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
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 and the
Funds has been filed with the Securities and Exchange Commission in a Statement
of Additional Information dated February 1, 1997, 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
regarding the Funds can be made by calling (800) 385-7003.
Shares of the Funds are not bank deposits and are not federally insured by,
guaranteed by, obligations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
governmental agency. Investment in a Fund involves investment risk, including
possible loss of the principal amount invested.
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 February 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Expense Information........................................ 2
Financial Highlights....................................... 4
Objectives and Policies.................................... 5
Management................................................. 8
Purchase of Shares ........................................ 9
Redemption of Shares.......................................11
Exchange Privileges....................................... 13
Net Asset Value........................................... 13
Dividends, Distributions and Taxes.........................13
Portfolio Transactions.....................................14
Investor Services..........................................15
Shareholder Rule 12b-1 Plans...............................16
General Information........................................17
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<PAGE>
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% 0.62%
----- -----
Total Fund Operating Expenses.................... 1.65% 0.90%
===== =====
</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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund..................................................... $17 $52
------ ------- -------- --------
Money Market Fund...............................................
$9 $29 $50 $111
------ ------- -------- --------
</TABLE>
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, 1996. 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 1.28% at the current asset
level.
2
<PAGE>
In addition to this fee reduction, the Adviser may absorb certain Fund expenses
to lower each Fund's operating costs. Any reduction of the 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 Equity Fund
For a share outstanding throughout the period (unaudited)
November
1,(1)
through
December
31, 1996
--------
Net asset value, beginning of period $12.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.00
Net realized and unrealized gain on investments 0.14
Total from investment operations 0.14
----
Net asset value, end of period $12.14
------
Total return 1.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 963
Ratios of expenses to average net assets:(2)
Before expense reimbursements 20.59%
After expense reimbursements 1.65%
Ratio of net investment income to average net assets:(2) 0.34%
Portfolio turnover rate 9.27%
Average commission rate paid $ 0.0600
- --------
(1)Commencement of operations.
(2)Annualized
3
<PAGE>
FINANCIAL HIGHLIGHTS
for RNC Money Market Fund(1)
(For One Share Outstanding Throughout Period)
The information for the ten years ended September 30, 1996, 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. 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>
Fiscal Period Ended September 30,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------
<S> <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
INCOME FROM
INVESTMENT
OPERATIONS
Net investment income 0.041 0.050 .032 .026 .038 .064 .077 .085 .066 .056
LESS DISTRIBUTIONS
Dividends from net
investment income.... (0.041) (0.050) (.032) (.026) (.038) (.064) (.077) (.085) (.066) (.056)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
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
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Annual Return........ 4.10% 5.10% 3.20% 2.65% 3.83% 6.34% 7.63% 8.82% 6.60% 5.60%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of period
(in 000's)........... $37,744 31,066 43,686 29,257 46,563 66,857 119,632 103,626 99,352 88,166
Ratio of expenses, net of
reimbursement, to
average net assets:.. 0.9% 0.8% 0.7% 0.7% 0.8% 0.9% 0.8% 0.7% 0.8% 0.7%
Ratio of net investment
income to average net
assets:.............. 4.7% 5.0% 3.2% 2.6% 3.9% 6.4% 7.7% 8.5% 6.6% 0.0%
</TABLE>
(1) Financial highlights pertain to RNC Money Market Fund (previously known as
RNC Liquid Assets Fund)
4
<PAGE>
OBJECTIVES AND POLICIES
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
Advisor'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 share 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 Depository Receipts ("ADRs") or European
Depository 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.
5
<PAGE>
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.
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 this 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 Group'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
that 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
6
<PAGE>
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.
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
7
<PAGE>
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 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 a 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 applicable 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 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 holds 49% of the voting securities of the
Bank,Post-und Telekombeteiligungsgesellschaft holds 19% of the voting securities
of the Bank and
8
<PAGE>
Westdeutsche Landesbank Girozentrale holds 9% 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, 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. ICAC is affiliated with the Group's Principal Underwriter. See
the Statement of Additional Information under the caption "Principal
Underwriter." 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.
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.
9
<PAGE>
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). 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 initial purchase by an investor may be made by
wire provided that the investor has an application on file. The following
information will be requested by the Transfer Agent for telephone purchases:
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.
Fund Name:
-------------------------
Your Account No.:
-------------------------
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.
10
<PAGE>
General. All monies will be fully invested in whole 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 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. Shares of 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.
11
<PAGE>
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.
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 a
Group Account Application, and filed a Telephone Authorization Form with the
Transfer Agent. 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. If such procedures are followed, neither thr group
nor the Transfer Agent will be liable for any losses due to unauthorized or
fradulent telephone transactions.
Repurchase. The Group will 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
12
<PAGE>
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.
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
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<PAGE>
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, as amended.
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.
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
14
<PAGE>
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, such 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 his or
her 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 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
15
<PAGE>
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 taxable event, which may result in gain or loss. 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 "Rule 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.
16
<PAGE>
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 Group. The Rule
12b-1 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 a Fund refers to the income generated by an investment in the Fund
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52- week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the 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
17
<PAGE>
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 Management
Agreement). On matters affecting all series, the Funds vote as a single class
(e.g., election or removal of Directors). 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. 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.
18
<PAGE>
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.
19
<PAGE>
No person has been authorized to give any information
or to make any representations, other than those
contained in this Prospec tus 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 represen tations must not be
relied upon as having been authorized by the Group,
its Adviser or its Principal Underwriter. This
Prospec tus 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
P.O. Box 1118
Cincinnati, Ohio 45201-1118
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
PRINCIPAL UNDERWRITER
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261-E
Phoenix, Arizona 85018
19
<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 Equity Fund and RNC Money Market
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 February 1, 1997, 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
February 1, 1997.
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TABLE OF CONTENTS
Page
----
Objectives and Policies.............................................B- 3
Management of the Group.............................................B-15
Investment Advisory and Other Services..............................B-17
Portfolio Transactions..............................................B-19
Purchase of Shares..................................................B-21
Redemption of Shares................................................B-22
Taxes...............................................................B-23
Dividends...........................................................B-27
Shareholder Rule 12b-1 Plans........................................B-29
Performance Information.............................................B-31
Principal Underwriter...............................................B-34
Financial Statements................................................B-35
Appendix............................................................B-36
B-2
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OBJECTIVES AND POLICIES
Reference is made to the "Objectives and Policies" 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:
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(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
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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 (7)
below, and then such mortgaging, pledging or hypothecating may not
exceed 10% of RNC Equity Fund's total assets, taken at market value.
(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 (5) 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 RNC Equity Fund from
(a) making any permitted borrowings, mortgages or pledges, or (b)
entering into options, forward or repurchase transactions.
B-4
<PAGE>
(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.
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 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
B-5
<PAGE>
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.
(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 1940 Act, except that
this restriction shall not be 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.
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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 liquid assets 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.
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
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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 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
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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, 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.
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 exercise the
option profitably and will lose the amount of the premium and any transaction
costs. Such loss may be partially offset by an
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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 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.)
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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. RNC Equity Fund may not
invest more than 15%, while RNC Money Market Fund may not invest more than 10%,
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 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
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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.
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
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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, 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 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
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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 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. dollar- denominated American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). Both ADRs and EDRs
are
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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,
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. 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
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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, 39, -- President, Treasurer and Secretary of
the Group; 2025 E. Financial Way, Suite 101, Glendora, California 91741.
Currently, Mr. Banhazl is Senior Vice President of The Wadsworth Group, 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, 54, -- 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, 53, -- Director; 1441 East Chevy
Chase, Glendale, California 91206. Mr. McGuffin is the owner and principal
executive officer of the Meadow Grove Group, a 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
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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 December 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, 70.26%; 201 N. Figueroa Street, Suite 610, Los Angeles,
California 90071; and RNC Capital Management Co., 11601 Wilshire Boulevard, 25th
Floor, Los Angeles, California 90025 17.50%. As of December 31, 1996, the
following persons held of record 5% or more of the outstanding shares of RNC
Equity Fund: Cleveland E. Norton & Libia E. Norton Trust Estate, 10572 Paliament
Avenue, Garden Grove, CA 92840, 6.87% and Velma J. Osadchuck, 7520 East Adobe
Drive, Scottsdale, AZ 85255, 6.07%.
As of December 31, 1996, the Directors and officers of the
Group as a whole owned less than 1% of the outstanding shares of both RNC Money
Market Fund and RNC Equity Fund.
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.
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
holds 49% of the
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voting securities of the Bank, Post-und
Telekombeteiligungsverwaltungsgesellschaft owns 19% of the voting securities of
the Bank and Westdeutsche Landesbank Girozentrale owns 9% 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, 1997 for RNC
Money Market Fund and 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 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.
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
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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,
1994, 1995 and 1996, total fees payable by the Fund to the Adviser were $64,897,
$106,810 and $93,294, 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 Money Market Fund. RNC Equity Fund commenced operations on
November 1, 1996.
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, 1994, 1995 and 1996, the Group
paid no brokerage fees on behalf of RNC Money Market Fund.
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With respect to RNC Equity Fund, brokerage commissions will be
paid on transactions in listed securities and futures contracts and options
thereon. Since RNC Equity Fund commenced operations on November 1, 1996, no
commissions were paid during the last three fiscal years ending September 30,
1996. [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.
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.
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<PAGE>
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, Presidents'
Day, 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 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.
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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 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.
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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 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)
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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 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 (the "Rule 12b-1 Plan") pursuant to
Rule 12b-1 promulgated under the 1940 Act.
Each Rule 12b-1 Plan requires annual renewal by a vote of the
Group's Board of Directors including those Directors who
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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
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, 1996.
The Board of Directors, including the disinterested Directors,
in approving the Rule 12b-1 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."]
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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
- ------------
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.
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Adviser's Equity Performance History
- ------------------------------------
Set forth in the table below is certain performance data
provided by the Adviser relating to all of its managed equity accounts for the
last 20 years that 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 may be 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. Investors should not rely on the following performance data as an
indication of future performance of the Adviser or RNC Equity Fund.
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RNC Equity Accounts
Average Annual Total Returns
For Periods Ending
December 31, 1996
Average Total
Time Periods Annual Returns
------------ --------------
Net Gross
of Fees of Fees
------- -------
One Year 17.9% 19.3%
Three Years 15.2% 16.3%
Five Years 12.6% 13.7%
Ten Years 11.6% 12.6%
Fifteen Years 13.2% 14.2%
Twenty Years 15.4% 16.7%
The performance data presented is based upon audited figures.
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, 1996. The performance results
are shown both net of all applicable fees as well as gross of all fees. For the
periods one through ten years, the performance computation is prepared and
presented in compliance with the Association for Investment Management and
Research Performance Presentation Standards ("AIMR - PPS") and Level II
Verification. AIMR has not been involved with the preparation or review of this
presentation of performance. 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
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Fund also may refer in such materials to mutual fund performance rankings and
other data, such as comparative asset, expense and 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 September 30, 1996, for RNC
Money Market Fund were as follows:
Current yield................................... 4.84%
Effective yield ................................ 4.96%
Yields for the 7-day period ended January 15, 1997 for RNC
Money Market Fund were as follows:
Current Yield .................................. 4.75%
Effective Yield................................. 4.74%
=====
RNC Money Market Fund may also quote the average
dollar-weighted portfolio maturity for the corresponding seven-
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day period. At September 30, 1996 this average was 50 days for RNC Money Market
Fund. At December 31, 1996 this average was 44 days for the RNC Money Market
Fund.
PRINCIPAL UNDERWRITER
First Fund Distributors, Inc., is currently the principal
underwriter of the Funds' shares pursuant to 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, 1994, 1995 and 1996, 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 Money Market Fund 1996 Annual Report to Shareholders
("Annual Report"), including audited financial statements for the fiscal year
ended September 30, 1996, has been previously sent to shareholders and filed
with the Securities and Exchange Commission.
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 1996 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, 1996 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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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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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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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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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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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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