Sunstone Financial Group, Inc.
207 E. Buffalo Street, Suite 400
Milwaukee, WI 53202
(414) 271-5885
June 6, 1996
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Wasatch Funds, Inc. - Registration Nos. 33-10451; 811-4920
- -----------------------------------------------------------------
Dear Sir or Madam:
On behalf of the above-named registrant and pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934 (the "1934 Act"), we hereby file a definitive
Proxy Statement and form of proxy. No fee is being paid because a fee was paid
upon filing of the preliminary proxy materials.
Please telephone the undersigned at (414) 271-5885 should you have any questions
regarding this filing.
Sincerely,
/s/ Michael E. Yanke
- --------------------
Michael E. Yanke
Client Services and Accounting Manager
MEY/sb
cc: Mike Radmer
June 5, 1996
Dear Shareholder:
We are very excited to present the enclosed proxy to you requesting your
approval on amendments that we believe will enhance the Income Fund as an
investment vehicle.
The Board of Directors of Wasatch Funds has unanimously and enthusiastically
approved, and asks that you approve, the changes detailed in the enclosed Proxy
Statement, including:
1. that Wasatch Advisors (the Adviser) be authorized to hire Hoisington
Investment Management Company (Hoisington) as Sub-Adviser to the Fund;
and
2. that the investment objectives of the Fund be modified. The Fund's
Prospectus currently provides that the "Income Fund's primary investment
objective is to receive current income at low risk by investing in fixed
income securities. The secondary objective is capital appreciation." It
is proposed that the language be modified to provide that "The
investment objective of the Fund is to provide a real rate of return
(i.e., a rate of return that exceeds the rate of inflation) over a
business cycle by investing in U.S. Treasury Securities with an emphasis
on both income and capital appreciation."
The Board of Directors feels strongly that adopting the proposed changes will
make the Fund a better vehicle for investors desiring income and capital
appreciation. At the time of inception, the Income Fund was the only Wasatch
investment choice offering current income. Now, the Wasatch family of funds
provides for investments in a money market fund (the Northern U.S. Government
Money Market Fund) for investors desiring only current income at low risk.
Upon your approval of the sub-advisory agreement, Hoisington will take over the
day-to-day investment decisions for the Income Fund while Wasatch will retain
responsibility for monitoring compliance with the investment policies and
restrictions of the Fund.
We feel strongly that the association between Wasatch and Hoisington will be
advantageous for shareholders. First, Hoisington is an experienced money manager
specializing in investments in high-quality fixed income securities. The firm
manages $2.8 billion in assets for a distinguished list of institutional clients
and requires a minimum account size of $10 million. The sub-advisory agreement
between Wasatch and Hoisington will create an opportunity for mutual fund
investors to access the expertise of this premier fixed income manager. Second,
just as Wasatch's research analysts follow a strict discipline for investing in
companies, Hoisington's investment professionals have a focused strategy for
investing in fixed income securities. Also similar to Wasatch, Hoisington takes
a long-term approach to investing and is committed to building lasting
relationships with clients. Finally, upon approval of the proposals, the total
annual expense ratio for the Fund will be lowered from 1% to 0.75%.
If approved, the Income Fund will be renamed "Wasatch-Hoisington U.S. Treasury
Fund." As the name implies, the Fund will invest primarily in high-quality U.S.
Treasury Securities. This strategy means that Fund shareholders will be exposed
to minimal credit risk. The Fund may take full advantage of the entire range of
maturities offered, from less than a year to a maximum of 30 years. Hoisington
believes the decision regarding the maturity of the portfolio is the key to
getting favorable returns for investors. Please read Exhibit C of the Proxy
Statement, the proposed prospectus language, for a discussion of investment
objectives and risks.
We ask that you please review the enclosed Proxy Statement and complete and mail
your proxy as soon as possible. If you have any questions about the proposed
changes, please call us at (800) 381-1065. We appreciate the association we
enjoy with Fund shareholders and look forward to strengthening our relationship
with you.
Sincerely,
/s/ Samuel S. Stewart, Jr.
- --------------------------
Samuel S. Stewart, Jr.
President
WASATCH INCOME FUND
A SERIES OF WASATCH FUNDS, INC.
68 South Main Street, Suite 400
Salt Lake City, Utah 84101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 21, 1996
NOTICE IS HEREBY GIVEN that the special meeting of shareholders of the
Wasatch Income Fund, (the "Fund"), a series of Wasatch Funds, Inc. (the
"Company"), will be held at 3:00 p.m., Mountain Time, on Friday, June 21,
1996, at 68 South Main Street, Suite 400, Salt Lake City, Utah. The purposes of
the meeting are as follows:
1. To vote on an amendment to the Advisory and Service Contract between
the Fund and Wasatch Advisors, Inc. (the "Adviser") authorizing the Adviser to
retain a sub-adviser or sub-advisers to assist the Adviser in furnishing
investment advice to the Fund.
2. To vote on a sub-advisory agreement between the Adviser and Hoisington
Investment Management Company ("Hoisington") pursuant to which Hoisington
would direct the investment of the Fund's assets and be responsible for the
formulation and implementation of a continuing program for the management of the
Fund's assets.
3. To vote on a proposed modification to the investment objectives of the
Fund.
4. To vote on a proposed amendment to the Fund's fundamental investment
restrictions to allow it to lend portfolio securities.
5. To vote on such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Shareholders of record on May 15, 1996, are the only persons entitled to
notice of and to vote at the meeting.
Your attention is directed to the attached Proxy Statement. WHETHER OR
NOT YOU EXPECT TO BE PRESENT AT THE UPCOMING MEETING, PLEASE FILL IN, SIGN,
DATE, AND MAIL THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO SAVE THE
FUND FURTHER SOLICITATION EXPENSE. No postage necessary if mailed in the United
States.
Samuel S. Stewart, Jr., President
Dated: June 5, 1996
PROXY STATEMENT
WASATCH INCOME FUND
A SERIES OF WASATCH FUNDS, INC.
68 South Main Street, Suite 400
Salt Lake City, Utah 84101
SPECIAL MEETING OF SHAREHOLDERS - JUNE 21, 1996
The enclosed proxy is solicited by the Board of Directors of Wasatch Funds,
Inc. (the "Company") in connection with a special meeting of shareholders of
the Wasatch Income Fund (the "Fund"), a series of the Company, to be held June
21, 1996, and any adjournments or postponements thereof. The costs of
solicitation, including the cost of preparing and mailing the Notice of Meeting
and this Proxy Statement, will be paid by the Adviser, and it is expected that
such mailing will take place on or about June 5, 1996. In addition to
solicitations by mail, representatives of Wasatch Advisors, Inc. (the
"Adviser"), the investment adviser and manager of the Fund, and the Company
may, without extra remuneration, solicit proxies on behalf of the management of
the Fund by means of mail, telephone or personal interviews.
A proxy may be revoked before the meeting by giving written notice of
revocation to the Secretary of the Company, or at the meeting prior to the
voting. In instances where choices are specified by the shareholders in the
proxy, those proxies will be voted or the vote will be withheld in accordance
with the shareholder's choice. Unless revoked, properly executed proxies in
which choices are not specified by the shareholders will be voted "for" each
item for which no choice is specified, in accordance with the recommendation of
the Board of Directors. Abstentions may be specified on all proposals and
abstentions (including broker non-votes, if any) will be counted as present for
purposes of determining whether a quorum of shares is present at the meeting
with respect to the item on which the abstention is noted but will not be
counted as a vote "for" or "against" such item. Under the Rules of the New
York Stock Exchange, if a proposal is considered "discretionary," then brokers
who hold Fund shares in street name for customers are authorized to vote on such
proposal on behalf of their customers with or without specific voting
instructions from such customers. If a broker returns a "non-vote" proxy,
indicating a lack of authority to vote on a proposal, then the shares covered by
such non-vote shall not be counted as present for purposes of calculating the
vote with respect to such proposal. So far as the Board of Directors is aware,
no matters other than those described in this Proxy Statement will be acted upon
at the meeting. Should any other matters come before the meeting calling for a
vote of shareholders, it is the intention of the persons named as proxies in the
enclosed proxy to vote upon such matters according to their best judgment.
If a quorum is not present at a meeting, or if a quorum is present but
sufficient votes to approve any of the proposals are not received, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies. In determining whether to adjourn the meeting,
the following factors may be considered: the nature of the proposals that are
the subject of the meeting, the percentage of votes actually cast, the
percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any adjournment will require the affirmative
vote of a majority of those shares represented at the meeting in person or by
proxy.
Only shareholders of record on May 15, 1996 may vote at the meeting or any
adjournments thereof. As of that date, there were issued and outstanding
571,900 common shares, $.001 par value, of the Fund. Common shares represent
the only class of securities of the Fund. Each shareholder of the Fund is
entitled to one vote for each share held. None of the matters to be presented
at the meeting will entitle any shareholder to appraisal rights.
THE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 AND
SEMI-ANNUAL REPORT FOR THE FISCAL PERIOD ENDED MARCH 31, 1996, INCLUDING
FINANCIAL STATEMENTS, WERE PREVIOUSLY MAILED TO SHAREHOLDERS. IF YOU HAVE NOT
RECEIVED THESE REPORTS OR WOULD LIKE TO RECEIVE ANOTHER COPY, PLEASE CONTACT THE
FUND AT P.O. BOX 2172, MILWAUKEE, WISCONSIN 53201-2172, OR CALL 800-551-1700
AND ONE WILL BE SENT, WITHOUT CHARGE, BY FIRST-CLASS MAIL WITHIN THREE BUSINESS
DAYS OF YOUR REQUEST.
To the knowledge of Fund management, the following were the owners
(beneficially or of record) of more than 5% of the outstanding shares of the
Fund as of May 15, 1996:
Percentage Number
Name Ownership of Shares
---- --------- ---------
Charles Schwab & Company 27.39% 156,660.598
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
UMB Bank, n.a., Trustee 12.39% 70,833.426
Ray R. Christensen IRA Rollover
175 South West Temple, Suite 510
Salt Lake City, UT 84101-1422
UMB Bank, n.a., Trustee 6.20% 35,465.094
Dr. Jaime Mosquera IRA
Box 1504, HCR-3
Rocky Mount, MO 65072
PROPOSAL ONE
APPROVAL OF AN AMENDMENT TO THE ADVISORY AND
SERVICE CONTRACT BETWEEN THE FUND AND
WASATCH ADVISORS, INC.
THE PROPOSED AMENDMENT
The Company's Board of Directors has approved, and recommends that
shareholders approve, an amendment (the "Amendment") to the Advisory and
Service Contract dated December 4, 1986 (the "Advisory Contract") between the
Company, on behalf of the Fund, and Wasatch Advisors, Inc. (the "Adviser").
The Amendment authorizes the Adviser, at its option and expense, to retain a
sub-adviser or sub-advisers to assist the Adviser in furnishing investment
advice to the Fund. The Amendment is being proposed because the Adviser and the
Company's Board of Directors believe that the Fund's investment performance
would likely be enhanced if a sub-adviser specializing in fixed income
management could be engaged and that Fund marketing might also be enhanced if a
sub-adviser with an excellent reputation for fixed income management were
retained. A copy of the Amendment is attached as Exhibit A to the Proxy
Statement. The Amendment provides that the Adviser shall be responsible for
monitoring compliance by any sub-adviser it retains with the investment policies
and restrictions of the Fund and with any other limitations or directions
prescribed by the Board of Directors. The Amendment further provides that any
appointment of a sub-adviser will in no way limit or diminish the Adviser's
obligations and responsibilities under the Advisory Agreement.
The Amendment does not change the rate of the advisory fee payable by the
Fund. The Adviser would continue to receive compensation (paid monthly) at the
current annual rate of 0.50% of the Fund's average daily net assets. A sub-
advisory agreement (the "Sub-Advisory Agreement") between the Adviser and
Hoisington Investment Management Company ("Hoisington") is also being
presented for shareholder approval. See "Proposal Two - Approval of a Sub-
Advisory Agreement Between Wasatch Advisors, Inc. and Hoisington Investment
Management Company." If the proposed Sub-Advisory Agreement is approved by
shareholders, the Adviser will pay the Sub-Adviser a monthly management fee
computed at the annual rate of 0.02% of the Fund's average daily net assets as
long as and whenever the Fund has net assets less than $20 million and one-half
(1/2) of the monthly fee the Adviser receives from the Fund under the Advisory
Contract as long as and whenever the Fund has net assets of $20 million or more.
The Adviser will retain the remainder of the advisory fee paid under the
Advisory Contract.
The Adviser has voluntarily agreed to limit the total expenses of the Fund
to 0.75% of the Funds' average net assets computed on a daily basis following
the approval and effectiveness of Proposals One, Two and Three as set forth in
this Proxy Statement. The Adviser will maintain such expense limitation at
least through September 30, 1997.
The Amendment was approved by the Board of Directors at a meeting held May
17, 1996, subject to the approval of the shareholders of the Fund. A discussion
of the factors considered by the Company's Board of Directors in approving the
Amendment and the Sub-Advisory Agreement is set forth below under "Proposal Two
- - Approval of a Sub-Advisory Agreement Between Wasatch Advisors, Inc. and
Hoisington Investment Management Company."
GENERAL INFORMATION CONCERNING THE ADVISORY CONTRACT
The Advisory Contract was approved by the Fund's initial shareholders at
inception in 1986 and has not been submitted to shareholders since that time.
The contract was last approved by the Company's Board of Directors, including
the disinterested directors, on December 8, 1995. Pursuant to the Advisory
Contract, the Adviser furnishes the Fund with investment advice and, in general,
supervises the management and investment program of the Fund. The Adviser
furnishes at its own expense office facilities and simple business equipment.
In addition, the Adviser pays the salaries and fees of any officers of the
Adviser serving as officers or directors of the Fund. Under the Advisory
Contract, the Fund pays the Adviser an advisory fee calculated and paid monthly
at the per annum rate of 0.50% of the Fund's average daily net assets. For the
fiscal year ended September 30, 1995, the Adviser waived its full advisory fees
of $16,871 and paid $3,075 of additional Fund expenses.
The Advisory Contract will terminate automatically in the event of its
assignment. In addition, the Advisory Contract is terminable at any time,
without penalty, by the Board of Directors or by a vote of a majority of the
Fund's outstanding voting securities on 60 days' written notice to the Adviser,
and by the Adviser on 60 days' written notice to the Fund. The Advisory
Contract shall continue in effect only so long as such continuance is
specifically approved at least annually by either the Board of Directors of the
Company, or by a vote of a majority, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), of the outstanding voting securities of the
Fund, provided that, in either event, such continuance is also approved by a
vote of a majority of the directors who are not parties to such Contract, or
interested persons of such parties, cast in person at a meeting called for the
purpose of voting on such approval.
VOTE REQUIRED
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS OF
THE FUND VOTE TO APPROVE THE PROPOSED AMENDMENT TO THE ADVISORY CONTRACT.
Adoption of the proposal requires the favorable vote of a majority of the
outstanding shares of the Fund, as defined in the 1940 Act, which means the
lesser of the vote of (a) 67% of the shares of the Fund present at a meeting
where more than 50% of the outstanding shares are present in person or by proxy,
or (b) more than 50% of the outstanding shares of the Fund (i.e., a "supra-
majority" vote). Unless otherwise instructed, the proxies will vote for the
approval of the proposed Amendment.
PROPOSAL TWO
APPROVAL OF A SUB-ADVISORY AGREEMENT
BETWEEN WASATCH ADVISORS, INC. AND
HOISINGTON INVESTMENT MANAGEMENT COMPANY
THE PROPOSED SUB-ADVISORY AGREEMENT
Following the Adviser's decision to recommend hiring a sub-adviser, the
Adviser presented the Sub-Advisory Agreement to the Company's Board of Directors
for its approval. The Board has approved, and recommends that shareholders of
the Fund approve, the Sub-Advisory Agreement. A copy of the Sub-Advisory
Agreement is attached as Exhibit B to this Proxy Statement. The following
discussion is qualified in its entirety by reference to the text of the Sub-
Advisory Agreement.
Under the terms of the Sub-Advisory Agreement, and subject to the
supervision of the Adviser, Hoisington will direct the investment of the Fund's
assets and will be responsible for the formulation and implementation of a
continuing program for the management of the Fund's assets and resources.
Hoisington will make all determinations with respect to the investment of the
assets of the Fund and will take all steps as may be necessary to implement the
determinations, including the placement of purchase and sale orders on behalf of
the Fund.
The Sub-Advisory Agreement provides that the Adviser shall pay Hoisington a
monthly management fee computed at the annual rate of 0.02% of the Fund's
average daily net assets as long as and whenever the Fund has net assets less
than $20 million and one-half (1/2) of the monthly fee the Adviser receives from
the Fund under the Advisory Contract as long as and whenever the Fund has net
assets of $20 million or more. The Adviser will retain the remainder of the
advisory fee paid under the Advisory Contract. See "Proposal One - Approval of
an Amendment to the Advisory and Service Contract Between the Fund and Wasatch
Advisors, Inc."
The Board of Directors of the Company has adopted a resolution changing the
name of the Fund to "Wasatch-Hoisington U.S. Treasury Fund" effective on the
date the Sub-Advisory Agreement becomes effective, which is expected to be July
1, 1996.
The Sub-Advisory Agreement will terminate automatically in the event of its
assignment. In addition, the Sub-Advisory Agreement is terminable at any time,
without penalty, by the Board of Directors or by a vote of a majority of the
Fund's outstanding voting securities on 60 days' written notice to the Adviser
and Hoisington, by the Adviser on 60 days' written notice to the Sub-Adviser, or
by the Sub-Adviser on 60 days' written notice to the Adviser. The Sub-Advisory
Agreement shall continue in effect only so long as such continuance is
specifically approved at least annually by either the Board of Directors of the
Company, or by a vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund, provided that, in either event, such
continuance is also approved by a vote of a majority of the directors who are
not parties to such Agreement, or interested persons of such parties, cast in
person at a meeting called for the purpose of voting on such approval.
BOARD DELIBERATIONS
The Sub-Advisory Agreement was approved by the Company's Board of
Directors, subject to shareholder approval, at a meeting held May 17, 1996.
Prior to approving the Sub-Advisory Agreement, the Board considered a variety of
factors, including (a) the historical performance of the Fund and the types of
portfolio securities purchased by the Fund to achieve its investment objectives;
(b) the nature, quality and extent of the services proposed to be provided by
the Adviser and Hoisington relative to those currently provided by the Adviser
alone; (c) the organizational depth, reputation and experience of Hoisington in
managing fixed income portfolios; (d) the financial condition of Hoisington; and
(e) the performance of accounts advised by Hoisington that are similar in
portfolio composition to the Fund. The Board also considered the reasonableness
of the proposed fee allocation between the Adviser and Hoisington in light of
the Adviser's reduced investment role but continued overall responsibility.
VOTE REQUIRED
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS OF
THE FUND VOTE TO APPROVE THE PROPOSED SUB-ADVISORY AGREEMENT. Adoption of the
proposal requires a "supra-majority" vote. Unless otherwise instructed, the
proxies will vote for the approval of the proposed Sub-Advisory Agreement.
PROPOSAL THREE
APPROVAL OF A MODIFICATION
TO THE FUND'S INVESTMENT OBJECTIVES
The Fund's Prospectus currently provides that as a "fundamental policy"
which cannot be changed without shareholder approval the
"Income Fund's primary investment objective is to
receive current income at low risk by investing in fixed
income securities. The secondary objective is capital
appreciation."
It is proposed that the Prospectus language describing such fundamental
policy be modified to provide:
"The investment objective of the Fund is to provide a
real rate of return (i.e., a rate of return that exceeds the
rate of inflation) over a business cycle by investing in
U.S. Treasury Securities with an emphasis on both income and
capital appreciation."
The term "business cycle" is used to describe fluctuations in total
economic activity. It refers to the period of time it takes the economy to
shift from a peak in business activity to a trough and back to a peak. (In other
words, it refers to the start of a recession through recovery and expansion and
back to recession.) The average post-war business cycle (measured from the end
of one recession to the start of the next recession) has been about 48 months,
ranging from 12 to 94 months. Interest rates generally follow this cycle, being
at relatively high levels near the beginning of a recession and falling during
the recession and the early part of the business recovery. Generally, interest
rates begin to rise toward the end of a business expansion again peaking near
the start of the next recession.
If this change is approved the Fund will not emphasize current income, but
instead will emphasize both income and capital appreciation. With the reduced
emphasis on current income the Board of Directors of the Fund has adopted a
resolution providing that following the payment of the monthly dividend for the
month ended July 31, 1996, the Fund will pay dividends annually, rather than
monthly.
A description of the Fund, following the approval of items #1 through #4 of
this Proxy Statement, is set forth in Exhibit C hereto.
VOTE REQUIRED
The Board of Directors of the Company recommends that shareholders of the
Fund vote to approve the proposed modification to the Fund's investment
objectives. Adoption of the proposal requires a "supra-majority" vote.
Unless otherwise instructed, the proxies will vote for the approval of the
modified investment objectives.
PROPOSAL FOUR
APPROVAL OF THE PROPOSAL
TO ALLOW THE FUND
TO LEND PORTFOLIO SECURITIES
Currently the Fund has a fundamental policy which states in relevant part
that it may not "make loans to other persons." The Board of Directors of the
Company has adopted a resolution to modify this restriction as follows:
"The Income Fund may not make loans to other persons,
except that it may lend portfolio securities representing up
to one-third of the value of its total assets. (The Income
Fund however, may purchase and hold debt instruments and
enter into repurchase agreements in accordance with its
investment objectives and policies, as in the opinion of the
Income Fund manager, these investments do not constitute the
making of loans.)"
The lending of portfolio securities to broker-dealers, banks and certain
other institutions may increase Fund income, but also may involve certain risks.
For further information on securities lending, including limitations and
measures to be taken to mitigate such risks, see the "Lending of Portfolio
Securities" section of Exhibit C hereto.
VOTE REQUIRED
The Board of Directors of the Company recommends that shareholders of the
Fund vote to approve the proposal to allow securities lending. Adoption of the
proposal requires a "supra-majority" vote. Unless otherwise instructed, the
proxies will vote for the approval of the proposal to allow securities lending.
OTHER MATTERS
Management does not intend to present any business to the meeting not
mentioned in this Proxy Statement and currently knows of no other business to be
presented. If any other matters are brought before the meeting, the persons
named as proxies will vote on such matters in accordance with their judgment of
the best interests of the Fund.
SUPPLEMENTAL INFORMATION ABOUT THE ADVISER, THE FUND AND THE COMPANY
No officers or Directors of the Company have family relationships with
other officers or Directors of the Company. The Adviser does not currently
serve as investment adviser for any other investment companies that have an
investment objective similar to that of the Fund. The name and principal
occupation of the principal executive officer and each Director of the Adviser
are set forth below. The address of each person is 68 South Main Street, Suite
400, Salt Lake City, Utah 84101.
Name Principal Occupation
- ---- --------------------
Samuel S. Stewart, Jr. Chairman of the Board of Directors and
President of the Adviser; President and
Director of Wasatch Funds, Inc. (the
"Company"); Director of Research for the
Adviser; Professor of Finance at the
University of Utah.
Roy S. Jespersen Director, Vice President and Portfolio
Manager of the Adviser; Director and Vice
President of the Company.
Mark E. Bailey Director, Vice President and Portfolio
Manager of the Adviser.
Jeffrey S. Cardon Director, Vice President and Security Analyst
of the Adviser; Director and Vice President
of the Company.
Karolyn Barker Director and Security Analyst of the Adviser.
Robert Gardiner Director and Security Analyst of the Adviser.
James Milligan Director and Marketing Director of the
Adviser.
Venice F. Edwards is Secretary/Treasurer of the Company and Compliance
Officer of the Adviser. No officer or Director of the Company owns any voting
securities of the Adviser except for Messrs. Stewart (25%), Jespersen (13%) and
Cardon (13%).
SUPPLEMENTAL INFORMATION ABOUT THE SUB-ADVISER
Hoisington is a registered investment adviser that was incorporated in
1980. Hoisington is wholly-owned by Van Robert Hoisington and provides
investment management services for individuals, pension and profit sharing
plans, trusts and estates, charitable organizations and corporations and other
business entities. As of December 31, 1995, Hoisington provided investment
advice to 43 separately managed accounts and had approximately $2.8 billion of
assets under management. Hoisington provides investment management for fixed
income securities, including U. S. government securities.
The address of Hoisington and each of its Directors is 1250 Capital of
Texas Highway South, Building 3, #600, Austin, Texas 78746. The names and
principal occupations of the principal executive officer and each Director of
Hoisington are set forth below.
Name Principal Occupation
- ---- --------------------
Van Robert Hoisington President and Director of Hoisington.
Ethel Jeanne Hoisington Director of Hoisington.
David M. Hoisington Director and Vice President of
Hoisington.
Van Robert Hoisington, Jr. Director and Vice President of
Hoisington.
Janice Teague Green Senior Vice President of Hoisington.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder to be considered for presentation at the
next Annual Meeting must be received at the Fund's offices, 68 South Main
Street, Suite 400, Salt Lake City, Utah 84101, no later than August 15, 1996.
Samuel S. Stewart, Jr., President
Dated: June 5, 1996
EXHIBIT A
WASATCH INCOME FUND
AMENDMENT DATED AS OF , 1996
----------
TO ADVISORY AND SERVICE CONTRACT
WHEREAS, Wasatch Funds, Inc., a Utah corporation (the "Company"), and
Wasatch Advisors, Inc., a Utah corporation (the "Adviser"), previously entered
into that Advisory and Service Contract dated December 4, 1986 (the "Advisory
Contract"), on behalf of Wasatch Income Fund (the "Fund");
WHEREAS, the Company and the Adviser contemplate that the Adviser will
retain a sub-adviser to assist the Adviser in furnishing an investment program
to the Fund and wish to make provision therefor.
NOW, THEREFORE, the Company and the Adviser agree as follows:
The Adviser is hereby authorized, at its option and expense, to retain a
sub-adviser or sub-advisers to assist the Adviser in furnishing investment
advice to the Fund; provided that the Adviser shall be responsible for
monitoring compliance by such sub-adviser(s) with the investment policies and
restrictions of the Company and the Fund and with such other limitations or
directions as the Board of Directors of the Company may from time to time
prescribe. Any such retention of a sub-adviser shall be subject to approval by
the Board of Directors of the Company and, to the extent required by law, the
shareholders of the Fund. Any appointment of a sub-adviser pursuant hereto
shall in no way limit or diminish the Adviser's obligations and responsibilities
under the Advisory Agreement.
IN WITNESS WHEREOF, the Company and the Adviser have caused this Amendment
to the Advisory Contract to be executed by their duly authorized officers as of
the day and year first above written.
WASATCH FUNDS, INC. WASATCH ADVISORS, INC.
By By
- -------------------------- --------------------------
Its Its
- -------------------------- --------------------------
EXHIBIT B
SUB-ADVISORY AGREEMENT
Agreement, dated as of , 1996, by and between Wasatch
-----
Advisors, Inc., a Utah corporation (the "Adviser"), and Hoisington Investment
Management Company, a Texas corporation (the "Sub-Adviser").
WHEREAS, the Adviser is the investment adviser to the Wasatch-Hoisington
U.S. Treasury Fund (the "Fund") (formerly "Wasatch Income Fund"), which is a
series of Wasatch Funds, Inc. (the "Company"), which is an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser to assist the
Adviser in furnishing an investment program to the Fund.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Adviser and the Sub-Adviser agree as follows:
1. The Adviser hereby employs the Sub-Adviser to serve as sub-adviser with
respect to the assets of the Fund, and to perform the services hereinafter set
forth. The Sub-Adviser hereby accepts such employment and agrees, for the
compensation herein provided, to assume all obligations herein set forth and to
bear all expenses of its performance of such obligations (but no other
expenses). The Sub-Adviser shall not be required to pay expenses of the Fund or
the Company, unless otherwise explicitly provided herein. The Sub-Adviser shall
for all purposes herein be deemed to be an independent contractor and shall,
except as expressly provided or authorized (whether herein or otherwise), have
no authority to act for or on behalf of the Fund or the Company in any way or
otherwise be deemed an agent of the Fund or the Company.
2. The Sub-Adviser shall direct the investment of the Fund's assets in
accordance with the 1940 Act, the provisions of the Internal Revenue Code of
1986, as amended, relating to regulated investment companies, applicable laws,
and the investment objectives, policies and restrictions set forth in the Fund's
Prospectus and Statement of Additional Information filed with the Securities and
Exchange Commission pursuant to Rule 497 under the Securities Act of 1933,
subject to the supervision of the Company, its officers and directors, and the
Adviser and in accordance with the investment objectives, policies and
restrictions from time to time prescribed by the Board of Directors of the
Company and communicated by the Adviser to the Sub-Adviser and subject to such
further limitations as the Adviser may from time to time impose by written
notice to the Sub-Adviser.
3. The Sub-Adviser shall formulate and implement a continuing program for
the management of the Fund's assets. The Sub-Adviser shall amend and update
such program from time to time as financial and other economic conditions
warrant. The Sub-Adviser shall make all determinations with respect to the
investment of the assets of the Fund and shall take such steps as may be
necessary to implement the same, including the placement of purchase and sale
orders on behalf of the Fund. The Sub-Adviser shall advise the Adviser and, if
requested by the Adviser, advise the Company's Board of Directors (which shall
make all non-investment decisions with respect to the securities in which the
assets of the Fund may be invested), of the manner in which voting rights,
rights to consent to corporate action, and any other noninvestment decisions
pertaining to the Fund's portfolio securities should be exercised.
4. The Sub-Adviser shall furnish such reports to the Adviser as the
Adviser may reasonably request for the Adviser's use in discharging its
obligations under the Advisory and Service Contract between the Fund and the
Adviser (the "Advisory Agreement"), which reports may be distributed by the
Adviser to the Company's Board of Directors at periodic meetings of such Board
and at such other times as may be reasonably requested by the Company's Board of
Directors. Copies of all such reports shall be furnished to the Adviser for
examination and review within a reasonable time prior to the presentation of
such reports to the Company's Board of Directors.
5. The Sub-Adviser shall select the brokers and dealers that will execute
the purchases and sales of portfolio instruments for the Fund and markets on or
in which such transactions will be executed and shall place, in the name of the
Fund or its nominee, all such orders.
(a) When placing such orders, the Sub-Adviser is authorized to employ such
dealers and brokers as may, in the judgment of the Sub-Adviser (taking into
account such factors as price, including dealer spread, the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities and the firm's risk in positioning the securities),
implement the policy of the Fund to obtain the best price and execution.
Consistent with this policy, the Sub-Adviser is authorized to direct the
execution of the Fund's portfolio transactions to dealers and brokers furnishing
statistical information or research deemed by the Sub-Adviser to be useful or
valuable to the performance of its sub-advisory functions for the Fund.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Sub-Adviser.
It is understood that certain other clients of the Sub-Adviser may have
investment objectives and policies similar to those of the Fund, and that the
Sub-Adviser may, from time to time, make recommendations that result in the
purchase or sale of a particular security by its other clients simultaneously
with the Fund. If transactions on behalf of more than one client during the
same period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. In
such event, the Sub-Adviser shall allocate advisory recommendations and the
placing of orders in a manner that is deemed equitable by the Sub-Adviser to the
accounts involved, including the Fund. When two or more of the clients of the
Sub-Adviser (including the Fund) are purchasing or selling the same security on
a given day from the same broker or dealer, such transactions may be averaged as
to price.
(b) The Sub-Adviser agrees that, except to the extent permitted under Rule
17a-7 under the 1940 Act, or under any no-action letter or exemptive order
issued to the Company or the Fund by the Securities and Exchange Commission, it
will not purchase or sell securities for the Fund in any transaction in which
it, the Adviser or any "affiliated person" of the Company, the Fund, the
Adviser or Sub-Adviser or any affiliated person of such "affiliated person" is
acting as principal. The Sub-Adviser agrees that any transactions effected
under Rule 17a-7 shall comply with the then-effective procedures adopted under
such rule by the Company's Board of Directors.
(c) The Sub-Adviser agrees that it will not execute any portfolio
transactions for the Fund with a broker or dealer or futures commission merchant
which is an "affiliated person" of the Company, the Fund, the Adviser or the
Sub-Adviser or an "affiliated person" of such an "affiliated person" without
the prior written consent of the Adviser. In effecting such transactions, the
Sub-Adviser shall comply with Section 17(e)(1) of the 1940 Act and the then-
effective procedures adopted under such rule by the Company's Board of
Directors.
(d) The Sub-Adviser shall promptly communicate to the Adviser and, if
requested by the Adviser, to the Company's Board of Directors, such information
relating to portfolio transactions as the Adviser may reasonably request. The
parties understand that the Fund shall bear all brokerage commissions in
connection with the purchases and sales of portfolio securities for the Company
and all ordinary and reasonable transaction costs in connection with purchases
of such securities in private placements and subsequent sales thereof.
6. The Sub-Adviser may (at its cost except as contemplated by paragraph 5
of this Agreement) employ, retain or otherwise avail itself of the services and
facilities of persons and entities within its own organization or any other
organization for the purpose of providing the Sub-Adviser, the Adviser, the
Fund, or the Company with such information, advice or assistance, including but
not limited to advice regarding economic factors and trends and advice as to
transactions in specific securities, as the Sub-Adviser may deem necessary,
appropriate or convenient for the discharge of its obligations hereunder or
otherwise helpful to the Adviser, the Fund, or the Company, or in the discharge
of the Sub-Adviser's overall responsibilities with respect to the other accounts
for which it serves as investment manager or investment adviser.
7. The Sub-Adviser shall cooperate with and make available to the Adviser,
the Fund, the Company and any agents engaged by the Company, the Sub-Adviser's
expertise relating to matters affecting the Company.
8. For the services to be rendered and the facilities to be furnished
under this Agreement, the Adviser shall pay to the Sub-Adviser a monthly
management fee computed at the annual rate of 0.02% of the Fund's average daily
net assets as long as and whenever the Fund has net assets of less than $20
million, and one-half (1/2) of the monthly fee the Adviser receives from the
Fund under the Advisory and Service Contract as long as and whenever the Fund
has net assets of $20 million or more. Such fee shall be payable on the
fifteenth day of each calendar month for services performed hereunder during the
preceding month. The net asset value of the Fund shall be calculated as of the
close of the New York Stock Exchange on each day the Exchange is open for
trading or as of such other time or times as the Company's Board of Directors
may determine in accordance with the provisions of the 1940 Act. On each day
when net asset value is not calculated, the net asset value of a share of common
stock of the Fund shall be deemed to be the net asset value of such a share as
of the close of business on the last day on which such calculation was made for
the purpose of the foregoing computations.
If this Agreement becomes effective subsequent to the first day of a month
or shall terminate before the last day of a month, compensation for that part of
the month during which this Agreement is in effect shall be prorated in a manner
consistent with the calculation of fees as set forth above.
9. The Sub-Adviser represents, warrants and agrees that:
(a) The Sub-Adviser is registered as an "investment adviser" under the
Investment Advisers Act of 1940 ("Advisers Act") and is currently in
compliance and shall at all times continue to comply with the requirements
imposed upon it by the Advisers Act and other applicable laws and regulations.
The Sub-Adviser agrees to (i) supply the Adviser with such documents as the
Adviser may reasonably request to document compliance with such laws and
regulations and (ii) immediately notify the Adviser of the occurrence of any
event which would disqualify the Sub-Adviser from serving as an investment
adviser of a registered investment company pursuant to any applicable law or
regulation.
(b) The Sub-Adviser will maintain, keep current and preserve on behalf of
the Fund in the manner provided by the 1940 Act all records required by the 1940
Act with respect to the Sub-Adviser's activities hereunder. The Sub-Adviser
agrees that such records are the property of the Company, and will be
surrendered to the Company promptly upon request.
(c) The Sub-Adviser will complete such reports concerning purchases or
sales of securities on behalf of the Fund as the Adviser may from time to time
require to document compliance with the 1940 Act, the Advisers Act, the Internal
Revenue Code, applicable state securities laws and other applicable laws and
regulations or regulatory and taxing authorities in countries other than the
United States.
(d) After filing with the Securities and Exchange Commission any amendment
to its Form ADV, the Sub-Adviser will promptly furnish a copy of such amendment
to the Adviser.
(e) The Sub-Adviser will immediately notify the Adviser of the occurrence
of any event which would disqualify the Sub-Adviser from serving as an
investment adviser of an investment company pursuant to Section 9 of the 1940
Act or any other applicable statute or regulation.
10. The Adviser represents, warrants and agrees that:
(a) It has been duly authorized by the Board of Directors of the Company
to delegate to the Sub-Adviser the provision of the services contemplated
hereby.
(b) The Adviser and the Company are currently in compliance and shall at
all times continue to comply with the requirements imposed upon the Adviser and
the Company by applicable law and regulations.
11. The Sub-Adviser will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund or its shareholders in
connection with the performance of its duties under this Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
duties under this Agreement.
12. The Sub-Adviser hereby grants the Fund and the Company the right to
use "Hoisington" in the name of the Fund so long as the Sub-Adviser is the
sub-adviser to the Fund. If the Sub-Adviser ceases to be the Fund's sub-
adviser, the Fund will promptly change its name to omit the reference to
"Hoisington." The Sub-Adviser agrees that so long as "Hoisington" is
included in the Fund's name, it will not allow the use of "Hoisington" in the
name of any other public investment company without the express written consent
of the Adviser or the Fund.
13. This Agreement shall become effective as of the date first set forth
above. Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect for a period of two years from the date of its execution, and
thereafter shall continue in effect only so long as such continuance is
specifically approved at least annually (a) by the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of the
Company, and (b) by the vote of a majority of the directors who are not parties
to this Agreement or Interested Persons of any such parties, cast in person at a
meeting called for the purpose of voting on such approval. It shall be the duty
of the Directors of the Company to request and evaluate, and the duty of the
Adviser and Sub-Adviser to furnish, such information as may be reasonably
necessary to evaluate the terms of this Agreement and any renewal thereof.
This Agreement may be terminated at any time without the payment of any
penalty (a) by the vote of the Board of Directors of the Company or by the vote
of the holders of a majority of the outstanding voting securities of the Fund,
upon 60 days' written notice to the Adviser and the Sub-Adviser, or (b) by the
Adviser, upon 60 days' written notice to the Sub-Adviser; or (c) by the Sub-
Adviser, upon 60 days' written notice to the Adviser. This Agreement shall
automatically terminate in the event of its assignment as defined in the 1940
Act and the rules thereunder.
Wherever referred to in this Agreement, the vote or approval of the holders
of a majority of the outstanding voting securities or shares of the Fund shall
mean the vote of 67% or more of such shares if the holders of more than 50% of
such shares are present in person or by proxy or the vote of more than 50% of
such shares, whichever is less.
14. No amendment to or modification of this Agreement shall be effective
unless and until approved by the vote of a majority of the outstanding shares of
the Fund.
15. This Agreement shall be binding upon, and inure to the benefit of, the
Adviser and the Sub-Adviser, and their respective successors.
16. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
17. Nothing herein shall be deemed to limit or restrict the right of the
Sub-Adviser, or any affiliate of the Sub-Adviser, or any employee of the Sub-
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
18. To the extent that state law is not preempted by the provisions of any
law of the United States heretofore or hereafter enacted, as the same may be
amended from time to time, this Agreement shall be administered, construed and
enforced according to the laws of the State of Utah.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers thereunto duly authorized in multiple counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
WASATCH ADVISORS, INC. HOISINGTON INVESTMENT
MANAGEMENT COMPANY
By By
------------------------ ------------------------
Name: Name:
Title: Title:
EXHIBIT C
WASATCH-HOISINGTON U.S. TREASURY FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide a real rate of return
(i.e., a rate of return that exceeds the rate of inflation) over a business
cycle by investing in U.S. Treasury Securities with an emphasis on both income
and capital appreciation. In pursuing its objective, at least 90% of the Fund's
total assets will be invested in U.S. Treasury Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
portfolio can also be invested in high-quality money market instruments, cash
equivalents and cash, which in the opinion of the Manager/Sub-Adviser present
only minimal credit risks.
The Fund is not limited as to the maturities of its portfolio investments
and, to the extent consistent with its investment objective, may take full
advantage of the entire range of maturities offered. The Manager/Sub-Adviser
may adjust the average maturity (effective duration) of the Fund's portfolio
from time to time depending upon its assessment of national and international
economic and interest rate trends, changes in inflationary pressures, and the
value of long treasury bonds relative to inflation. Under normal market
conditions, it is expected that over the course of a business cycle, the
effective duration of the Fund will vary from less than a year to a maximum of
15 years. In terms of maturity, it will range from less than a year to a
maximum of 30 years.
The term "business cycle" is used to describe fluctuations in total
economic activity. It refers to the period of time it takes the economy to
shift from a peak in business activity to a trough and back to a peak. (In other
words, it refers to the start of a recession through recovery and expansion and
back to recession.) The average post-war business cycle (measured from the end
of one recession to the start of the next recession) has been about 48 months,
ranging from 12 to 94 months. Interest rates generally follow this cycle, being
at relatively high levels near the beginning of a recession and falling during
the recession and the early part of the business recovery. Generally, interest
rates begin to rise toward the end of a business expansion again peaking near
the start of the next recession.
An investment in the Fund involves certain risks. These include the
following:
CREDIT RISK. Credit Risk is the risk that the issuer of a debt security
will fail to make payments on the security when due. The Manager/Sub-Adviser
seek to limit credit risk by investing primarily in U.S. Treasury Securities and
in repurchase agreements collateralized by such securities. Treasury Securities
means securities which are direct obligations of the United States Treasury such
as bonds, notes and bills. Treasury bills are issued on a discount rate basis
and have a maturity of one year or less. Longer-dated treasury securities are
issued with interest paid semi-annually to holders. Notes are generally issued
in maturities of ten years and shorter, and bonds are currently issued with a
maturity of up to 30 years. Unlike corporate bonds or government agency
securities, all treasury securities are direct obligations of the U.S.
government varying only in maturity and coupon. Treasury securities generally
are viewed as carrying minimal credit risk.
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Even though some interest-bearing securities are investments which offer a
stable stream of income at relatively high current yields, the prices of such
securities are affected by changes in interest rates and are therefore subject
to market price fluctuations. The value of fixed income securities varies
inversely with changes in market interest rates. When interest rates rise, the
value of the Fund's portfolio securities, and therefore its net asset value per
share, generally will decline. In general, the value of fixed-rate debt
securities with longer maturities is more sensitive to changes in market
interest rates than the value of such securities with shorter maturities. Thus,
if the Fund is invested in securities with longer weighted average maturities,
the net asset value of the Fund should be expected to have greater volatility in
periods of changing market interest rates.
If the Manager/Sub-Adviser forecast that interest rates will decrease, the
average maturity of the portfolio can be extended out to 30 years. If the
Manager/Sub-Adviser forecast an increase in interest rates, a defensive policy
may be more appropriate, and the Manager/Sub-Adviser may deem it prudent to
reduce the average maturity of the portfolio to less than one year.
Effective duration estimates the interest rate risk (price volatility) of a
security, i.e., how much the value of the security is expected to change with a
given change in interest rates. The longer a security's effective duration, the
more sensitive its price is to changes in interest rates. For example, if the
interest rate were to increase by 1% on a bond with an effective duration of 5
years, the price of the bond would decline by 5%. Similarly, if the interest
rate were to increase by 1% on a bond with an effective duration of 15 years,
the price of the bond would decline by 15%. At a yield of 7%, the effective
duration of a 30-year U.S. Treasury Bond is about 13 years. It is important to
understand that, while a valuable measure, effective duration is based on
certain assumptions and has several limitations. It is most useful as a measure
of interest rate risk when interest rate changes are small, rapid and occur
equally across all the different points of the yield curve.
U.S. TREASURY STRIPS. The Fund may invest in zero coupon Treasury
Securities, (U.S. Treasury STRIPS). Such securities are debt obligations which
do not entitle the holder to periodic interest payments prior to maturity and
are traded at a discount from their face amounts. The discount of zero coupon
Treasury Securities varies primarily depending on the time remaining until
maturity and prevailing interest rates. Zero coupon securities can be sold
prior to their due date in the secondary market at the then-prevailing market
value which depends primarily on the time remaining to maturity and prevailing
levels of interest rates. The market prices of zero coupon securities are
generally more volatile than the market prices of securities of comparable
quality and similar maturity that pay interest periodically and may respond to a
greater degree to fluctuations in interest rates than do such non-zero coupon
securities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
respect to U.S. Treasury Securities. A repurchase agreement involves the
purchase by the Fund of treasury securities with the condition that after a
stated period of time the original seller (a member bank of the Federal Reserve
System or a recognized securities dealer) will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements
involve certain risks not associated with direct investments in securities. In
the event the original seller defaults on its obligation to repurchase, as a
result of its bankruptcy or otherwise, the Fund will seek to sell the
collateral, which action could involve costs or delays. In such case, the
Fund's ability to dispose of the collateral to recover such investment may be
restricted or delayed. While collateral will at all times be maintained in an
amount equal to the repurchase price under the agreement (including accrued
interest due thereunder), to the extent proceeds from the sale of collateral
were less than the repurchase price, the Fund would suffer a loss. Repurchase
agreements maturing in more than seven days are considered illiquid and subject
to the Fund's restriction on investing in illiquid securities.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities (principally to broker-
dealers) where such loans are callable at any time and are continuously secured
by collateral (cash or government securities) equal to no less than the market
value, determined daily, of the securities loaned. The Fund will receive
amounts equal to interest on the securities loaned. The Fund will also earn
income for having made the loan. The Fund will limit its loans of portfolio
securities to an aggregate of 33 1/3% of the value of its total assets, measured
at the time such loan is made. ("Total assets" of the Fund includes the
amount lent as well as the collateral securing such loans.) In determining
whether the Fund meets the requirement that at least 90% of its total assets be
invested in U.S. Treasury Securities, the Fund will consider the securities lent
as well as the collateral securing such loans.
As with other extensions of credit, there are risks of delay in recovery or
even loss of rights in the collateral should the borrower of the securities fail
financially. However, the Fund will only enter into loan arrangements with
broker-dealers, banks or other institutions which either the Manager or the Sub-
Adviser has determined are creditworthy under guidelines established by the
Company's Board of Directors. The Fund may also experience a loss if, upon the
failure of a borrower to return loaned securities, the collateral is not
sufficient in value or liquidity to cover the value of such loaned securities
(including accrued interest thereon). Apart from lending its securities,
investing in repurchase agreements, and acquiring debt securities, as described
in the Prospectus and Statement of Additional Information, the Fund will not
make loans to other persons.
The rate of turnover in the Fund will vary substantially from year to year
depending on market opportunities. During some periods, turnover will be well
below 50% but at other times could exceed 200% annually. While such portfolio
adjustments may require the sale of securities prior to their maturity date, the
goal of such transactions will be either to increase income and/or to change the
duration of the overall portfolio.
