RNC MUTUAL FUND GROUP, INC.
11601 Wilshire Blvd.
25th Floor
Los Angeles, California 90025
RNC Mutual Fund Group, Inc. (the "Group") is a no-load fund group with two
diversified mutual funds - an equity fund and a money market fund.
RNC Equity Fund (available November 1, 1996)
RNC Equity Fund seeks to achieve above-average total return consistent with
reasonable risk. The Fund invests primarily in common stocks. RNC Equity Fund is
designed for investors seeking long-term growth and who are willing to accept
the risk of stock market volatility. Above-market total return may be difficult
to achieve in all market conditions. There can be no assurance that RNC Equity
Fund will achieve its investment objective. See "Objectives and Policies."
RNC Money Market Fund
RNC Money Market Fund is a money market fund that seeks to obtain as high
as possible current income consistent with preservation of capital and liquidity
by investing in a diversified portfolio of high-quality, short-term money market
type of securities. RNC Money Market Fund offers the advantages of professional
management, portfolio diversification, daily liquidity, principal stability and
current income.
An investment in RNC Money Market Fund is neither insured nor guaranteed by
the U.S. Government. There can be no assurance that RNC Money Market Fund will
achieve its investment objective to maintain a constant net asset value of $1.00
per share. See "Objectives and Policies."
General Information
Shares of the Funds may be purchased, redeemed or exchanged without any
charge.
The investment adviser of the Funds is RNC Capital Management Co. (the
"Adviser").
This Prospectus sets forth basic information that a prospective investor
should know before investing in the Funds. Investors should read and retain this
Prospectus for future reference. Additional information about the Group has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information dated October 1, 1996, as may be amended from time to time. The
Statement of Additional Information is available upon request and without
charge, and is incorporated by reference into this Prospectus. Investors and
prospective investors may obtain a copy of the Statement of Additional
Information by writing to the Group at the address given above. Inquiries can be
made by calling (800) 385-7003.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is October 1, 1996
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page Page
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<S> <C> <C> <C>
Expense Information............................ 2 Net Asset Value............................... 11
Financial Highlights........................... 3 Dividends, Distributions and Taxes............ 11
Objectives, Policies and Risk Factors.......... 4 Portfolio Transactions........................ 12
Management..................................... 6 Investor Services............................. 12
Purchase of Shares............................. 8 Shareholder Rule 12b-1 Plans.................. 13
Redemption of Shares........................... 9 General Information........................... 14
Exchange Privileges............................ 10
</TABLE>
EXPENSE INFORMATION
The following tables set forth certain information regarding shareholder
transaction expenses and annual operating expenses of each Fund.
<TABLE>
<CAPTION>
Equity Fund
(Estimated) Money Market Fund
----------- -----------------
<S> <C> <C>
Shareholder Transaction Expenses ....................... None None
Annual Fund Operating Expenses
(as a percentage of net assets)
Management Fees.................................... 1.00% 0.28% (After fee reduction)
12b-1 Fees......................................... 0.25% None (After fee waiver)
Other Expenses..................................... 0.40% 0.52%
---- ----
Total Fund Operating Expenses...................... 1.65% 0.80%
==== ====
</TABLE>
Example
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Equity Fund $17 $52 - -
--- --- --- ---
Money Market Fund $ 8 $26 $44 $99
--- --- --- ---
The purpose of the foregoing tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. This is the first year of operation for RNC Equity
Fund. Consequently, the Annual Fund Operating Expenses reflect estimated
expenses for RNC Equity Fund. However, the Adviser has agreed that the total
fund operating expenses for RNC Equity Fund for the first year will not exceed
the estimated figures. The total fund operating expenses for RNC Money Market
Fund represent actual expenses for the fiscal year ended September 30, 1995. The
amount of the management fee for RNC Money Market Fund reflects a voluntary fee
reduction, which is anticipated to continue for the current fiscal year. The
12b-1 fees for RNC Money Market Fund are currently being waived, and such waiver
is anticipated to continue for the current fiscal year. In the absence of these
reductions, the rate of management fee payable under the Investment Advisory
Agreement for RNC Money Market Fund would be 0.41%, the 12b-1 fee would be
0.25%, and the Total Fund Operating Expenses would be 1.18% at the current asset
level. In addition to this fee reduction, the Adviser may absorb certain Fund
expenses to lower each Fund's operating costs. Any reduction of the
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Adviser's fee or reimbursement by the Adviser of a Fund's expenses as described
above may be subject to reimbursement by the relevant Fund under certain
circumstances. See the sections of the Prospectus entitled "Investor Services"
and "Management" for more complete descriptions of the various costs and
expenses and the expense reimbursement recapture policy referred to above. The
example set forth above should not be considered a representation of past or
future expenses, and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS for RNC Money Market Fund(1)
(For a Share Outstanding Throughout Each Period)
The following financial highlights are for a share outstanding throughout
the period from May 12, 1986, the date on which RNC Money Market Fund commenced
operations, through August 15, 1996. The information for the five years ended
September 30, 1995, has been audited by Tait, Weller & Baker, RNC Money Market
Fund's independent certified public accountants, whose unqualified report
thereon and other financial statements of RNC Money Market Fund are incorporated
by reference in the Statement of Additional Information. The financial
information for the period October 1, 1995 through August 15, 1996 is unaudited
and annualized where noted below and is included in the Appendix to the
Statement of Additional Information. This information should be read in
conjunction with the financial statements in RNC Money Market Fund's Annual
Report to Shareholders, copies of which may be obtained at no charge by writing
or telephoning the Group at the address or telephone number appearing on the
front page of this Prospectus.
<TABLE>
<CAPTION>
Oct. 1, May 12,
1995 Fiscal Period Ended September 30, 1986
to -------------------------------- to
Aug. 15, Sept. 30,
1996(2) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year.................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
INCOME FROM
INVESTMENT
OPERATIONS
Net investment income..... 0.040 0.050 .032 .026 .038 .064 .077 .085 .066 .056 .022
LESS DISTRIBUTIONS
Dividends from net
investment income........ (0.040) (0.050) (.032) (.026) (.038) (.064) (.077) (.085) (.066) (.056) (.022)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of year.................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Annual Return....... 4.00% 5.10% 3.20% 2.65% 3.83% 6.34% 7.63% 8.82% 6.60% 5.60% 5.60%(3)
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of period
(in 000's)............... $40,913 31,066 43,686 29,257 46,563 66,857 119,632 103,626 99,352 88,166 9,956
Ratio of expenses, net of
reimbursement, to
average net assets:...... 0.8%(3) 0.8% 0.7% 0.7% 0.8% 0.9% 0.8% 0.7% 0.8% 0.7% 0.0%
Ratio of net investment
income to average net
assets:.................. 4.4%(3) 5.0% 3.2% 2.6% 3.9% 6.4% 7.7% 8.5% 6.6% 0.0% 5.6%(3)
</TABLE>
(1)Financial highlights pertain to RNC Money Market Fund (previously known as
RNC Liquid Assets Fund) only; RNC Equity Fund commences operations on November
1, 1996.
(2)The figures for the October 1, 1995 - Aug. 15, 1996 period are based upon
unaudited financial statements dated August 15, 1996.
(3)Annualized.
3
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OBJECTIVES, POLICIES AND RISK FACTORS
RNC Equity Fund. The investment objective of RNC Equity Fund is to achieve
above-average total return consistent with reasonable risk. The investment
objective of RNC Equity Fund is a fundamental policy which can only be changed
upon the approval of a majority of the holders of the Equity Fund's outstanding
voting securities. This Fund pursues its objective by investing primarily in
common stocks, and in normal market conditions at least 65%, and usually closer
to 100%, of the value of this Fund's total assets will be invested in common
stocks. RNC Equity Fund may also invest in convertible preferred stocks,
warrants, convertible debt obligations, and other debt obligations that, in the
Adviser's opinion, offer the possibility of capital appreciation. There is, of
course, no assurance that RNC Equity Fund's objective will be achieved. Because
prices of common stocks and other securities fluctuate, the value of an
investment in RNC Equity Fund will vary as the market value of its investment
portfolio changes, and when shares are redeemed, they may be worth more or less
than their original cost. RNC Equity Fund is diversified, which means that as to
75% of its total assets, no more than 5% may be invested in the securities of a
single issuer, and RNC Equity Fund may not own more than 10% of the outstanding
voting securities of a single issuer.
In order to achieve RNC Equity Fund's investment goals, the Adviser
utilizes a fundamental approach to investment management that focuses on growth
in earnings. Earnings growth is evaluated relative to both earnings history and
earnings potential of the company in light of industry figures. Price trends are
also viewed relative to the long-term behavior of the company's shares in
comparison to industry trends.
The common stocks in which RNC Equity Fund invests are traded on either a
national securities exchange or in the over-the-counter market. Up to 15% of RNC
Equity Fund's net assets may be invested in foreign securities in the form of
U.S. dollar denominated American Depositary Receipts ("ADRs") or European
Depositary Receipts ("EDRs"). RNC Equity Fund does not expect to invest in
unsponsored ADRs and EDRs (that is, ADRs and EDRs where the depositor has no
agreement with the issuer and, among other things, may receive less information
from the issuer). See the Statement of Additional Information for more
information on the risks of foreign investments.
Although RNC Equity Fund will typically be invested primarily in equity
securities, it may invest up to 35% of its assets in corporate or government
bonds, short-term money market instruments (such as U.S. Treasury bills,
commercial paper, certificates of deposit and bankers' acceptances) and
repurchase agreements if the Adviser believes some fixed income allocation is
appropriate. In addition, for temporary, defensive purposes, RNC Equity Fund may
invest any amount of its assets in short-term money market instruments. The
fixed income securities must be rated within the three highest ratings issued by
any nationally recognized statistical rating organization (a "NRSRO") or, if
unrated, be deemed to be of comparable quality by the Adviser. For more details
on rating, see "Description of Nationally Recognized Statistical Rating
Organizations" in the Appendix to the Statement of Additional Information.
Generally, the Adviser expects RNC Equity Fund's net asset value to track
the stock market, as measured by the S&P 500; thus, it may not be suitable for
all investors. RNC Equity Fund is designed for long-term investors who can
accept the risk entailed in these investment policies and is not intended as a
vehicle for short-term trading in the stock market.
RNC Equity Fund may write (sell) covered call options to enhance investment
returns and may both purchase and sell options on stock indices for hedging
purposes as described below and more fully in the Statement of Additional
Information. RNC Equity Fund does not currently enter into futures contracts and
options on futures contracts. See the Statement of Additional Information for
further information.
4
<PAGE>
RNC Money Market Fund. The investment objective of RNC Money Market Fund is
to obtain as high as possible current income consistent with preservation of
capital and liquidity by investing in a diversified portfolio of high-quality,
short-term money market securities that the Group's Board of Directors
determines present minimal credit risks. This is a fundamental policy of RNC
Money Market Fund that may not be changed without the approval of a majority of
the holders of the Money Market Fund's outstanding voting securities. For
purposes of its investment policies, RNC Money Market Fund defines short-term
money market securities as securities having a maturity of up to one year. These
securities principally (that is, in excess of 90% of RNC Money Market Fund's net
assets) will consist of short-term securities issued by the U.S. Treasury and
other government agencies, bank certificates of deposit, commercial paper,
corporate bonds, bankers' acceptances and repurchase agreements. There can be no
assurance that the objective of RNC Money Market Fund will be realized.
Typically this Fund invests only in top-rated money market securities. To
further limit risk, RNC Money Market Fund does not invest more than 5% of its
assets in the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities). In the event that a security is not rated in the
highest short-term rating category by any one NRSRO, the Fund limits its
investment in that security to $1 million or 1% of the Fund's total assets,
whichever is less. In addition, not more than 5% of the Fund's total assets will
be invested in securities that are not rated in the highest short-term rating
category by any NRSRO or, if unrated, are not of comparable quality to
securities with the highest rating as determined by the Fund's Board of
Directors. For more details on ratings, see "Description of Nationally
Recognized Statistical Rating Organizations" in the Appendix to the Statement of
Additional Information. With respect to RNC Money Market Fund's entire
portfolio, it shall not maintain a dollar-weighted average portfolio maturity
which exceeds 90 days and will invest only in U.S. dollar-denominated
securities.
Repurchase Agreements. The Funds may enter into repurchase agreements.
Pursuant to a repurchase agreement, a Fund acquires a U.S. Government security
or other high-grade liquid debt instrument (for RNC Money Market Fund, the
instrument must be rated in the highest grade) from a financial institution that
simultaneously agrees to repurchase the same security at a specified time and
price. The repurchase price reflects an agreed-upon rate of return not
determined by the coupon rate on the underlying security. Under the Investment
Company Act of 1940 (the "1940 Act"), repurchase agreements are considered to be
loans by a Fund and must be fully collateralized in a manner similar to a Fund's
loan of portfolio securities. If the seller defaults on its obligation to
repurchase the underlying security, a Fund may experience delay or difficulty in
exercising its rights to realize upon the security, may incur a loss if the
value of the security declines and may incur disposition costs in liquidating
the security. See the Statement of Additional Information for further
information.
Borrowing. Each Fund may borrow money from banks in an aggregate amount not
to exceed 10% of the value of such Fund's total assets to meet temporary or
emergency purposes, and each Fund may pledge its assets in connection with such
borrowings. RNC Equity Fund will not purchase any securities while any such
borrowings exceed 5% of its total assets. RNC Money Market Fund will not
purchase securities while any borrowings are outstanding.
Reverse Repurchase Agreements (RNC Equity Fund only). RNC Equity Fund may
enter into reverse repurchase agreements. In a reverse repurchase agreement, the
Fund sells to a financial institution a security that it holds and agrees to
repurchase the same security at an agreed-upon price and date. Although reverse
repurchase agreements are fully collateralized transactions, RNC Equity Fund
aggregates such transactions with its bank borrowings in applying its borrowing
limits. See the Statement of Additional Information for further information.
5
<PAGE>
Options Transactions (RNC Equity Fund Only). RNC Equity Fund may buy call
and put options on individual equity securities and write covered call and put
options, and engage in related closing transactions. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security at the exercise price at any time during the option period.
Conversely, a put option gives the purchaser of the option the right to sell,
and obligates the writer to buy, the underlying security at the exercise price
at any time during the option period. A covered call option sold by RNC Equity
Fund, which is a call option with respect to which the Fund owns the underlying
security, exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or to possible continued holding of a security which might otherwise
have been sold to protect against depreciation in the market price of the
security. A covered put option sold by RNC Equity Fund exposes the Fund during
the term of the option to a decline in the price of the underlying security. A
put option sold by RNC Equity Fund is covered when, among other things, liquid
assets are placed in a segregated account with the Fund's custodian to fulfill
the obligation undertaken.
To close out a position when writing covered options, RNC Equity Fund may
make a "closing purchase transaction," which involves purchasing an option on
the same security with the same exercise price and expiration date as the option
which it has previously written on the security. To close out a position as a
purchaser of an option, RNC Equity Fund may make a "closing sale transaction,"
which involves liquidating RNC Equity Fund's position by selling the option
previously purchased. RNC Equity Fund will realize a profit or loss from a
closing purchase or sale transaction depending upon the difference between the
amount paid to purchase an option and the amount received from the sale thereof.
See the Statement of Additional Information.
Portfolio Turnover Rate. It is currently estimated that under normal market
conditions the annual portfolio turnover rate for RNC Equity Fund will not
exceed 100%. Portfolio turnover rates may vary greatly from year to year as well
as within a particular year.
Investment Restrictions. Each Fund has adopted certain restrictions and
policies relating to the investment of its assets and other activities that are
fundamental policies of the Fund and may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities. Among the
more significant policies and restrictions, a Fund may not: (1) invest more than
25% of its total assets in the securities of any particular industry (other than
U.S. Government securities, Government agency securities or money market
instruments issued by U.S. branches of banks located in the United States); or
(2) invest in securities having contractual restrictions on resale, repurchase
agreements or non-negotiable time deposits having more than seven days to
maturity or other illiquid securities if such investment would result in (i) RNC
Equity Fund having more than 15% of the value of its net assets so invested or
(ii) RNC Money Market Fund having more than 10% of the value of its net assets
invested in such securities or repurchase agreements.
Other restrictions and additional information on policies concerning such
portfolio strategies as investing in non-U.S. securities and lending portfolio
securities are set forth in the Statement of Additional Information under the
caption "Objectives and Policies -- Investment Restrictions."
MANAGEMENT
Advisory Services. RNC Capital Management Co. (the "Adviser") is
responsible for providing investment advice to the Funds. As compensation for
its services to RNC Equity Fund, the Adviser is paid a fee at a maximum
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<PAGE>
annual rate of 1.00% of the Fund's average daily net assets. As compensation for
its services to RNC Money Market Fund, the Adviser is paid a fee at a maximum
annual rate of 0.41% of the Fund's average daily net assets. From time to time,
the Adviser may voluntarily waive all or a portion of its fees payable by the
Funds and may also absorb certain expenses. The Adviser is currently waiving
part of its fee on the RNC Money Market Fund and has agreed to limit the total
expenses of RNC Equity Fund, as described above under "Expense Information."
These waivers and expense reductions will have the effect of lowering the
overall expense ratio of each Fund and increasing the relevant Fund's yield or
return to investors while the fee waiver is in effect. Any reductions made by
the Adviser in its fees and any payments or reimbursement of expenses made by
the Adviser which are a Fund's obligation are subject to reimbursement within
the following three years by that Fund provided the Fund is able to effect such
reimbursement and remain in compliance with the above expense limitations. See
the Statement of Additional Information under the caption "Investment Advisory
and Other Services."
The Adviser and its affiliates have been in the business of providing
investment advice to taxable and tax-exempt accounts for over 27 years, and the
Adviser currently manages approximately $1 billion in assets on behalf of its
clients. The Adviser is a wholly owned subsidiary of RNC Capital Group, Inc.,
which is in the business of providing financial services to institutional and
individual investors through its subsidiaries. RNC Capital Group, Inc., is an
indirect subsidiary of Bank Austria America, Inc. (the "Bank") which in turn is
an indirect subsidiary of Bank Austria Aktiengesellschaft, a banking
organization which is organized under the laws of and domiciled in the Republic
of Austria. Anteilsverwaltung-Zentralsparkasse is the majority shareholder of
the voting securities of the Bank, and the Republic of Austria, Wiener
Stadtische and Westdeutsche Landesbank each own more than 5% of the voting
securities of the Bank. No other single entity owns more than 5% of the issued
and outstanding stock of the Bank.
John G. Marshall, C.F.A., serves as the portfolio manager for RNC Equity
Fund. Mr. Marshall joined RNC Capital Management Co. and its predecessor
affiliate in 1985 and is the Director of Equity, Chairman of the Equity Strategy
Committee and a member of the Investment Policy Committee. Prior to 1985, Mr.
Marshall was Vice President and Equity Portfolio Manager with Pacific Investment
Management Co. and First City National Bank of Houston.
A. Robert Blais serves as the portfolio manager for RNC Money Market Fund.
Mr. Blais joined RNC Capital Management Co. in 1988 and is the Director of Fixed
Income and a member of the Investment Policy Committee. Prior to 1988, Mr. Blais
was Vice President - Portfolio Manager/ Senior Fixed Income Trader with
Constitution Capital Management Co. and Vice President - Portfolio Manager/
Senior Fixed Income Trader with Connecticut Bank and Trust Co.
Administration Agreements. The Group has entered into an Administration
Agreement on behalf of each Fund with Investment Company Administration
Corporation ("ICAC" or the "Administrator") under which ICAC provides the Funds
with certain services in connection with their management and operation. These
services include supervising the operations of the Funds; providing the Group
with officers; coordinating the preparation of reports and other materials; and
other functions. As compensation for providing these services, ICAC receives a
minimum annual fee of $40,000 or .10% for the first $100 million, .05% for the
next $100 million, and .03% thereafter, whichever is greater, payable monthly by
the fifth day of the next month.
Board of Directors. The Group has an independent Board of Directors which
establishes policies and supervises and reviews the management of each Fund. The
day-to-day operation of the Group is the responsibility of its officers, who are
appointed by the Board of Directors, as well as the Funds' Administrator and
Adviser, who are each subject to the general supervision of the Group's Board of
Directors pursuant to the respective terms of the Administration Agreements and
the Investment Advisory Agreements.
7
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PURCHASE OF SHARES
Shares of each Fund are offered directly to the public at the net asset
value per share next determined after receipt of the order in proper form by
American Data Services, Inc. (the Group's "Transfer Agent"). Shares may also be
purchased through First Fund Distributors, Inc. (the "Principal Underwriter" or
"Distributor") or from securities dealers who have entered into a Selected
Dealers Agreement with the Principal Underwriter. The Principal Underwriter is
an affiliate of the Administrator; see "Principal Underwriter" in the Statement
of Additional Information. The minimum initial purchase in each Fund is $1,000.
The minimum subsequent purchase is $100. RNC Equity Fund will begin offering its
shares on November 1, 1996.
To purchase shares directly from the Group, investors must complete and
sign the attached Account Application and pay for the shares purchased.
Corporations, trusts or associations may be required to provide additional
information. Shares may be purchased by mail or by wire.
Purchase by Mail. Send a check or Federal Reserve draft for the purchase
price by mail to RNC Mutual Fund Group, Inc., c/o American Data Services, Inc.,
P.O. Box 1131, Cincinnati, Ohio, 45264-1131, and, in the case of a new account,
a completed Account Application. Checks and Federal Reserve drafts should be
made payable to RNC Equity Fund or RNC Money Market Fund as appropriate.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States Dollars and must be drawn on a
bank located in the United States. Third party checks will not be accepted for
initial investments. Investors purchasing shares by check will not receive
payment upon redemption of such shares until the Fund is reasonably satisfied
that the investment has been collected (which may take up to 15 days). If the
Group is unable to collect upon the full face value of an investor's check, the
purchase order will be canceled and the investor or the dealer through which the
shares are purchased will be liable for any losses or fees incurred.
Purchase by Wire. Purchases by wire, which may involve a charge by the bank
sending the wire, are normally used for large purchases (purchases of $100,000
or more). The initial purchase by an investor may be made by wire provided that
the investor has an application on file. To purchase shares by wire, the
investor must have an application on file and must telephone the Transfer Agent,
at (800) 385-7003, to receive a Wire Order Number. The following information
will be requested by the Transfer Agent: Fund(s) in which the investor seeks to
invest, name(s) in which the account is registered, account number, amount being
wired and wiring bank. Instructions should then be given by the investor to its
bank to wire the specified amount, along with the account name(s) and number and
Wire Order Number, to:
Star Bank, N.A. Cinti/Trust
ABA # 0420-0001-3
DDA #483897690
For Account: 19-7200 RNC Mutual Fund Group, Inc.
Investing through Financial Intermediaries. Investors may purchase shares
from a securities broker and other financial intermediaries who have entered
into some form of agency agreement with the Principal Underwriter and/or the
Group. Investors should contact such brokers and intermediaries directly for
appropriate instructions, as well as information pertaining to accounts and any
related fees. Purchase orders through brokers and intermediaries are effected at
the net asset value next determined after receipt of the order by the Transfer
Agent, and it is the responsibility of the financial intermediary to transmit
orders on a timely basis to the Transfer Agent.
General. All monies will be fully invested in full and fractional shares on
the day the order is placed with the Transfer Agent, receiving the dividend and
net asset value determined on that day, provided the order and good payment for
the order are received by the Transfer Agent (or a sub-transfer agent) prior to
the time at which the
8
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Fund's net asset value is determined (see "Net Asset Value" below). The issuance
of shares is recorded on the books of the appropriate Fund, and, to avoid
additional operating costs and for investor convenience, stock certificates are
not issued unless expressly requested of the Transfer Agent in writing by a
shareholder. Certificates are not issued for fractional shares. The Transfer
Agent sends to each shareholder of record a statement of shares of the relevant
Fund owned after each purchase or redemption transaction relating to such
shareholder. Any order may be rejected by the Principal Underwriter or the
Group. The Group reserves the right to suspend the sale of shares of the Funds
to the public in response to conditions in securities markets, or otherwise. RNC
Equity Fund may not be offered in all states.
Individual Retirement Account. An investor may establish an individual
retirement account with the Funds' Custodian and purchase shares through such
individual retirement account. Additional information regarding establishment of
such an account may be obtained by contacting the Group or the Principal
Underwriter.
REDEMPTION OF SHARES
Shareholders have the right to require a Fund to redeem their shares, by
check or wire, upon receipt of a written request in proper form. The redemption
price is the net asset value per share of the relevant Fund next determined
after the initial receipt of proper notice of redemption by the Transfer Agent.
Ordinary Redemption Procedure. A shareholder wishing to redeem shares of a
Fund may do so without charge by tendering a written request for redemption in
proper form, as explained below, directly to the Transfer Agent, together with
the stock certificates, if any, issued for such shares. To be in proper form,
the redemption request requires the signature(s) of all persons in whose name(s)
the shares are registered, signed exactly as their name(s) appear on the
Transfer Agent's register or on the stock certificate(s), as the case may be. In
addition, the signatures on the notice must be guaranteed by an eligible
financial institution, such as a commercial bank, a savings association, a trust
company or a member firm of a national or regional securities exchange. A notary
public is not an acceptable guarantor. In certain instances, the Transfer Agent
may require additional documents such as, but not limited to, trust instruments,
death certificates, appointments as executor or administrator, or certificates
of corporate authority. For shareholders redeeming their shares directly with
the Transfer Agent, payment will be mailed within seven days of receipt of a
proper notice of redemption.
At various times, a Fund may be requested to redeem shares for which it has
not yet received good payment. A Fund may delay or cause to be delayed the
mailing of a redemption check for a period of up to 15 days until it is assured
that good payment (that is, cash or a certified check drawn against an account
maintained in a bank located in the United States) has been collected for the
purchase of such shares.
A Fund may, at its option, compel the redemption of a shareholder's shares
or charge an account maintenance fee if the value of the shareholder's account
falls below $1,000 as the result of shareholder redemptions. A shareholder will
receive 60-days' written notice before mandatory redemption occurs, during which
time the shareholder will have the right to increase his or her account to or
above $1,000.
Redemption by Check (RNC Money Market Fund only). The Transfer Agent will
establish a checking account for any shareholder of RNC Money Market Fund at the
shareholder's written request. Checks drawn on this account can be made payable
to the order of any person in any amount not less than $500. The payee of the
check may cash or deposit the check like any other check drawn on a bank. When
such a check is presented to the Transfer Agent for payment, the Transfer Agent
will present the check to the Group as authority to redeem a sufficient number
of shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue earning daily income dividends until the
check is cleared. The Transfer Agent will return canceled checks to the
shareholder.
9
<PAGE>
Shareholders are subject to the Transfer Agent's rules and regulations
governing such checking accounts, including the right of the Transfer Agent not
to honor checks in amounts exceeding the value of the shareholder's account at
the time the check is presented for payment. Also, the Transfer Agent may not
honor checks drawn against shares purchased, other than by Federal Funds wire or
bank wire, until 15 days after the purchase of such shares.
Redemption by Wire. Shareholders may elect to have redemption proceeds
wired to a bank account if the shareholder has checked the appropriate box on
the Account Application. Redemption requests may be made by telephone or letter
and, if received by the Transfer Agent by 2:00 p.m. Eastern time, the proceeds
will be wired on the same day. Requests received after 2:00 p.m. Eastern time
will be wired on the next business day after the redemption request is received.
The Group reserves the right to refuse any redemption request made by telephone,
in which case ordinary redemption procedures should be used. The minimum amount
which may be wired is $1,000. The Group may limit the frequency of telephone
redemptions. Shares in certificate form may not be redeemed by check or wire.
The Transfer Agent and the Group have reserved the right to modify or
terminate the privileges of redemption by check or wire. The Group employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include sending a confirmation and requiring the
caller to give a special authorization number or other personal information not
likely to be known by others. The Group and Transfer Agent may be liable for any
losses due to unauthorized or fraudulent telephone transactions only if such
reasonable procedures are not followed.
Repurchase. The Group may also repurchase shares of the Funds from a
shareholder through the securities broker and other financial intermediaries
through whom the shareholder originally purchased shares. The Group will
normally accept orders to repurchase shares by wire or telephone, from such
brokers and intermediaries for their customers at the net asset value next
computed after receipt of the order by the Transfer Agent, provided that the
request for repurchase is received by the Transfer Agent (or a sub-transfer
agent) prior to the time at which the net asset value is determined. Such
brokers and intermediaries have the responsibility of submitting such repurchase
requests to the Transfer Agent not later than the time at which the net asset
value is determined, in order to obtain that day's net asset value. These
repurchase arrangements are for the convenience of shareholders and do not
involve a charge by the Group; however, brokers and intermediaries may impose a
charge on the shareholder for transmitting the notice of repurchase to the
Group.
For shareholders requesting repurchases through a securities broker or
other intermediary, payment for shares will be made by the Transfer Agent
directly to the broker or intermediary within seven days of the proper tender.
EXCHANGE PRIVILEGES
Shares of a Fund may be exchanged for shares of the other Fund within the
Group. Shares may be exchanged by mailing or delivering written instructions to
the Group's Transfer Agent as follows: RNC Mutual Fund Group, Inc., c/o American
Data Services, Inc., P.O. Box 1131, Cincinnati, Ohio, 45265-1131. Investors may
also exchange shares by telephoning the Transfer Agent at (800) 385-7003,
subject to proper identification. A share exchange request must be received
prior to 2:00 p.m. Eastern time, in order to be effective on the date the
request is received.
The investor should note that an exchange of shares may result in the
recognition of a gain or loss for income tax purposes. The Group reserves the
right to limit excessive share exchanges, which can harm a Fund's performance.
10
<PAGE>
NET ASSET VALUE
The net asset value per share is determined at 2:00 p.m. Eastern time, for
RNC Money Market Fund and as of the close of regular trading of the New York
Stock Exchange ("NYSE"), which currently is 4:00 p.m. Eastern time (Monday
through Friday) for RNC Equity Fund, on each business day the NYSE is open for
trading. The net asset value per share of each Fund is computed by dividing the
value of the net assets of the Fund by the total number of shares outstanding,
rounded to the nearest cent. RNC Money Market Fund uses the amortized cost
method of valuing its portfolio securities. Expenses, including the investment
advisory fees payable to the Adviser, are accrued daily.
RNC Money Market Fund seeks to maintain a net asset value of $1.00 per
share for purchases and redemptions. There can be no assurance, however, that
RNC Money Market Fund will be able to maintain a net asset value of $1.00 per
share.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. It is anticipated that RNC Equity Fund will
declare and pay dividends annually from net income. Long-term net capital gains;
if any, are currently declared and paid annually by December 31 of each year.
The policy of RNC Money Market Fund is to declare dividends from net income
daily and to pay them monthly. Dividends of RNC Money Market Fund begin accruing
the day shares are purchased or credited to a shareholder's account. All
dividends and distributions are automatically reinvested in additional full and
fractional shares of the appropriate Fund at the net asset value next determined
after payment of the dividend or distribution and credited to the shareholder's
account or, at the shareholder's option, paid in cash. All expenses are accrued
daily and deducted before declaration of dividends to investors. See the section
of this Prospectus entitled "Investor Services -- Reinvestment of Dividends and
Capital Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments.
Taxes. RNC Money Market Fund has qualified and elected, and RNC Equity Fund
intends to qualify and elect, to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986. Under such provisions,
the Funds will not be subject to federal income tax on such part of their net
ordinary income and net realized capital gains which they distribute to their
shareholders.
Dividends and capital gain distributions are taxable to shareholders and
subject to federal income tax, or excise taxes based on income, whether they are
reinvested in additional shares or received in cash. Shareholders not subject to
federal income tax on their income generally will not be required to pay taxes
on amounts being distributed to them. Dividends and capital gains distributions
may also be subject to state and local taxes. Shareholders are urged to consult
their own tax counsel or other tax advisers regarding specific questions as to
federal, state or local taxes.
PORTFOLIO TRANSACTIONS
The Funds have no obligation to execute any transactions in portfolio
securities through any dealer or group of dealers. Subject to the policies
established by the Directors of the Group, the Adviser is primarily responsible
for making portfolio decisions for the Funds and placing portfolio transactions.
In placing orders, the policy of the Funds is to seek to obtain the best
execution so that the resultant price to a Fund is as favorable as possible
under prevailing market conditions. Factors which may be considered include the
price of the security being offered (including the applicable dealer spread),
the size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities, and the risk in position in the securities
involved.
11
<PAGE>
Where such transactions are executed with brokers on an agency basis, the
Adviser may also consider the provision of supplemental investment research,
market and statistical information and other research services and products.
Brokers providing such services may execute brokerage transactions at a higher
cost to the Funds than might result from the allocation of brokerage to other
brokers solely on the basis of most favorable price and efficient execution.
Because such services are beneficial to the Funds, the purchase and sale of
securities for the Funds may be made with brokers who provide such research
analysis, subject to review by the Group's Board of Directors. From time to time
the Directors will review the extent of this practice to determine whether each
Fund continues to benefit directly or indirectly, from such practice. The
Adviser may select broker-dealers for the execution of the Funds' portfolio
transactions who provide research and analysis as the Adviser may lawfully and
appropriately use in its investment management and advisory capacities, whether
or not such research and analysis may also be useful to the Adviser in
connection with its services to other clients. The Adviser does not intend to
use affiliated brokers to handle portfolio transactions.
INVESTOR SERVICES
The Group offers a number of services to shareholders of the Funds which
are designed to facilitate investment in Fund shares at no extra cost. A
description of such services is set forth below. Full details as to each such
service and copies of the various plans described below can be obtained from the
Group.
Investment Account. Every shareholder has an investment account and
receives transaction reports from the Transfer Agent after each share
transaction and dividend reinvestment. After the end of each year, each
shareholder receives federal income tax information regarding dividends and
capital gains distributions.
Automatic Investment Plan. A shareholder may make additions of $50 or more
to the investment account at any time through a service known as the Automatic
Investment Plan, whereby the Transfer Agent is authorized through pre-authorized
checks to charge the regular bank account of the shareholder on a monthly basis.
Reinvestment of Dividends and Capital Gains Distributions. Unless specific
instructions are given on the Account Application form as to the method of
payment of dividends and capital gains distributions, these payments are
automatically reinvested in additional shares of the appropriate Fund.
Reinvestment of dividends and capital gains distributions are calculated at the
net asset value of the shares of the relevant Fund as of the close of business
on the day on which the dividend or distribution is paid. Shareholders may elect
in writing to receive either their dividends or capital gains distributions, or
both, in cash, in which event payment is mailed by the Transfer Agent within
seven days after the payment date. A shareholder may, at any time, notify the
Transfer Agent in writing that the shareholder no longer wishes to have
dividends and/or capital gains distributions reinvested in shares or vice versa.
Systematic Withdrawal Plan. Automatic quarterly or monthly withdrawals from
a Fund are available for shareholders who have acquired shares having a value,
based upon the current offering price, of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify either a dollar amount
or a percentage of the value of his or her shares. Redemptions are made at net
asset value as determined at the close of business on the NYSE on the 25th day
of the last month of each quarter in the case of quarterly distributions and on
the 25th day of the month in the case of monthly distributions. If the NYSE is
not open for business on such date, the shares are redeemed at the close of
business on the immediately preceding
12
<PAGE>
business day. The check for the withdrawal payment is mailed on the next
business day following redemption. If and when a shareholder is making
systematic withdrawals, dividends and distributions on all shares in the
Investment Account are automatically reinvested in shares of the appropriate
Fund. A shareholder's Systematic Withdrawal Plan may be terminated at any time,
without charge or penalty, by the shareholder, the Group, the Transfer Agent or
the Principal Underwriter.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a potentially taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholder's original investment
may be correspondingly reduced.
SHAREHOLDER RULE 12b-1 PLANS
The Group on behalf of each Fund has adopted a plan pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan"). For RNC Equity Fund, the Rule 12b-1 Plan
will be serviced by the Principal Underwriter. For RNC Money Market Fund, the
Rule 12b-1 Plan services will be provided by Midvale Securities Corporation
("Midvale") an affiliate of the Adviser.
Each Rule 12b-1 Plan provides that the Principal Underwriter or Midvale
will be reimbursed by the relevant Fund for the actual expenses incurred by the
Principal Underwriter, Midvale, or a sub-agent in furnishing such Fund with
services covered by each Fund's respective plan which include: (i) sending
periodic information to service organizations that track investment company
information; (ii) answering shareholder inquiries regarding shareholder account
status and history; (iii) collecting information from shareholders regarding
changes in option and account designation and addresses and transmitting the
same to the Transfer Agent; (iv) collecting the same type of information from
independent account executives and brokers and transmitting it to the Transfer
Agent; (v) supplying other information to the Transfer Agent so that the
Transfer Agent can properly maintain shareholder account records; (vi) providing
facilities, equipment and personnel in connection with the provision of such
services; and (vii) performing such additional shareholder services as may be
agreed upon by the Group, the Principal Underwriter or Midvale, which shall be
approved in accordance with the 1940 Act, provided that any such additional
shareholder services constitute a permissible non-banking activity.
In addition to the above services, the Rule 12b-1 Plan for RNC Equity Fund
allows reimbursement for additional activities, such as (i) preparation,
printing and mailing of prospectuses; (ii) shareholder reports such as
semi-annual and annual reports, performance reports and newsletters; (iii) sales
literature and other promotional material to prospective investors; (iv) direct
mail solicitation; (v) advertising; (vi) public relations; (vii) compensation of
sales personnel, advisers, or other third parties for their assistance with
respect to the distribution of RNC Equity Fund's shares; (viii) payments to
financial intermediaries, including ERISA third-party retirement plan
administrators, for shareholder support, administration and accounting services
with respect to shareholders of RNC Equity Fund; and (ix) such other expenses as
may be approved from time to time by the Board of Directors.
The Adviser, out of its own funds, also may compensate broker-dealers who
have signed dealer agreements for distribution of a Fund's shares as well as
other service providers who provide shareholder and administrative services.
Under the Rule 12b-1 Plans, each Fund will reimburse the actual expenses
incurred by the Principal Underwriter or Midvale, as appropriate, up to a
maximum annual rate equal to 0.25% of that Fund's average daily net assets,
accrued daily and paid monthly.
Each Rule 12b-1 Plan provides that all reimbursements shall be accounted
for within the fiscal year of each Fund in which such expenditures were made and
will not be carried forward into subsequent fiscal years of the
13
<PAGE>
Group. The Plans contain reporting, renewal, termination and amendment
provisions as required by the 1940 Act. See the Statement of Additional
Information section entitled "Shareholder Rule 12b-1 Plans" for more
information.
Banking Law. The Glass-Steagall Act prohibits banks and their affiliates
from engaging in certain securities-related activities, including the offering,
sale or distribution of securities. None of the service providers to the Group
and the Funds believes that the services which it provides violate the
Glass-Steagall Act or any other applicable banking statute or regulation.
However, future changes in federal or state statutes or regulations or in
judicial or administrative interpretations of present or future statutes or
regulations might prevent certain of the Group's or the Funds' service providers
from performing their duties under the applicable agreement. If such a change
should occur, the Group's Board of Directors will consider appropriate action,
including the possible retention of another service provider. Banks and other
financial service firms may be subject to various state laws regarding the
services described above, and may be required to register as dealers pursuant to
state law.
GENERAL INFORMATION
Performance Information. From time to time, RNC Money Market Fund
advertises its "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
From time to time, each Fund may publish its total return in advertisements
and communications to investors. Total return is defined as the change in value
of an investment in a Fund over a particular period, assuming that all
distributions have been reinvested. Thus, total return reflects not only income
earned, but also variations in share prices at the beginning and end of the
period. Total return information will include a Fund's average annual compounded
rate of return over the four most recent calendar quarters and over the period
from the Fund's inception of operations. Each Fund may also advertise aggregate
and average total return information over different periods of time. Aggregate
total return reflects the total percentage change in the value of an investment
in a particular Fund over the stated period. Average annual return reflects the
average percentage change per year in the value of an investment in a particular
Fund. Each Fund's total return will be based upon the value of the shares
acquired through a hypothetical $1,000 investment (at the beginning of the
specified period and the net asset value of such shares at the end of the
period, assuming reinvestment of all the distributions) at the maximum public
offering price. Total return figures will reflect all recurring charges against
a Fund's income. Investors should note that the investment results of each Fund
will fluctuate over time, and any presentation of a Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
Please refer to the "Performance Information" section of the Statement of
Additional Information for data on the performance history of the Adviser's
comparable individually managed equity accounts.
Shares and Shareholder Rights. Each Fund is a series of RNC Mutual Fund
Group, Inc. As a separate series, each Fund votes separately on matters
affecting only that Fund (e.g., approval of the Investment Advisory Agreement).
On matters affecting all series, the Funds vote as a single class (e.g.,
election or removal of Directors).
14
<PAGE>
Shares do not have cumulative voting rights, and the holders of more than 50% of
the shares of the Funds voting for the election of Directors can elect all of
the Directors of the Group if they choose to do so, and in such event the
holders of the remaining shares would not be able to elect any Directors. The
Funds do not normally hold annual meetings of shareholders except when required
by the 1940 Act. See the Statement of Additional Information section entitled
"Management of the Funds" for more information.
The authorized capital stock of the Funds consists of 500,000,000 shares of
Common Stock in the Money Market Fund and 500,000,000 shares of Common Stock in
the Equity Fund, each having a par value of $0.01 per share. The shares have
equal dividend, distribution, liquidation and voting rights in a Fund. Each
share, with respect to the Fund from which it is issued, is entitled to one vote
and is entitled to participate equally in dividends and distributions declared
by the Fund and in net assets of the Fund remaining after satisfaction of
outstanding liabilities upon liquidation or dissolution. The shares of a Fund,
when issued, are fully paid and non-assessable, have no preference, preemptive,
conversion, exchange or similar rights, and are freely transferable.
Custodian and Dividend Disbursing Agent. Star Bank is the Custodian for the
Group and the Funds.
Transfer and Dividend Disbursing Agent. American Data Services, Inc. is the
Transfer Agent and Dividend Disbursing Agent for the Group and the Funds, and
maintains the Group's accounting records.
Principal Underwriter. The Principal Underwriter for the Funds is First
Fund Distributors, Inc. whose address is 4455 East Camelback Road, Suite 261E,
Phoenix, Arizona 85018.
Counsel and Auditor. The validity of the shares of common stock offered by
this Prospectus will be passed on by Heller, Ehrman, White & McAuliffe. Tait,
Weller & Baker, independent certified public accountants, are the auditors of
the Group.
Miscellaneous. The Group issues to its shareholders semi-annual reports
containing unaudited financial statements and annual reports containing
financial statements examined by auditors approved annually by the Board of
Directors.
This Prospectus does not contain all the information included in the
Registration Statement with the Securities and Exchange Commission under the
Securities Act of 1933. Certain portions of the Fund's Registration Statement
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The Registration Statement, including the exhibits filed
therewith, may be examined at the office of the Securities and Exchange
Commission in Washington, D.C.
15
<PAGE>
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus and in the
Statement of Additional Information, in connection with the offer made by this
Prospectus, and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Group, its Adviser or
its Principal Underwriter. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy by the Group or by the Principal
Underwriter in any state in which such offer to sell or solicitation of any
offer to buy may not lawfully be made.
ADVISER
RNC Capital Management Co.
11601 Wilshire Boulevard
25th Floor
Los Angeles, California 90025
CUSTODIAN
Star Bank
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services, Inc.
24 West Carver Street, 2nd Floor
Huntington, New York 11743
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, PA 19102
<PAGE>
PROSPECTUS
[LOGO]
RNC
MUTUAL FUND
GROUP, INC.
October 1, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RNC MUTUAL FUND GROUP, INC.
11601 WILSHIRE BOULEVARD, 25TH FLOOR
LOS ANGELES, CALIFORNIA 90025
FOR GENERAL INFORMATION AND PURCHASES CALL
(800) 385-7003
RNC Mutual Fund Group, Inc. (the "Group") is a no-load fund group with
two diversified mutual funds: RNC Money Market Fund and RNC Equity Fund.
RNC Equity Fund invests primarily in common stocks with the objective
of achieving above-average total return consistent with reasonable risk. The
Fund's ability to achieve above-average total return cannot be guaranteed and is
subject to the risk of occasional volatile market conditions.
RNC Money Market Fund invests in a diversified portfolio of short-term
money market securities with the objective of obtaining as high as possible
current income consistent with preservation of capital and liquidity. There can
be no assurance that the investment objective to maintain a constant net asset
value of $1.00 per share will be achieved.
Shares of the Funds may be purchased at their net asset value with no
sales load.
This Statement of Additional Information of the Group is not a
prospectus and should be read in conjunction with the Prospectus of the Group
dated October 1, 1996, as may be amended from time to time (the "Prospectus").
The Prospectus provides the basic information a prospective investor should know
before purchasing shares of the Funds and may be obtained by calling or by
writing the Group at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
Both the Prospectus and this Statement of Additional Information have been filed
with the Securities and Exchange Commission.
The date of this Statement of Additional Information is October 1,
1996.
B-1
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TABLE OF CONTENTS
Page
----
Objectives and Policies.....................................................B- 3
Management of the Group.....................................................B-13
Investment Advisory and Other Services......................................B-15
Portfolio Transactions......................................................B-17
Purchase of Shares..........................................................B-18
Redemption of Shares........................................................B-19
Taxes.......................................................................B-20
Dividends...................................................................B-24
Shareholder Rule 12b-1 Plans................................................B-25
Performance Information.....................................................B-26
Principal Underwriter.......................................................B-29
Financial Statements........................................................B-29
Appendix....................................................................B-31
B-2
<PAGE>
OBJECTIVES AND POLICIES
Reference is made to "Objectives, Policies and Risk Factors" in the
Prospectus for a discussion of the investment objectives and policies of the
Funds.
The Group was organized as a Maryland corporation on April 9, 1985 and
currently consists of two diversified mutual funds: an equity fund and a money
market fund.
INVESTMENT RESTRICTIONS. In addition to the investment restrictions set forth in
the Prospectus, each Fund has adopted a set of investment restrictions, none of
which may be changed without the approval of a majority of the relevant Fund's
outstanding shares. For this purpose, majority approval means the vote of (i)
67% or more of the respective Fund's shares present at a meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the respective Fund's outstanding
shares, whichever is less.
RNC Equity Fund may not:
-------
(1) Make investments for the purpose of exercising control or
management.
(2) Invest in oil, gas or other mineral exploration or development
programs, commodities or commodity contracts, except that RNC Equity
Fund may invest in securities of issuers which invest or deal in any of
the above.
(3) Invest in real estate or in interests in real estate, except that
RNC Equity Fund may purchase readily marketable securities of companies
holding real estate or interests therein, and may invest in
mortgaged-backed securities.
(4) Purchase any securities on margin, except for use of short-term
credit necessary for clearance of purchases and sales of portfolio
securities.
(5) Make loans, except that RNC Equity Fund may (a) purchase debt
obligations in accordance with its investment objective and policies,
(b) make loans of
B-3
<PAGE>
portfolio securities provided, among other things, that the value of
the securities loaned does not exceed 10% of the value of its net
assets and (c) enter into repurchase agreements as disclosed in the
Prospectus. (RNC Equity Fund does not presently loan portfolio
securities.) The acquisition of bonds, debentures or other corporate
debt securities which are not publicly distributed is considered to be
the making of a loan under the Investment Company Act of 1940 (the
"1940 Act").
(6) Mortgage, pledge, hypothecate or in any manner transfer as security
for indebtedness any securities owned or held by RNC Equity Fund except
as may be necessary in connection with borrowings mentioned in (8)
below, and then such mortgaging, pledging or hypothecating may not
exceed 10% of RNC Equity Fund's total assets, taken at market value. In
order to comply with certain state statutes, RNC Equity Fund will not,
as a matter of operating policy, mortgage, pledge or hypothecate its
portfolio securities to the extent that at any time the value of
pledged securities will exceed 10% of the net assets of RNC Equity
Fund.
(7) Borrow in excess of 10% of the total assets of RNC Equity Fund,
taken at market value, and then only from banks as a temporary measure
for extraordinary or emergency purposes. Usually only "leveraged"
investment companies may borrow in excess of 5% of their assets;
however, RNC Equity Fund will not borrow to increase income but only to
meet redemption requests which might otherwise require untimely
dispositions of portfolio securities. In addition, RNC Equity Fund will
not purchase securities while outstanding borrowings exceed 5% of its
total assets.
(8) Act as an underwriter of securities, except to the extent that RNC
Equity Fund may technically be deemed to be an underwriter when engaged
in the activities described in (7) above or insofar as RNC Equity Fund
may be deemed an underwriter under the Securities Act of 1933 (the
"1933 Act") in selling portfolio securities.
(9) Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit
B-4
<PAGE>
RNC Equity Fund from (a) making any permitted borrowings, mortgages or
pledges, or (b) entering into options, forward or repurchase
transactions.
(10) Purchase or sell futures or futures contracts or invest in put,
call, straddle or spread options. (As a matter of operating policy, the
Board of Directors may authorize RNC Equity Fund to engage in certain
activities involving options and/or futures for bona fide hedging
purposes. Any such authorization will be accompanied by appropriate
notification to shareholders.)
(11) Invest in the securities of other investment companies, except as
provided in the 1940 Act and applicable state securities laws.
RNC Money Market Fund may not:
-------
(1) Make investments for the purpose of exercising control or
management.
(2) Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization.
(3) Invest in oil, gas or other mineral exploration or development
programs, commodities or commodity contracts, except that RNC Money
Market Fund may invest in securities of issuers which invest or deal in
any of the above.
(4) Invest in real estate or in interests in real estate, but RNC Money
Market Fund may purchase readily marketable securities of companies
holding real estate or interests therein.
(5) Purchase any securities on margin, except for use of short-term
credit necessary for clearance of purchases and sales of portfolio
securities.
(6) Make short sales of securities or maintain a short position or
write, purchase or sell puts, calls, straddles, spreads or combinations
thereof.
(7) Make loans, provided that RNC Money Market Fund may (a) purchase
debt obligations in accordance with its investment objective and
policies, (b) make loans of portfolio
B-5
<PAGE>
securities provided, among other things, that the value of the
securities loaned does not exceed 10% of the value of RNC Money Market
Fund's net assets and (c) enter into repurchase agreements as disclosed
in the Prospectus. (RNC Money Market Fund does not presently loan
portfolio securities.) The acquisition of bonds, debentures or other
corporate debt securities which are not publicly distributed is
considered to be the making of a loan under the 1940 Act.
(8) Mortgage, pledge, hypothecate or in any manner transfer as security
for indebtedness any securities owned or held by RNC Money Market Fund
except as may be necessary in connection with borrowings mentioned in
(9) below, and then such mortgaging, pledging or hypothecating may not
exceed 10% of RNC Money Market Fund's total assets, taken at market
value. In order to comply with certain state statutes, RNC Money Market
Fund will not, as a matter of operating policy, mortgage, pledge or
hypothecate its portfolio securities to the extent that at any time the
value of pledged securities will exceed 10% of the net assets of the
Fund.
(9) Borrow in excess of 10% of the total assets of RNC Money Market
Fund, taken at market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes. Usually only
"leveraged" investment companies may borrow in excess of 5% of their
assets; however, RNC Money Market Fund will not borrow to increase
income but only to meet redemption requests which might otherwise
require untimely dispositions of portfolio securities. In addition, RNC
Money Market Fund will not purchase securities while borrowings are
outstanding.
(10) Act as an underwriter of securities, except to the extent that RNC
Money Market Fund may technically be deemed an underwriter when engaged
in the activities described in (7) above or insofar as RNC Money Market
Fund may be deemed an underwriter under the 1933 Act in selling
portfolio securities.
(11) Invest in securities of any one issuer with a record of less than
three years of continuous operation, including predecessors, except
obligations issued or guaranteed by the United States Government or its
agencies.
(12) Issue senior securities, as defined in the Investment Company Act,
except that this restriction shall not be
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deemed to prohibit RNC Money Market Fund from (a) making any permitted
borrowings, mortgages or pledges, or (b) entering into permissible
repurchase transactions.
Bank money instruments in which a Fund invests must be issued by
depository institutions with total assets of at least $500 million or capital
surplus and undivided profits in excess of $100 million.
Each Fund's commercial paper investments will be rated at the time of
purchase in the top rating category as determined by the requisite number of
nationally recognized statistical rating organizations ("NRSROs") or be of
"comparable quality" as determined by the Board of Directors if unrated. Each
Fund's investments in corporate bonds (which for RNC Money Market Fund must have
maturities at purchase of one year or less) must be rated at least "A" by at
least two of the NRSROs. For further information regarding various corporate
debt ratings, see the attached Appendix.
FORWARD COMMITMENTS. Each Fund may purchase money market securities on a forward
commitment basis at fixed purchase terms. The purchase will be recorded on the
date the Fund enters into the commitment and the value of the security will
thereafter be reflected in the calculation of the relevant Fund's net asset
value. The value of the security on the delivery date may be more or less than
its purchase price. A segregated account for each Fund will be established with
its custodian consisting of cash or liquid money market securities having a
market value at all times at least equal to the amount of the forward
commitment.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. As stated in the Prospectus,
RNC Equity Fund does not currently enter into futures contracts and options on
futures contracts. However, to hedge against movements in interest rates,
securities prices or currency exchange rates, RNC Equity Fund reserves the right
to purchase and sell various kinds of futures contracts and options on futures
contracts. However, RNC Equity Fund will enter such transactions only upon the
approval of the Group's Board of Directors and notice to shareholders.
OPTIONS ON SECURITIES. RNC Equity Fund may write (sell) covered call options to
a limited extent on its portfolio securities ("covered options") in an attempt
to enhance gain.
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When RNC Equity Fund writes a covered call option, it gives the
purchaser of the option the right, upon exercise of the option, to buy the
underlying security at the price specified in the option (the "exercise price")
at any time during the option period, generally ranging up to nine months. If
the option expires unexercised, RNC Equity Fund will realize income to the
extent of the amount received for the option (the "premium"). If the call option
is exercised, a decision over which RNC Equity Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price. By
writing a covered option, RNC Equity Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above the
exercise price.
RNC Equity Fund may terminate its obligation as writer of a call option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction."
Closing sale transactions enable RNC Equity Fund immediately to realize
gains or minimize losses on its options positions. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
option, or at any particular time, and for some options no secondary market may
exist. In addition, stock index prices may be distorted by interruptions in the
trading of securities of certain companies or of issuers in certain industries,
which could disrupt trading in option positions on such indices and preclude RNC
Equity Fund from closing out its options positions. If RNC Equity Fund is unable
to effect a closing purchase transaction with respect to options it has written,
it will not be able to terminate its obligations or minimize its losses under
such options prior to their expiration. If RNC Equity Fund is unable to effect a
closing sale transaction with respect to options that it has purchased, it would
have to exercise the option in order to realize any profit.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements may take place in the underlying markets that cannot be
reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and
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risks different from those associated with ordinary portfolio securities
transactions.
OPTIONS ON SECURITIES INDICES. RNC Equity Fund may write (sell) covered call
options on securities indices in an attempt to increase gain. A securities index
option written by RNC Equity Fund would obligate it, upon exercise of the
option, to pay a cash settlement, rather than to deliver actual securities, to
the option holder. Although RNC Equity Fund will not ordinarily own all of the
securities comprising the stock indices on which it writes call options, such
options will usually be written on those indices which correspond most closely
to the composition of RNC Equity Fund's portfolio. As with writing covered call
options on securities, RNC Equity Fund will realize a gain in the amount of the
premium received upon writing an option if the value of the underlying index
increases above the exercise price and the option is exercised. RNC Equity Fund
will be required to pay a cash settlement that may exceed the amount of the
premium received by the Fund. RNC Equity Fund may purchase call options in order
to terminate its obligations under call options it has written.
RNC Equity Fund may purchase call and put options on securities indices
for the purpose of hedging against the risk of unfavorable price movements
adversely affecting the value of RNC Equity Fund's securities or securities the
Fund intends to buy. Securities index options will not be purchased for
speculative purposes. Unlike an option on securities, which gives the holder the
right to purchase or sell specified securities at a specified price, an option
on a securities index gives the holder the right to purchase or sell specified
securities at a specified price, an option on a securities index gives the
holder the right, upon the exercise of the option, to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying securities index on the exercise date
multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the
securities included in the index. For example, some securities index options are
based on a broad market index such as the Standard & Poor's 500 or the Value
Line Composite Index, or a narrower market index such as the Standard & Poor's
100. Indices may also be based on industry or market segments.
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RNC Equity Fund may purchase put options in order to hedge against an
anticipated decline in stock market prices that might adversely affect the value
of RNC Equity Fund's portfolio securities. If RNC Equity Fund purchases a put
option on a stock index, the amount of payment it receives on exercising the
option depends on the extent of any decline in the level of the stock index
below the exercise price. Such payments would tend to offset a decline in the
value of RNC Equity Fund's portfolio securities. If, however, the level of the
stock index increases and remains above the exercise price while the put option
is outstanding, RNC Equity Fund will not be able to profitably exercise the
option and will lose the amount of the premium and any transaction costs. Such
loss may be partially offset by an increase in the value of RNC Equity Fund's
portfolio securities. RNC Equity Fund may write put options on stock indices in
order to close out positions in stock index put options which it has purchased.
RNC Equity Fund may purchase call options on stock indices in order to
participate in an anticipated increase in stock market prices or to lock in a
favorable price on securities that it intends to buy in the future. If RNC
Equity Fund purchases a call option on a stock index, the amount of the payment
it receives upon exercising the option depends on the extent of any increase in
the level of the stock index above the exercise price. Such payments would in
effect allow RNC Equity Fund to benefit from stock market appreciation even
though it may not have had sufficient cash to purchase the underlying stocks.
Such payments may also offset increases in the price of stocks that RNC Equity
Fund intends to purchase. If, however, the level of the stock index declines and
remains below the exercise price while the call option is outstanding, RNC
Equity Fund will not be able to exercise the option profitably and will lose the
amount of the premium and transaction costs. Such loss may be partially offset
by a reduction in the price RNC Equity Fund pays to buy additional securities
for its portfolio. RNC Equity Fund may write call options on stock indices in
order to close out positions in stock index call options which it has purchased.
The effectiveness of hedging through the purchase of options on
securities indices will depend upon the extent to which price movements in the
portion of the securities portfolio being hedged correlate with price movements
in the selected stock index. Perfect correlation is not possible because the
securities held or to be acquired by RNC Equity Fund will not exactly match the
composition of the stock indices on which the
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options are available. In addition, the purchase of stock index options involves
the risk that the premium and transaction costs paid by RNC Equity Fund in
purchasing an option will be lost as a result of unanticipated movements in
prices of the securities comprising the stock index on which the option is
based.
REPURCHASE AGREEMENTS. As noted in the Prospectus, the Funds may enter into
repurchase agreements. A Fund's repurchase agreements will generally involve a
short-term investment in a U.S. Government security or other high-grade liquid
debt security, with the seller of the underlying security agreeing to repurchase
it at a mutually agreed-upon time and price. (For RNC Money Market Fund, the
security must be rated in the highest grade.) The repurchase price is generally
higher than the purchase price, the difference being interest income to the
Fund. Alternatively, the purchase and repurchase prices may be the same, with
interest at a stated rate due to a Fund together with the repurchase price on
the date of repurchase. In either case, the income to a Fund is unrelated to the
interest rate on the underlying security.
Under each repurchase agreement, the seller is required to maintain the
value of the securities subject to the repurchase agreement at not less than
their repurchase price. The Adviser, acting under the supervision of the Board
of Directors, reviews on a periodic basis the suitability and creditworthiness,
as well as the value of the collateral, of those sellers with whom the Funds
enter into repurchase agreements to evaluate potential risk. All repurchase
agreements will be made pursuant to procedures adopted and regularly reviewed by
the Board of Directors.
The Funds generally will enter into repurchase agreements of short
maturities, from overnight to one week, although the underlying securities will
generally have longer maturities. The Funds regard repurchase agreements with
maturities in excess of seven days as illiquid. Neither Fund may invest more
than 15% of the value of its net assets in illiquid securities, including
repurchase agreements with maturities greater than seven days.
For purposes of the 1940 Act, a repurchase agreement is deemed
to be a collateralized loan from a Fund to the seller of the security subject to
the repurchase agreement. It is not clear whether a court would consider the
security acquired by a Fund subject to a repurchase agreement as being owned by
that Fund or as being collateral for a loan by that Fund to the
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seller. If bankruptcy or insolvency proceedings are commenced with respect to
the seller of the security before its repurchase under a repurchase agreement, a
Fund may encounter delays and incur costs before being able to sell the
security. Delays may involve loss of interest or a decline in price of the
security. If a court characterizes such a transaction as a loan and a Fund has
not perfected a security interest in the security, that Fund may be required to
return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt instrument purchased for a Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, a Fund
also runs the risk that the seller may fail to repurchase the security. However,
each Fund always requires collateral for any repurchase agreement to which it is
a party in the form of securities acceptable to the Fund, the market value of
which is equal to at least 100% of the amount invested by the Fund plus accrued
interest, and a Fund makes payment against such securities only upon physical
delivery or evidence of book entry transfer to the account of the Fund's
custodian bank. If the market value of the security subject to the repurchase
agreement becomes less than the repurchase price (including interest), a Fund,
pursuant to its repurchase agreement, may require the seller of the security to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement equals or exceeds the repurchase price (including
interest) at all times.
Each Fund may participate in one or more joint accounts with another
Fund within the Group that invests in repurchase agreements collateralized,
subject to each Fund's investment policies, either by (i) obligations issued or
guaranteed as to principal and interest by the U.S. Government or by one of its
agencies or instrumentalities, or (ii) privately issued mortgage-related
securities that are in turn collateralized by securities issued by GNMA, FNMA or
FHLMC, and are rated in the highest rating category by a NRSRO (See Appendix)
or, if unrated, are deemed by the Adviser to be of comparable quality using
objective criteria. Any such repurchase agreement will have, with rare
exceptions, an overnight, over-the-weekend or over-the-holiday duration, and
will in no event have a duration of more than seven days.
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REVERSE REPURCHASE AGREEMENTS. RNC Equity Fund may enter into reverse repurchase
agreements, as set forth in the Prospectus. RNC Equity Fund typically will
invest the proceeds of a reverse repurchase agreement in money market
instruments or repurchase agreements maturing not later than the expiration of
the reverse repurchase agreement. This use of proceeds involves leverage. RNC
Equity Fund will enter into a reverse repurchase agreement for leverage purposes
only when the Adviser believes that the interest income to be earned from the
investment of the proceeds would be greater than the interest expense of the
transaction. RNC Equity Fund also may use the proceeds of reverse repurchase
agreements to provide liquidity to meet redemption requests when the sale of RNC
Equity Fund's securities is disadvantageous.
RNC Equity Fund causes its custodian to segregate liquid assets, such
as cash, U.S. Government securities or other high-grade liquid debt securities
equal in value to their obligations (including accrued interest) with respect to
reverse repurchase agreements. In segregating such assets, RNC Equity Fund's
custodian either places such securities in a segregated account or separately
identifies such assets and renders them unavailable for investment. Such assets
are marked to market daily to ensure that full collateralization is maintained.
ILLIQUID SECURITIES. RNC Equity Fund may invest up to 15% of its net assets in
illiquid securities. RNC Money Market Fund may invest up to 10% of its net
assets in illiquid securities. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which a Fund has valued the
securities and includes, among others, repurchase agreements maturing in more
than seven days, certain restricted securities and securities that are otherwise
not freely transferable. Illiquid securities also include shares of an
investment company held by a Fund in excess of 1% of the total outstanding
shares of that investment company. Restricted securities may be sold only in
privately negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the 1933 Act. Illiquid securities
acquired by a Fund may include those that are subject to restrictions on
transferability contained in the securities laws of other countries. Securities
that are freely marketable in the country where they are principally traded, but
that would not be freely marketable in the United States, will not be considered
illiquid. Where registration is required, a Fund may be obligated to pay all or
part of the registration expenses and a considerable period may
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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.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including securities sold
in private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments often are restricted
securities because the securities are sold in transactions not requiring
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
resold readily or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not determinative of the
liquidity of such investments.
Rule 144A under the 1933 Act establishes a safe harbor from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
sold pursuant to Rule 144A in many cases provide both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets might include automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Fund, however, could adversely affect the marketability of such portfolio
securities and result in the Fund's inability to dispose of such securities
promptly or at favorable prices.
The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to the Adviser pursuant to guidelines approved by
the Board. The Adviser takes into account a number of factors in reaching
liquidity decisions, including, but not limited to: (i) the frequency of trades
for the security, (ii) the number of dealers that quote prices for the security,
(iii) the number of dealers that have undertaken to
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make a market in the security, (iv) the number of other potential purchasers,
and (v) the nature of the security and how trading is effected (e.g., the time
needed to sell the security, how bids are solicited and the mechanics of
transfer). The Adviser monitors the liquidity of restricted securities in the
Funds' portfolios and reports periodically on such decisions to the Board of
Directors.
FOREIGN SECURITIES. As noted in the Prospectus, RNC Equity Fund may invest in
foreign securities in the form of U.S.-denominated American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). Both ADRs and EDRs are
certificates evidencing ownership of shares of a foreign-based issuer held in
trust by a bank or similar financial institution. Designed for use in U.S. and
European securities markets, respectively, ADRs and EDRs are alternatives to the
purchase of the underlying securities in their national market and currencies.
It is not expected that RNC Equity Fund will invest in unsponsored ADRs or EDRs.
RNC Equity Fund will not concentrate its investments in any particular foreign
country and will only purchase securities denominated in U.S. Dollars.
Investments in foreign securities, particularly those of non-governmental
issuers, involve considerations which are not ordinarily associated with
investing in U.S. issuers. These considerations include changes in currency
rates, currency exchange control regulations, the possibility of expropriation,
the unavailability of financial information or the difficulty of interpreting
financial information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the impact of
political, social or diplomatic developments, and the difficulty of assessing
economic trends in countries outside the United States. If it should become
necessary, RNC Equity Fund could encounter greater difficulties in invoking
legal processes abroad than would be the case in the United States. Transaction
costs in foreign securities may be higher. These and other factors will be
considered before investing in foreign securities, unless such investments will
meet RNC Equity Fund's standards and objectives.
VARIABLE RATE DEMAND NOTES. Each Fund may also purchase variable rate demand
notes ("VRDNs") issued by U.S. and foreign companies having an outstanding debt
issue at the time of purchase rated in the top two grades of any NRSRO. (See
Appendix.) VRDNs are obligations with rates of interest that are adjusted
periodically or "float" continuously according to specific formulae. Often,
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VRDNs have a demand feature entitling the purchaser to resell the securities at
an amount approximately equal to amortized cost or the principal amount plus
accrued interest. However, many issuers or servicers of mortgage-related
securities guarantee or provide insurance for timely payment of interest and
principal. See "Investment Restrictions" in Prospectus, as may be amended from
time to time. See "Illiquid Securities."
MANAGEMENT OF THE GROUP
The Board of Directors is responsible for the overall management of the
Group and the Funds, including general supervision and review of investment
activities. None of the Group's current Directors is an "interested person" (as
defined in the 1940 Act) of the Group, the Funds or any adviser, administrator
or principal underwriter of the Funds. The officers who administer the Group's
daily operations are appointed by the Board of Directors. The current Directors
and officers of the Group, their addresses, and their principal occupations for
the past five years are set forth below.
ERIC M. BANHAZL -- President, Treasurer and Secretary of the Group;
2025 E. Financial Way, Suite 101, Glendora, California 91741. Currently, Mr.
Banhazl is Senior Vice President of Robert H. Wadsworth & Associates, Inc., Vice
President of Investment Company Administration Corporation, the Funds'
administrator and First Fund Distributors, Inc., the Funds' principal
underwriter. Mr. Banhazl is also the President of E.M. Banhazl & Associates,
Inc., a mutual fund consulting firm and the Treasurer of Professionally Managed
Portfolios, Guinness Flight Investment Funds, Inc., Target Income Fund, Inc.,
and Matterhorn Growth Fund, Inc., all of which are investment companies
unaffiliated with the Group.
BRUCE B. STUART -- Director; 1440-2E South State College Boulevard,
Anaheim, California 92806. Since 1991, Mr. Stuart has been the president of
Nu-Ceramic Technology, Inc., a company involved in the research and development
of advanced ceramic metallization for the semiconductor and hybrid industry.
From 1984 to 1991, Mr. Stuart was a partner of the Richmar Group, a management
consulting firm.
DEVERE W. McGUFFIN, II -- Director; 1441 East Chevy Chase, Glendale,
California 91206. Mr. McGuffin is the owner and principal executive officer of
the Meadow Grove Group, a
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finance and investment firm with which he has been associated since 1974. Mr.
McGuffin is also the Chief Executive Officer of California Adventist Federal
Credit Union. Mr. McGuffin also directs First Interurban Development
Corporation, a non-profit financial corporation which he founded in 1981. Mr.
McGuffin is also currently licensed as a securities representative and as a
commodities futures principal.
The Directors receive an annual retainer plus fees and expenses for
each Board meeting and Audit Committee meeting attended. (For the latest fiscal
year, the Directors each received $4,500 for their attendance at Board meetings
and Audit Committee meetings.) The Group does not provide any pension or
retirement benefits for its Directors. Pursuant to the terms of the
Administration Agreement, the Funds' administrator pays all compensation of
officers of the Group, and no person receives any compensation directly from the
Group or the Funds for acting as an officer of the Group. However, such officers
may be deemed to receive remuneration indirectly from the Group and the Funds
because the administrator is paid an administrative fee by the Group.
As of May 31, 1996, the following persons held of record 5% or more of
the outstanding shares of the RNC Money Market Fund: Repub & Co., c/o Imperial
Trust, (80%); 201 N. Figueroa Street, Suite 610, Los Angeles, California 90071;
and RNC Capital Management Co., 11601 Wilshire Boulevard, 25th Floor, Los
Angeles, California 90025 (17%). RNC Equity Fund commenced operations as of the
date of this Statement of Additional Information and has no record owners.
As of May 31, 1996, the Directors and officers of the Group as a whole
owned less than 1% of the outstanding shares of RNC Money Market Fund. RNC
Equity Fund commenced operations as of the date of this Statement of Additional
Information and has no outstanding shares.
While the Group is not required and does not intend to hold annual
meetings of shareholders, such meetings may be called by the Directors in their
discretion, or upon demand by the holders of 10% or more of the outstanding
shares of the Funds for the purpose of electing or removing Directors.
Shareholders may receive assistance from the Group in communicating with other
shareholders, in connection with the election or removal of Directors, pursuant
to the provisions contained in Section 16(c) of the 1940 Act.
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INVESTMENT ADVISORY AND OTHER SERVICES
The Group on behalf of each Fund has entered into Investment Advisory
Agreements with RNC Capital Management Co. (the "Adviser"). The principal
business address of the Adviser is 11601 Wilshire Boulevard, 25th Floor, Los
Angeles, California 90025. The Adviser is an indirect subsidiary of Bank Austria
America, Inc. (the "Bank"), an indirect subsidiary of Bank Austria
Aktiengesellschaft, a banking organization which is organized under the laws of
and domiciled in the Republic of Austria. Anteilsverwaltung-Zentralsparkasse is
the majority shareholder of the voting securities of the Bank, and the Republic
of Austria, Wiener Stadtische and Westdeutsche Landesbank each own more than 5%
of the voting securities of the Bank. No other single entity owns more than 5%
of the issued and outstanding stock of the Bank.
The Directors and principal executive officers of the Adviser are:
Daniel J. Genter, Jr., President, Chief Executive Officer and Director; Thomas
Pastore, Vice President/Assistant Secretary and Director; James O'Neill, Vice
President/Assistant Treasurer and Director; Nicanor M. Mamaril, Senior Vice
President, Treasurer and Secretary; Jan Kallik, Senior Vice President and
Director of Equity Research; A. Robert Blais, Senior Vice President and Director
of Fixed Income; Bruce A. Mandel, Senior Vice President and Director of
Marketing; and John G. Marshall, Senior Vice President and Director of Equity.
Subject to supervision by the Group's Board of Directors, the Adviser
is responsible for the actual management of each Fund's portfolio and constantly
reviews the holdings of each portfolio in light of its own research analysis and
analyses from other relevant sources. The responsibility for making decisions to
buy, sell or hold a particular security rests with the Adviser. The Adviser
provides the portfolio managers for the Funds who consider analyses from various
sources, make the necessary investment decisions and place transactions
accordingly.
Unless earlier terminated as described below, the Investment Advisory
Agreements will continue in effect until December 31, 1996 for RNC Money Market
Fund and December 31, 1997 for RNC Equity Fund. Each Agreement will continue in
effect for successive one-year periods thereafter if approved annually (a) by
the Board of Directors of the Group or by a majority of the
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outstanding voting shares of the relevant Fund and (b) by a majority of the
Directors who are not parties to such contracts or interested persons (as
defined in the 1940 Act) of any such party. Each Agreement terminates upon
assignment and may be terminated without penalty upon 60-days' written notice at
the option of either party thereto or by the vote of the shareholders of the
relevant Fund.
In the event the operating expenses of a Fund (including the fees
payable to the Adviser but excluding taxes, interest, brokerage and
extraordinary expenses and the fees paid under a Fund's Distribution and
Shareholder Servicing Plans) for any fiscal year exceed the expense limitations
applicable to the Fund imposed by state securities laws or any regulations
thereunder, the Adviser will reduce its fee by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse that Fund in
the amount of such excess. At present the most restrictive expense limitation
would require the Adviser to reimburse a Fund if, during any fiscal year,
ordinary operating expenses exceed 2.5% of that Fund's first $30 million of
average net assets, 2.0% of the next $70 million of average net assets and 1.5%
of the remaining average net assets. The Adviser undertakes to pay or refund to
a Fund any amount by which such expenses exceed this expense limitation. The
payment of the management fee at the end of any month is reduced so that there
is no accrued but unpaid liability under this expense limitation. In addition,
from time to time the Adviser may voluntarily reduce its fee or reimburse all or
a portion of a Fund's other expenses, which reimbursement will have the effect
of lowering the overall net expense ratio of a Fund and of increasing its yield
or return to investors for the period for which such expenses were payable. Any
reductions made by the Adviser in its fees and any payments or reimbursement of
expenses made by the Adviser which are a Fund's obligation are subject to
reimbursement within the following three years by the appropriate Fund provided
the Fund is able to effect such reimbursement and remain in compliance with
applicable expense limitations.
For RNC Money Market Fund, in the years ended September 30, 1993, 1994
and 1995, total fees payable by the Fund to the Investment Adviser were $61,195,
$64,897 and $106,810, respectively. The amount of the management fee paid by the
Fund reflects a voluntary fee reduction by the Adviser which is anticipated to
continue for the current fiscal year. In the absence of this fee reduction, the
rate of management fee payable under the Investment Advisory Agreement would be
0.41% for RNC
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Money Market Fund. RNC Equity Fund commenced operations on the date of this
Statement of Additional Information.
LICENSE OF INITIALS. The Adviser has granted the Group and the Funds a
non-exclusive license to use the initials "RNC" in its name for so long as the
Adviser serves as investment adviser to the Funds.
PORTFOLIO TRANSACTIONS
The cost of executing portfolio securities transactions for the Funds
will primarily consist of dealer spreads and underwriting commissions. The money
market securities in which the Funds invest are traded primarily in the
over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Funds
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principals for their own accounts.
On occasion, securities may be purchased directly from the issuer.
Bonds and money market securities also are generally traded on a net basis and
do not normally involve either brokerage commissions or transfer taxes.
Therefore, RNC Money Market Fund rarely pays any brokerage commissions. During
the three fiscal years ended September 30, 1993, 1994 and 1995, the Group paid
no brokerage fees on behalf of RNC Money Market Fund.
With respect to RNC Equity Fund, brokerage commissions will be paid on
transactions in listed securities and futures contracts and options thereon.
[Unless deemed appropriate, RNC Equity Fund will not usually invest in futures
contracts.]
The Adviser is responsible for effecting portfolio transactions and
will do so in a manner deemed fair and reasonable to each Fund. The primary
consideration in all portfolio transactions will be the prompt execution of
orders in an efficient manner at the most favorable price. In selecting and
monitoring broker-dealers and negotiating commissions, the Adviser considers the
firm's reliability, the quality of its execution services on a continuing basis
and its financial condition.
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<PAGE>
Investment decisions for the Funds are made independently from those of
other client accounts of the Adviser or its affiliates. Nevertheless, it is
possible that at times the same securities will be acceptable for the Funds and
for one or more of such client accounts. The Adviser and its personnel may have
interests in one or more of those client accounts, either through direct
investment or because of management fees based on gains in the account. To the
extent any of these client accounts and the Funds seek to acquire the same
security at the same time, the Funds may not be able to acquire as large a
portion of such security as they would otherwise, or they may have to pay a
higher price or obtain a lower yield for such security. Similarly, the Funds may
not be able to obtain as high a price for, or as large an execution of, an order
to sell any particular security at the same time. If one or more of such client
accounts simultaneously purchases or sells the same security that the Funds are
purchasing or selling, each day's transactions in such security will be
allocated between the Funds and all such client accounts in a manner deemed
equitable by the Adviser, taking into account the respective sizes of the
accounts, the amount being purchased or sold and other factors deemed relevant
by the Adviser. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as the Funds
are concerned. In other cases, however, it is believed that the ability of the
Funds to participate in volume transactions may produce better executions for
the Funds.
PURCHASE OF SHARES
As described in the Prospectus, shares of each Fund are offered on a
continuous basis at a price equal to the net asset value per share of the
relevant Fund next determined after receipt of a purchase order in proper form.
NET ASSET VALUE. The value of each Fund's portfolio securities is determined on
each day the New York Stock Exchange ("NYSE") is open for trading. The NYSE is
open on business days other than certain holidays (New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day).
The net asset value of shares of RNC Equity Fund will fluctuate daily.
The net asset value per share is computed by dividing the value of the
securities held in RNC Equity Fund plus
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any cash or other assets (including interests and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total
numbers of shares in RNC Equity Fund outstanding at such time.
RNC Money Market Fund uses the amortized cost method of valuation. The
amortized cost method of valuation involves valuing a security at its cost on
the date of purchase, and thereafter (absent unusual circumstances) assuming a
constant amortization to 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 this method, is higher or lower than the
price RNC Money Market Fund would receive if it sold the instrument. During such
periods the yield to investors in RNC Money Market Fund may differ somewhat from
that obtained in a similar fund which uses other methods to determine the fair
or market value of its portfolio securities.
RNC Money Market Fund intends to use its best efforts to maintain a
constant net asset value of $1.00 per share. If net unrealized gains or losses
were to exceed $.005 per share, RNC Money Market Fund's net asset value would
deviate from $1.00 per share. RNC Money Market Fund endeavors to reduce the
amount of unrealized gains and losses which result from, among other things,
interest rate changes, by maintaining a dollar weighted average portfolio
maturity of less than 90 days.
INDIVIDUAL RETIREMENT ACCOUNTS. An investor desiring to purchase shares in a
Fund through an individual retirement account may establish such an account
through the Funds' custodian, Star Bank. Through such an account, investments
may be made in each Fund and certain of the other mutual funds sponsored by the
Adviser. Star Bank charges an initial establishment fee and an annual custodial
fee for each account. Information with respect to these accounts is available
upon request from the Group or First Fund Distributors, Inc., the Funds'
principal underwriter. The minimum investment for an individual retirement
account is $1,000.
Capital gains and ordinary income received in such an account
are generally exempt from federal income taxation until distributed from the
account. Capital gains and ordinary income may be taxable in whole or in part,
however, if the account has borrowed to purchase or carry shares of a Fund.
Investors
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<PAGE>
considering participation in such an account should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of such an account.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares -- Repurchase" in the
Prospectus for a discussion of the redemption and repurchase rights of
shareholders.
The right to redeem shares or to receive payment with respect to any
such redemption may be suspended for more than seven days only for periods
during which trading on the NYSE is restricted as determined by the Securities
and Exchange Commission or the NYSE is closed (other than customary weekend and
holiday closings), for periods during which an emergency exists as defined by
the Securities and Exchange Commission as a result of which disposal of
portfolio securities or determination of the net asset value of a Fund is not
reasonably practicable, and for such other periods as the Securities and
Exchange Commission may by order permit for the protection of a Fund's
shareholders.
The Prospectus describes when signature guarantees may be required to
effect a redemption. A signature guarantee is a widely accepted way to protect
stockholders and the Group by verifying the signature on the request. Signature
guarantees should not be qualified in any way, whether by date or otherwise.
Signatures must be guaranteed by an "Eligible Guarantor Institution" and not by
a notary public or any other person or entity. An "Eligible Guarantor
Institution" means a bank, trust company, broker, dealer, municipal or
government securities broker or dealer, credit union, national securities
exchange, registered securities association, clearing agency or savings
association that is a participant in the Securities Transfer Agents Medallion
Program endorsed by the Securities Transfer Association.
Subject to the Funds' compliance with applicable regulations, the Funds
have reserved the right to pay the redemption or repurchase price, either
totally or partially, by a distribution in kind of securities (instead of cash)
from the respective Fund's portfolio. Such regulations require, in part, that
the Funds commit to pay in cash all requests for redemption
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by any shareholder, limited in amount for each shareholder during any 90-day
period to the lesser of $250,000 or 1% of the net asset value of the respective
Fund at the beginning of such period. Each Fund anticipates that it would make
redemptions in kind only if it received redemption requests with respect to a
substantial portion of its net assets at a time when disposition of a
substantial portion of its portfolio securities would be disadvantageous. The
securities distributed in such a distribution would be valued at the same price
as the price assigned to such securities in calculating the net asset value of
the particular Fund. If a shareholder receives a distribution in kind in
securities, in most instances brokerage charges will be incurred when the
securities received are converted by the shareholder into cash.
TAXES
In all prior fiscal years RNC Money Market Fund (previously known as
RNC Liquid Assets Fund) has qualified for and elected the special tax treatment
afforded regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). RNC Money Market Fund intends to
continue to so qualify. RNC Equity Fund intends to qualify for and elect such
treatment. Under the relevant Code provisions, a Fund that qualifies as a
regulated investment company under Subchapter M of the Code is not subject to
federal income tax on that part of its net ordinary income and net realized
capital gains which it distributes to shareholders. To qualify for such tax
treatment each Fund must, among other things, pay to its shareholders in each
taxable year at least 90% of its investment company taxable income (consisting
of investment income and short-term capital gains) and derive less than 30% of
its gross income in each taxable year from gains (without deduction for losses)
from the sale or other disposition of securities held for less than three
months. If in any taxable year a Fund does not qualify as a regulated investment
company, all its taxable income will be taxed to the Fund at corporate rates and
all of its distributions will be taxed to the shareholders as dividends to the
extent of the Fund's current and accumulated earnings and profits. The Code also
imposes a non-deductible 4% excise tax on the excess, if any, of a Fund's
"required distribution" over its actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a Fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized for the
one-year period ending
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<PAGE>
on October 31 plus undistributed amounts from prior years. It is anticipated
that each Fund will be able to meet such distribution requirements and will not
be subject to the 4% excise tax.
Dividends paid by each Fund from its short-term investment income are
taxable to shareholders as ordinary income. Dividends paid by a Fund from its
net capital gains (generally the excess of a Fund's net long-term capital gain
over its net short-term capital loss) are taxable to a shareholder as long-term
capital gains regardless of the period for which the shareholder has owned
shares of the Fund. Dividends and distributions are taxable as described,
whether received in cash or reinvested in additional shares of a Fund.
RNC Equity Fund may receive dividend distributions from U.S.
corporations. To the extent RNC Equity Fund receives such dividends and
distributes them to its shareholders, and meets certain other requirements of
the Code, corporate shareholders of RNC Equity Fund may be entitled to the
"dividends received" deduction. Availability of the deduction is subject to
certain holding period and debt-financing limitations.
RNC Equity Fund may also invest in securities of foreign issuers,
futures contracts, forward contracts and options. These investments involve
complex rules to determine the character and timing of recognition of income
received in connection therewith by RNC Equity Fund.
Any gain or loss realized by RNC Equity Fund upon the expiration or
sale of options held by it generally will be capital gain or loss. Any security,
option, or other position entered into or held by RNC Equity Fund that
substantially diminishes its risk of loss from any other position held by that
Fund may constitute a "straddle" for federal income tax purposes. In general,
straddles are subject to certain rules that may affect the amount, character and
timing of RNC Equity Fund's gains and losses with respect to straddle positions
by requiring, among other things, that the loss realized on disposition of one
position of a straddle be deferred until gain is realized on disposition of the
offsetting position; that the Fund's holding period in certain straddle
positions not begin until the straddle is terminated (possibly resulting in the
gain being treated as short-term capital gain rather than long-term capital
gain); and that losses recognized with respect to certain straddle positions,
which would otherwise constitute short-term capital losses, be treated as
long-term capital losses. Different
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<PAGE>
elections are available to RNC Equity Fund that may mitigate the effects of the
straddle rules.
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by RNC Equity Fund at the end of its taxable year generally will be required to
be "marked to market" for federal income tax purposes, that is, deemed to have
been sold at market value. Sixty percent of any net gain or loss recognized on
these deemed sales and 60% of any net gain or loss realized from any actual
sales of Section 1256 Contracts will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by RNC Equity Fund. Under these
rules, foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts,
foreign currency-denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of that Fund's gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code, rather than
as capital gain or loss.
RNC Equity Fund may be subject to foreign withholding taxes on
dividends and interest earned with respect to securities of foreign
corporations. Foreign companies in which RNC Equity Fund may invest may be
treated as "passive foreign investment companies" ("PFICs") under the Code. A
portion of the income and gains that RNC Equity Fund derives from PFIC stock may
be subject to a non-deductible federal income tax at the Fund level. In some
cases, RNC Equity Fund may avoid this tax by electing to be taxed currently on
its share of the PFIC's income, whether or not such income is actually
distributed by the PFIC. RNC Equity Fund will endeavor to limit its exposure to
the PFIC tax by investing in PFICs only where the election to be taxed currently
will be made. This election could require RNC Equity Fund to include certain
amounts as income or gain without a concurrent receipt of cash, and increase the
amount that RNC Equity Fund is required to
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<PAGE>
distribute to its shareholders to qualify as a regulated investment company.
Because it is not always possible to identify a foreign issuer as a PFIC in
advance of making the investment, RNC Equity Fund may incur the PFIC tax in some
instances.
Redemptions and exchanges of shares of a Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends with respect to such shares during such
six-month period. All or a portion of a loss realized upon the redemption of
shares of a Fund may be disallowed to the extent shares of the same Fund are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Some shareholders may be subject to a 31% withholding tax on reportable
dividend distributions, capital gains distributions and redemption payments
("backup withholding"). Generally, shareholders subject to backup withholding
will be those for whom taxpayer identification numbers are not on file with the
Group or who, to the Group's knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalties of perjury
that such number is correct and that he or she is not subject to backup
withholding. Foreign shareholders may also be subject to other withholding
requirements.
Shares of the Funds are redeemable at the option of the Group if, in
the opinion of the Group, ownership has or may become concentrated to an extent
that would cause the Group or a Fund to be deemed a personal holding company
within the meaning of the Code, or in the event that the value of a
shareholder's shares in a Fund falls below $1,000 as the result of shareholder
redemptions. In the event of such concentration, the Group may compel the
redemption of, reject any order for, or refuse to give effect on the books of
the Group or the Funds to the transfer of shares in an effort to maintain the
ownership of shares so as to prevent that consequence. Neither the Group nor the
Funds, however, assumes responsibility to compel redemptions or to reject any
orders.
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<PAGE>
Depending upon the extent of the Group's activities in those states and
localities in which its offices are maintained or in which its agents or
independent contractors are located, the Group and the Funds may be subject to
the tax laws of such states or localities. In addition, the treatment of each
Fund and its shareholders under applicable state and local tax laws may differ
from their treatment under the federal income tax laws. For example,
distributions of net investment income (including capital gains) may be taxable
to shareholders as dividend income. Shareholders are advised to consult their
tax advisers concerning the application of state and local taxes.
The foregoing is a general and abbreviated summary of certain
provisions of the Code and Treasury Regulations currently in effect. For
complete provisions, reference should be made to the pertinent Code sections and
Treasury Regulations promulgated thereunder. The Code and Treasury Regulations
are subject to change by legislative or administrative action, which may have
retroactive affect. Heller, Ehrman, White & McAuliffe has expressed no opinion
on the tax matters discussed herein.
DIVIDENDS
Dividends of each Fund are automatically reinvested in additional
shares of the appropriate Fund at net asset value and credited to the
shareholder's account or, at the shareholder's option, paid in cash to the
shareholder.
Should a Fund incur or anticipate any unusual or unexpected significant
expense or loss which would affect disproportionately the Fund's income for a
particular period, the Board of Directors would at that time consider whether to
adhere to the present dividend policy or to revise it in the light of the
then-prevailing circumstances in order to ameliorate, to the extent possible,
the disproportionate effect of such expense or loss on then-existing
shareholders. Such expenses or losses may nevertheless result in a shareholder's
receiving no dividends for the period during which he or she held his or her
shares and in his or her receiving upon redemption a price per share lower than
that which he or she paid.
Shareholders of RNC Money Market Fund may receive their dividends in
cash monthly by completing the appropriate section of the Account Application.
Such cash distributions will be paid by check within seven days after the end of
each month. The
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election to receive cash distributions may be made at the time of purchase of
Fund shares or at any time subsequent thereto by giving written notice to the
Transfer Agent. Dividends and distributions are taxable to shareholders whether
distributed in cash or reinvested in additional shares. See "Taxes."
The Transfer Agent will send each shareholder of RNC Money Market Fund
a monthly statement showing the total number of shares owned as of the last
business day of the month, as well as the current month's and year-to-date
dividends paid in terms of total cash distributed and, for those shareholders
which have dividends reinvested, the number of shares acquired through the
reinvestment of dividends. The policy of each Fund with respect to dividends is
further explained below.
RNC Equity Fund
- ---------------
All of RNC Equity Fund's net investment income is declared and paid as
dividends on an annual basis. Dividends declared in October, November or
December of any year and payable to shareholders of record on a date in one of
such months will be deemed to have been paid by RNC Equity Fund and received by
the shareholders on the record date if the dividends are paid by RNC Equity Fund
during the following January. Accordingly, such dividends will be taxable to
shareholders for the year in which the record date falls.
Net income of RNC Equity Fund (from the time of the immediately
preceding determination thereof) will consist of (i) interest accrued or
discount earned (including both original issue and market discount), (ii) plus
or minus all realized gains and losses, if any, on the portfolio securities of
RNC Equity Fund (iii) less the estimated expenses of RNC Equity Fund applicable
to that dividend period.
RNC Money Market Fund
- ---------------------
All of RNC Money Market Fund's net investment income is declared as
dividends daily. RNC Money Market Fund's dividends are paid monthly.
RNC Money Market Fund's net investment income for dividend purposes is
determined daily. Such determination will be made as of 4:00 p.m. Eastern time
and, on days when RNC Money Market Fund's net asset value is calculated,
immediately prior to such calculation. Immediately after each calculation of net
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<PAGE>
asset value, RNC Money Market Fund will declare a dividend (with respect to one
or more days) payable to shareholders of record as of 2:00 p.m. Eastern time on
such day. Each day's dividend will be declared and paid with respect to shares
effectively purchased at or before 2:00 p.m., but will not be declared or paid
with respect to shares effectively redeemed at or before 2:00 p.m. Net income of
RNC Money Market Fund (from the time of the immediately preceding determination
thereof) will consist of (i) interest accrued or discount earned (including both
original issue and market discount), (ii) plus or minus all realized gains and
losses, if any, on the portfolio securities of RNC Money Market Fund (iii) less
the estimated expenses of RNC Money Market Fund applicable to that dividend
period.
RNC Money Market Fund intends to use its best efforts to maintain its
net asset value at $1.00 per share. As a result of a significant expense or
realized or unrealized loss, it is possible that RNC Money Market Fund's net
asset value may fall below $1.00 per share. See "Purchase of Shares -- Net Asset
Value."
SHAREHOLDER RULE 12b-1 PLANS
The Group on behalf of each Fund has adopted a Shareholder Rule 12b-1
Plan pursuant to Rule 12b-1 promulgated under the 1940 Act.
Each plan requires annual renewal by a vote of the Group's Board of
Directors including those Directors who are not "interested persons" of the
Group, as defined in the 1940 Act, and who have no direct or indirect interest
in the plans or any related agreements (referred to herein as "disinterested
Directors"). Each plan may be terminated at any time if so voted by a majority
of the disinterested Directors or by holders of a majority of the relevant
outstanding shares.
The Rule 12b-1 plans may not be amended to increase materially the
amounts payable to First Fund Distributors, Inc., or Midvale Securities
Corporation (the "Distributors") unless approved by a majority of the affected
outstanding voting shares, as defined in the 1940 Act, and may not be amended in
any other material respect unless approved by a majority of the disinterested
Directors. Each plan requires that quarterly reports be made to the Board of
Directors detailing the payments made under each plan and the expenses for which
reimbursement is being sought. The Rule 12b-1 plans contemplate that the
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Distributors may delegate their shareholder servicing functions for certain
shareholder accounts to other persons and compensate such persons accordingly.
No payments were made under a Rule 12b-1 plan during the fiscal year ended
September 30, 1995.
The Board of Directors, including the disinterested Directors, in
approving the plans for another year concluded that, in the exercise of their
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that both Rule 12b-1 plans could be of value to benefit the Group,
the Funds and their shareholders, and could be used to increase shareholder
satisfaction, and preserve and expand the shareholder base of each Fund. Among
the possible benefits considered by the disinterested Directors was the
increased potential of a continuous cash flow arising out of the retention of
current shareholders and the expansion of the Funds to include new shareholders,
enabling the Funds to meet redemptions and to take advantage of buying
opportunities without having to make unwarranted liquidations of portfolio
securities. Another benefit anticipated by the disinterested Directors is the
potential for increasing the size of the Funds and thereby reducing the
operating costs on a per share basis of the Funds. [For more information on the
expenses paid through the Funds' 12b-1 plans, see the section in the Prospectus
entitled "Shareholder Rule 12b-1 Plans."]
PERFORMANCE INFORMATION
General
- -------
From time to time, each Fund may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to shareholders. Each Fund may also include calculations,
such as hypothetical compounding examples or tax-free compounding examples,
which describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of the relevant Fund.
From time to time, the yield and total return of a Fund may be quoted
in advertisements, shareholder reports or other communications to shareholders.
Total Return
- ------------
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Average annual total return quotations used in the Funds' advertising
and promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where P equals a hypothetical initial investment of $1,000; T equals average
annual total return; n equals the number of years; and ERV equals the ending
redeemable value at the end of a period of a hypothetical $1,000 investment made
at the beginning of the period.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.
Adviser's Equity Performance History
- ------------------------------------
Set forth in the table below is certain performance data provided by
the Adviser relating to all of its comparable individually managed equity
accounts for the last twenty years. These accounts have substantially the same
investment objective as RNC Equity Fund and are managed using substantially
similar investment strategies and techniques. See "Objectives and Policies"
above as well as the "Objectives, Policies and Risk Factors" section in the
Prospectus. The results presented are not intended to predict or suggest the
return to be experienced by RNC Equity Fund or the return an investor might
achieve by investing in this Fund. Results may differ because of, among other
things, differences in brokerage commissions paid, account expenses, including
investment advisory fees, (which expenses and fees maybe higher for RNC Equity
Fund than for the accounts), the size of positions taken in relation to account
size, diversification of securities, timing of purchases and sales, timing of
cash additions and withdrawals, the private character of the composite accounts
compared with the public character of the Fund, and the tax-exempt status of
some of the accounts compared with the Fund and its shareholders. Investors
should be aware that the use of different methods of determining performance
could result in different performance results.
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Investors should not rely on the following performance data as an indication of
future performance of the Adviser or RNC Equity Fund.
RNC Equity Accounts
Average Annual Total Returns
For Periods Ending
December 31, 1995
Average Total
Time Periods Annual Returns
------------ --------------
One Year 32.0%
Three Years 13.3%
Five Years 13.5%
Ten Years 11.8%
Fifteen Years 11.6%
Twenty Years 16.1%
The audited performance results shown are net of all applicable fees.
The computation of performance results includes all fully discretionary,
unrestricted and institutional equity accounts under RNC management for each
full year within the period ending December 31, 1995. For the periods one
through ten years, the performance computation complies with the Association for
Investment Management and Research (AIMR) Performance Presentation Standards and
Level II Verification. AIMR standards went into effect during the 1983-1984 time
period. Performance results for all time periods shown represent time-weighted
measures of the percentage change in the total market value after considering
the effect of additions and withdrawals of capital.
Other Information
- -----------------
Performance data of a Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials a Fund may
compare its performance with data published by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar") or CDA Investment Technologies,
Inc. ("CDA"). A Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and
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<PAGE>
fee levels, published by Lipper, CDA or Morningstar. Advertising and promotional
materials also may refer to discussions of a Fund and comparative mutual fund
data and ratings reported in independent periodicals including, but not limited
to, The Wall Street Journal, Money Magazine, Forbes, Business Week, Financial
World and Barron's.
Yield Calculation
- -----------------
RNC Money Market Fund quotes current yield and for this purpose the
yield quoted is the net average annualized yield for the most recent 7-day
period. The yield quoted is computed by assuming that an account is established
with one share (the "one- share account") on the first day of the period. To
arrive at the quoted yield, the net change in the value of the one-share account
for the 7-day period (which includes interest accrued and original issue
discount and market discount earned, and is less premium amortized and expenses
accrued, but does not include any realized gains or losses or unrealized
appreciation or depreciation) is multiplied by 365 and then divided by 7 (the
number of days in the period), with the resulting figure carried to the nearest
one hundredth of one percent. RNC Money Market Fund also furnishes a quotation
of effective yield that assumes the reinvestment of dividends for a 365-day year
and a return for the entire year equal to the average annualized yield for the
period, which is computed by adding 1 to the net change in the value of the
one-share account during the period, raising the sum to a power equal to 365
divided by 7, and then subtracting one from the result.
Yields for the 7-day period ended August 15, 1996, for RNC Money Market
Fund were as follows:
Current yield.................................................... 4.71%
Effective yield ................................................. 4.82%
====
RNC Money Market Fund may also quote the average dollar-weighted
portfolio maturity for the corresponding seven-day period. At August 15, 1996
this average was 45 days for RNC Money Market Fund.
PRINCIPAL UNDERWRITER
First Fund Distributors, Inc., is currently the principal underwriter
of the Funds' shares pursuant to
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<PAGE>
underwriting agreements with the Group on behalf of the Funds. The Funds' shares
are sold to the public on a best efforts basis in a continuous offering without
a sales load or other commission. For each of the fiscal years ended September
30, 1993, 1994 and 1995, the Funds' principal underwriter received no
underwriting commission. The Funds' principal underwriter is under common
control with Investment Company Administration Corporation, the Funds'
administrator.
FINANCIAL STATEMENTS
The RNC Liquid Assets Fund, Inc., 1995 Annual Report to Shareholders
("Annual Report"), including audited financial statements for the fiscal year
ended September 30, 1995, has been previously sent to shareholders and filed
with the Securities and Exchange Commission. [Please Note: Effective July 3,
1996, RNC Liquid Assets Fund, Inc., became known as RNC Mutual Fund Group, Inc.
to reflect the addition of an additional series of shares, RNC Equity Fund.
Previously existing shares of RNC Liquid Assets Fund, Inc. have been
redesignated as shares of RNC Money Market Fund, a series of RNC Mutual Fund
Group, Inc.] Unaudited Financial Statements, dated August 15, 1996, are attached
hereto in the Appendix and is hereby incorporated by reference into this
Statement of Additional Information.
The financial statements and independent auditors' report in the Annual
Report are incorporated by reference into this Statement of Additional
Information. Additional copies of the 1995 Annual Report may be obtained at no
charge by writing or telephoning the Group at the address or telephone number
appearing on the front page of this Statement of Additional Information.
The Group's independent certified public accountants and auditors for
the fiscal year ending September 30, 1995 are Tait, Weller & Baker, whose
address is Two Penn Center Plaza, Philadelphia, Pennsylvania 19102. The Funds'
custodian is Star Bank, P.O. Box 1118, Cincinnati, Ohio 45201-1118.
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<PAGE>
APPENDIX
DESCRIPTION OF NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS
("NRSROs") AND COMMERCIAL PAPER RATINGS
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS:
Moody's Investors Service commercial paper ratings are opinions of the
ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody's employs three designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers. The first of these three designations, representing the
securities in which the Funds may invest, is "Prime-1." Issuers rated "Prime-1"
(or related supporting institutions) have a superior capacity for repayment of
short-term promissory obligations.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS:
A Standard & Poor's Corporation commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
highest category is described as follows:
A. Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this
category are further refined with the designation 1, 2 and 3
to indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong.
DUFF & PHELPS CREDIT RATING CO. SHORT-TERM DEBT SCALE:
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<PAGE>
Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to all
obligations with maturities of under one year, including commercial paper, the
uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-back commercial paper is also rated
according to this scale. Emphasis is placed on liquidity which we define as not
only cash from operations, but also access to alternative sources of funds
including trade credit, bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on short-term funds on an
ongoing basis.
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
FITCH RATINGS SHORT-TERM RATINGS:
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. The short-term rating places greater emphasis than a long-term
rating on the existence of liquidity necessary to meet the issuer's obligations
in a timely manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
CORPORATE BOND RATINGS
MOODY'S CORPORATE BOND RATINGS:
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<PAGE>
Moody's corporate bond ratings are opinions of the relative investment
qualities of bonds. Moody's employs nine designations to indicate such relative
qualities, ranging from "AAA" for the highest quality obligations to "C" for the
lowest. Issues are further refined with the designation 1, 2 and 3 to indicate
the relative ranking within designations. The highest two designations are
described as follows:
Aaa. Bonds in this category 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 in this category 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 somewhat
larger than in Aaa securities.
STANDARD & POOR'S CORPORATE DEBT RATINGS
A Standard & Poor's corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
Ratings are graded into ten categories, ranging from "AAA" for the highest
quality obligation to "D for debt in default. Issues are further refined with a
"Plus" or "Minus" sign to show relative standing within the categories. The
highest two categories are described as follows:
AAA. Issues having this rating indicate that capacity to pay
interest and repay principal is extremely strong.
AA. This debt has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
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<PAGE>
DUFF & PHELPS CREDIT RATING CO. LONG-TERM DEBT AND PREFERRED STOCK RATING SCALE:
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
FITCH RATINGS INVESTMENT BOND RATINGS:
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner. The rating takes into
consideration special features of the issuer. Its relationship to other
obligations of the issuer, the current and prospective financial condition and
operating performance of the issuer and any guarantor, as well as the economic
and political environment that might affect the issuer's future financial
strength and credit quality.
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA". Because
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<PAGE>
bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+".
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<PAGE>
RNC Mutual Fund Group, Inc.
(Formerly RNC Liquid Assets Fund, Inc.)
Financial Statements(1)
August 15, 1996
(Unaudited)
- --------
(1) These Financial Statements pertain only to RNC Money Market Fund
(previously known as RNC Liquid Assets Fund). RNC Equity Fund commences
operations on October 1, 1996.
<PAGE>
RNC MUTUAL FUND GROUP, INC.
STATEMENT OF ASSETS AND LIABILITIES
August 15, 1996
(Unaudited)
----------------------------------
Assets:
Investment portfolio
(Cost $40,752,850) $40,752,850
Cash 572
Interest receivable 204,254
Prepaid expenses 34,306
-----------
Total Assets 40,991,982
-----------
Liabilities:
Accrued Investment Advisory Fees 4,345
Accrued expenses 1,835
Dividends payable 73,138
-----------
Total Liabilities 79,317
-----------
Net Assets - (equivalent to $1.00 per share based on
40,912,664 shares of capital stock outstanding)
$40,912,664
===========
<PAGE>
RNC MUTUAL FUND GROUP, INC.
STATEMENT OF OPERATIONS
For the Period October 1, 1995 through August 15, 1996
(Unaudited)
----------------------------------
INVESTMENT INCOME
Investment Income:
Interest 1,586,723
Expenses:
Management fees $ 80,191
Professional fees 52,827
Administration fees 42,079
Registration fees 21,229
Audit fees 12,273
Fund Accounting fees 11,723
Custodian fees 10,587
Transfer Agent fees 8,259
Printing & Other expenses 878
Directors fees 7,382
Insurance expense 3,600
Miscellaneous expense 6,605
------------
Total expenses 257,634
---------
Net investment income 1,329,090
---------
REALIZED GAIN ON INVESTMENTS
Net Capital Gains 211
---------
Net gain on investments 211
---------
Net Increase in Net Assets Resulting
from Operations 1,329,301
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