497(c) File Nos. 2-90519 and 811-4007
SUPPLEMENT DATED DECEMBER 31, 1996 TO
PROSPECTUS DATED MAY 1, 1996
FOR
LANDMARK BALANCED FUND
LANDMARK EQUITY FUND
LANDMARK SMALL CAP EQUITY FUND
The section entitled "Futures Contracts" appearing in the "Appendix - Permitted
Investments And Investment Practices" on pages 26 and 27 of the Prospectus is
replaced with the following:
FUTURES CONTRACTS. The Balanced Fund may use financial futures in order
to protect the Fund from fluctuations in interest rates (sometimes called
"hedging") without actually buying or selling debt securities, or to manage
the effective maturity or duration of fixed income securities in the Fund's
portfolio in an effort to reduce potential losses or enhance potential gain.
Each of the Funds may purchase stock index futures in order to protect
against declines in the value of portfolio securities or increases in the
cost of securities or other assets to be acquired and, subject to applicable
law, to enhance potential gain. Futures contracts provide for the future
sale by one party and purchase by another party of a specified amount of a
security at a specified future time and price, or for making payment of a
cash settlement based on changes in the value of a security, an index of
securities or other assets. In many cases, the futures contracts that may be
purchased by the Funds are standardized contracts traded on commodities
exchanges or boards of trade. Because the value of a futures contract
changes based on the price of the underlying security or other asset,
futures contracts are commonly referred to as "derivatives." Futures
contracts are a generally accepted part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional
investors.
When a Fund purchases or sells a futures contract, it is required to make
an initial margin deposit. Although the amount may vary, initial margin can
be as low as 1% or less of the face amount of the contract. Additional
margin may be required as the contract fluctuates in value. Since the amount
of margin is relatively small compared to the value of the securities
covered by a futures contract, the potential for gain or loss on a futures
contract is much greater than the amount of a Fund's initial margin deposit.
None of the Funds currently intends to enter into a futures contract if, as
a result, the initial margin deposits on all of that Fund's futures
contracts would exceed approximately 5% of the Fund's net assets. Also, each
Fund intends to limit its futures contracts so that the value of the
securities covered by its futures contracts would not generally exceed 50%
of the market value of the Fund's total assets other than its futures
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contracts and to segregate sufficient assets to meet its obligations under
outstanding futures contracts.
The ability of a Fund to utilize futures contracts successfully will
depend on the Adviser's ability to predict interest rate or stock price
movements, which cannot be assured. In addition to general risks associated
with any investment, the use of futures contracts entails the risk that, to
the extent the Adviser's view as to interest rate or stock price movements
is incorrect, the use of futures contracts, even for hedging purposes, could
result in losses greater than if they had not been used. This could happen,
for example, if there is a poor correlation between price movements of
futures contracts and price movements in a Fund's related portfolio
position. Also, the futures markets may not be liquid in all circumstances.
As a result, in certain markets, a Fund might not be able to close out a
transaction without incurring substantial losses, if at all. When futures
contracts are used for hedging, even if they are successful in minimizing
the risk of loss due to a decline in the value of the hedged position, at
the same time they limit any potential gain which might result from an
increase in value of such position. As noted, each Fund may also enter into
transactions in futures contracts for other than hedging purposes (subject
to applicable law), including speculative transactions, which involve
greater risk. In particular, in entering into such transactions, a Fund may
experience losses which are not offset by gains on other portfolio
positions, thereby reducing its gross income. In addition, the markets for
such instruments may be extremely volatile from time to time, which could
increase the risks incurred by the Fund in entering into such transactions.
The use of futures contracts potentially exposes a Fund to the effects of
"leveraging," which occurs when futures are used so that the Fund's exposure
to the market is greater than it would have been if the Fund had invested
directly in the underlying securities. "Leveraging" increases a Fund's
potential for both gain and loss. As noted above, each of the Funds intends
to adhere to certain policies relating to the use of futures contracts,
which should have the effect of limiting the amount of leverage by the Fund.
The use of futures contracts may increase the amount of taxable income of a
Fund and may affect in other ways the amount, timing and character of a
Fund's income for tax purposes, as more fully discussed in the section
entitled "Certain Additional Tax Matters" in the Statement of Additional
Information.
The use of futures by the Funds and some of their risks are described
more fully in the Statement of Additional Information.
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497(c) File Nos. 2-90519 and 811-4007
SUPPLEMENT DATED DECEMBER 31, 1996 TO
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
FOR
LANDMARK BALANCED FUND
LANDMARK EQUITY FUND
LANDMARK SMALL CAP EQUITY FUND
The section entitled "Futures Contracts" appearing in "INVESTMENT OBJECTIVES,
POLICIES AND RESTRICTIONS INVESTMENT POLICIES" on page 3 of the Statement of
Additional Information is replaced with the following:
FUTURES CONTRACTS
The Balanced Fund may enter into interest rate futures contracts and each
of the Funds may enter into stock index futures contracts. These investment
strategies will be used for hedging purposes and for nonhedging purposes,
subject to applicable law.
A futures contract is an agreement between two parties for the purchase
or sale for future delivery of securities or for the payment or acceptance
of a cash settlement based upon changes in the value of the securities or of
an index of securities. A "sale" of a futures contract means the acquisition
of a contractual obligation to deliver the securities called for by the
contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. A "purchase" of a futures
contract means the acquisition of a contractual obligation to acquire the
securities called for by the contract at a specified price, or to make or
accept the cash settlement called for by the contract, on a specified date.
Futures contracts have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade
on these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing
members of the exchange.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are
very seldom made. Generally, a futures contract is terminated by entering
into an offsetting transaction. Brokerage fees will be incurred when a Fund
purchases or sells a futures contract. At the same time such a purchase or
sale is made, the Fund must provide cash or securities as a deposit
("initial deposit") known as "margin." The initial deposit required will
vary, but may be as low as 1% or less of a contract's face value. Daily
thereafter, the futures contract is valued through a process known as
"marking to market," and the Fund may receive or be required to pay
additional "variation margin" as the futures contract becomes more or less
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valuable. At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with a different interest rate than the specific
security that provides the standard for the contract. In some (but not many)
cases, securities called for by a futures contract may not have been issued
when the contract was entered into.
A Fund may purchase or sell futures contracts to attempt to protect the
Fund from fluctuations in interest rates, or to manage the effective
maturity or duration of the Fund's portfolio in an effort to reduce
potential losses or enhance potential gain, without actually buying or
selling debt securities. For example, if interest rates were expected to
increase, the Balanced Fund might enter into futures contracts for the sale
of debt securities. Such a sale would have much the same effect as if the
Balanced Fund sold bonds that it owned, or as if the Fund sold longer-term
bonds and purchased shorter-term bonds. If interest rates did increase, the
value of the Balanced Fund's debt securities would decline, but the value of
the futures contracts would increase, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Similar results
could be accomplished by selling bonds, or by selling bonds with longer
maturities and investing in bonds with shorter maturities. However, by using
futures contracts, the Balanced Fund avoids having to sell its securities.
Similarly, when it is expected that interest rates may decline, the
Balanced Fund might enter into futures contracts for the purchase of debt
securities. Such a purchase would be intended to have much the same effect
as if the Fund purchased bonds, or as if the Fund sold shorter-term bonds
and purchased longer-term bonds. If interest rates did decline, the value of
the futures contracts would increase.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if the
Balanced Fund sells a futures contract to protect against losses in the debt
securities held by the Fund), at the same time the futures contract limits
any potential gain which might result from an increase in value of a hedged
position.
In addition, the ability effectively to hedge all or a portion of a
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the securities underlying such
contracts correlate with movements in the value of the Fund's securities. If
the security underlying a futures contract is different than the security
being hedged, they may not move to the same extent or in the same direction.
In that event, the Fund's hedging strategy might not be successful and the
Fund could sustain losses on these hedging transactions which would not be
offset by gains on the Fund's other investments or, alternatively, the gains
on the hedging transaction might not be sufficient to offset losses on the
Fund's other investments. It is also possible that there may be a negative
correlation between the security underlying a futures contract and the
securities being hedged, which could result in losses both on the hedging
transaction and the securities. In these and other instances, the Fund's
overall return could be less than if the hedging transactions had not been
undertaken. Similarly, even where a Fund enters into futures transactions
other than for hedging purposes, the effectiveness of its strategy may be
affected by lack of correlation between changes in the value of the futures
contracts and changes in value of the securities which the Fund would
otherwise buy and sell.
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The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between
the cash and futures markets. Second, there is the potential that the
liquidity of the futures market may be lacking. Prior to expiration, a
futures contract may be terminated only by entering into a closing purchase
or sale transaction, which requires a secondary market on the contract
market on which the futures contract was originally entered into. While a
Fund will establish a futures position only if there appears to be a liquid
secondary market therefor, there can be no assurance that such a market will
exist for any particular futures contract at any specific time. In that
event, it may not be possible to close out a position held by the Fund,
which could require the Fund to purchase or sell the instrument underlying
the futures contract or to meet ongoing variation margin requirements. The
inability to close out futures positions also could have an adverse impact
on the ability effectively to use futures transactions for hedging or other
purposes.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is
subject to the risk of trading halts, suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other disruptions of normal trading activity,
which could at times make it difficult or impossible to liquidate existing
positions or to recover excess variation margin payments.
Investments in futures contracts also entail the risk that if the
Adviser's investment judgment about the general direction of interest rates
or the market is incorrect, the Fund's overall performance may be poorer
than if any such contract had not been entered into. For example, if the
Balanced Fund hedged against the possibility of an increase in interest
rates which would adversely affect the price of the Fund's bonds and
interest rates decrease instead, part or all of the benefit of the increased
value of the Fund's bonds which were hedged will be lost because the Fund
will have offsetting losses in its futures positions. Similarly, if the
Balanced Fund purchases futures contracts expecting a decrease in interest
rates and interest rates instead increased, the Fund will have losses in its
futures positions which will increase the amount of the losses on the
securities in its portfolio which will also decline in value because of the
increase in interest rates. In addition, in such situations, if the Fund has
insufficient cash, the Fund may have to sell bonds from its investments to
meet daily variation margin requirements, possibly at a time when it may be
disadvantageous to do so.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of
positions which may be held by a trader, whether acting alone or in concert
with others. The Adviser does not believe that these trading and position
limits would have an adverse impact on a Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that a Fund is not deemed to be a "commodity pool" under such
<PAGE>
regulations. In particular, CFTC regulations prohibit a Fund from purchasing
or selling futures contracts (other than for bona fide hedging transactions)
if, immediately thereafter, the sum of the amount of initial margin required
to establish that Fund's non-hedging futures positions would exceed 5% of
that Fund's net assets.
Each Fund will comply with this CFTC requirement, and each Fund currently
intends to adhere to the additional policies described below. First, an
amount of cash or cash equivalents will be maintained by each Fund in a
segregated account with the Fund's custodian so that the amount so
segregated, plus the initial margin held on deposit, will be approximately
equal to the amount necessary to satisfy the Fund's obligations under the
futures contract. The second is that a Fund will not enter into a futures
contract if immediately thereafter the amount of initial margin deposits on
all the futures contracts held by the Fund would exceed approximately 5% of
the net assets of the Fund. The third is that the aggregate market value of
the futures contracts held by a Fund not exceed approximately 50% of the
market value of the Fund's total assets other than its futures contracts.
For purposes of this third policy, "market value" of a futures contract is
deemed to be the amount obtained by multiplying the number of units covered
by the futures contract times the per unit price of the securities covered
by that contract.
The ability of a Fund to engage in futures transactions may be limited by
the current federal income tax requirement that less than 30% of a Fund's
gross income be derived from the sale or other disposition of stock or
securities held for less than three months. In addition, the use of futures
contracts may increase the amount of taxable income of a Fund and may affect
the amount, timing and character of a Fund's income for tax purposes, as
more fully discussed herein in the section entitled "Certain Additional Tax
Matters."
