate precisely the performance of the Index. While the
Fund remains small, it may have a greater risk that its
performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
S&P MIDCAP 400 INDEX FUND PROFILE
Investment Objective
The S&P MidCap 400 Index Fund seeks investment results that
correspond to the total return performance of U.S. common
stocks, as represented by the S&P MidCap 400 Index.
Investment Strategies
The S&P MidCap 400 Index Fund seeks to substantially replicate
the total return of the securities comprising the S&P MidCap 400
Index, taking into consideration redemptions, sales of
additional shares, and other adjustments described below.
Precise replication of the capitalization weighting of the
securities in the S&P MidCap 400 Index is not feasible. The S&P
MidCap 400 Index Fund will attempt to achieve, in both rising
and falling markets, a correlation of at least 95% between the
total return of its net assets before expenses and the total
return of the S&P MidCap 400 Index. A correlation of 100% would
represent perfect correlation between the Fund and index
performance. The correlation of the Fund's performance to that
of the S&P MidCap 400 Index should increase as the Fund grows.
There can be no assurance that the Fund will achieve a 95%
correlation.
The S&P MidCap 400 Index Fund may invest up to 5% of its assets
in Standard & Poor's MidCap Depositary Receipts(R) ("MidCap
SPDR's(R)"). MidCap SPDR's are units of beneficial interest in
a unit investment trust, representing proportionate undivided
interests in a portfolio of securities in substantially the same
weighting as the common stocks that comprise the S&P MidCap 400
Index.
The Fund may invest up to 20% of its assets in S&P MidCap 400
Index futures contracts and options in order to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or minimize trading costs. The Fund
may also sell covered calls on futures contracts or individual
securities held in the Fund. As a temporary investment
strategy, until the Fund reaches $50 million in net assets, the
Fund may invest up to 100% of its assets in such futures and/or
options contracts.
Although the Adviser will attempt to invest as much of the S&P
MidCap 400 Index Fund's assets as is practical in stocks
included among the S&P MidCap 400 Index and futures contracts
and options relating thereto, a portion of the Fund may be
invested in money market instruments pending investment or to
meet redemption requests or other needs for liquid assets. In
addition, for temporary defensive purposes, the Fund may invest
in government securities, money market instruments, or other
fixed-income securities, or retain cash or cash equivalents.
Primary Risks
> Market risk: The S&P MidCap 400 Index Fund's total return,
like stock prices generally, will fluctuate within a wide
range in response to stock market trends, so a share of the
Fund could drop in value over short or even long periods.
Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
> Investment style risk: Stocks of medium sized (mid-cap)
companies, such as those listed among the S&P MidCap 400
Index occasionally go through cycles of doing worse (or
better) than the stock markets in general or other types of
investments.
> Correlation risk: Because the S&P MidCap 400 Index Fund has
expenses, and the S&P MidCap 400 Index does not, the Fund may
be unable to replicate precisely the performance of the
Index. While the Fund remains small, it may have a greater
risk that its performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
RUSSELL 2000 SMALL CAP INDEX FUND PROFILE
Investment Objective
The Russell 2000 Small Cap Index Fund seeks investment results
that correspond to the investment performance of U.S. commons
stocks, as represented by the Russell 2000 Index.
Investment Strategies
The Russell 2000 Small Cap Index Fund seeks to substantially
replicate the total return of the securities comprising the
Russell 2000 Index, taking into consideration redemptions, sales
of additional shares, and other adjustments described below.
Precise replication of the capitalization weighting of the
securities in the Russell 2000 Index is not feasible. The
Russell 2000 Small Cap Index Fund will attempt to achieve, in
both rising and falling markets, a correlation of at least 95%
between the total return of its net assets before expenses and
the total return of the Russell 2000 Small Cap Index. A
correlation of 100% would represent perfect correlation between
the Fund and index performance. The correlation of the Fund's
performance to that of the Russell 2000 Small Cap Index should
increase as the Fund grows. There can be no assurance that the
Fund will achieve a 95% correlation.
Although the Adviser will attempt to invest as much of the
Russell 2000 Small Cap Index Fund's assets as is practical in
stocks included among the Russell 2000 Small Cap Index and
futures contracts and options relating thereto, a portion of the
Fund may be invested in money market instruments pending
investment or to meet redemption requests or other needs for
liquid assets. The Fund may also temporarily invest in S&P 500
Index futures and/or S&P MidCap 400 futures if, in the opinion
of the Adviser, it is not practical to invest in Russell 2000
Small Cap Index futures at a particular time due to liquidity or
price considerations. In addition, for temporary defensive
purposes, the Fund may invest in government securities, money
market instruments, or other fixed-income securities, or retain
cash or cash equivalents.
The Fund may invest up to 20% of its assets in Russell 2000
Small Cap Index futures contracts or options (or S&P MidCap 400
or S&P 500 Index futures contracts and options if, in the
opinion of the Adviser, it is not practical to invest in Russell
2000 Small Cap Index futures at a particular time due to
liquidity or price considerations) in order to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or minimize trading costs. The Fund
may also sell covered calls on futures contracts or individual
securities held in the Fund. As a temporary investment
strategy, until the Fund reaches $50 million in net assets, the
Fund may invest up to 100% of its assets in such futures and/or
options contracts.
Primary Risks
> Market risk: The Russell 2000 Small Cap Index Fund's total
return, like stock prices generally, will fluctuate within a
wide range in response to stock market trends, so a share of
the Fund could drop in value over short or even long periods.
Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
> Investment style risk: Stocks of small sized (small-cap)
companies, such as those listed among the Russell 2000 Index
occasionally go through cycles of doing worse (or better)
than the stock markets in general or other types of
investments.
> Correlation risk: Because the Russell 2000 Small Cap Index
Fund has expenses, and the Russell 2000 Index does not, the
Fund may be unable to replicate precisely the performance of
the Index. While the Fund remains small, it may have a
greater risk that its performance will not match that of the
Index.
Since this is a new Fund, there is no bar chart or performance
table.
NASDAQ 100 INDEX FUND PROFILE
Investment Objective
The Nasdaq 100 Index Fund seeks investment results that
correspond to the investment performance of U.S. common stocks,
as represented by the Nasdaq 100 Index.
Investment Strategies
The Nasdaq 100 Index Fund seeks to substantially replicate the
total return of the securities comprising the Nasdaq 100 Index,
taking into consideration redemptions, sales of additional
shares, and other adjustments described below. Precise
replication of the capitalization weighting of the securities in
the Nasdaq 100 Index is not feasible. The Nasdaq 100 Index Fund
will attempt to achieve, in both rising and falling markets, a
correlation of at least 95% between the total return of its net
assets before expenses and the total return of the Nasdaq 100
Index. A correlation of 100% would represent perfect
correlation between the Fund and index performance. The
correlation of the Fund's performance to that of the Nasdaq 100
Index should increase as the Fund grows. There can be no
assurance that the Fund will achieve a 95% correlation.
The Nasdaq 100 Index Fund may invest up to 5% of its assets in
Nasdaq 100 Shares(R). Nasdaq 100 Shares are units of
beneficial interest in a unit investment trust, representing
proportionate undivided interests in a portfolio of securities
in substantially the same weighting as the common stocks that
comprise the Nasdaq 100 Index.
The Fund may invest up to 20% of its assets in Nasdaq 100 Index
futures contracts and options in order to invest uncommitted
cash balances, to maintain liquidity to meet shareholder
redemptions, or minimize trading costs. The Fund may also sell
covered calls on futures contracts or individual securities held
in the Fund. As a temporary investment strategy, until the Fund
reaches $50 million in net assets, the Fund may invest up to
100% of its assets in such futures and/or options contracts.
Although the Adviser will attempt to invest as much of the
Nasdaq 100 Index Fund's assets as is practical in stocks
included among the Nasdaq 100 Index and futures contracts and
options relating thereto, a portion of the Fund may be invested
in money market instruments pending investment or to meet
redemption requests or other needs for liquid assets. In
addition, for temporary defensive purposes, the Fund may invest
in government securities, money market instruments, or other
fixed-income securities, or retain cash or cash equivalents.
Primary Risks
> Market risk: The Nasdaq 100 Index Fund's total return, like
stock prices generally, will fluctuate within a wide range in
response to stock market trends, so a share of the Fund could
drop in value over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and
periods of falling prices.
> Investment style risk: Stocks of companies or industries
that are heavily weighted in the Nasdaq 100 Index, such as
technology, telecommunications, internet and biotechnology
companies, occasionally go through cycles of doing worse (or
better) than the stock markets in general, as measured by
other more broad-based stock indexes, or other types of
investments.
> Concentration risk: The Nasdaq 100 Index Fund is subject to
the risk of an investment portfolio that may be highly
concentrated in a particular industry (e.g., Technology) and,
due to concentration in sectors characterized by relatively
higher volatility in price performance, may be more volatile
when compared to other broad-based stock indexes. The Nasdaq
100 Index Fund is also subject to the risks specific to the
performance of a few individual component securities that
currently represent a highly concentrated weighting in the
Index (e.g. Microsoft Corporation, Intel Corporation, Cisco
Systems Inc., etc.).
> Correlation risk: Because the Nasdaq 100 Index Fund has
expenses, and the Nasdaq 100 Index does not, the Fund may be
unable to replicate precisely the performance of the Index.
While the Fund remains small, it may have a greater risk that
its performance will not match that of the Index.
> Nondiversification risk: Under securities laws, the Fund is
considered a "nondiversified investment company." The Fund
is, however, subject to diversification limits under federal
tax law that permit it to invest more than 5%, but not more
than 25%, of its assets in a single issuer with respect to up
to 50% of its total assets as of the end of each of the
Fund's tax quarters.
In an effort to closely replicate the performance of the
Nasdaq 100 Index, the Fund will invest its assets in the
individual stocks comprised in the Nasdaq 100 Index.
Furthermore, the investment in the individual stocks in the
Fund will be weighted so that their percentage weighting in
the Fund is approximately the same as their percentage
weighting in the underlying Nasdaq 100 Index. As a result of
this investment strategy, the Nasdaq 100 Index Fund is a
nondiversified Fund.
Notwithstanding the above, the Nasdaq 100 Index Fund intends
to qualify as a Registered Investment Company ("RIC") under
federal tax law. At any point in time, if following the
investment strategy outlined above, of properly weighting the
Fund's investments in individual securities to substantially
replicate the performance of the Nasdaq 100 Index, would put
the Fund in jeopardy of failing the RIC rule on
diversification, the Fund intends to immediately alter its
investment strategy to comply with the RIC rules. Such
alteration would include reducing investment exposure, pro-
rata, to those investments causing the Fund to be in jeopardy
of violating the RIC rules.
Since this is a new Fund, there is no bar chart or performance
table.
BALANCED INDEX FUND PROFILE
Investment Objective
The Balanced Index Fund seeks investment results, with respect
to 60% of its assets, that correspond to the total return
performance of U.S. common stocks, as represented by the S&P 500
Index and, with respect to 40% of its assets, that correspond to
the total return performance of investment grade bonds, as
represented by the Lehman Brothers Aggregate Bond Index.
Investment Strategies
The Fund will invest approximately 60% of its net assets in a
Fund of common stocks, futures (in combination with the
appropriate amount of U.S. Treasury securities as collateral),
and Standard & Poor's Depositary Receipts ("SPDR's") to track
the S&P 500 Index and approximately 40% of its net assets in a
portfolio of investment grade bonds designed to track the Lehman
Brothers Aggregate Bond Index (the "Lehman Brothers Index").
The Fund may also hold cash or cash equivalent securities,
although the amount of cash and cash equivalent securities is
expected to represent a small percentage of the Fund's assets.
The Fund's common stock portfolio seeks to substantially
replicate the total return of the securities comprising the S&P
500 Index, taking into consideration redemptions, sales of
additional shares, and other adjustments described below.
Precise replication of the S&P 500 Index is not feasible. The
Fund will attempt to achieve, in both rising and falling
markets, a correlation of at least 95% between the total return
of its common stock portfolio before expenses and the total
return of the S&P 500. A correlation of 100% would represent
perfect correlation between the Fund and index performance.
There can be no assurance that the Fund will achieve a 95%
correlation.
The Fund may invest up to 5% of its assets in Standard & Poor's
Depositary Receipts(R) ("SPDRs(R)"). SPDR's are units of
beneficial interest in a unit investment trust, representing
proportionate undivided interests in a portfolio of securities
in substantially the same weighting as the common stocks that
comprise the S&P 500 Index.
The Fund's bond portfolio seeks to substantially replicate the
total return of the securities comprising the Lehman Brothers
Aggregate Bond Index taking into consideration redemptions,
sales of additional shares, and other adjustments described
below. Precise replication of the Lehman Aggregate Bond Index
is not feasible due to the large number of securities in the
index. The Fund will invest in a representative sample of fixed
income securities, which, taken together, are expected to
perform similarly to the Lehman Brothers Aggregate Index. The
Fund will attempt to achieve, in both rising and falling
markets, a correlation of at least 95% between the total return
of its bond portfolio before expenses and the total return of
the Lehman Brothers Aggregate Bond Index. A correlation of 100%
would represent perfect correlation between the Fund and index
performance. There can be no assurance that the Fund will
achieve a 95% correlation.
The Fund may invest up to 20% of its assets in financial futures
contracts and options and S&P 500 Index futures and options
contracts in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or minimize
trading costs. The Fund may also sell covered calls on futures
contracts or individual securities held in the Fund. As a
temporary investment strategy, until the Fund reaches $50
million in net assets, the Fund may invest up to 100% of its
assets in such futures and/or options contracts.
Primary Risks
> Stock market risk: The Fund's common stock portfolio, like
stock prices generally, will fluctuate within a wide range in
response to stock market trends, so a share of the Fund could
drop in value over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and
periods of falling prices.
> Investment style risk: Stocks of large companies, such as
those listed among the S&P 500 Index occasionally go through
cycles of doing worse (or better) than the stock markets in
general or other types of investments.
> Interest rate risk: The Fund's bond portfolio is subject to
interest rate risk. Interest rate risk is the potential for
fluctuation in bond prices due to changing interest rates.
Bond prices generally rise when interest rates fall.
Likewise, bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a shorter
maturity. To compensate investors for larger fluctuations,
longer maturity bonds usually offer higher yields than
shorter maturity bonds. Interest rate risk is a risk
inherent in all bonds, regardless of credit quality. The
Fund's bond portfolio has an intermediate-term average
maturity (5 to 15 years), and is therefore expected to have
moderate to high level of interest rate risk.
> Credit risk: The Fund's bond portfolio is subject to credit
risk. Credit risk is the risk that an issuer of a security
will be unable to make payments of principal and/or interest
on a security held by the Fund. When an issuer fails to make
a scheduled payment of principal or interest on a security,
or violates other terms and agreements of a security, the
issuer and security are in default. A default by the issuer
of a security generally has a severe negative affect on the
market value of that security.
The credit risk of the Fund is a function of the credit
quality of its underlying securities. The average credit
quality of the Fund is expected to be very high. Therefore,
the credit risk of the Fund is expected to be low. The
average quality of the Lehman Brothers Aggregate Bond Index,
which the Fund attempts to replicate, was AA2 using Moody's
Investors Service (See Appendix A: Ratings - Corporate Bond
Ratings). Other factors, including interest rate risk and
prepayment risk cause fluctuation in bond prices.
> Income risk: The Fund's bond portfolio is subject to income
risk. Income risk is the risk of a decline in the Fund's
income due to falling market interest rates. Income risk is
generally higher for portfolios with short term average
maturities and lower for portfolios with long term average
maturities. Income risk is also generally higher for
portfolios that are actively traded and lower for portfolios
that are less actively traded. The Fund's bond portfolio is
expected to maintain an intermediate average maturity and
have moderate trading activity. Therefore, income risk is
expected to be moderate.
> Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, and the portfolio manager will be
forced to reinvest the unanticipated repayments at generally
lower interest rates. The Fund's exposure to mortgage-backed
securities and currently callable bonds is generally low to
moderate. Therefore, the prepayment risk of the Fund is
expected to be low to moderate.
> Correlation risk: Because the Balanced Index Fund has
expenses, and the S&P 500 Index and Lehman Brothers Aggregate
Bond Index do not, the Fund may be unable to replicate
precisely the performance of the Index. In addition, the
Fund intends to hold a sampling of both the stocks in the S&P
500 Index and the bonds in the Lehman Brothers Aggregate Bond
Index, rather than exactly matching the market weighting of
each security in its respective index. While the Fund
remains small, it may have a greater risk that its
performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
LEHMAN AGGREGATE BOND INDEX FUND PROFILE
Investment Objective
The Lehman Aggregate Bond Index Fund seeks investment results
that correspond to the total return performance of the bond
market, as represented by the Lehman Brothers Aggregate Bond
Index ("Lehman Bond Index").
The Lehman Bond Index is a market-weighted, intermediate-term
bond index which encompasses U.S. Treasury and agency securities
and investment grade corporate and international (dollar
denominated) bonds.
Investment Strategies
The Lehman Aggregate Bond Index Fund normally will invest at
least 80% of the value of its assets in:
- Obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities; or
- Publicly-traded or 144a debt securities rated BBB- or
BAA3 or higher by a nationally recognized rating service
such as Standard & Poors or Moody's; or
- Cash and cash equivalents.
The Fund may invest up to 20% of its assets in financial futures
contracts or options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
As a temporary investment strategy, until the Fund reaches $50
million in net assets, the Fund may invest up to 100% of its
assets in such futures and/or options contracts.
The Fund will NOT purchase bonds rated below investment grade,
commonly known as junk bonds. However, if a bond held in the
Fund is downgraded to a rating below investment grade, the Fund
may continue to hold the security until such time as the Adviser
deems it most advantageous to dispose of the security.
The Fund will NOT directly purchase common stocks. However, it
may retain up to 5% of the value of its total assets in common
stocks acquired either by conversion of fixed-income securities
or by the exercise of warrants attached thereto. The Fund may
also write covered call options on U.S. Treasury Securities and
options on futures contracts for such securities. A description
of the corporate bond ratings assigned by Standard & Poor's and
Moody's is included in the Appendix.
The Fund will be unable to hold all of the individual securities
which comprise the Lehman Bond Index because of the large number
of securities involved. Therefore, the Fund will hold a
representative sample of the securities designed to replicate
the total return performance of the Lehman Bond Index. The
Fund will attempt to achieve, in both rising and falling
markets, a correlation of at least 95% between the total return
of its net assets before expenses and the total return of the
Lehman Bond Index. A correlation of 100% would represent
perfect correlation between the Fund and index performance. The
correlation of the Fund's performance to that of the Lehman Bond
Index should increase as the Fund grows. There can be no
assurance that the Fund will achieve a 95% correlation.
Although the Adviser will attempt to invest as much of the
Fund's assets as is practical in bonds included in the Lehman
Bond Index, futures contracts and options relating thereto, a
portion of the Fund may be retained in cash or cash equivalents,
or invested in money market instruments pending investment or to
meet redemption requests or other needs for liquid assets.
Primary Risks
> Interest rate risk: Interest rate risk is the potential for
fluctuation in bond prices due to changing interest rates.
Bond prices generally rise when interest rates fall.
Likewise, bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer maturity
generally fluctuates more than bonds with a shorter maturity.
To compensate investors for larger fluctuations, longer
maturity bonds usually offer higher yields than shorter
maturity bonds. Interest rate risk is a risk inherent in all
bonds, regardless of credit quality. Since the Fund is an
intermediate term bond portfolio, the interest rate risk is
expected to be moderate.
> Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal and/or
interest on a security held in the Fund. When an issuer
fails to make a scheduled payment of principal or interest on
a security, or violates other terms and agreements of a
security, the issuer and the security are in default. A
default by the issuer of a security generally has severe
negative affect on the market value of that security. The
credit risk of the Fund is a function of the credit quality
of its underlying securities. The average credit quality of
the Fund is expected to be very high. Therefore, the credit
risk of the Fund is expected to be low.
> Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for portfolios with short term
average maturities and lower for portfolios with long term
average maturities. Income risk is also generally higher for
portfolios that are actively traded and lower for portfolios
that are less actively traded. The Fund maintains an
intermediate average maturity and is expected to be less
actively traded. Therefore, its income risk is expected to
be moderate-to-low.
> Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, and the portfolio manager will be
forced to reinvest the unanticipated repayments at generally
lower interest rates. The Fund's exposure to mortgage-backed
securities and callable bonds is expected to be moderate.
Therefore, the prepayment risk of the Fund is expected to be
moderate.
> Correlation risk: Because the Fund has expenses, and the
Lehman Bond Index does not, the Fund may be unable to
replicate precisely the performance of the Index. While the
Fund remains small, it may have a greater risk that its
performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
EQUITY FUND PROFILE
Investment Objective
The Equity Fund seeks primarily long-term appreciation of
capital, without incurring unduly high risk, by investing
primarily in common stocks and other equity securities. Current
income is a secondary objective.
Investment Strategies
A major portion of the Equity Fund will be invested in common
stocks. The Fund seeks special opportunities in securities that
are selling at a discount from theoretical price/earnings ratios
and that seem capable of recovering from their temporary out-of-
favor status (a "value" investment style). The Fund may invest
all or a portion of its assets in preferred stocks, bonds, con
vertible preferred stocks, convertible bonds, and convertible
debentures. When market conditions for equity securities are
adverse, and for temporary defensive purposes, the Fund may
invest in Government securities, money market instruments, or
other fixed-income securities, or retain cash or cash
equivalents. However, the Fund normally will remain primarily
invested in common stocks.
The Equity Fund's investment strategy is based upon the belief
of the Fund's Adviser that the pricing mechanism of the
securities market lacks total efficiency and has a tendency to
inflate prices of some securities and depress prices of other
securities in different market climates. The Adviser believes
that favorable changes in market prices are more likely to begin
when:
- securities are out-of-favor,
- price/earnings ratios are relatively low,
- investment expectations are limited, and
- there is little interest in a particular security or
industry.
The Adviser believes that securities with relatively low
price/earnings ratios in relation to their profitability are
better positioned to benefit from favorable but generally
unanticipated events than are securities with relatively high
price/earnings ratios which are more susceptible to unexpected
adverse developments.
The Fund may invest up to 20% of its assets in financial futures
contracts and options and stock index futures contracts and
options in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or minimize
trading costs. The Fund may also sell covered calls on futures
contracts or individual securities held in the Fund.
Primary Risks
> Market risk: The Fund's total return, like stock prices
generally, will fluctuate within a wide range in response to
stock market trends. As a result, shares of the Fund could
drop in value over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and
periods of falling prices.
> Financial risk: The Fund's total return will fluctuate with
fluctuations in the earnings stability or overall financial
soundness of the companies whose stock the Fund purchases.
> Investment style risk: The Fund's investment style risks
that returns from "value" stocks it purchases will trail
returns from other asset classes or the overall stock market.
Since this is a new Fund, there is no bar chart or performance
table.
MICRO-CAP FUND PROFILE
Investment Objective
The Micro-Cap Fund seeks long-term appreciation of capital by
investing primarily in the common stocks of domestic companies
with smaller market capitalizations.
Investment Strategies
The Micro-Cap Fund invests at least 70% of its assets in common
stocks of companies with market capitalizations of less than
$250 million at the time of initial purchase and that the
Adviser believes are undervalued in the marketplace. The Fund
seeks current income from dividends, interest and other sources
only when consistent with its primary objective. The Fund
generally invests the remaining 30% of its total assets
similarly, but may invest in other equity securities including
foreign securities. A portion of the Fund may be invested in
money market instruments pending investment or to utilize cash
reserves.
Individual security selection will focus on companies which the
Adviser believes possess above-average levels of profitability,
revenue growth and earnings growth that are selling at
price/earnings ratios below their internal growth rate. A
significant emphasis will be placed on technical analysis in an
effort to identify when a recognition of value occur in the
marketplace.
Primary Risks
> Market risk: The Fund's total return, like stock prices
generally, will fluctuate within a wide range, so a share of
the Fund could drop in value over short or even long periods.
Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
> Investment style risk: Small companies may lack the depth of
management, diversified product offering, financial
resources, and competitive strengths of larger companies. Due
to these and other factors, some small companies may suffer
significant losses. Stocks of small companies may be more
volatile than the stocks of larger companies because of lower
levels of trading volume and wider spreads between the bid
and asked prices of these securities. The prices of the
shares of small companies may move independently of the
values of larger companies such as those which comprise the
Dow Jones Industrial Average and the S&P 500 Index.
> Financial risk: The Fund's total return will fluctuate with
fluctuations in the earnings stability or overall financial
soundness of the companies whose stock the Fund purchases.
Since this is a new Fund, there is no bar chart or performance
table.
BOND FUND PROFILE
Investment Objective
The Bond Fund seeks as high a level of current income as is
consistent with reasonable investment risk, by investing
primarily in long-term, fixed-income, investment-grade corporate
bonds.
Investment Strategies
The Bond Fund normally will invest at least 75% of the value of
its assets in:
- publicly-traded or 144a debt securities rated BBB or BAA3
or higher by a nationally recognized rating service such
as Standard & Poor's or Moody's,
- obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, or
- cash and cash equivalents.
Up to 25% of the Bond Fund's total assets may be invested in:
- debt securities that are unrated or below investment-
grade bonds ("high yield" or "junk" bonds),
- convertible debt securities,
- convertible preferred and preferred stocks, or
- other securities.
The Bond Fund will not directly purchase common stocks. However,
it may retain up to 10% of the value of its total assets in
common stocks acquired either by conversion of fixed-income
securities or by the exercise of warrants attached thereto.
The Fund may invest up to 20% of its assets in financial futures
contracts or options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
A description of the corporate bond ratings assigned by Standard
& Poor's and Moody's is included in the Appendix.
Primary Risks
> Interest rate risk: Interest rate risk is the potential for
fluctuation in bond prices due to changing interest rates.
Bond prices generally rise when interest rates fall.
Likewise, bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a shorter
maturity. To compensate investors for larger fluctuations,
longer maturity bonds usually offer higher yields than
shorter maturity bonds. Interest rate risk is a risk
inherent in all bonds, regardless of credit quality.
The Fund maintains an intermediate-term average maturity, and
is therefore subject to a moderate level of interest rate
risk.
> Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal and/or
interest on a security held by the Fund. When an issuer
fails to make a scheduled payment of principal or interest on
a security, or violates other terms and agreements of a
security, the issuer and security are in default. A default
by the issuer of a security generally has a severe negative
affect on the market value of that security.
The credit risk of the Fund is a function of the credit
quality of its underlying securities. The average credit
quality of the Fund is expected to be very high. Therefore,
the credit risk of the Fund is expected to be low. However,
certain individual securities held in the Fund may have
substantial credit risk. The Fund may contain up to 25% of
securities rated below investment grade. Securities rated
below investment grade generally have substantially more
credit risk than securities rated investment grade.
Securities rated below investment grade are defined as having
a rating below Baa by Moody's Investors Services and below
BBB by Standard & Poor's Corporation (See Appendix A:
Ratings - Corporate Bond Ratings).
> Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for portfolios with short term
average maturities and lower for portfolios with long term
average maturities. Income risk is also generally higher for
portfolios that are actively traded and lower for portfolios
that are less actively traded. The Fund maintains an
intermediate average maturity and is actively traded.
Therefore, income risk is expected to be moderate to high.
> Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, and the Adviser will be forced to
reinvest the unanticipated repayments at generally lower
interest rates. The Fund's exposure to mortgage-backed
securities and currently callable bonds is generally low to
moderate. Therefore, the prepayment risk of the Fund is
expected to be low to moderate. Other factors, including
interest rate risk and credit risk can cause fluctuation in
bond prices.
Since this is a new Fund, there is no bar chart or performance
table.
SHORT-TERM GOVERNMENT FUND PROFILE
Investment Objective
The Short-term Government Fund seeks to provide a high level of
current income and preservation of capital by investing 100% of
its total assets in bonds issued by the U.S. government and its
agencies.
Investment Strategies
The Fund will invest 100% of its total assets in bonds issued
by, or derivatives related to, the U.S. government and its
agencies. The majority of the Fund's holdings will have a
maturity or average life of five years or less. The Fund will
maintain a dollar-weighed average maturity of less than three
years. The Fund may invest up to 20% of its total assets in
financial futures contracts and options in order to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or minimize trading costs. The Fund
will not use these instruments for speculative purposes. The
reasons the Fund will invest in derivatives is to reduce
transaction costs, for hedging purposes, or to add value when
these instruments are favorably priced.
Primary Risks
> Interest rate risk: Interest rate risk is the potential for
fluctuation in bond prices due to changing interest rates.
Bond prices generally rise when interest rates fall.
Likewise, bond prices generally rise when interest rates
rise. Furthermore, the price of bonds with a longer maturity
generally fluctuates more than bonds with a shorter maturity.
The Fund will maintain a short average maturity and is
therefore subject to a low level of interest rate risk.
> Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal
and/or interest on a security held by the Fund. Given that
100% of the assets held by the Fund are issued by the U.S.
government and its agencies, the credit risk to the Fund is
very low.
> Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for short-term bonds.
> Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, resulting in reinvestment of the
unanticipated repayments at generally lower interest rates.
The Fund's exposure to mortgage-backed securities and
callable bonds will be low to moderate.
Since this is a new Fund, there is no bar chart or performance
table.
HIGH YIELD BOND FUND PROFILE
Investment Objective
The High Yield Bond Fund seeks high current income and capital
appreciation, secondarily.
Investment Strategies
The Fund invests primarily in high yield, high risk ("junk")
bonds, with intermediate maturities. For its investments, the
Fund seeks to identify high yield bonds of companies that have
the ability to make timely payments of principal and interest.
Using fundamental credit analysis of companies, the Fund seeks
to invest in companies whose financial condition gives them
greater value relative to other companies in the high yield
market, providing the further potential for capital
appreciation. Consequently, capital appreciation is a secondary
objective of the Fund. The Fund will ordinarily invest at least
65% of its total assets in high yield, high risk bonds, also
known as "junk" bonds.
The Adviser will actively manage the Fund to take advantage of
relative values of various sectors of the high yield market in
order to seek high current income and secondarily, capital
appreciation. Among the factors that are important in the
Adviser's securities selection are credit fundamentals and
technical trading factors. The Adviser researches the bonds it
purchases to make its own determination of the issuer's
creditworthiness and underlying strength. By using this
strategy, the Adviser seeks to outperform the high yield bond
market as a whole by choosing individual securities that may be
overlooked by other investors, or bonds that are likely to
improve in credit quality.
The Adviser makes a decision to sell a portfolio security held
by the Fund when (1) the security has appreciated in value due
to market conditions and the issuing company's financial
condition; (2) the issuing company's financial position
indicates the company will not perform well and the price of the
security could fall; or (3) the Adviser identifies another
security that is potentially more valuable for current income or
capital appreciation compared to securities held by the Fund.
When a corporation or a government entity issues a bond, it
generally submits the security to one or more rating
organizations, such as Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("Standard &
Poor's"). These services evaluate the creditworthiness of the
issuer and assign a rating, based on their evaluation of the
issuer's ability to repay the bond. Bonds with ratings below
Baa (Moody's) or BBB (Standard & Poor's) are considered below
investment grade and are commonly referred to as junk bonds.
Some bonds are not rated at all. The Adviser determines the
comparable rating quality of bonds that are not rated.
High yield, high-risk bonds present both an opportunity and a
danger. These junk bonds generally offer higher interest
payments because the company that issues the bond -- the issuer
- -- is at greater risk of default (failure to repay the bond).
This may be because the issuer is small or new to the market,
the issuer has financial difficulties, or the issuer has a
greater amount of debt.
In response to unfavorable conditions in the high yield bond
market, the Fund may make temporary investments, without
limitation, such as shifting its investments to money market
securities, cash or higher rated bonds, which could cause the
Fund not to meet its principal investment objective and
policies.
The Fund will buy and sell securities based on its overall
objective of achieving the highest possible total return, which
may translate into higher than average portfolio turnover. If
the Fund buys and sells securities frequently, there will be
increased transaction costs and additional taxable gains to
shareholders.
The Fund may have other investments that are not part of its
principal investment strategies. The Fund may invest in loan
participations, convertible securities and preferred stocks.
Other types of investments the Fund may use include
mortgage-backed or asset-backed securities, collateralized
mortgage obligations, stripped mortgage-backed securities,
zero-coupon and pay-in-kind bonds, equity securities, warrants,
private placements, and foreign securities. See the Statement of
Additional Information for more information about these
investments.
Primary Risks
There are numerous and significant risks involved in investing
in high yield securities. While bonds are generally considered
safer than stocks for investors seeking diversification into
high yield markets, there are several types of risks that should
be considered.
Overall, this Fund must be considered a high-risk investment
suitable only for a portion of an individual's portfolio.
The risks described below could have the effect of reducing the
Fund's net asset value, yield or total return:
> Interest rate risk: High yield bonds are sensitive to
interest rate changes. Generally, when interest rates rise,
the prices of these bonds fall and when interest rates fall
the prices of these bonds rise. The longer the maturity of
these bonds, the greater is this impact from interest rate
changes. The value of the Fund's investments also will vary
with bond market conditions. Since the Fund is an
intermediate term bond portfolio, the interest rate risk is
expected to be moderate.
> Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal and/or
interest on a security held by the Fund. When an issuer
fails to make a scheduled payment of principal or interest on
a security, or violates other terms and agreements of a
security, the issuer and security are in default. A default
by the issuer of a security generally has a severe negative
affect on the market value of that security. High yield bonds
are below investment grade instruments because of the
significant risk of issuer default. The credit risk of the
Fund's investments is very high.
> Liquidity and other risks: Other risks of high yield bonds
include the market's relative youth, price volatility,
sensitivity to economic changes, limited liquidity, valuation
difficulties and special tax considerations. There are fewer
investors willing to buy high yield bonds than there are for
higher rated, investment grade securities. Therefore, it may
be more difficult to sell these securities or to receive a
fair market price for them. Because high yield bonds are a
relatively new type of security, there is little date to
indicate how such bonds will behave in a prolonged economic
downturn. However, there is a risk that such an economic
downturn would negatively affect the ability of issuer to
repay their debts, leading to increased defaults and overall
losses to the Fund.
> Foreign securities risk: See the discussion of "External
Risk" in the Emerging Markets Bond Fund Profile on page ___.
Since this is a new Fund, there is no bar chart or performance
table.
EMERGING MARKETS BOND FUND PROFILE
Investment Objective
The Emerging Markets Bond Fund seeks high income and capital
appreciation.
Investment Strategies
The Fund invests primarily in government and corporate bonds of
emerging markets nations. For its investments, the Fund seeks to
identify high yield bonds of financially sound companies that
have the ability to make timely payments of principal and
interest. Using fundamental credit analysis of companies, the
Fund seeks to invest in companies whose financial conditions
gives them greater value relative to other companies in the high
yield market. The Fund also uses a fundamental credit analysis
of the country and government risks of the countries where the
issuers of the bonds are domiciled to identify issuers with
greater value relative to other issuers in the same or other
countries. The Fund invests predominantly in U.S. dollar
denominated bonds. The Fund is nondiversified which means that
up to 50% of the Fund's assets may be invested without
limitation on the amount invested in a single issuer. Normally,
the Fund will not invest more than 5% of its assets in a single
issuer.
The Fund invests at least 65% of its total assets in the
government and corporate debt securities (bonds) of emerging
market nations. In pursuit of maximum income and capital
appreciation, the Fund may invest all of its assets in
high-risk, non-investment grade ("junk") bonds. Before the Fund
invests in a particular country or security, the Adviser applies
a market risk analysis that evaluates factors such as liquidity,
volatility, tax implications, interest rate sensitivity,
counterparty risks and technical market considerations.
To achieve the Fund's total return objectives while reducing
risk, the Fund employs these strategies:
- Invest in a wide variety of issuers, as described
below, to reduce the impact of any single holding on
the Fund's total performance
- Credit analysis of individual issuers through
proprietary research
- Technical analysis of trading and ownership patterns of
targeted securities
- Adjusting the average maturity of the portfolio to take
advantage of or to minimize the impact of interest rate
fluctuations.
The portfolio's weighted average maturity will normally be
between 5 and 10 years, although this may vary substantially
with changing market conditions. Because most emerging market
debt is issued in U.S. dollars, it is expected that the Fund
will not normally have foreign currency holdings. However, the
Fund may invest in debt denominated in local currencies or other
international currencies. In such cases, the Fund will seek to
hedge against currency fluctuations. The Adviser makes a
decision to sell a portfolio security held by the Fund when (1)
the security has appreciated in value due to market conditions
and the issuing company's financial condition has improved; (2)
the issuing company's financial position indicates the company
will not perform well and the price of the security could fall;
or (3) the Adviser identifies another security that is
potentially more valuable for current income or capital
appreciation compared to securities held by the Fund.
The Fund's investments may include bonds issued directly by the
sovereign or corporate entities or those issued by supranational
entities, such as the World Bank. The Fund may also invest
substantially all of its assets in Brady Bonds. Brady Bonds are
used as a means of restructuring the external debt burden of
governments in certain emerging market nations. These bonds may
be collateralized or uncollateralized and issued in various
currencies, although typically they are issued in U.S. Dollars.
However, as with any emerging market debt, Brady Bonds are
considered speculative, high-risk investments because the value
of the bonds can fluctuate significantly based on the issuer's
ability to make payment
Emerging market nations, as defined by the World Bank, the
United Nations and other international bodies, are those
countries whose economies are in a transitional stage. They may
be located in Asia, Eastern Europe, Latin America, Africa or the
Middle East. The economies, markets and political
structures of these countries generally do not offer the same
stability as those of developed nations. As a consequence,
securities issued in these emerging markets generally pay a
higher yield to compensate investors for higher risks.
The Fund may invest more than 25% of its assets in government
and corporate bonds issued by or located in the same country.
The Fund does not, however, intend to invest 25% or more of its
assets in government debt of a single country (other than the
United States or in a single industry or group of industries.)
As a rule, the Fund will invest in the securities of issuers
from at least three different countries.
In order to provide flexibility in meeting redemptions, expenses
and the timing of new investments, the Fund will routinely hold
cash or money market securities readily convertible to
cash. These cash positions may be increased without limitation
during periods of unusual market volatility as a short-term
defense. Additionally, the Fund may invest substantially all of
its assets in the securities of only one country, including the
United States, for temporary defensive purposes. Such
investments could cause the Fund not to meet its principal
investment objective and policies.
The Fund will buy and sell securities based on its overall
objectives of achieving the highest possible total return, which
may translate into higher than average portfolio turnover. If
the Fund buys and sells securities frequently, there will be
increased transaction costs and additional taxable gains to
shareholders.
The Fund may also invest in other investments that are not part
of its principal investment strategies described above. These
other investments include other types of fixed income
securities, private placements, loan participations and
assignments, convertible bonds and depository receipts. For more
information about these types of securities, please consult the
Statement of Additional Information.
Primary Risks
There are numerous and significant risks involved in investing
in emerging markets securities. While bonds are generally
considered safer than stocks for investors seeking
diversification into emerging markets, there are several types
of risks that should be considered.
OVERALL, THIS FUND MUST BE CONSIDERED A HIGH-RISK INVESTMENT
SUITABLE ONLY FOR A PORTION OF AN INDIVIDUAL'S PORTFOLIO.
> Interest rate risk: Any bond fund involves the risk of
capital loss due to changes in interest rates. This is a
normal process in which rising interest rates cause the price
of bonds to fall. There are, additionally, risks associated
with high yield (junk) bonds. See the discussion in the
section entitled "High Yield Bonds" on page .
> Credit risk: Companies and governments in emerging nations
may not be as strong financially as those in other nations
and may be more vulnerable to changes in worldwide markets
and the world economy. The entire securities market in an
emerging market nation can experience sudden and sharp price
swings. Furthermore, accounting and other financial reporting
standards are often less rigorous, so that less information
may be available to investors. There is also generally less
governmental regulation that may mean less protection for
investors.
> Liquidity risk: Because of lower trading volumes and the lack
of secondary trading markets for most emerging markets
securities, there is a greater potential for price
volatility. With fewer buyers, large purchases or sales may
have a disproportionate impact on prices.
> Currency risk: The relatively small portion of the portfolio
which is not denominated in U.S. dollars is exposed to the
fluctuations of the currency markets, as well as the
increased costs involved in converting currency into U.S.
Dollars.
> External risk: Investing in emerging markets debt securities
involves political, social and economic risks including the
risk of nationalization or expropriation of assets and the
risk of war. Certain countries may impose restrictions on
foreign investors and on the movement of assets out of the
country for periods of one year or more. Such restrictions
reduce the liquidity of securities held in such countries and
make it difficult or impossible for the Fund to sell the
securities at opportune times. Certain trading practices,
such as settlement delays or differing hours and days of
operation, may also expose the Fund to risks not customary
with U.S. investments. Furthermore, it may be more difficult
to obtain a judgment in a court outside the U.S. Several
European countries are participating in the European Economic
and Monetary Union, which established a common European
currency for participating countries. This currency is
commonly known as the "Euro." Each participating country
replaced its existing currency with the Euro on January 1,
1999 for electronic commerce. Other European countries may
participate after that date. This conversion presented unique
uncertainties, including whether the payment and operational
systems of banks and other financial institutions were ready
by the scheduled launch date; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that
refer to existing currencies rather than the Euro; the
establishment of exchange rates for existing currencies and
the Euro; and the creation of suitable clearing and
settlement payment systems for the new currency. These or
other factors, including political and economical risks,
could adversely affect the value of securities held by the
Fund. The conversion has not had a material impact on the
Fund to date, however, because the Fund invests
predominantly, normally over 90% of its assets, in U.S.
dollar denominated securities.
> Nondiversification risk: Under securities laws, the Fund is
considered a "nondiversified investment company." The Fund
is, however, subject to diversification limits under federal
tax law that permit it to invest more than 5%, but not more
than 25%, of its assets in a single issuer with respect to up
to 50% of its total assets as of the end of each of the
Fund's tax quarters. Under normal circumstances, such
investment of more than 5% in a single issuer will not take
place. Occasionally, the Fund may place as much as 10% of its
assets in bank deposits or other short-term instruments of a
single issuer or custodian.
Since this is a new Fund, there is no bar chart or performance
table.
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Funds.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<CAPTION>
Total Annual
Management Other Fund Operating
Fees Expenses** Expenses**
- ---------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index Fund .30%*** .09% .39%
S&P MidCap 400 Fund .30% .30% .60%*
Russell 2000 Small Cap Index Fund .35% .40% .75%*
Nasdaq 100 Index Fund .35% .30% .65%*
Balanced Index Fund .30% .30% .60%*
Lehman Aggregate Bond Index Fund .30% .30% .60%*
Equity Fund .63%*** .14% .77%
Micro-Cap Fund 1.00% 1.00% 2.00%*
Bond Fund .48%*** .13% .61%
Short-term Government Fund .45% .30% .75%*
High Yield Bond Fund .65% .35% 1.00%
Emerging Markets Bond Fund .75% .54% 1.29%
</TABLE>
* Total Annual Fund Operating Expenses in excess of 2.00% for
the Micro-Cap Fund, in excess of .75% for the Russell 2000
Small Cap Index and Short-term Government Funds, in excess
of .65% for the Nasdaq 100 Fund, and in excess of .60% for
the S&P MidCap 400 Index, Balanced Index and Lehman
Aggregate Bond Index Funds are paid by the investment
adviser.
** "Other Expenses" are based on estimates.
*** The Adviser has agreed to reduce its fee for a period of one
year from the commencement of operations by .02, .04 and .02
percentage points for the S&P 500 Index Fund, the Equity
Fund, and the Bond Fund, respectively. The Adviser may not
revise or cancel these waivers during the one year period.
Example
This Example is intended to help you compare the cost of
investing in the Funds with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Funds'
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
S&P 500 Index Fund $40 $126
S&P MidCap 400 Fund $62 $193
Russell 2000 Small Cap Index Fund $77 $241
Nasdaq 100 Index Fund $67 $209
Balanced Index Fund $62 $193
Lehman Aggregate Bond Index Fund $62 $193
Equity Fund $62 $193
Micro-Cap Fund $205 $633
Bond Fund $63 $196
Short-term Government Fund $77 $241
High Yield Bond Fund $103 $320
Emerging Markets Bond Fund $132 $411
</TABLE>
This table should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS
FOREIGN SECURITIES
Each Fund may invest in foreign securities that are suitable
for the Fund's investment objectives and policies. The High
Yield Bond Fund and Emerging Markets Bond Fund may invest
without limitation in securities (payable in U.S. Dollars) of
foreign issuers and in the securities of foreign branches of
U.S. banks such as negotiable certificates of deposit
(Eurodollars) . The High Yield Bond Fund may invest up to 20%
of its net assets in non-U.S. dollar-denominated fixed income
securities principally traded in financial markets outside of
the United States, and the Emerging Markets Bond Fund may invest
up to 100% of its net assets in non-U.S. dollar-denominated
fixed-income securities principally traded in financial markets
outside the United States.
Foreign securities investments are limited to 25% of net assets
for the Equity, Bond, and Micro-Cap Funds. The S&P 500 Index
Fund, S&P MidCap 400 Index Fund, Russell 2000 Small Cap Index
Fund, Nasdaq 100 Index Fund, Balanced Index Fund and Lehman
Aggregate Bond Index Fund are limited to investing in those
foreign securities included in the respective Indexes. Each
Fund that invests in foreign securities, other than the High
Yield Bond Fund and Emerging Markets Bond Fund, limits not only
its total purchases of foreign securities, but also its
purchases for any single country. For "major countries," the
applicable limit is 10% of Fund net assets; for other
countries, the applicable limit is 5% for each Fund. "Major
countries" currently include: The United Kingdom, Germany,
France, Italy, Switzerland, Netherlands, Spain, Belgium, Canada,
Mexico, Argentina, Chile, Brazil, Australia, Japan, Singapore,
New Zealand, Hong Kong, Sweden and Norway.
Investing in foreign securities involves risks which are not
ordinarily associated with investing in domestic securities,
including:
> political or economic instability in the foreign country;
> diplomatic developments that could adversely affect the
value of the foreign security;
> foreign government taxes;
> costs incurred by a Fund in converting among various
currencies;
> fluctuation in currency exchange rates;
> the possibility of imposition of currency controls,
expropriation or nationalization measures or withholding
dividends at the source;
> in the event of a default on a foreign debt security,
possible difficulty in obtaining or enforcing a judgment
against the issuer;
> less publicly available information about foreign issuers
than domestic issuers;
> foreign accounting and financial reporting requirements are
generally less extensive than those in the U.S.;
> securities of foreign issuers are generally less liquid and
more volatile than those of comparable domestic issuers;
> there is often less governmental regulation of exchanges,
broker-dealers and issuers and brokerage costs may be higher
than in the United States.
Foreign securities purchased by the Funds may include securities
issued by companies located in countries not considered to be
major industrialized nations. Such countries are subject to more
economic, political and business risk than major industrialized
nations, and the securities they issue may be subject to abrupt
or erratic price fluctuations, and are expected to be more
volatile and more uncertain as to payments of interest and
principal. Developing countries may have relatively unstable
governments, economies based only on a few industries, and
securities markets that trade only a small number of securities.
The secondary market for such securities is expected to be less
liquid than for securities of major industrialized nations.
FOREIGN CURRENCY TRANSACTIONS
The Equity Fund, Micro-Cap Fund, Bond Fund, High Yield Bond Fund
and Emerging Market Bond Fund may engage in forward foreign
currency contracts ("forward contracts") in connection with the
purchase or sale of a specific security. A forward contract
involves an obligation to purchase or sell a specific foreign
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.
Funds will not enter into forward contracts for longer-term
hedging purposes. The possibility of changes in currency
exchange rates will be incorporated into the long-term
investment considerations when purchasing the investment and
subsequent considerations for possible sale of the investment.
HIGH YIELD BONDS
The High Yield Bond Fund and Emerging Markets Bond Fund may
invest without limitation in high yield bonds. The Bond Fund
may invest up to 25% of its assets in bonds rated below the four
highest grades used by Standard & Poor's or Moody's (frequently
referred to as "junk" bonds). These bonds present greater
credit and market risks than higher rated bonds. Such risks
relate not only to the greater financial weakness of the issuers
of such securities but also to other factors including:
> greater likelihood that an economic downturn or rising
interest rates could create financial stress on the issuers
of such bonds, possibly resulting in their defaulting on
their obligations than is the case with higher-rated bonds;
> greater likelihood that redemption or call provisions, if
exercised in a period of lower interest rates, would result
in the bonds being replaced by lower yielding securities;
> limited trading markets that may make it more difficult to
dispose of the bonds and more difficult to determine their
fair value.
REPURCHASE AGREEMENTS
Each Fund may invest in Repurchase Agreements. A repurchase
agreement is a transaction where a Fund buys a security at one
price and simultaneously agrees to sell that same security back
to the original owner at a higher price. None of the Funds
engage extensively in repurchase agreements, but each may engage
in them from time to time. The Adviser reviews the credit-
worthiness of the other party to the agreement and must find it
satisfactory before engaging in a repurchase agreement. A
majority of these agreements will mature in seven days or less.
In the event of the bankruptcy of the other party, a Fund could
experience delays in recovering its money, may realize only a
partial recovery or even no recovery, and may also incur
disposition costs.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. Under
reverse repurchase agreements, the Fund transfers possession of
Fund securities to banks in return for cash in an amount equal
to a percentage of the Fund securities' market value and agrees
to repurchase the securities at a future date by repaying the
cash with interest. The Fund retains the right to receive
interest and principal payments from the securities while they
are in the possession of the financial institutions. While a
reverse repurchase agreement is in effect, the Custodian will
segregate from other Fund assets an amount of cash or liquid
high quality debt obligations equal in value to the repurchase
price (including any accrued interest).
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
All Funds except for the Micro-Cap Fund may enter into futures
contracts for hedging purposes, including protecting the price
or interest rate of securities that the Fund intends to buy,
that relate to securities in which it may directly invest and
indices comprised of such securities and may purchase and write
call and put options on such contracts. Each eligible Fund may
invest up to 20% of its assets in such futures and/or options
contracts.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments (such as U.S.
Treasury bills, notes and bonds, commercial paper and bank
certificates of deposit or the cash value of a financial
instrument index at a specified future date at a price agreed
upon when the contract is made). A stock index futures contract
is a contract to buy or sell specified units of a stock index at
a specified future date at a price agreed upon when the contract
is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the
actual stocks making up the index takes place. Rather, upon
expiration of the contract, settlement is made by exchanging
cash in an amount equal to the difference between the contract
price and the closing price of the index at expiration, net of
variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with
the Custodian for the benefit of the futures broker. The
initial margin serves as a "good faith" deposit that the Fund
will honor their futures commitments. Subsequent payments
(called "variation margin") to and from the broker are made on a
daily basis as the price of the underlying investment
fluctuates. In the event of the bankruptcy of the futures
broker that holds margin on behalf of the Fund, the Fund may be
entitled to return of margin owed to it only in proportion to
the amount received by the broker's other customers. The
Adviser will attempt to minimize this risk by monitoring the
creditworthiness of the futures brokers with which the Fund does
business.
Because the value of an index future depends primarily on the
value of its underlying index, the performance of the broad-
based contracts will generally reflect broad changes in market
prices. However, because a particular Fund may not be invested
in precisely the same proportion as a particular Index, it is
likely that the price changes of the Fund's index futures
positions will not match the price changes of the Fund's other
investments.
Options on futures contracts give the purchaser the right to
assume a position at a specified price in a futures contract at
any time before expiration of the option contract.
All Funds except for the Micro-Cap Fund may engage in certain
limited options strategies as hedging techniques as it relates
to options on futures contracts. These options strategies are
limited to selling/writing call option contracts on futures
contracts on such securities held by the Fund (covered calls).
These Funds may purchase call option contracts to close out a
position acquired through the sale of a call option. These Funds
will only write options that are traded on a domestic exchange
or board of trade.
All Funds except for the Micro-Cap Fund may write and purchase
covered put and call options on securities in which it may
directly invest. Option transactions of the eligible Funds will
be conducted so that the total amount paid on premiums for all
put and call options outstanding will not exceed 5% of the value
of the Fund's total assets. Further, the Fund will not write
put or call options or combination thereof if, as a result, the
aggregate value of all securities or collateral used to cover
its outstanding options would exceed 25% of the value of the
Fund's total assets.
A call option is a short-term contract (generally nine months or
less) which gives the purchaser of the option the right to
purchase from the seller of the option (the Fund) the underlying
security or futures contract at a fixed exercise price at any
time prior to the expiration of the option period regardless of
the market price of the underlying instrument during the period.
A futures contract obligates the buyer to purchase and the
seller to sell a predetermined amount of a security at a
predetermined price at a selected time in the future. A call
option on a futures contract gives the purchaser the right to
assume a "long" position in a futures contract, which means that
if the option is exercised the seller of the option (the Fund)
would have the legal right (and obligation) to sell the
underlying security to the purchaser at the specified price and
future time.
As consideration for the call option, the buyer pays the seller
(the Fund) a premium, which the seller retains whether or not
the option is exercised. The selling of a call option will
benefit the Fund if, over the option period, the underlying
security or futures contract declines in value or does not
appreciate to a price higher than the total of the exercise
price and the premium. The Fund risks an opportunity loss of
profit if the underlying instrument appreciates to a price
higher than the exercise price and the premium. When the Adviser
anticipates that interest rates will increase, the Fund may
write call options in order to hedge against an expected decline
in value of Fund securities.
The Fund may close out a position acquired through selling a
call option by buying a call option on the same security or
futures contract with the same exercise price and expiration
date as the option previously sold. A profit or loss on the
transaction will result depending on the premium paid for buying
the closing call option. If a call option on a futures contract
is exercised, the Fund intends to close out the position
immediately by entering into an offsetting transaction or by
delivery of the underlying security (or other related
securities).
Options transactions may increase the Fund's portfolio turnover
rate and attendant transaction costs, and may be somewhat more
speculative than other investment strategies. It may not always
be possible to close out an options position, and with respect
to options on futures contracts there is a risk of imperfect
correlation between price movements of a futures contract (or
option thereon) and the underlying security.
OPTIONS ON SECURITIES INDICES
The S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund and Nasdaq 100 Index Fund may purchase or
sell options on their respective Indexes, subject to the
limitations set forth above and provided such options are traded
on a national securities exchange or in the over-the-counter
market. The Balanced Index Fund may purchase or sell options on
the S&P 500 Index, subject to the limitations set forth above
and provided such options are traded on a national securities
exchange or in the over-the-counter market. Options on
securities indices are similar to options on securities except
there is no transfer of a security and settlement is in cash. A
call option on a securities index grants the purchaser of the
call, for a premium paid to the seller, the right to receive in
cash an amount equal to the difference between the closing value
of the index and the exercise price of the option times a
multiplier established by the exchange upon which the option is
traded.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Funds other than the S&P 500 Index Fund, S&P MidCap 400
Index Fund, Russell 2000 Small Cap Index Fund and Nasdaq 100
Index Fund may invest in collateralized mortgage obligations
("CMOs") or mortgage-backed bonds issued by financial
institutions such as commercial banks, savings and loan
associations, mortgage banks and securities broker-dealers (or
affiliates of such institutions established to issue these
securities). To a limited extent, the Funds may also invest in
a variety of more risky CMOs, including interest only, principal
only, inverse floaters, or a combination of these securities.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
Each Fund, except the S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund, the Nasdaq
100 Index Fund and the Short-term Government Fund may invest in
asset-backed securities. Asset-backed securities may be
classified either as pass-through certificates or collateralized
obligations. Pass-through certificates are asset-backed
securities which represent an undivided fractional ownership
interest in an underlying pool of assets. Asset-backed
securities issued in the form of debt instruments, also known as
collateralized obligations, are generally issued as the debt of
a special purpose entity organized solely for the purpose of
owning such assets and issuing such debt. Asset-backed
securities may be of short maturity, such as commercial paper,
or longer, such as bonds, and may be issued with only one class
of security or have more than one class with some classes having
rights to payments on the asset-backed security subordinate to
the rights of the other classes. These subordinated classes
will take the risk of default before the classes to which they
are subordinated.
The High Yield Bond Fund and Emerging Markets Bond Fund may each
invest up to 10% of its total assets in asset-backed securities.
The Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Equity Fund, Micro-Cap Fund and Bond Fund may invest without
limitation in asset-backed securities whose characteristics are
consistent with the Fund's investment program and are not
further limited below. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the
security is insulated from the credit risk of the originator of
the debt obligations or any other affiliated entities and the
amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected
by a variety of economic and other factors. As a result, the
yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than
the anticipated yield to maturity. In addition, for asset-
backed securities purchased at a premium, the premium may be
lost in the event of early pre-payment which may result in a
loss to the Fund.
Each Fund, except the S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund and the
Nasdaq-100 Index Fund may invest in mortgage-backed securities.
Mortgage-backed securities are securities representing interests
in a pool of mortgages. Principal and interest payments made on
the mortgages in the underlying mortgage pool are passed through
to the Fund. The High Yield Bond Fund and Emerging Markets Bond
Fund may invest up to 10% of their total assets in mortgage-
backed securities. The Balanced Index Fund, Lehman Aggregate
Bond Index Fund, Equity Fund, Micro-Cap Fund, Bond Fund and
Short-term Government Fund may invest without limitation in
mortgage-backed securities whose characteristics are consistent
with the Fund's investment program and are not further limited
below. The actual prepayment experience of a pool of mortgage
loans or other obligations may cause the yield realized by the
Fund to differ from the yield calculated on the basis of the
average life of the pool. (When a mortgage in the underlying
mortgage pool is prepaid, an unscheduled principal prepayment is
passed through to the Fund. This principal is returned to the
Fund at par. As a result, if a mortgage security were trading
at a premium, its total return would be lowered by prepayments,
and if a mortgage security were trading at a discount, its total
return would be increased by prepayments.) The value of these
securities also may change because of changes in the market's
perception of the creditworthiness of the federal agency that
issued them. In addition, the mortgage securities market in
general may be adversely affected by changes in governmental
regulation or tax policies. In addition, for mortgage-backed
securities purchased at a premium, the premium may be lost in
the event of early prepayment which may result in a loss to the
Fund.
LENDING FUND SECURITIES
All Funds may lend portfolio securities with a value up to 10%
of its total assets. Such loans may be terminated at any time.
The Fund will continuously maintain as collateral cash or
obligations issued by the U.S. government, its agencies or
instrumentalities in an amount equal to not less than 100% of
the current market value (on a daily marked-to-market basis) of
the loaned securities plus declared dividends and accrued
interest.
The Fund will retain most rights of beneficial ownership,
including the right to receive dividends, interest or other
distributions on loaned securities. Should the borrower of the
securities fail financially, the Fund may experience delay in
recovering the securities or loss of rights in the collateral.
Loans will be made only to borrowers that the Adviser deems to
be of good financial standing.
OTHER INFORMATION
In addition to the investment policies described above, each
Fund's investment program is subject to further restrictions
which are described in the Statement of Additional Information.
Unless otherwise specified, each Fund's investment objectives,
policies and restrictions are not fundamental policies and may
be changed without shareholder approval. Shareholder inquiries
and requests for the Fund's annual report should be directed to
Carillon Fund at (513) 595-2600, or at P.O. Box 40409,
Cincinnati, Ohio 45240-0409.
FUND MANAGEMENT
INVESTMENT ADVISER
The Adviser is Carillon Advisers, Inc., P.O. Box 40407,
Cincinnati, Ohio 45240. The Adviser was incorporated under the
laws of Ohio on August 18, 1986, as successor to the advisory
business of Carillon Investments, Inc., the investment adviser
for Carillon Fund since 1984. The Adviser is a wholly-owned
subsidiary of The Union Central Life Insurance Company ("Union
Central"), a mutual life insurance company organized in 1867
under the laws of Ohio. Subject to the direction and authority
of Carillon Fund's board of directors, the Adviser manages the
investment and reinvestment of the assets of each Fund and
provides administrative services and manages Carillon Fund's
business affairs.
The team of Gary R. Rodmaker, CFA and David M. Weisenburger, CFA
are primarily responsible for the day-to-day management of the
S&P 500 Index Fund, S&P 400 MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq 100 Index Fund, Balanced Index
Fund, Lehman Aggregate Bond Index Fund.
Mr.Rodmaker is primarily responsible for the day-to-day
management of the Equity Fund and Micro-Cap Fund. The Adviser
is in the process of hiring a Fund Manager for the Equity Fund
and the Micro-Cap Fund who will manage the Funds on a permanent
basis.
Mr. Rodmaker is the Corporate Bond Fund Manager of the Adviser
and has been affiliated with the Adviser and Union Central since
1989. Mr. Weisenburger is the Assistant Fund Manager of the
Adviser and has been affiliated with the Adviser and Union
Central since July, 1996.
The team of Mr. Rodmaker and Michael J. Schultz are primarily
responsible for the day-to-day management of the Bond Fund.
Mr. Schultz is primarily responsible for the day-to-day
management of the Short-term Government Fund.
Mr. Schultz is the Mortgage-backed Securities Fund Manager of
the Adviser and has been affiliated with the Adviser and Union
Central as a Fund manager since 1992.
Steven R. Sutermeister is primarily responsible for the day-to-
day management of the High Yield Bond Fund and the Emerging
Markets Bond Fund. Mr. Sutermeister is the President of the
Adviser and has been affiliated with the Adviser and Union
Central since 1990.
ADVISORY FEE
The Fund pays the Adviser, as full compensation for all
facilities and services furnished, a monthly fee computed
separately for each Fund on a daily basis, at an annual rate, as
follows:
<TABLE>
<CAPTION>
Fund Advisory Fee
---- ------------
<S> <C>
S&P 500 Index Fund .30% of the current value of the net assets.
S&P MidCap 400 Fund .30% of the current value of the net assets.
Russell 2000 Small Cap
Index Fund .35% of the current value of the net assets
Nasdaq 100 Index Fund .35% of the current value of the net assets
Balanced Index Fund .30% of the current value of the net assets.
Lehman Aggregate Bond
Index Fund .30% of the current value of the net assets.
Equity Fund .65% of the first $50,000,000, .60% of the
next $100,000,000, and .50% of all over
$150,000,000 of the current value of the
net assets.
Micro-Cap Fund 1.00% of the current value of the net assets.
Bond Fund .50% of the first $50,000,000, .45% of the
next $100,000,000, and .40% of all over
$150,000,000 of the current value of the
net assets.
Short-term Government
Fund .45% of the current value of the net assets.
High Yield Bond Fund .65% of the current value of the net assets.
Emerging Markets Bond
Fund .75% of the current value of the net assets.
</TABLE>
The effective rates paid by each Fund are set forth in the "Fees
and Expenses of the Fund" section on page _____.
EXPENSES
The Fund's expenses are deducted from total income before
dividends are paid. These expenses, which are accrued daily,
include: the fee of the Adviser; taxes; legal, dividend
disbursing, bookkeeping and transfer agent, custodian and
auditing fees; and printing and other expenses relating to the
Fund's operations which are not expressly assumed by the Adviser
under its investment advisory agreement with the Fund. Certain
expenses are paid by the particular Fund that incurs them, while
other expenses are allocated among the Funds on the basis of
their relative size (i.e., the amount of their net assets). The
Adviser will pay any expenses of the S&P 500 Index Fund, the S&P
MidCap 400 Index Fund, the Balanced Index Fund, the Nasdaq 100
Fund, the Short-term Government Fund and the Lehman Aggregate
Bond Index Fund, other than the advisory fee for that Fund, to
the extent that such expenses exceed .30% of that Fund's net
assets. The Adviser will pay any expenses of the Russell 2000
Small Cap Index Fund, other than the advisory fee for that Fund,
to the extent that such expenses exceed .40% of that Fund's net
assets. The Adviser will also pay any expenses of the Micro-Cap
Fund, other than the advisory fee for that Fund, to the extent
that such expenses exceed 1.00% of that Fund's net assets.
CAPITAL STOCK
Carillon Fund currently has twenty-one classes of stock, one for
each fund, twelve of which are offered pursuant to this
prospectus. Shares (including fractional shares) of each fund
have equal rights with regard to voting, redemptions, dividends,
distributions, and liquidations with respect to that fund. When
issued, shares are fully paid and nonassessable and do not have
preemptive or conversion rights or cumulative voting rights.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The net asset value of the Funds' shares is determined once
daily, Monday through Friday at 4:00 p.m. Eastern Time, on days
there are purchases or redemptions of Fund shares. The net
asset value will not be determined when the New York Stock
Exchange is closed (for example, on national holidays), or on
any day on which changes in the value of the portfolio
securities of the Funds are immaterial. The net asset value is
calculated by adding the values of all securities and other
assets of a Fund, subtracting liabilities and expenses, and
dividing the resulting figure by the number of the Fund's
outstanding shares. Expenses, including the advisory fee
payable to the Adviser, are charged to each Fund daily.
Securities held by each Fund are valued at market price.
Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good
faith by, or under procedures adopted by, the Board of
Directors. Money market instruments maturing in 60 days or less
are valued at the amortized cost method.
Sometimes foreign securities markets are open on days when U.S.
markets are closed. Because some Funds holds foreign
securities, there may be days when the net asset value of Fund
shares changes even when the shares are not priced, and Fund
shareholders cannot purchase or redeem shares.
PURCHASE OF SHARES
Shares of the Funds are offered and sold on a continuous basis
by the distributor for the Funds, Carillon Investments, Inc.
(the "Distributor"), which is affiliated with the Adviser. The
Distributor is a registered broker-dealer with offices at 1876
Waycross Road, Cincinnati, Ohio 45240.
> MINIMUM INVESTMENTS
The minimum initial investment for shares in a Fund is
1) $5,000; or
2) $1,000 ($500 in the case of an Individual Retirement
Account) if the purchaser of shares is any one of the
following:
a) Directors, officers, current or retired employees
("employees"), or agents of The Union Central Life
Insurance Company ("Union Central'), or affiliates
thereof, or their spouses or dependents; or
b) Directors, officers, employees, or agents of
broker-dealers that have entered into selling
agreements with the Distributor relating to the
Funds, or their spouses or dependents; or
c) Directors, officers, employees, or affiliates of
Carillon Fund or investment advisers or sub-
advisers or distributors thereof, or their spouses
or dependents.
The minimum subsequent investment is $50.
> BUYING SHARES
Purchase requests accompanied by a check or wire payment for any
Fund which are received by the transfer agent before 4:00 p.m.
Eastern Time on a business day for the Funds will be
executed the same day, at that day's closing price, provided
that payment is received by the close of regular trading hours.
Orders received after 4:00 p.m. Eastern Time and orders for
which payment is not received by the close of regular trading
hours on the New York Stock Exchange will be executed on the
next business day after receipt of both order and payment in
proper form.
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<C> <C>
BY MAIL BY MAIL
Complete an application and mail Make your check payable to Carillon
it along with a check payable to Fund. Please include your sixteen-
Carillon Fund, P.O. Box 3011, digit account number on your check
Milwaukee, WI 53201-3011. and mail it to the address at the left.
For overnight delivery mail to:
615 E. Michigan St., Milwaukee,
WI 53202.
AUTOMATICALLY AUTOMATICALLY
Call 1-888-259-7565 to obtain Complete a Periodic Investment Plan
a purchase application, which Application to automatically
includes information for a purchase more shares.
Periodic Investment Plan.
BY WIRE BY WIRE
Call 1-888-259-7565 prior to sending Call 1-888-259-7565 prior to
the wire in order to obtain a sending the wire in order to
confirmation number and to obtain a confirmation number and to
ensure prompt and accurate handling ensure prompt and accurate
of funds. Ask your bank to transmit handling of funds.
immediately available funds Ask your bank to transmit
by wire in the amount of funds by wire as described at the
Firstar Bank Milwaukee, N.A. left. Please include your sixteen-
ABA # 0750-00022 digit account number.
Firstar Trust Department The Carillon Fund and its transfer
Account # XXX-XXX-XXX agent are not responsible for the
for further credit to consequences of delays resulting
[name of Fund] from the banking or Federal Reserve
[name/title on the account]. Wire system, or from incomplete
Carillon Fund and its transfer wiring instructions.
agent are not responsible
for the consequences of delays
resulting from the banking or
Federal Reserve Wire system,
or from incomplete wiring
instructions.
INTERNET INTERNET
Not available at this time Not available at this time
BY TELEPHONE EXCHANGE BY TELEPHONE EXCHANGE
Call 1-888-259-7565 to exchange Call 1-888-259-7565 to exchange
from another Carillon Fund account from another Carillon Fund account
with the same registration with the same registration
including name, address and including name, address and
taxpayer ID number. ID number.
</TABLE>
- ---------------------------------------------------------------
PLEASE NOTE: All checks must be drawn on a bank located within
the United States and must be payable in U.S. dollars to
Carillon Fund. A $25 fee will be imposed by the Funds' transfer
agent if any check used for investment in an account does not
clear, and the investor involved will be responsible for any
loss incurred by a Fund. Prior to the transfer agent receiving a
completed application, investors may make an initial investment.
However, redemptions will not be paid until the transfer agent
has received the completed application.
- ----------------------------------------------------------------
> ADDITIONAL INFORMATION ON BUYING SHARES
- -- The Funds will not accept payment in cash or third party
checks for the purchase of shares.
- -- Federal regulations require that each investor provide a
Social Security number or other certified taxpayer
identification number upon opening or reopening an account.
The Funds reserve the right to reject applications without
such a number or an indication that a number has been applied
for. If a number has been applied for, the number must be
provided and certified within sixty days of the date of the
application. Any accounts opened without a proper number will
be subject to backup withholding at a rate of 31% on all
liquidations and dividend and capital gain distributions.
- -- Payment for shares of a Fund in the amount of $1,000,000 or
more may, at the discretion of the Adviser, be made in the
form of securities that are permissible investments for the
respective Fund.
REDEMPTION OF SHARES
> SELLING SHARES
Redemption requests for any of the Funds received by the
transfer agent before 4:00 p.m. Eastern Time on a business day
for the Funds will be executed the same day, at that day's
closing price. Orders received after 4:00 p.m. Eastern Time
will be executed on the next business day.
BY TELEPHONE
Call 1-888-259-7565 with your account name, sixteen-digit
account number and amount of redemption (minimum $500).
Redemption proceeds will only be sent to a shareholder's address
or bank account of a commercial bank located within the United
States as shown on the transfer agent's records. (Available only
if telephone redemptions have been authorized on the account
application and if there has been no change of address by
telephone within the preceding 15 days).
BY MAIL
Mail your instructions to Carillon Fund, P.O. Box 3011,
Milwaukee, WI 53201-3011 (via overnight delivery to 615 E.
Michigan Street, Milwaukee, WI 53202). Include the number of
shares or the amount to be redeemed, your sixteen-digit account
number and Social Security number or other taxpayer
identification number. Your instructions must be signed by all
persons required to sign for transactions exactly as their names
appear on the account. If the redemption amount exceeds $50,000,
or if the proceeds are to be sent elsewhere than the address of
record, or the address of record has been changed by telephone
within the preceding 15 days, each signature must be guaranteed
in writing by either a commercial bank that is a member of the
FDIC, a trust company, a credit union, a savings association, a
member firm of a national securities exchange or other eligible
guarantor institution.
INTERNET
Not available at this time.
AUTOMATICALLY
Call 1-888-259-7565 for a Systematic Withdrawal Plan application
($5,000 account minimum and $50 minimum per transaction).
- ----------------------------------------------------------------
Guarantees must be signed by an eligible guarantor institution
and "Signature Guaranteed" must appear with the signature.
- ----------------------------------------------------------------
The Funds may require additional supporting documents for
redemptions made by corporations, executors, administrators,
trustees and guardians. A redemption request will not be deemed
to be properly received until the transfer agent receives all
required documents in proper form.
- ----------------------------------------------------------------
> ADDITIONAL TRANSACTION INFORMATION
TELEPHONE REQUESTS
In order to arrange for telephone redemptions after you have
opened your account or to change the bank or account designated
to receive redemption proceeds, send a written request to the
Firstar Mutual Fund Services, LLC or contact your registered
representative. Each shareholder of the account must sign the
request. The Funds may request further documentation from
corporations, executors, administrators, trustees and guardians.
The Funds reserve the right to refuse a telephone redemption if
they believe it is advisable to do so. Procedures for redeeming
shares by telephone may be modified or terminated by the Funds
at any time upon notice to shareholders.
DURING PERIODS OF SUBSTANTIAL ECONOMIC OR MARKET CHANGE,
TELEPHONE REDEMPTIONS MAY BE DIFFICULT TO IMPLEMENT. IF A
SHAREHOLDER IS UNABLE TO CONTACT THE TRANSFER AGENT BY
TELEPHONE, SHARES MAY ALSO BE REDEEMED BY DELIVERING THE
REDEMPTION REQUEST TO THE TRANSFER AGENT.
In an effort to prevent unauthorized or fraudulent purchase and
redemption requests by telephone, Firstar employs reasonable
procedures to confirm that such instructions are genuine. Among
the procedures used to determine authenticity, investors
electing to transact by telephone will be required to provide
their account number (unless opening a new account). All
telephone transactions will be recorded and confirmed in
writing. Statements of accounts shall be conclusive if not
objected to in writing within 10 days after transmitted by mail.
Carillon Fund may implement other procedures from time to time.
If reasonable procedures are not implemented, Carillon Fund may
be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, the shareholder is liable for
any loss for unauthorized transactions.
ADDITIONAL REDEMPTION INFORMATION
The Funds will make payment for redeemed shares typically within
one or two business days, but no later than the seventh day
after receipt by the transfer agent of a request in proper form,
except as provided by SEC rules. HOWEVER, IF ANY PORTION OF THE
SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT MADE BY CHECK,
THE FUNDS WILL DELAY THE PAYMENT OF THE REDEMPTION PROCEEDS
UNTIL THE TRANSFER AGENT IS REASONABLY SATISFIED THAT THE CHECK
HAS BEEN COLLECTED, WHICH MAY TAKE TWELVE DAYS FROM THE PURCHASE
DATE. An investor must have filed a purchase application before
any redemption requests can be paid.
ACCOUNTS BELOW THE MINIMUM BALANCE
If your account falls below $1,000, the Funds may redeem your
account. The Fund will impose no charge and will give you sixty
days' written notice prior to any redemption.
REDEMPTION IN KIND
Each Fund intends to pay cash for all shares redeemed, unless
the redemption request is for more than $250,000 or 1% of the
net assets of a Fund by a single shareholder over any 90-day
period. If such a redemption request is presented and the Fund
deems it to be detrimental to existing shareholders, to pay the
redemption in cash, the Fund may pay all or part of the
redemption in the Fund's portfolio securities at their then-
current market value equal to the redemption price. If you
received securities in kind and converted them to cash, you
would incur brokerage costs. Redemptions in kind are taxable
transactions.
EXCHANGE OF SHARES
Without a sales charge, you may exchange shares of a Fund for
shares of another Fund. Telephone exchange privileges
automatically apply to each shareholder of record unless the
transfer agent receives written instructions canceling the
privilege.
For federal income tax purposes, an exchange of shares is a
taxable event and, accordingly, an investor may realize a
capital gain or loss. Before making an exchange request, an
investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange. No
exchange fee is currently imposed by Carillon Fund on exchanges.
However, Carillon Fund reserves the right to impose a charge in
the future. Carillon Fund reserves the right to reject any
exchange request with prior notice to a shareholder and the
exchange privilege may be modified or terminated at any time. At
least sixty days' notice will be given to shareholders of any
material modification or termination except where notice is not
required under SEC regulations. Also keep in mind:
- -- Exchanges are available only in states where exchanges may be
legally made.
- -- The minimum amount which may be exchanged is the lesser of
$1,000 or all the shares of that Fund.
- -- If any portion of the shares to be exchanged represents an
investment made by check, a Fund will delay the acquisition
of new shares in an exchange until the transfer agent is
reasonably satisfied that the check has been collected,
which may take up to twelve days from the purchase date.
- -- It may be difficult to make telephone exchanges in times of
drastic economic or market changes.
EXCESSIVE TRADING
The Adviser may bar excessive traders from purchasing shares of
a Fund. Frequent trades, involving either substantial Fund
assets or a substantial portion of your account or accounts
controlled by you, can disrupt management of the Fund and raise
its expenses. The Fund defines "excessive trading" as exceeding
one purchase and sale involving the Funds within any 120-day
period. For example, assume you are invested in a Fund. You can
move substantial assets from that Fund to another Fund and,
within the next 120 days, sell your shares in that Fund to
return to the first Fund. If you exceed the number of trades
described above, you may be barred indefinitely from further
purchases of shares of the Funds. Two types of transactions are
exempt from the excessive trading guidelines: (1) redemptions
that are not part of exchanges; and (2) systematic purchases or
redemptions made through an automatic investment plan or an
automatic withdrawal plan.
SHAREHOLDER REPORTS
Shareholders will be provided with a report showing portfolio
investments and other information at least semiannually; and
after the close of a Fund's fiscal year with an annual report
containing audited financial statements. To eliminate
unnecessary duplication, only one copy of shareholder reports
will be sent to shareholders with the same mailing address.
Shareholders may request duplicate copies free of charge.
Account statements will be mailed after each purchase,
reinvestment of dividends and redemption. Statements of accounts
shall be conclusive if not objected to in writing within 10 days
after transmitted by mail. Generally, the Fund does not send
statements for Funds held in brokerage, retirement or other
similar accounts.
AUTOMATED TELERESPONSE SERVICE
Shareholders using a touch-tone telephone can access information
on the Funds twenty four hours a day, seven days a week. When
calling Firstar Mutual Fund Services, LLC at 1-888-259-7565,
shareholders may choose to use the automated information feature
or, during regular business hours (8:00 a.m. to 7:00 p.m.
Central time, Monday through Friday), speak with a Firstar
representative.
RETIREMENT PLANS
The Fund offers individual retirement accounts including SIMPLE
and SEP IRAs. For details concerning Retirement Accounts
(including service fees), please call Firstar Mutual Fund
Services, LLC at 1-888-259-7565.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends from net investment income of all of the Funds are
declared and paid quarterly.
Any capital gains are distributed annually. Your dividends and
capital gains distributions will be reinvested automatically in
additional shares unless you notify Carillon Fund that you elect
to receive distributions in cash.
If you have elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service
is unable to deliver checks to your address of record, your
distribution
option will automatically be converted to having all dividend
and other distributions reinvested in additional shares. No
interest will accrue on amounts represented by uncashed
distribution or redemption checks.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all, or
substantially all, of its taxable income, including its net
capital gain (the excess of long- term capital gain over
short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash
or reinvested in additional Fund shares. Distributions
attributable to the net capital gain of a Fund will be taxable
to you as long-term capital gain, regardless of how long you
have held your Fund shares. Other Fund distributions will
generally be taxable as ordinary income. You will be notified
annually of the tax status of distributions to you.
You should note that if you purchase Fund shares just prior to a
capital gain distribution, the purchase price will reflect the
amount of the upcoming distribution, but you will be taxable on
the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return
of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or
redemption of your Fund shares, including an exchange for Fund
shares of another Fund, based on the difference between your tax
basis in the Fund shares and the amount you receive for them.
(To aid in computing your tax basis, you generally should retain
your account statements for the periods during which you held
Fund shares.) Any loss realized on Fund shares held for six
months or less will be treated as a long-term capital loss to
the extent of any capital gain dividends that were received on
the Fund shares.
The one major exception to these tax principles is that
distributions on, and sales, exchanges and redemptions of, Fund
shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
The foregoing is only a summary of certain tax considerations
under current law, which may be subject to change in the future.
You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences
relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply,
however, to the portions of each Fund's distributions, if any,
that are attributable to interest on Federal securities or
interest on securities of the particular state. Shareholders
should consult their tax advisers regarding the tax status of
distributions in their state and locality.
PREPARING FOR YEAR 2000
Like all financial services providers, the Adviser and the
Distributor use systems that may be affected by Year 2000
transition issues. Carillon Fund also relies on service
providers, including its custodian, transfer agent, and dividend
disbursing agent, that may be affected. The Adviser and
Distributor have advised Carillon Fund that they have
implemented a Year 2000 transition plan. Carillon Fund's
Management is in the process of confirming that the service
providers to the Fund are also engaged in similar transition
plans. While the Adviser and Distributor have made
representations to Management that each party is implementing a
Year 2000 transition plan, the resources that are being devoted
to this effort are substantial and it is difficult to predict
with precision whether the amount of resources ultimately
devoted, or the outcome of these efforts, will have any negative
impact on their operations. However, as of the date of this
Prospectus, it is not anticipated that shareholders will
experience negative effects on their investment, or on the
services provided in connection therewith, as a result of Year
2000 transition implementation. The Adviser and Distributor
have advised Management that they currently anticipate that
their systems will be Year 2000 compliant, but there can be no
assurance that they will be successful, or that interaction with
other service providers will not impair the Adviser's or
Distributor's services at that time. Also, Carillon Fund's
performance could be hurt if a computer system failure at a
company or governmental unit, in the United States or
particularly overseas, affected the price of securities that
Funds own.
S&P, FRANK RUSSELL AND NASDAQ DISCLAIMER
The S&P 500 is an unmanaged index of common stocks comprised of
500 industrial, financial, utility and transportation companies.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard &
Poor's 500(R)", "500", "S&P MidCap 400 Index", and "Standard &
Poor's MidCap 400 Index" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Carillon Fund.
Carillon Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or
warranty, express or implied, to the beneficial owners of
Carillon Fund or any member of the public regarding the
advisability of investing in securities generally or in Carillon
Fund particularly or the ability of the S&P 500 Index or the S&P
MidCap 400 Index to track general stock market performance.
S&P's only relationship to Carillon Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500
Index and the S&P MidCap 400 Index which is determined, composed
and calculated by S&P without regard to Carillon Fund or the
Funds. S&P has no obligation to take the needs of Carillon Fund
or the beneficial owners of the Funds into consideration in
determining, composing or calculating the S&P 500 Index and the
S&P MidCap 400 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of
the Funds or the timing of the issuance or sale of the Funds or
in the determination or calculation of the equation by which the
Funds are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or
trading of Carillon Fund.
The Russell 2000 Index is a trademark/service mark of the Frank
Russell Company. Russell is a trademark of the Frank Russell
Company. Carillon Fund and the Russell 2000 Small Cap Index
Fund are not promoted, sponsored or endorsed by, nor in any way
affiliated with Frank Russell Company. Frank Russell is not
responsible for and has not reviewed the Prospectus, and Frank
Russell makes no representation or warranty, express or implied,
as to its accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time and
without notice, to alter, amend, terminate or in any way change
its Index. Frank Russell has no obligation to take the needs of
any particular fund or its participants or any other product or
person into consideration in determining, composing or
calculating the Index.
Frank Russell Company's publication of the Index in no way
suggests or implies an opinion by Frank Russell Company as to
the attractiveness or appropriateness of the investment in any
or all securities upon which the Index is based. FRANK RUSSELL
COMPANY MAKES NO REPRESENTATION, WARRANTY, OR GUARANTEE AS TO
THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX OR DATA INCLUDED IN THE INDEX. FRANK RUSSELL COMPANY
MAKES NO REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE
RESULTS OF USE, OF THE INDEX OR ANY DATA INCLUDED THEREIN, OR
ANY SECURITY (OR COMBINATION THEREOF) COMPRISING THE INDEX.
FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR IMPLIED
WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY OF ANY KIND,
INCLUDING, WITHOUT MEANS OF LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE INDEX OR ANY DATA OR ANY SECURITY (OR COMBINATION
THEREOF) INCLUDED THEREIN.
"Nasdaq" and related marks are trademarks or service marks of
The Nasdaq Stock Market, Inc. "Nasdaq" and have been licensed
for use for certain purposes by Carillon Fund, Inc. and the
Nasdaq 100 Index Fund. The Nasdaq 100 Index is composed and
calculated by Nasdaq without regard to Carillon Fund. Nasdaq
makes no warranty, express or implied, and bears no liability
with respect to the Nasdaq 100 Index Fund. Nasdaq makes no
warranty, express or implied, and bears no liability with
respect to Carillon Fund, its use, or any data included therein.
FINANCIAL HIGHLIGHTS
Since these are new funds, no financial highlights are
available.
<PAGE>
APPENDIX A: RATINGS
CORPORATE BOND RATINGS
Moody's Investors Services, Inc.
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edge." 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 make the long-term risks appear
somewhat larger than in 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.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Standard & Poor's Rating Services
AAA This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in a small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effect of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB-B-CCC-CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominately speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
Moody's Investors Services, Inc.
A Prime rating is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. Issuers rated Prime are
further referred to by use of numbers 1, 2 and 3 to denote
relative strength within this highest classification. Among the
factors considered by Moody's in assigning ratings for an issuer
are the following:
> management;
> economic evaluation of the industry and an appraisal of
speculative type risks which may be inherent in certain
areas;
> competition and customer acceptance of products;
> liquidity;
> amount and quality of long-term debt;
> ten-year earnings trends;
> financial strength of a parent company and the
relationships which exist with the issuer; and
> recognition by management of obligations which may
be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Standard & Poor's Rating Services
Commercial paper rated A by Standard & Poor's Rating Services
has the following characteristics:
> Liquidity ratios are better than the industry average.
> Long-term senior debt rating is "A" or better. In some
cases, BBB credits may be acceptable.
> The issuer has access to at least two additional
channels of borrowing.
> Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances.
> Typically, the issuer's industry is well established,
the issuer has a strong position within its industry and
the reliability and quality of management is
unquestioned.
Issuers rated A are further referred to by use of numbers 1, 2
and 3 to denote relative strength within this classification.
<PAGE>
APPENDIX B: S&P 500, S&P MIDCAP 400, RUSSELL 2000 SMALL CAP AND
NASDAQ 100 INDEX RETURNS
S&P 500 Index Returns
To illustrate the market risks relating to changes in stock
prices, the following table shows the average returns of the S&P
500 Index for the period from 1926 to 1998:
<TABLE>
<CAPTION>
S&P 500 Index Returns (1926-1998)
Over Various Time Horizons
---------------------------------
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best 54.0% 24.1% 20.1% 17.6%
Worst -43.3% -12.5% -0.9% 3.1%
Average 13.2% 10.7% 11.0% 11.1%
</TABLE>
Average return may NOT be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the S&P 500 Index
and NOT of our S&P 500 Index Fund. There is no assurance that
the Fund will be able to replicate the performance of the Index.
S&P MidCap 400 Index Returns
To illustrate the market risks relating to changes in stock
prices, the following table shows the average returns of the S&P
MidCap 400 Index for the period from the inception date of the
Index (July, 1991) to 1998:
<TABLE>
<CAPTION>
S&P MidCap 400 Index Returns (July, 1991-1998)
Over Various Time Horizons
----------------------------------------------
1 Year 5 Years
------ -------
<S> <C> <C>
Best 32.3% 32.3%
Worst -3.6% -3.6%
Average 17.7% 19.6%
</TABLE>
Average return may NOT be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the S&P MidCap
400 Index and NOT of our S&P MidCap 400 Index Fund. There is no
assurance that the Fund will be able to replicate the
performance of the Index. Further, for almost the entire period
of the existence of the S&P MidCap 400 Index, there has been a
bull market. There can be no assurance that these market
conditions will continue.
Russell 2000 Small Cap Index Returns
<TABLE>
<CAPTION>
Russell 2000 Small Cap Returns (1995-Sept 99)
Over Various Time Horizons
--------------------------------------------
1 Year 3 Years
------ -------
<S> <C> <C>
Best 46.05% 28.15%
Worst -27.15% 4.81%
Average 13.63% 13.77%
</TABLE>
Average return may NOT be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the Russell 2000
Small Cap Index and NOT of our Russell 2000 Small Cap Index
Fund. There is no assurance that the Fund will be able to
replicate the performance of the Index.
Nasdaq 100 Index Returns
<TABLE>
<CAPTION>
Nasdaq 100 Index Returns (1995-Sept.1999)
Over Various Time Horizons
-----------------------------------------
1 Year 3 Years
------ -------
<S> <C> <C>
Best 85.47% 51.36%
Worst 20.77% 32.19%
Average 46.55% 42.40%
</TABLE>
Average return may NOT be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the Nasdaq 100
Index and NOT of our Nasdaq 100 Index Fund. There is no
assurance that the Fund will be able to replicate the
performance of the Index.
<PAGE>
[Back Cover Page]
A Statement of Additional Information dated December 27, 1999,
which contains further information about the Funds, has been
filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. Additional
information about the Funds' investments is available in
Carillon Fund's annual and semi-annual reports to shareholders.
In Carillon Fund's annual report, you will find a discussion of
the market conditions and investment strategies that
significantly affected the Funds' performance during its last
fiscal year. A copy of the Statement of Additional Information
or its annual and semi-annual reports may be obtained without
charge by calling Carillon Fund at (513) 595-2600, or by writing
Carillon Fund at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
Carillon Fund's Statement of Additional Information, annual and
semi-annual reports and certain other information about the
Funds can be reviewed and copied at the SEC's public reference
room (which will send copies of these documents upon request and
for a fee). Information about the operation of the SEC's public
reference room may be obtained by calling the SEC at 1-800-SEC-
0330. Copies of Fund documents may be requested by writing to
the Public reference Section of the SEC, Washington, D.C. 20549-
6009.
These fund Documents and other information about the Funds are
also available without charge at the SEC's web site:
http://www.sec.gov.
File 811-04000
<PAGE>
December 27, 1999
CARILLON FUND, INC.
- -------------------------------------------------------------
The Russell 2000 Small Cap Index Portfolio and the Nasdaq
100 Index Portfolio (individually, the "Portfolio" and
collectively, the "Portfolios" ) are two of twenty-three
investment portfolios comprising series of Carillon Fund, Inc.,
an open-end, series, management investment company.
The Russell 2000 Small Cap Index Portfolio seeks investment
results that correspond to the investment performance of U.S.
common stocks, as represented by the Russell 2000 Index.
The Nasdaq 100 Index Portfolio seeks investment results
that correspond to the investment performance of U.S. common
stocks, as represented by the Nasdaq 100 Index.
We cannot assure you that the Portfolios will meet their
objectives.
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE
ALLOCATING YOUR CONTRACT VALUES TO THE PORTFOLIOS. WE SUGGEST
THAT YOU READ IT AND KEEP IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE.
NEITHER THE SEC NOR ANY STATE HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
UCCF _____
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION TO THE FUND ...................................
PORTFOLIO PROFILES .........................................
RUSSELL 2000 SMALL CAP INDEX PORTFOLIO PROFILE ...........
Nasdaq 100 INDEX PORTFOLIO PROFILE .......................
PORTFOLIO OPERATING EXPENSES ...............................
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS ............
FOREIGN SECURITIES .......................................
REPURCHASE AGREEMENTS ....................................
REVERSE REPURCHASE AGREEMENTS ............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS .......
LENDING PORTFOLIO SECURITIES .............................
MIXED FUNDING ............................................
OTHER INFORMATION ........................................
FUND MANAGEMENT ............................................
INVESTMENT ADVISER .......................................
ADVISORY FEE .............................................
EXPENSES .................................................
CAPITAL STOCK ............................................
VALUATION OF PORTFOLIO SHARES ............................
DIVIDENDS AND DISTRIBUTIONS ................................
TAXES ......................................................
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT ..........
PREPARING FOR YEAR 2000 ....................................
APPENDIX A: RATINGS .......................................
CORPORATE BOND RATINGS ....................................
COMMERCIAL PAPER RATINGS ..................................
APPENDIX B: PERFORMANCE TABLE ...............................
<PAGE>
INTRODUCTION TO THE FUND
This prospectus explains the objectives, risks and strategies of
the Russell 2000 Small Cap Index Portfolio and the Nasdaq 100
Index Portfolio, which are two of twenty-three funds of Carillon
Fund, Inc. (the "Fund"). The Portfolios are mutual funds used
solely as investment options for variable annuity or variable
life insurance contracts offered by The Union Central Life
Insurance Company ("Union Central"). Although you cannot
purchase shares of the Portfolios directly, you can instruct
Union Central how to allocate your contract's values to the
Portfolios. The Portfolio Profiles below summarizes important
facts about the Portfolios, including its investment objective,
strategy, risks and past investment performance. More detailed
information about some of the Portfolios' investment policies
and strategies is provided after the Profiles, along with
information about Portfolio expenses.
PORTFOLIO PROFILES
RUSSELL 2000 SMALL CAP INDEX PORTFOLIO PROFILE
Investment Objective
The Russell 2000 Small Cap Index Portfolio seeks investment
results that correspond to the investment performance of U.S.
commons stocks, as represented by the Russell 2000 Index.
Investment Strategies
The Russell 2000 Small Cap Index Portfolio seeks to
substantially replicate the total return of the securities
comprising the Russell 2000 Index, taking into consideration
redemptions, sales of additional shares, and other adjustments
described below. Precise replication of the capitalization
weighting of the securities in the Russell 2000 Index is not
feasible. The Russell 2000 Index Portfolio will attempt to
achieve, in both rising and falling markets, a correlation of at
least 95% between the total return of its net assets before
expenses and the total return of the Russell 2000 Small Cap
Index. A correlation of 100% would represent perfect
correlation between the Portfolio and index performance. The
correlation of the Portfolio's performance to that of the
Russell 2000 Index should increase as the Portfolio grows.
There can be no assurance that the Portfolio will achieve a 95%
correlation.
Although the Adviser will attempt to invest as much of the
Russell 2000 Small Cap Index Portfolio's assets as is practical
in stocks included among the Russell 2000 Index and futures
contracts and options relating thereto, a portion of the
Portfolio may be invested in money market instruments pending
investment or to meet redemption requests or other needs for
liquid assets. The Portfolio may also temporarily invest in S&P
500 Index futures and/or S&P MidCap 400 Index futures if, in the
opinion of the Adviser, it is not practical to invest in Russell
2000 Index futures at a particular time due to liquidity or
price considerations. In addition, for temporary defensive
purposes, the Portfolio may invest in government securities,
money market instruments, or other fixed-income securities, or
retain cash or cash equivalents.
The Portfolio may invest up to 20% of its assets in Russell 2000
futures contracts or options (or S&P MidCap 400 or S&P 500
futures contracts and options if, in the opinion of the Adviser,
it is not practical to invest in Russell 2000 Index futures at a
particular time due to liquidity or price considerations) in
order to invest uncommitted cash balances, to maintain liquidity
to meet shareholder redemptions, or minimize trading costs. The
Portfolio may also sell covered calls on futures contracts or
individual securities held in the Portfolio. As a temporary
investment strategy, until the Portfolio reaches $50 million in
net assets, the Portfolio may invest up to 100% of its assets in
such futures and/or options contracts.
Primary Risks
> Market risk: The Russell 2000 Small Cap Index Portfolio's
total return, like stock prices generally, will fluctuate
within a wide range in response to stock market trends, so a
share of the Portfolio could drop in value over short or even
long periods. Stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
> Investment style risk: Stocks of small sized (small-cap)
companies, such as those listed among the Russell 2000 Index
occasionally go through cycles of doing worse (or better)
than the stock markets in general or other types of
investments.
> Correlation risk: Because the Russell 2000 Small Cap Index
Portfolio has expenses, and the Russell 2000 Index does not,
the Portfolio may be unable to replicate precisely the
performance of the Index. While the Portfolio remains small,
it may have a greater risk that its performance will not
match that of the Index.
Since this is a new Portfolio, there is no bar chart or
performance table.
Nasdaq 100 INDEX PORTFOLIO PROFILE
Investment Objective
The Nasdaq 100 Index Portfolio seeks investment results that
correspond to the investment performance of U.S. common stocks,
as represented by the Nasdaq 100 Index.
Investment Strategies
The Nasdaq 100 Index Portfolio seeks to substantially replicate
the total return of the securities comprising the Nasdaq 100
Index, taking into consideration redemptions, sales of
additional shares, and other adjustments described below.
Precise replication of the capitalization weighting of the
securities in the Nasdaq 100 Index is not feasible. The Nasdaq
100 Index Portfolio will attempt to achieve, in both rising and
falling markets, a correlation of at least 95% between the total
return of its net assets before expenses and the total return of
the Nasdaq 100 Index. A correlation of 100% would represent
perfect correlation between the Portfolio and index performance.
The correlation of the Portfolio's performance to that of the
Nasdaq 100 Index should increase as the Portfolio grows. There
can be no assurance that the Portfolio will achieve a 95%
correlation.
The Nasdaq 100 Index Portfolio may invest up to 5% of its assets
in Nasdaq 100 Shares . Nasdaq 100 Shares are units of
beneficial interest in a unit investment trust, representing
proportionate undivided interests in a portfolio of securities
in substantially the same weighting as the common stocks that
comprise the Nasdaq 100 Index.
The Portfolio may invest up to 20% of its assets in Nasdaq 100
futures contracts and options in order to invest uncommitted
cash balances, to maintain liquidity to meet shareholder
redemptions, or minimize trading costs. The Portfolio may also
sell covered calls on futures contracts or individual securities
held in the Portfolio. As a temporary investment strategy,
until the Portfolio reaches $50 million in net assets, the
Portfolio may invest up to 100% of its assets in such futures
and/or options contracts.
Although the Adviser will attempt to invest as much of the
Nasdaq 100 Index Portfolio's assets as is practical in stocks
included among the Nasdaq 100 Index and futures contracts and
options relating thereto, a portion of the Portfolio may be
invested in money market instruments pending investment or to
meet redemption requests or other needs for liquid assets. In
addition, for temporary defensive purposes, the Portfolio may
invest in government securities, money market instruments, or
other fixed-income securities, or retain cash or cash
equivalents.
Primary Risks
> Market risk: The Nasdaq 100 Index Portfolio's total return,
like stock prices generally, will fluctuate within a wide
range in response to stock market trends, so a share of the
Portfolio could drop in value over short or even long
periods. Stock markets tend to move in cycles, with periods
of rising prices and periods of falling prices.
> Investment style risk: Stocks of companies or industries
that are heavily weighted in the Nasdaq 100 Index, such as
technology, telecommunications, internet and biotechnology
companies, occasionally go through cycles of doing worse (or
better) than the stock markets in general, as measured by
other more broad-based stock indexes, or other types of
investments.
> Concentration risk: The Nasdaq 100 Index Portfolio is
subject to the risk of an investment portfolio that may be
highly concentrated in a particular industry (e.g.,
Technology) and, due to concentration in sectors
characterized by relatively higher volatility in price
performance, may be more volatile when compared to other
broad-based stock indexes. The Nasdaq 100 Index Portfolio is
also subject to the risks specific to the performance of a
few individual component securities that currently represent
a highly concentrated weighting in the Index (e.g. Microsoft
Corporation, Intel Corporation, Cisco Systems Inc., etc.).
> Correlation risk: Because the Nasdaq 100 Index Portfolio has
expenses, and the Nasdaq 100 Index does not, the Portfolio
may be unable to replicate precisely the performance of the
Index. While the Portfolio remains small, it may have a
greater risk that its performance will not match that of the
Index.
> Nondiversification risk: Under securities laws, the Portfolio
is considered a "nondiversified investment company." The
Portfolio is, however, subject to diversification limits
under federal tax law that permit it to invest more than 5%,
but not more than 25%, of its assets in a single issuer with
respect to up to 50% of its total assets as of the end of
each of the Portfolio's tax quarters.
In an effort to closely replicate the performance of the
Nasdaq 100-Index, the Portfolio will invest its assets in the
individual stocks comprised in the Nasdaq 100 Index.
Furthermore, the investment in the individual stocks in the
Portfolio will be weighted so that their percentage weighting in
the Portfolio is approximately the same as their percentage
weighting in the underlying Nasdaq 100 Index. As a result of
this investment strategy, the Nasdaq 100 Index Portfolio is a
nondiversified Portfolio.
Notwithstanding the above, the Nasdaq 100 Index Portfolio
intends to qualify as a Registered Investment Company ("RIC")
under federal tax law. At any point in time, if following the
investment strategy outlined above, of properly weighting the
Portfolios investments in individual securities to substantially
replicate the performance of the Nasdaq 100 Index, would put the
Portfolio in jeopardy of failing the RIC rule on
diversification, the Portfolio intends to immediately alter its
investment strategy to comply with the RIC rules. Such
alteration would include reducing investment exposure, pro-rata,
to those investments causing the Portfolio to be in jeopardy of
violating the RIC rules.
Since this is a new Portfolio, there is no bar chart or
performance table.
PORTFOLIO OPERATING EXPENSES
EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
Total
Fund
Management Other Operating
Fees Expenses** Expenses**
- -----------------------------------------------------------------
<S> <C> <C> <C>
Russell 2000 Small Cap
Index Portfolio .35% .40% .75%*
Nasdaq 100 Index
Portfolio .35% .30% .65%*
</TABLE>
* Total Operating Expenses in excess of .75% for the Russell
2000 Small Cap Index Portfolio and in excess of .65% for the
Nasdaq 100 Index Portfolio are paid by the investment
adviser.
** "Other Expenses" are based on estimates.
EXAMPLE
The table below shows the amount of expenses a Shareholder would
pay on a $10,000 investment assuming a 5% annual return.+
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Russell 2000 Small Cap
Index Portfolio $77 $241
Nasdaq 100 Index
Portfolio $67 $209
</TABLE>
The purpose of this table is to help you understand the
Portfolio expenses that you may bear indirectly through your
purchase of a Union Central contract. THIS TABLE DOES NOT
INCLUDE ANY CONTRACT OR VARIABLE ACCOUNT CHARGES. Those
charges, along with the Portfolio's expenses, are contained in
the prospectus for your contract.
This table should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
+ The 5% annual return is a standardized rate prescribed for
the purpose of this example and does not represent the past
or future return of the Portfolio.
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS
FOREIGN SECURITIES
Each Portfolio may invest in foreign securities that are
suitable for the Portfolio's investment objectives and policies.
Each Portfolio is limited to investing in those foreign
securities included in the respective Indexes.
Investing in foreign securities involves risks which are not
ordinarily associated with investing in domestic securities,
including:
> political or economic instability in the foreign country;
> diplomatic developments that could adversely affect the
value of the foreign security;
> foreign government taxes;
> costs incurred by a Portfolio in converting among various
currencies;
> fluctuation in currency exchange rates;
> the possibility of imposition of currency controls,
expropriation or nationalization measures or withholding
dividends at the source;
> in the event of a default on a foreign debt security,
possible difficulty in obtaining or enforcing a judgment
against the issuer;
> less publicly available information about foreign issuers
than domestic issuers;
> foreign accounting and financial reporting requirements
are generally less extensive than those in the U.S.;
> securities of foreign issuers are generally less liquid
and more volatile than those of comparable domestic
issuers;
> there is often less governmental regulation of exchanges,
broker-dealers and issuers and brokerage costs may be
higher than in the United States.
Foreign securities purchased by the Portfolios may include
securities issued by companies located in countries not
considered to be major industrialized nations. Such countries
are subject to more economic, political and business risk than
major industrialized nations, and the securities they issue may
be subject to abrupt or erratic price fluctuations, and are
expected to be more volatile and more uncertain as to payments
of interest and principal. Developing countries may have
relatively unstable governments, economies based only on a few
industries, and securities markets that trade only a small
number of securities. The secondary market for such securities
is expected to be less liquid than for securities of major
industrialized nations.
REPURCHASE AGREEMENTS
Each Portfolio may invest in Repurchase Agreements. A
repurchase agreement is a transaction where a Portfolio buys a
security at one price and simultaneously agrees to sell that
same security back to the original owner at a higher price.
Neither of the Portfolios engages extensively in repurchase
agreements, but each may engage in them from time to time. The
Adviser reviews the creditworthiness of the other party to the
agreement and must find it satisfactory before engaging in a
repurchase agreement. A majority of these agreements will mature
in seven days or less. In the event of the bankruptcy of the
other party, a Portfolio could experience delays in recovering
its money, may realize only a partial recovery or even no
recovery, and may also incur disposition costs.
REVERSE REPURCHASE AGREEMENTS
Each Portfolio may enter into reverse repurchase agreements.
Under reverse repurchase agreements, the Portfolio transfers
possession of Portfolio securities to banks in return for cash
in an amount equal to a percentage of the Portfolio securities'
market value and agrees to repurchase the securities at a future
date by repaying the cash with interest. The Portfolio retains
the right to receive interest and principal payments from the
securities while they are in the possession of the financial
institutions. While a reverse repurchase agreement is in
effect, the Custodian will segregate from other Portfolio assets
an amount of cash or liquid high quality debt obligations equal
in value to the repurchase price (including any accrued
interest).
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Portfolio may enter into futures contracts for hedging
purposes, including protecting the price or interest rate of
securities that the Portfolio intends to buy, that relate to
securities in which it may directly invest and indices comprised
of such securities and may purchase and write call and put
options on such contracts. Each Portfolio may invest up to 20%
of its assets in such futures and/or options contracts. As a
temporary investment strategy, until the Portfolio reaches $50
million in net assets, each Portfolio may invest up to 100% of
its assets in such futures and/or options contracts.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments (such as U.S.
Treasury bills, notes and bonds, commercial paper and bank
certificates of deposit or the cash value of a financial
instrument index at a specified future date at a price agreed
upon when the contract is made). A stock index futures contract
is a contract to buy or sell specified units of a stock index at
a specified future date at a price agreed upon when the contract
is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the
actual stocks making up the index takes place. Rather, upon
expiration of the contract, settlement is made by exchanging
cash in an amount equal to the difference between the contract
price and the closing price of the index at expiration, net of
variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Portfolio is required to deposit an initial margin
with the Custodian for the benefit of the futures broker. The
initial margin serves as a "good faith" deposit that the
Portfolio will honor their futures commitments. Subsequent
payments (called "variation margin") to and from the broker are
made on a daily basis as the price of the underlying investment
fluctuates. In the event of the bankruptcy of the futures
broker that holds margin on behalf of the Portfolio, the
Portfolio may be entitled to return of margin owed to it only in
proportion to the amount received by the broker's other
customers. The Adviser will attempt to minimize this risk by
monitoring the creditworthiness of the futures brokers with
which the Portfolio does business.
Because the value of an index future depends primarily on the
value of its underlying index, the performance of the broad-
based contracts will generally reflect broad changes in market
prices. However, because a particular Portfolio may not be
invested in precisely the same proportion as a particular Index,
it is likely that the price changes of the Portfolio's index
futures positions will not match the price changes of the
Portfolio's other investments.
Options on futures contracts give the purchaser the right to
assume a position at a specified price in a futures contract at
any time before expiration of the option contract.
Each Portfolio may engage in certain limited options strategies
as hedging techniques as it relates to options on futures
contracts. These options strategies are limited to
selling/writing call option contracts on futures contracts on
such securities held by the Portfolio (covered calls). Each
Portfolio may purchase call option contracts to close out a
position acquired through the sale of a call option. Each
Portfolio will only write options that are traded on a domestic
exchange or board of trade.
Each Portfolio may write and purchase covered put and call
options on securities in which it may directly invest. Option
transactions of the Portfolios will be conducted so that the
total amount paid on premiums for all put and call options
outstanding will not exceed 5% of the value of the Portfolio's
total assets. Further, the Portfolio will not write put or call
options or combination thereof if, as a result, the aggregate
value of all securities or collateral used to cover its
outstanding options would exceed 25% of the value of the
Portfolio's total assets.
A call option is a short-term contract (generally nine months or
less) which gives the purchaser of the option the right to
purchase from the seller of the option (the Portfolio) the
underlying security or futures contract at a fixed exercise
price at any time prior to the expiration of the option period
regardless of the market price of the underlying instrument
during the period. A futures contract obligates the buyer to
purchase and the seller to sell a predetermined amount of a
security at a predetermined price at a selected time in the
future. A call option on a futures contract gives the purchaser
the right to assume a "long" position in a futures contract,
which means that if the option is exercised the seller of the
option (the Portfolio) would have the legal right (and
obligation) to sell the underlying security to the purchaser at
the specified price and future time.
As consideration for the call option, the buyer pays the seller
(the Portfolio) a premium, which the seller retains whether or
not the option is exercised. The selling of a call option will
benefit the Portfolio if, over the option period, the underlying
security or futures contract declines in value or does not
appreciate to a price higher than the total of the exercise
price and the premium. The Portfolio risks an opportunity loss
of profit if the underlying instrument appreciates to a price
higher than the exercise price and the premium. When the Adviser
anticipates that interest rates will increase, the Portfolio may
write call options in order to hedge against an expected decline
in value of Portfolio securities.
The Portfolio may close out a position acquired through selling
a call option by buying a call option on the same security or
futures contract with the same exercise price and expiration
date as the option previously sold. A profit or loss on the
transaction will result depending on the premium paid for buying
the closing call option. If a call option on a futures contract
is exercised, the Portfolio intends to close out the position
immediately by entering into an offsetting transaction or by
delivery of the underlying security (or other related
securities).
Options transactions may increase the Portfolio's Portfolio
turnover rate and attendant transaction costs, and may be
somewhat more speculative than other investment strategies. It
may not always be possible to close out an options position, and
with respect to options on futures contracts there is a risk of
imperfect correlation between price movements of a futures
contract (or option thereon) and the underlying security.
OPTIONS ON SECURITIES INDICES
Each Portfolio may purchase or sell options on their respective
Indexes, subject to the limitations set forth above and provided
such options are traded on a national securities exchange or in
the over-the-counter market. Options on securities indices are
similar to options on securities except there is no transfer of
a security and settlement is in cash. A call option on a
securities index grants the purchaser of the call, for a premium
paid to the seller, the right to receive in cash an amount equal
to the difference between the closing value of the index and the
exercise price of the option times a multiplier established by
the exchange upon which the option is traded.
LENDING PORTFOLIO SECURITIES
Each Portfolio may lend Portfolio securities with a value up to
10% of its total assets. Such loans may be terminated at any
time. The Portfolio will continuously maintain as collateral
cash or obligations issued by the U.S. government, its agencies
or instrumentalities in an amount equal to not less than 100% of
the current market value (on a daily marked-to-market basis) of
the loaned securities plus declared dividends and accrued
interest.
The Portfolio will retain most rights of beneficial ownership,
including the right to receive dividends, interest or other
distributions on loaned securities. Should the borrower of the
securities fail financially, the Portfolio may experience delay
in recovering the securities or loss of rights in the
collateral. Loans will be made only to borrowers that the
Adviser deems to be of good financial standing.
MIXED FUNDING
Each Portfolio offers its shares, without sales charge, only for
purchase by Union Central and its separate accounts to fund
benefits under both variable annuity contracts and variable
universal life insurance policies. Carillon Fund's Board of
Directors will monitor each Portfolio for the existence of any
material irreconcilable conflict between the interests of
variable annuity contract owners investing in the Portfolio and
interests of holders of variable universal life insurance
policies investing in the Portfolio. Union Central will report
any potential or existing conflicts to the Directors of Carillon
Fund. If a material irreconcilable conflict arises, Union
Central will, at its own cost, remedy such conflict up to and
including establishing a new registered management company and
segregating the assets underlying the variable annuity contracts
and variable universal life insurance policies. It is possible
that at some later date the Portfolio may offer shares to other
investors. The Portfolio continuously offers shares in the
Portfolio at prices equal to the net asset value of the shares
of the Portfolio.
OTHER INFORMATION
In addition to the investment policies described above, each
Portfolio's investment program is subject to further
restrictions which are described in the Statement of Additional
Information. Unless otherwise specified, each Portfolio's
investment objectives, policies and restrictions are not
fundamental policies and may be changed without shareholder
approval. Shareholder inquiries and requests for each
Portfolio's annual report should be directed to Carillon Fund at
(513) 595-2600, or at P.O. Box 40409, Cincinnati, Ohio 45240-0409.
FUND MANAGEMENT
INVESTMENT ADVISER
The Adviser is Carillon Advisers, Inc., P.O. Box 40407,
Cincinnati, Ohio 45240. The Adviser was incorporated under the
laws of Ohio on August 18, 1986, as successor to the advisory
business of Carillon Investments, Inc., the investment adviser
for the Portfolio since 1984. The Adviser is a wholly-owned
subsidiary of Union Central, a mutual life insurance company
organized in 1867 under the laws of Ohio. Subject to the
direction and authority of Carillon Fund's board of directors,
the Adviser manages the investment and reinvestment of the
assets of each Portfolio and provides administrative services
and manages each Portfolio's business affairs.
The team of Gary R. Rodmaker, CFA and David M. Weisenburger, CFA
are primarily responsible for the day-to-day management of each
Portfolio.
Mr. Rodmaker is the Corporate Bond Fund Manager of the Adviser
and has been affiliated with the Adviser and Union Central since
1989. Mr. Weisenburger is the Assistant Fund Manager of the
Adviser and has been affiliated with the Adviser and Union
Central since July, 1996.
ADVISORY FEE
The Portfolio pays the Adviser, as full compensation for all
facilities and services furnished, a monthly fee equal to .35%
of the current value of the net assets of each Portfolio.
EXPENSES
Each Portfolio's expenses are deducted from total income before
dividends are paid. These expenses, which are accrued daily,
include: the fee of the Adviser; taxes; legal, dividend
disbursing, bookkeeping and transfer agent, custodian and
auditing fees; and printing and other expenses relating to the
Portfolio's operations which are not expressly assumed by the
Adviser under its investment advisory agreement with the
Portfolio. Certain expenses are paid by the particular Portfolio
that incurs them, while other expenses are allocated among the
Portfolios on the basis of their relative size (i.e., the amount
of their net assets). The Adviser will pay any expenses of the
Russell 2000 Small Cap Index Portfolio, other than the advisory
fee for that Portfolio, to the extent that such expenses exceed
.40% of the Portfolio's net assets. The Adviser will pay any
expenses of the Nasdaq 100 Index Portfolio, other than the
advisory fee for that Portfolio, to the extent that such
expenses exceed .30% of the Portfolio's net assets.
CAPITAL STOCK
Carillon Fund currently has twenty-one classes of stock, one for
each portfolio. Shares (including fractional shares) of each
portfolio have equal rights with regard to voting, redemptions,
dividends, distributions, and liquidations with respect to that
portfolio. When issued, shares are fully paid and nonassessable
and do not have preemptive or conversion rights or cumulative
voting rights. Each Portfolio's sole shareholder, Union Central,
will vote Portfolio shares allocated to its registered separate
accounts in accordance with instructions received from its
contract owners.
VALUATION OF PORTFOLIO SHARES
Portfolio shares are sold at the price next computed after
receipt of a purchase or redemption order. The net asset value
of the shares of each Portfolio is determined once daily, Monday
through Friday, as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m., Eastern Time), when
there are purchases or redemptions of Portfolio shares, except:
> when the New York Stock Exchange is closed and
> any day on which changes in the value of the portfolio
securities of the Portfolio will not materially affect the
current net asset value of the shares of a Portfolio.
Portfolio shares are valued by:
> adding the values of all securities and other assets of
the Portfolio,
> subtracting liabilities and expenses, and
> dividing by the number of shares of the Portfolio
outstanding.
Expenses, including the investment advisory fee payable to the
Adviser, are accrued daily.
Securities held by the Portfolio, except for money market
instruments maturing in 60 days or less, are valued at their
market value if market quotations are readily available. Other-
wise, such securities are valued at fair value as determined in
good faith by Carillon Fund's board of directors, although the
actual calculations may be made by persons acting pursuant to
the direction of the board. All money market instruments with a
remaining maturity of 60 days or less are valued on an amortized
cost basis.
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio intends to distribute substantially all of the
net investment income, if any, of the Portfolio. For dividend
purposes, net investment income of the Portfolio consists of all
dividends or interest earned by the Portfolio, minus estimated
expenses (including the investment advisory fee). All net
realized capital gains, if any, of the Portfolio are distributed
periodically, no less frequently than annually. All dividends
and distributions of the Portfolio are reinvested in additional
shares of the Portfolio at net asset value.
TAXES
Each Portfolio has qualified and has elected to be taxed as a
"regulated investment company" under the provisions of
Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Portfolio qualifies as a "regulated
investment company" and complies with the appropriate provisions
of the Code, the Portfolio will pay no federal income taxes on
the amounts distributed.
Because the sole shareholder of each Portfolio is Union Central,
no discussion is included herein as to the federal income tax
consequences to shareholders. For information about the federal
tax consequences of purchasing the contracts, see the prospectus
for your contract.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin, acts as
Custodian of each Portfolio's assets. Firstar Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-0701,
and is the bookkeeping, transfer and dividend disbursing agent
for the Portfolios.
PREPARING FOR YEAR 2000
Like all financial services providers, the Adviser use systems
that may be affected by Year 2000 transition issues. Carillon
Fund also relies on service providers, including its custodian,
transfer agent, and dividend disbursing agent, that may be
affected. The Adviser have advised Carillon Fund that they have
implemented a Year 2000 transition plan. Carillon Fund's
Management is in the process of confirming that the service
providers to the Fund are also engaged in similar transition
plans. While the Adviser has made representations to Management
that it is implementing a Year 2000 transition plan, the
resources that are being devoted to this effort are substantial
and it is difficult to predict with precision whether the amount
of resources ultimately devoted, or the outcome of these
efforts, will have any negative impact on their operations.
However, as of the date of this Prospectus, it is not
anticipated that shareholders will experience negative effects
on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation.
The Adviser has advised Management that it currently anticipates
that its systems will be Year 2000 compliant, but there can be
no assurance that it will be successful, or that interaction
with other service providers will not impair the Adviser's
services at that time. Also, Carillon Fund's performance could
be hurt if a computer system failure at a company or
governmental unit, in the United States or particularly
overseas, affected the price of securities that Portfolios own.
<PAGE>
APPENDIX A: RATINGS
CORPORATE BOND RATINGS
Moody's Investors Services, Inc.
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edge." 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 make the long-term risks appear
somewhat larger than in 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.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Standard & Poor's Rating Services
AAA This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in a small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effect of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB-B-CCC-CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominately speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
Moody's Investors Services, Inc.
A Prime rating is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. Issuers rated Prime are
further referred to by use of numbers 1, 2 and 3 to denote
relative strength within this highest classification. Among the
factors considered by Moody's in assigning ratings for an issuer
are the following:
> management;
> economic evaluation of the industry and an appraisal of
speculative type risks which may be inherent in certain
areas;
> competition and customer acceptance of products;
> liquidity;
> amount and quality of long-term debt;
> ten-year earnings trends;
> financial strength of a parent company and the
relationships which exist with the issuer; and
> recognition by management of obligations which may be
present or may arise as a result of public interest
questions and preparations to meet such obligations.
Standard & Poor's Rating Services
Commercial paper rated A by Standard & Poor's Rating Services
has the following characteristics:
> Liquidity ratios are better than the industry average.
> Long-term senior debt rating is "A" or better. In some
cases, BBB credits may be acceptable.
> The issuer has access to at least two additional channels
of borrowing.
> Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances.
> Typically, the issuer's industry is well established, the
issuer has a strong position within its industry and the
reliability and quality of management is unquestioned.
Issuers rated A are further referred to by use of numbers 1, 2
and 3 to denote relative strength within this classification.
A Statement of Additional Information dated December 27, 1999,
which contains further information about the Portfolios, has
been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. Additional
information about the Portfolios' investments is available in
the Portfolios' annual and semi-annual reports to shareholders.
In the Portfolios' annual report, you will find a discussion of
the market conditions and investment strategies that
significantly affected the Portfolios' performance during its
last fiscal year. A copy of the Statement of Additional
Information or its annual and semi-annual reports may be
obtained without charge by calling the Portfolios at (513)
595-2600, or by writing the Portfolios at P.O. Box 40409,
Cincinnati, Ohio 45240-0409.
The Portfolios' Statement of Additional Information, annual and
semi-annual reports and certain other information about the
Portfolios can be reviewed and copied at the SEC's public
reference room (which will send copies of these documents upon
request and for a fee). Information about the operation of the
SEC's public reference room may be obtained by calling the SEC
at 1-800-SEC-0330. Copies of Portfolio documents may be
requested by writing to the Public reference Section of the SEC,
Washington, D.C. 20549-6009.
These Portfolio Documents and other information about the
Portfolio are also available without charge at the SEC's web
site: http://www.sec.gov.
File 811-04000
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
CARILLON FUND, INC.
- -----------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
December 27, 1999
This Statement of Additional Information regarding twelve
of the twenty-three Funds of Carillon Fund, Inc. ("Carillon
Fund") is not a prospectus. Much of the information contained
in this Statement of Additional Information expands upon
subjects discussed in the Prospectus. Accordingly, this
Statement should be read in conjunction with Carillon Fund's
current Prospectus, dated December 27, 1999, which may be
obtained by calling Carillon Fund at (513) 595-2600, or
writing Carillon Fund at P.O. Box 40409, Cincinnati, Ohio 45240-
0409.
Carillon Fund is an open-end management investment company.
-------------------
TABLE OF CONTENTS
Page
Investment Policies ( ) ...................................
Money Market Instruments, Other Securities and
Investment Techniques .................................
Certain Risk Factors Relating to HighYield,
High Risk Bonds and Emerging Markets Securities .......
Investments in Foreign Securities ........................
Futures Contracts ........................................
Options ..................................................
Warrants..................................................
Loan Participations and Assignments.......................
Short Sales...............................................
Lending Portfolio Securities .............................
Hybrid Instruments........................................
Investment Restrictions ....................................
Portfolio Turnover .........................................
Management of the Fund ( )..................................
Directors and Officers ..................................
Investment Adviser .......................................
Payment of Expenses ......................................
Advisory Fee .............................................
Investment Advisory Agreement ............................
Administration ...........................................
Service Agreement ........................................
Securities Activities of Adviser .........................
Determination of Net Asset Value ( )........................
Purchase and Redemption of Shares ( )......................
Taxes ( ) .................................................
Fund Transactions and Brokerage ............................
Distributor.................................................
General Information (2).....................................
Capital Stock ............................................
Voting Rights ............................................
Additional Information ...................................
Independent Auditors .......................................
( ) indicates page on which the corresponding section appears in
the Prospectus.
CF ___ 12/99
<PAGE>
CARILLON FUND, INC.
INVESTMENT POLICIES
The following specific policies supplement the Fund's
"Investment Objectives and Policies" set forth in the
Prospectus.
Money Market Instruments, Other Securities and Investment
Techniques
Each Fund may invest in money market instruments whose
characteristics are consistent with the Fund's investment
program and are described below unless explicitly excluded in
the text.
Small Bank Certificates of Deposit. Each Fund, except for the
Short-term Government Fund, may invest in certificates of
deposit issued by commercial banks, savings banks, and savings
and loan associations having assets of less than $1 billion,
provided that the principal amount of such certificates is
insured in full by the Federal Deposit Insurance Corporation
("FDIC"). The FDIC presently insures accounts up to $100,000,
but interest earned above such amount is not insured by the
FDIC.
Repurchase Agreements. A repurchase agreement is an instrument
under which the purchaser (i.e., one of the Funds) acquires
ownership of the obligation (the underlying security) and the
seller (the "issuer" of the repurchase agreement) agrees, at the
time of sale, to repurchase the obligation at a mutually agreed
upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of
return insulated from market fluctuations during such period.
Repurchase agreements usually are for short periods, normally
under one week, and are considered to be loans under the
Investment Company Act of 1940. Funds will not enter into a
repurchase agreement which does not provide for payment within
seven days if, as a result, more than 15% of the value of each
Fund's net assets would then be invested in such repurchase
agreements and other illiquid securities. The Funds will enter
into repurchase agreements only where: (I) the underlying
securities are of the type (excluding maturity limitations)
which the Funds' investment guidelines would allow it to
purchase directly, either in normal circumstances or for
temporary defensive purposes; (ii) the market value of the
underlying securities, including interest accrued, will at all
times equal or exceed the value of the repurchase agreement; and
(iii) payment for the underlying security is made only upon
physical delivery or evidence of book-entry transfer to the
account of the custodian or a bank acting as agent. The
investments by a Fund in repurchase agreements may at times be
substantial when, in the view of the Adviser, unusual market,
liquidity, or other conditions warrant.
If the issuer of the repurchase agreement defaults and does not
repurchase the underlying security, the Fund might incur a loss
if the value of the underlying security declines, and the Fund
might incur disposition costs in liquidating the underlying
security. In addition, if the issuer becomes involved in
bankruptcy proceedings, the Fund may be delayed or prevented
from obtaining the underlying security for its own purposes. In
order to minimize any such risk, the Fund will only engage in
repurchase agreements with recognized securities dealers and
banks determined to present minimal credit risk by the Adviser,
under the direction and supervision of the Board of Directors.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements. Under
reverse repurchase agreements, the Fund transfers possession of
Fund securities to banks in return for cash in an amount equal
to a percentage of the Fund securities' market value and agrees
to repurchase the securities at a future date by repaying the
cash with interest. The Fund retains the right to receive
interest and principal payments from the securities while they
are in the possession of the financial institutions. While a
reverse repurchase agreement is in effect, the Custodian will
segregate from other Fund assets an amount of cash or liquid
high quality debt obligations equal in value to the repurchase
price (including any accrued interest).
U.S. Government Obligations. Securities issued and guaranteed
as to principal and interest by the United States Government
include a variety of Treasury securities, which differ only in
their interest rates, maturities and times of issuance.
Treasury bills have a maturity of one year or less. Treasury
notes have maturities of one to ten years at the time they are
issued and Treasury bonds generally have a maturity of greater
than ten years at the time they are issued.
Government Agency Securities. Government agency securities that
are permissible investments consist of securities either issued
or guaranteed by agencies or instrumentalities of the United
States Government. Agencies of the United States Government
which issue or guarantee obligations include, among others,
Export-Import Banks of the United States, Farmers Home
Administration, Federal Housing Administration, Government
National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley
Authority. Obligations of instrumentalities of the United
States Government include securities issued or guaranteed by,
among others, the Federal National Mortgage Association
("FNMA"), Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal Intermediate Credit Banks, Banks
for Cooperatives, and the U.S. Postal Service. Some of these
securities, such as those guaranteed by GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as
those issued by The Tennessee Valley Authority, are supported by
the right of the issuer to borrow from the Treasury; while still
others, such as those issued by the Federal Land Banks, are
supported only by the credit of the instrumentality. The Fund's
primary usage of these types of securities will be GNMA
certificates and FNMA and FHLMC mortgage-backed obligations
which are discussed in more detail below.
Certificates of Deposit. Each Fund, except for the Short-term
Government Fund, may invest in certificates of deposit.
Certificates of deposit are generally short-term, interest-
bearing negotiable certificates issued by banks or savings and
loan associations against funds deposited in the issuing
institution.
Time Deposits. Each Fund, except for the Short-term Government
Fund, may invest in time deposits. Time Deposits are deposits
in a bank or other financial institution for a specified period
of time at a fixed interest rate for which a negotiable
certificate is not received.
Bankers' Acceptance. Each Fund, except for the Short-term
Government Fund, may invest in bankers' acceptances. A bankers'
acceptance is a time draft drawn on a commercial bank by a
borrower usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage
of goods). The borrower is liable for payment as well as the
bank, which unconditionally guarantees to pay the draft at its
face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary
markets prior to maturity.
Commercial Paper. Each Fund, except for the Short-term
Government Fund, may invest in commercial paper. Commercial
paper refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial
paper is usually sold on a discount basis and has a maturity at
the time of issuance not exceeding nine months.
Short Term Corporate Debt Securities. Each Fund, except for the
Short-term Government Fund, may invest in investment grade short
term corporate debt securities with a remaining maturity of one
year or less. The High Yield Bond Fund, the Bond Fund and the
Emerging Markets Bond Fund may invest in below investment grade
("junk") corporate debt securities. Corporate debt securities
with a remaining maturity of less than one year tend to become
extremely liquid and are traded as money market securities.
Such issues tend to have greater liquidity and considerably less
market value fluctuations than longer-term issues.
When-issued and Delayed-delivery Securities. From time to time,
in the ordinary course of business, each Fund may purchase
securities on a when-issued or delayed-delivery basis i.e.,
delivery and payment can take place a month or more after the
date of the transactions. The securities so purchased are
subject to market fluctuation and no interest accrues to the
purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-
delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in
determining the net asset value of such Fund. At the time of
delivery of the securities, the value may be more or less than
the purchase price. Each Fund will also establish a segregated
account with the Carillon Fund's custodian bank in which it will
maintain cash or cash equivalents or other Fund securities equal
in value to commitments for such when-issued or delayed-delivery
securities.
Asset-Backed Securities. Each Fund, except the S&P 500 Index
Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small Cap
Index Fund, the Nasdaq 100 Index Fund and the Short-term
Government Fund may invest in asset-backed securities. Asset-
backed securities may be classified either as pass-through
certificates or collateralized obligations. Pass-through
certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of
assets. Asset-backed securities issued in the form of debt
instruments, also known as collateralized obligations, are
generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities may be of short
maturity, such as commercial paper, or longer, such as bonds,
and may be issued with only one class of security or have more
than one class with some classes having rights to payments on
the asset-backed security subordinate to the rights of the other
classes. These subordinated classes will take the risk of
default before the classes to which they are subordinated.
The High Yield Bond Fund and Emerging Markets Bond Fund may each
invest up to 10% of its total assets in asset-backed securities.
The Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Equity Fund, Micro-Cap Fund and Bond Fund may invest without
limitation in asset-backed securities whose characteristics are
consistent with the Fund's investment program and are not
further limited below. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the
security is insulated from the credit risk of the originator of
the debt obligations or any other affiliated entities and the
amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected
by a variety of economic and other factors. As a result, the
yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than
the anticipated yield to maturity. In addition, for asset-
backed securities purchased at a premium, the premium may be
lost in the event of early pre-payment which may result in a
loss to the Fund.
Pass-through certificates usually provide for payments of
principal and interest received to be passed through to their
holders, usually after deduction for certain costs and expenses
incurred in administering the pool. Because pass-through
certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any
defaults by the obligors on the underlying assets not covered by
any credit support. See "Types of Credit Support" below.
Collateralized obligations are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-
backed securities are pledged to a trustee or custodian for the
benefit of the holders thereof. Such issuers generally hold no
assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments
on such asset-backed securities are obligations of the issuers,
in the event of defaults on the underlying assets not covered by
any credit support (see "Types of Credit Support" below), the
issuing entities are unlikely to have sufficient assets to
satisfy their obligations on the related asset-backed
securities.
Mortgage-Backed Securities. Each Fund, except the S&P 500 Index
Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small Cap
Index Fund and the Nasdaq-100 Index Fund may invest in mortgage-
backed securities. Mortgage-backed securities are securities
representing interests in a pool of mortgages. Principal and
interest payments made on the mortgages in the underlying
mortgage pool are passed through to the Fund. The High Yield
Bond Fund and Emerging Markets Bond Fund may invest up to 10% of
their total assets in mortgage-backed securities. The Balanced
Index Fund, Lehman Aggregate Bond Index Fund, Equity Fund,
Micro-Cap Fund, Bond Fund and Short-term Government Fund may
invest without limitation in mortgage-backed securities whose
characteristics are consistent with the Fund's investment
program and are not further limited below. The actual prepayment
experience of a pool of mortgage loans or other obligations may
cause the yield realized by the Fund to differ from the yield
calculated on the basis of the average life of the pool. (When
a mortgage in the underlying mortgage pool is prepaid, an
unscheduled principal prepayment is passed through to the Fund.
This principal is returned to the Fund at par. As a result, if
a mortgage security were trading at a premium, its total return
would be lowered by prepayments, and if a mortgage security were
trading at a discount, its total return would be increased by
prepayments.) The value of these securities also may change
because of changes in the market's perception of the
creditworthiness of the federal agency that issued them. In
addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax
policies. In addition, for mortgage-backed securities purchased
at a premium, the premium may be lost in the event of early
prepayment which may result in a loss to the Fund.
Methods Of Allocating Cash Flows. While many asset-backed
securities are issued with only one class of security, many
asset-backed securities are issued in more than one class, each
with different payment terms. Multiple class asset-backed
securities are issued for two main reasons. First, multiple
classes may be used as a method of providing credit support.
This is accomplished typically through creation of one or more
classes whose right to payments on the asset-backed security is
made subordinate to the right to such payments of the remaining
class or classes. See "Types of Credit Support." Second,
multiple classes may permit the issuance of securities with
payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying
assets. Examples include so-called "strips" (asset-backed
securities entitling the holder to disproportionate interests
with respect to the allocation of interest and principal of the
assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics
of non-asset-backed securities, such as floating interest rates
(i.e., interest rates which adjust as a specified benchmark
changes) or scheduled amortization of principal.
Asset-backed securities in which the payment streams on the
underlying assets are allocated in a manner different than those
described above may be issued in the future. A Fund may invest
in such asset-backed securities if such investment is otherwise
consistent with its investment objective and policies and with
the investment restrictions of the Fund.
Types Of Credit Support. 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, such
securities may contain elements of credit support. Such credit
support falls into two classes: liquidity protection and
protection against ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision
of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool
are made in a timely fashion. Protection against ultimate
default ensures ultimate payment of the obligations on at least
a portion of the assets in the pool. Such protection may be
provided through guarantees, insurance policies or letters of
credit obtained from third parties, through various means of
structuring the transaction or through a combination of such
approaches. Examples of asset-backed securities with credit
support arising out of the structure of the transaction include
"senior-subordinated securities" (multiple class asset-backed
securities with certain classes subordinate to other classes as
to the payment of principal thereon, with the result that
defaults on the underlying assets are borne first by the holders
of the subordinated class) and asset-backed securities that have
"reserve funds" (where cash or investments, sometimes funded
from a portion of the initiating payments on the underlying
assets, are held in reserve against future losses) or that have
been "over-collateralized" (where the scheduled payments on, or
the principal amount of, the underlying assets substantially
exceeds that required to make payment of the asset-backed
securities and pay any servicing or other fees). The degree of
credit support provided on each issue is based generally on
historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of
that anticipated could adversely affect the return on an
investment in an asset-backed security.
Automobile Receivable Securities. Each Fund, except the S&P 500
Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000
Small Cap Index Fund, the Nasdaq-100 Index Fund and the Short-
term Government Fund may invest in automobile receivable
securities. Automobile receivable securities are asset-backed
securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by
motor vehicles ("Automobile Receivable Securities"). Since
installment sales contracts for motor vehicles or installment
loans related thereto ("Automobile Contracts") typically have
shorter durations and lower incidences of prepayment, Automobile
Receivable Securities generally will exhibit a shorter average
life and are less susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create
an enforceable interest in their respective Automobile Contracts
only by filing a financing statement and by having the servicer
of the Automobile Contracts, which is usually the originator of
the Automobile Contracts, take custody thereof. In such
circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in
violation of its obligation not to do so, there is a risk that
such party could acquire an interest in the Automobile Contracts
superior to that of the holders of Automobile Receivable
Securities. Also, although most Automobile Contracts grant a
security interest in the motor vehicle being financed, in most
states the security interest in a motor vehicle must be noted on
the certificate of title to create an enforceable security
interest against competing claims of other parties. Due to the
large number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the Automobile
Contracts underlying the Automobile Receivable Security, usually
is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the
Automobile Receivable Securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on the
securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder
of the owner's Automobile Contract certain defenses such owner
would have against the seller of the motor vehicle. The
assertion of such defenses could reduce payments on the
Automobile Receivable Securities.
Credit Card Receivable Securities. Each Fund, except the S&P
500 Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000
Small Cap Index Fund, the Nasdaq-100 Index Fund and the Short-
term Government Fund may invest in credit card receivable
securities. Credit card receivable securities are asset-backed
securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities"). Credit
balances on revolving credit card agreements ("Accounts") are
generally paid down more rapidly than are Automobile Contracts.
Most of the Credit Card Receivable Securities issued publicly to
date have been pass-through certificates. In order to lengthen
the maturity of Credit Card Receivable Securities, most such
securities provide for a fixed period during which only interest
payments on the underlying Accounts are passed through to the
security holder and principal payments received on such Accounts
are used to fund the transfer to the pool of assets supporting
the related Credit Card Receivable Securities of additional
credit card charges made on an Account. The initial fixed
period usually may be shortened upon the occurrence of specified
events which signal a potential deterioration in the quality of
the assets backing the security, such as the imposition of a cap
on interest rates. The ability of the issuer to extend the life
of an issue of Credit Card Receivable Securities thus depends
upon the continued generation of additional principal amounts in
the underlying accounts during the initial period and the non-
occurrence of specified events. An acceleration in cardholders'
payment rates or any other event which shortens the period
during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related Credit
Card Receivable Security could shorten the weighted average life
and yield of the Credit Card Receivable Security.
Credit cardholders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such
holder the right to set off certain amounts against balances
owed on the credit card, thereby reducing amounts paid on
Accounts. In addition, unlike most other asset-backed
securities, Accounts are unsecured obligations of the
cardholder.
Other Assets. The Adviser anticipates that asset-backed
securities backed by assets other than those described above
will be issued in the future. Each Fund, except the S&P 500
Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000
Small Cap Index Fund, the Nasdaq-100 Index Fund and the Short-
term Government Fund may invest in such securities in the future
if such investment is otherwise consistent with its investment
objective, policies and restrictions. There are, of course,
other types of securities that are, or may become, available,
which are similar to the foregoing.
GNMA Certificates GNMA certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. government.
GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in
a lump sum at maturity. Because both interest and principal
payments (including prepayments) on the underlying mortgage
loans are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
Although the mortgage loans in the pool have maturities of up to
30 years, the actual average life of the GNMA certificates
typically will be substantially less because the mortgages are
subject to normal principal amortization and may be prepaid
prior to maturity. Prepayment rates vary widely and may be
affected by changes in market interest rates. In periods of
falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the GNMA
certificates. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the
actual average life of the GNMA certificates. Accordingly, it is
not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayments may occur at higher
or lower rates that the original yield on the certificates. Due
to the prepayment feature and the need to reinvest prepayments
of principal at current rates, GNMA certificates can be less
effective than typical bonds of similar maturities at "locking-
in" yields during periods of declining interest rates, although
they may have comparable risks of decline in value during
periods of rising interest rates.
FNMA and FHLMC Mortgage-Backed Obligations Each Fund, except
for the Short-term Government Fund, may invest in FNMA and FHLMC
mortgage-backed obligations. The Federal National Mortgage
Association ("FNMA"), a federally chartered and privately owned
corporation, issues pass-through securities representing an
interest in a pool of conventional mortgage loans. FNMA
guarantees the timely payment of principal and interest but this
guarantee is not backed by the full faith and credit of the U.S.
government. The Federal Home Loan Mortgage Corporation
("FHLMC"), a corporate instrumentality of the United States,
issues participation certificates that represent an interest in
a pool of conventional mortgage loans. FHLMC guarantees the
timely payment of interest and the ultimate collection of
principal and maintains reserves to protect holders against
losses due to default, but the certificates are not backed by
the full faith and credit of the U.S. government. As is the case
with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will
vary based on the prepayment experience of the underlying pool
of mortgages.
Collateralized Mortgage Obligations ("CMO's") Each Fund other
than the S&P 500 Index, the S&P MidCap 400 Index, the Russell
2000 Small Cap Index, the Nasdaq-100 Index and the Short-term
Government Fund, may invest in collateralized mortgage
obligations ("CMOs") or mortgage-backed bonds issued by
financial institutions such as commercial banks, savings and
loan associations, mortgage banks and securities broker-dealers
(or affiliates of such institutions established to issue these
securities). CMOs are obligations fully collateralized directly
or indirectly by a pool of mortgages on which payments of
principal and interest are dedicated to payment of principal and
interest on the CMOs. Payments on the underlying mortgages (both
interest and principal) are passed through to the holders,
although not necessarily on a pro rata basis, on the same
schedule as they are received. Mortgage-backed bonds are general
obligations of the issuer fully collateralized directly or
indirectly by a pool of mortgages. The mortgages serve as
collateral for the issuer's payment obligations on the bonds,
but interest and principal payments on the mortgages are not
passed through either directly (as with GNMA certificates and
FNMA and FHLMC pass-through securities) or on a modified basis
(as with CMOs). Accordingly, a change in the rate of prepayments
on the pool of mortgages could change the effective maturity of
a CMO but not that of a mortgage-backed bond (although, like
many bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity).
Each Fund other than the S&P 500 Index, the S&P MidCap 400
Index, the Russell 2000 Small Cap Index, the Nasdaq-100 Index
and the Short-term Government Fund, may also invest in a variety
of more risky CMOs, including interest only ("IOs"), principal
only ("POs"), inverse floaters, or a combination of these
securities. Stripped mortgage-backed securities ("SMBS") are
usually structured with several classes that receive different
proportions of the interest and principal distributions from a
pool of mortgage assets. A common type of SMBS will have one
class receiving all of the interest from the mortgage assets (an
IO), while the other class will receive all of the principal (a
PO). However, in some instances, one class will receive some of
the interest and most of the principal while the other class
will receive most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater-
than-anticipated or less-than-anticipated prepayments of
principal, the Fund may fail to fully recoup its initial
investment or obtain its initially assumed yield on some of
these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile
in response to changes in interest rates. The yields on classes
of SMBS that have more uncertain timing of cash flows are
generally higher than prevailing market yields on other
mortgage-backed securities because there is a greater risk that
the initial investment will not be fully recouped or received as
planned over time.
Each Fund other than the S&P 500 Index, the S&P MidCap 400
Index, the Russell 2000 Small Cap Index, the Nasdaq-100 Index
and the Short-term Government Fund, may invest in another CMO
class known as leveraged inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater
resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree
of leverage inherent in inverse floaters is associated with
greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final
maturity.
The staff of the Securities and Exchange Commission ("SEC" or
the "Commission") has taken the position that IOs and POs, other
than government-issued IOs or POs backed by fixed-rate
mortgages, should be treated as illiquid securities and,
accordingly, each Fund, except for the High Yield Bond Fund and
Emerging Markets Bond Fund, will limit its investments in such
securities, together with all other illiquid securities, to 10%
of the Fund's net assets. The High Yield Bond Fund and Emerging
Markets Bond Fund, will limit its investments in such
securities, together with all other illiquid securities, to 15%
of the Fund's net assets. Furthermore, each Fund, other than the
High Yield Bond Fund and the Emerging Markets Bond Fund limits
investments in more risky CMOs (IOs, POs, inverse floaters) to
no more than 5% of its total assets. The Funds will treat non-
government-issued IOs and POs not backed by fixed-rate mortgages
as illiquid unless and until the SEC modifies its position.
Under the staff's position, the determination of whether a
particular government-issued IO and PO backed by fixed-rate
mortgages is liquid may be made on a case by case basis under
guidelines and standards established by the Board of Directors.
The Trustees have delegated to the Adviser the authority to
determine the liquidity of these investments based on the
following guidelines: the type of issuer; type of collateral,
including age and prepayment characteristics; rate of interest
on coupon relative to current market rates and the effect of the
rate on the potential for prepayments; complexity of the issue's
structure, including the number of tranches; size of the issue
and the number of dealers who make a market in the IO or PO.
Zero-Coupon and Pay-In-Kind Bonds Each Fund, other than the S&P
500 Index, the S&P MidCap 400 Index, the Russell 2000 Small Cap
Index, the Nasdaq-100 Index and the Short-term Government Fund,
may invest in zero-coupon and Pay-In-Kind bonds. The High Yield
Bond Fund and Emerging Markets Bond Fund may invest up to 25% of
its total assets in zero-coupon bonds. A zero-coupon bond is a
security that has no cash coupon payments. Instead, the issuer
sells the security at a substantial discount from its maturity
value. The interest received by the investor from holding this
security to maturity is the difference between the maturity
value and the purchase price. The advantage to the investor is
that reinvestment risk of the income received during the life of
the bond is eliminated. However, zero-coupon bonds, like other
bonds, retain interest rate and credit risk and usually display
more price volatility than those securities that pay a cash
coupon. Since there are no periodic interest payments made to
the holder of a zero-coupon security, when interest rates rise,
the value of such a security will fall more dramatically than a
bond paying out interest on a current basis. When interest
rates fall, however, zero-coupon securities rise more rapidly in
value because the bonds have locked in a specific rate of return
which becomes more attractive the further interest rates fall.
Each Fund other than the S&P 500 Index, the S&P MidCap 400
Index, the Russell 2000 Small Cap Index, the Nasdaq-100 Index
and the Short-term Government Fund, may invest in pay-in-kind
bonds. The High Yield Fund and Emerging Markets Fund may invest
up to 25% of its total assets in pay-in-kind bonds. Pay-in-kind
("PIK") bonds are securities that pay interest in either cash or
additional securities, at the issuer's option, for a specified
period. PIKs, like zero-coupon bonds, are designed to give an
issuer flexibility in managing cash flow. PIK bonds can be
either senior or subordinated debt and trade flat (i.e., without
accrued interest). The price of PIK bonds is expected to
reflect the market value of the underlying debt plus an amount
representing accrued interest since the last payment. PIKs are
usually less volatile than zero-coupon bonds, but more volatile
than securities paid in cash.
Convertible Bonds Each Fund, except the S&P 500 Index Fund,
S&P 400 MidCap Index Fund, Russell 2000 Small Cap Index Fund,
Nasdaq 100 Index Fund, Balanced Index Fund, Lehman Aggregate
Bond Index Fund, and Short-term Government Fund, may invest in
convertible bonds. The High Yield Bond Fund and Emerging
Markets Bond Fund may invest up to 10% of its assets in
convertible bonds. The Bond Fund may invest up to 25% of its
assets in convertible bonds and other securities. Convertible
bonds are debt instruments convertible into equity of the
issuing company at certain times in the future and according to
a certain exchange ratio. Typically, convertible bonds are
callable by the issuing company, which may, in effect, force
conversion before the holder would otherwise choose.
While the High Yield Fund and Emerging Market Bond Fund intend
to invest primarily in debt securities, they may invest in
convertible bonds. While some countries or companies may be
regarded as favorable investments, pure fixed income
opportunities may be unattractive or limited due to insufficient
supply, or legal or technical restrictions. In such cases, the
High Yield Fund and Emerging Markets Fund may consider
convertible bonds to gain exposure to such markets.
Equity Securities. The S&P 500 Index Fund, S&P MidCap 400 Index
Fund, Nasdaq 100 Index Fund, Russell 2000 Small Cap Index Fund,
Equity Fund and Micro-Cap Fund may invest in equity securities
without restriction. The Balanced Index Fund generally invests
60% of the Fund in equity securities. The Bond Fund, High Yield
Bond Fund and Emerging Markets Bond Fund may invest up to 25% of
their assets in equities. The Lehman Aggregate Bond Index Fund
and the Short-term Government Fund may not invest in equity
securities.
Unit Investment Trusts. The S&P 500 Index Fund and the Balanced
Index Fund may invest in Standard & Poor's Depositary
Receipts(R) ("SPDRs(R)"), the S&P MidCap 400 Index Fund may
invest in Standard & Poor's MidCap Depositary Receipts(R)
("MidCap SPDRs(R)") and the Nasdaq 100 Index Fund may invest in
shares of the Nasdaq-100 Trust ("Nasdaq-100 Trust(R)"). SPDRs,
MidCap SPDRs and Nasdaq-100 Trust Shares are units of beneficial
interest in a unit investment trust ("UIT"), representing
proportionate undivided interests in a portfolio of securities
in substantially the same weighting as the component common
stocks of the S&P 500 Index, S&P MidCap 400 Index and the Nasdaq
100 Index, respectively. In addition, any other Index-based
Fund may invest in a UIT, which is currently in existence or is
created in the future, that is designed to track the performance
of the Fund's underlying Index. While the investment objective
of such a UIT is to provide investment results that generally
correspond to the price and yield performance of the component
common stocks of the S&P 500 Index, the S&P MidCap 400 Index and
the Nasdaq 100 Index or other Index, there can be no assurance
that this investment objective will be met fully. As SPDRs,
MidCap SPDRs and Nasdaq-100 Trust Shares and other UITs are
securities issued by an investment company, non-fundamental
restriction (5) below restricts their purchases to 10% of the
Portfolio's assets.
Private Placements (Restricted Securities) Each Fund other
than the S&P 500 Index, the S&P MidCap 400 Index, the Russell
2000 Small Cap Index, the Nasdaq 100 Index and the Short-term
Government Fund, may invest in securities, including restricted
securities (privately-placed debt securities), which are not
readily marketable. The High Yield Bond Fund and Emerging
Markets Bond Fund will not acquire such securities if, as a
result, they would comprise, together with all other illiquid
securities, more than 15% of the value of each Fund's net
assets.
Certain restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities
Act of 1933, as amended (the "1933 Act"). Where registration is
required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Restricted securities without readily available market
quotations will be priced at fair value as determined in good
faith by the Board of Directors.
Some restricted securities are eligible for purchase and sale
under Rule 144A under the 1933 Act. This rule permits certain
qualified institutional buyers, such as the Funds, to trade in
privately-placed securities, including various debt securities,
even though such securities are not registered under the 1933
Act. Securities purchased under Rule 144A, although restricted,
may nevertheless be liquid, and the Adviser, under the
supervision of the Directors, on a case-by-case basis will make
this determination. In making this determination, the Adviser
will consider the trading markets for the specific security,
taking into account the unregistered nature of a Rule 144A
security. In addition, the Adviser could consider the: (i)
frequency of trades and quotes; (ii) number of dealers and
potential purchasers; (iii) dealer undertakings to make a
market; and (iv) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The
liquidity of Rule 144A securities will be monitored, and if, as
a result of changed conditions, it is determined that a 144A
security held in the High Yield Bond Fund or the Emerging
Markets Bond Fund is no longer liquid, the affected Fund's
holdings of illiquid securities will be reviewed to determine
what, if any, steps are required, to assure that the High Yield
Bond Fund or Emerging Markets Bond Fund does not invest more
than 15% of its net assets in illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the
amount of a Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such
securities.
Certain Risk Factors Relating to High Yield, High Risk Bonds and
Emerging Markets Securities
The descriptions below are intended to supplement the material
in the Prospectus regarding high-yield, high-risk bonds and
emerging markets securities. Because of their investment
policies, the High Yield Fund and Emerging Markets Bond Fund
may not be suitable or appropriate for all investors. The Funds
are designed for intermediate to long-term investors who can
accept the risks entailed in seeking a high level of current
income available from investments in intermediate to long-term,
high yield, high risk, medium- and lower-quality, fixed-income
securities (in the case of the High Yield Bond Fund and the
Emerging Markets Bond Fund) and in emerging market securities
(in the case of the Emerging Markets Bond Fund). Consistent
with an intermediate to long-term investment approach, investors
in these Funds should not rely on these Funds for their short-
term financial needs. The principal value of the lower-quality
securities in which these Funds invest will be affected by
interest rate levels, general economic conditions, specific
industry conditions (in the case of the High Yield Bond Fund)
and the creditworthiness of the individual issuer. In addition,
the principal value of the lower-quality securities in which the
Emerging Markets Bond Fund invests will be affected by social,
economic and political conditions of emerging market nations in
which the Fund invests. Although these Funds seek to reduce
risk by portfolio diversification, credit analysis and attention
to trends in the economy, industries and financial markets, such
efforts will not eliminate all risk. There can, of course, be
no assurance that these Funds will achieve these results.
The Funds' prospectus, for the Bond Fund, the High Yield Bond
Fund and the Emerging Markets Bond Fund, in the sections
entitled "Investment Strategies" and "Primary Risks", describe
the special considerations and additional risk factors
associated with each Fund's investments in lower-rated debt
securities commonly referred to as "junk bonds," and investing
abroad in emerging market nations (in the case of the Emerging
Markets Bond Fund).
EMERGING MARKETS
The economies, markets, and political structures of a number of
the countries in which the Emerging Markets Bond Fund can invest
do not compare favorably with the U.S. and other mature
economies in terms of wealth and stability. Therefore,
investments in these countries will be riskier and more subject
to erratic and abrupt price movements. This is particularly
true for emerging market nations.
Some economies are less well developed, overly reliant on
particular industries, and more vulnerable to the ebb and flow
of international trade, trade barriers, and other protectionist
or retaliatory measures. Certain countries have histories of
political instability and upheaval that could cause their
governments to act in a detrimental or hostile manner toward
private enterprise or foreign investment. Actions such as
nationalizing a company or industry, expropriating assets, or
imposing punitive taxes could have a severe effect on security
prices and impair the Fund's ability to repatriate capital or
income. Significant external risks, including war, currently
affect some countries.
Additional factors which may influence the ability or
willingness of a country to service debt include, but are not
limited to, the country's cash flow situation, the availability
of sufficient foreign exchange on the date payment is due, the
relative size of the country's debt service burden to the
economy as a whole, its government policy toward particular
international agencies and any political restrictions that may
be imposed.
HIGH YIELD/HIGH RISK SECURITIES
Larger bond issues are evaluated by nationally recognized
statistical rating organizations (each, an "NRSRO") such as
Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("Standard & Poor's") on the basis of the
issuer's ability to meet all required interest and principal
payments. The highest ratings are assigned to issuers perceived
to be the best credit risks. The Adviser's research analysts
also evaluate all portfolio holdings of the Funds, including
those rated by an NRSRO. Other things being equal, lower-rated
bonds generally have higher yields due to greater risk. High
yield, high risk securities are those rated below "Baa" by
Moody's or "BBB" by Standard & Poor's or those that are not
rated but judged by the Adviser to be of comparable quality.
While the Funds are permitted to purchase defaulted bonds, the
Adviser will acquire such securities only if the portfolio
manager foresees the potential for significant capital
appreciation.
Sensitivity to Interest Rates and Economic Changes. High-yield
bonds are very sensitive to adverse economic changes and
corporate developments and their yields will fluctuate over
time. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience
financial stress that would adversely affect their ability to
service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations
to pay interest or principal or entered into bankruptcy
proceedings, the Fund may incur losses or expenses in seeking
recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in
increased volatility of market prices of high-yield bonds and
the Portfolio's net asset value.
Payment Expectations. High-yield bonds may contain redemption
or call provisions. If an issuer exercised these provisions in
a declining interest rate market, the Fund would have to replace
the security with a lower-yielding security, resulting in a
decreased return for investors. Conversely, a high-yield bond's
value will decrease in a rising interest rate market, as will
the value of the Fund's assets. If the Fund experiences
unexpected net redemptions, this may force it to sell high-yield
bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and
possibly reducing the Fund's rate of return.
Liquidity and Valuation. There may be little trading in the
secondary market for particular bonds, which may affect
adversely the Fund's ability to value accurately or dispose of
such bonds. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values
and liquidity of high-yield bonds, especially in a thin market.
Investments in Foreign Securities
American Depositary Receipts. All Funds, except the Short-term
Government Fund and the Lehman Aggregate Bond Index Fund, may
invest in American Depository Receipts. American Depositary
Receipts ("ADRs") may be issued in sponsored or unsponsored
programs. In sponsored programs, the issuer makes arrangements
to have its securities traded in the form of ADRs; in
unsponsored programs, the issuer may not be directly involved in
the creation of the program. Although the regulatory
requirements with respect to sponsored and unsponsored programs
are generally similar, the issuers of unsponsored ADRs are not
obligated to disclose material information in the United States
and, therefore, such information may not be reflected in the
market value of the ADRs.
European and Global Depository Receipts The High Yield Bond
Fund and Emerging Markets Bond Fund may invest indirectly in
securities of emerging market issuers through sponsored or
unsponsored European Depositary Receipts ("EDRs") or Global
Depositary Receipts ("GDRs"). EDRs represent securities of
foreign issuers and are designed for use in European markets.
GDR's represents ownership in a non-U.S. company's publicly
traded securities that are traded on foreign stock exchanges or
foreign over-the-counter markets. Holders of unsponsored EDRs
or GDRs generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no
obligation to distribute investor communications received from
the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the
deposited securities.
Foreign Sovereign Debt Securities The Bond Fund, the High Yield
Bond Fund and the Emerging Markets Bond Fund may invest in
foreign sovereign debt securities, including those of emerging
market nations, and Brady Bonds, and the Emerging Markets Bond
Fund may invest substantially all of its assets in such
securities. Sovereign obligors in emerging market nations are
among the world's largest debtors to commercial banks, other
governments, international financial organizations and other
financial institutions. Some of these obligors have in the past
experienced substantial difficulties in servicing their external
debt obligations, leading to defaults on certain obligations and
the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and
rescheduling interest and principal payments by negotiating new
or amended credit agreements or converting outstanding principal
and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Holders of certain foreign sovereign
debt securities may be requested to participate in the
restructuring of such obligations and to extend further loans to
their issuers. There can be no assurance that the Brady Bonds
and other foreign sovereign debt securities in which the Funds
may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely
affect the Funds' holdings. Furthermore, certain participants
in the secondary market for such debt may be directly involved
in negotiating the terms of these arrangements and may therefore
have access to information not available to other market
participants.
Brady Bonds are debt securities issued under the framework of
the Brady Plan, an initiative announced by U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external indebtedness.
In restructuring external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well
as multilateral institutions such as the International Bank for
Reconstruction and Development (the "World Bank") and the
International Monetary Fund (the "IMF"). The Brady Plan
framework, as it has developed, contemplates the exchange of
commercial bank debt for newly-issued bonds. The World Bank
and/or the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable
the debtor nation to collateralize the new Brady Bonds or to
repurchase outstanding bank debt at a discount. Under these
arrangements with the World Bank or the IMF, debtor nations have
been required to agree to implement certain domestic monetary
and fiscal reforms. Such reforms have included liberalization
of trade and foreign investment, privatization of state-owned
enterprises and setting targets for public spending and
borrowing. These policies and programs seek to promote the
debtor country's economic growth and development. Investors
should recognize that the Brady Plan only sets forth general
guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. The Adviser
believes that economic reforms undertaken by countries in
connection with the issuance of Brady Bonds make the debt of
countries which have issued or have announced plans to issue
Brady Bonds an attractive opportunity for investment.
Investors should recognize that Brady Bonds have been issued
somewhat recently and, accordingly, do not have a long payment
history. The financial packages offered by each country differ.
The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of
such debt, which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount of
face value of such debt (generally known as discount bonds), and
bonds bearing an interest rate which increases over time and the
advancement of new money by existing lenders. The principal of
certain Brady Bonds has been collateralized by U.S. Treasury
zero-coupon bonds with a maturity equal to the final maturity of
such Brady Bonds. Collateral purchases are financed by the IMF,
the World Bank and the debtor nations' reserves. In addition,
the first two or three interest payments on certain types of
Brady Bonds may be collateralized by cash or securities agreed
upon by creditors. Subsequent interest payments may be
uncollateralized or may be collateralized over specified periods
of time. The Funds may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest
and principal primarily on the willingness of the foreign
government to make payment in accordance with the terms of the
Brady Bonds. Brady Bonds issued to date are generally purchased
and sold in secondary markets through U.S. securities dealers
and maintained through European transnational securities
depositories. A substantial portion of Brady Bonds and other
sovereign debt securities in which the Funds may invest are
likely to be acquired at a discount.
Investing in foreign sovereign debt securities will expose the
Funds to the direct or indirect consequences of political,
social or economic changes in the emerging market nations that
issue the securities. The ability and willingness of sovereign
obligors in emerging market nations or the governmental
authorities that control repayment of their external debt to pay
principal and interest on such debt when due may depend on
general economic and political conditions within the relevant
country. Countries such as those in which the Funds,
particularly the Emerging Markets Bond Fund, may invest have
historically experienced, and may continue to experience, high
rates of inflation, high interest rates, exchange rate trade
difficulties and extreme poverty and unemployment. Many of
these countries are also characterized by political uncertainty
or instability. Additional factors which may influence the
ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of
sufficient foreign exchange on the date a payment is due, the
size of its debt service burden relative to the economy as a
whole, and its government's policy towards the IMF, the World
Bank and other international agencies.
The ability of a foreign sovereign obligor to make timely
payments on its external debt obligations will also be strongly
influenced by the obligor's balance of payments, including
export performance, its access to international credits and
investments, fluctuations in interest rates and the extent of
its foreign reserves. A country whose exports are concentrated
in a few commodities or whose economy depends on certain
strategic imports could be vulnerable to fluctuations in
international prices of these commodities or imports. To the
extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a
foreign sovereign obligor cannot generate sufficient earnings
from foreign trade to service its external debt, it may need to
depend on continuing loans and aid from foreign governments,
commercial banks and multilateral organizations, and inflows of
foreign investment. The commitment on the part of these foreign
governments, multilateral organizations and others to make such
disbursements may be conditioned on the government's
implementation of economic reforms and/or economic performance
and the timely service of its obligations. Failure to implement
such reforms, achieve such levels of economic performance or
repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds,
which may further impair the obligor's ability or willingness to
timely service its debts. The cost of servicing external debt
will also generally be adversely affected by rising
international interest rates, because many external debt
obligations bear interest at rates which are adjusted based upon
international interest rates. The ability to service external
debt will also depend on the level of the relevant government's
international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a
sovereign obligor to obtain sufficient foreign exchange to
service its external debt.
As a result of the foregoing, a governmental obligor may default
on its obligations. If such an event occurs, a Fund may have
limited legal recourse against the issuer and/or guarantor.
Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of
foreign sovereign debt securities to obtain recourse may be
subject to the political climate in the relevant country. In
addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of
other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.
Foreign Exchange. If a foreign country cannot generate
sufficient earnings from foreign trade to service its external
debt, it may need to depend on continuing loans and aid from
foreign governments, commercial banks, multilateral
organizations, and inflows of foreign investment. The cost of
servicing external debt will also generally be adversely
affected by rising international interest rates because many
external debt obligations bear interest at rates which are
adjusted based upon international interest rates. The ability to
service external debt will also depend on the level of the
relevant government's international currency reserves and its
access to foreign currencies. Currency devaluations may affect
the ability of an obligor to obtain sufficient foreign
currencies to service its external debt.
Foreign Currency Exchange Transactions. Each Fund that engages
in foreign currency exchange transactions may do so on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign
exchange currency market, or on a forward basis to "lock in" the
U.S. dollar price of the security. A forward foreign currency
exchange contract (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 principally 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. Forwards will
be used primarily to adjust the foreign exchange exposure of a
Fund with a view to protecting the portfolios from adverse
currency movements, based on the Adviser's outlook. Forwards
involve other risks, including, but not limited to, significant
volatility in currency markets. In addition, currency movements
may not occur exactly as the Adviser expected, so the use of
forwards could adversely affect a Fund's total return.
The Funds may enter into forward foreign currency exchange
contracts under the following circumstances. First, when a Fund
enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of
dollars, of the amount of foreign currency involved in the
underlying security transactions, the Fund will be able to
protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date the
security is purchased or sold, and the date on which payment is
made or received.
Second, when the Adviser believes that the currency of a
particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward
contract to sell or buy the amount of the former foreign
currency, approximating the value of some or all of a Fund's
portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, a Fund may hedge all or part
of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies
act as an effective proxy for other currencies. In such a case,
the Funds may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held
in a Fund. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be
possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in
the value of those securities between the date the forward
contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely
difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Adviser does not intend to
enter into such forward contracts under this second circumstance
if, as result, a Fund will have more than 20% of the value of
its net assets committed to the consummation of such contracts.
Other than as set forth above, and immediately below, a Fund
will not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency. Each
Fund, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward
contracts in excess of the value of the Fund's portfolio
securities or other assets to which the forward contracts relate
(including accrued interest to the maturity of the forward on
such securities), provided the excess amount is "covered" by
liquid, high-grade debt securities, denominated in any currency,
at least equal at all times to the amount of such excess. For
these purposes "the securities or other assets to which the
forward contract relate" may be securities or assets denominated
in a single currency, or where proxy forwards are used,
securities denominated in more than one currency. Under normal
circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment
decisions made with regard to overall diversification
strategies. However, the Adviser believes that it is important
to have the flexibility to enter into such forward contracts
when it determines that the best interests of the Funds will be
served. At the maturity of a forward contract, a Fund may
either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate
its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract obligating it to purchase,
on the same maturity date, the same amount of the foreign
currency. It is often not possible to effectively hedge the
currency risk associated with emerging market nation debt
securities because their currency markets are not sufficiently
developed.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of
the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver. However, as
noted, in order to avoid excessive transactions and transaction
costs, the Funds may use liquid securities, denominated in any
currency, to cover the amount by which the value of a forward
contract exceeds the value of the securities to which it
relates.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between a Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, a Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Costs Of Hedging. When a Fund purchases a foreign bond with a
higher interest rate than is available on U.S. bonds of a
similar maturity, the additional yield on the foreign bond could
be substantially lost if the Fund were to enter into a direct
hedge by selling the foreign currency and purchasing the U.S.
Dollar. This is what is commonly referred to as the "cost" of
hedging. Proxy hedging attempts to reduce this cost through an
indirect hedge back to the U.S. Dollar. It is important to note
that the hedging costs are treated as capital transactions and
are not, therefore, deducted from the Fund's dividend
distribution and are not reflected in its yield. Instead, such
costs will, over time, be reflected in the Fund's net asset
value.
Foreign Markets. Delays in settlement which may occur in
connection with transactions involving foreign securities could
result in temporary periods when a portion of the assets of a
Fund is uninvested and no return is earned thereon. The
inability of a 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 in losses to
a Fund due to subsequent declines in values of the portfolio
securities or, if the Fund has entered into a contract to sell
the security, possible liability to the purchaser. Certain
foreign markets, especially emerging markets, may require
governmental approval for the repatriation of investment income,
capital or the proceeds of sales of securities by foreign
investors. A Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the
portfolio of any restrictions on investments.
Foreign Debt Securities. Investing in foreign debt securities
will expose the Funds to the direct or indirect consequences of
political, social or economic changes in the industrialized
developing and emerging countries that issue the securities. The
ability and willingness of obligor or the governmental
authorities that control repayment of their external debt to pay
principal and interest on such debt when due may depend on
general economic and political conditions within the relevant
country. Additional country-related factors unique to foreign
issuers which may influence the ability or willingness to
service debt include, but are not limited to, a country's cash
flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and its government's
relationships with the International Monetary Fund, the World
Bank and other international agencies.
Foreign Securities. Subject to the Fund's quality and maturity
standards, the High Yield Bond Fund and Emerging Markets Bond
Fund may invest without limitation in the securities (payable in
U.S. dollars) of foreign issuers and in the securities of
foreign branches of U.S. banks such as negotiable certificates
of deposit (Eurodollars). The High Yield Bond Fund may invest
up to 20% of its net assets in non-U.S. dollar-denominated
fixed-income securities principally traded in financial markets
outside the United States, and the Emerging Markets Bond Fund
may invest up to 100% of its net assets in non-U.S. dollar-
denominated fixed-income securities principally traded in
financial markets outside the United States. Because the Funds
may invest in foreign securities, investments in the Funds
involve risks that are different in some respects from
investments in a fund which invests only in debt obligations of
U.S. domestic issuers. Foreign investments may be affected
favorably or unfavorably by changes in currency rates and
exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. There may be
less governmental supervision of securities markets, brokers and
issuers of securities. Securities of some foreign companies are
less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are
generally higher than in the United States. Settlement
practices may include delays and may differ from those customary
in U.S. markets. Investments in foreign securities may also be
subject to other risks different from those affecting U.S.
investments, including local political or economic developments,
expropriation or nationalization of assets, restrictions on
foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency
blockage (which would prevent cash from being brought back to
the United States), and difficulty in enforcing legal rights
outside the United States.
In addition to the foreign securities listed above, the Funds
may invest in foreign sovereign debt securities which involve
certain additional risks. See "Foreign Sovereign Debt
Securities" above.
Futures Contracts
For hedging purposes, including protecting the price or interest
rate of securities that the Fund intends to buy, all Funds
except the Micro-Cap Fund may enter into futures contracts that
relate to securities in which it may directly invest and indices
comprised of such securities and may purchase. As a temporary
investment strategy, until a Fund reaches $50 million in net
assets, the S&P MidCap 400, Russell 2000 Small Cap Index,
Nasdaq-100 Index, Lehman Aggregate Bond Index, Balanced Index
and Short-term Government Funds may invest up to 100% of their
assets in such futures and/or options contracts. Thereafter,
the above mentioned Funds may invest up to 20% of the Fund's
assets in such futures and/or options contracts. In addition,
the S&P 500 Index Fund, the Equity Fund and the Bond Fund may
invest up to 20% of the Fund's assets in such futures and/or
options contracts. There is not a temporary investment strategy
for the S&P 500 Index Fund, the Equity Fund or the Bond Fund.
Lastly, the High Yield Bond Fund and Emerging Markets Bond Fund
may invest in futures contracts or options thereon as a bona-
fide hedge if immediately thereafter the sum of the amounts of
initial margin deposits on the Fund's existing futures and
premiums paid for options on futures would not exceed 5% of the
market value of the Fund's total assets; provided, however, that
in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in the
calculation of the 5% limitation. The Funds do not intend to
enter into futures contracts that are not traded on exchanges or
boards of trade.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments such as U.S.
Treasury bills, notes and bonds, commercial paper and bank
certificates of deposit or the cash value of a financial
instrument index at a specified future date at a price agreed
upon when the contract is made. A stock index futures contract
is a contract to buy or sell specified units of a stock index at
a specified future date at a price agreed upon when the contract
is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the
actual stocks making up the index takes place. Rather, upon
expiration of the contract, settlement is made by exchanging
cash in an amount equal to the difference between the contract
price and the closing price of the index at expiration, net of
variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with
the Custodian for the benefit of the futures broker. The
initial margin serves as a "good faith" deposit that the Fund
will honor their futures commitments. Subsequent payments
(called "variation margin") to and from the broker are made on a
daily basis as the price of the underlying investment
fluctuates. In the event of the bankruptcy of the futures
broker that holds margin on behalf of the Fund, the Fund may be
entitled to return of margin owed to it only in proportion to
the amount received by the broker's other customers. The
Adviser will attempt to minimize this risk by monitoring the
creditworthiness of the futures brokers with which the Fund does
business.
Because the value of index futures depends primarily on the
value of their underlying indexes, the performance of the broad-
based contracts will generally reflect broad changes in common
stock prices. However, because a Fund may not be invested in
precisely the same proportion as an Index, it is likely that the
price changes of the Fund's index futures positions will not
match the price changes of the Fund's other investments.
Options on futures contracts give the purchaser the right to
assume a position at a specified price in a futures contract at
any time before expiration of the option contract.
The Funds will enter into futures contracts which are traded on
national futures exchanges and are standardized as to maturity
date and underlying financial instrument. The principal
financial futures exchanges in the United States are the Board
of Trade of the City of Chicago, the Chicago Mercantile
Exchange, the New York Futures Exchange and the Kansas City
Board of Trade. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"). Although
techniques other than the sale and purchase of futures contracts
could be used for the above-referenced purposes, futures
contracts offer an effective and relatively low cost means of
implementing the Funds' objectives in these areas.
Regulatory Limitations. The Funds will engage in transactions
in futures contracts and options thereon only for bona fide
hedging, risk management and other permissible purposes, in each
case in accordance with the rules and regulations of the CFTC,
and not for speculation.
In instances involving the purchase of futures contracts or call
options thereon or the writing of put options thereon by the
Funds, an amount of cash, U.S. Government securities or other
liquid securities, equal to the market value of the futures
contracts and options thereon (less any related margin
deposits), will be deposited in a segregated account with the
Funds' custodian to cover the position, or alternative cover
will be employed thereby insuring that the use of such futures
contracts and options is unleveraged.
In addition, CFTC regulations may impose limitations on the
Funds' ability to engage in certain yield enhancement and risk
management strategies. If the CFTC or other regulatory
authorities adopt different (including less stringent) or
additional restrictions, the Funds would comply with such new
restrictions.
SPECIAL RISKS OF FUTURES CONTRACTS
Volatility And Leverage. The prices of futures contracts are
volatile and are influenced, among other things, by actual and
anticipated changes in the market and interest rates, which in
turn are affected by fiscal and monetary policies and national
and international policies and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the minimum amount
that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, a Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in
order to be certain that a Fund has sufficient assets to satisfy
its obligations under a futures contract, the Fund earmarks to
the futures contract money market instruments equal in value to
the current value of the underlying instrument less the margin
deposit.
Liquidity. Each Fund that is eligible to use futures contracts
may elect to close some or all of its futures positions at any
time prior to their expiration. A Fund would do so to reduce
exposure represented by long futures positions or increase
exposure represented by short futures positions. A Fund may
close its positions by taking opposite positions which would
operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then
be made, additional cash would be required to be paid by or
released to the Fund, and the Fund would realize a loss or a
gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although each Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be
an active market, there is no assurance that a liquid market on
an exchange or board of trade will exist for any particular
contract at any particular time. In such event, it might not be
possible to close a futures contract, and in the event of
adverse price movements, each Fund would continue to be required
to make daily cash payments of variation margin. However, in
the event futures contracts have been used to hedge the
underlying instruments, the Funds would continue to hold the
underlying instruments subject to the hedge until the futures
contracts could be terminated. In such circumstances, an
increase in the price of the underlying instruments, if any,
might partially or completely offset losses on the futures
contract. However, as described below, there is no guarantee
that the price of the underlying instruments will in fact
correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, or market or interest rate trends. There are several
risks in connection with the use by the Funds of futures
contract as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the
futures contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. The Adviser
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of each
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Funds for hedging
purposes is also subject to the Adviser's ability to correctly
predict movements in the direction of the market. It is
possible that, when a Fund has sold futures to hedge its
portfolio against a decline in the market, the index, indices,
or underlying instruments on which the futures are written might
advance and the value of the underlying instruments held in the
Fund's portfolio might decline. If this were to occur, the Fund
would lose money on the futures and also would experience a
decline in value in its underlying instruments. However, while
this might occur to a certain degree, the Adviser believes that
over time the value of a Fund's portfolio will tend to move in
the same direction as the market indices which are intended to
correlate to the price movements of the underlying instruments
sought to be hedged. It is also possible that if a Fund were to
hedge against the possibility of a decline in the market
(adversely affecting the underlying instruments held in its
portfolio) and prices instead increased, the Fund would lose
part or all of the benefit of increased value of those
underlying instruments that it has hedged, because it would have
offsetting losses in its futures positions. In addition, in
such situations, if a Fund had insufficient cash, it might have
to sell underlying instruments to meet daily variation margin
requirements. Such sales of underlying instruments might be,
but would not necessarily be, at increased prices (which would
reflect the rising market). The Funds might have to sell
underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements
in the futures contracts and the portion of the portfolio being
hedged, the price movements of futures contracts might not
correlate perfectly with price movements in the underlying
instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit
and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors might close futures
contracts through offsetting transactions which could distort
the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures
market are less onerous than margin requirements in the
securities markets, and as a result the futures market might
attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of
futures contracts, even a correct forecast of general market
trends by the Adviser might not result in a successful hedging
transaction over a very short time period
Options
The Bond Fund, Balanced Index Fund, Lehman Aggregate Bond Index
Fund, Short-term Government Fund, High Yield Bond Fund and
Emerging Markets Bond Fund may sell (write) listed options on
U.S. Treasury Securities and options on contracts for the future
delivery of U.S. Treasury Securities as a means of hedging the
value of such securities owned by the Fund. The S&P 500 Index
Fund, S&P MidCap 400 Index Fund, Russell 2000 Small Cap Index
Fund, Nasdaq 100 Index Fund, Equity Fund and Balanced Index Fund
may enter into options on futures contracts that relate to
securities in which it may directly invest and indices comprised
of such securities and may purchase and write call and put
options on such contracts. In addition, each of the above Funds
may write covered call options on any security in which it is
eligible to invest.
As a writer of a call option, a Fund may terminate its
obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the
option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. There can be no assurance that a
closing purchase transaction can be effected when the Fund so
desires.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from
writing the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option. Since the market
value of call options generally reflects increases in the value
of the underlying security, any loss resulting from the closing
transaction may be wholly or partially offset by unrealized
appreciation of the underlying security. Conversely, any gain
resulting from the closing transaction may be wholly or
partially offset by unrealized depreciation of the underlying
security. The principal factors affecting the market value of
call options include supply and demand, the current market price
and price volatility of the underlying security, and the time
remaining until the expiration date.
Although the Funds will write only options and options on
futures contracts with respect to such securities which are
traded on a national exchange or Board of Trade, there is no
assurance that a liquid secondary market will exist for any
particular option. In the event it is not possible to effect a
closing transaction, the Funds will not be able to sell the
underlying security, until the option expires or the option is
exercised by the holder.
Possible reasons for the absence of a liquid secondary market on
an exchange include the following: (a) insufficient trading
interest in certain options; (b) restrictions on transactions
imposed by an exchange;(c) trading halts, suspensions or other
restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) inadequacy of
the facilities of an exchange or the Clearing Corporation to
handle trading volume; or (e) a decision by one or more
exchanges to discontinue the trading of options or impose
restrictions on types of orders. There can be no assurance that
higher than anticipated trading activity or order flow or other
unforeseen events might not at times render the trading
facilities inadequate and thereby result in the institution of
special trading procedures or restrictions which could interfere
with the Fund's ability to effect closing transactions.
The Balanced Index Fund, Lehman Aggregate Bond Fund, Bond Fund,
Short-term Government Fund, High Yield Bond Fund and Emerging
Markets Bond Fund may write call options on futures contracts on
U.S. Treasury Securities as a hedge against the adverse effect
of expected increases in interest rates on the value of
Portfolio securities, in order to establish more definitely the
effective return on securities held by the Portfolio. The S&P
500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000 Small
Cap Index Fund, Balanced Index Fund and Equity Fund may write
call options on futures contracts on the S&P 500 Index, S&P
MidCap 400 Index, Russell 2000 Index, Nasdaq-100 Index in which
they are eligible to invest, or securities included therein,
only for hedging purposes to protect the price of securities it
intends to buy and when such transactions enable it to better
meet its investment objectives. The Funds will not write
options on futures contracts for speculative purposes.
A futures contract on a debt security is a binding contractual
commitment which will result in an obligation to make or accept
delivery, during a specified future time, of securities having
standardized face value and rate of return. Selling a futures
contract on debt securities (assuming a short position) would
give the Portfolio a legal obligation and right as seller to
make future delivery of the security against payment of the
agreed price.
Upon the exercise of a call option on a futures contract, the
writer of the option (the Fund) 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 current market price of the contract in the futures market.
However, as with the trading of futures, most participants in
the options markets do not seek to realize their gains or losses
by exercise of 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.
Nevertheless, if an option on a futures contract written by the
Fund is exercised, the Fund intends to either close out the
futures contract by purchasing an offsetting futures contract,
or deliver the underlying securities immediately, in order to
avoid assuming a short position. There can be no assurance that
the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time, but
it may always deliver the underlying security.
As a writer of options on futures contracts, the Fund will
receive a premium but will assume a risk of adverse movement in
the price of the underlying futures contract. If the option is
not exercised, the Portfolio will gain the amount of the
premium, which may partially offset unfavorable changes in the
value of securities held in the Fund. If the option is
exercised, the Fund might incur a loss in the option transaction
which would be reduced by the amount of the premium it has
received.
While the holder or writer of an option on a futures contract
may normally terminate its position by selling or purchasing an
offsetting option, the Fund's ability to establish and close out
options positions at fairly established prices will be subject
to the maintenance of a liquid market. The Fund will not write
options on futures contracts unless, in the Adviser's opinion,
the market for such options has sufficient liquidity that the
risks associated with such options transactions are not at
unacceptable levels.
Risks. While options will be sold in an effort to reduce
certain risks, those transactions themselves entail certain
other risks. Thus, while the Fund may benefit from the use of
options, unanticipated changes in interest rates or security
price movements may result in a poorer overall performance for
the Fund than if it had not entered into any options
transactions. The price of U.S. Treasury Securities futures are
volatile and are influenced, among other things, by changes in
prevailing interest rates and anticipation of future interest
rate changes. The price of S&P 500 Index, S&P 400 Index,
Russell 2000 Index and Nasdaq 100 Index futures are also
volatile and are influenced, among other things, by changes in
conditions in the securities markets in general.
In the event of an imperfect correlation between a futures
position (and a related option) and the Portfolio position which
is intended to be protected, the desired protection may not be
obtained. The correlation between changes in prices of futures
contracts and of the securities being hedged is generally only
approximate. The amount by which such correlation is imperfect
depends upon many different circumstances, such as variations in
speculative market demand for futures and for debt securities
(including technical influences in futures trading) and
differences between the financial instruments being hedged and
the instruments underlying the standard options on futures
contracts available for trading.
Due to the imperfect correlation between movements in the prices
of futures contracts and movements in the prices of the
underlying debt securities, the price of a futures contract may
move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of
the securities which are the subject of the hedge, the hedge
will not be fully effective and if the price of the securities
being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all.
If the price of the futures moves more than the price of the
security, the Fund will experience either a gain or loss on the
option on the future which will not be completely offset by
movements in the price of the securities which are the subject
of the hedge.
The market prices of futures contracts and options thereon may
be affected by various factors. If participants in the futures
market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements,
distortions in the normal relationship between the debt
securities and futures markets could result. Price distortions
could also result if investors in futures contracts make or take
delivery of underlying securities rather than engage in closing
transactions. This could occur, for example, if there is a lack
of liquidity in the futures market. From the point of view of
speculators, the deposit requirements in the futures markets are
less onerous than margins requirements in the securities
markets; accordingly, increased participation by speculators in
the futures market could cause temporary price distortions. A
correct forecast of interest rate trends by the adviser may
still not result in a successful hedging transaction because of
possible price distortions in the futures market and because of
the imperfect correlation between movements in the prices of
debt securities and movements in the prices of futures
contracts. A well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate
trends.
Limitations on the Use of Options on Futures. The Funds will
only write options on futures that are traded on exchanges and
are standardized as to maturity date and underlying financial
instrument. The principal exchanges in the United States for
trading options on Treasury Securities are the Board of Trade of
the City of Chicago and the Chicago Mercantile Exchange. These
exchanges and trading options on futures are regulated under the
Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC").
It is the Fund's opinion that it is not a "commodity pool" as
defined under the Commodity Exchange Act and in accordance with
rules promulgated by the CFTC.
The Funds will not write options on futures contracts for which
the aggregate premiums exceed 5% of the fair market value of the
Fund's assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into
(except that, in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount generally may be
excluded in computing the 5%).
All of the futures options transactions employed by a Fund will
be bona fide hedging transactions, as that term is used in the
Commodity Exchange Act and has been interpreted and applied by
the CFTC. To ensure that its futures options transactions meet
this standard, the Fund will enter into such transactions only
for the purposes and with the intent that CFTC has recognized to
be appropriate.
Custodial Procedures and Margins. Carillon Fund's Custodian
acts as its escrow agent as to securities on which a Fund has
written call options and with respect to margin which the Fund
must deposit in connection with the writing of call options on
futures contracts. The Clearing Corporation (CC) will release
the securities or the margin from escrow on the expiration of
the call, or when the Fund enters into a closing purchase
transaction. In this way, assets of the Fund will never be
outside the control of Carillon Fund's custodian, although such
control might be limited by the escrow receipts issued.
At the time the Fund sells a call option on a contract for
future delivery of U.S. Treasury Securities ("Treasury futures
contract"), it is required to deposit with its custodian, in an
escrow account, a specified amount of cash or U.S. Government
securities ("initial margin"). The account will be in the name
of the CC. The amount of the margin generally is a small
percentage of the contract amount. The margin required is set
by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit, and
it is released from escrow upon termination of the option
assuming all contractual obligations have been satisfied. The
Fund will earn interest income on its initial margin deposits.
In accordance with the rules of the exchange on which the option
is traded, it might be necessary for the Fund to supplement the
margin held in escrow. This will be done by placing additional
cash or U.S. Government securities in the escrow account. If
the amount of required margin should decrease, the CC will
release the appropriate amount from the escrow account.
The assets in the margin account will be released to the CC only
if the Fund defaults or fails to honor its commitment to the CC
and the CC represents to the custodian that all conditions
precedent to its right to obtain the assets have been satisfied.
Warrants
The High Yield Bond Fund and the Emerging Markets Bond Fund may
invest in warrants; however, not more than 5% of a Fund's total
assets (at the time of purchase) will be invested in warrants
other than warrants acquired in units or attached to other
securities. Of such 5%, not more than 2% may be invested at the
time of purchase in warrants that are not listed on the New York
or American Stock Exchanges. Warrants are pure speculation in
that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing
them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but
only the right to buy them. Warrants differ from call options
in that warrants are issued by the issuer of the security which
may be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying
securities.
Loan Participations and Assignments
The High Yield Bond Fund and the Emerging Markets Bond Fund may
invest in loan participations and assignments (collectively
"participations"). Such participations will typically be
participating interests in loans made by a syndicate of banks,
represented by an agent bank, which has negotiated and
structured the loan to corporate borrowers to finance internal
growth, mergers, acquisitions, stock repurchases, leveraged buy-
outs and other corporate activities. Such loans may also have
been made to governmental borrowers, especially governments of
emerging market nations. Emerging market nations debt
securities or obligations will involve the risk that the
governmental entity responsible for the repayment of the debt
may be unable or unwilling to do so when due. (For a discussion
of risks associated with investing in securities in emerging
market nations, see "Foreign Sovereign Debt Securities" above.)
The loans underlying such participations may be secured or
unsecured, and the Funds may invest in loans collateralized by
mortgages on real property or which have no collateral. The
loan participations themselves may extend for the entire term of
the loan or may extend only for short "strips" that correspond
to a quarterly or monthly floating rate interest period on the
underlying loan. Thus, a term or revolving credit that extends
for several years may be subdivided into shorter periods.
The loan participations in which the Funds will invest will also
vary in legal structure. Occasionally, lenders assign to
another institution both the lender's rights and obligations
under a credit agreement. Since this type of assignment
relieves the original lender of its obligations, it is called a
novation. More typically, a lender assigns only its right to
receive payments of principal and interest under a promissory
note, credit agreement or similar document. A true assignment
shifts to the assignee the direct debtor-creditor relationship
with the underlying borrower. Alternatively, a lender may
assign only part of its rights to receive payments pursuant to
the underlying instrument or loan agreement. Such partial
assignments, which are more accurately characterized as
"participating interests," do not shift the debtor-creditor
relationship to the assignee, who must rely on the original
lending institution to collect sums due and to otherwise enforce
its rights against the agent bank which administers the loan or
against the underlying borrower.
Because the Funds are allowed to purchase debt securities,
including debt securities in a private placement, the Funds will
treat loan participations as securities and not subject to their
fundamental investment restrictions prohibiting the Funds from
making loans.
There is not a recognizable, liquid public market for loan
participations. Hence, each Fund will consider loan
participations as illiquid securities and subject them to the
Fund's restrictions on investing no more than 15% of net assets
in illiquid securities.
Where required by applicable SEC positions, the High Yield Bond
Fund will treat both the corporate borrower and the bank selling
the participation interest as an issuer for purposes of its
fundamental investment restriction with respect to investing
more than 5% of Fund assets in the securities of a single
issuer. The Emerging Markets Bond Fund is not subject to such a
restriction.
Short Sales
The High Yield Bond Fund and the Emerging Markets Bond Fund may
make short sales for hedging purposes to protect the Funds
against companies whose credit is deteriorating. Short sales
are transactions in which a Fund sells a security it does not
own in anticipation of a decline in the market value of that
security. The Funds' short sales will be limited to securities
listed on a national securities exchange and to situations where
a Fund owns a debt security of a company and will sell short the
common or preferred stock or another debt security at a
different level of the capital structure of the same company.
No securities will be sold short if, after the effect is given
to any such short sale, the total market value of all securities
sold short would exceed 2% of the value of a Fund's net assets.
To complete a short sale transaction, a Fund must borrow the
security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. The price at such
time may be more or less than the price at which the security
was sold by the Fund. Until the security is replaced, the Fund
is required to pay to the lender amounts equal to any dividends
or interest which accrue during the period of the loan. To
borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker,
to the extent necessary to meet margin requirements, until the
short position is closed out.
Until a Fund replaces a borrowed security in connection with a
short sale, the Fund will: (a) maintain daily a segregated
account, containing cash, U.S. Government securities or other
liquid securities, at such a level that: (i) the amount
deposited in the account plus the amount deposited with the
broker as collateral will equal the current value of the
security sold short; and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as
collateral will not be less than the market value of the
security at the time it was sold short; or (b) otherwise cover
its short position.
A Fund will incur a loss as a result of the short sale if the
price of the security sold short increases between the date of
the short sale and the date on which the Fund replaces the
borrowed security. The Fund will realize a gain if the security
sold short declines in price between those dates. This result
is the opposite of what one would expect from a cash purchase of
a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount
of any premium, dividends or interest the Fund may be required
to pay in connection with a short sale. Any gain or loss on the
security sold short would be separate from a gain or loss on the
Fund security being hedged by the short sale.
Lending Portfolio Securities
The S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq-100 Index Fund, Balanced Index
Fund, Lehman Aggregate Bond Index Fund, Bond Fund, Short-term
Government Fund, High Yield Bond Fund and Emerging Markets Bond
Fund may lend portfolio securities with a value up to 10% of
their total assets. Such loans may be terminated at any time.
The Fund will continuously maintain as collateral cash or
obligations issued by the U.S. government, its agencies or
instrumentalities in an amount equal to not less than 100% of
the current market value (on a daily marked-to-market basis) of
the loaned securities plus declared dividends and accrued
interest. While portfolio securities are on loan, the borrower
will pay the Fund any income accruing thereon, and the Fund may
invest or reinvest the collateral (depending on whether the
collateral is cash or U.S. Government securities) in portfolio
securities, thereby earning additional income. Loans are
typically subject to termination by the Fund in the normal
settlement time, currently five business days after notice, or
by the borrower on one day's notice. Borrowed securities must
be returned when the loan is terminated. Any gain or loss in
the market price of the borrowed securities which occurs during
the term of the loan inures to the Fund and its shareholders.
The Fund may pay reasonable finders', borrowers',
administrative, and custodial fees in connection with a loan of
its securities. The Adviser will review and monitor the
creditworthiness of such borrowers on an ongoing basis.
Hybrid Instruments
The High Yield Bond Fund and the Emerging Markets Bond Fund may
invest in hybrid instruments. These instruments (a type of
potentially high-risk derivative) can combine the
characteristics of securities, futures, and options. For
example, the principal amount or interest rate of a hybrid could
be tied (positively or negatively) to the price of some
commodity, currency, or securities index or another interest
rate (each a "benchmark"). Hybrids can be used as an efficient
means of pursuing a variety of investment goals, including
currency hedging, duration management, and increased total
return. Hybrids may not bear interest or pay dividends. The
value of a hybrid or its interest rate may be a multiple of a
benchmark and, as a result, may be leveraged and move (up or
down) more steeply and rapidly than the benchmark. These
benchmarks may be sensitive to economic and political events,
such as commodity shortages and currency devaluations, which
cannot be readily foreseen by the purchaser of a hybrid. Under
certain conditions, the redemption value of a hybrid could be
zero. Thus, an investment in a hybrid may entail significant
market risks that are not associated with a similar investment
in a traditional, U.S. dollar-denominated debt security that has
a fixed principal amount and pays a fixed rate or floating rate
of interest. The purchase of hybrids also exposes the Fund to
the credit risk of the issuer of the hybrid. These risks may
cause significant fluctuations in the net asset value of the
Fund. Hybrids can have volatile prices and limited liquidity
and their use by the Fund may not be successful. Each Fund may
invest up to 10% of its total assets in hybrid instruments.
INVESTMENT RESTRICTIONS
Carillon Fund has adopted the following fundamental
restrictions relating to the investment of assets of the Funds
and other investment activities. These are fundamental policies
and may not be changed without the approval of holders of the
majority of the outstanding voting shares of each Fund affected
(which for this purpose means the lesser of: [i] 67% of the
shares represented at a meeting at which more than 50% of the
outstanding shares are represented, or [ii] more than 50% of the
outstanding shares). A change in policy affecting only one Fund
may be effected with the approval of the majority of the
outstanding voting shares of that Fund only. Carillon Fund's
fundamental investment restrictions provide that no Fund is
allowed to:
(1) Issue senior securities (except that each Fund may borrow
money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets (or
with respect to 50% of the value of its total assets for
the Nasdaq 100 Index Fund and the Emerging Markets Bond
Fund), invest more than 5% of its total assets in
securities (other than securities issued or guaranteed by
the United States Government or its agencies or
instrumentalities) of any one issuer.
(3) Purchase more than either: (i) except for the High Yield
Fund, 10% in principal amount of the outstanding debt
securities of an issuer, or (ii) 10% of the outstanding
voting securities of an issuer (except that up to 25% of
the value of the High Yield Fund may be invested without
regard to this restriction), except that such restrictions
shall not apply to securities issued or guaranteed by the
United States Government or its agencies or
instrumentalities. This restriction does not apply to the
Emerging Markets Bond Fund.
(4) Invest more than 25% of its total assets in the securities
of issuers primarily engaged in the same industry. For
purposes of this restriction, gas, gas transmission,
electric, water, and telephone utilities each will be
considered a separate industry. This restriction does not
apply to obligations of banks or savings and loan
associations or to obligations issued or guaranteed by the
United States Government, its agencies or
instrumentalities. This restriction does not apply to the
Nasdaq 100 Index Fund.
(5) Purchase or sell commodities, commodity contracts, or real
estate, except that each Fund may purchase securities of
issuers which invest or deal in any of the above, and
except that each Fund may invest in securities that are
secured by real estate. This restriction does not apply to
obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities or to futures
contracts or options purchased by the S&P 500 Index Fund,
S&P MidCap 400 Index Fund, Russell 2000 Small Cap Index
Fund, Nasdaq-100 Index Fund, Balanced Index Fund, Lehman
Aggregate Bond Index Fund, Equity Fund, Bond Fund, Short-
term Government Fund, High Yield Bond Fund and Emerging
Markets Bond Fund in compliance with non-fundamental
restrictions [7, 8, 10 and 11] below.
(6) Purchase any securities on margin (except that the Fund may
obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities)
or make short sales of securities or maintain a short
position. This restriction does not apply to the High
Yield Bond Fund and the Emerging Markets Bond Fund.
(7) Make loans, except through the purchase of obligations in
private placements or by entering into repurchase
agreements (the purchase of publicly traded obligations not
being considered the making of a loan).
(8) Lend its securities, except that the High Yield Fund and
Emerging Markets Bond Fund may lend portfolio securities
provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed one-third of these
Funds' total assets; and except that the S&P 500 Index
Fund, S&P 400 Index Fund, Russell 2000 Small Cap Index
Fund, Nasdaq-100 Index Fund, Balanced Index Fund, Lehman
Aggregate Bond Index Fund and Short-term Government Fund
may lend securities in compliance with non-fundamental
restriction [6] below.
(9) Borrow amounts in excess of 10% of its total assets (or 15%
of the total assets of the High Yield Fund and 33% of the
total assets of the Emerging Markets Bond Fund), taken at
market value at the time of the borrowing, and then only
from banks (and by entering into reverse repurchase
agreements) as a temporary measure for extraordinary or
emergency purposes, or to meet redemption requests that
might otherwise require the untimely disposition of
securities, and not for investment or leveraging. The Fund
will not purchase additional securities when money borrowed
exceeds 5% of total assets. For purposes of this
restriction, entering into futures contracts or reverse
repurchase agreements will not be deemed a borrowing.
(10) Underwrite securities of other issuers except insofar as
the Fund may be deemed an underwriter under the Securities
Act of 1933 in selling shares of each Fund and except as it
may be deemed such in a sale of restricted securities.
(11) Invest more than 10% of its total assets in repurchase
agreements maturing in more than seven days, "small bank"
certificates of deposit that are not readily marketable,
and other illiquid investments. This restriction does not
apply to the High Yield Bond Fund or the Emerging Markets
Bond Fund.
(12) Enter into reverse repurchase agreements if the total of
such investments would exceed 5% of the total assets of the
Fund.
Carillon Fund has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions, no Fund may:
(1) Participate on a joint (or a joint and several) basis in
any trading account in securities (but this does not
prohibit the "bunching" of orders for the sale or purchase
of Fund securities with the other Funds or with other
accounts advised or sponsored by the Adviser or any of its
affiliates to reduce brokerage commissions or otherwise to
achieve best overall execution).
(2) Purchase or retain the securities of any issuer, if, to the
knowledge of the Fund, officers and directors of the Fund,
the Adviser or any affiliate thereof each owning
beneficially more than 1/2% of one of the securities of
such issuer, own in the aggregate more than 5% of the
securities of such issuer. This restriction does not apply
to the Emerging Markets Bond Fund.
(3) Purchase or sell interests in oil, gas, or other mineral
exploration or development programs, or real estate
mortgage loans, except that each Fund may purchase
securities of issuers which invest or deal in any of the
above, and except that each Fund may invest in securities
that are secured by real estate mortgages. This
restriction does not apply to obligations or other
securities issued or guaranteed by the United States
Government, its agencies or instrumentalities.
(4) Invest in companies for the purpose of exercising control
(alone or together with the other Funds).
(5) Purchase securities of other investment companies with an
aggregate value in excess of 5% of the Fund's total assets,
except in connection with a merger, consolidation,
acquisition or reorganization, or by purchase in the open
market of securities of closed-end investment companies
where no underwriter or dealer's commission or profit,
other than customary broker's commission, is involved, or
by purchase of UITs designed to track an Index and only if
immediately thereafter not more than 10% of such Fund's
total assets, taken at market value, would be invested in
such securities.
Carillon Fund has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions:
The S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq-100 Index Fund, Balanced Index
Fund, Lehman Aggregate Bond Index Fund and Short-term Government
Fund may not:
(6) Lend portfolio securities with an aggregate value of more
than 10% of its total assets.
(7) Invest more than 20% of its assets in futures contracts
and/or options on futures contracts, except as a temporary
investment strategy until the Fund reaches $50 million in
net assets, the Fund may invest up to 100% of its assets in
such futures and/or options contracts.
(8) Invest in options unless no more than 5% of its assets is
paid for premiums for outstanding put and call options
(including options on futures contracts) and unless no more
than 25% of the Fund's assets consist of collateral for
outstanding options.
Carillon Fund has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions:
The High Yield Bond Fund and the Emerging Markets Bond Fund may
not:
(9) Invest more than 10% of the Fund's total assets in common
stocks (including up to 5% in warrants.
(10) Enter into futures contracts or options thereon if, as a
result thereof, more than 5% of the Fund's total assets
(taken at market value at the time of entering into the
contract) would be committed to initial margin and premiums
on such contracts or options thereon, provided, however,
that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount, as defined in
certain CFTC regulations, may be excluded in computing such
5%.
(11) Invest in options except in furtherance of the Fund's
investment objective and policies, and in this connection
the Fund may: (i) buy and sell covered and uncovered put,
call and spread options on securities, securities and other
financial indices, and currencies; and (ii) purchase, hold,
and sell contracts for the future delivery of securities
and currencies and warrants where the grantor of the
warrants is the issuer of the underlying securities.
(12) Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio
securities. For purposes of this restriction, collateral
arrangements with respect to options and futures
transactions shall not be deemed to involve the use of
margin. This restriction does not apply to the Emerging
Markets Bond Fund.
(13) Invest more than 15% of the value of its net assets in
illiquid securities.
(14) Purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if, as a result, more
than 5% of the value of the Fund's total assets would be
invested in the securities of issuers which at the time of
purchase had been in operation for less than three years,
including predecessors and unconditional guarantors. This
restriction does not apply to the Emerging Markets Bond
Fund.
(15) Sell securities short if, after giving effect to such short
sale, the total market value of all securities sold short
would exceed 2% of the Fund's net assets or sell securities
short unless the securities are listed on a national
securities exchange. This restriction does not apply to
the Emerging Markets Bond Fund.
If a percentage restriction (for either fundamental or
nonfundamental policies) is adhered to at the time of
investment, a later increase or decrease in percentage beyond
the specified limit resulting from a change in values of
portfolio securities or amount of net assets shall not be
considered a violation.
PORTFOLIO TURNOVER
Each Fund has a different expected annual rate of portfolio
turnover, which is calculated by dividing the lesser of
purchases or sales of Fund securities during the fiscal year by
the monthly average of the value of the Fund's securities
(excluding from the computation all securities, including
options, with maturities at the time of acquisition of one year
or less). A high rate of portfolio turnover generally involves
correspondingly greater brokerage commission expenses, which
must be borne directly by the Fund. Turnover rates may vary
greatly from year to year as well as within a particular year
and may also be affected by cash requirements for redemptions of
each Fund's shares and by requirements which enable the Fund to
receive certain favorable tax treatments. The portfolio
turnover rates will, of course, depend in large part on the
level of purchases and redemptions of shares of each Fund.
Higher portfolio turnover can result in corresponding increases
in brokerage costs to the Funds and their shareholders.
However, because rate of portfolio turnover is not a limiting
factor, particular holdings may be sold at any time, if
investment judgment or Fund operations make a sale advisable.
<TABLE>
<CAPTION>
EXPECTED TURNOVER
NAME OF FUND RATE
- ---------------------------------------------
<S> <C>
S&P 500 Index Fund 20%
S&P MidCap 400 Index Fund 20%
Russell 2000 Small Cap Index Fund 20%
Nasdaq-100 Index Fund 20%
Balanced Index Fund 20%
Lehman Aggregate Bond Index Fund 20%
Equity Fund 65%
Micro-Cap Fund 100%
Bond Fund 65%
Short-term Government Fund 40%
High Yield Bond Fund 200%
Emerging Markets Bond Fund 60%
</TABLE>
MANAGEMENT OF THE FUND
Directors and Officers
The directors and executive officers of the Fund and their
principal occupations during the past five years are set forth
below. Unless otherwise noted, the address of each executive
officer and director is 1876 Waycross Road, Cincinnati, Ohio
45240.
<TABLE>
<CAPTION>
Position(s)
Name, Address with Principal Occupation(s)
and Age the Fund During Past Five Years
- ------------- ----------- -----------------------
<S> <C> <C>
George M. Callard, M.D. Director Professor of Clinical Surgery,
3021 Erie Avenue University of Cincinnati
Cincinnati, Ohio 45208
(Age 65)
Theodore H. Emmerich Director Consultant; former Partner, Ernst &
1201 Edgecliff Place Whinney, Accountants
Cincinnati, Ohio 45206
(72)
Richard H. Finan Director Attorney at Law; President of the
11137 Main Street Ohio State Senate
Cincinnati, Ohio 45241
(64)
Yvonne L. Gray Director Chief Operating Officer, United Way
2400 Reading Road and Community Chest; prior thereto,
Cincinnati, Ohio 45202 Vice President/Trust Operations
( ) Officer, Fifth Third Bank
Jean Patrice Director Former Interim President, Cincinnati
Harrington, S.C. State Technical and Community College;
3217 Whitfield Avenue Former Executive Director, Cincinnati
Cincinnati, Ohio 45220 Youth Collaborative; President
(76) Emeritus (formerly, President) College
of Mount St. Joseph
John H. Jacobs* Director President and Chief Operating Officer,
(52) Union Central; Director, Carillon
Advisers, Inc. ("Adviser") and
Carillon Investments, Inc.; prior to
July, 1998, Officer and employee,
Union Central
Charles W. McMahon Director Retired Senior Vice President and
19 Iron Woods Drive Director, Union Central
Cincinnati, Ohio 45239
(79)
Harry Rossi* Director Director Emeritus, Union Central;
8548 Wyoming Club Drive Director, Adviser and Carillon
Cincinnati, Ohio 45215 Investments, Inc.; former Chairman,
(79) President and Chief Executive Officer,
Union Central
Steven R. Sutermeister Director, Senior Vice President, Union Central;
(45) President President, Director and Chief
and Chief Executive Officer, Adviser;
Executive Director, Carillon Investments, Inc.
Officer
Stephen R. Hatcher Senior Vice Executive Vice President and Chief
(56) President Financial Officer, Union Central;
prior to June, 1995, Officer and
employee, Union Central
John F. Labmeier Vice President Vice President, Associate General
(50) and Secretary Counsel and Assistant Secretary, Union
Central; Vice President and Secretary,
Carillon Investments, Inc.; Secretary,
Adviser
Thomas G. Knipper Controller Treasurer, Adviser; prior to July,
(42) 1995, Treasurer of The Gateway Trust
and Vice President and Controller of
Gateway Advisers, Inc.
John M. Lucas Assistant Counsel and Assistant to Secretary,
(48) Secretary Union Central
</TABLE>
- ---------------
* Messrs. Jacobs, Rossi and Sutermeister are considered to be
"interested persons" of Carillon Fund (within the meaning of
the Investment Company Act of 1940) because of their
affiliation with the Adviser.
All directors who are not "interested persons" of the Company
are members of the Audit Committee.
As of the date of this Statement of Additional Information,
officers and directors of Carillon Fund do not own any of the
outstanding shares of any Fund. Directors who are not officers
or employees of Union Central or Adviser are paid a fee plus
actual out-of-pocket expenses by Carillon Fund for each meeting
of the Board of Directors attended. Total fees and expenses
incurred for 1999 were $xx,xxx.
<TABLE>
<CAPTION>
Compensation Table
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
From Benefits Benefits From
Registrant Accrued As Upon Registrant
Part of Fund Retirement and Fund
Expenses Complex*
Paid to
Directors
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George M. Callard, $14,800** -- -- $14,800
M.D.
Director
Theodore H. Emmerich $15,900 -- -- $15,900
Director
James M. Ewell $15,300 -- -- $15,300
Director
Richard H. Finan $15,300 -- -- $15,300
Director
Jean Patrice
Harrington, S.C. $15,500 -- -- $15,500
Director
John H. Jacobs N/A N/A N/A N/A
Director
Charles W. McMahon $14,800** -- -- $14,800
Director
Harry Rossi N/A N/A N/A N/A
Director
</TABLE>
* Each of the Directors also served as a Trustee of Carillon
Investment Trust.
** Messrs. Callard and McMahon have been deferring their
compensation each year. As of September 30, 1999, the total
amount deferred, including interest, was as follows:
Dr. Callard - $xx,xxx; Mr. McMahon - $xxx,xxx.
Investment Adviser
Carillon Fund has entered into an Investment Advisory Agreement
("Agreement") with Carillon Advisers, Inc. ("Adviser") whose
principal business address is 1876 Waycross Road, Cincinnati,
Ohio 45240 (P.O. Box 40407, Cincinnati, Ohio 45240). The
Adviser was incorporated under the laws of Ohio on August 18,
1986, and is a wholly-owned subsidiary of Union Central.
Executive officers and directors of the Adviser who are
affiliated with the Fund are: Steven R. Sutermeister, Director,
President and Chief Executive Officer; John H. Jacobs, Director;
Harry Rossi, Director; Thomas G. Knipper, Treasurer; and John F.
Labmeier, Secretary. Pursuant to the Agreement, Carillon Fund
has retained the Adviser to manage the investment of each Fund's
assets, including the placing of orders for the purchase and
sale of Fund securities. The Adviser is at all times subject to
the direction and supervision of the Board of Directors of
Carillon Fund.
The Adviser continuously furnishes an investment program for
each Fund, is responsible for the actual management of each Fund
and has responsibility for making decisions to buy, sell or hold
any particular security. The Adviser obtains and evaluates such
information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or
useful to continuously manage the assets of the Funds in a
manner consistent with their investment objectives, policies and
restrictions. The Adviser considers analyses from various
sources, makes necessary investment decisions and effects
transactions accordingly. The Adviser also performs certain
administrative functions for Carillon Fund. The Adviser may
utilize the advisory services of subadvisers for one or more of
the Funds.
Payment of Expenses
Under the terms of the Agreement, in addition to managing
Carillon Fund's investments, the Adviser, at its expense,
maintains certain of Carillon Fund's books and records (other
than those provided by Firstar Mutual Fund Services, LLC, by
agreement) and furnishes such office space, facilities,
equipment, and clerical help as Carillon Fund may reasonably
require in the conduct of business. In addition, the Adviser
pays for the services of all executive, administrative,
clerical, and other personnel, including officers of Carillon
Fund, who are employees of Union Central. The Adviser also
bears the cost of telephone service, heat, light, power and
other utilities provided to Carillon Fund. Expenses not
expressly assumed by the Adviser under the Agreement will be
paid by Carillon Fund.
Each Fund pays all other expenses incurred in its operation and
a portion of Carillon Fund's general administration expenses
allocated on the basis of the asset size of the respective
Funds. Expenses other than the Adviser's fee that are borne
directly and paid individually by a Fund include, but are not
limited to, brokerage commissions, dealer markups, expenses
incurred in the acquisition of Fund securities, transfer taxes,
transaction expenses of the custodian, royalty or license fees,
pricing services used by only one or more Funds, and other costs
properly payable by only one or more Funds. Expenses which are
allocated on the basis of size of the respective Funds include
custodian (portion based on asset size), dividend disbursing
agent, transfer agent, bookkeeping services (except annual per
Fund base charge), pricing, shareholder's and directors'
meetings, directors' fees, proxy statement and Prospectus
preparation, registration fees and costs, fees and expenses of
legal counsel not including employees of the Adviser, membership
dues of industry associations, postage, insurance premiums
including fidelity bond, and all other costs of Carillon Fund's
operation properly payable by Carillon Fund and allocable on the
basis of size of the respective Funds. The Adviser will pay any
expenses of the S&P 500 Index Fund, S&P MidCap 400 Index Fund,
Balanced Index Fund, Nasdaq-100 Index Fund, Lehman Aggregate
Bond Index Fund, and the Short-term Government Fund, other than
the advisory fees for those Funds, to the extent that such
expenses exceed .30% of that Fund's net assets. The Adviser
will pay any expenses of the Russell 2000 Small Cap Index Fund,
other than the advisory fees for the Fund, to the extent that
such expenses exceed .40% of that Fund's net assets. The Adviser
will also pay any expenses of the Micro-Cap Fund, other than the
advisory fee for the Fund, to the extent that such expenses
exceed 1.00% of that Fund's net assets.
Depending on the nature of a legal claim, liability or lawsuit,
litigation costs, payment of legal claims or liabilities and any
indemnification relating thereto may be directly applicable to a
Fund or allocated on the basis of the size of the respective
Funds. The directors have determined that this is an
appropriate method of allocation of expenses.
Advisory Fee
As full compensation for the services and facilities furnished
to the Funds and expenses of the Funds assumed by the Adviser,
the Funds pay the Adviser monthly compensation calculated daily
as described on page ___ of the Prospectus.
There is no assurance that the Funds will reach a net asset
level high enough to realize a reduction in the rate of the
advisory fee. Any reductions in the rate of advisory fee will
be applicable to each Fund separately in accordance with the
schedule of fees applicable to each Fund.
Investment Advisory Agreement
The Investment Advisory Agreement was initially approved by
Carillon Fund's Board of Directors, including a majority of the
directors who are not interested persons of the Adviser, on
March 22, 1984. Unless earlier terminated as described below,
the Agreement will continue in effect from year to year if
approved annually: (a) by the Board of Directors of Carillon
Fund or by a majority of the outstanding shares of Carillon
Fund, including a majority of the outstanding shares of each
Fund; and (b) by a majority of the directors who are not parties
to such contract or interested persons (as defined by the
Investment Company Act of 1940) of any such party. The
Agreement is not assignable and may be terminated without
penalty by Carillon Fund on 60 days notice, and by the Adviser
on 90 days notice. On March 19, 1999 the Agreement was approved
for continuance for one (1) year by the Board of Directors by
unanimous vote of those present, including a majority of the
directors who are not parties to such contract or interested
persons of any such party.
On August 30, 1999, the Board of Directors took steps to
activate twelve Funds, the S&P 500 Index Fund, S&P MidCap 400
Index Fund, Russell 2000 Small Cap Index Fund, Nasdaq-100 Index
Fund, Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Equity Fund, Micro-Cap Fund, Bond Fund, Short-term Government
Fund, High Yield Bond Fund and Emerging Markets Bond Fund, by
authorizing the issuance of shares of those Funds. On November
15, 1999, the Board of Directors also approved an amendment to
the Investment Advisory Agreement making the Agreement
applicable to these Funds, and specifying the advisory fee
payable by it. The board determined that the amendment did not
affect the interests of the classes of Carillon Fund shares
other than the shares of the twelve Funds and that therefore
only the holders of shares of the twelve Funds were entitled to
vote on the amendment. It is anticipated that the sole
shareholder of the twelve Funds will approve the Agreement as
amended on or about January ______, 2000.
The Investment Advisory Agreement provides that the Adviser
shall not be liable to Carillon Fund or to any shareholder for
any error of judgment or mistake of law or for any loss suffered
by Carillon Fund or by any shareholder in connection with
matters to which the Investment Advisory Agreement relates,
except a loss resulting from willful misfeasance, bad faith,
gross negligence, or reckless disregard on the part of the
Adviser in the performance of its duties thereunder. In the
case of administration services, the Adviser will be held to a
normal standard of liability.
The Agreement in no way restricts the Adviser from acting as
investment manager or adviser to others.
If the question of continuance of the Agreement (or adoption of
any new Agreement) is presented to shareholders, continuance (or
adoption) with respect to a Fund shall be effective only if
approved by a majority vote of the outstanding voting securities
of that Fund. If the shareholders of any one or more of the
Funds should fail to approve the Agreement, the Adviser may
nonetheless serve as an adviser with respect to any Fund whose
shareholders approved the Agreement.
Administration
The Adviser is responsible for providing certain administrative
functions to Carillon Fund and has entered into an
Administration Agreement with Carillon Investments, Inc. under
which Carillon Investments furnishes substantially all of such
services for an annual fee of .20% of the average net assets of
the Bond and Equity Funds, .10% of the average net assets of the
Micro-Cap Fund, Short-term Government Fund, High Yield Bond Fund
and Emerging Markets Bond Fund, and .05% of the average net
assets of the S&P 500 Index Fund, S&P MidCap 400 Index Fund,
Russell 2000 Small Cap Index Fund, Nasdaq-100 Index Fund, Lehman
Aggregate Bond Index Fund, and Balanced Index Fund. The fee is
borne by the Adviser, not the Funds. Under the Administration
Agreement, Carillon Investments is obligated to provide persons
for clerical, accounting, bookkeeping, administrative and other
similar services, to supply office space, stationery and office
supplies, and to prepare tax returns, reports to stockholders,
and filings with the Securities and Exchange Commission and
state securities authorities.
Service Agreement
Under a Service Agreement between the Adviser and Union Central,
Union Central has agreed to make available to the Adviser the
services of certain employees of Union Central on a part-time
basis for the purpose of better enabling the Adviser to fulfill
its obligations to Carillon Fund under the Agreement. Pursuant
to the Service Agreement, the Adviser shall reimburse Union
Central for all costs allocable to the time spent on the affairs
of the Adviser by the employees provided by Union Central. In
performing their services for the Adviser pursuant to the
Service Agreement, the specified employees shall report and be
solely responsible to the officers and directors of the Adviser
or persons designated by them. Union Central shall have no
responsibility for the investment recommendations or decisions
of the Adviser. The obligation of performance under the
Agreement is solely that of the Adviser and Union Central
undertakes no obligation in respect thereto except as otherwise
expressly provided in the Service Agreement. The Service
Agreement was approved by the shareholders of the Funds on
January ___________, 2000.
Securities Activities of Adviser
Securities held by Carillon Fund may also be held by Union
Central or by other separate accounts or mutual funds for which
the Adviser acts as an adviser. Because of different investment
objectives or other factors, a particular security may be bought
by Union Central or by the Adviser or for one or more of its
clients, when one or more other clients are selling the same
security. If purchases or sales of securities for one or more
of the Funds or other clients of the Adviser or Union Central
arise for consideration at or about the same time, transactions
in such securities will be made, insofar as feasible, for the
Funds, Union Central, and other clients in a manner deemed
equitable to all. To the extent that transactions on behalf of
more than one client of the Adviser during the same period may
increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on
price.
On occasions when the Adviser deems the purchase or sale of a
security to be in the best interests of the Fund as well as
other accounts or companies, it may, to the extent permitted by
applicable laws and regulations, but will not be obligated to,
aggregate the securities to be sold or purchased for the Fund
(or for two or more Funds) with those to be sold or purchased
for other accounts or companies in order to obtain more
favorable execution and low brokerage commissions. In that
event, allocation of the securities purchased or sold, as well
as the expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Fund(s) and to
such other accounts or companies. In some cases this procedure
may adversely affect the size of the position obtainable for a
Fund.
DETERMINATION OF NET ASSET VALUE
As described on page 12 of the Prospectus, the net asset
value of shares of the Fund is determined once daily, Monday
through Friday as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m., Eastern Time), when
there are purchases or redemptions of Fund shares, except: (i)
when the New York Stock Exchange is closed (currently New Year's
Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day); and (ii)
any day on which changes in the value of the Fund securities of
the Fund will not materially affect the current net asset value
of the shares of a Fund.
Securities held by the Funds, except for money market
instruments maturing in 60 days or less, will be valued as
follows: Securities which are traded on stock exchanges
(including securities traded in both the over-the-counter market
and on exchange), or listed on the Nasdaq National Market
System, are valued at the last sales price as of the close of
the New York Stock Exchange on the day the securities are being
valued, or, lacking any sales, at the closing bid prices.
Securities traded only in the over-the-counter market are valued
at the last bid prices quoted by brokers that make markets in
the securities at the close of trading on the New York Stock
Exchange. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors.
Money market instruments with a remaining maturity of 60
days or less are valued on an amortized cost basis. Under this
method of valuation, the instrument is initially valued at cost
(or in the case of instruments initially valued at market value,
at the market value on the day before its remaining maturity is
such that it qualifies for amortized cost valuation);
thereafter, the Fund assumes a constant proportionate
amortization in value until maturity of any discount or premium,
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 that would be received upon sale of the instrument.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, to Union
Central and its exempt separate accounts, as well as to other
investors.
Payment for shares redeemed will generally be made within
seven days after receipt of a proper notice of redemption. The
right to redeem shares or to receive payment with respect to any
redemption may only be suspended for any period during which:
(a) trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission or such
exchange is closed for other than weekends and holidays; (b) an
emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of Fund securities or
determination of the net asset value of a Fund is not reasonably
practicable; and the Securities and Exchange Commission by
order permits postponement for the protection of shareholders.
TAXES
Each Fund of the Fund will be treated as a separate entity
for federal income tax purposes. Each Fund has qualified and
has elected to be taxed as a "regulated investment company"
under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). If a Fund qualifies as a
"regulated investment company" and complies with the provisions
of the Code by distributing substantially all of its net income
(both ordinary income and capital gain), the Fund will be
relieved from federal income tax on the amounts distributed.
The discussion of "Taxes" in the Prospectus, in conjunction
with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations
currently in effect as interpreted by the Courts and the
Internal Revenue Service.
FUND TRANSACTIONS AND BROKERAGE
The Adviser is primarily responsible for the investment
decisions of each Fund, including decisions to buy and sell
securities, the selection of brokers and dealers to effect the
transactions, the placing of investment transactions, and the
negotiation of brokerage commissions, if any. No Fund has any
obligation to deal with any dealer or group of dealers in the
execution of transactions in Fund securities. In placing
orders, it is the policy of the Funds to obtain the most
favorable net results, taking into account various factors,
including price, dealer spread or commission, if any, size of
the transaction, and difficulty of execution. While the Adviser
generally seeks reasonably competitive spreads or commissions,
the Funds will not necessarily be paying the lowest spread or
commission available.
If the securities in which a particular Fund of Carillon
Fund invests are traded primarily in the over-the-counter
market, where possible the Fund will deal directly with the
dealers who make a market in the securities involved unless
better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account. On
occasion, securities may be purchased directly from the issuer.
Bonds and money market instruments are generally traded on a net
basis and do not normally involve either brokerage commissions
or transfer taxes. The cost of Fund securities transactions of
each Fund will consist primarily of brokerage commission or
dealer or underwriter spreads.
While the Adviser seeks to obtain the most favorable net
results in effecting transactions in the Fund securities,
brokers who provide supplemental investment research to the
Adviser may receive orders for transactions by the Funds. Such
supplemental research service ordinarily consists of assessments
and analyses of the business or prospects of a company,
industry, or economic sector. If, in the judgment of the
Adviser, the Funds will be benefited by such supplemental
research services, the Adviser is authorized to pay commissions
to brokers furnishing such services which are in excess of
commissions which another broker may charge for the same
transaction. Information so received will be in addition to and
not in lieu of the services required to be performed by the
Adviser under its Investment Advisory Agreement. The expenses
of the Adviser will not necessarily be reduced as a result of
the receipt of such supplemental information. In some cases,
the Adviser may use such supplemental research in providing
investment advice to its other advisory accounts.
DISTRIBUTOR
Carillon Investments, Inc. serves as the Funds' Distributor or
principal underwriter pursuant to a Distribution Agreement with
Carillon Fund dated November 15, 1999. Carillon Investments is
registered as a broker-dealer under the 1934 Act and is a member
of the NASD. The offering of Fund shares is continuous. The
Distribution Agreement provides that Carillon Investments, as
agent in connection with the distribution of Fund shares, will
use appropriate efforts to solicit orders for the sale of Fund
shares and undertake such advertising and promotion as it deems
reasonable, including, but not limited to, advertising,
compensation to underwriters, dealers and sales personnel,
printing and mailing prospectuses to persons other than current
Fund shareholders, and printing and mailing sales literature.
See the section entitled "Administration" for a description of
the compensation Carillon Investments receives from the Adviser
for providing certain administrative services to Carillon Fund.
GENERAL INFORMATION
Capital Stock
Carillon Fund is a mutual fund. Its board of directors is
responsible for supervising its business affairs and
investments, which are managed on a daily basis by the Adviser.
Carillon Fund was incorporated under the laws of the State of
Maryland on January 30, 1984. Carillon Fund is a series fund
with twenty three classes of stock, one for each Fund. The
authorized capital stock of Carillon Fund consists of
300,000,000 shares of common stock, par value ten cents ($0.10)
per share. The shares of the authorized capital stock are
currently divided into the following classes:
<TABLE>
<CAPTION>
Fund Authorized Capital Stock
---- ------------------------
<S> <C>
Equity Portfolio 40,000,000 shares
Bond Portfolio 30,000,000 shares
S&P 500 Index Portfolio 30,000,000 shares
Micro-Cap Portfolio 20,000,000 shares
S&P MidCap 400 Index Portfolio 20,000,000 shares
Balanced Index Portfolio 20,000,000 shares
Bond Index Portfolio 20,000,000 shares
Russell 2000 Small Cap Index
Portfolio 20,000,000 shares
Nasdaq 100 Index Portfolio 20,000,000 shares
S&P 500 Index Fund 20,000,000 shares
S&P MidCap 400 Index Fund 20,000,000 shares
Russell 2000 Small Cap Index
Fund 20,000,000 shares
Balanced Index Fund 20,000,000 shares
Nasdaq 100 Index Fund 20,000,000 shares
Bond Index Fund 20,000,000 shares
Bond Fund 20,000,000 shares
Equity Fund 20,000,000 shares
Micro-Cap Fund 20,000,000 shares
Money Market Fund 20,000,000 shares
Short-term Government Fund 20,000,000 shares
Global Values Fund 20,000,000 shares
High Yield Bond Fund 20,000,000 shares
Emerging Markets Bond Fund 20,000,000 shares
</TABLE>
The Board of Directors may change the designation of any
Fund and may increase or decrease the number of authorized
shares of any Fund, but may not decrease the number of
authorized shares of any Fund below the number of shares then
outstanding.
Each issued and outstanding share is entitled to
participate equally in dividends and distributions declared by
the respective Fund and, upon liquidation or dissolution, in net
assets of such Fund remaining after satisfaction of outstanding
liabilities.
Voting Rights
In accordance with an amendment to the Maryland General
Corporation Law, the Board of Directors of Carillon Fund has
adopted an amendment to its Bylaws providing that unless
otherwise required by the Investment Company Act of 1940,
Carillon Fund shall not be required to hold an annual
shareholder meeting unless the Board of Directors determines to
hold an annual meeting. Carillon Fund intends to hold
shareholder meetings only when required by law and such other
times as may be deemed appropriate by its Board of Directors.
All shares of common stock have equal voting rights
(regardless of the net asset value per share) except that on
matters affecting only one Fund, only shares of the respective
Fund are entitled to vote. The shares do not have cumulative
voting rights. Accordingly, the holders of more than 50% of the
shares of Carillon Fund voting for the election of directors can
elect all of the directors of Carillon Fund if they choose to do
so and in such event the holders of the remaining shares would
not be able to elect any directors.
Matters in which the interests of all Funds are
substantially identical (such as the election of directors or
the approval of independent public accountants) will be voted on
by all shareholders without regard to the separate Funds.
Matters that affect all Funds but where the interests of the
Funds are not substantially identical (such as approval of the
Investment Advisory Agreement) would be voted on separately by
each Fund. Matters affecting only one Fund, such as a change in
its fundamental policies, are voted on separately by that Fund.
Matters requiring separate shareholder voting by Fund shall
have been effectively acted upon with respect to any Fund if a
majority of the outstanding voting securities of that Fund votes
for approval of the matter, notwithstanding that: (1) the matter
has not been approved by a majority of the outstanding voting
securities of any other Fund; or (2) the matter has not been
approved by a majority of the outstanding voting securities of
Carillon Fund.
The phrase "a majority of the outstanding voting
securities" of a Fund (or of Carillon Fund) means the vote of
the lesser of: (1) 67% of the shares of the Fund (or Carillon
Fund) present at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Fund (or Carillon
Fund).
It is anticipated that Union Central will have voting
control of the Fund. With voting control, Union Central could
make fundamental and substantial changes (such as electing a new
Board of Directors, changing the investment adviser or advisory
fee, changing a Fund's fundamental investment objectives and
policies, etc.) regardless of the views of shareholders.
Additional Information
This Statement of Additional Information and the Prospectus
do not contain all the information set forth in the registration
statement and exhibits relating thereto, which Carillon Fund has
filed with the Securities and Exchange Commission, Washington,
D.C., under the Securities Act of 1933 and the Investment
Company Act of 1940, to which reference is hereby made.
INDEPENDENT AUDITORS
The financial statements of Carillon Fund have been audited
by Deloitte & Touche LLP, 1700 Courthouse Plaza NE, Dayton, Ohio
45402.
<PAGE>
APPENDIX A: S&P, FRANK RUSSELL AND NASDAQ DISCLAIMER
S&P 500
The S&P 500 is an unmanaged index of common stocks comprised of
500 industrial, financial, utility and transportation companies.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard &
Poor's 500(R)", "500", "S&P Midcap 400 Index", and "Standard &
Poor's Midcap 400 Index" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Carillon Fund.
The Funds are not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or
warranty, express or implied, to the beneficial owners of the
Funds or any member of the public regarding the advisability of
investing in securities generally or in the Funds particularly
or the ability of the S&P 500 Index or the S&P Midcap 400 Index
to track general stock market performance. S&P's only
relationship to Carillon Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which
is determined, composed and calculated by S&P without regard to
Carillon Fund or the Funds. S&P has no obligation to take the
needs of the Funds or the beneficial owners of the Funds into
consideration in determining, composing or calculating the S&P
500 Index and the S&P Midcap 400 Index. S&P is not responsible
for and has not participated in the determination of the prices
and amount of the Funds or the timing of the issuance or sale of
the Funds or in the determination or calculation of the equation
by which the Funds are to be converted into cash. S&P has no
obligation or liability in connection with the administration,
marketing or trading of the Funds.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 OR S&P 400 INDEX OR ANY DATA INCLUDED THEREIN AND
S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY CARILLON FUND,
BENEFICIAL OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 OR S&P 400
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
RUSSELL 2000
The Russell 2000 Index is a trademark/service mark of the Frank
Russell Company. Russell is a trademark of the Frank Russell
Company. Carillon Fund and the Russell 2000 Small Cap Index
Fund are not promoted, sponsored or endorsed by, nor in any way
affiliated with Frank Russell Company. Frank Russell is not
responsible for and has not reviewed the Prospectus, and Frank
Russell makes no representation or warranty, express or implied,
as to its accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time and
without notice, to alter, amend, terminate or in any way change
its Index. Frank Russell has no obligation to take the needs of
any particular fund or its participants or any other product or
person into consideration in determining, composing or
calculating the Index.
Frank Russell Company's publication of the Index in no way
suggests or implies an opinion by Frank Russell Company as to
the attractiveness or appropriateness of the investment in any
or all securities upon which the Index is based. FRANK RUSSELL
COMPANY MAKES NO REPRESENTATION, WARRANTY, OR GUARANTEE AS TO
THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX OR DATA INCLUDED IN THE INDEX. FRANK RUSSELL COMPANY
MAKES NO REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE
RESULTS OF USE, OF THE INDEX OR ANY DATA INCLUDED THEREIN, OR
ANY SECURITY (OR COMBINATION THEREOF) COMPRISING THE INDEX.
FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR IMPLIED
WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY OF ANY KIND,
INCLUDING, WITHOUT MEANS OF LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE INDEX OR ANY DATA OR ANY SECURITY (OR COMBINATION
THEREOF) INCLUDED THEREIN.
NASDAQ
"Nasdaq" and related marks are trademarks or service marks of
The Nasdaq Stock Market, Inc. "Nasdaq" and have been licensed
for use for certain purposes by Carillon Fund, Inc. and the
Nasdaq 100 Index Fund. The Nasdaq 100 Index is composed and
calculated by Nasdaq without regard to Carillon Fund. Nasdaq
makes no warranty, express or implied, and bears no liability
with respect to the Nasdaq 100 Index Fund. Nasdaq makes no
warranty, express or implied, and bears no liability with
respect to Carillon Fund, its use, or any data included therein.
<PAGE>
CARILLON FUND, INC.
- ---------------------------------------------------------------
RUSSELL 2000 SMALL CAP INDEX AND
NASDAQ 100 INDEX PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
December 27, 1999
This Statement of Additional Information is not a
prospectus. Much of the information contained in this Statement
of Additional Information expands upon subjects discussed in the
Prospectus. Accordingly, this Statement should be read in
conjunction with Carillon Fund, Inc.'s ("Fund") current
Prospectus, dated December 27, 1999, which may be obtained by
calling the Fund at (513) 595-2600, or writing the Fund at P.O.
Box 40409, Cincinnati, Ohio 45240-0409.
___________________________
TABLE OF CONTENTS
Page
Investment Policies ( )...................................
Money Market Instruments and Investment Techniques ......
Investments in Foreign Securities .......................
Futures Contracts........................................
Options..................................................
Lending Portfolio Securities.............................
Unit Investment Trusts...................................
Investment Restrictions....................................
Portfolio Turnover.........................................
Management of the Fund ( )................................
Directors and Officers...................................
Investment Adviser.......................................
Payment of Expenses......................................
Advisory Fee.............................................
Investment Advisory Agreement............................
Administration...........................................
Service Agreement........................................
Securities Activities of Adviser.........................
Determination of Net Asset Value ( )......................
Purchase and Redemption of Shares ( ).....................
Taxes ( ).................................................
Portfolio Transactions and Brokerage.......................
General Information ( )...................................
Capital Stock............................................
Voting Rights............................................
Additional Information...................................
Independent Auditors.......................................
_________
( ) indicates page on which the corresponding section appears in
the Prospectus.
UCCF ______ 12-99
<PAGE>
CARILLON FUND, INC.
- ---------------------------------------------------------------
INVESTMENT POLICIES
The following specific policies supplement the Fund's
"Investment Objectives and Policies" set forth in the
Prospectus.
Money Market Instruments and Investment Techniques
Certain money market instruments and investment techniques
are described below. The Russell 2000 Small Cap Index Portfolio
and the Nasdaq 100 Index Portfolio (the "Portfolios") may
purchase money market instruments.
Small Bank Certificates of Deposit. Each Portfolio may invest
in certificates of deposit issued by commercial banks, savings
banks, and savings and loan associations having assets of less
than $1 billion, provided that the principal amount of such
certificates is insured in full by the Federal Deposit Insurance
Corporation ("FDIC"). The FDIC presently insures accounts up to
$100,000, but interest earned above such amount is not insured
by the FDIC.
Repurchase Agreements. A repurchase agreement is an instrument
under which the purchaser (i.e., the Portfolio) acquires
ownership of the obligation (the underlying security) and the
seller (the "issuer" of the repurchase agreement) agrees, at the
time of sale, to repurchase the obligation at a mutually agreed
upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of
return insulated from market fluctuations during such period.
The underlying securities will only consist of securities in
which the Portfolio may otherwise invest. Repurchase agreements
usually are for short periods, normally under one week, and are
considered to be loans under the Investment Company Act of 1940.
Repurchase agreements will be fully collateralized at all times
and interest on the underlying security will not be taken into
account for valuation purposes. The investments by the
Portfolio in repurchase agreements may at times be substantial
when, in the view of the Adviser, unusual market, liquidity, or
other conditions warrant.
If the issuer of the repurchase agreement defaults and does
not repurchase the underlying security, the Portfolio might
incur a loss if the value of the underlying security declines,
and the Fund might incur disposition costs in liquidating the
underlying security. In addition, if the issuer becomes
involved in bankruptcy proceedings, the Portfolio may be delayed
or prevented from obtaining the underlying security for its own
purposes. In order to minimize any such risk, the Portfolio
will only engage in repurchase agreements with recognized
securities dealers and banks determined to present minimal
credit risk by the Adviser, under the direction and supervision
of the Board of Directors.
Reverse Repurchase Agreements. Each Portfolio may enter into
reverse repurchase agreements. Under reverse repurchase
agreements, a Portfolio transfers possession of Portfolio
securities to banks in return for cash in an amount equal to a
percentage of the Portfolio securities' market value and agrees
to repurchase the securities at a future date by repaying the
cash with interest. The Portfolio retains the right to receive
interest and principal payments from the securities while they
are in the possession of the financial institutions. While a
reverse repurchase agreement is in effect, the Custodian will
segregate from other Portfolio assets an amount of cash or
liquid high quality debt obligations equal in value to the
repurchase price (including any accrued interest).
U.S. Government Obligations. Securities issued and guaranteed
as to principal and interest by the United States Government
include a variety of Treasury securities, which differ only in
their interest rates, maturities and times of issuance.
Treasury bills have a maturity of one year or less. Treasury
notes have maturities of one to seven years and Treasury bonds
generally have a maturity of greater than five years.
Government Agency Securities. Government agency securities that
are permissible investments consist of securities either issued
or guaranteed by agencies or instrumentalities of the United
States Government. Agencies of the United States Government
which issue or guarantee obligations include, among others,
Export-Import Banks of the United States, Farmers Home
Administration, Federal Housing Administration, Government
National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley
Authority. Obligations of instrumentalities of the United
States Government include securities issued or guaranteed by,
among others, the Federal National Mortgage Association
("FNMA"), Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal Intermediate Credit Banks, Banks
for Cooperatives, and the U.S. Postal Service. Some of these
securities, such as those guaranteed by GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as
those issued by The Tennessee Valley Authority, are supported by
the right of the issuer to borrow from the Treasury; while still
others, such as those issued by the Federal Land Banks, are
supported only by the credit of the instrumentality. The Fund's
primary usage of these types of securities will be GNMA
certificates and FNMA and FHLMC mortgage-backed obligations
which are discussed in more detail below.
Certificates of Deposit. Certificates of deposit are generally
short-term, interest-bearing negotiable certificates issued by
banks or savings and loan associations against funds deposited
in the issuing institution.
Time Deposits. Time Deposits are deposits in a bank or other
financial institution for a specified period of time at a fixed
interest rate for which a negotiable certificate is not
received.
Bankers' Acceptance. A bankers' acceptance is a time draft
drawn on a commercial bank by a borrower usually in connection
with an international commercial transaction (to finance the
import, export, transfer or storage of goods). The borrower is
liable for payment as well as the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less
and are traded in secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term,
unsecured promissory notes issued by corporations to finance
short-term credit needs. Commercial paper is usually sold on a
discount basis and has a maturity at the time of issuance not
exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a
remaining maturity of less than one year tend to become
extremely liquid and are traded as money market securities.
Such issues with between one and two years remaining to maturity
tend to have greater liquidity and considerably less market
value fluctuations than longer-term issues.
When-issued and Delayed-delivery Securities. From time to time,
in the ordinary course of business, the Portfolio may purchase
securities on a when-issued or delayed-delivery basis i.e.,
delivery and payment can take place a month or more after the
date of the transactions. The securities so purchased are
subject to market fluctuation and no interest accrues to the
purchaser during this period. At the time the Portfolio makes
the commitment to purchase securities on a when-issued or
delayed-delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in
determining the net asset value of the Portfolio. At the time
of delivery of the securities, the value may be more or less
than the purchase price. The Portfolio will also establish a
segregated account with the Fund's custodian bank in which it
will maintain cash or cash equivalents or other Portfolio
securities equal in value to commitments for such when-issued or
delayed-delivery securities.
GNMA Certificates GNMA certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. government.
GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in
a lump sum at maturity. Because both interest and principal
payments (including prepayments) on the underlying mortgage
loans are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
Although the mortgage loans in the pool have maturities of
up to 30 years, the actual average life of the GNMA certificates
typically will be substantially less because the mortgages are
subject to normal principal amortization and may be prepaid
prior to maturity. Prepayment rates vary widely and may be
affected by changes in market interest rates. In periods of
falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the GNMA
certificates. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the
actual average life of the GNMA certificates. Accordingly, it is
not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayments may occur at higher
or lower rates that the original yield on the certificates. Due
to the prepayment feature and the need to reinvest prepayments
of principal at current rates, GNMA certificates can be less
effective than typical bonds of similar maturities at "locking-
in" yields during periods of declining interest rates, although
they may have comparable risks of decline in value during
periods of rising interest rates.
FNMA and FHLMC Mortgage-Backed Obligations The Federal
National Mortgage Association ("FNMA"), a federally chartered
and privately owned corporation, issues pass-through securities
representing an interest in a pool of conventional mortgage
loans. FNMA guarantees the timely payment of principal and
interest but this guarantee is not backed by the full faith and
credit of the U.S. government. The Federal Home Loan Mortgage
Corporation ("FHLMC"), a corporate instrumentality of the United
States, issues participation certificates that represent an
interest in a pool of conventional mortgage loans. FHLMC
guarantees the timely payment of interest and the ultimate
collection of principal and maintains reserves to protect
holders against losses due to default, but the certificates are
not backed by the full faith and credit of the U.S. government.
As is the case with GNMA certificates, the actual maturity of
and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the
underlying pool of mortgages.
Investments in Foreign Securities
American Depositary Receipts. Each Portfolio may invest in
American Depository Receipts. American Depositary Receipts
("ADRs") may be issued in sponsored or unsponsored programs. In
sponsored programs, the issuer makes arrangements to have its
securities traded in the form of ADRs; in unsponsored programs,
the issuer may not be directly involved in the creation of the
program. Although the regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, the
issuers of unsponsored ADRs are not obligated to disclose
material information in the United States and, therefore, such
information may not be reflected in the market value of the
ADRs.
Foreign Exchange. If a foreign country cannot generate
sufficient earnings from foreign trade to service its external
debt, it may need to depend on continuing loans and aid from
foreign governments, commercial banks, multilateral
organizations, and inflows of foreign investment. The cost of
servicing external debt will also generally be adversely
affected by rising international interest rates because many
external debt obligations bear interest at rates which are
adjusted based upon international interest rates. The ability to
service external debt will also depend on the level of the
relevant government's international currency reserves and its
access to foreign currencies. Currency devaluations may affect
the ability of an obligor to obtain sufficient foreign
currencies to service its external debt.
Foreign Markets. Delays in settlement which may occur in
connection with transactions involving foreign securities could
result in temporary periods when a portion of the assets of the
Portfolio is uninvested and no return is earned thereon. The
inability of the Portfolio to make intended security purchases
due to settlement problems could cause the portfolio to miss
attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result in
losses to the Portfolio due to subsequent declines in values of
the portfolio securities or, if the Portfolio has entered into a
contract to sell the security, possible liability to the
purchaser. Certain foreign markets, especially emerging markets,
may require governmental approval for the repatriation of
investment income, capital or the proceeds of sales of
securities by foreign investors. The Portfolio could be
adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation of capital, as
well as by the application to the Portfolio of any restrictions
on investments.
Futures Contracts
For hedging purposes, including protecting the price or
interest rate of securities that the Portfolio intends to buy,
each Portfolio may enter into futures contracts that relate to
securities in which it may directly invest and indices comprised
of such securities and may purchase and write call and put
options on such contracts. As a temporary investment strategy,
until a Portfolio reaches $50 million in net assets, the
Portfolio may invest up to 100% of its assets in such futures
and/or options contracts. Thereafter, the Portfolio may invest
up to 20% of its assets in such futures and/or options
contracts.
A stock index futures contract is a contract to buy or sell
specified units of a stock index at a specified future date at a
price agreed upon when the contract is made. The value of a
unit is based on the current value of the contract index. Under
such contracts no delivery of the actual stocks making up the
index takes place. Rather, upon expiration of the contract,
settlement is made by exchanging cash in an amount equal to the
difference between the contract price and the closing price of
the index at expiration, net of variation margin previously
paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract or delivering the security agreed
upon in the contract. Upon entering into a futures contract, the
Portfolio is required to deposit an initial margin with the
Custodian for the benefit of the futures broker. The initial
margin serves as a "good faith" deposit that the Portfolio will
honor their futures commitments. Subsequent payments (called
"variation margin") to and from the broker are made on a daily
basis as the price of the underlying investment fluctuates. In
the event of the bankruptcy of the futures broker that holds
margin on behalf of the Portfolio, the Portfolio may be entitled
to return of margin owed to it only in proportion to the amount
received by the broker's other customers. The Adviser will
attempt to minimize this risk by monitoring the creditworthiness
of the futures brokers with which the Portfolio does business.
Because the value of index futures depends primarily on the
value of their underlying indexes, the performance of the broad-
based contracts will generally reflect broad changes in common
stock prices. However, because a Portfolio may not be invested
in precisely the same proportion as an Index, it is likely that
the price changes of the Portfolio's index futures positions
will not match the price changes of the Portfolio's other
investments.
Options on futures contracts give the purchaser the right
to assume a position at a specified price in a futures contract
at any time before expiration of the option contract.
The Portfolios will enter into futures contracts which are
traded on national futures exchanges and are standardized as to
maturity date and underlying financial instrument. The
principal financial futures exchanges in the United States are
the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange and the
Kansas City Board of Trade. Futures exchanges and trading in
the United States are regulated under the Commodity Exchange Act
by the Commodity Futures Trading Commission ("CFTC"). Although
techniques other than the sale and purchase of futures contracts
could be used for the above-referenced purposes, futures
contracts offer an effective and relatively low cost means of
implementing the Portfolios' objectives in these areas.
Regulatory Limitations. The Portfolios will engage in
transactions in futures contracts and options thereon only for
bona fide hedging, risk management and other permissible
purposes, in each case in accordance with the rules and
regulations of the CFTC, and not for speculation.
In instances involving the purchase of futures contracts or
call options thereon or the writing of put options thereon by
the Portfolios, an amount of cash, U.S. Government securities or
other liquid securities, equal to the market value of the
futures contracts and options thereon (less any related margin
deposits), will be deposited in a segregated account with the
Portfolios' custodian to cover the position, or alternative
cover will be employed thereby insuring that the use of such
futures contracts and options is unleveraged.
In addition, CFTC regulations may impose limitations on the
Portfolios' ability to engage in certain yield enhancement and
risk management strategies. If the CFTC or other regulatory
authorities adopt different (including less stringent) or
additional restrictions, the Portfolios would comply with such
new restrictions.
SPECIAL RISKS OF FUTURES CONTRACTS
Volatility And Leverage. The prices of futures contracts are
volatile and are influenced, among other things, by actual and
anticipated changes in the market and interest rates, which in
turn are affected by fiscal and monetary policies and national
and international policies and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the minimum amount
that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures
trading involves an extremely high degree of leverage. As a
result, a relatively small price movement in a futures contract
may result in immediate and substantial loss, as well as gain,
to the investor. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, a Portfolio would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in
order to be certain that a Portfolio has sufficient assets to
satisfy its obligations under a futures contract, the Portfolio
earmarks to the futures contract money market instruments equal
in value to the current value of the underlying instrument less
the margin deposit.
Liquidity. Each Portfolio may elect to close some or all of
its futures positions at any time prior to their expiration. A
Portfolio would do so to reduce exposure represented by long
futures positions or increase exposure represented by short
futures positions. A Portfolio may close its positions by
taking opposite positions which would operate to terminate the
Portfolio's position in the futures contracts. Final
determinations of variation margin would then be made,
additional cash would be required to be paid by or released to
the Portfolio, and the Portfolio would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although each Portfolio intends to purchase or sell futures
contracts only on exchanges or boards of trade where there
appears to be an active market, there is no assurance that a
liquid market on an exchange or board of trade will exist for
any particular contract at any particular time. In such event,
it might not be possible to close a futures contract, and in the
event of adverse price movements, each Portfolio would continue
to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge
the underlying instruments, the Portfolios would continue to
hold the underlying instruments subject to the hedge until the
futures contracts could be terminated. In such circumstances,
an increase in the price of the underlying instruments, if any,
might partially or completely offset losses on the futures
contract. However, as described below, there is no guarantee
that the price of the underlying instruments will in fact
correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, or market or interest rate trends. There are several
risks in connection with the use by the Portfolios of futures
contract as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the
futures contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. The Adviser
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of each
Portfolio's underlying instruments sought to be hedged.
Successful use of futures contracts by the Portfolios for
hedging purposes is also subject to the Adviser's ability to
correctly predict movements in the direction of the market. It
is possible that, when a Portfolio has sold futures to hedge its
portfolio against a decline in the market, the index, indices,
or underlying instruments on which the futures are written might
advance and the value of the underlying instruments held in the
Portfolio might decline. If this were to occur, the Portfolio
would lose money on the futures and also would experience a
decline in value in its underlying instruments. However, while
this might occur to a certain degree, the Adviser believes that
over time the value of a Portfolio's will tend to move in the
same direction as the market indices which are intended to
correlate to the price movements of the underlying instruments
sought to be hedged. It is also possible that if a Portfolio
were to hedge against the possibility of a decline in the market
(adversely affecting the underlying instruments held in its
portfolio) and prices instead increased, the Portfolio would
lose part or all of the benefit of increased value of those
underlying instruments that it has hedged, because it would have
offsetting losses in its futures positions. In addition, in
such situations, if a Portfolio had insufficient cash, it might
have to sell underlying instruments to meet daily variation
margin requirements. Such sales of underlying instruments might
be, but would not necessarily be, at increased prices (which
would reflect the rising market). The Portfolios might have to
sell underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions.
First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors might
close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying
instruments and futures markets. Second, the margin
requirements in the futures market are less onerous than margin
requirements in the securities markets, and as a result the
futures market might attract more speculators than the
securities markets do. Increased participation by speculators
in the futures market might also cause temporary price
distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation
between price movements in the underlying instruments and
movements in the prices of futures contracts, even a correct
forecast of general market trends by the Adviser might not
result in a successful hedging transaction over a very short
time period
Options on futures contracts give the purchaser the right
to assume a position at a specified price in a futures contract
at any time before expiration of the option contract.
Options
Each Portfolio may sell (write) listed options on U.S.
Treasury Securities and options on contracts for the future
delivery of U.S. Treasury Securities as a means of hedging the
value of such securities owned by the Portfolio. Each Portfolio
may enter into options on futures contracts that relate to
securities in which it may directly invest and indices comprised
of such securities and may purchase and write call and put
options on such contracts. In addition, each Portfolio may
write covered call options on any security in which it is
eligible to invest.
As a writer of a call option, a Portfolio may terminate its
obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the
option previously written. However, once a Portfolio has been
assigned an exercise notice, the Portfolio will be unable to
effect a closing purchase transaction. There can be no
assurance that a closing purchase transaction can be effected
when the Portfolio so desires.
A Portfolio will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option; a Portfolio will
realize a loss from a closing transaction if the price of the
transaction is more than the premium received from writing the
option. Since the market value of call options generally
reflects increases in the value of the underlying security, any
loss resulting from the closing transaction may be wholly or
partially offset by unrealized appreciation of the underlying
security. Conversely, any gain resulting from the closing
transaction may be wholly or partially offset by unrealized
depreciation of the underlying security. The principal factors
affecting the market value of call options include supply and
demand, the current market price and price volatility of the
underlying security, and the time remaining until the expiration
date.
There is no assurance that a liquid secondary market will
exist for any particular option. In the event it is not
possible to effect a closing transaction, the Portfolio will not
be able to sell the underlying security, until the option
expires or the option is exercised by the holder.
Possible reasons for the absence of a liquid secondary
market on an exchange include the following: (a) insufficient
trading interest in certain options; (b) restrictions on
transactions imposed by an exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying
securities; (d) inadequacy of the facilities of an exchange or
the Clearing Corporation to handle trading volume; or (e) a
decision by one or more exchanges to discontinue the trading of
options or impose restrictions on types of orders. There can be
no assurance that higher than anticipated trading activity or
order flow or other unforeseen events might not at times render
the trading facilities inadequate and thereby result in the
institution of special trading procedures or restrictions which
could interfere with the Portfolio's ability to effect closing
transactions.
Each Portfolio may write call options on futures contracts
in which they are eligible to invest, or securities included
therein, only for hedging purposes to protect the price of
securities it intends to buy and when such transactions enable
it to better meet its investment objectives. The Portfolios
will not write options on futures contracts for speculative
purposes.
Upon the exercise of a call option on a futures contract,
the writer of the option (the Portfolio) 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 current market price of the contract in the
futures market. However, as with the trading of futures, most
participants in the options markets do not seek to realize their
gains or losses by exercise of 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. Nevertheless, if an option on a futures
contract written by the Portfolio is exercised, the Portfolio
intends to either close out the futures contract by purchasing
an offsetting futures contract, or deliver the underlying
securities immediately, in order to avoid assuming a short
position. There can be no assurance that the Portfolio will be
able to enter into an offsetting transaction with respect to a
particular contract at a particular time, but it may always
deliver the underlying security.
As a writer of options on futures contracts, the Portfolio
will receive a premium but will assume a risk of adverse
movement in the price of the underlying futures contract. If
the option is not exercised, the Portfolio will gain the amount
of the premium, which may partially offset unfavorable changes
in the value of securities held in the Portfolio. If the option
is exercised, the Portfolio might incur a loss in the option
transaction which would be reduced by the amount of the premium
it has received.
While the holder or writer of an option on a futures
contract may normally terminate its position by selling or
purchasing an offsetting option, the Portfolio's ability to
establish and close out options positions at fairly established
prices will be subject to the maintenance of a liquid market.
The Portfolio will not write options on futures contracts
unless, in the Adviser's opinion, the market for such options
has sufficient liquidity that the risks associated with such
options transactions are not at unacceptable levels.
Risks. While options will be sold in an effort to reduce
certain risks, those transactions themselves entail certain
other risks. Thus, while the Portfolio may benefit from the use
of options, unanticipated changes in interest rates or security
price movements may result in a poorer overall performance for
the Portfolio than if it had not entered into any options
transactions. The price of S&P 500 Index, S&P 400 Index,
Russell 2000 Index and Nasdaq 100 Index futures are also
volatile and are influenced, among other things, by changes in
conditions in the securities markets in general.
In the event of an imperfect correlation between a futures
position (and a related option) and the Portfolio position which
is intended to be protected, the desired protection may not be
obtained. The correlation between changes in prices of futures
contracts and of the securities being hedged is generally only
approximate. The amount by which such correlation is imperfect
depends upon many different circumstances, such as variations in
speculative market demand for futures and for debt securities
(including technical influences in futures trading) and
differences between the financial instruments being hedged and
the instruments underlying the standard options on futures
contracts available for trading.
Due to the imperfect correlation between movements in the
prices of futures contracts and movements in the prices of the
underlying securities, the price of a futures contract may move
more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will
not be fully effective and if the price of the securities being
hedged has moved in an unfavorable direction, the Portfolio
would be in a better position than if it had not hedged at all.
If the price of the futures moves more than the price of the
security, the Portfolio will experience either a gain or loss on
the option on the future which will not be completely offset by
movements in the price of the securities which are the subject
of the hedge.
The market prices of futures contracts and options thereon
may be affected by various factors. If participants in the
futures market elect to close out their contracts through
offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the
debt securities and futures markets could result. Price
distortions could also result if investors in futures contracts
make or take delivery of underlying securities rather than
engage in closing transactions. This could occur, for example,
if there is a lack of liquidity in the futures market. From the
point of view of speculators, the deposit requirements in the
futures markets are less onerous than margins requirements in
the securities markets; accordingly, increased participation by
speculators in the futures market could cause temporary price
distortions. A correct forecast of interest rate trends by the
adviser may still not result in a successful hedging transaction
because of possible price distortions in the futures market and
because of the imperfect correlation between movements in the
prices of debt securities and movements in the prices of futures
contracts. A well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate
trends.
It is the Fund's opinion that it is not a "commodity pool"
as defined under the Commodity Exchange Act and in accordance
with rules promulgated by the CFTC.
The Portfolio will not write options on futures contracts
for which the aggregate premiums exceed 5% of the fair market
value of the Portfolio's assets, after taking into account
unrealized profits and unrealized losses on any such contracts
it has entered into (except that, in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount
generally may be excluded in computing the 5%).
All of the futures options transactions employed by the
Portfolio will be bona fide hedging transactions, as that term
is used in the Commodity Exchange Act and has been interpreted
and applied by the CFTC. To ensure that its futures options
transactions meet this standard, the Fund will enter into such
transactions only for the purposes and with the intent that CFTC
has recognized to be appropriate.
Custodial Procedures and Margins. The Fund's Custodian acts as
the Fund's escrow agent as to securities on which the Fund has
written call options and with respect to margin which the Fund
must deposit in connection with the writing of call options on
futures contracts. The Clearing Corporation (CC) will release
the securities or the margin from escrow on the expiration of
the call, or when the Fund enters into a closing purchase
transaction. In this way, assets of the Fund will never be
outside the control of the Fund's custodian, although such
control might be limited by the escrow receipts issued.
At the time the Portfolio sells a call option on a contract
for future delivery, it is required to deposit with its
custodian, in an escrow account, a specified amount of cash or
U.S. Government securities ("initial margin"). The account will
be in the name of the CC. The amount of the margin generally is
a small percentage of the contract amount. The margin required
is set by the exchange on which the contract is traded and may
be modified during the term of the contract. The initial margin
is in the nature of a performance bond or good faith deposit,
and it is released from escrow upon termination of the option
assuming all contractual obligations have been satisfied. The
Portfolio will earn interest income on its initial margin
deposits.
In accordance with the rules of the exchange on which the
option is traded, it might be necessary for the Portfolio to
supplement the margin held in escrow. This will be done by
placing additional cash or U.S. Government securities in the
escrow account. If the amount of required margin should
decrease, the CC will release the appropriate amount from the
escrow account.
The assets in the margin account will be released to the CC
only if the Portfolio defaults or fails to honor its commitment
to the CC and the CC represents to the custodian that all
conditions precedent to its right to obtain the assets have been
satisfied.
Lending Portfolio Securities
Each Portfolio may lend portfolio securities with a value
up to 10% of its total assets. Such loans may be terminated at
any time. The Portfolio will continuously maintain as
collateral cash or obligations issued by the U.S. government,
its agencies or instrumentalities in an amount equal to not less
than 100% of the current market value (on a daily marked-to-
market basis) of the loaned securities plus declared dividends
and accrued interest. While portfolio securities are on loan,
the borrower will pay the Portfolio any income accruing thereon,
and the Portfolio may invest or reinvest the collateral
(depending on whether the collateral is cash or U.S. Government
securities) in portfolio securities, thereby earning additional
income. Loans are typically subject to termination by the
Portfolio in the normal settlement time, currently five business
days after notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan
inures to the Portfolio and its shareholders. The Portfolio may
pay reasonable finders', borrowers', administrative, and
custodial fees in connection with a loan of its securities. The
Adviser will review and monitor the creditworthiness of such
borrowers on an ongoing basis.
Unit Investment Trusts
The Nasdaq 100 Index Portfolio may invest in shares of the
Nasdaq-100 Trust ("Nasdaq-100 Trust(R)"). Nasdaq100 Trust
Shares are units of beneficial interest in a unit investment
trust ("UIT"), representing proportionate undivided interests in
a portfolio of securities in substantially the same weighting as
the component common stocks of the Nasdaq 100 Index. In
addition, each Portfolio may invest in a UIT, which is currently
in existence or is created in the future, that is designed to
track the performance of the Portfolio's underlying Index.
While the investment objective of such a UIT is to provide
investment results that generally correspond to the price and
yield performance of the component common stocks of the Nasdaq
100 Index or other Index, there can be no assurance that this
investment objective will be met fully. As Nasdaq 100 Trust
Shares and other UITs are securities issued by an investment
company, non-fundamental restriction (5) below restricts their
purchases to 10% of the Portfolio's assets.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental restrictions
relating to the investment of assets of each Portfolio and other
investment activities. These are fundamental policies and may
not be changed without the approval of holders of the majority
of the outstanding voting shares of each Portfolio affected
(which for this purpose means the lesser of: [i] 67% of the
shares represented at a meeting at which more than 50% of the
outstanding shares are represented, or [ii] more than 50% of the
outstanding shares). A change in policy affecting only one
Portfolio may be effected with the approval of the majority of
the outstanding voting shares of that Portfolio only. The
Fund's fundamental investment restrictions provide that no
Portfolio of the Fund is allowed to:
(1) Issue senior securities (except that the Portfolio may
borrow money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets (or
with respect to 50% of the value of its total assets for
the Nasdaq 100 Index Portfolio) , invest more than 5% of
its total assets in securities (other than securities
issued or guaranteed by the United States Government or
its agencies or instrumentalities) of any one issuer.
(3) Purchase more than either: (I) 10% in principal amount of
the outstanding debt securities of an issuer, or (ii) 10%
of the outstanding voting securities of an issuer, except
that such restrictions shall not apply to securities
issued or guaranteed by the United States Government or
its agencies or instrumentalities.
(4) Invest more than 25% of its total assets in the
securities of issuers primarily engaged in the same
industry. For purposes of this restriction, gas, gas
transmission, electric, water, and telephone utilities
each will be considered a separate industry. This
restriction does not apply to obligations of banks or
savings and loan associations or to obligations issued or
guaranteed by the United States Government, its agencies
or instrumentalities. This restriction does not apply to
the Nasdaq 100 Index Portfolio.
(5) Purchase or sell commodities, commodity contracts, or
real estate, except that the Portfolio may purchase
securities of issuers which invest or deal in any of the
above, and except that the Portfolio may invest in
securities that are secured by real estate. This
restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies
or instrumentalities or to futures contracts or options
purchased by the Portfolio in compliance with non-
fundamental restrictions (7) and (8) below.
(6) Purchase any securities on margin (except that the Fund
may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of portfolio
securities) or make short sales of securities or maintain
a short position.
(7) Make loans, except through the purchase of obligations in
private placements or by entering into repurchase
agreements (the purchase of publicly traded obligations
not being considered the making of a loan).
(8) Lend its securities, except that the Portfolio may lend
securities in compliance with non-fundamental restriction
(6) below.
(9) Borrow amounts in excess of 10% of its total assets,
taken at market value at the time of the borrowing, and
then only from banks (and, in the case of the Portfolio
by entering into reverse repurchase agreements) as a
temporary measure for extraordinary or emergency
purposes, or to meet redemption requests that might
otherwise require the untimely disposition of securities,
and not for investment or leveraging.
(10) Underwrite securities of other issuers except insofar as
the Fund may be deemed an underwriter under the
Securities Act of 1933 in selling shares of the Portfolio
and except as it may be deemed such in a sale of
restricted securities.
(11) Invest more than 10% of its total assets in repurchase
agreements maturing in more than seven days, "small bank"
certificates of deposit that are not readily marketable,
and other illiquid investments.
(12) Enter into reverse repurchase agreements if the total of
such investments would exceed 5% of the total assets of
the Portfolio.
The Fund has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions, no Portfolio of the Fund may:
(1) Participate on a joint (or a joint and several) basis in
any trading account in securities (but this does not
prohibit the "bunching" of orders for the sale or
purchase of portfolio securities with the other
Portfolios or with other accounts advised or sponsored by
the Adviser or any of its affiliates to reduce brokerage
commissions or otherwise to achieve best overall
execution).
(2) Purchase or retain the securities of any issuer, if, to
the knowledge of the Fund, officers and directors of the
Fund, the Adviser or any affiliate thereof each owning
beneficially more than 1/2% of one of the securities of
such issuer, own in the aggregate more than 5% of the
securities of such issuer.
(3) Purchase or sell interests in oil, gas, or other mineral
exploration or development programs, or real estate
mortgage loans, except that the Portfolio may purchase
securities of issuers which invest or deal in any of the
above, and except that the Portfolio may invest in
securities that are secured by real estate mortgages.
This restriction does not apply to obligations or other
securities issued or guaranteed by the United States
Government, its agencies or instrumentalities.
(4) Invest in companies for the purpose of exercising control
(alone or together with the other Portfolios).
(5) Purchase securities of other investment companies with an
aggregate value in excess of 5% of the Portfolio's total
assets, except in connection with a merger,
consolidation, acquisition or reorganization, or by
purchase in the open market of securities of closed-end
investment companies where no underwriter or dealer's
commission or profit, other than customary broker's
commission, is involved, or by purchase of UITs designed
to track an Index and only if immediately thereafter not
more than 10% of the Portfolio's total assets, taken at
market value, would be invested in such securities.
The Fund has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions:
The Portfolio may not:
(6) Lend portfolio securities with an aggregate value of more
than 10% of its total assets.
(7) Invest more than 20% of its assets in futures contracts
and/or options on futures contracts, except as a
temporary investment strategy until the Portfolio reaches
$50 million in net assets, the Portfolio may invest up
to 100% of its assets in such futures and/or options
contracts.
(8) Invest in options unless no more than 5% of its assets is
paid for premiums for outstanding put and call options
(including options on futures contracts) and unless no
more than 25% of the Portfolio's assets consist of
collateral for outstanding options.
If a percentage restriction (for either fundamental or
nonfundamental policies) is adhered to at the time of
investment, a later increase or decrease in percentage beyond
the specified limit resulting from a change in values of
portfolio securities or amount of net assets shall not be
considered a violation.
In addition to the investment restrictions described above,
the Fund will comply with restrictions contained in any current
insurance laws in order that the assets of The Union Central
Life Insurance Company's ("Union Central") separate accounts may
be invested in Fund shares.
PORTFOLIO TURNOVER
The Portfolio's annual rate of Portfolio turnover is
calculated by dividing the lesser of purchases or sales of
portfolio securities during the fiscal year by the monthly
average of the value of the Portfolio's securities (excluding
from the computation all securities, including options, with
maturities at the time of acquisition of one year or less). A
high rate of Portfolio turnover generally involves
correspondingly greater brokerage commission expenses, which
must be borne directly by the Portfolio. Turnover rates may
vary greatly from year to year as well as within a particular
year and may also be affected by cash requirements for
redemptions of the Portfolio's shares and by requirements which
enable the Fund to receive certain favorable tax treatments.
The Portfolio turnover rates will, of course, depend in large
part on the level of purchases and redemptions of shares of each
Portfolio. Higher Portfolio turnover can result in
corresponding increases in brokerage costs to the Portfolio and
its shareholders. However, because rate of Portfolio turnover
is not a limiting factor, particular holdings may be sold at any
time, if investment judgment or Portfolio operations make a sale
advisable. The annual Portfolio turnover rate for each
Portfolio is expected to be 20%.
MANAGEMENT OF THE FUND
Directors and Officers
The directors and executive officers of the Fund and their
principal occupations during the past five years are set forth
below. Unless otherwise noted, the address of each executive
officer and director is 1876 Waycross Road, Cincinnati, Ohio
45240.
<TABLE>
<CAPTION>
Position(s)
Name, Address with Principal Occupation(s)
and Age the Fund During Past Five Years
- ------------- ----------- -----------------------
<S> <C> <C>
George M. Callard, M.D. Director Professor of Clinical Surgery,
3021 Erie Avenue University of Cincinnati
Cincinnati, Ohio 45208
(Age 65)
Theodore H. Emmerich Director Consultant; former Partner, Ernst &
1201 Edgecliff Place Whinney, Accountants
Cincinnati, Ohio 45206
(72)
Richard H. Finan Director Attorney at Law; President of the
11137 Main Street Ohio State Senate
Cincinnati, Ohio 45241
(64)
Yvonne L. Gray Director Chief Operating Officer, United Way
2400 Reading Road and Community Chest; prior thereto,
Cincinnati, Ohio 45202 Vice President/Trust Operations
( ) Officer, Fifth Third Bank
Jean Patrice Director Former Interim President, Cincinnati
Harrington, S.C. State Technical and Community College;
3217 Whitfield Avenue Former Executive Director, Cincinnati
Cincinnati, Ohio 45220 Youth Collaborative; President
(76) Emeritus (formerly, President) College
of Mount St. Joseph
John H. Jacobs* Director President and Chief Operating Officer,
(52) Union Central; Director, Carillon
Advisers, Inc. ("Adviser") and
Carillon Investments, Inc.; prior to
July, 1998, Officer and employee,
Union Central
Charles W. McMahon Director Retired Senior Vice President and
19 Iron Woods Drive Director, Union Central
Cincinnati, Ohio 45239
(79)
Harry Rossi* Director Director Emeritus, Union Central;
8548 Wyoming Club Drive Director, Adviser and Carillon
Cincinnati, Ohio 45215 Investments, Inc.; former Chairman,
(79) President and Chief Executive Officer,
Union Central
Steven R. Sutermeister Director, Senior Vice President, Union Central;
(45) President President, Director and Chief
and Chief Executive Officer, Adviser;
Executive Director, Carillon Investments, Inc.
Officer
Stephen R. Hatcher Senior Vice Executive Vice President and Chief
(56) President Financial Officer, Union Central;
prior to June, 1995, Officer and
employee, Union Central
John F. Labmeier Vice President Vice President, Associate General
(50) and Secretary Counsel and Assistant Secretary, Union
Central; Vice President and Secretary,
Carillon Investments, Inc.; Secretary,
Adviser
Thomas G. Knipper Controller Treasurer, Adviser; prior to July,
(42) 1995, Treasurer of The Gateway Trust
and Vice President and Controller of
Gateway Advisers, Inc.
John M. Lucas Assistant Counsel and Assistant to Secretary,
(48) Secretary Union Central
</TABLE>
- ---------------
* Messrs. Jacobs, Rossi and Sutermeister are considered to be
"interested persons" of Carillon Fund (within the meaning of
the Investment Company Act of 1940) because of their
affiliation with the Adviser.
All directors who are not "interested persons" of the Company
are members of the Audit Committee.
As of the date of this Statement of Additional Information,
officers and directors of Carillon Fund do not own any of the
outstanding shares of any Fund. Directors who are not officers
or employees of Union Central or Adviser are paid a fee plus
actual out-of-pocket expenses by Carillon Fund for each meeting
of the Board of Directors attended. Total fees and expenses
incurred for 1999 were $xx,xxx.
incurred for 1999 were $xx,xxx.
<TABLE>
<CAPTION>
Compensation Table
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
From Benefits Benefits From
Registrant Accrued As Upon Registrant
Part of Fund Retirement and Fund
Expenses Complex*
Paid to
Directors
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George M. Callard, $14,800** -- -- $14,800
M.D.
Director
Theodore H. Emmerich $15,900 -- -- $15,900
Director
James M. Ewell $15,300 -- -- $15,300
Director
Richard H. Finan $15,300 -- -- $15,300
Director
Jean Patrice
Harrington, S.C. $15,500 -- -- $15,500
Director
John H. Jacobs N/A N/A N/A N/A
Director
Charles W. McMahon $14,800** -- -- $14,800
Director
Harry Rossi N/A N/A N/A N/A
Director
</TABLE>
* Each of the Directors also served as a Trustee of Carillon
Investment Trust.
** Messrs. Callard and McMahon have been deferring their
compensation each year. As of September 30, 1999, the total
amount deferred, including interest, was as follows:
Dr. Callard - $xx,xxx; Mr. McMahon - $xxx,xxx.
Investment Adviser
Carillon Fund has entered into an Investment Advisory
Agreement ("Agreement") with Carillon Advisers, Inc. ("Adviser")
whose principal business address is 1876 Waycross Road,
Cincinnati, Ohio 45240 (P.O. Box 40407, Cincinnati, Ohio
45240). The Adviser was incorporated under the laws of Ohio on
August 18, 1986, and is a wholly-owned subsidiary of Union
Central. Executive officers and directors of the Adviser who
are affiliated with the Fund are: Steven R. Sutermeister,
Director, President and Chief Executive Officer; John H. Jacobs,
Director; Harry Rossi, Director; Thomas G. Knipper, Treasurer;
and John F. Labmeier, Secretary.
Pursuant to the Agreement, the Fund has retained the
Adviser to manage the investment of the Fund's assets, including
the placing of orders for the purchase and sale of Portfolio
securities. The Adviser is at all times subject to the
direction and supervision of the Board of Directors of the Fund.
The Adviser continuously furnishes an investment program
for the Portfolio, is responsible for the actual management of
the Portfolio and has responsibility for making decisions to
buy, sell or hold any particular security. The Adviser obtains
and evaluates such information and advice relating to the
economy, securities markets, and specific securities as it
considers necessary or useful to continuously manage the assets
of the Portfolio in a manner consistent with its investment
objectives, policies and restrictions. The Adviser considers
analyses from various sources, makes necessary investment
decisions and effects transactions accordingly. The Adviser
also performs certain administrative functions for the Fund.
The Adviser may utilize the advisory services of subadvisers for
the Portfolio.
Payment of Expenses
Under the terms of the Agreement, in addition to managing
the Fund's investments, the Adviser, at its expense, maintains
certain of the Fund's books and records (other than those
provided by Firstar Trust Company, by agreement) and furnishes
such office space, facilities, equipment, and clerical help as
the Fund may reasonably require in the conduct of business. In
addition, the Adviser pays for the services of all executive,
administrative, clerical, and other personnel, including
officers of the Fund, who are employees of Union Central. The
Adviser also bears the cost of telephone service, heat, light,
power and other utilities provided to the Fund. Expenses not
expressly assumed by the Adviser under the Agreement will be
paid by the Fund.
The Portfolio pays all other expenses incurred in its
operation and a portion of the Fund's general administration
expenses allocated on the basis of the asset size of the
respective Portfolios. Expenses other than the Adviser's fee
that are borne directly and paid individually by a Portfolio
include, but are not limited to, brokerage commissions, dealer
markups, expenses incurred in the acquisition of Portfolio
securities, transfer taxes, transaction expenses of the
custodian, pricing services used by only one or more Portfolios,
and other costs properly payable by only one or more Portfolios.
Expenses which are allocated on the basis of size of the
respective Portfolios include custodian (portion based on asset
size), dividend disbursing agent, transfer agent, bookkeeping
services (except annual per Portfolio base charge), pricing,
shareholder's and directors' meetings, directors' fees, proxy
statement and Prospectus preparation, registration fees and
costs, fees and expenses of legal counsel not including
employees of the Adviser, membership dues of industry
associations, postage, insurance premiums including fidelity
bond, and all other costs of the Fund's operation properly
payable by the Fund and allocable on the basis of size of the
respective Portfolios. The Adviser will pay any expenses of the
Nasdaq 100 Index Portfolio, other than the advisory fee for the
Portfolio, to the extent that such expenses exceed .30% of the
Portfolio's net assets. The Adviser will also pay any expenses
of the Russell 2000 Small Cap Index Portfolio, other than the
advisory fee for the Portfolio, to the extent that such expenses
exceed .40% of the Portfolio's net assets.
Depending on the nature of a legal claim, liability or
lawsuit, litigation costs, payment of legal claims or
liabilities and any indemnification relating thereto may be
directly applicable to a Portfolio or allocated on the basis of
the size of the respective Portfolios. The directors have
determined that this is an appropriate method of allocation of
expenses.
Advisory Fee
As full compensation for the services and facilities
furnished to the Fund and expenses of the Fund assumed by the
Adviser, the Fund pays the Adviser monthly compensation
calculated daily as described on page ____ of the Prospectus.
Investment Advisory Agreement
The Investment Advisory Agreement was initially approved by
the Fund's Board of Directors, including a majority of the
directors who are not interested persons of the Adviser, on
March 22, 1984. Unless earlier terminated as described below,
the Agreement will continue in effect from year to year if
approved annually: (a) by the Board of Directors of the Fund or
by a majority of the outstanding shares of the Fund, including a
majority of the outstanding shares of each Portfolio; and (b) by
a majority of the directors who are not parties to such contract
or interested persons (as defined by the Investment Company Act
of 1940) of any such party. The Agreement is not assignable and
may be terminated without penalty by the Fund on 60 days notice,
and by the Adviser on 90 days notice. On March 19, 1999 the
Agreement was approved for continuance for one (1) year by the
Board of Directors by unanimous vote of those present, including
a majority of the directors who are not parties to such contract
or interested persons of any such party.
On August 30, 1999, the Board of Directors took steps to
activate each of the Portfolios by authorizing the issuance of
shares of the Portfolios. On November 15, 1999, the Board of
Directors also approved an amendment to the Investment Advisory
Agreement making the Agreement applicable to the Portfolios, and
specifying the advisory fee payable by it. The board determined
that the amendment did not affect the interests of the classes
of Fund shares other than Portfolio shares and that therefore
only the holders of Portfolio shares were entitled to vote on
the amendment. It is anticipated that the sole shareholder of
the Portfolios will approve the Agreement as amended on or about
January _____, 2000.
The Investment Advisory Agreement provides that the Adviser
shall not be liable to the Fund or to any shareholder for any
error of judgment or mistake of law or for any loss suffered by
the Fund or by any shareholder in connection with matters to
which the Investment Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith, gross negligence,
or reckless disregard on the part of the Adviser in the
performance of its duties thereunder. In the case of
administration services, the Adviser will be held to a normal
standard of liability.
The Agreement in no way restricts the Adviser from acting
as investment manager or adviser to others.
If the question of continuance of the Agreement (or
adoption of any new Agreement) is presented to shareholders,
continuance (or adoption) with respect to a Portfolio shall be
effective only if approved by a majority vote of the outstanding
voting securities of that Portfolio. If the shareholders of any
one or more of the Portfolios should fail to approve the
Agreement, the Adviser may nonetheless serve as an adviser with
respect to any Portfolio whose shareholders approved the
Agreement.
Administration
The Adviser is responsible for providing certain
administrative functions to the Fund and has entered into an
Administration Agreement with Carillon Investments, Inc. ("CII")
under which CII furnishes substantially all of such services for
an annual fee of .05% of the average net assets of each
Portfolio. The fee is borne by the Adviser, not the Fund.
Under the Administration Agreement, CII is obligated to provide
persons for clerical, accounting, bookkeeping, administrative
and other similar services, to supply office space, stationery
and office supplies, and to prepare tax returns, reports to
stockholders, and filings with the Securities and Exchange
Commission and state securities authorities.
Service Agreement
Under a Service Agreement between the Adviser and Union
Central, Union Central has agreed to make available to the
Adviser the services of certain employees of Union Central on a
part-time basis for the purpose of better enabling the Adviser
to fulfill its obligations to the Fund under the Agreement.
Pursuant to the Service Agreement, the Adviser shall reimburse
Union Central for all costs allocable to the time spent on the
affairs of the Adviser by the employees provided by Union
Central. In performing their services for the Adviser pursuant
to the Service Agreement, the specified employees shall report
and be solely responsible to the officers and directors of the
Adviser or persons designated by them. Union Central shall have
no responsibility for the investment recommendations or
decisions of the Adviser. The obligation of performance under
the Agreement is solely that of the Adviser and Union Central
undertakes no obligation in respect thereto except as otherwise
expressly provided in the Service Agreement. The Service
Agreement was approved by the shareholders of the Equity, Bond
and Capital Portfolios at a meeting held on March 20, 1992. It
is anticipated that the sole shareholder of the Portfolios will
approve the Service Agreement on or about January _____, 2000..
Securities Activities of Adviser
Securities held by the Fund may also be held by Union
Central or by other separate accounts or mutual funds for which
the Adviser acts as an adviser. Because of different investment
objectives or other factors, a particular security may be bought
by Union Central or by the Adviser or for one or more of its
clients, when one or more other clients are selling the same
security. If purchases or sales of securities for one or more
of the Fund's Portfolios or other clients of the Adviser or
Union Central arise for consideration at or about the same time,
transactions in such securities will be made, insofar as
feasible, for the Fund's Portfolios, Union Central, and other
clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client of the Adviser
during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there
may be an adverse effect on price.
On occasions when the Adviser deems the purchase or sale of
a security to be in the best interests of the Fund as well as
other accounts or companies, it may, to the extent permitted by
applicable laws and regulations, but will not be obligated to,
aggregate the securities to be sold or purchased for the Fund
(or for two or more Portfolios) with those to be sold or
purchased for other accounts or companies in order to obtain
more favorable execution and low brokerage commissions. In that
event, allocation of the securities purchased or sold, as well
as the expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Fund
Portfolio(s) and to such other accounts or companies. In some
cases this procedure may adversely affect the size of the
position obtainable for a Portfolio.
DETERMINATION OF NET ASSET VALUE
As described on page ____ of the Prospectus, the net asset
value of shares of the Fund is determined once daily, Monday
through Friday as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m., Eastern Time), when
there are purchases or redemptions of Fund shares, except: (i)
when the New York Stock Exchange is closed (currently New Year's
Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day); and (ii)
any day on which changes in the value of the Portfolio
securities of the Fund will not materially affect the current
net asset value of the shares of a Portfolio.
Securities held by the Portfolio, except for money market
instruments maturing in 60 days or less, will be valued as
follows: Securities which are traded on stock exchanges
(including securities traded in both the over-the-counter market
and on exchange), or listed on the Nasdaq National Market
System, are valued at the last sales price as of the close of
the New York Stock Exchange on the day the securities are being
valued, or, lacking any sales, at the closing bid prices.
Securities traded only in the over-the-counter market are valued
at the last bid prices quoted by brokers that make markets in
the securities at the close of trading on the New York Stock
Exchange. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors.
Money market instruments with a remaining maturity of 60
days or less are valued on an amortized cost basis. Under this
method of valuation, the instrument is initially valued at cost
(or in the case of instruments initially valued at market value,
at the market value on the day before its remaining maturity is
such that it qualifies for amortized cost valuation);
thereafter, the Fund assumes a constant proportionate
amortization in value until maturity of any discount or premium,
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 that would be received upon sale of the instrument.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, only to
Union Central and its separate accounts. It is possible that at
some later date the Fund may offer shares to other investors.
The Fund is required to redeem all full and fractional
shares of the Fund for cash at the net asset value per share.
Payment for shares redeemed will generally be made within seven
days after receipt of a proper notice of redemption. The right
to redeem shares or to receive payment with respect to any
redemption may only be suspended for any period during which:
(a) trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission or such
exchange is closed for other than weekends and holidays; (b) an
emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of Portfolio
securities or determination of the net asset value of a
Portfolio is not reasonably practicable; and (c) the Securities
and Exchange Commission by order permits postponement for the
protection of shareholders.
TAXES
Each Portfolio will be treated as a separate entity for
federal income tax purposes. Each Portfolio has qualified and
has elected to be taxed as a "regulated investment company"
under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Portfolio
qualifies as a "regulated investment company" and complies with
the provisions of the Code by distributing substantially all of
its net income (both ordinary income and capital gain), the
Portfolio will be relieved from federal income tax on the
amounts distributed.
The discussion of "Taxes" in the Prospectus, in conjunction
with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations
currently in effect as interpreted by the Courts and the
Internal Revenue Service.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is primarily responsible for the investment
decisions of each Portfolio, including decisions to buy and sell
securities, the selection of brokers and dealers to effect the
transactions, the placing of investment transactions, and the
negotiation of brokerage commissions, if any. No Portfolio has
any obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. In
placing orders, it is the policy of the Fund to obtain the most
favorable net results, taking into account various factors,
including price, dealer spread or commission, if any, size of
the transaction, and difficulty of execution. While the Adviser
generally seeks reasonably competitive spreads or commissions,
the Portfolio will not necessarily be paying the lowest spread
or commission available.
If the securities in which the Portfolio invests are traded
primarily in the over-the-counter market, where possible the
Portfolio will deal directly with the dealers who make a market
in the securities involved unless better prices and execution
are available elsewhere. Such dealers usually act as principals
for their own account. On occasion, securities may be purchased
directly from the issuer. Bonds and money market instruments
are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of
portfolio securities transactions of the Portfolio will consist
primarily of brokerage commission or dealer or underwriter
spreads.
While the Adviser seeks to obtain the most favorable net
results in effecting transactions in the portfolio securities,
brokers who provide supplemental investment research to the
Adviser may receive orders for transactions by the Fund. Such
supplemental research service ordinarily consists of assessments
and analyses of the business or prospects of a company,
industry, or economic sector. If, in the judgment of the
Adviser, the Fund will be benefited by such supplemental
research services, the Adviser is authorized to pay commissions
to brokers furnishing such services which are in excess of
commissions which another broker may charge for the same
transaction. Information so received will be in addition to and
not in lieu of the services required to be performed by the
Adviser under its Investment Advisory Agreement. The expenses
of the Adviser will not necessarily be reduced as a result of
the receipt of such supplemental information. In some cases,
the Adviser may use such supplemental research in providing
investment advice to its other advisory accounts.
GENERAL INFORMATION
Capital Stock
The Fund is a mutual fund. Its board of directors is
responsible for supervising its business affairs and
investments, which are managed on a daily basis by the Adviser.
The was incorporated under the laws of the State of Maryland on
January 30, 1984. The Fund is a series fund with twenty three
classes of stock, one for each portfolio. The authorized
capital stock of the Fund consists of 300,000,000 shares of
common stock, par value ten cents ($0.10) per share. The shares
of the authorized capital stock are currently divided into the
following classes:
<TABLE>
<CAPTION>
Portfolio Authorized Capital Stock
--------- ------------------------
<S> <C>
Equity Portfolio 40,000,000 shares
Bond Portfolio 30,000,000 shares
S&P 500 Index Portfolio 30,000,000 shares
Micro-Cap Portfolio 20,000,000 shares
S&P MidCap 400 Index Portfolio 20,000,000 shares
Balanced Index Portfolio 20,000,000 shares
Bond Index Portfolio 20,000,000 shares
Russell 2000 Small Cap Index
Portfolio 20,000,000 shares
Nasdaq 100 Index Portfolio 20,000,000 shares
S&P 500 Index Fund 20,000,000 shares
S&P MidCap 400 Index Fund 20,000,000 shares
Russell 2000 Small Cap Index
Fund 20,000,000 shares
Balanced Index Fund 20,000,000 shares
Nasdaq 100 Index Fund 20,000,000 shares
Bond Index Fund 20,000,000 shares
Bond Fund 20,000,000 shares
Equity Fund 20,000,000 shares
Micro-Cap Fund 20,000,000 shares
Money Market Fund 20,000,000 shares
Short-term Government Fund 20,000,000 shares
Global Values Fund 20,000,000 shares
High Yield Bond Fund 20,000,000 shares
Emerging Markets Bond Fund 20,000,000 shares
</TABLE>
The Board of Directors may change the designation of any
Portfolio and may increase or decrease the number of authorized
shares of any Portfolio, but may not decrease the number of
authorized shares of any Portfolio below the number of shares
then outstanding.
Each issued and outstanding share is entitled to
participate equally in dividends and distributions declared by
the respective Portfolio and, upon liquidation or dissolution,
in net assets of such Portfolio remaining after satisfaction of
outstanding liabilities.
Voting Rights
In accordance with an amendment to the Maryland General
Corporation Law, the Board of Directors of the Fund has adopted
an amendment to its Bylaws providing that unless otherwise
required by the Investment Company Act of 1940, the Fund shall
not be required to hold an annual shareholder meeting unless the
Board of Directors determines to hold an annual meeting. The
Fund intends to hold shareholder meetings only when required by
law and such other times as may be deemed appropriate by its
Board of Directors.
All shares of common stock have equal voting rights
(regardless of the net asset value per share) except that on
matters affecting only one Portfolio, only shares of the
respective Portfolio are entitled to vote. The shares do not
have cumulative voting rights. Accordingly, the holders of more
than 50% of the shares of the Fund voting for the election of
directors can elect all of the directors of the Fund if they
choose to do so and in such event the holders of the remaining
shares would not be able to elect any directors.
Matters in which the interests of all Portfolios are
substantially identical (such as the election of directors or
the approval of independent public accountants) will be voted on
by all shareholders without regard to the separate Portfolios.
Matters that affect all Portfolios but where the interests of
the Portfolios are not substantially identical (such as approval
of the Investment Advisory Agreement) would be voted on
separately by each Portfolio. Matters affecting only one
Portfolio, such as a change in its fundamental policies, are
voted on separately by that Portfolio.
Matters requiring separate shareholder voting by Portfolio
shall have been effectively acted upon with respect to any
Portfolio if a majority of the outstanding voting securities of
that Portfolio votes for approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the
outstanding voting securities of any other Portfolio; or (2) the
matter has not been approved by a majority of the outstanding
voting securities of the Fund.
The phrase "a majority of the outstanding voting
securities" of a Portfolio (or of the Fund) means the vote of
the lesser of: (1) 67% of the shares of the Portfolio (or the
Fund) present at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Portfolio (or the
Fund).
As noted in the Prospectus, Union Central currently has
voting control of the Fund. With voting control, Union Central
could make fundamental and substantial changes (such as electing
a new Board of Directors, changing the investment adviser or
advisory fee, changing a Portfolio's fundamental investment
objectives and policies, etc.) regardless of the views of
Contract Owners. However, under current interpretations of
presently applicable law, Contract Owners are entitled to give
voting instructions with respect to Fund shares held in
registered separate accounts and therefore all Contract Owners
would receive advance notice before any such changes could be
made.
Additional Information
This Statement of Additional Information and the Prospectus
do not contain all the information set forth in the registration
statement and exhibits relating thereto, which the Fund has
filed with the Securities and Exchange Commission, Washington,
D.C., under the Securities Act of 1933 and the Investment
Company Act of 1940, to which reference is hereby made.
INDEPENDENT AUDITORS
The financial statements of the Fund have been audited by
Deloitte & Touche LLP, 1700 Courthouse Plaza NE, Dayton, Ohio
45402, independent auditors.
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
CARILLON FUND, INC.
PART C - OTHER INFORMATION
Item 23. Exhibits
All references are to Registrant's Registration Statement on
Form N-1A (Registration No. 2-90309)
(a) Articles of Incorporation of Carillon Fund, Inc. -
previously filed (initial filing on April 3, 1984)
(b) By-laws of Carillon Fund, Inc. - previously filed (initial
filing on April 3 1984)
(c) Not Applicable
(d) (1) Investment Advisory Agreement - previously filed
(initial filing on April 3, 1984)
(2) Amendment to Investment Advisory Agreement -
previously filed (Post-Effective Amendment No. 3 - May
1, 1987)
(3) Amendment to Investment Advisory Agreement -
previously filed (Post-Effective Amendment No. 15 -
May 1, 1996)
(e) Not Applicable
(f) Not Applicable
(g) (1) Custodian Agreement - previously filed (Post-Effective
Amendment No. 6 - May 1, 1990)
(2) Portfolio Accounting Agreement - previously filed
(Post-Effective Amendment No. 6 - May 1, 1990)
(h) (1) Transfer Agency Agreement - previously filed
(Post-Effective Amendment No. 6 - May 1, 1990)
(2) Service Agreement - previously filed (Post-Effective
Amendment No. 9 - May 1, 1992)
(i) Opinion and consent of counsel - previously filed
(Pre-Effective Amendment No. 1 - July 2 , 1984)
(j) Not applicable
(k) Not Applicable
(l) Letter regarding initial capital - previously filed
(Pre-Effective Amendment No. 1 - July 2, 1984)
(m) Not Applicable
(n) Not applicable
(o) Not Applicable
Item 24. Persons Controlled by or Under Common Control with
Registrant
The Union Central Life Insurance Company ("Union Central")
provided the initial investment in Carillon Fund, Inc. Union
Central votes the shares of the Fund held with respect to
registered variable contracts in accordance with instructions
received from such variable contract owners. Shares of the Fund
held in unregistered separate accounts and in its general assets
are voted by Union Central in its discretion.
Set forth below is a chart showing the entities controlled by
Union Central, the jurisdictions in which such entities are
organized, and the percentage of voting securities owned by the
person immediately controlling each such entity.
THE UNION CENTRAL LIFE INSURANCE COMPANY,
its Subsidiaries and Affiliates
I. The Union Central Life Insurance Company (Ohio)
A. Carillon Investments, Inc. (Ohio) -100% owned
B. Carillon Marketing Agency, Inc. (Delaware) -100% owned
a. Carillon Marketing Agency of Alabama, Inc. (Alabama)
- 100% owned
b. Carillon Marketing Agency of Idaho, Inc. (Idaho)
-100% owned
c. Carillon Marketing Agency of Kentucky, Inc.
(Kentucky) - 100 owned
d. Carillon Marketing Agency of Maine, Inc. (Maine) -
100% owned
e. Carillon Insurance Agency of Massachusetts, Inc.
(Massachusetts) 100% owned
f. Carillon Marketing Agency of New Mexico, Inc. (New
Mexico) - 100% owned
g. Carillon Marketing Agency of Ohio, Inc. (Ohio) -100%
owned
h. Carillon Marketing Agency of Pennsylvania, Inc.
(Pennsylvania) 100% owned
i. Carillon Marketing Agency of Texas, Inc. (Texas) -
100% owned
C. Carillon Advisers, Inc. (Ohio) -100% owned
<PAGE>
D. The Manhattan Life Insurance Company (New York) - 100%
owned
E. Family Enterprise Institute, Inc. (Delaware) -100% owned
F. RBA, Inc. (California) - 100% owned
a. Price, Raffel & Browne Administrators, Inc.
(Delaware) - 100% owned
G. B&B Benefits Administration, Inc. (California) - 100%
owned
H. Summit Investment Partners, LLC (Ohio) - 100% owned
a. First Summit Capital Management (Ohio) - 51% owned
II. Mutual Funds of the Carillon Group
Carillon Fund, Inc. (Maryland) - At September 30, 1999, The
Union Central Life Insurance Company owned 100% of the
outstanding shares of Carillon Fund, Inc.
III. Summit Investment Trust (Massachusetts) - a mutual fund
whose investment adviser is First Summit Capital
Management.
Item 25. Indemnification
See Exhibits (a) and (b).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and other Connections of Investment Adviser
Information regarding the officers and directors of Carillon
Advisers, Inc. ("CAI") and their business, profession or
employment of a substantial nature during the last two years is
set forth below. The address of all the persons listed below is
1876 Waycross Road, Cincinnati, Ohio 45240.
<TABLE>
<CAPTION>
Name and Position with Principal Occupation(s)
Address the Adviser During Past Two Years
- -------- ------------- -----------------------
<S> <C> <C>
Harry Rossi Director Director Emeritus, The Union
Central Life Insurance
Company ("Union Central");
Director, Carillon
Group of Mutual Funds
Steven R.
Sutermeister Director, Senior Vice President, Union Central;
President Director, President and Chief
and Chief Executive Officer, Carillon Group of
Executive Mutual Funds; prior thereto, Vice
Officer President, Union Central
John H. Jacobs Director President and Chief Operating Officer,
Union Central; Director, Carillon
Group of Mutual Funds; prior thereto,
Executive Vice President, Union
Central
D. Stephen Cole Vice President Vice President, Union Central
Thomas G. Knipper Treasurer Treasurer, CAI; Controller and Treasurer,
Carillon Group of Mutual Funds
John F. Labmeier Secretary Vice President, Associate General Counsel
and Assistant Secretary, Union Central;
Vice President and Secretary, Carillon
Group of Mutual Funds and Carillon
Investments, Inc.
</TABLE>
Item 27. Principal Underwriters
(a) Carillon Investments, Inc., the principal underwriter for
Carillon Fund, Inc., also acts as principal undrwriter for
Carillon Account and Carillon Life Account.
(b) The officers and directors of Carillon Investments, Inc.
and their positions, if any, with Registrant are shown
below. The business address of each is 1876 Waycross Road,
Cincinnati, Ohio 45240.
<TABLE>
<CAPTION>
Name and Position with
Carillon Investments, Inc. Position with Registrant
- -------------------------- ------------------------
<S> <C>
John H. Jacobs Director
Director
Elizabeth G. Monsell None
Director and President
Harry Rossi Director
Director
Steven R. Sutermeister Director, President and Chief
Director Executive Officer
Lothar A. Vasholz None
Director
Kevin W. O'Toole None
Vice President
Connie Grosser None
Treasurer
John F. Labmeier Vice President and Secretary
Vice President and Secretary
Patricia M. Heim None
Compliance Officer
John M. Lucas Assistant Secretary
Assistant Secretary
(c) Not applicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
thereunder will be maintained at the offices of the Fund or at
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, WI
53201-0701.
Item 29. Management Services
All management-related service contracts are discussed in Part A
or B of this Registration Statement.
Item 30. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant, Carillon
Fund, Inc., has duly caused this Post-effective Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Cincinnati,
State of Ohio on the 13th day of October, 1999.
CARILLON FUND, INC.
(SEAL)
Attest: /s/ John F. Labmeier By: /s/ Steven R. Sutermeister
Steven R. Sutermeister,
President
Pursuant to the requirements of the Securities Act of 1933,
this Post-effective Amendment to the Registration Statement has
been signed below by the following persons in the capacities and
on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Steven R. Sutermeister President 10/13/99
Steven R. Sutermeister and Director
(Principal
Executive
Officer)
/s/ Thomas G. Knipper Controller 10/13/99
Thomas G. Knipper and Treasurer
(Principal
Financial
and Accounting
Officer)
* /s/ George M. Callard, M.D. Director 10/13/99
George M. Callard, M.D.
* /s/ Theodore H Emmerich Director 10/13/99
Theodore H. Emmerich
* /s/ James M. Ewell Director 10/13/99
James M. Ewell
* /s/ Richard H. Finan Director 10/13/99
Richard H. Finan
* /s/ Jean Patrice Harrington, S.C. Director 10/13/99
Jean Patrice Harrington, S.C.
* /s/ John H. Jacobs Director 10/13/99
John H. Jacobs
* /s/ Charles W. McMahon Director 10/13/99
Charles W. McMahon
* /s/ Harry Rossi Director 10/13/99
Harry Rossi
</TABLE>
*By John F. Labmeier, pursuant to Power of Attorney previously
filed.
