As filed with the Securities and Exchange Commission on February 27,
1998
Registration Nos. 33-11716
811-5018
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 20
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
Concert Investment Series (Formerly Common Sense Trust)
(Exact Name of Registrant as Specified in
Declaration of Trust)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices)(Zip Code)
(212) 816-6474
(Registrant's Telephone Number, Including Area Code)
CHRISTINA T. SYDOR, ESQ.
Secretary
Concert Investment Series
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
COPIES TO:
Legal Counsel
PFS Distributors, Inc.
3120 Breckinridge Blvd., Bldg. 1200
Duluth, Georgia 30199-0001
(770) 564-6141
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on February 28, 1998 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest,
par value $0.01 per share.
CONCERT INVESTMENT SERIES
EMERGING GROWTH FUND
INTERNATIONAL EQUITY FUND
GROWTH FUND
GROWTH AND INCOME FUND
GOVERNMENT FUND
MUNICIPAL BOND FUND
CROSS REFERENCE SHEET
Form N-1A Item
Part A Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives
and Management Policies;
Management of the Series;
Additional
Information
5. Management of the Fund Management of the
Series
6. Capital Stock and Other Securities Redemption of Shares;
Dividends,
Distributions and Taxes; Additional Information
7. Purchase of Securities Being Offered Prospectus
Summary;Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not applicable
Statement of
Part B Additional Information Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information
13. Investment Objectives and Policies Goals and Investment
Policies;
Investment
Restrictions
14. Management of the Fund General Information;
Investment
Advisory Agreements
15. Control Persons and Principal Holders of
Securities Trustees and Officers
16. Investment Advisory and Other Services Investment Advisory
Agreements;
Distributor;
Portfolio Transactions
and Brokerage; Other
Information
Statement of
Part B Additional Information Caption
17. Brokerage Allocation and Other Practices Portfolio
Transactions and Brokerage
18. Capital Stock and Other Securities See Prospectus under
captions
Redemption of Shares;
Dividends,
Distributions and Taxes
19. Purchase, Redemption and Pricing of
Securities Being Offered Determination of Net
Asset Value;
Purchase and
Redemption of Shares;
20. Tax Status Dividends,
Distributions and Federal
Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Fund Performance
23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth
under the appropriate item in Part C of this registration statement.
<PAGE>
PROSPECTUS February 28, 1998
- --------------------------------------------------------------------------------
Concert Investment Series
3100 Breckinridge Blvd., Bldg 200
Duluth, Georgia 30199-0062
(800) 544-5445
Concert Investment Series (the "Series") (formerly Common Sense Trust) cur-
rently offers six professionally managed investment portfolios (each, a
"Fund").
Emerging Growth Fund (the "Emerging Growth Fund") seeks capital appreciation
by investing in a portfolio of securities consisting principally of common
stocks of small and medium sized companies considered by Mutual Management
Corp., the Fund's investment manager, to be emerging growth companies.
International Equity Fund (the "International Equity Fund") seeks total return
on its assets from growth of capital and income. The Fund seeks to achieve its
goal by investing at least 65% of its assets in a diversified portfolio of
equity securities of established non-United States issuers.
Growth Fund (the "Growth Fund") seeks capital appreciation through investments
in common stocks and options on common stocks. Any income realized on its
investments will be purely incidental to its goal of capital appreciation.
Growth and Income Fund (the "Growth and Income Fund") seeks reasonable growth
and income through investments in equity securities that provide dividend or
interest income, including common and preferred stocks and securities convert-
ible into common or preferred stocks.
Government Fund (the "Government Fund") seeks high current return consistent
with preservation of capital by investing in debt securities issued or guaran-
teed by the U.S. Government, its agencies or instrumentalities.
Municipal Bond Fund (the "Municipal Fund") seeks as high a level of current
interest income exempt from federal income tax as is consistent with the pres-
ervation of capital.
This Prospectus sets forth concisely certain information about the Series and
each of the Funds that prospective investors will find helpful in making an
investment decision. Investors are encouraged to read this Prospectus carefully
and retain it for future reference.
Additional information about each of the Funds is contained in a Statement of
Additional Information dated February 28, 1998, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Series at the telephone number or address set forth above or by
contacting a Registered Representative of PFS Investments Inc. ("PFS Invest-
ments"). The Statement of Additional Information has been filed with the Secu-
rities and Exchange Commission (the "SEC") and is incorporated by reference
into this Prospectus in its entirety.
PFS DISTRIBUTORS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Manager
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 7
- --------------------------------------------------
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 15
- --------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS 21
- --------------------------------------------------
VALUATION OF SHARES 28
- --------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 28
- --------------------------------------------------
PURCHASE OF SHARES 30
- --------------------------------------------------
EXCHANGE PRIVILEGE 35
- --------------------------------------------------
REDEMPTION OF SHARES 36
- --------------------------------------------------
PERFORMANCE 37
- --------------------------------------------------
MANAGEMENT OF THE SERIES 37
- --------------------------------------------------
DISTRIBUTOR 39
- --------------------------------------------------
ADDITIONAL INFORMATION 40
- --------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any represen-
tations in connection with this offering other than those contained in this
Prospectus and, if given or made, such other information and representations
must not be relied upon as having been authorized by the Series or the distrib-
utor. This Prospectus does not constitute an offer by the Series or the dis-
tributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
- --------------------------------------------------------------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVES The Series is an open-end, diversified management
investment company that currently offers six professionally managed investment
portfolios. The Emerging Growth Fund seeks capital appreciation; the
International Equity Fund seeks total return on its assets from growth of
capital and income; the Growth Fund seeks capital appreciation; the Growth and
Income Fund seeks reasonable growth and income; the Government Fund seeks high
current return consistent with preservation of capital; and the Municipal Fund
seeks current interest income exempt from federal income tax. There is,
however, no assurance that any Fund will be successful in achieving its goals.
See "Investment Objectives and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS Each Fund offers two classes of shares
("Classes") to investors purchasing through PFS Investments Registered
Representatives designed to provide them with the flexibility of selecting an
investment best suited to their needs--the two classes of shares available are:
Class A shares and Class B shares. As of May 20, 1996, all of the previously
outstanding shares of the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Fund were redesignated as Class 1 shares
without any other changes, and Class A and Class B shares were authorized for
issuance. As of May 20, 1996, Class 1 shares were authorized for issuance for
the Emerging Growth Fund and the International Equity Fund. Each Fund offers
Class 1 shares only to accounts of previously established shareholders or
members of a family unit comprised of a husband, wife and minor children, and
Class 1 shareholders of a Fund exchanging their Class 1 shares for Class 1
shares of another Fund ("Eligible Class 1 Purchasers"). Each class of shares
represents an interest in the same portfolio of investments of a Fund. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% with respect to the Emerging Growth Fund, Growth
Fund, Growth and Income Fund and International Equity Fund and up to 4.50% with
respect to the Government and Municipal Funds. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--Reduced
or No Initial Sales Charge." Class A shares of each Fund are subject to an
annual service fee of 0.25% of the average daily net assets of the Class.
Class B Shares. Class B shares of the Emerging Growth Fund, Growth Fund,
Growth and Income Fund and International Equity Fund are offered at net asset
value subject to a maximum CDSC of 5.00% of redemption proceeds, declining by
1.00% each year after the date of purchase to zero. Class B shares of the Gov-
ernment and Municipal Funds are offered at net asset value subject to a maximum
CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year after
purchase and 1.00% each year thereafter to zero. The CDSC may be waived for
certain redemptions. Class B shares of the Emerging Growth Fund, Growth Fund,
Growth and Income Fund and International Equity Fund are subject to an annual
service fee of 0.25% and an annual distribution fee of 0.75% of the average
daily net assets of the Class. Class B shares of the Government Fund and Munic-
ipal Fund are subject to an annual service fee of 0.25% and an annual distribu-
tion fee of 0.75% of the average daily net assets of the Class. The Class B
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and dis-
tributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
Class B Shares of a Fund purchased prior to December 31, 1997 and subsequently
redeemed will remain subject to the CDSC at the rates applicable at the time of
purchase.
Class 1 Shares. Class 1 shares are offered to Eligible Class 1 Purchasers.
Class 1 shares of the Emerging Growth Fund, the International Equity Fund, the
Growth Fund and the Growth and Income Fund are offered at a sales charge of
8.50% of offering price; Class 1 shares of the Government Fund are offered at a
sales charge of 6.75% of offering price; and Class 1 shares of the Municipal
Fund are offered at a sales charge of 4.75% of offering price. The sales charge
is reduced on investments of $10,000 or more for the Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and Income Fund,
$25,000 or more for the Government Fund, and $100,000 or more for the Municipal
Fund. See "Purchase of Shares--Class 1 Shares."
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of shares is more ben-
eficial to an investor depends on the amount and intended duration of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
consider Class A shares; as the investment accumulates shareholders may qualify
for reduced sales charges and the shares are subject to lower ongoing expenses
over the term of the investment. As an alternative, Class B shares are sold
without any initial sales charge so the entire purchase price is immediately
invested in a Fund. Any investment return on these additional invested amounts
may partially or wholly offset the higher annual expenses of this Class.
Because a Fund's future return cannot be predicted, however, there can be no
assurance that this would be the case.
Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in a Fund. In addition, Class A share purchases of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The $500,000 investment may be met by adding the purchase to the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney Inc. ("Smith Barney") listed under "Exchange Privi-
lege." Class A share purchases also may be eligible for a reduced initial sales
charge. See "Purchase of Shares." Because the ongoing expenses of Class A
shares may be lower than those for Class B shares, purchasers eligible to pur-
chase Class A shares at net asset value or at a reduced sales charge should
consider doing so.
PFS Investments Registered Representatives may receive different compensation
for selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B shares is the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Series" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distribution and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
PURCHASE OF SHARES Shares may be purchased through PFS Distributors, Inc.
("PFS"), the distributor of the Series' shares. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A and Class B shares may open an account
by making an initial investment of at least $1,000 for each account (except for
Systematic Investment Plan accounts), or $250 for an individual retirement
account ("IRA") or a Self-Employed Retirement Plan. Subsequent investments of
at least $50 may be made for each Class. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), the minimum initial investment
requirement for Class A and Class B shares and the subsequent investment
requirement for each Class is $25. The minimum initial investment requirement
for Class A and Class B shares and the subsequent investment requirement for
all Classes through the Systematic Investment Plan described below is $25. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN Each Fund offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month for Fund shares in an amount of at least $25. See
"Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF EACH FUND Mutual Management Corp. ("MMC"), formerly known as
Smith Barney Mutual Funds Management Inc. serves as each Fund's investment
manager. MMC is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries, principally in four business segments: Investment
Services, including Asset Management, Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance Services.
EXCHANGE PRIVILEGE Shares of each Class may be exchanged for shares of the same
Class of certain other Smith Barney Mutual Funds at the respective net asset
values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of each Fund for the prior day generally
will be quoted daily in the financial section of most newspapers and is also
available from PFS Shareholder Services (the "Sub-Transfer Agent"). See
"Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS The Series intends to pay dividends from net
investment income monthly on shares of the Government Fund and Municipal Fund,
quarterly on shares of the Growth and Income Fund and annually on shares of the
Emerging Growth Fund, Growth Fund and International Equity Fund. Distributions
of net realized capital gains, if any, are paid annually for each Fund. See
"Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of each
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
distribution reinvestments will not be subject to any sales charge or CDSC.
Class B shares acquired through dividend and distribution reinvestments will
become eligible for conversion to Class A shares on a pro rata basis. See
"Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
investment objective of any Fund will be achieved. The value of the Funds'
investments, and thus the net asset value of Funds' shares, will fluctuate in
response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Funds invest. For a
description of the risks involved in an investment in the Funds, see
"Investment Objectives and Management Policies."
EACH FUND'S EXPENSES The following expense tables list the costs and expenses
an investor will incur as a shareholder of each Fund, based on the maximum
sales charge or maximum CDSC that may be incurred at the time of purchase or
redemption, each Fund's operating expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
APPLICABLE TO
THE EMERGING GROWTH FUND,
THE GROWTH FUND,
THE INTERNATIONAL EQUITY
FUND AND THE GROWTH
AND INCOME FUND
--------------------------
CLASS 1 CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)........................................ 8.50% 5.00% None
MAXIMUM CDSC (AS A PERCENTAGE OF ORIGINAL COST OR REDEMPTION PROCEEDS,
WHICHEVER IS LOWER)........................................................ None None* 5.00%
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
APPLICABLE TO
THE MUNICIPAL
FUND AND
THE GOVERNMENT
MUNICIPAL GOVERNMENT FUND
FUND FUND ---------------
CLASS 1 CLASS 1 CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE) 4.75% 6.75% 4.50% None
MAXIMUM CDSC (AS A PERCENTAGE OF ORIGINAL COST OR REDEMPTION
PROCEEDS, WHICHEVER IS LOWER).................................... None None None* 4.50%
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
EMERGING GROWTH FUND GROWTH FUND GROWTH AND INCOME FUND
----------------------- ------------------------- --------------------------
CLASS 1 CLASS A CLASS B CLASS 1 CLASS A CLASS B CLASS 1 CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management fee......... 0.65% 0.65% 0.65% 0.60% 0.60% 0.60% 0.65% 0.65% 0.65%
12b-1 fee**............ 0.00 0.25 1.00 0.00 0.25 1.00 0.00 0.25 1.00
Other expenses......... 0.74 0.79 0.79 0.28 0.23 0.23 0.23 0.22 0.23
- ---------------------------------------------------------------------------------------------------------
Total Fund Operating
Expenses............. 1.39% 1.69% 2.44% 0.88% 1.13% 1.88% 0.88% 1.12% 1.88%
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL EQUITY
FUND GOVERNMENT FUND MUNICIPAL FUND
----------------------- ------------------------- --------------------------
CLASS 1 CLASS A CLASS B CLASS 1 CLASS A CLASS B CLASS 1 CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management fee......... 1.00% 1.00% 1.00% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
12b-1 fee**............ 0.00 0.25 1.00 0.00 0.25 1.00 0.00 0.25 1.00
Other expenses......... 1.26 1.31 1.30 0.30 0.30 0.30 0.38 0.34 0.34
- ---------------------------------------------------------------------------------------------------------
Total Fund Operating
Expenses............. 2.26% 2.56% 3.30% 0.90% 1.15% 1.90% 0.98% 1.19% 1.94%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee.
The sales charges and CDSCs set forth in the above tables are the maximum
charges imposed on purchases or redemptions of each of the Funds' shares and
investors may actually pay lower or no charges, depending on the amount pur-
chased and, in the case of
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class B and certain Class A shares, the length of time the shares are held.
See "Purchase of Shares" and "Redemption of Shares." PFS receives an annual
12b-1 service fee of 0.25% of the value of average daily net assets of Class A
shares of each Fund. PFS also receives with respect to Class B shares of each
Fund an annual 12b-1 fee of 1.00% of the value of average daily net assets of
that Class, consisting of a 0.75% distribution fee and a 0.25% service fee.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in each of the Funds will bear directly or
indirectly. The example assumes payment by each Fund of operating expenses at
the levels set forth in the table above. See "Purchase of Shares," "Redemption
of Shares" and "Management of the Series."
<TABLE>
<CAPTION>
AN INVESTOR WOULD PAY THE FOLLOWING EXPENSES
ON A $1,000 INVESTMENT, ASSUMING (1) 5.00% ANNUAL
RETURN AND (2) REDEMPTION AT THE END OF EACH TIME PERIOD:
------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Emerging Growth Fund
Class 1 $ 98 $125 $155 $238
Class A 66 101 137 240
Class B 75 96 140 259
- ------------------------------------------------------------------------------------------
Growth Fund
Class 1 93 111 130 184
Class A 61 84 109 181
Class B 69 89 112 201
- ------------------------------------------------------------------------------------------
Growth and Income Fund
Class 1 93 111 130 184
Class A 62 87 114 190
Class B 69 89 112 203
- ------------------------------------------------------------------------------------------
International Equity
Fund
Class 1 106 150 169 322
Class A 75 126 179 325
Class B 83 122 182 343
- ------------------------------------------------------------------------------------------
Government Fund
Class 1 76 94 114 171
Class A 56 80 105 178
Class B 64 90 113 203
- ------------------------------------------------------------------------------------------
Municipal Fund
Class 1 57 77 99 162
Class A 57 81 107 183
Class B 65 91 115 207
- ------------------------------------------------------------------------------------------
<CAPTION>
AN INVESTOR WOULD PAY THE FOLLOWING EXPENSES
ON THE SAME INVESTMENT, ASSUMING THE SAME ANNUAL RETURN
BUT WITHOUT A REDEMPTION AT THE END OF EACH TIME PERIOD:
------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Emerging Growth Fund
Class 1 $ 98 $ 125 $155 $238
Class A 66 101 137 240
Class B 25 76 130 259
- ------------------------------------------------------------------------------------------
Growth Fund
Class 1 93 111 130 184
Class A 61 84 109 181
Class B 19 59 102 201
- ------------------------------------------------------------------------------------------
Growth and Income Fund
Class 1 93 111 130 184
Class A 62 87 114 190
Class B 19 59 102 203
- ------------------------------------------------------------------------------------------
International Equity
Fund
Class 1 106 150 196 322
Class A 75 126 179 325
Class B 33 102 172 343
- ------------------------------------------------------------------------------------------
Government Fund
Class 1 76 94 114 171
Class A 56 80 105 178
Class B 19 60 103 203
- ------------------------------------------------------------------------------------------
Municipal Fund
Class 1 57 77 99 162
Class A 57 81 107 183
Class B 20 61 105 207
- ------------------------------------------------------------------------------------------
</TABLE>
* Ten-year figures assume conversion of Class B Shares to Class A Shares at
the end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, a Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESEN-
TATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by Ernst & Young LLP, independent
auditors, whose report thereon appears in the Series' annual report dated Octo-
ber 31, 1997. The information set out below should be read in conjunction with
the financial statements and related notes that also appear in the Series'
Annual Report to Shareholders, which is incorporated by reference into the
Statement of Additional Information.
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD:
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
AUGUST 8, 1996
(COMMENCEMENT
YEAR ENDED OF DISTRIBUTION) TO
CLASS 1 SHARES OCTOBER 31, 1997 OCTOBER 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD $18.59 $17.89
- -------------------------------------------------------------------------------
Net Investment Loss (0.08) (0.02)
Net Realized and Unrealized Gain 3.64 0.72
- -------------------------------------------------------------------------------
Total from Investment Operations 3.56 0.70
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF THE PERIOD $22.15 $18.59
- -------------------------------------------------------------------------------
TOTAL RETURN(A) 19.15% 3.91%*
- -------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (IN MILLIONS) $ 6 $ 1.0
- -------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.39% 1.74%
Ratio of Net Investment Loss to Average
Net Assets (0.63) (1.09)
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER 100% 80%
- -------------------------------------------------------------------------------
Average Commission Paid Per Equity Share
Traded(b) $ 0.03 $ 0.05
- -------------------------------------------------------------------------------
</TABLE>
*Non-Annualized.
(a)Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b)Represents the average brokerage commissions paid per equity share traded
during the period for trades where commissions were applicable.
<TABLE>
<CAPTION>
FEBRUARY 21, 1995
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO
CLASS A SHARES OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $18.57 $15.12 $11.81
- ------------------------------------------------------------------------------
Net investment loss (0.16) (0.18) (0.24)
Net realized and
unrealized gain 3.66 3.63 3.55
- ------------------------------------------------------------------------------
Total from Investment
Operations 3.50 3.45 3.31
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $22.08 $18.57 $15.12
- ------------------------------------------------------------------------------
TOTAL RETURN(B) 18.90% 22.82% 28.11 %(c)
- ------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS) $ 101 $ 52 $ 16
- ------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets(d) 1.69% 2.21% 2.75 %
Ratio of Net Investment
Loss to Average Net
Assets(d) (0.92) (1.52) (1.65)%
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER 100% 80% 83 %*
- ------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(e) $ 0.03 $ 0.05 $ --
- ------------------------------------------------------------------------------
</TABLE>
*Non-Annualized.
(a)Based on average month-end shares outstanding.
(b)Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c)Total Return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.
(d) If Van Kampen American Capital Asset Management ("VKAC"), the Fund's
investment manager during this period had not waived fees for the period
ended October 31, 1995, the total return would have been lower and the
Ratios of Expenses to Average Net Assets and Net Investment Loss to Average
Net Assets would have been 3.37% and (2.27%) for Class A shares and 4.11%
and (3.07%) for Class B shares, respectively.
(e) Represents the average brokerage commissions paid per equality share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
FEBRUARY 21, 1995
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO
CLASS B SHARES OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $18.34 $15.04 $11.81
- ------------------------------------------------------------------------------
Net investment loss (0.27) (0.27) (0.35)
Net realized and
unrealized gain 3.56 3.57 3.58
- ------------------------------------------------------------------------------
Total from Investment
Operations 3.29 3.30 3.23
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $21.63 $18.34 $15.04
- ------------------------------------------------------------------------------
TOTAL RETURN(B) 17.94% 21.94% 27.43%(c)
- ------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS) $ 80 $ 39 $ 11
- ------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets(d) 2.44% 2.96% 3.49%
Ratio of Net Investment
Loss to Average Net
Assets(d) (1.67) (2.27) (2.45)
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER 100% 80% 83%*
- ------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(e) $ 0.03 $ 0.05 $ --
- ------------------------------------------------------------------------------
</TABLE>
*Non-Annualized.
(a)Based on average month-end shares outstanding.
(b)Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c)Total Return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.
(d) If VKAC, the Fund's investment manager during this period had not waived
fees for the period ended October 31, 1995, the total return would have
been lower and the Ratios of Expenses to Average Net Assets and Net
Investment Loss to Average Net Assets would have been 3.37% and (2.27%) for
Class A shares and 4.11% and (3.07%) for Class B shares, respectively.
(e) Represents the average brokerage commissions paid per equality share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
8
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-------------------------------------------------------------------------------
CLASS 1 SHARES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $17.98 $17.46 $15.31 $16.26 $16.02 $15.47 $11.26 $13.15 $10.81 $ 9.37
- ----------------------------------------------------------------------------------------------------------
Net investment income 0.17 .19 0.16 0.13 0.12 0.13 0.19 0.20 0.19 0.10
Net realized and
unrealized gain/loss 4.33 2.91 3.18 0.21 2.01 1.39 4.24 (1.35) 2.26 1.44
- ----------------------------------------------------------------------------------------------------------
Total from Investment
Operations 4.50 3.10 3.34 0.34 2.13 1.52 4.43 (1.05) 2.45 1.54
- ----------------------------------------------------------------------------------------------------------
LESS:
Distributions from net
investment income 0.18 0.18 0.16 0.11 0.12 0.17 0.22 0.20 0.11 --
Distributions from and
in Excess of Net
Realized Gain 1.35 2.40 1.03 1.18 1.76 0.80 -- 0.64 -- 0.10
- ----------------------------------------------------------------------------------------------------------
Total Distributions 1.53 2.58 1.19 1.29 1.88 0.97 0.22 0.84 0.11 0.10
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $20.94 $17.98 $17.46 $15.31 $16.26 $16.02 $15.47 $11.26 $13.15 $10.81
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 26.93% 19.94% 24.01% 2.04% 14.27% 9.83% 39.90% (8.73%) 22.90% 16.51%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $3,547 $3,005 $2,612 $2,170 $2,066 $1,648 $1,312 $ 866 $ 768 $ 492
- ----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 0.88% 0.93% 1.00% 1.09% 1.14% 1.18% 1.26% 1.53% 1.63% 1.93%
Ratio of Net Investment
Income to Average Net
Assets 0.86 1.08 1.04 0.89 0.80 0.91 1.44 1.79 1.75 1.30
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 165% 202% 230% 164% 166% 134% 100% 99% 101% 63%
- ----------------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b) $ 0.03 $ 0.06 -0- -0- -0- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------ ------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(C) OCTOBER 31, 1997 OCTOBER 31, 1996(C)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $17.96 $16.63 $17.93 $16.63
- ---------------------------------------------------------------------------------------------------
Net investment
income/loss 0.15 .02 .01 (.01)
Net realized and
unrealized gain 4.30 1.31 4.28 1.31
- ---------------------------------------------------------------------------------------------------
Total from Investment
Operations 4.45 1.33 4.29 1.30
- ---------------------------------------------------------------------------------------------------
LESS:
Distributions from net
investment income 0.16 -0- .11 -0-
Distributions from net
realized gain 1.36 -0- 1.35 -0-
- ---------------------------------------------------------------------------------------------------
Total Distributions 1.52 -0- 1.46 -0-
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $20.89 $17.96 $20.75 $17.93
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 26.65% 8.00%* 25.66% 7.82%*
- ---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $ 109 $ 49 $ 126 $ 74
- ---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 1.13% 1.17% 1.88% 1.93%
Ratio of Net Investment
Income/Loss to Average
Net Assets 0.57 0.46 (0.16) (0.29)
- ---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 165% 202% 165% 202%
- ---------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b) $ 0.03 $ 0.06 $ 0.03 $ 0.06
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Non-Annualized.
(a)Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Presents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(c)Class A and Class B shares commenced distribution on August 18, 1996.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-------------------------------------------------------------------------------
CLASS 1 SHARES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $18.11 $16.95 $15.77 $17.13 $15.54 $14.70 $11.49 $12.51 $10.49 $ 9.84
- ----------------------------------------------------------------------------------------------------------
Net investment income 0.24 0.31 0.36 0.29 0.29 0.28 0.31 0.30 0.31 0.27
Net realized and
unrealized gain/loss 4.23 2.94 2.72 (0.21) 1.88 1.28 3.22 (0.99) 2.00 0.65
- ----------------------------------------------------------------------------------------------------------
Total from Investment
Operations 4.47 3.25 3.08 0.08 2.17 1.56 3.53 (.69) 2.31 0.92
- ----------------------------------------------------------------------------------------------------------
LESS:
Distributions from net
investment income 0.30 0.34 0.30 0.28 0.28 0.30 0.32 0.33 0.29 0.24
Distributions from and
in Excess of Net
Realized Gain 2.18 1.76 1.60 1.16 0.30 0.42 -- 0.00 -- 0.03
- ----------------------------------------------------------------------------------------------------------
Total Distributions 2.48 2.10 1.90 1.44 0.58 0.72 0.32 .33 0.29 0.27
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $20.10 $18.11 $16.95 $15.77 $17.13 $15.54 $14.70 $11.49 $12.51 $10.49
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 27.35% 20.58% 22.45% 0.51% 14.13% 10.85% 31.68% (5.84%) 22.38% 9.55%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $1,097 $ 943 $ 828 $ 713 $ 712 $ 591 $ 500 $ 367 $ 278 $ 168
- ----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 0.88% 0.91% 0.96% 1.02% 1.05% 1.09% 1.14% 1.37% 1.39% 1.57%
Ratio of Net Investment
Income to Average Net
Assets 1.25 1.78 2.27 1.84 1.76 1.84 2.29 2.55 2.81 3.04
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 93% 121% 117% 88% 51% 32% 42% 48% 26% 64%
- ----------------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b) $ 0.03 $ 0.06 -0- -0- -0- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------ ------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(C) OCTOBER 31, 1997 OCTOBER 31, 1996(C)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $18.11 $17.19 $18.09 $17.19
- ---------------------------------------------------------------------------------------------------
Net investment income 0.20 0.07 0.06 0.04
Net realized and
unrealized gain 4.23 0.91 4.22 0.90
- ---------------------------------------------------------------------------------------------------
Total from Investment
Operations 4.43 0.98 4.28 0.94
- ---------------------------------------------------------------------------------------------------
LESS:
Distributions from net
investment income 0.25 0.06 0.11 0.04
Distributions from net
realized gain 2.18 -0- 2.18 -0-
- ---------------------------------------------------------------------------------------------------
Total Distributions 2.43 0.06 2.29 0.04
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $20.10 $18.11 $20.07 $18.09
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 27.04% 5.72% 26.08% 5.49%*
- ---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $ 80 $ 33 $ 99 $ 52
- ---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 1.12% 1.16% 1.88% 1.91%
Ratio of Net Investment
Income to Average Net
Assets 0.96 1.78 0.22 1.05
- ---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 93% 121% 93% 121%
- ---------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b) $ 0.03 $ 0.06 $ 0.03 $ 0.06
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Non-Annualized.
(a)Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(c)Class A and Class B shares commenced distribution on August 18, 1996.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
AUGUST 8, 1996
(COMMENCEMENT
OF
YEAR ENDED DISTRIBUTION) TO
CLASS 1 SHARES OCTOBER 31, 1997 OCTOBER 31, 1996(A)
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD $16.52 $16.00
- -------------------------------------------------------------------------------
Net investment loss (0.17) (0.03)
Net realized and unrealized gain 1.81 .55
- -------------------------------------------------------------------------------
Total from Investment Operations 1.64 .52
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF THE PERIOD $18.16 $16.52
- -------------------------------------------------------------------------------
TOTAL RETURN*(B) 9.99% 3.25%**
- -------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (IN MILLIONS) $ 2 $ 0.2
- -------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets* 2.26% 2.50%
Ratio of Net Investment Loss to Average
Net Assets* (1.24) (1.31)
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER 57% 78%**
- -------------------------------------------------------------------------------
Average Commission Paid Per Equity Share
Traded(c) $ 0.02 $ 0.03
*If certain expenses had not been waived
or reimbursed by VKAC, Total Return would
have been lower and the ratios would have
been as follows:
Ratio of expenses to average net assets N/A 3.87%
Ratio of net investment loss to average
net assets N/A (2.67)
- -------------------------------------------------------------------------------
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Represents the average brokerage commissions paid per equity share traded
during the period for trades where commissions were applicable.
N/A = Not Applicable
<TABLE>
<CAPTION>
FEBRUARY 21, 1995
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) IN
CLASS A SHARES OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $16.54 $13.86 $11.81
- -------------------------------------------------------------------------------
Net investment loss (0.26) (0.19) (0.14)
Net realized and
unrealized gain 1.85 2.87 2.19
- -------------------------------------------------------------------------------
Total from Investment
Operations 1.59 2.68 2.05
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $18.14 $16.54 $13.86
- -------------------------------------------------------------------------------
TOTAL RETURN*(B) 9.74% 19.34% 16.28%**(c)
- -------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS) $ 17 $ 10 $ 7
- -------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets* 2.56% 2.75% 3.64%
Ratio of Net Investment
Loss to Average Net
Assets* (1.59) (1.56) (1.40)
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER 57% 78% 17%**
- -------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(d) $ 0.02 $ 0.03 --
*If certain expenses had
not been waived or
reimbursed by VKAC,
Total Return would have
been lower and the
ratios would have been
as follows:
Ratio of expenses to
average net assets N/A 4.12% 5.97%
Ratio of net investment
loss to average net
assets N/A (2.92) (3.73)
- -------------------------------------------------------------------------------
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total Return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.
(d) Represents the average brokerage commissions paid per equity share traded
during the period for trades where commissions were applicable.
N/A = Not Applicable
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FEBRUARY 21, 1995
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) IN
CLASS B SHARES OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $16.36 $13.79 $11.81
- -------------------------------------------------------------------------------
Net investment loss (0.32) (0.25) (0.21)
Net realized and
unrealized gain 1.76 2.82 2.19
- -------------------------------------------------------------------------------
Total from Investment
Operations 1.44 2.57 1.98
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $17.81 $16.36 $13.79
- -------------------------------------------------------------------------------
TOTAL RETURN*(B) 8.93% 18.64% 15.69%**(c)
- -------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS) $ 14 $ 8 $ 3
- -------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets* 3.30% 3.50% 4.33%
Ratio of Net Investments
Loss to Average Net
Assets* (2.34) (2.31) (2.80)
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER 57% 78% 17%**
- -------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(d) $ 0.02 $ 0.03 --
*If certain expenses had
not been waived or
reimbursed by VKAC,
Total Return would have
been lower and the
ratios would have been
as follows:
Ratios of expenses to
average net assets N/A 4.87% 6.67%
Ratio of net investment
loss to average net
assets N/A (3.67) (5.13)
- -------------------------------------------------------------------------------
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total Return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.
(d) Represents the average brokerage commissions paid per equity share traded
during the period for trades where commissions were applicable.
N/A = Not Applicable
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-------------------------------------------------------------------------------
CLASS 1 SHARES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $10.41 $10.67 $ 9.99 $11.80 $11.56 $11.47 $10.79 $11.46 $11.13 $11.08
- ----------------------------------------------------------------------------------------------------------
Net investment income 0.69 0.70 0.70 0.69 0.76 0.86 0.90 0.95 1.03 0.94
Net realized and
unrealized gain/loss 0.17 (0.25) 0.68 (1.36) 0.43 0.16 0.68 (0.44) 0.33 0.04
- ----------------------------------------------------------------------------------------------------------
Total from Investment
Operations 0.86 0.45 1.38 (0.67) 1.19 1.02 1.58 0.51 1.36 0.98
- ----------------------------------------------------------------------------------------------------------
LESS:
Distributions from and
in excess of net
investment income 0.68 0.72 0.70 0.69 0.76 0.86 0.90 0.96 1.03 0.93
Distributions from and
in Excess of Net
Realized Gain -- -- -- 0.45 0.19 0.07 -0- 0.22 -0- -0-
- ----------------------------------------------------------------------------------------------------------
Total Distributions 0.68 0.72 0.70 1.14 0.95 0.93 0.90 1.18 1.03 0.93
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $10.58 $10.40 $10.67 $ 9.99 $11.80 $11.56 $11.47 $10.79 $11.46 $11.13
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 8.56% 4.58% 14.27% (5.45%) 10.55% 9.32% 15.16% 4.94% 12.87% 9.20%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $ 241 $ 288 $ 329 $ 335 $ 370 $ 282 $ 189 $ 141 $ 101 $ 71
- ----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 0.90% 0.84% 0.83% 0.89% 0.89% 0.95% 0.96% 1.09% 1.20% 1.44%
Ratio of Net Investment
Income to Average Net
Assets 6.69 6.79 6.84 7.06 7.35 7.46 8.15 8.78 9.29 8.55
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 104% 276% 214% 256% 218% 112% 39% 28% 29% 51%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------ ------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(B) OCTOBER 31, 1997 OCTOBER 31, 1996(B)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $10.41 $10.32 $10.41 $10.32
- ---------------------------------------------------------------------------------------------------
Net investment income 0.67 0.15 0.59 0.14
Net realized and
unrealized gain 0.17 0.09 0.17 0.09
- ---------------------------------------------------------------------------------------------------
Total from Investment
Operations 0.84 0.24 0.76 0.23
- ---------------------------------------------------------------------------------------------------
Less Distributions from
and in Excess of Net
Investment Income 0.66 0.15 0.59 0.14
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $10.58 $10.41 $10.58 $10.41
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 8.35% 2.36%* 7.55% 2.18%*
- ---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $ 14 $ 11 $ 12 $ 14
- ---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 1.15% 1.09% 1.90% 1.84%
Ratio of Net Investment
Income to Average Net
Assets 6.44 6.50 5.69 5.74
- ---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 104% 276% 104% 276%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Non-Annualized.
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Class A and Class B commenced distribution on August 8, 1995.
13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
--------------------------------------------------------------------------------
CLASS 1 SHARES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(B)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $13.83 $13.77 $12.89 $14.07 $13.03 $12.84 $12.18 $12.37 $12.26 $11.91
- -----------------------------------------------------------------------------------------------------------
Net investment income 0.69 0.70 0.74 0.71 0.73 0.72 0.76 0.76 0.77 0.19
Net realized and
unrealized gain/loss 0.39 0.11 0.87 (1.18) 1.04 0.22 0.65 (0.18) 0.10 0.31
- -----------------------------------------------------------------------------------------------------------
Total from Investment
Operations 1.08 0.81 1.61 (0.47) 1.77 0.94 1.41 0.58 0.87 0.50
- -----------------------------------------------------------------------------------------------------------
LESS:
Distributions from net
investments income 0.66 0.71 0.73 0.71 0.73 0.75 0.75 0.77 0.76 0.15
Distributions from and
in excess of net
realized gain 0.04 0.04 -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Total Distributions 0.70 0.75 0.73 0.71 0.73 0.75 0.75 0.77 0.76 0.15
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $14.21 $13.83 $13.77 $12.89 $14.07 $13.03 $12.84 $12.18 $12.37 $12.26
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 8.04% 6.09% 12.72% (3.38%) 13.84% 7.57% 11.79% 4.77% 7.31% 4.26%*
- -----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $ 104 $ 119 $ 119 $ 112 $ 96 $ 60 $ 43 $ 37 $ 25 $ 6
- -----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 0.98% 1.05% 0.96% 0.99% 0.96% 1.14% 1.15% 1.25% 1.25% 1.91%
Ratio of Net Investment
Income to Average Net
Assets 4.93 5.13 5.58 5.27 5.29 5.56 6.08 6.21 6.28 5.55
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 50% 80% 49% 4% 4% 6% 1% 4% 0% 5%*
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------ ------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(B) OCTOBER 31, 1997 OCTOBER 31, 1996(B)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD $13.83 $13.78 $13.82 $13.78
- ---------------------------------------------------------------------------------------------------
Net investment income 0.65 0.11 0.54 0.09
Net realized and
unrealized gain 0.40 0.04 0.40 0.04
- ---------------------------------------------------------------------------------------------------
Total from Investment
Operations 1.05 0.15 0.94 0.13
- ---------------------------------------------------------------------------------------------------
LESS:
Distributions from net
investments income 0.63 0.10 0.52 0.09
Distributions from net
realized gains 0.04 -- 0.04 --
- ---------------------------------------------------------------------------------------------------
Total Distributions 0.67 0.10 0.56 0.09
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD $14.21 $13.83 $14.20 $13.82
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN(A) 7.77% 1.12%* 6.98% 0.93%*
- ---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS) $ 9 $ 2 $ 3 $ 0.7
- ---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 1.19% 1.30% 1.94% 2.05%
Ratio of Net Investment
Income to Average Net
Assets 4.79 4.82 4.04 4.06
- ---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 50% 80% 50% 80%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Non-Annualized.
(a) Total Return is based upon Net Asset Value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Class A and Class B shares commenced distribution on August 18, 1996.
14
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Although each Fund of the Series has a different goal which it pursues through
separate investment policies described below, each Fund, except the Interna-
tional Equity Fund, will not purchase any securities issued by any company pri-
marily engaged in the manufacture of alcohol or tobacco. The differences in
goals and investment policies among the Funds can be expected to affect the
return of each Fund and the degree of market and financial risk to which each
Fund is subject. The goal and investment policies, the percentage limitations,
and the kinds of securities in which each Fund may invest are generally not
fundamental policies and may be changed by the Trustees. Further information
about each Fund's investment policies, including a list of those restrictions
which may not be changed without the approval of shareholders appears in the
Statement of Additional Information.
EMERGING GROWTH FUND
The goal of the Emerging Growth Fund is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common stocks
of small and medium sized companies considered by MMC to be emerging growth
companies. Any ordinary income received from portfolio securities is entirely
incidental. There can, of course, be no assurance that the objective of capital
appreciation will be realized; therefore, full consideration should be given to
the risks inherent in the investment techniques that MMC may use to achieve
such objective.
Under normal conditions, the Fund invests at least 65% of its total assets in
common stocks of small and medium sized companies, both domestic and foreign,
in the early stages of their life cycle that MMC believes have the potential to
become major enterprises. Investments in such companies may offer greater
opportunities for growth of capital than larger, more established companies,
but also may involve certain special risks. Emerging growth companies often
have limited product lines, markets, or financial resources, and they may be
dependent upon one or a few key people for management. The securities of such
companies may be subject to more abrupt or erratic market movements than secu-
rities of larger, more established companies or the market averages in general.
While the Fund will invest primarily in common stocks, to a limited extent, it
may invest in other securities such as preferred stocks, convertible securities
and warrants.
The Fund does not limit its investment to any single group or type of securi-
ty. The Fund may also invest in special situations involving new management,
special products and techniques, unusual developments, mergers or liquidations.
Investments in unseasoned companies and special situations often involve much
greater risks than are inherent in ordinary investments, because securities of
such companies may be more likely to experience unexpected fluctuations in
price.
The Fund's primary approach is to seek what MMC believes to be unusually
attractive growth investments on an individual company basis. The Fund may
invest in securities that have above average volatility of price movement.
Because prices of common stocks and other securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securi-
ties prices by spreading its investments over many different companies in a
variety of industries. There is, however, no assurance that the Fund will be
successful in achieving its objective.
The Fund may hold a portion of its assets in high grade short-term debt secu-
rities and high grade corporate or government bonds in order to provide liquid-
ity. Such investments may be increased by the Fund up to 100% of its assets,
when deemed appropriate by MMC for temporary defensive purposes. Short-term
investments may include repurchase agreements with banks or broker-dealers. The
Fund may invest up to 20% of its total assets in securities of foreign issuers.
See "Risk Factors and Special Considerations."
INTERNATIONAL EQUITY FUND
The goal of the International Equity Fund is to seek total return on its
assets from growth of capital and income. The Fund seeks to achieve its goal by
investing at least 65% of its assets in a diversified portfolio of equity secu-
rities of established non-United States issuers.
Under normal market conditions, the Fund invests at least 65% of its total
assets in a diversified portfolio of equity securities consisting of dividend
and non-dividend paying common stock, preferred stock, convertible debt and
rights and warrants to such securities and up to 35% of the Fund's assets in
bonds, notes and debt securities (consisting of securities issued in the
Eurocurrency markets or obligations of the United States or foreign governments
and their political subdivisions) of established non-United States issuers.
Investments may be made for capital appreciation or for income or any combina-
tion of both for the purpose of achieving a higher overall return than might
otherwise be obtained solely from investing for growth of capital or for
income. There is no limitation on the percentage or amount of the Fund's assets
which may be invested for growth or income and, therefore, from time to time
the investment emphasis may be placed solely or primarily on growth of capital
or solely or primarily on income.
15
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
In seeking to achieve its goal, the Fund presently expects to invest its
assets primarily in common stocks of established non-United States companies
which in the opinion of MMC have potential for growth of capital. However,
there is no requirement that the Fund invest exclusively in common stocks or
other equity securities and, if deemed advisable, the Fund may invest up to 35%
of its assets in bonds, notes and other debt securities (including securities
issued in the Eurocurrency markets or obligations of the United States or for-
eign governments and their political subdivisions). When MMC believes that the
return on debt securities will equal or exceed the return on common stocks, the
Fund may, in seeking its goal of total return, substantially increase its hold-
ings (up to a maximum of 35% of its assets) in such debt securities. In deter-
mining whether the Fund will be invested for capital appreciation or for income
or any combination of both, MMC regularly analyzes a broad range of interna-
tional equity and fixed income markets in order to assess the degree of risk
and level of return that can be expected from each market.
In general, the prices of debt securities vary inversely with interest rates.
If interest rates rise, debt security prices generally fall; if interest rates
fall, debt security prices generally rise. In addition, for a given change in
interest rates, longer-maturity debt securities fluctuate more in price (gain-
ing or losing more in value) than shorter-maturity debt securities, and gener-
ally offer higher yields than shorter-maturity debt securities, all other fac-
tors, including credit quality, being equal.
The Fund will generally invest its assets broadly among countries and will
normally have represented in the portfolio business activities in not less than
three different foreign countries. Except as stated below, the Fund will invest
at least 65% of its assets in companies organized or governments located in any
area of the world other than the United States, such as the Far East (e.g.,
Japan, Hong Kong, Singapore, Malaysia), Western Europe (e.g., United Kingdom,
Germany, The Netherlands, France, Italy, Switzerland), Eastern Europe (e.g.,
Hungary, Poland, The Czech Republic and the countries of the former Soviet
Union), Central and South America (e.g., Mexico, Chile and Venezuela), Austra-
lia, Canada and such other areas and countries as MMC may determine from time
to time. Allocation of the Fund's investments will depend upon the relative
attractiveness of the international markets and particular issuers. Concentra-
tion of the Fund's assets in one or a few countries or currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated.
Under unusual economic or market conditions as determined by MMC, for defen-
sive purposes the Fund may temporarily invest all or a major portion of its
assets in U.S. Government securities or in debt or equity securities of compa-
nies incorporated in and having their principal business activities in the
United States. To the extent the Fund's assets are invested for temporary
defensive purposes, such assets will not be invested in a manner designed to
achieve the Fund's investment goal.
In determining the appropriate distribution of investments among various coun-
tries and geographic regions, MMC ordinarily considers the following factors:
prospects for relative economic growth between countries; expected levels of
inflation; government policies influencing business conditions; the outlook for
currency relationships; and the range of individual investment opportunities
available to international investors. In the future, if any other relevant fac-
tors arise they will also be considered. In analyzing companies for investment,
MMC ordinarily looks for one or more of the following characteristics: an
above-average earnings growth per share; high return on invested capital;
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and prod-
uct development and marketing; efficient service; pricing flexibility; strength
of management; and general operating characteristics which will enable the com-
pany to compete successfully in its market place. Ordinarily, MMC will not view
a company as being sufficiently well established to be considered for inclusion
in the Fund's portfolio unless the company, together with any predecessors, has
been operating for at least three fiscal years. However, the Fund may invest up
to 5% of its assets in such "unseasoned" issuers.
It is expected that portfolio securities will ordinarily be traded on a stock
exchange or other market in the country in which the issuer is principally
based, but may also be traded on markets in other countries including, in many
cases, the United States securities exchanges and over-the-counter markets.
To the extent that the Fund's assets are not otherwise invested as described
above, the assets may be held in cash, in any currency, or invested in United
States as well as foreign high quality money market instruments and
equivalents.
GROWTH FUND
The goal of the Growth Fund is to seek capital appreciation through invest-
ments in common stocks and options on common stocks. Any income realized on its
investments will be purely incidental to its goal of capital appreciation.
Portfolio securities are selected by MMC using an investment research process
blending traditional security analysis and quantitative security techniques.
Such process includes focusing on securities of companies that MMC believes
either: (1) experienced above-average and consistent long-term growth of earn-
ings and have excellent prospects for outstanding future growth in earnings;
(2) are presently experiencing or expected to have a material increase in prof-
its and sales; (3) are undervalued either in that such securities are
16
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
selling at prices that do not reflect the current market value of its securi-
ties and there is reason to expect realization of this potential in the form of
increased equity values or that the potential improving prospects of the secu-
rity is not reflected in the price of the security; (4) will experience a fun-
damental change in structure that potentially may result in higher earnings; or
(5) will produce new products, new services or new processes. The Fund may
invest in options and other securities that have above average volatility of
price movement. Because prices of common stocks, options and other investments
fluctuate, the value of an investment in the Fund will vary based upon the
Fund's investment performance. The Fund attempts to reduce overall exposure to
risk from declines in securities prices by spreading its investments over many
different companies in a variety of industries and by using stock index options
and stock index futures and options thereon, as discussed in the Statement of
Additional Information. There is no assurance that the Fund will be successful
in achieving its goal.
The Fund may hold a portion of its assets in high grade short-term debt secu-
rities and high grade corporate or government bonds in order to provide liquid-
ity. The amount of assets the Fund may hold for liquidity purposes is based on
market conditions and the need to meet redemption requests. Such investments
may be increased by the Fund, up to 100% of its assets, when deemed appropriate
by MMC for temporary defensive purposes. A description of the ratings of com-
mercial paper and bonds is contained in the Appendix to the Statement of Addi-
tional Information. Short-term investments may include repurchase agreements
with banks or broker-dealers. See "Risk Factors and Special Considerations."
Certain policies of the Fund, such as purchasing and selling options on
stocks, purchasing options on stock indices and purchasing stock index futures
contracts and options thereon involve inherently greater investment risk and
could result in more volatile price fluctuations. Options, futures contracts
and related options are described in "Risk Factors and Special Considerations"
and the Statement of Additional Information. The Fund may also invest up to 20%
of its total assets in securities of foreign issuers and in investment compa-
nies. See "Risk Factors and Special Considerations." Since the Fund may take
substantial risks in seeking its goal of capital appreciation, it is not suit-
able for investors unable or unwilling to assume such risks.
GROWTH AND INCOME FUND
The goal of the Growth and Income Fund is to seek reasonable growth and income
through investments in equity securities that provide dividend or interest
income, including common and preferred stocks and securities convertible into
common and preferred stocks.
Portfolio securities are selected by MMC using an investment research process
blending traditional security analysis and quantitative security selection
techniques. Such process includes focusing on securities of companies that MMC
believes either: (1) experienced above-average and consistent long-term growth
of earnings and have excellent prospects for outstanding future growth in earn-
ings; (2) are presently experiencing or expected to have a material increase in
profits and sales; (3) are undervalued either in that such securities are sell-
ing at prices that do not reflect the current market value of its securities
and there is reason to expect realization of this potential in the form of
increased equity values or that the potential improving prospects of the secu-
rity is not reflected in the price of the security; (4) will experience a fun-
damental change in structure that potentially may result in higher earnings; or
(5) will produce new products, new services or new processes. In general, the
Fund intends to invest primarily in securities that have yielded a dividend or
interest income to security holders within the past twelve months; however, it
may invest in non-income producing investments held for anticipated increase in
value. There is no assurance that the Fund will be successful in achieving its
goal.
Convertible securities rank senior to common stocks in a corporation's capital
structure. They are consequently of higher quality and entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible secu-
rity sells above its value as fixed income security. The Fund may purchase con-
vertible securities rated Ba or lower by Moody's or BB or lower by S&P or in
non-rated securities considered by MMC to be of comparable quality. Although
the Fund selects these securities primarily on the basis of their equity char-
acteristics, investors should be aware that debt securities rated in these cat-
egories are considered high risk securities; the rating agencies consider them
speculative, and payment of interest and principal is not considered well
assured. To the extent that such convertible securities are acquired by the
Fund, there is a greater risk as to the timely payment of the principal of, and
timely payment of interest or dividends on, such securities than in the case of
higher rated convertible securities.
Although the portfolio turnover rate will not be considered a limiting factor,
the Fund does not intend to engage in trading directed at realizing short-term
profits. Nevertheless, changes in the portfolio will be made promptly when
determined to be advisable by reason of developments not foreseen at the time
of the investment decision, and usually without reference to the length of time
the security has been held.
17
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
The Fund may hold a portion of its assets in high grade short-term debt secu-
rities and high grade corporate or government bonds in order to provide liquid-
ity. The amount of assets the Fund may hold for liquidity purposes is based on
market conditions and the need to meet redemption requests. Such investment may
be increased by the Fund, up to 100% of its assets, when deemed appropriate by
MMC for temporary defensive purposes. Short-term investments may include repur-
chase agreements with banks or broker-dealers. See "Risk Factors and Special
Considerations." The Fund may also invest up to 20% of its total assets in
securities of foreign issuers and in investment companies. See "Risk Factors
and Special Considerations." The Fund may engage in portfolio management strat-
egies and techniques involving options, futures contracts and options on
futures. Options, futures contracts and related options are described in "Risk
Factors and Special Considerations" and the Statement of Additional Informa-
tion.
GOVERNMENT FUND
The goal of the Government Fund is to seek high current return consistent with
preservation of capital. The Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. In
order to hedge against changes in interest rates, the Fund may purchase or sell
options on U.S. Government securities and engage in transactions involving
interest rate futures contracts and options on such contracts. See "Risk Fac-
tors and Special Considerations" and the Statement of Additional Information
for further discussion. The Fund may invest in repurchase agreements fully col-
lateralized by U.S. Government securities. The Fund may also purchase or sell
U.S. Government securities on a forward commitment basis. See "Risk Factors and
Special Considerations." The Fund is not designed for investors seeking long-
term capital appreciation. Shares of the Fund are not insured or guaranteed by
the U.S. Government, its agencies or instrumentalities or by any other person
or entity. There is no assurance that the Fund will be successful in achieving
its goal.
The Fund may also engage in transactions involving obligations issued or guar-
anteed by U.S. Government agencies and instrumentalities which are supported by
any of the following: (a) the full faith and credit of the U.S. Government
(such as Government National Mortgage Association ("GNMA") Certificates), (b)
the right of the issuer to borrow an amount limited to a specific line of
credit from the U.S. Government, (c) discretionary authority of the U.S. Gov-
ernment agency or instrumentality, or (d) the credit of the instrumentality.
Agencies and instrumentalities include, but are not limited to: Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and Federal National Mort-
gage Association ("FNMA"). The Fund expects in any event that at all times at
least 80% of its assets will be invested in U.S. Government securities.
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities include: (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities of greater than ten years), including
the principal components or the interest components issued by the U.S. Govern-
ment under the Separate Trading of Registered Interest and Principal of Securi-
ties program (i.e. "STRIPS"), all of which are backed by the full faith and
credit of the United States; and (2) obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, including government guaranteed mort-
gage-related securities, some of which are backed by the full faith and credit
of the U.S. Treasury, some of which are supported by the right of the issue to
borrow from the U.S. Government and some of which are backed only by the credit
of the issuer itself.
Mortgage loans made by banks, savings and loan institutions, and other lenders
are often assembled into pools, which are issued or guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily by the U.S. Gov-
ernment itself. Interests in such pools are what this Prospectus calls "mort-
gage-related securities."
Mortgage-related securities include, but are not limited to, obligations
issued or guaranteed by GNMA, FNMA and the Federal Home Loan Mortgage Corpora-
tion ("FHLMC"). GNMA is a wholly owned corporate instrumentality of the United
States whose securities and guarantees are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately-owned corpora-
tion, and FHLMC, a federal corporation, are instrumentalities of the United
States. The securities and guarantees of FNMA and FHLMC are not backed,
directly or indirectly, by the full faith and credit of the United States.
Although the Secretary of the Treasury of the United States has discretionary
authority to lend FNMA up to $2.25 billion outstanding at any time, neither the
United States nor any agency thereof is obligated to finance FNMA's or FHLMC's
operations or to assist FNMA or FHLMC in any other manner. Securities of FNMA
and FHLMC include those issued in principal only or interest only components.
Mortgage-related securities are characterized by monthly payments to the hold-
er, reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans. The payments to the securityholders (such as the
Fund), like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as 20 or 30 years, the borrowers can, and typically do, pay them off
sooner. Thus, the securityholders frequently receive prepayments of principal,
in addition to the principal which is part of the regular monthly payment. A
borrower is more likely to prepay a
18
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
mortgage which bears a relatively high rate of interest. This means that in
times of declining interest rates, some of the Fund's higher yielding securi-
ties might be converted to cash, and the Fund will be forced to accept lower
interest rates when that cash is used to purchase additional securities. The
increased likelihood of prepayment when interest rates decline also limits mar-
ket price appreciation of mortgage-related securities. If the Fund buys mort-
gage-related securities at a premium, mortgage foreclosures or mortgage prepay-
ments may result in a loss to the Fund of up to the amount of the premium paid
since only timely payment of principal and interest is guaranteed.
In general, the prices of debt securities vary inversely with interest rates.
If interest rates rise, debt security prices generally fall; if interest rates
fall, debt security prices generally rise. In addition, for a given change in
interest rates, longer-maturity debt securities fluctuate more in price (gain-
ing or losing more in value) than shorter-maturity debt securities, and gener-
ally offer higher yields than shorter-maturity debt securities, all other fac-
tors, including credit quality, being equal. This potential for a decline in
prices of debt securities due to rising interest rates is referred to herein as
"market risk." While the Fund has no policy limiting the maturities of the debt
securities in which it may invest, MMC seeks to moderate market risk by gener-
ally maintaining a portfolio duration within a range of approximately four to
six years. Duration is a measure of the expected life of a debt security that
was developed as a more precise alternative to the concept of "term to maturi-
ty." Duration incorporates a debt security's yield, coupon interest payments,
final maturity and call features into one measure.
Traditionally a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "price volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration measures the length of the
time interval between the present and the time when the interest and principal
payments are scheduled to be received (or in the case of a callable bond,
expected to be received), weighing them by the present value of the cash to be
received at each future point in time. In general, the lower the coupon rate of
interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration.
With respect to some securities, there may be some situations where even the
standard duration calculation does not properly reflect the interest rate expo-
sure of a security. In these and other similar situations, MMC will use more
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure. The duration is
likely to vary from time to time as MMC pursues its strategy of striving to
maintain an active balance between seeking to maximize income and endeavoring
to maintain the value of the Fund's capital. Thus, the objective of providing
high current return consistent with preservation of capital to shareholders is
tempered by seeking to avoid undue market risk and thus provide reasonable
total return as well as high distributed return. There is, of course, no assur-
ance that MMC will be successful in achieving such results for the Fund.
The Fund generally purchases debt securities at a premium over the principal
or face value in order to obtain higher current income. The amount of any pre-
mium declines during the term of the security to zero at maturity. Such decline
generally is reflected in the market price of the security and thus in the
Fund's net asset value. Any such decline is realized for accounting purposes as
a capital loss at maturity or upon resale. Prior to maturity or resale, such
decline in value could be offset, in whole or part, or increased by changes in
the value of the security due to changes in interest rate levels.
The principal reason for selling call or put options is to obtain, through the
receipt of premiums, a greater return than would be realized on the underlying
securities alone. By selling options, the Fund reduces its potential for capi-
tal appreciation on debt securities if interest rates decline. Thus, if market
prices of debt securities increase, the Fund would receive a lower total return
from its optioned positions than it would have received if the options had not
been sold. The purpose of selling options is intended to improve the Fund's
total return and not to "enhance" monthly distributions. During periods when
the Fund has capital loss carryforwards, any capital gains generated from such
transactions will be retained in the Fund. See "Risk Factors and Special Con-
siderations" and the Statement of Additional Information for further discus-
sion.
The purchase and sale of options may result in a high portfolio turnover rate.
The Fund's turnover rate is shown in the table of Financial Highlights. See
"Risk Factors and Special Considerations" for a discussion of the effect of a
Fund's portfolio turnover.
MUNICIPAL FUND
The goal of the Municipal Fund is to seek as high a level of current interest
income exempt from federal income tax as is consistent with the preservation of
capital. Because the value of and yield on municipal bonds fluctuate, there can
be no assurance that the Fund's goal will be achieved.
19
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
The Fund seeks to achieve its objective by investing in a diversified portfo-
lio of obligations issued by or on behalf of states, territories or possessions
of the United States and the District of Columbia and their political subdivi-
sions, agencies and instrumentalities, the interest from which, in the opinion
of bond counsel for the issuer, is exempt from federal income tax ("Municipal
Bonds"). It is a fundamental policy of the Fund under normal conditions to
invest at least 80% of its assets in Municipal Bonds which are considered tax-
exempt. The Fund does not independently evaluate the tax-exempt status of the
Municipal Bonds in which it invests. The Fund invests principally in Municipal
Bonds rated at the time of purchase within the three highest grades assigned by
Moody's or S&P. Ratings at the time of purchase determine which securities may
be acquired, and a subsequent reduction in rating does not require the Fund to
dispose of a security. At least 75% of the Fund's total assets will be invested
in Municipal Bonds rated "A" or higher. The Fund may invest up to 25% of its
total assets in Municipal Bonds rated "Baa" by Moody's or "BBB" by S&P or any
non-rated Municipal Bonds having characteristics similar to Municipal Bonds
rated "Baa" or "BBB." Municipal Bonds rated BBB or Baa may have speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade Municipal Bonds. The market prices of
Municipal Bonds generally fluctuate with changes in interest rates so that the
value of investments in such securities can be expected to decrease as interest
rates rise and increase as interest rates fall. Because investment in lower
rated securities involves greater investment risks, achievement of the Fund's
goal may be more dependent on MMC's credit analysis than would be the case if
the Fund invested only in higher rated securities. Non-rated Municipal Bonds
are not necessarily of lower quality than rated Municipal Bonds, but the market
for rated Municipal Bonds is often broader. The Fund may seek to hedge against
changes in interest rates through transactions in listed futures contracts
related to U.S. Government securities, Municipal Bonds or to an index of Munic-
ipal Bonds, and options on such contracts. See the Statement of Additional
Information for discussion of futures contracts and options.
On a temporary basis, due to market conditions or pending investment in Munic-
ipal Bonds, the Fund may invest up to 100% of its assets in "Temporary Invest-
ments" consisting of short-term municipal notes rated MIG 1 through MIG 4 by
Moody's or SP-1 or SP-2 by S&P; tax-exempt commercial paper rated P-1 or P-2 in
the case of Moody's or A-1 or A-2 by S&P; securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; corporate bonds and
debentures; certificates of deposit and bankers' acceptances of domestic banks
with assets of $500 million or more and having deposits insured by the Federal
Deposit Insurance Corporation; commercial paper and repurchase agreements. The
income on corporate bonds and debentures, certificates of deposit and bankers'
acceptances, commercial paper and repurchase agreements is taxable. See the
Appendix in the Statement of Additional Information for discussion of ratings
of commercial paper and bonds.
The Fund may invest up to 10% of its net assets in illiquid securities which
include Municipal Bonds issued in limited placements under which the Fund rep-
resents that it is purchasing for investment purposes only, repurchase agree-
ments maturing in more than seven days and other securities subject to legal or
contractual restrictions on resale. Municipal Bonds acquired in limited place-
ments generally may be resold only in a privately negotiated transaction to one
or more other institutional investors. Restricted securities are generally pur-
chased at a discount from the market price of unrestricted securities of the
same issuer. Investments in restricted securities are not readily marketable
without some time delay. A Fund position in restricted securities might
adversely affect the liquidity and marketability of such securities. Such limi-
tations could result in the Fund's inability to realize a favorable price upon
disposition, and in some cases might make disposition of such securities at the
time desired by the Fund impossible. The 10% limitation applies at the time the
purchase commitment is made. See "Risk Factors and Special Considerations."
Variations in the quality and maturity of the Fund's portfolio investments can
be expected to affect the Fund's yield and the degree of market and financial
risk to which the Fund is subject. Generally, Municipal Bonds with longer matu-
rities tend to produce higher yields and are subject to greater market fluctua-
tions as a result of changes in interest rates than Municipal Bonds with
shorter maturities and lower yields. The market value of Municipal Bonds gener-
ally rises when interest rates decline and falls when interest rates rise. Gen-
erally lower rated Municipal Bonds provide a higher yield than higher rated
Municipal Bonds of similar maturity but are subject to greater market and
financial risk. The Fund is not limited as to the maturities of the Municipal
Bonds in which it invests. Such securities may have remaining maturities of up
to 30 years or more.
Municipal Bonds. Municipal Bonds include debt obligations of a state, terri-
tory or a possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities issued to obtain
funds for various public purposes, including the construction of a wide range
of public facilities such as airports, highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer works. Other public
purposes for which Municipal Bonds may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to lend to other public institutions and facilities. Certain types of Municipal
Bonds are issued to obtain funding for privately operated facilities.
Many new issues of Municipal Bonds are sold on a "when issued" basis. While
the Fund has ownership rights to the bonds, the Fund does not have to pay for
them until they are delivered, normally 15 to 45 days later. To meet that pay-
ment obligation, the Fund
20
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
sets aside with the custodian sufficient cash or high grade securities equal to
the amount that will be due. When the Fund engages in when-issued and delayed
delivery transactions, the Fund relies on the buyer or seller, as the case may
be, to consummate the trade. Failure of the buyer or seller to do so may result
in the Fund missing the opportunity of obtaining a price considered to be
advantageous. See "Risk Factors and Special Considerations."
The yields of Municipal Bonds depend on, among other things, general money
market conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue.
The ratings of Moody's and S&P represent their opinions of the quality of the
Municipal Bonds they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
Municipal Bonds with the same maturity, coupon and rating may have different
yields while Municipal Bonds of the same maturity and coupon with different
ratings may have the same yield. A description of the ratings is included in
the Statement of Additional Information.
Among the various types of Municipal Bonds are general obligation bonds, reve-
nue or special obligation bonds, industrial development bonds, pollution con-
trol bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes.
General obligation bonds are backed by the taxing power of the issuing munici-
pality. Revenue bonds are backed by the revenues of a project or facility--
tolls from a toll-bridge, for example. Industrial development revenue bonds are
a specific type of revenue bond backed by the credit and security of a private
user. The Fund's ability to achieve its goal depends to a great extent on the
ability of these various issuers to meet their scheduled payments of principal
and interest.
The Fund considers investments in Municipal Bonds not to be subject to concen-
tration policies and may invest a relatively high percentage of its assets in
Municipal Bonds issued by entities having similar characteristics. The issuers
may be located in the same geographic area or may pay their interest obliga-
tions from revenue of similar projects such as hospitals, utility systems and
housing finance agencies. This may make the Fund's investments more susceptible
to similar economic, political or regulatory occurrences. As the similarity in
issuers increases, the potential for fluctuation in the Fund's per share net
asset value also increases. The Fund may invest more than 25% of its total
assets in industrial development revenue bonds, but it does not intend to
invest more than 25% of its assets in industrial development revenue bonds
issued for companies in the same industry or state. Sizeable investments in
such obligations could involve an increased risk to the Fund should any of such
issuers of any such relate projects or facilities experience financial diffi-
culties.
From time to time, proposals have been introduced before Congress for the pur-
pose of restricting or eliminating the federal income tax exemption for inter-
est on Municipal Bonds. It may be expected that similar proposals may be intro-
duced in the future. If any such proposals were to be enacted, the ability of
the Fund to pay "exempt-interest" dividends may be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.
Interest on certain "private-activity bonds" issued after August 7, 1986, is
an item of tax preference subject to the alternative minimum tax on individuals
and corporations. THE FUND WILL NOT PURCHASE ANY PRIVATE ACTIVITY BONDS SUBJECT
TO THE ALTERNATIVE MINIMUM TAX.
The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gain. One such provision affects tax-exempt
securities by requiring that gains on certain debt instruments purchased at a
market discount be treated as ordinary income to the extent of the accrued mar-
ket discount. The law extends this treatment to market discount bonds issued
before July 18, 1984 and to tax-exempt bonds, if the bonds are acquired after
April 30, 1993. Such bonds were exempt from the market discount rules under
prior law.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Repurchase Agreements (All Funds). Each Fund may enter into repurchase agree-
ments with broker-dealers or domestic banks. A repurchase agreement is a short-
term investment in which the purchaser (e.g., the Fund) acquires ownership of a
debt security and the seller agrees to repurchase the obligation at a future
time and set price, thereby determining the yield during the purchaser's hold-
ing period. Repurchase agreements involve certain risks in the event of a
default by the other party. No Fund will invest in repurchase agreements matur-
ing in more than seven days if any such investment, together with any other
illiquid securities held by such Fund, exceeds in the case of the Emerging
Growth Fund and the International Equity Fund, 15% of the value of the Fund's
net assets and, in the case of the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Fund 10% of the value of the Fund's net
assets. The International Equity Fund may enter into repurchase agreements of
up to 25% of its assets but the Fund currently does not expect that it will
enter into repurchase agreements on more than 5% of its assets. See the State-
ment of Additional Information.
21
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
For the purpose of investing in repurchase agreements, MMC may aggregate the
cash that certain funds advised or subadvised by MMC or its affiliates would
otherwise invest separately into a joint account. The cash in the joint account
is then invested in repurchase agreements and the funds that contributed to the
joint account share pro rata in the net revenue generated. MMC believes that
the joint account produces efficiencies and economies of scale that may con-
tribute to reduced transaction costs, higher returns, higher quality invest-
ments and greater diversity of investments for a Fund than would be available
to a Fund investing separately. The manner in which the joint account is man-
aged is subject to conditions set forth in an SEC exemptive order authorizing
this practice, which conditions are designed to ensure the fair administration
of the joint account and to protect the amounts in that account.
Adjusting Investment Exposure (All Funds). The Funds can use various tech-
niques to increase or decrease their exposure to changing security prices,
interest rates, commodity prices, or other factors that affect security values.
These techniques may involve derivative securities such as options, futures
contracts, swaps, and forward commitments, all as discussed more fully below.
Options, Futures and Related Options (All Funds). The Funds expect to utilize
options, futures contracts and options thereon in several different ways,
depending upon the status of a Fund's portfolio and MMC's expectations concern-
ing the securities markets.
For example, in times of stable or rising security prices, a Fund generally
seeks to obtain maximum exposure to the securities markets, i.e., to be "fully
invested." Nevertheless, even when a Fund is fully invested, prudent management
requires that at least a small portion of assets be available as cash to honor
redemption requests and for other short-term needs. A Fund may also have cash
on hand that has not yet been invested. The portion of a Fund's assets that is
invested in cash equivalents does not fluctuate with security market prices, so
that, in times of rising market prices, a Fund may underperform the market in
proportion to the amount of cash equivalents in its portfolio. By purchasing
futures contracts, however, a Fund can compensate for the cash portion of its
assets and obtain equivalent performance to investing 100% of its assets in
equity securities.
If MMC forecasts a market decline, a Fund may take a defensive position,
reducing its exposure to the securities markets by increasing its cash posi-
tion. By selling futures contracts instead of portfolio securities, a similar
result can be achieved to the extent that the performance of the futures con-
tracts correlates to the performance of a Fund's portfolio securities. Sale of
futures contracts could frequently be accomplished more rapidly and at less
cost than the actual sale of securities. Once the desired hedged position has
been effected, a Fund could then liquidate securities in a more deliberate man-
ner, reducing its futures position simultaneously to maintain the desired bal-
ance, or it could maintain the hedged position.
As an alternative to selling futures contracts, a Fund can purchase puts (or
futures puts) to hedge the portfolio's risk in a declining market. Since the
value of a put increases as the index declines below a specified level, the
portfolio's value is protected against a market decline to the degree the per-
formance of the index correlates with the performance of a Fund's investment
portfolio. If the market remains stable or advances, a Fund can refrain from
exercising the put and its portfolio will participate in the advance, having
incurred only the premium cost for the put.
In many cases, a Fund could achieve results similar to those available from
options and futures contracts without investing in the options and futures mar-
kets. For example, instead of hedging portfolio securities it owned with
options and futures contracts, the Fund could sell the securities and invest
the proceeds in money market instruments. In other cases, however, the options
and futures markets provide investment or risk management opportunities that
are not available from direct investments in securities. In addition, some
strategies can be implemented with greater ease and at lower cost by utilizing
the options and futures markets.
The International Equity Fund may enter into futures contracts and options for
non-hedging purposes, subject to applicable law. Such transactions may be con-
sidered a form of speculation.
Potential Risks of Options, Futures and Related Options (All Funds). The pur-
chase and sale of options and futures contracts involve risks different from
those involved with direct investments in underlying securities. While utiliza-
tion of options, futures contracts and similar instruments may be advantageous
to a Fund, if MMC is not successful in employing such instruments in managing a
Fund's investments, a Fund's performance will be worse than if a Fund did not
make such investments. In addition, a Fund would pay commissions and other
costs in connection with such investments, which may increase a Fund's expenses
and reduce its return.
Each Fund other than the Municipal Fund may write or purchase options in pri-
vately negotiated transactions ("OTC Options") as well as listed options. OTC
Options can be closed out only by agreement with the other party to the trans-
action. Any OTC Option purchased by a Fund will be considered an illiquid secu-
rity. Any OTC Option written by a Fund will be with a qualified dealer pursuant
22
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
to an agreement under which the Fund may repurchase the option at a formula
price. Such options will be considered illiquid to the extent that the formula
price exceeds the intrinsic value of the option. Each Fund other than the
International Equity Fund may not purchase or sell futures contracts or related
options for which the aggregate initial margin and premiums exceed 5% of the
fair market value of the Fund's assets. The International Equity Fund may enter
into transactions in futures contracts and options on futures contracts only
(i) for bona fide hedging purposes (as defined in the regulations of the Com-
modity Futures Trading Commission (the "CFTC")), or (ii) for non-hedging pur-
poses provided that the aggregate initial margin and premiums on such non-hedg-
ing positions does not exceed 5% of the liquidation value of the Fund's assets.
In order to prevent leverage in connection with the purchase of futures con-
tracts thereon by the Fund, appropriate securities as required by the 1940 Act
equal to the market value of the obligation under the futures contracts (less
any related margin deposits) will be maintained in a segregated account with
the Fund's custodian. The Growth Fund, the Growth and Income Fund, the Govern-
ment Fund and the Municipal Fund may not invest more than 10% of their net
assets in illiquid securities and repurchase agreements which have a maturity
of longer than seven days; the Emerging Growth Fund and the International
Equity Fund are limited to 15% of their net assets. The successful use of
futures and options is dependent upon the ability of MMC to predict changes in
interest rates. The daily deposit requirements in futures contracts create an
ongoing greater potential financial risk than do option purchase transactions,
where the exposure is limited to the cost of the premium for the option. Trans-
actions in futures and options on futures for non-hedging purposes involve
greater risks and could result in losses which are not offset by gains on other
portfolio assets. A more complete discussion of the potential risks involved in
transactions involving options or futures contracts and related options, is
contained in the Statement of Additional Information.
Special Risks Associated with Futures Transactions (All Funds). There are sev-
eral risks connected with the use of futures contracts as a hedging device.
These include the risk of imperfect correlation between movements in the price
of the futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.
Currency Transactions (International Equity Fund). In order to protect the
dollar equivalent value of its portfolio securities against declines resulting
from currency value fluctuations and changes in interest rate or other market
changes, the Fund may enter into the following hedging transactions: forward
foreign currency contracts, interest rate and currency swaps and various
futures contracts and related options contracts. The Fund will enter into vari-
ous currency transactions, i.e., forward foreign currency contracts, currency
swaps, foreign currency or currency index futures contracts and put and call
options on such contracts or on currencies. A forward foreign currency contract
involves an obligation to purchase or sell a specific currency for a set price
at a future date. A currency swap is an arrangement whereby each party
exchanges one currency for another on a particular date and agrees to reverse
the exchange on a later date at a specific exchange rate. Forward foreign cur-
rency contracts and currency swaps are established in the interbank market con-
ducted directly between currency traders (usually large commercial banks or
other financial institutions) on behalf of their customers. Futures contracts
are similar to forward contracts except that they are traded on an organized
exchange and the obligations thereunder may be offset by taking an equal but
opposite position to the original contract, with profit or loss determined by
the relative prices between the opening and offsetting positions. The Fund may
enter into these currency contracts and swaps in primarily the following cir-
cumstances to "lock in" the U.S. dollar equivalent price of a security the Fund
is contemplating to buy or sell that is denominated in a non-U.S. currency; or
to protect against a decline against the U.S. dollar of the currency of a par-
ticular country to which the Fund has exposure. The Fund may seek to achieve
the same economic result by using from time to time for such hedging a currency
different from the one of the given portfolio security as long as, in the view
of MMC, such currency is essentially correlated to the currency of the relevant
portfolio security based on historic and expected exchange rate patterns.
Interest Rate Transactions (International Equity Fund). The Fund will enter
into various interest rate transactions (i.e., futures contracts in various
financial instruments and interest rate related indices, put and call options
on such futures contracts and on such financial instruments and interest rate
swaps). The Fund will enter into these transactions primarily to " lock-in" a
return or spread on a particular investment or portion of its portfolio and to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitment to pay or receive inter-
est (e.g., an exchange of floating rate payments for fixed rate payments). The
Fund will not enter into an interest rate swap transaction in which its inter-
est commitment is greater or measured differently than the interest receivable
on specific portfolio securities. Interest rate swaps may be combined with cur-
rency swaps to take advantage of rate differentials in different markets on the
same or similar securities.
Market Index Transactions (International Equity Fund). The Fund may enter into
various market index contracts (i.e., index futures contracts on particular
non-U.S. securities markets or industry segments and related put and call
options). These contracts are used primarily to protect the value of the Fund's
securities against a decline in a particular market or industry in which it is
invested.
23
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
Potential Risks of Currency Transactions, Interest Rate Transactions and Mar-
ket Index Transactions (International Equity Fund). The Fund will engage in
these transactions primarily as a means to hedge risks associated with manage-
ment of its portfolio. All of the foregoing transactions present certain risks.
In particular, the variable degree of correlation between price movements of
futures contracts and dollar equivalent price movements in the currency or
security being hedged creates the possibility that losses on the hedge may be
greater than gains in the value of the Fund's securities. In addition, these
instruments may not be liquid in all circumstances and are generally closed out
by entering into offsetting transactions rather than by disposing of the Fund's
obligations. As a result, in volatile markets, the Fund may not be able to
close out a transaction without incurring losses. Although the contemplated use
of these contracts should tend to minimize the risk of loss due to a decline in
the value of the hedged currency or security, at the same time they tend to
limit any potential gain which might result from an increase in the value of
such currency or security.
With respect to interest rate swaps, the Fund recognizes that such arrange-
ments are relatively illiquid and will include the principal amount of the
obligations owed to it under a swap as an illiquid security for purposes of the
Fund's investment restrictions except to the extent a third party (such as a
large commercial bank) has guaranteed the Fund's ability to offset the swap at
any time.
Securities of Foreign Issuers (All Funds except Government Fund and Municipal
Fund). The International Equity Fund invests at least 65% of its total assets
in the equity securities of foreign issuers and the Emerging Growth Fund, the
Growth Fund and the Growth and Income Fund may invest up to 20% of the value of
their total assets in securities of foreign governments and companies of devel-
oped and emerging markets countries.
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or
other foreign or United States governmental laws or restrictions applicable to
such investments. Since each Fund may invest in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates may affect the value of investments in the portfolio and the
accrued income and unrealized appreciation or depreciation of investments.
Changes in foreign currency rates relative to the U.S. dollar will affect the
U.S. dollar value of the Fund's assets denominated in that currency and the
Fund's yield on such assets.
Each Fund may also purchase foreign securities in the form of American Deposi-
tary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other secu-
rities representing underlying shares of foreign companies. ADRs are publicly
traded on exchanges or over-the-counter in the United States and are issued
through "sponsored" or "unsponsored" arrangements. In a sponsored ADR arrange-
ment, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be reliable for an unsponsored
ADR as it is for a sponsored ADR. Each Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.
With respect to certain foreign countries, there is the possibility of expro-
priation of assets, confiscatory taxation, political or social instability or
diplomatic developments which could affect investment in those countries. There
may be less publicly available information about a foreign security than about
a United States security, and foreign entities may not be subject to account-
ing, auditing and financial reporting standards and requirements comparable to
those of United States entities. In addition, certain foreign investments made
by the Fund may be subject to foreign withholding taxes, which would reduce the
Fund's total return on such investments and the amounts available for distribu-
tions by the Fund to its shareholders. See "Dividends, Distributions and Tax-
es." Foreign financial markets, while growing in volume, have, for the most
part, substantially less volume than United States markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign markets also have dif-
ferent clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are not invested and no return is earned thereon. The inability of each Fund to
make intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Inability to dispose of port-
folio securities due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in pos-
sible liability to the purchaser. Costs associated with transactions in foreign
securities, including custodial costs and foreign brokerage commissions, are
generally higher than with transactions in United States securities. In addi-
tion, each Fund will incur cost in connection with conversions between various
currencies. There is generally less government supervision and regulation of
exchanges, financial institutions and issuers in foreign countries than there
are in the United States. These risks may be intensified in the case of invest-
ments in developing or emerging markets. In many developing markets, there is
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. The
foreign securities markets of many of the countries in which the Fund may
invest may also be smaller, less liquid, and subject to greater price volatil-
ity than those in the United States.
24
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
Finally, in the event of a default on any such foreign debt obligations, it may
be more difficult for the Fund to obtain or to enforce a judgment against the
issuers of such securities.
The Emerging Growth Fund, the International Equity Fund, the Growth Fund and
the Growth and Income Fund may invest in the securities of developing coun-
tries. A developing country generally is considered to be a country that is in
the initial stages of its industrialization cycle. Investing in the equity and
fixed-income markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political systems
that can be expected to have less stability, than those of developed countries.
Historical experience indicates that the markets of developing countries have
been more volatile than the markets of the more mature economics of developed
countries; however, such markets often have provided higher rates of return to
investors.
One or more of the risk discussed above could affect adversely the economy of
a developing market or a Fund's investments in such a market. In Eastern
Europe, for example, upon the accession to power of Communist regimes in the
past, the governments of a number of Eastern European countries expropriated a
large amount of property. The claims of many property owners against those gov-
ernments were never finally settled. There can be no assurance that any invest-
ments that the Fund might make in such emerging markets would not be expropri-
ated, nationalized or otherwise confiscated at some time in the future. In such
an event, the Fund could lose its entire investment in the market involved.
Moreover, changes in the leadership or policies of such markets could halt the
expansion or reverse the liberalization of foreign investment policies now
occurring in certain of these markets and adversely affect existing investment
opportunities.
Forward Commitments (Government Fund). The Fund may purchase or sell U.S. Gov-
ernment securities on a "when-issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place in the future, frequently a
month or more after such transactions. The price is fixed on the date of the
commitment, and the seller continues to accrue interest on the securities cov-
ered by the Forward Commitment until delivery and payment take place. At the
time of settlement, the market value of the securities may be more or less than
the purchase or sale price.
The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in
another Forward Commitment. The Fund's use of Forward Commitments may increase
its overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the other party to complete
the transaction; should the other party fail to do so, the Fund might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.
The Fund maintains a segregated account (which is marked to market daily) of
appropriate securities as required by the 1940 Act covered by the Forward Com-
mitment with the Fund's custodian in an aggregate amount equal to the amount of
its commitment as long as the obligation to purchase or sell continues.
Loans of Portfolio Securities (All Funds). Each Fund may lend portfolio secu-
rities to unaffiliated brokers, dealers and financial institutions provided
that (a) immediately after any such loan, the value of the securities loaned
does not exceed 10% of the total value of that Fund's assets (15% in the case
of the Emerging Growth Fund and the International Equity Fund), and (b) any
securities loan is collateralized in accordance with applicable regulatory
requirements. MMC believes the risk of loss on such transaction is slight,
because, if a borrower was to default for any reason, the collateral should
satisfy the obligation. See the Statement of Additional Information.
Variable Rate Demand Notes (Municipal Fund). The Fund may invest in variable
rate demand notes ("VRDNs") which are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and which are subject to
an unconditional right of demand to receive payment of the principal balance
plus accrued interest either at any time or at specified intervals not exceed-
ing one year and in either case upon no more than seven days' notice. The
interest rates are adjustable at intervals ranging from daily ("floating rate")
to up to one year to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The adjust-
ments are typically based upon the prime rate of a bank or some other appropri-
ate interest rate adjustment index.
The Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution"). Participat-
ing VRDNs provide the Fund with a specified undivided interest (up to 100%) in
the underlying obligation and the right to demand payment of the unpaid princi-
pal balance plus accrued interest on the Participating VRDNs from the institu-
tion upon a specified number of days' notice, not to exceed seven days. The
Fund has an undivided interest in the underlying obligation and thus partici-
pates on the same basis as the institution in such
25
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
obligation except that the institution typically retains fees out of the inter-
est paid on the obligation for servicing the obligation and issuing the repur-
chase commitment.
Stand-by Commitments (Municipal Fund). The Fund may acquire stand-by commit-
ments with respect to Municipal Bonds held by it. Under a stand-by commitment,
a bank or dealer from which Municipal Bonds are acquired agrees to purchase
from the Fund, at the Fund's option, the Municipal Bonds at a specified price.
Such commitments are sometimes called "liquidity puts."
The amount payable to the Fund upon its exercise of a stand-by commitment is
normally (i) the Fund's acquisition cost of the Municipal Bonds (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period. Stand-by
commitments generally can be acquired when the remaining maturity of the under-
lying Municipal Bonds is not greater than one year, and are exercisable by the
Fund at any time before the maturity of such obligations.
The Fund's right to exercise stand-by commitments is unconditional and unqual-
ified. A stand-by commitment generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Bonds to a third party at
any time.
The Fund expects that stand-by commitments will generally be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a stand-by commitment either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available for
the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund will not exceed one-half of one percent
of the value of the Fund's total asses calculated immediately after each stand-
by commitment is acquired. The Fund intends to enter into stand-by commitments
only with banks and dealers which, in MMC's opinion, present minimal credit
risks.
The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the valua-
tion of the underlying Municipal Bonds which would continue to be valued in
accordance with the method of valuation employed by the Fund. Stand-by commit-
ments acquired by the Fund would be valued at zero in determining net asset
value. Where the Fund paid any consideration directly or indirectly for a
stand-by commitment, the cost would be reflected as unrealized depreciation for
the period during which the commitment was held by the Fund.
Delayed Delivery and When-Issued Securities (Municipal Fund). Municipal Bonds
may at times be purchased or sold on a "delayed delivery" or a "when issued"
basis. These transactions arise when securities are purchased or sold by the
Fund with payment and delivery taking place in the future, often a month or
more after the purchase. The payment obligation and the interest rate are each
fixed at the time the Fund enters into the commitment. The Fund will only make
commitments to purchase such securities with the intention of actually acquir-
ing the securities, but the Fund may sell these securities prior to settlement
date if it is deemed advisable. Purchasing Municipal Bonds on a when-issued
basis involves the risk that the yields available in the market when the deliv-
ery takes place may actually be higher than those obtained in the transaction
itself; if yields so increase, the value of the when-issued obligation will
generally decrease. The Fund maintains a separate account at its custodian bank
consisting of appropriate securities as required by the 1940 Act (valued on a
daily basis) equal to all times to the amount of any when-issued commitment.
Restricted Securities (All Funds). The Emerging Growth Fund and the Interna-
tional Equity Fund may each invest up to 15% of their net assets in restricted
securities and other illiquid assets and the Growth Fund, the Growth and Income
Fund, the Government Fund and the Municipal Bond Fund may each invest up to 5%
of their net assets. As used herein, restricted securities are those that have
been sold in the United States without registration under the Securities Act of
1933 and are thus subject to restrictions on resale. Excluded from the limita-
tion, however, are any restricted securities which are eligible for resale pur-
suant to Rule 144A under the Securities Act of 1933 and which have been deter-
mined to be liquid by the Trustees or by MMC pursuant to board-approved guide-
lines. The determination of liquidity is based on the volume of reported trad-
ing in the institutional secondary market for each security. This investment
practice could have the effect of increasing the level of illiquidity in each
Fund to the extent that qualified institutional buyers become for a time unin-
terested in purchasing these restricted securities. These difficulties and
delays could result in a Fund's inability to realize a favorable price upon
disposition of restricted securities, and in some cases might make disposition
of such securities at the time desired by the Fund impossible. Since market
quotations are not readily available for restricted securities, such securities
will be valued by a method that the Trustees believe accurately reflects fair
value.
Notwithstanding the foregoing, due to various state regulations, the Emerging
Growth Fund and the International Equity Fund will not invest more than 10% of
each Fund's net assets in restricted securities; restricted securities eligible
for resale pursuant to Rule 144A are not included within this limitation. In
the event that the Fund's shares cease to be qualified under the laws of such
states or if such regulations are amended or otherwise cease to be operative,
the Funds would not be subject to this 10% restriction.
26
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
Portfolio Turnover (All Funds). Each Fund may purchase or sell securities
without regard to the length of time the security has been held and thus may
experience a high rate of portfolio turnover. A 100% turnover rate would occur,
for example, if all the securities in a portfolio were replaced in a period of
one year. Under certain market conditions, the Growth Fund and the Government
Fund may experience a high rate of portfolio turnover. This may occur, for
example, if the Fund writes a substantial number of covered call options and
the market prices of the underlying securities appreciate. The rate of portfo-
lio turnover is not a limiting factor when MMC deems it desirable to purchase
or sell securities or to engage in options transactions. The annual turnover
rates of the Growth Fund, the Government Fund and the Municipal Bond Fund are
not expected to exceed 400%; and the annual turnover rates of the Emerging
Growth Fund, the International Equity Fund and the Growth and Income Fund are
not expected to exceed 100%. High portfolio turnover involves correspondingly
greater transaction costs, including any brokerage commissions, which are borne
directly by the respective Fund and may increase the recognition of short-term,
rather than long-term, capital gains if securities are held for one year or
less and may be subject to applicable income taxes. See "Dividends, Distribu-
tions and Taxes."
Portfolio Transactions and Brokerage Practices (All Funds). MMC is responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Series and the negotiation of brokerage commissions on such transac-
tions. Brokerage firms are selected on the basis of their professional capabil-
ity for the type of transaction and the value and quality of execution services
rendered on a continuous basis. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Smith Barney and
Robinson Humphrey, Inc. ("Robinson Humphrey"). Smith Barney and Robinson
Humphrey may be considered affiliated persons of PFS because they are each an
indirect subsidiary of Travelers Group Inc. ("Travelers"). Smith Barney and
Robinson Humphrey are subject to SEC regulations which state that to effect any
such transaction, the commissions, fees or other remuneration received by Smith
Barney and Robinson Humphrey must be reasonable and fair compared to the com-
missions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities, futures or options on
futures being purchased or sold on an exchange during a comparable period of
time. This standard would allow Smith Barney and Robinson Humphrey to receive
no more than the remuneration that would be expected to be received by an unaf-
filiated broker in a commensurate arms-length transaction. Furthermore, the
Trustees of the Series, including a majority of the Trustees who are not "in-
terested" Trustees, have adopted procedures that are reasonably designed to
provide that any commissions, fees or other remuneration paid to Smith Barney
and Robinson Humphrey are consistent with the foregoing standard. Brokerage
transactions with Smith Barney and Robinson Humphrey are also subject to such
fiduciary standards as may be imposed upon Smith Barney and Robinson Humphrey
by applicable law. U.S. Government securities in which the Series invests are
traded in the over-the-counter market. Such securities are generally traded on
a net basis with a dealer acting as principal for its own account without a
stated commission, although the prices of the securities usually include a
profit to the dealer. MMC is authorized to place portfolio transactions with
broker-dealers participating in the distribution of shares of the Series if it
reasonably believes that the quality of the execution and any commission are
comparable to that available from other qualified firms. MMC is authorized to
pay higher commissions to brokerage firms that provide it with investment and
research information than to firms which do not provide such service if they
determine that such commissions are reasonable in relation to the overall serv-
ices provided. The information received may be used by MMC in managing the
assets of other advisory accounts managed by MMC as well as in the management
of the assets of the Series.
Short Sales Against the Box (Emerging Growth Fund, International Equity Fund,
Growth Fund and Growth and Income Fund). Each Fund may from time to time make
short sales of securities it owns or has the right to acquire through conver-
sion or exchange of other securities it owns. A short sale is "against the box"
to the extent that the Fund contemporaneously owns or has the right to obtain
at no added cost securities identical to those sold short. In a short sale, the
Fund does not immediately deliver the securities sold and does not receive the
proceeds from the sale. The Fund is said to have a short position in the secu-
rities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. The Fund may not make short sales or maintain a short
position if to do so would cause more than 25% of its total assets, taken at
market value, to be held as collateral for such sales.
To secure its obligation to deliver the securities sold short, the Fund will
deposit in escrow in a separate account with its custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by deliv-
ering securities already held by the Fund, because the Fund may want to con-
tinue to receive interest and dividend payments on securities in its portfolio
that are convertible into the securities sold short. However, the Fund will not
purchase and deliver new securities to satisfy its short order if such purchase
and sale would cause the Fund to derive more than 30% of its gross income from
the sale of securities held for less than three months.
Leverage (International Equity Fund). The Fund may borrow from banks, on a
secured or unsecured basis, up to 25% of the value of its assets. If the Fund
borrows and uses the proceeds to make additional investments, income and appre-
ciation from such investments will improve its performance if they exceed the
associated borrowing costs but impair its performance if they are less than
such borrowing costs. This speculative factor is known as "leverage."
27
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
Leverage creates an opportunity for increased returns to shareholders of the
Fund but, at the same time, creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value of the Fund's shares and
in the Fund's yield. Although the principal or stated value of such borrowings
will be fixed, the Fund's assets may change in value during the time the bor-
rowing is outstanding. Leverage will create interest or dividend expenses for
the Fund which can exceed the income from the assets retained. To the extent
the income or other gain derived from securities purchased with borrowed funds
exceed the interest or dividends the Fund will have to pay in respect thereof,
the Fund's net income or other gain will be greater than if leverage had not
been used. Conversely, if the income or other gain from the incremental assets
is not sufficient to cover the cost of leverage, the net income or other gain
of the Fund will be less than if leverage had not been used. If the amount of
income from the incremental securities is insufficient to cover the cost of
borrowing, securities might have to be liquidated to obtain required funds.
Depending on market or other conditions, such liquidations could be disadvanta-
geous to the Fund.
Year 2000. (All Funds). The investment management services provided to each
Fund by MMC and the services provided to shareholders by PFS, the Series' Dis-
tributor, depend on the smooth functioning of their computer systems. Many com-
puter software systems in use today cannot recognize the year 2000, but revert
to 1900 or some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on each Fund's opera-
tions, including the handling of securities trades, pricing and account servic-
es. MMC and PFS have advised each Fund that they have been reviewing all of
their computer systems and actively working on necessary changes to their sys-
tems to prepare for the year 2000 and expect that their systems will be compli-
ant before that date. In addition, MMC has been advised by each Fund's custodi-
an, transfer agent and accounting service agent that they are also in the proc-
ess of modifying their systems with the same goal. There can, however, be no
assurance that MMC, PFS or any other service provider will be successful, or
that interaction with other non-complying computer systems will not impair Fund
services at that time.
VALUATION OF SHARES
Each Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Series Board of Trustees. Portfolio
securities that are traded primarily on a domestic stock exchange are valued at
the last sale price on that exchange or, if there were no sales during the day,
at the current quoted bid price. Over-the-counter securities are valued on the
basis of the bid price at the close of business on each day. Investments in
U.S. government securities (other than short-term securities) are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Trustees determine that amortized cost reflects fair value of
those investments. An option generally is valued at the last sale price or, in
the absence of the last sale price, the last offer price. The value of a
futures contract equals the unrealized gain or loss on the contract, which is
determined by marking the contract to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued. A
settlement price may not be used if the market makes a limit move with respect
to a particular commodity or if the underlying securities market experiences
significant price fluctuations after the determination of the settlement price.
In such event, the futures contract will be valued at a fair market price to be
determined by or under the direction of the Board of Trustees. Further informa-
tion regarding the Series's valuation policies with respect to the Fund is con-
tained in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Unless the shareholder instructs otherwise, all dividends and capital gain
distributions of each Fund are automatically reinvested in additional shares of
the same class of such Fund. Dividends and distributions paid by a Fund have
the effect of reducing the net asset value per share on the record date by the
amount of the dividend or distribution. Therefore, a dividend or distribution
paid shortly after a purchase of shares by an investor would represent, in sub-
stance, a return of capital to the shareholder (to the extent it is paid on the
shares so purchased), even though it would be subject to income taxes, as dis-
cussed below.
Dividends and Distributions of the Emerging Growth Fund, the International
Equity Fund and the Growth Fund. It is each Fund's policy to distribute sub-
stantially all its net investment income (that is, its income other than its
net realized capital gains) and net realized capital gains,if any, once a year,
normally at the end of the year in which earned or at the beginning of next
year.
28
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Dividends and Distributions of the Growth and Income Fund. The Fund's policy
is to distribute its net investment income (that is, its income other than its
net realized capital gains) quarterly, and to declare and pay its net realized
capital gains, if any, once a year, normally at the end of the year in which
earned or at the beginning of the next year.
Dividends and Distributions of the Government Fund. The Fund declares and pays
monthly income dividends (that is, its income other than net realized capital
gains) on shares of the Fund and declares and pays its net realized capital
gains, if any, once a year, normally at the end of the year in which earned or
at the beginning of next year.
In computing interest income, the Fund does not amortize debt discount or pre-
miums resulting from the purchase of debt securities. Thus in the case of U.S.
Government securities purchased at a premium, interest income is greater than
it would be if the premium was amortized.
Dividends and Distributions of the Municipal Fund. The Fund declares and pays
monthly income dividends (that is, its income other than net realized capital
gains) on shares of the Fund and declares and pays its net realized capital
gains, if any, once a year, normally at the end of the year in which earned or
at the beginning of next year.
Net long-term gains realized from transactions in futures and related options
transactions may be paid out more frequently (with short-term gains) as may be
determined from time to time by the Trustees, but only after appropriate regu-
latory approval is first obtained. There is no assurance that such regulatory
approval will be obtained.
In order to avoid the application of a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, the Fund may make
an additional distribution shortly before December 31 in each year of any
undistributed ordinary income or capital gains and expects to pay any other
dividends and distributions necessary to avoid the application of this tax.
The per share dividends on Class B shares of a Fund may be lower than the per
share dividends on Class A shares principally as a result of the distribution
fee applicable with respect to Class B shares. Distributions of capital gains,
if any, will be in the same amount for Class A and Class B shares.
Taxes. Each Fund has qualified and intends to qualify as a "regulated invest-
ment company" under the Code. By so qualifying and by distributing all of its
net investment income and net realized capital gains within the time periods
specified in the Code, each Fund would not be required to pay any federal
income tax. Dividends from net investment income and distributions from any net
realized short-term capital gains are taxable to shareholders as ordinary
income. All such dividends are taxable to the shareholder whether or not rein-
vested in shares. However, shareholders not subject to tax on their income will
not be required to pay tax on amounts distributed to them.
In addition, the Municipal Fund intends to invest in sufficient Municipal
Bonds to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
Municipal Securities qualify as exempt-interest dividends if, at the close of
each quarter of the fiscal year, at least 50% of the value of the total assets
of the Fund consists of Municipal Bonds. See "Federal Tax Information" in the
Statement of Additional Information.
Exempt-interest dividends paid to shareholders are not includable in the
shareholder's gross income for federal income tax purposes. The percentage of
the total dividends paid by the Fund during any taxable year that qualify as
exempt-interest dividends will be the same for all shareholders of the Fund
receiving dividends during such year.
Dividends and interest received by the Emerging Growth Fund, the International
Equity Fund, the Growth Fund and the Growth and Income Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known.
Such foreign taxes would reduce the income of the Fund distributed to share-
holders.
If, at the end of the International Equity Fund's taxable year, more than 50%
of the value of its total assets consists of stock or securities of foreign
corporations, the Fund may make an election pursuant to which foreign income
taxes paid by it will be treated as paid directly by its shareholders. The Fund
will make this election only if it deems the election to be in the best inter-
ests of its shareholders, and will notify shareholders in writing each year if
it makes the election and the amount of foreign taxes to be treated as paid by
the shareholders. If the Fund makes such an election, the amount of such for-
eign taxes would be included in the income of shareholders, and a shareholder
other than a foreign corporation or non-resident alien individual could claim
either a credit or, provided the shareholder itemizes deductions, a deduction
for U.S. federal income tax purposes for such foreign taxes. Shareholders who
choose to utilize a credit (rather than a deduction) for foreign taxes will be
subject to the limitation that the credit may not exceed the
29
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
shareholders' U.S. tax (determined without regard to the availability of the
credit) attributed to their total foreign source taxable income. For this pur-
pose, the portion of dividends and distributions paid by the Fund from its for-
eign source income will be treated as foreign source income. The Fund's gains
and losses from the sale of securities and from certain foreign currency gains
and losses will generally be treated as derived from U.S. sources. The limita-
tion on the foreign tax credit is applied separately to foreign source "passive
income," such as the portion of dividends received from the Fund that qualifies
as foreign source income. In addition, the foreign tax credit is allowed to
offset only 90% of the alternative minimum tax imposed on corporations and
individuals. Because of these limitations, shareholders may be unable to claim
a credit for the full amount of their proportionate share of the foreign income
taxes paid by the Fund.
The foregoing is a brief summary of some of the federal income tax considera-
tions affecting the Series and its investors who are U.S. residents or U.S.
corporations. Investors should consult their tax advisors for more detailed tax
advice including state and local tax considerations. Foreign investors should
consult their own counsel for further information as to the U.S. and their
country of residence or citizenship tax consequences of receipt of dividends
and distributions from the Series.
Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions, including information as to the portion (including
short-term capital gains) taxable as ordinary income, and the portion taxable
as long-term capital gains. TO AVOID BEING SUBJECT TO A 31% FEDERAL BACKUP
WITHHOLDING ON DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, SHAREHOLDERS
MUST FURNISH THE FUND WITH THEIR CORRECT TAXPAYER IDENTIFICATION NUMBER. Share-
holders are urged to consult their tax advisers with specific reference to
their own tax situation.
State and Local Taxes. The exemption of interest income for federal income tax
purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to share-
holders under state or local law as dividend income even though a portion of
such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is rec-
ommended that shareholders consult their tax advisers for information in this
regard. The Municipal Fund will report annually to its shareholders the per-
centage and source, on a state-by-state basis, of interest income earned on
Municipal Bonds held by the Fund during the preceding year. Distributions paid
by the Fund from sources other than tax-exempt interest are generally subject
to taxation at the state and local levels.
Tax Treatment of Options and Futures Transactions. Gains or losses on each
Fund's transactions in certain listed options (except certain equity options)
on securities or indices, futures or options on futures generally are treated
as 60% long-term and 40% short-term, and positions held by a Fund at the end of
its fiscal year generally are required to be marked to market, with the result
that unrealized gains and losses are treated as though they were realized.
Gains and losses realized by a Fund on transactions in over-the-counter options
generally are short-term capital gains or losses unless the option is exercised
in which case the character of the gain or loss is determined by the holding
period of the underlying security. The Code contains certain "straddle" rules
which require deferral of losses incurred in certain transactions involving
hedged positions to the extent a Fund has unrealized gains in offsetting posi-
tions and generally terminate the holding period of the subject position. Addi-
tional information is set forth in the Statement of Additional Information.
PURCHASE OF SHARES
GENERAL
Each Fund offers two Classes of shares to investors purchasing through PFS
Investments Registered Representatives. Class A shares are sold to investors
with an initial sales charge and Class B shares are sold without an initial
sales charge but are subject to a CDSC payable upon certain redemptions. As of
May 20, 1996, all of the previously outstanding shares of the Growth Fund, the
Growth and Income Fund, the Government Fund, and the Municipal Fund were
redesignated as Class 1 shares without any other changes, and Class A and Class
B shares were authorized for issuance. As of May 20, 1996, Class 1 shares were
authorized for issuance for the Emerging Growth Fund and the International
Equity Fund. Each Fund offers Class 1 shares only to Eligible Class 1 Purchas-
ers. Each class of shares represents an interest in the same portfolio of
investments of a Fund. See "Prospectus Summary--Alternative Purchase Arrange-
ments" for a discussion of factors to consider in selecting which Class of
shares to purchase.
Initial purchases of shares of each Fund of the Series must be made through a
PFS Investments Registered Representative by completing the appropriate appli-
cation found in this Prospectus. The completed application should be forwarded
to the Sub-Transfer Agent, 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062. Checks drawn on foreign banks must be payable in U.S. dollars and
have the routing number of the U.S. bank encoded on the check. Subsequent
investments may be sent directly to the Sub-Transfer Agent.
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Investors in Class A and Class B shares may open an account by making an ini-
tial investment of at least $1,000 for each account in each Class (except for
Systematic Investment Plan accounts), or $250 for an IRA or a Self-Employed
Retirement Plan in a Fund. Subsequent investments of at least $50 may be made
for each Class. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A and Class B shares and the subsequent investment
requirement for each Class in a Fund is $25. For each Fund's Systematic Invest-
ment Plan, the minimum initial investment requirement for Class A and Class B
shares and the subsequent investment requirement for each Class is $25. There
are no minimum investment requirements in Class A shares for employees of Trav-
elers and its subsidiaries, including Smith Barney, Directors or Trustees of
any of the Smith Barney Mutual Funds, and their spouses and children. The
Series reserves the right to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's account by the Sub-Transfer
Agent. Share certificates are issued only upon a shareholder's written request
to the Sub-Transfer Agent. A shareholder who has insufficient funds to complete
any purchase, will be charged a fee of $25 per returned purchase by PFS or the
Sub-Transfer Agent.
Purchase orders received by the Sub-Transfer Agent prior to the close of regu-
lar trading on the NYSE, on any day a Fund calculates its net asset value, are
priced according to the net asset value determined on that day.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, the Sub-Transfer Agent is authorized through preau-
thorized transfers of $25 or more to charge the regular bank account or other
financial institution indicated by the shareholder on a monthly basis to pro-
vide systematic additions to the shareholder's Fund account. A shareholder who
has insufficient funds to complete the transfer will be charged a fee of up to
$25 by PFS or the Sub-Transfer Agent. A shareholder who places a stop payment
on a transfer or the transfer is returned because the account has been closed,
will also be charged a fee of $25 by PFS or the Sub-Transfer Agent.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Emerging
Growth Fund, International Equity Fund, Growth Fund and Growth and Income Fund
are as follows:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------- DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 3.00 3.09 2.70
250,000 - 499,999 2.00 2.04 1.80
500,000 and over * * *
- -----------------------------------------------------------------------------
</TABLE>
The sales charges applicable to purchases of Class A shares of the Government
Fund and the Municipal Fund are as follows:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------- DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 25,000 4.50% 4.71% 4.05%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 2.50 2.56 2.25
250,000 - 499,999 1.50 1.52 1.35
500,000 and over * * *
- -----------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net asset
value without any initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
shares is payable to PFS, which in turn, pays PFS Investments to compensate
its Registered Representatives whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC applica-
ble to Class B shares is waived. See "Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge and may
be deemed to be underwriters of the Series as defined in the Securities Act of
1933, as amended.
31
<PAGE>
PURCHASE OF SHARES (CONTINUED)
The reduced sales charges shown above apply to the aggregate of purchases of
Class A Shares of a Fund made at one time by "any person", which includes an
individual and his or her immediate family, or a trustee or other fiduciary of
a single trust estate or single fiduciary account.
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to (i) Board
members and employees of Travelers and its subsidiaries and any of the Smith
Barney Mutual Funds (including retired Board Members and employees); the imme-
diate families of such persons (including the surviving spouse of a deceased
Board Member or employee); and to a pension, profit-sharing or other benefit
plan for such persons; and (ii) employees of members of the National Associa-
tion of Securities Dealers, Inc., provided such sales are made upon the assur-
ance of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or repurchase;
(b) offers of Class A shares to any other investment company to effect the com-
bination of such company with the Fund by merger, acquisition of assets or oth-
erwise; (c) purchases by shareholders who have redeemed Class A shares in a
Fund (or Class A shares of another fund of the Smith Barney Mutual Funds that
are sold with a maximum sales charge equal to or greater than the maximum sales
charge of the Fund) and who wish to reinvest their redemption proceeds in the
Fund, provided the reinvestment is made within 60 calendar days of the redemp-
tion; (d) purchases by accounts managed by registered investment advisory sub-
sidiaries of Travelers; (e) sales through PFS Investments Registered Represent-
atives where the amounts invested represent the redemption proceeds from
investment companies, on the condition that (i) the redemption has occurred no
more than 60 days prior to the purchase of the shares, (ii) the shareholder
paid an initial sales charge on such redeemed shares and (iii) the shares
redeemed were not subject to a deferred sales charge; (f) direct rollovers by
plan participants of distributions from a 401(k) plan enrolled in the Smith
Barney 401(k) Program (note: subsequent investments will be subject to the
applicable sales charge; (g) purchases by separate accounts used to fund cer-
tain unregistered variable annuity contracts; and (h) purchases by investors
participating in a Smith Barney fee based arrangement. PFS Investments may pay
its Registered Representatives an amount equal to 0.40% of the amount invested
if the purchase represents redemption proceeds from an investment company dis-
tributed by an entity other than PFS. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination of the sales
charge.
In addition, Class A shares of the Funds may be purchased at net asset value
by the PFS Primerica Corporation Savings and Retirement Plan (the "Primerica
Plan") for its participants, subject to the provisions of the Employee Retire-
ment Income Security Act of 1974, as amended ("ERISA"). Class A shares so pur-
chased are purchased for investment purposes and may not be resold except by
redemption or repurchase by or on behalf of the Primerica Plan. Class A shares
are also offered at net asset value to accounts opened for shareholders by PFS
Investments Registered Representatives where the amounts invested represent the
redemption proceeds from investment companies distributed by an entity other
than PFS, if such redemption has occurred no more than 60 days prior to the
purchase of shares of the Series, and the shareholder paid an initial sales
charge and was not subject to a deferred sales charge on the redeemed account.
Class A shares are offered at net asset value to such persons because of antic-
ipated economies in sales efforts and sales related expenses. The Series may
terminate, or amend the terms of, offering shares of the Series at net asset
value to such persons at any time. PFS may pay PFS Investments Registered Rep-
resentatives through whom purchases are made at net asset value an amount equal
to 0.40% of the amount invested if the purchase represents redemption proceeds
from an investment company distributed by an entity other than PFS. Contact the
Sub-Transfer Agent at (800) 544-5445 for further information and appropriate
forms.
VOLUME DISCOUNTS
The "Amount of Investment" referred to in the sales charge table set forth
above under "Initial Sales Charge Alternative--Class A Shares" includes the
purchase of Class A shares in a Fund and of other funds sponsored by Smith Bar-
ney that are offered with a sales charge listed under "Exchange Privilege." A
person eligible for a volume discount includes: an individual; members of a
family unit comprising a husband, wife and minor children; a trustee or other
fiduciary purchasing for a single fiduciary account including pension, profit-
sharing and other employee benefit trusts qualified under Section 401(a) of the
Code; or multiple custodial accounts where more than one beneficiary is
involved if purchases are made by salary reduction and/or payroll deduction for
qualified and nonqualified accounts and transmitted by a common employer enti-
ty. Employer entity for payroll deduction accounts may include trade and craft
associations and any other similar organizations.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity for
an investor to obtain a reduced sales charge by aggregating investments over a
13-month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of each Fund and other Smith Barney Mutual Funds offered with a sales
charge over a 13-month period based on the total amount of
32
<PAGE>
PURCHASE OF SHARES (CONTINUED)
intended purchases plus the value of all Class A shares previously purchased
and still owned. An alternative is to compute the 13-month period starting up
to 90 days before the date of execution of a Letter of Intent. Each investment
made during the period receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges applica-
ble to the purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. Please contact a PFS Investments
Registered Representative to obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in a Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (i) Class B shares and
(ii) Class A shares that were purchased without an initial sales charge but
subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class A shares that are CDSC Shares,
shares redeemed more than 12 months after their purchase.
Class A shares that are CDSC Shares are subject to a 1.00% CDSC if redeemed
within 12 months of purchase. In circumstances in which the CDSC is imposed on
Class B shares, the amount of the charge will depend on the number of years
since the shareholder made the purchase payment from which the amount is being
redeemed. Solely for purposes of determining the number of years since a pur-
chase payment, all purchase payments made during a month will be aggregated and
deemed to have been made on the last day of the preceding Smith Barney state-
ment month. The following table sets forth the rates of the charge for redemp-
tions of Class B shares by shareholders.
<TABLE>
<CAPTION>
CDSC
APPLICABLE TO EMERGING GROWTH FUND, CDSC
YEARS SINCE PURCHASE INTERNATIONAL EQUITY FUND, GROWTH APPLICABLE TO GOVERNMENT
PAYMENT WAS MADE FUND AND GROWTH AND INCOME FUND FUND AND MUNICIPAL FUND
- ----------------------------------------------------------------------------------
<S> <C> <C>
First 5.00% 4.50%
Second 4.00 4.00
Third 3.00 3.00
Fourth 2.00 2.00
Fifth 1.00 1.00
Sixth and
thereafter 0.00 0.00
- ----------------------------------------------------------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There will also be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. See "Prospectus Summary--Alternative Purchase Arrangements--Class
B Shares Conversion Feature."
Class B shares of a Fund purchased prior to December 31, 1997 and subsequently
redeemed will remain subject to the CDSC at the rates applicable at the time of
purchase.
In determining the applicability of any CDSC or the conversion feature
described above, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The length of time that CDSC
Shares acquired through an exchange have been held will be calculated from the
date that the shares exchanged were initially acquired in one of the other
Smith Barney Mutual Funds, and Fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal income tax purpos-
es, the amount of the CDSC will reduce the gain or increase the loss, as the
case may be, on the amount realized on redemption. The amount of any CDSC will
be paid to PFS.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount that represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
33
<PAGE>
PURCHASE OF SHARES (CONTINUED)
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan"); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares to effect a combination of the Fund with any investment
company by merger, acquisition of assets or otherwise. In addition, a share-
holder who has redeemed shares from other Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds within
60 days and receive pro rata credit for any CDSC imposed on the prior redemp-
tion.
CDSC waivers will be granted subject to confirmation by PFS of the sharehold-
er's status or holdings, as the case may be.
CLASS 1 SHARES
Class 1 shares are offered to Eligible Class 1 Share Purchasers at the next
determined net asset value plus a sales charge, as set forth below.
EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND
<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
NET AMOUNT OFFERING OFFERING
SIZE OF INVESTMENT INVESTED PRICE PRICE)*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $10,000 9.29% 8.50% 7.00%
$ 10,000 but less than $ 25,000 8.40% 7.75% 6.25%
$ 25,000 but less than $ 50,000 6.38% 6.00% 5.00%
$ 50,000 but less than $ 100,000 4.71% 4.50% 3.75%
$ 100,000 but less than $ 250,000 3.63% 3.50% 3.00%
$ 250,000 but less than $ 400,000 2.56% 2.50% 2.00%
$ 400,000 but less than $ 600,000 2.04% 2.00% 1.60%
$ 600,000 but less than $5,000,000 1.01% 1.00% 0.75%
$5,000,000 or more 0.25% 0.25% 0.20%
- -----------------------------------------------------------------------------------
</TABLE>
Government Fund
<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
NET AMOUNT OFFERING OFFERING
SIZE OF INVESTMENT INVESTED PRICE PRICE)*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 7.24% 6.75% 6.00%
$ 25,000 but less than $ 50,000 6.10% 5.75% 5.00%
$ 50,000 but less than $ 100,000 4.44% 4.25% 3.50%
$ 100,000 but less than $ 250,000 3.63% 3.50% 2.75%
$ 250,000 but less than $ 500,000 2.56% 2.50% 2.00%
$ 500,000 but less than $1,000,000 2.04% 2.00% 1.60%
$1,000,000 but less than $2,500,000 1.01% 1.00% 0.75%
$2,500,000 but less than $5,000,000 0.50% 0.50% 0.40%
$5,000,000 or more 0.25% 0.25% 0.20%
- -----------------------------------------------------------------------------------
</TABLE>
Municipal Bond Fund
<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
NET AMOUNT OFFERING OFFERING
SIZE OF INVESTMENT INVESTED PRICE PRICE)*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.99% 4.75% 4.25%
$ 100,000 but less than $ 250,000 3.90% 3.75% 3.25%
$ 250,000 but less than $ 500,000 3.09% 3.00% 2.50%
$ 500,000 but less than $1,000,000 2.04% 2.00% 1.60%
$1,000,000 but less than $2,500,000 1.01% 1.00% 0.75%
$2,500,000 but less than $5,000,000 0.50% 0.50% 0.40%
$5,000,000 or more 0.25% 0.25% 0.20%
- -----------------------------------------------------------------------------------
</TABLE>
* Additionally, PFS will pay to PFS Investments a promotional fee calculated as
a percentage of the sales charge reallowed to PFS Investments. The percentage
used in the calculation is 3%.
34
<PAGE>
PURCHASE OF SHARES (CONTINUED)
PFS Investments may be deemed to be an underwriter for purposes of the Securi-
ties Act of 1933. From time to time, PFS or its affiliates may also pay for
certain non-cash sales incentives provided to PFS Investments Registered Repre-
sentatives. Such incentives do not have any effect on the net amount invested.
In addition to the reallowances from the applicable public offering price
described above, PFS may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other compensa-
tion to PFS Investments Registered Representatives that sell shares of the
Series.
Class 1 shares of the Series may be purchased at net asset value by the
Primerica Plan for Eligible Class 1 Purchasers participating in the Primerica
Plan, subject to the provisions of ERISA. Shares so purchased are purchased for
investment purposes and may not be resold except by redemption or repurchase by
or on behalf of the Primerica Plan. Class 1 Shares are also offered at net
asset value to accounts opened for shareholders by PFS Investments Registered
Representatives where the amounts invested represent the redemption proceeds
from investment companies distributed by an entity other than the PFS, if such
redemption has occurred no more than 60 days prior to the purchase of shares of
the Series and the shareholder paid an initial sales charge and was not subject
to a deferred sales charge on the redeemed account. Shares are offered at net
asset value to such persons because of anticipated economies in sales efforts
and sales related expenses. The Series may terminate, or amend the terms of,
offering shares of the Series at net asset value to such persons at any time.
PFS may pay PFS Investment Registered Representatives through whom purchases
are made at net asset value an amount equal to 0.40% of the amount invested if
the purchase represents redemption proceeds from an investment company distrib-
uted by an entity other than the PFS. Contact the Sub-Transfer Agent at (800)
544-5445 for further information and appropriate forms.
Investors purchasing Class 1 shares may under certain circumstances be enti-
tled to reduced sales charges. The circumstances under which such investors may
pay reduced sales charges are the same as those described above under "Pur-
chases of Shares--"Volume Discounts" and "Letter of Intent."
EXCHANGE PRIVILEGE
Shares of each class of a Fund may be exchanged at the net asset value next
determined for shares of the same class in the following funds, to the extent
shares are offered for sale in the shareholder's state of residence, except,
however, for exchanges of Class 1 shares into a fund which does not offer Class
1 shares which, may be made for Class A shares of such fund. Exchanges are sub-
ject to minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.
FUND NAME
.Concert Peachtree Growth Fund
.Concert Social Awareness Fund
.Smith Barney Appreciation Fund Inc.
.Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
.Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
.Smith Barney Concert Allocation Series Inc.-- Growth Portfolio
.Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
.Smith Barney Concert Allocation Series Inc.--Income Portfolio
.Smith Barney Investment Grade Bond Fund
.*Smith Barney Money Funds, Inc.--Cash Portfolio
.**Smith Barney Exchange Reserve Fund
- --------------------------------------------------------------------------------
* Available for exchange with Class A shares of a Fund.
** Available for exchange with Class B shares of a Fund.
Class A Exchanges. Class A shareholders of each Fund who wish to exchange all
or a portion of their shares for Class A shares in any of the funds identified
above may do so without imposition of any charge.
Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares into any of the funds imposing a higher CDSC
than that imposed by a Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of the
Fund that have been exchanged.
35
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can be detrimental to a Fund's performance and its shareholders. The Series
may determine that a pattern of frequent exchanges is excessive and contrary
to the best interests of each Fund's other shareholders. In this event, the
Series may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination by the Series, the
Series will provide notice in writing or by telephone to the shareholder at
least 15 days prior to suspending the exchange privilege and during the 15 day
period the shareholder will be required to (a) redeem his or her shares in the
Fund or (b) remain invested in the Fund or exchange into any of the Smith Bar-
ney Mutual Funds ordinarily available, which position the shareholder would be
expected to maintain for a significant period of time. All relevant factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net asset value next determined. Redemp-
tion procedures discussed below are also applicable for exchanging shares, and
exchanges will be made upon receipt of all supporting documents in proper
form. If the account registration of the shares of the fund being acquired is
identical to the registration of the shares of the fund exchanged, no signa-
ture guarantee is required. A capital gain or loss for tax purposes will be
realized upon the exchange, depending upon the cost or other basis of shares
redeemed. Before exchanging shares, investors should read the current prospec-
tus describing the shares to be acquired. Each Fund reserves the right to mod-
ify or discontinue exchange privileges upon 60 days' prior notice to share-
holders.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares of a Fund at any
time by sending a written request in proper form directly to the Sub-Transfer
Agent, PFS Shareholder Services, at 3100 Breckinridge Blvd, Bldg. 200, Duluth,
Georgia 30199-0062. If you should have any questions concerning how to redeem
your account after reviewing the information below, please contact the Sub-
Transfer Agent at (800) 544-5445, Spanish-speaking representatives (800) 544-
7278 or TDD Line for the Hearing Impaired (800) 824-1721.
As described under "Purchase of Shares," redemptions of Class B shares are
subject to a CDSC.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account regis-
tration. If the proceeds of the redemption exceed $50,000, or if the proceeds
are not paid to the record owner(s) at the record address, if the sharehold-
er(s) has had an address change in the past 45 days, or if the shareholder(s)
is a corporation, sole proprietor, partnership, trust or fiduciary, signa-
ture(s) must be guaranteed by one of the following: a bank or trust company; a
broker-dealer; a credit union; a national securities exchange, registered
securities association or clearing agency; a saving and loan association; or a
federal savings bank.
Generally, a properly completed Redemption Form with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, in the case of shareholders
holding certificates, the certificates for the shares being redeemed must
accompany the redemption request. Additional documentary evidence of authority
is also required by the Sub-Transfer Agent in the event redemption is
requested by a corporation, partnership, trust, fiduciary, executor or admin-
istrator. Additionally, if a shareholder requests a redemption from a Retire-
ment Plan account (IRA, SEP or 403(b)(7)), such request must state whether or
not federal income tax is to be withheld from the proceeds of the redemption
check.
A shareholder may utilize the Sub-Transfer Agent's FAX to redeem their
account as long as a signature guarantee or other documentary evidence is not
required. Redemption requests should be properly signed by all owners of the
account and faxed to the Sub-Transfer Agent at (800) 554-2374. Facsimile
redemptions may not be available if the shareholder cannot reach the Sub-
Transfer Agent by FAX, whether because all telephone lines are busy or for any
other reason; in such case, a shareholder would have to use the Fund's regular
redemption procedure described above. Facsimile redemptions received by the
Sub-Transfer Agent prior to 4:00 p.m. Eastern time on a regular business day
will be processed at the net asset value per share determined that day.
In all cases, the redemption price is the net asset value per share of the
Fund next determined after the request for redemption is received in proper
form by the Sub-Transfer Agent. Payment for shares redeemed will be made by
check mailed within three days after acceptance by the Sub-Transfer Agent of
the request and any other necessary documents in proper order. Such payment
may be postponed or the right of redemption suspended as provided by the rules
of the SEC. If the shares to be redeemed have been recently purchased by check
or draft, the Sub-Transfer Agent may hold the payment of the proceeds until
the purchase check or draft has cleared, usually a period of up to 15 days.
Any taxable gain or loss will be recognized by the shareholder upon redemption
of shares.
36
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
After following the above-stated redemption guidelines, a shareholder(s) may
elect to have the redemption proceeds wire-transferred directly to the share-
holder's bank account of record (defined as a currently established pre-autho-
rized draft on the shareholder's account with no changes within the previous 45
days), as long as the bank account is registered in the same name(s) as the
account with the Series. If the proceeds are not to be wired to the bank
account of record, or mailed to the registered owner(s), a signature guarantee
will be required from all shareholder(s). A $25 service fee will be charged by
the Sub-Transfer Agent to help defray the administrative expense of executing a
wire redemption. Redemption proceeds will normally be wired to the designated
bank account on the next business day following the redemption, and should
ordinarily be credited to the shareholder's bank account by the shareholder's
bank within 48 to 72 hours.
AUTOMATIC CASH WITHDRAWAL PLAN
Each Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the share-
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of a Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. For further information regarding the automatic cash withdrawal
plan, shareholders should contact the Sub-Transfer Agent.
The Series reserves the right to involuntarily liquidate any shareholder's
account in a Fund if the aggregate net asset value of the shares held in that
Fund account is less than $500. (If a shareholder has more than one account in
a Fund, each account must satisfy the minimum account size.) The Series, howev-
er, will not redeem shares based solely on market reductions in net asset val-
ue. Before the Series exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
PERFORMANCE
From time to time a Fund may include its total return, average annual total
return, yield and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A and
Class B shares of each Fund. These figures are based on historical earnings and
are not intended to indicate future performance. Total return is computed for a
specified period of time assuming deduction of the maximum sales charge, if
any, from the initial amount invested and reinvestment of all income dividends
and capital gain distributions on the reinvestment dates at prices calculated
as stated in this Prospectus, then dividing the value of the investment at the
end of the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC is
derived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with nonstandard
total return information for differing periods computed in the same manner but
without annualizing the total return or taking sales charges into account. The
yield of a Fund's Class refers to the net investment income earned by invest-
ments in the Class over a 30-day period. This net investment income is then
annualized, i.e., the amount of income earned by the investments during that
30-day period is assumed to be earned each 30-day period for twelve periods and
is expressed as a percentage of the investments. The yield is calculated
according to a formula prescribed by the SEC to facilitate comparison with
yields quoted by other investment companies. The Government Fund and Municipal
Fund calculate current dividend return for each of its Classes by annualizing
the most recent monthly distribution and dividing by the net asset value or the
maximum public offering price (including sales charge) on the last day of the
period for which current dividend return is presented. Each Class' current div-
idend return may vary from time to time depending on market conditions, the
composition of the investment portfolio and its operating expenses. These fac-
tors and possible differences in the methods used in calculating current divi-
dend return should be considered when comparing current return of a Class to
yields published for other investment companies and other investment vehicles.
Each Fund may also include comparative performance information in advertising
or marketing its shares. Such performance information may include data from
Lipper Analytical Services, Inc. and other financial publications.
MANAGEMENT OF THE SERIES
BOARD OF TRUSTEES
Overall responsibility for management and supervision of each Fund rests with
the Series's Board of Trustees. The Trustees approve all significant agreements
between the Series and the companies that furnish services to the Series and
each Fund, including agreements with the Series's distributor, investment man-
ager and administrator, custodian and transfer agent. The day-to-day operations
of each
37
<PAGE>
MANAGEMENT OF THE SERIES (CONTINUED)
Fund are delegated to MMC. The Statement of Additional Information contains
background information regarding each Trustee and executive officer of the
Series.
INVESTMENT MANAGER
Investment Manager. Effective December 31, 1997, MMC replaced Van Kampen
American Capital Asset Management, Inc. as investment adviser to each Fund of
the Series. MMC provides investment advisory and management services to
investment companies affiliated with Smith Barney and, prior to December 31,
1997 was the Sub-Advisor to the International Equity Fund. MMC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of Travelers Group Inc., a diversified financial
services holding company engaged, through its subsidiaries, principally in
four business segments: Investment Services including Asset Management, Con-
sumer Finance Services, Life Insurance Services and Property & Casualty Insur-
ance Services.
An investment advisory agreement with MMC and the Series, on behalf of each
Fund has been approved by the Board of Trustees of the Series at a meeting
held on June 10, 1997 and by shareholders of each Fund at a meeting held on
December 18, 1997. MMC, located at 388 Greenwich Street, New York, New York,
10013, was formed in 1968 and renders investment advice to investment compa-
nies which had aggregate assets under management as of January 31, 1998, in
excess of $94 billion. MMC also furnishes each Fund with bookkeeping, account-
ing and administrative services, office space and equipment, and the services
of the officers and employees of the Series.
Under separate investment advisory Agreements with each Fund, the Series pays
MMC an annual fee for the Emerging Growth Fund, the Growth Fund and the Growth
and Income Fund, calculated separately for each Fund at the following rates:
0.65% of the first $1 billion of the Fund's average daily net assets; 0.60% of
the next $1 billion of the Fund's average daily net assets; 0.55% of the next
$1 billion of the Fund's average daily net assets; 0.50% of the next $1 bil-
lion of the Fund's average daily net assets; and 0.45% of the Fund's average
daily net assets in excess of $4 billion. The Series pays MMC an annual fee
for the International Equity Fund at the rate of 1.00% of the Fund's average
daily net assets. This fee is higher than that charged by most other mutual
funds but the Series believes it is justified by the special international
nature of the Fund and is not necessarily higher than the fees charged by cer-
tain mutual funds with investment objectives and policies similar to those of
the Fund. The Series pays MMC an annual fee for the Government Fund of 0.60%
of the first $1 billion of the Fund's average daily net assets; 0.55% of the
next $1 billion of the Fund's average daily net assets; 0.50% of the next $1
billion of the Fund's average daily net assets; 0.45% of the next $1 billion
of the Fund's average daily net assets; 0.40% of the next $1 billion of the
Fund's average daily net assets; and 0.35% of the Fund's average daily net
assets in excess of $5 billion. For the Municipal Fund, the Series pays MMC an
annual fee of 0.60% of the first $1 billion of the Fund's average daily net
assets; 0.55% of the next $1 billion of the Fund's average daily net assets;
0.50% of the next $1 billion of the Fund's average daily net assets; and 0.45%
of the Fund's average daily net assets over $3 billion. The fee is computed
daily and payable monthly with respect to each Fund. Each of the investment
advisory agreements described above is referred to in this Prospectus as an
"Advisory Agreement" and together, as the "Advisory Agreements."
MMC may, from time to time, agree to waive their respective investment advi-
sory fees or any portion thereof or elect to reimburse a Fund for ordinary
business expenses in excess of an agreed upon amount.
PORTFOLIO MANAGEMENT
The following persons are primarily responsible for the day-to-day operation
of the Fund indicated beside their name and business experience:
Emerging Growth Fund--Sandip Bhagat; Investment Officer of MMC and President
of Travelers Investment Management Company, an affiliate of MMC.
Growth Fund--Larry Weissman; Investment Officer of MMC and Managing Director
of Smith Barney since October, 1997; Prior to that time, Portfolio Manager of
Neuberger & Berman, LLC since 1995; Prior to that, Portfolio Manager of Col-
lege Retirement Equities Fund since 1991.
Growth and Income Fund--R. Jay Gerken; Investment Officer of MMC and Managing
Director of Smith Barney.
Government Fund--James E. Conroy; Investment Officer of MMC and Managing
Director of Smith Barney.
Municipal Fund--Joseph P. Deane; Investment Officer of MMC and Managing
Director of Smith Barney.
International Equity Fund--Maurits Edersheim, Jeffrey Russell, James Conheady
and Rein Van der Does, all Investment Officers of MMC and Managing Directors
of Smith Barney.
Management's discussion and analysis and additional performance information
regarding the Series during the fiscal year ended October 31, 1997 is included
in the Annual Report dated October 31, 1997. A copy of the Annual Report may
be obtained upon request and without charge from a PFS Investments Registered
Representative or by writing or calling the Series at the address or phone
number listed on page one of this Prospectus.
38
<PAGE>
DISTRIBUTOR
PFS, located at 3100 Breckinridge Blvd., Bldg 200, Duluth, Georgia 30199-0062,
distributes shares of each Fund as a principal underwriter and as such conducts
a continuous offering pursuant to a best efforts arrangement requiring PFS to
take and pay for only such securities as may be sold to the public.
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Trustees of the Series, and the
shareholders of Class A and Class B of each Fund have adopted two Distribution
Plans (hereinafter referred to as the "Class A Plan" and the "Class B Plan.")
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD Rules") applicable to
mutual fund sales charges. The NASD Rules limit the annual distribution costs
and service fees that a mutual fund may impose on a class of shares. The NASD
Rules also limit the aggregate amount which the Fund may pay for such distribu-
tion costs. Under the Class A Plan, a Fund pays 0.25% per annum of its average
daily net assets attributable to such class of shares to PFS as a service fee.
The service fee is intended to cover personal services provided to Class A
shareholders of a Fund by representatives of PFS Investments and the mainte-
nance of their accounts.
Under the Class B Plan, Class B shares of each Fund are subject to a combined
annual distribution fee and service fee at the rate of 1.00% of a Fund's aggre-
gate average daily net assets attributable to such class of shares. Payments by
each Fund to PFS under the Class B Plan are used to make service fee payments
to PFS Investments of 0.25% per annum of average daily net assets. Each Fund
pays PFS 0.75% of the aggregate average daily net assets of Class B shares, as
compensation for providing sales and promotional activities and services. Such
activities and services relate to the sale, promotion and marketing of the
Class B shares. The expenditures of PFS may consist of sales commissions to PFS
Investments for selling Class B shares, compensation, sales incentives and pay-
ments to sales and marketing personnel, and the payment of expenses incurred in
its sales and promotional activities, including advertising expenditures
related to the Class B shares of a Fund and the costs of preparing and distrib-
uting promotional materials with respect to such Class B shares.
PFS receives the proceeds of the initial sales charge, if any, paid upon the
purchase of Class A shares and the contingent deferred sales charge paid upon
certain redemptions of Class B shares, and may use these proceeds for any of
the distribution and service expenses described above.
During the period they are in effect, the Class A Plan and the Class B Plan
obligate each Fund to pay service fees and distribution fees to PFS as compen-
sation for its service and distribution activities, not as reimbursement for
specific expenses incurred. Thus, even if PFS's expenses exceed its service or
distribution fees for any Fund, the Fund will not be obligated to pay more than
those fees and, if PFS's expenses are less than such fees, it will retain its
full fees and realize a profit. Each Fund will pay the service fees and distri-
bution fees to PFS until either the applicable Plan is terminated or not
renewed. In that event, PFS's expenses in excess of service fees and distribu-
tion fees received or accrued through the termination date will be PFS's sole
responsibility and not obligations of a Fund. In their annual consideration of
the continuation of each Fund's Plans, the Trustees will review each Plan and
PFS's corresponding expenses for each class separately.
Actual distribution expenditures paid by PFS with respect to Class B shares
for any given year are expected to exceed the fees received pursuant to the
Class B Plan and payments received pursuant to contingent deferred sales
charges. Such excess will be carried forward and may be reimbursed by the Fund
or its shareholders from payments received through contingent deferred sales
charges in future years and from payments under the Class B Plan so long as
such Plan is in effect. For example, if in a fiscal year PFS incurred distribu-
tion expenses under the Class B Plan of $1 million, of which $500,000 was
recovered in the form of contingent deferred sales charges paid by investors
and $400,000 was reimbursed in the form of payments made by the Fund to PFS
under the Class B Plan, the balance of $100,000, would be subject to recovery
in future fiscal years from such sources.
If the Class B Plan was terminated or not continued, the Fund would not be
contractually obligated and has no liability to pay PFS for any expenses not
previously reimbursed by the Fund or recovered through contingent deferred
sales charges.
PFS Investments may be deemed to be an underwriter for purposes of the Securi-
ties Act of 1933. From time to time, PFS or its affiliates may also pay for
certain non-cash sales incentives provided to PFS Investments Registered Repre-
sentatives. Such incentives do not have any effect on the net amount invested.
In addition to the reallowances from the applicable public offering price
described above, PFS may from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other compensa-
tion to PFS Investments Registered Representatives that sell shares of each
Fund.
39
<PAGE>
ADDITIONAL INFORMATION
The Series was organized on January 29, 1987 under the laws of the Common-
wealth of Massachusetts and is a business entity commonly known as a "Massachu-
setts business trust." It is a diversified, open-end management investment com-
pany authorized to issue an unlimited number of Class A, Class B and Class 1
shares of beneficial interest of $.01 par value, in the Funds. Shares issued
are fully paid, non-assessable and have no preemptive or conversion rights. In
the event of liquidation of any Fund, shareholders of such Fund are entitled to
share pro rata in the net assets of the Fund available for distribution to
shareholders.
Shareholders are entitled to one vote for each full share held and to frac-
tional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to the vote of share-
holders. Each class of shares represents interest in the assets of each Fund
and has identical voting, dividend, liquidation and other rights on the same
terms and conditions, except that the distribution fees and service fees and
any incremental transfer agency fees related to each class of shares of each
Fund are borne solely by that class, and each class of shares of each Fund has
exclusive voting rights with respect to provisions of the Plan which pertains
to that class of each Fund. All shares have equal voting rights, except that
only shares of the respective Fund are entitled to vote on matters concerning
only that Fund. There will normally be no meetings of shareholders for the pur-
pose of electing Trustees unless and until such time as less than a majority of
the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Except as set forth above, the Trustees shall continue to
hold office and appoint successor Trustees.
PNC Bank, National Association ("PNC") serves as custodian for each Fund other
than the International Equity Fund, and The Chase Manhattan Bank ("Chase")
serves as custodian for the International Equity Fund. First Data Investor
Services Group, Inc. ("First Data") serves as transfer agent for the Funds.
PNC is located at 17th and Chestnut Streets, Philadelphia, Pennsylvania 19103.
Chase is located at Chase Metrotech Center, Brooklyn, New York 11245.
First Data is located at Exchange Place, Boston, Massachusetts 02109.
The Sub-Transfer Agent is located at 3100 Breckinridge Blvd., Bldg 200,
Duluth, Georgia 30199-0062.
The Series intends to send its shareholders a semi-annual report and an
audited annual report, which will include listings of the investment securities
held by the Series at the end of the period covered. In an effort to reduce the
Series' printing and mailing costs, the Series plans to consolidate the mailing
of its semi-annual and annual reports by household. This consolidation means
that a household having multiple accounts with the identical address of record
will receive a single copy of each report. Shareholders who do not want this
consolidation to apply to their account should contact the Sub-Transfer Agent.
Also available at the shareholder's request, is an Account Transcript identify-
ing every financial transaction in an account since it was opened. To defray
administrative expenses involved with providing multiple years worth of infor-
mation, there is a $15 charge for each Account Transcript requested.
Additional copies of tax forms are available at the shareholder's request. A
$10 fee for each tax form will be assessed.
Additional information regarding the Sub-Transfer Agent's services may be
obtained by contacting the Client Services Department at (800) 544-5445.
40
STATEMENT OF ADDITIONAL INFORMATION
CONCERT INVESTMENT SERIES
388 Greenwich Street
New York, NY 10013
February 28, 1998
Concert Investment Series (the "Trust") is a diversified,
open-end management investment company with six separate Funds
which are discussed herein: the Emerging Growth Fund (the
"Emerging Growth Fund"), the International Equity Fund (the
"International Equity Fund"), the Growth Fund (the "Growth Fund"),
the Growth and Income Fund (the "Growth and Income Fund"), the
Government Fund (the "Government Fund") and the Municipal Bond
Fund (the "Municipal Bond Fund"). Each Fund is in effect a
separate fund issuing its own shares.
This Statement of Additional Information is not a Prospectus
but contains information in addition to and more detailed than
that set forth in the Prospectus bearing the same date and should
be read in conjunction with the Prospectus. A Prospectus may be
obtained without charge by writing PFS Distributors, Inc. at 3100
Breckinridge Boulevard, Bldg. 200, Duluth, Georgia 30199-0001.
Please call Customer Service at (800) 544-5445 for information on
the Funds.
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
General Information
Goals and Investment Policies
Investment Restrictions
Trustees and Officers
Investment Advisory Agreements
Distributor
Portfolio Turnover
Distribution Plans
Portfolio Transactions and Brokerage
Determination of Net Asset Value
Purchase and Redemption of Shares
Exchange Privilege
Dividends, Distributions and Federal Taxes
Other Information
Financial Statements
Appendix -- Commercial Paper, Bond and Other Short- and Long-Term
Ratings
Municipal Bond
</TABLE>
GENERAL INFORMATION
Mutual Management Corp. formerly Smith Barney Mutual Funds
Management Inc. (the "Adviser") was incorporated on March 12, 1968
and renders investment management advice to investment companies
with aggregate assets under management in excess of $94 billion as
of January 31, 1998. The Adviser is an affiliate of Smith Barney
Inc. and a wholly-owned subsidiary of Salomon Smith Barney
Holdings Inc. which in turn is a wholly-owned subsidiary of
Travelers Group Inc. ("Travelers"). Travelers is engaged primarily
in investment services, including asset management, consumer
finance services, life insurance services and property and
casualty insurance services.
PFS Distributors, Inc. (the "Distributor") is an indirect
wholly-owned subsidiary of Travelers. PFS Shareholder Services
(the "Transfer Agent"), is a subsidiary of PFS Services, Inc., an
affiliate of Primerica Financial Services, Inc. ("Primerica
Financial"). PFS Investments, Inc. ("PFS Investments") is an
indirect wholly-owned subsidiary of Travelers.
As of February 12, 1998, no person was known to own
beneficially or of record as much as five percent of the
outstanding shares of any Fund of the Trust.
PFS Investments acts as custodian for certain employee
benefit plans and individual retirement accounts.
GOALS AND INVESTMENT POLICIES
The following disclosures supplement disclosures set forth
under an identical caption in the Prospectus and do not, standing
alone, present a complete and accurate explanation of the matters
disclosed. Readers must refer also to this caption in the
Prospectus for a complete presentation of the matters disclosed
below.
Emerging Growth Fund
The Fund seeks capital appreciation by investing in a
portfolio of securities consisting principally of common stocks of
small and medium sized companies considered by the Adviser to be
emerging growth companies.
International Equity Fund
The Fund seeks total return on its assets from growth of
capital and income. The Fund seeks to achieve its goal by
investing at least 65% of its assets in a diversified portfolio of
equity securities of established non-United States issuers.
Growth Fund
The Fund seeks capital appreciation through investments in
common stocks and options on common stocks. The Fund may also
engage in transactions involving stock index futures contracts and
options on such contracts. Any income realized on its investments
will be purely incidental to the goal of capital appreciation.
Growth and Income Fund
The Fund seeks reasonable growth and income through
investments in equity securities that provide dividend and
interest income, including common and preferred stocks and
securities convertible into common and preferred stocks.
In general, the Fund intends to invest in securities that
have yielded a dividend or interest return to security holders
within the past twelve months, however, it may invest in
non-income producing investments held for anticipated increase in
value. The Fund may also engage in transactions in options,
futures contracts, and options on futures.
Government Fund
The Fund seeks high current return consistent with
preservation of capital by investing in debt securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities. The Fund may also purchase and sell options and
engage in transactions in interest rate futures contracts and
options on such contracts in order to hedge against changes in
interest rates.
The Fund seeks high current return consistent with
preservation of capital. The Fund intends to invest at least 80%
of its assets in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Repurchase
agreements may be entered into with domestic banks or
broker-dealers deemed creditworthy by the Adviser solely for
purposes of investing the Fund's cash reserves or when the Fund is
in a temporary defensive posture. The Fund may write covered or
fully collateralized call options on U.S. Government securities
and enter into closing or offsetting purchase transactions with
respect to certain of such options. The Fund may also write
secured put options and enter into closing or offsetting purchase
transactions with respect to such options. The Fund may write both
listed and over-the-counter options as described in the
Prospectus.
The Fund seeks to obtain a high current return from the
following sources:
-- interest paid on the Fund's portfolio
securities;
-- premiums earned upon the expiration of options
written;
-- net profits from closing transactions; and
-- net gains from the sale of portfolio securities
on the exercise of options or otherwise.
The Fund is not designed for investors seeking long-term
capital appreciation. Moreover, varying economic and market
conditions may affect the value of and yields on U.S. Government
securities. Accordingly, there is no assurance that the Fund's
investment objective will be achieved.
Mortgage Related Securities. The Government Fund may invest
in mortgage-related securities, including those representing an
undivided ownership interest in a pool of mortgage loans, e.g.,
GNMA, FNMA, FHLMC Certificates.
Government National Mortgage Association. The Government
National Mortgage Association ("GNMA") is a wholly owned corporate
instrumentality of the United States within the U.S. Department of
Housing and Urban Development. GNMA's principal programs involve
its guarantees of privately issued securities backed by pools of
mortgages.
GNMA Certificates. Certificates of the Government National
Mortgage Association ("GNMA Certificates") are mortgage-backed
securities, which evidence an undivided interest in a pool of
mortgage loans. GNMA Certificates differ from bonds in that
principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA
Certificates that the Fund purchases are the "modified
pass-through" type. "Modified pass-through" GNMA Certificates
entitle the holder to receive a share of all interest and
principal payments paid and owned on the mortgage pool net of fees
paid to the "issuer" and GNMA, regardless of whether or not the
mortgagor actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on
securities backed by a pool of mortgages insured by the Federal
Housing Administration ("FHA") or the Farmers' Home Administration
("FMHA"), or guaranteed by the Veterans Administration ("VA").
Once a pool of such mortgages is assembled and approved by GNMA,
the GNMA guarantee is backed by the full faith and credit of the
U.S. Government. GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any
payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The
Fund normally will not distribute principal payments (whether
regular or prepaid) to its shareholders. Rather, it will invest
such payments in additional mortgage-related securities of the
types described above or other U.S. Government securities.
Interest received by the Fund will, however, be distributed to
shareholders. Foreclosures impose no risk to principal investment
because of the GNMA guarantee.
As prepayment rates of the individual mortgage pools vary
widely, it is not possible to predict accurately the average life
of a particular issue of GNMA Certificates. However, statistics
published by the FHA indicate that the average life of
single-family dwelling mortgages with 25- to 30-year maturities,
the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Therefore, it is
customary to treat GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate
of interest of GNMA Certificates is lower than the interest rate
paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates, but only by the amount of the fees paid to GNMA and
the GNMA Certificate issuer. For the most common type of mortgage
pool, containing single-family dwelling mortgages, GNMA receives
an annual fee of 0.06 of one percent of the outstanding principal
for providing its guarantee, and the GNMA Certificate issuer is
paid an annual servicing fee of 0.44 of one percent for assembling
the mortgage pool and for passing through monthly payments of
interest and principal to Certificate holders.
The coupon rate by itself, however, does not indicate the
yield which will be earned on the GNMA Certificates for the
following reasons:
1. Certificates are usually issued at a premium or
discount, rather than at par.
2. After issuance, Certificates usually trade in the
secondary market at a premium or discount.
3. Interest is paid monthly rather than semi-annually
as is the case for traditional bonds. Monthly compounding
has the effect of raising the effective yield earned on GNMA
Certificates.
4. The actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool
underlying the Certificate. If mortgagors prepay their
mortgages, the principal returned to Certificate holders may
be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary
practice is to assume that the Certificates will have a 12 year
life. Compared on this basis, GNMA Certificates have historically
yielded roughly 1/4 of 1.00% more than high grade corporate bonds
and 1/2 of 1.00% more than U.S. Government and U.S. Government
agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates
may differ significantly from the yield estimated on the
assumption of a twelve-year life.
Market for GNMA Certificates. Since the inception of the
GNMA mortgage-backed securities program in 1970, the amount of
GNMA Certificates outstanding has grown rapidly. The size of the
market and the active participation in the secondary market by
securities dealers and many types of investors make GNMA
Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and
depend on, among other things, the level of market rates, the
Certificate's coupon rate and the prepayment experience of the
pool of mortgages backing each Certificate.
FHLMC Securities. The Federal Home Loan Mortgage Corporation
("FHLMC") was created in 1970 to promote development of a
nationwide secondary market in conventional residential mortgages.
FHLMC issues two types of mortgage pass-through securities,
mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. Like GNMA
Certificates, PCs are assumed to be prepaid fully in their twelfth
year. FHLMC guarantees timely monthly payment of interest of PCs
and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of
mortgages. However, these instruments pay interest semiannually
and return principal once a year in guaranteed minimum payments.
The expected average life of these securities is approximately
10 years.
FNMA Securities. The Federal National Mortgage Association
("FNMA") was established in 1938 to create a secondary market in
mortgages insured by the FHA. FNMA issues guarantee mortgage
pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each Certificate represents a
pro rata share of all interest and principal payments made and
owed on the underlying pool. FNMA guarantees timely payment of
interest on FNMA Certificates and the full return of principal.
Like GNMA Certificates, FNMA Certificates are assumed to be
prepaid fully in their twelfth year.
Risk of foreclosure of the underlying mortgages is greater
with FHLMC and FNMA securities because, unlike GNMA securities,
FHLMC and FNMA securities are not guaranteed by the full faith and
credit of the U.S. Government.
Municipal Bond Fund
The Fund seeks as high a level of current interest income
exempt from federal income tax as is consistent with the
preservation of capital.
Municipal Bonds. "Municipal Bonds" include debt obligations
issued to obtain funds for various public purposes, including
construction of a wide range of public facilities, refunding of
outstanding obligations and obtaining funds for general operating
expenses and loans to other public institutions and facilities. In
addition, certain types of industrial development obligations are
issued by or on behalf of public authorities to finance various
privately-operated facilities. Such obligations are included
within the term Municipal Bonds if the interest paid thereon is
exempt from federal income tax. Municipal Bonds also include
short-term tax-exempt municipal obligations such as tax
anticipation notes, bond anticipation notes, revenue anticipation
notes, and variable rate demand notes.
The two principal classifications of Municipal Bonds are
"general obligations" and "revenue" or "special obligations."
General obligations are secured by the issuer's pledge of full
faith, credit, and taxing power for the payment of principal and
interest. Revenue or special obligations are payable only from the
revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or
from other specific revenue sources such as the user of the
facility being financed. Industrial development bonds, including
pollution control bonds, are revenue bonds and do not constitute
the pledge of the credit or taxing power of the issuer of such
bonds. The payment of the principal and interest on such
industrial revenue bonds depends solely on the ability of the user
of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property
so financed as security for such payment. The Fund's portfolio may
also include "moral obligation" bonds which are normally issued by
special purpose public authorities. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment
of such bonds becomes a moral commitment but not a legal
obligation of the state or municipality which is the issuer of the
bonds.
When the Fund engages in when-issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case
may be, to consummate the trade. Failure of the buyer or seller to
do so may result in the Fund missing the opportunity of obtaining
a price considered to be advantageous.
On a temporary basis, due to market conditions, the Fund may
invest in Municipal Notes which include demand notes and
short-term municipal obligations (such as tax anticipation notes,
revenue anticipation notes, construction loan notes and short-term
discount notes) and tax-exempt commercial paper, provided that
such obligations have the ratings described in the Prospectus.
Demand notes are obligations which normally have a stated maturity
in excess of one year, but permit any holder to demand payment of
principal plus accrued interest upon a specified number of days'
notice. Frequently, such obligations are secured by letters of
credit or other credit support arrangement provided by banks. The
issuer of such notes normally has a corresponding right, after a
given period, to prepay at its discretion the outstanding
principal of the note plus accrued interest upon a specified
number of days' notice to the noteholders. The interest rate on a
demand note may be based on a known lending rate, such as a bank's
prime rate, and may be adjusted when such rate changes, or the
interest rate on a demand note may be a market rate that is
adjusted at specified intervals. Participation interests in
variable rate demand notes will be purchased only if, in the
opinion of counsel, interest income on such interest will be
tax-exempt when distributed as dividends to shareholders.
Yields on Municipal Bonds are dependent on a variety of
factors, including the general condition of the money market and
of the municipal bond market, the size of a particular offering,
the maturity of the obligation, and the rating of the issue. The
ability of the Fund to achieve its investment objective is also
dependent on the continuing ability of the issuers of the
Municipal Bonds in which the Fund invests to meet their
obligations for the payment of interest and principal when due.
There are variations in the risks involved in holding Municipal
Bonds, both within a particular classification and among
classifications, depending on numerous factors. Furthermore, the
rights of holders of Municipal Bonds and the obligations of the
issuers of such Municipal Bonds may be subject to applicable
bankruptcy, insolvency and similar laws and court decisions
affecting the rights of creditors generally, and such laws, if
any, which may be enacted by Congress or state legislatures
imposing a moratorium on the payment of principal and interest or
imposing other constraints or conditions on the payments of
principal and interest on Municipal Bonds.
Temporary Investments. The taxable securities in which the
Municipal Bond Fund may invest as temporary investments include
U.S. Government securities, domestic bank certificates of deposit
and repurchase agreements.
U.S. Government securities include obligations issued or
guaranteed as to principal and interest by the U.S. Government,
its agencies and instrumentalities which are supported by any of
the following: (a) the full faith and credit of the
U.S. Government, (b) the right of the issuer to borrow an amount
limited to a specific line or credit from the U.S. Government,
(c) discretionary authority of the U.S. Government agency or
instrumentality, or (d) the credit of the instrumentality. Such
agencies or instrumentalities include, but are not limited to, the
Federal National Mortgage Association, the Government National
Mortgage Association, Federal Land Banks, and the Farmer's Home
Administration. The Fund may not invest in a certificate of
deposit issued by a commercial bank unless the bank is organized
and operating in the United States and has total assets of at
least $500 million and is a member of the Federal Deposit
Insurance Corporation.
Repurchase Agreements
Each Fund may enter into repurchase agreements with
broker-dealers or domestic banks. The Trustees will review on a
continuing basis those institutions which enter into a repurchase
agreement with the Fund. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires
ownership of a debt security and the seller agrees to repurchase
the obligation at a future time and set price, usually not more
than seven days from the date of purchase, thereby determining the
yield during the purchaser's holding period. Repurchase agreements
are collateralized by the underlying debt securities and may be
considered to be loans under the 1940 Act. The Fund will make
payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of a custodian or
bank acting as agent. The seller under a repurchase agreement is
required to maintain the value of the underlying securities marked
to market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. Government,
or its agencies and instrumentalities), may have maturity dates
exceeding one year. The Fund does not bear the risk of a decline
in value of the underlying security unless the seller defaults
under its repurchase obligation. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying
securities and loss including: (a) possible decline in the value
of the underlying security during the period while the Fund seeks
to enforce its rights thereto, (b) possible lack of access to
income on the underlying security during this period, and
(c) expenses of enforcing its rights.
Reverse Repurchase Agreements
The International Equity Fund may invest in reverse
repurchase agreements. The International Equity Fund does not
currently intend to commit more than 5.00% of its net assets to
reverse repurchase agreements. The Fund may enter into reverse
repurchase agreements with broker/dealers and other financial
institutions. Such agreements involve the sale of portfolio
securities with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment and are considered to
be borrowings by the International Equity Fund and are subject to
the borrowing limitations set forth under "Investment
Restrictions." Since the proceeds of reverse repurchase agreements
are invested, this would introduce the speculative factor known as
"leverage." The securities purchased with the funds obtained from
the agreement and securities collateralizing the agreement will
have maturity dates no later than the repayment date. Generally,
the effect of such a transaction is that the International Equity
Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the
interest income associated with those securities. Such
transactions are only advantageous if the Fund has an opportunity
to earn a greater rate of interest on the cash derived from the
transaction than the interest cost of obtaining that cash.
Opportunities to realize earnings from the use of the proceeds
equal to or greater than the interest required to be paid may not
always be available, and the Fund intends to use the reverse
repurchase technique only when the Adviser believes it will be
advantageous to the International Equity Fund. The use of reverse
repurchase agreements may exaggerate any interim increase or
decrease in the value of the Fund's assets. The Fund's custodian
bank will maintain a separate account for the Fund with securities
having a value equal to or greater than such commitments.
Commercial Bank Obligations
For the purposes of the International Equity Fund's
investment policies with respect to bank obligations, obligations
of foreign branches of U.S. banks and of foreign banks may be
general obligations of the parent bank in addition to the issuing
bank, or may be limited by the terms of a specific obligation and
by government regulation. As with investment in foreign securities
in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject the International
Equity Fund to investment risks that are different in some
respects from those of investments in obligations of domestic
issuers. Although the Fund will typically acquire obligations
issued and supported by the credit of U.S. or foreign banks having
total assets at the time of purchase in excess of U.S. $1 billion
(or the equivalent thereof), this U.S. $1 billion figure is not a
fundamental investment policy or restriction of the International
Equity Fund. For calculation purposes with respect to the U.S.
$1 billion figure, the assets of a bank will be deemed to include
the assets of its U.S. and non-U.S. branches.
Commercial Paper
Commercial paper consists of short-term (usually 1 to
270 days) unsecured promissory notes issued by corporations in
order to finance their current operations. A variable amount
master demand note (which is a type of commercial paper)
represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender, such as one
of the Funds pursuant to which the lender may determine to invest
varying amounts. Transfer of such notes is usually restricted by
the issuer, and there is no secondary trading market for such
notes. Each Fund therefore, may not invest in a master demand
note, if as a result more than 5% (15% in the case of the Emerging
Growth Fund and the International Equity Fund) of the value of the
Fund's total assets would be invested in such notes and other
illiquid securities.
Options, Futures Contracts and Related Options
Selling Call and Put Options (The Emerging Growth Fund, the
International Equity Fund, the Growth Fund, the Growth and Income
Fund and the Government Fund)
Purpose. The principal reason for selling options is to
obtain, through receipt of premiums, a greater current return than
would be realized on the underlying securities alone. A Fund's
current return can be expected to fluctuate because premiums
earned from writing options and dividend or interest income yields
on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities also results in a
higher portfolio turnover.
Selling Options. The purchaser of a call option pays a
premium to the writer (i.e., the seller) for the right to buy the
underlying security from the writer at a specified price during a
certain period. The Emerging Growth Fund, the International Equity
Fund, the Growth Fund and the Growth and Income Fund sell call
options only on a covered basis. The Government Fund sells call
options either on a covered basis, or for cross-hedging purposes.
A call option is covered if the Fund owns or has the right to
acquire the underlying securities subject to the call option at
all times during the option period. Thus, the Government Fund may
sell options on U.S. Government securities or forward commitments
of such securities. An option is for cross-hedging purposes
(relative to the Government Fund only) to hedge against a security
which the Fund owns or has the right to acquire. In such
circumstances, the Government Fund maintains in a segregated
account with the Fund's Custodian, cash or U.S. Government
securities in an amount not less than the market value of the
underlying security, marked to market daily, while the option is
outstanding.
The purchaser of a put option pays a premium to the seller
(i.e., the writer) for the right to sell the underlying security
to the writer at a specified price during a certain period. A Fund
sells put options only on a secured basis, which means that, at
all times during the option period, the Fund would maintain in a
segregated account with its Custodian cash, cash equivalents or
liquid securities in an amount of not less than the exercise price
of the option, or will hold a put on the same underlying security
at an equal or greater exercise price. A Fund generally sells put
options when the Adviser wishes to purchase the underlying
security for the Fund's portfolio at a price lower than the
current market price of the security.
Closing Purchase Transactions and Offsetting Transactions.
In order to terminate its position as writer of a call or put
option, a Fund may enter into a "closing purchase transaction,"
which is the purchase of a call (put) on the same underlying
security and having the same exercise price and expiration date as
the call (put) previously sold by the Fund. The Fund will realize
a gain (loss) if the premium plus commission paid in the closing
purchase transaction is less (greater) than the premium it
received on the sale of the option. A Fund would also realize a
gain if an option it has sold lapses unexercised.
A Fund may sell options that are listed on an exchange as
well as options that are traded over-the-counter. A Fund may close
out its position as writer of an option only if a liquid secondary
market exists for options of that series, but there is no
assurance that such a market will exist, particularly in the case
of over-the-counter options, since they can be closed out only
with the other party to the transaction. Alternatively, a Fund may
purchase an offsetting option, which does not close out its
position as a writer, but provides an asset of equal value to its
obligation under the option sold. If a Fund is not able to enter
into a closing purchase transaction or to purchase an offsetting
option with respect to an option it has sold, it will be required
to maintain the securities subject to the call or the collateral
securing the put until a closing purchase transaction can be
entered into (or the option is exercised or expires), even though
it might not be advantageous to do so.
Risks of Selling Options. By selling a call option, a Fund
loses the potential for gain on the underlying security above the
exercise price while the option is outstanding; by writing a put
option a Fund might become obligated to purchase the underlying
security at an exercise price that exceeds the then current market
price.
Each of the United States exchanges has established
limitations governing the maximum number of call or put options on
the same underlying security (whether or not covered) that may be
written by a single investor, whether acting alone or in concert
with others, regardless of whether such options are written on one
or more accounts or through one or more brokers. An exchange may
order the liquidation of positions found to be in violation of
those limits, and it may impose other sanctions or restrictions.
These position limits may restrict the number of options the Fund
may be able to write.
Purchasing Call and Put Options (The Emerging Growth Fund, the
International Equity Fund, the Growth Fund, the Growth and Income
Fund and the Government Fund)
A Fund may purchase call options to protect (e.g., hedge)
against anticipated increases in the prices of securities it
wishes to acquire. Alternatively, call options may be purchased
for their leverage potential. Since the premium paid for a call
option is typically a small fraction of the price of the
underlying security, a given amount of funds will purchase call
options covering a much larger quantity of such security than
could be purchased directly. By purchasing call options, a Fund
can benefit from any significant increase in the price of the
underlying security to a greater extent than had it invested the
same amount in the security directly. However, because of the very
high volatility of option premiums, a Fund could bear a
significant risk of losing the entire premium if the price of the
underlying security did not rise sufficiently, or if it did not do
so before the option expired.
Conversely, put options may be purchased to protect (e.g.,
hedge) against anticipated declines in the market value of either
specific portfolio securities or of a Fund's assets generally.
Alternatively, put options may be purchased for capital
appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put
option. The purchase of put options for capital appreciation
involves the same significant risk of loss as described above for
call options. In any case, the purchase of options for capital
appreciation would increase the Fund's volatility by increasing
the impact of changes in the market price of the underlying
securities on the Fund's net asset value.
The Funds may purchase either listed or over-the-counter
options.
Options on Stock Indexes (The Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and
Income Fund)
Options on stock indices are similar to options on stock,
but the delivery requirements are different. Instead of giving the
right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive an
amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon
which the option is based being greater than (in the case of a
call) or less than (in the case of a put) the exercise price of
the option. The amount of cash received will be the difference
between the closing price of the index and the exercise price of
the option, multiplied by a specified dollar multiple. The writer
of the option is obligated, in return for the premium received, to
make delivery of this amount.
Some stock index options are based on a broad market index
such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index, or a narrower index such as the Standard & Poor's
100. Indexes are also based on an industry or market segment such
as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options are currently traded on The Chicago Board
Options Exchange, the New York Stock Exchange, the American Stock
Exchange and other exchanges.
Gain or loss to a Fund on transactions in stock index
options will depend on price movements in the stock market
generally (or in a particular industry or segment of the market)
rather than price movements of individual securities. As with
stock options, the Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction
on an Exchange, or it may let the option expire unexercised.
Foreign Currency Options (The International Equity Fund)
The Fund may purchase put and call options on foreign
currencies to reduce the risk of currency exchange fluctuation.
Premiums paid for such put and call options will be limited to no
more than 5% of the Fund's net assets at any given time. Options
on foreign currencies operate similarly to options on securities,
and are traded primarily in the over-the-counter market, although
options on foreign currencies are traded on United States and
foreign exchanges. Exchange-traded options are expected to be
purchased by the Fund from time to time and over-the-counter
options may also be purchased, but only when the Adviser believes
that a liquid secondary market exists for such options, although
there can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which
influence foreign exchange rates and investment generally. See
"Investment Practices and Risks--Options, Futures Contracts and
Related Options" in the Prospectus.
The value of a foreign currency option is dependent upon the
value of the underlying foreign currency relative to the
U.S. dollar. As a result, the price of the option position may
vary with changes in the value of either or both currencies and
has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the
interbank market (conducted directly between currency traders,
usually large commercial banks, and their customers) involve
substantially larger amounts than those that may be involved in
the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information
for foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Quotation information available
is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options
markets are closed while the markets for the underlying currencies
remain open, significant price and rate movements may take place
in the underlying markets that cannot be reflected in the options
markets.
Futures Contracts
The Trust may engage in transactions involving futures
contracts and related options in accordance with rules and
interpretations of the Commodity Futures Trading Commission
("CFTC") under which the Trust and its Funds is exempt from
registration as a "commodity pool".
Types of Contracts. An interest rate futures contract is a
bilateral agreement pursuant to which two parties agree to take or
make delivery of a specific type of debt security at a specified
future time and at a specified price. Although interest rate
futures contracts call for delivery of specified securities, in
most cases the contracts are closed out (by an offsetting purchase
or sale) prior to actual delivery, with the difference between the
contract price and the offsetting price paid in cash.
A municipal bond futures contract is an agreement pursuant
to which two parties agree to take and make delivery of an amount
of cash equal to a specified dollar amount times the differences
between The Bond Buyer Municipal Bond Index value at the close of
the last trading day of the contract and the price at which the
futures contract is originally struck.
A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of
cash equal to a specified dollar amount times the difference
between the stock index value at a specified time and the price at
which the futures contract is originally struck. A stock index
fluctuates with changes in the market values of the stocks
included. No physical delivery of the underlying stocks in the
index is made.
Currently, stock index futures contracts can be purchased
with respect to the Standard & Poor's 500 Stock Index on the
Chicago Mercantile Exchange ("CME"), the New York Stock Exchange
Composite Index on the New York Futures Exchange and the Value
Line Stock Index on the Kansas City Board of Trade. Differences in
the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value
of the securities being hedged.
Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the
Singapore International Monetary Exchange ("Nikkei Index"), Osaka
Index of 50 Japanese stocks traded on the Osaka Exchange,
Financial Times Stock Exchange Index of the 100 largest stocks on
the London Stock Exchange, the All Ordinaries Share Price Index of
307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of
33 stocks on the Hong Kong Stock Exchange, Barclays Share Price
Index of 40 stocks on the New Zealand Stock Exchange and Toronto
Index of 35 stocks on the Toronto Stock Exchange. Futures and
futures options on the Nikkei Index are traded on the CME and
United States commodity exchanges may develop futures and futures
options on other indices of foreign securities. Futures and
options on United States devised index of foreign stocks are also
being developed. Investments in securities of foreign entities and
securities denominated in foreign currencies involve risks not
typically involved in domestic investment, including fluctuations
in foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange controls or
other foreign or United States governmental laws or restrictions
applicable to such investments.
The International Equity Fund may enter into futures
contracts for non-hedging purposes, subject to applicable law.
Initial and Variation Margin. In contrast to the purchase or
sale of a security, no price is paid or received upon the purchase
or sale of a futures contract. Initially, a Fund is required to
deposit with its Custodian in an account in the broker's name an
amount of cash, cash equivalents or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the
contract amount. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract
margin does not involve the borrowing of funds by the customer to
finance the transaction. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the
contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations.
Subsequent payments to and from the broker, called variation
margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short
positions in the futures contract more or less valuable, a process
known as marking to market.
For example, when a Fund purchases a futures contract and
the price of the underlying security or index rises, that position
increases in value, and the Fund receives from the broker a
variation margin payment equal to that increase in value.
Conversely, where the Fund purchases a futures contract and the
value of the underlying security or index declines, the position
is less valuable, and the Fund is required to make a variation
margin payment to the broker.
At any time prior to expiration of the futures contract, the
Fund may elect to terminate the position by taking an opposite
position. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or a gain.
Futures Strategies. When a Fund anticipates a significant
market or market sector advance, the purchase of a futures
contract affords a hedge against not participating in the advance
at a time when the Fund is otherwise fully invested ("anticipatory
hedge"). Such purchase of a futures contract serves as a temporary
substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of
futures contracts could be terminated by offsetting sales. A Fund
may sell futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the
market value of the Fund's securities ("defensive hedge"). To the
extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of
futures contracts substantially reduces the risk to the Fund of a
market decline and, by so doing, provides an alternative to the
liquidation of securities positions in the Fund with attendant
transaction costs.
For example, if the Government Fund holds long-term
U.S. Government securities, and a rise in long-term interest rates
is anticipated, it could, in lieu of selling its portfolio
securities, sell futures contracts for similar long-term
securities. If interest rates increased and the value of the
Fund's securities declined during the period the contracts were
outstanding, the value of the Fund's futures contracts should
increase, thereby protecting the Fund by preventing net asset
value from declining as much as it otherwise would have.
In the event of the bankruptcy of a broker through which a
Fund engages in transactions in listed options, futures or related
options, the Fund could experience delays and/or losses in
liquidating open positions purchased incur a loss of all or part
of its margin deposits with the broker. Similarly, in the event of
the bankruptcy of the writer of an over-the-counter option
purchased by the Government Fund, the Fund could experience a loss
of all or part of the value of the option. Transactions are
entered into by a Fund only with brokers or financial institutions
deemed creditworthy by the Adviser.
Persons who trade in futures contracts may be broadly
classified as "hedgers" and "speculators." Hedgers, whose business
activity involves investment or other commitment in securities or
other obligations, use the futures market to offset unfavorable
changes in value that may occur because of fluctuations in the
value of the securities and obligations held or committed to be
acquired by them or fluctuations in the value of the currency in
which the securities or obligations are denominated. Debtors and
other obligors may also hedge the interest cost of their
obligations. The speculator, like the hedger, generally expects
neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to
profit from fluctuations in prevailing interest rates or currency
exchange rates.
Each Fund's futures transactions will be entered into for
traditional hedging purposes; that is, futures contracts will be
sold to protect against a decline in the price of securities or
currencies that the Fund owns, or futures contracts will be
purchased to protect a Fund against an increase in the price of
securities of currencies it has committed to purchase or expects
to purchase. The International Equity Fund may also enter into
futures transactions for non-hedging purposes, subject to
applicable law.
Special Risks Associated with Futures Transactions. There
are several risks connected with the use of futures contracts as a
hedging device. These include the risk of imperfect correlation
between movements in the price of the futures contracts and of the
underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price
movement.
There may be an imperfect correlation (or no correlation)
between movements in the price of the futures contracts and of the
securities being hedged. The risk of imperfect correlation
increases as the composition of the portfolio of securities being
hedged diverges from the securities upon which the futures
contract is based. If the price of the futures contract moves less
than the price of the securities being hedged, the hedge will not
be fully effective, but if the price of the securities being
hedged moves in an unfavorable direction, the Fund would be in a
better position than if it had not tried to hedge. However, if the
price of the security being hedged moves in a favorable direction,
the hedge will partially offset this advantage. To compensate for
the imperfect correlation of movements of prices of a futures
contract and the securities being hedged, a Fund may buy or sell
futures contracts in a greater dollar amount than the dollar
amount of the securities being hedged if the historical volatility
of the securities being hedged has been greater than the
historical volatility of the securities underlying the futures
contract, or may buy or sell fewer futures contracts if the
historical volatility of the securities being hedged is less than
the historical volatility of the securities underlying the futures
contract. Nevertheless, the price of the futures contract may move
less than the price of the securities which are the subject of the
hedge (or the value of futures contracts and securities held by a
Fund may decline simultaneously), resulting in the hedge not being
fully effective.
There is also the risk that the price of futures contracts
may not correlate perfectly with movements in the securities
underlying the futures contract due to certain market distortions.
First, all participants in the futures market are subject to
initial margin depository and maintenance requirements. Rather
than meet additional margin deposit requirements, investors may
close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market
and the securities underlying the futures contract. Second, from
the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the
securities markets. Therefore, increased participation by
speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the
futures markets and because of the imperfect correlation between
movements in futures contracts and movements in the securities
underlying them, a correct forecast of general market trends by
the Adviser may still not result in a successful hedging
transaction judged over a very short time frame.
There is also the risk that futures markets may not be
sufficiently liquid. Futures contracts may be closed out only on
an Exchange or Board of Trade that provides a market for such
futures contracts. Although a Fund intends to purchase or sell
futures only on Exchanges and Boards of trade where there appears
to be an active secondary market, there can be no assurance that
an active secondary market will exist for any particular contract
or at any particular time. In the event of such illiquidity, it
might not be possible to close a futures position and, in the
event of adverse price movement, a Fund would continue to be
required to make daily payments of variation margin. Since the
securities being hedged will not be sold until the related futures
contract is sold, an increase, if any, in the price of the
securities may to some extent offset losses on the related futures
contract. In such event, the Fund would lose the benefit of the
appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's
ability correctly to predict the direction of movements in the
market. For example, if the Fund hedges against a decline in the
market, and market prices instead advance, the Fund will lose part
or all of the benefit of the increase in value of its securities
holdings because it will have offsetting losses in futures
contracts. In such cases, if the Fund has insufficient cash, it
may have to sell portfolio securities at a time when it is
disadvantageous to do so in order to meet the daily variation
margin.
CFTC regulations require, among other things, (i) that
futures and related options be used solely for bona fide hedging
purposes (or meet certain conditions as specified in CFTC
regulations) and (ii) that a Fund not enter into futures and
related options for which the aggregate initial margin and
premiums exceed 5% of the fair market value of a Fund's assets.
The International Equity Fund may enter into transactions in
futures contracts and options on futures contracts only (i) for
bona fide hedging purposes (as defined in CFTC regulations), or
(ii) for non-hedging purposes provided the aggregate initial
margin and premiums on such non-hedging positions does not exceed
5% of the liquidation value of the Fund's assets. Relative to the
purchase or sale of futures contracts by a Fund, an amount of
cash, cash equivalents or U.S. Government securities equal to the
market value of the obligation under the futures contracts (less
any related margin deposits) will be maintained in a segregated
account with the Custodian.
Additional Risks to Options and Futures Transactions. Each
of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or
futures contract (whether or not covered) which may be written by
a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or
different Exchanges or are held or written on one or more accounts
or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for
purposes of these limits. An Exchange may order the liquidation of
positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may sell.
Although a Fund intends to enter into futures contracts only
if there is an active market for such contracts, there is no
assurance that an active market will exist for the contracts at
any particular time. Most U.S. futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made
that day at a price beyond that limit. It is possible that futures
contract prices would move to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses. In such event, and in
the event of adverse price movements, a Fund would be required to
make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset
losses on the futures contract. However, there is no guarantee
that the price of the securities being hedged will, in fact,
correlate with the price movements in a futures contract and thus
provide an offset to losses on the futures contract.
A Fund pays commissions on futures contracts and options
transactions.
Options on Futures Contracts
A Fund may also purchase and sell options on futures
contracts which are traded on an Exchange. An option on a futures
contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position
if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the option
period. As a seller of an option on a futures contract, a Fund is
subject to initial margin and maintenance requirements similar to
those applicable to futures contracts. In addition, net option
premiums received by a Fund are required to be included as initial
margin deposits. When an option on a futures contract is
exercised, delivery of the futures position is accompanied by cash
representing the difference between the current market price of
the futures contract and the exercise price of the option. A Fund
may purchase put options on futures contracts in lieu of, and for
the same purposes as, the sale of a futures contract. The purchase
of call options on futures contracts in intended to serve the same
purpose as the actual purchase of the futures contract.
Risks of Transactions in Options on Stock Index Futures. In
addition to the risks described above which apply to all options
transactions, there are several special risks relating to options
on stock index futures. The Advisers will not purchase options on
stock index futures on any Exchange unless and until, in the
Adviser's opinion, the market for such options has developed
sufficiently that the risks in connection with options on futures
transactions are no greater than the risks in connection with
stock index futures transactions. Compared to the use of stock
index futures, the purchase of options on stock index futures
involves less potential risk to the Growth Fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs). However there may be circumstances, such as
when there is no movement in the level of the index, when the use
of an option on a stock index future would result in a loss to the
Fund when the use of a stock index future would not.
Forward Commitments (The Government Fund Only)
Relative to a Forward Commitment purchase, the Fund
maintains a segregated account (which is marked to market daily)
of appropriate securities as required by the 1940 Act (which may
have maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to
purchase continues. Since the market value of both the securities
subject to the Forward Commitment and the securities held in the
segregated account may fluctuate, the use of the Forward
Commitments may magnify the impact of interest rate changes on the
Fund's net asset value.
A Forward Commitment sale is covered if the Fund owns or has
the right to acquire the underlying securities subject to the
Forward Commitment. A Forward Commitment sale is for cross-hedging
purposes if it is not covered, but is designed to provide a hedge
against a decline in value of a security which the Fund owns or
has the right to acquire. In either circumstance, the Fund
maintains in a segregated account (which is marked to market
daily) either the security covered by the Forward Commitment or
appropriate securities as required by the 1940 Act (which may have
maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to sell
continues. By entering into a Forward Commitment sale transaction,
the Fund forgoes or reduces the potential for both gain and loss
in the security which is being hedged by the Forward Commitment
sale.
Forward Currency Contracts and Options on Currency (The
International Equity Fund)
A forward currency contract is an obligation to purchase or
sell a currency against another currency at a future date and
price as agreed upon by the parties. The Fund may either accept or
make delivery of the currency at the maturity of the forward
contract or, prior to maturity, enter into a closing transaction
involving the purchase or sale or an offsetting contract. The Fund
engages in forward currency transactions in anticipation of, or to
protect itself against fluctuations in exchange rates. The Fund
might sell a particular foreign currency forward, for example,
when it holds bonds denominated in that currency but anticipates,
and seeks to be protected against, decline in the currency against
the U.S. dollar. Similarly, the Fund might sell the U.S. dollar
forward when it holds bonds denominated in U.S. dollars but
anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, the Fund might
purchase a currency forward to "lock in" the price of securities
denominated in that currency which it anticipates purchasing.
The matching of the increase in value of a forward contract
and the decline in the U.S. dollar equivalent value of the foreign
currency denominated asset, that is the subject of the hedge,
generally will not be precise. In addition, the Fund may not
always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Fund's ability to use
such contract to hedge or cross-hedge its assets. Also, with
regard to the Fund's use of cross-hedges, there can be no
assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies
underlying the Fund's cross-hedges and the movements in the
exchange rates of foreign currencies in which the Fund's assets
that are the subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market
conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract
generally has no deposit requirement and is consummated without
payment of any commission. The Fund, however, may enter into
forward contracts with deposit requirements or commissions.
A put option on currency gives the Fund, as purchaser, the
right (but not the obligation) to sell a specified amount of
currency at the exercise price until the expiration of the option.
A call option gives the Fund, as purchaser, the right (but not the
obligation) to purchase a specified amount of currency at the
exercise price until its expiration. The Fund might purchase a
currency put option, for example, to protect itself during the
contract period against a decline in the value of a currency in
which it holds or anticipates holding securities. If the
currency's value should decline, the loss in currency value should
be offset, in whole or in part, by an increase in the value of the
put. If the value of the currency instead should rise, any gain to
the Fund would be reduced by the premium it had paid for the put
option. A currency call option might be purchased, for example, in
anticipation of, or to protect against, a rise in the value of a
currency in which the Fund anticipates purchasing securities.
The Fund's ability to establish and close out positions in
foreign currency options is subject to the existence of a liquid
market. There can be no assurance that a liquid market will exist
for a particular option at any specific time. In addition, options
on foreign currencies are affected by all of those factors that
influence foreign exchange rates and investment generally.
A position in an exchange-listed option may be closed out
only on an exchange that provides a secondary market for identical
options. Exchange markets for options on foreign currencies exist
but are relatively new, and the ability to establish and close out
positions on the exchanges is subject to maintenance of a liquid
secondary market. Closing transactions may be effected with
respect to options traded in the over-the-counter ("OTC") markets
(currently the primary markets for options on foreign currencies)
only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market
exists. Although the Fund intends to purchase only those options
for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any
particular option at any specific time. In such event, it may not
be possible to effect closing transactions with respect to certain
options, with the result that the Fund would have to exercise
those options which it has purchased in order to realize any
profit. The staff of the Securities and Exchange Commission
("SEC") has taken the position that, in general, purchased OTC
options and the underlying securities used to cover written OTC
options are illiquid securities. However, the Fund may treat as
liquid the underlying securities used to cover written OTC
options, provided it has arrangements with certain qualified
dealers who agree that the Fund may repurchase any option it
writes for a maximum price to be calculated by a predetermined
formula. In these cases, the OTC option itself would only be
considered illiquid to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
Interest Rate Transactions (The International Equity Fund)
Among the hedging transactions into which the Fund may enter
are interest rate swaps and the purchase or sale of interest rate
caps and floors. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment. The
Fund will not sell interest rate caps or floors that it does not
own. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed
rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest
rate floor.
The Fund may enter into interest rate swaps, caps and floors
on either an asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis, i.e., the
two payment streams are netted but, with the Fund receiving or
paying, as the case may be, only the net amount of the two
payments. Inasmuch as these hedging transactions are entered into
for good faith hedging purposes, the Adviser and the Fund believe
such obligations do not constitute senior securities and,
accordingly will not treat them as being subject to its borrowing
restrictions. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest
rate swap will be accrued on a daily basis and an amount of cash
or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated
account by a custodian that satisfies the requirements of the 1940
Act. The Fund will not enter into any interest rate swap, cap or
floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in the
highest rating category of at least one nationally recognized
rating organization at the time of entering into such transaction.
If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents
utilizing swap documentation. As a result, the swap market has
become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
New options and futures contracts and various combinations
thereof continue to be developed and the Fund may invest in any
such options and contracts as may be developed to the extent
consistent with its investment objective and regulatory
requirements applicable to investment companies.
Use of Segregated and Other Special Accounts (The International
Equity Fund)
Use of many hedging and other strategic transactions
including currency and market index transactions by the Fund will
require, among other things, that the Fund segregate cash, liquid
securities or other assets with its Custodian, or a designated
sub-custodian, to the extent the Fund's obligations are not
otherwise "covered" through ownership of the underlying security,
financial instrument or currency. In general, either the full
amount of any obligation by the Fund to pay or deliver securities
or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to
any regulatory restrictions, appropriate securities as required by
the 1940 Act at least equal to the current amount of the
obligation must be segregated with the custodian or sub-custodian.
The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no
longer necessary to segregate them. A call option on securities
written by the Fund, for example, will require the Fund to hold
the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or to
segregate liquid securities sufficient to purchase and deliver the
securities if the call is exercised. A call option sold by the
Fund on an index will require the Fund to own portfolio securities
that correlate with the index or to segregate liquid securities
equal to the excess of the index value over the exercise price on
a current basis. A put option on securities written by the Fund
will require the Fund to segregate liquid securities equal to the
exercise price. Except when the Fund enters into a forward
contract in connection with the purchase or sale of a security
denominated in a foreign currency or for other non-speculative
purposes, which requires no segregation, a currency contract that
obligates the Fund to buy or sell a foreign currency will
generally require the Fund to hold an amount of that currency,
liquid securities denominated in that currency equal to the Fund's
obligations or to segregate liquid securities equal to the amount
of the Fund's obligations.
OTC options entered into by the Fund, including those on
securities, currency, financial instruments or indices, and
OCC-issued and exchange-listed index options will generally
provide for cash settlement, although the Fund will not be
required to do so. As a result, when the Fund sells these
instruments it will segregate an amount of assets equal to its
obligations under the options. OCC-issued and exchange-listed
options sold by the Fund other than those described above
generally settle with physical delivery, and the Fund will
segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery or with an
election of either physical delivery or cash settlement will be
treated the same as other options settling with physical delivery.
In the case of a futures contract or an option on a futures
contract, the Fund must deposit initial margin and, in some
instances, daily variation margin in addition to segregating
assets sufficient to meet its obligations to purchase or provide
securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. These assets may
consist of cash, cash equivalents, liquid securities or other
acceptable assets. The Fund will accrue the net amount of the
excess, if any, of its obligations relating to swaps over its
entitlements with respect to each swap on a daily basis and will
segregate with its custodian, or designated sub-custodian, an
amount of cash or liquid securities having an aggregate value
equal to at least the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net
obligation, if any.
Hedging and other strategic transactions may be covered by
means other than those described above when consistent with
applicable regulatory policies. The Fund may also enter into
offsetting transactions so that its combined position, coupled
with any segregated assets, equals its net outstanding obligation
in related options and hedging and other strategic transactions.
The Fund could purchase a put option, for example, if the strike
price of that option is the same or higher than the strike price
of a put option sold by the Fund. Moreover, instead of segregating
assets if it holds a futures contract or forward contract, the
Fund could purchase a put option on the same futures contract or
forward contract with a strike price as high or higher than the
price of the contract held. Other hedging and other strategic
transactions may also be offset in combinations. If the offsetting
transaction terminates at the time of or after the primary
transaction, no segregation is required, but if it terminates
prior to that time, assets equal to any remaining obligation would
need to be segregated.
Loans of Portfolio Securities
Each of the Funds may lend portfolio securities to
unaffiliated brokers, dealers and financial institutions provided
that cash equal to 100% of the market value of the securities
loaned is deposited by the borrower with the particular Fund and
is marked to market daily. While such securities are on loan, the
borrower is required to pay the Fund any income accruing thereon.
Furthermore, the Fund may invest the cash collateral in portfolio
securities thereby increasing the return to the Fund as well as
increasing the market risk to the Fund. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws
or regulations of any state in which its shares are qualified for
sale. However, should the Fund believe that lending securities is
in the best interests of the Fund's shareholders, it would
consider withdrawing its shares from sale in any such state.
Loans would be made for short-term purposes and subject to
termination by the Fund in the normal settlement time, currently
five business days after notice, or by the borrower on one day's
notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the
Fund and its shareholders, but any gain can be realized only if
the borrower does not default. Each Fund may pay reasonable
finders', administrative and custodial fees in connection with a
loan.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following restrictions which may
not be changed with respect to any Fund without approval by the
vote of a majority of such Fund's outstanding voting shares, which
is defined by the 1940 Act as the lesser of (i) 67% or more of the
voting securities present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or (ii) more than 50% of the
Fund's outstanding voting securities. The percentage limitations
need only be met at the time the investment is made or after
relevant action is taken.
The following restrictions apply to all Funds:
A Fund shall not:
1. Lend money except by the purchase of bonds or
other debt obligations of types commonly offered publicly or
privately and purchased by financial institutions, including
investments in repurchase agreements. A Fund will not invest
in repurchase agreements maturing in more than seven days
(unless subject to a demand feature) if any such investment,
together with any illiquid securities (including securities
which are subject to legal or contractual restrictions on
resale) held by the Fund, exceeds 10% of the market or other
fair value of its total net assets (15% in the case of the
Emerging Growth Fund and the International Equity Fund);
provided, however, that with respect to the Emerging Growth
Fund, the International Equity Fund, the Growth Fund, the
Growth and Income Fund and the Municipal Bond Fund, illiquid
securities shall exclude shares of other open-end investment
companies owned by the Fund but include the Fund's pro rata
portion of the securities and other assets owned by any such
company. See "Repurchase Agreements";
2. Underwrite securities of other companies, except
insofar as a Fund might be deemed to be an underwriter for
purposes of the Securities Act of 1933 (the "1933 Act") in
the resale of any securities owned by the Fund;
3. Lend its portfolio securities in excess of 10%
(15% in the case of the Emerging Growth Fund and the
International Equity Fund) of its total assets, both taken
at market value, provided that any loans shall be in
accordance with the guidelines established for such loans by
the Trustees as described under "Loans of Portfolio
Securities," including the maintenance of collateral from
the borrower equal at all times to the current market value
of the securities loaned;
4. With respect to 75% of its assets, invest more
than 5% of its assets in the securities of any one issuer
(except obligations of the U.S. Government, its agencies or
instrumentalities and repurchase agreements secured thereby)
or purchase more than 10% of the outstanding voting
securities of any one issuer. Neither limitation shall apply
to the acquisition of shares of other open-end investment
companies by the Emerging Growth Fund, the International
Equity Fund, the Growth Fund, the Growth and Income Fund and
the Municipal Bond Fund, to the extent permitted by rule or
order of the SEC exempting them from the limitations imposed
by Section 12(d)(1) of the 1940 Act;
5. Invest more than 25% of the value of its total
assets in securities of issuers in any particular industry;
provided, however, that with respect to the Emerging Growth
Fund, the International Equity Fund, the Growth Fund, the
Growth and Income Fund and the Municipal Bond Fund, this
limitation shall exclude shares of other open-end investment
companies owned by the Fund but include the Fund's pro rata
portion of the securities and other assets owned by any such
company. (This does not restrict any of the Funds from
investing in obligations of the U.S. Government and
repurchase agreements secured thereby); and
6. With respect to all Funds other than the Emerging
Growth Fund and the International Equity Fund, borrow in
excess of 10% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of
the market or other fair value of its total assets, provided
that so long as any borrowing exceeds 5% of the value of the
Fund's total assets, the Fund shall not purchase portfolio
securities. Any such borrowings shall be from banks and
shall be undertaken only as a temporary measure for
extraordinary or emergency purposes. With respect to the
Emerging Growth Fund, borrow money except temporarily from
banks to facilitate payment of redemption requests and then
only in amounts not exceeding 33 1/3% of its net assets, or
pledge more than 10% of its net assets in connection with
permissible borrowings or purchase additional securities
when money borrowed exceeds 5% of its net assets. With
respect to the International Equity Fund, borrow money from
banks on a secured or unsecured basis, in excess of 25% of
the value of its total assets. Deposits in escrow in
connection with the writing of covered call or secured put
options, or in connection with the purchase or sale of
forward contracts, futures contracts, foreign currency
futures and related options, are not deemed to be a pledge
or other encumbrance. This restriction shall not prevent the
International Equity Fund from entering into reverse
repurchase agreements, provided that reverse repurchase
agreements and any transactions constituting borrowing by
the Fund may not exceed 33 1/3% of the Fund's net assets.
The International Equity Fund may not mortgage or pledge its
assets except to secure borrowings permitted under this
restriction.
The following restrictions apply to the Growth Fund, the Growth
and Income Fund, the Government Fund and the Municipal Bond Fund:
A Fund shall not:
1. Make any investment in real estate, commodities or
commodities contracts, or warrants except that the Growth
Fund, the Growth and Income Fund, the Government Fund and
the Municipal Bond Fund may engage in transactions in
futures and related options, the Government Fund may
purchase or sell securities which are secured by real
estate, and the Growth Fund may acquire warrants or other
rights to subscribe to securities of companies issuing such
warrants or rights, or of parents or subsidiaries of such
companies, although the Growth Fund may not invest more than
5% of its net assets in such securities valued at the lower
of cost or market, nor more than 2% of its net assets in
such securities (valued on such basis) which are not listed
on the New York or American Stock Exchanges (warrants and
rights represent options, usually for a specified period of
time, to purchase a particular security at a specified price
from the issuer). Warrants or rights acquired in units or
attached to other securities are not subject to the
foregoing limitations;
2. Purchase securities on margin, except that a Fund
may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities. The
deposit or payment by a Fund of an initial or variation
margin in connection with futures contracts or related
option transactions is not considered the purchase of a
security on margin;
3. Invest in securities of any company if any officer
or trustee of the Trust or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such company,
and such officers and trustees own more than 5% of the
outstanding securities of such issuer;
4. Invest in oil or other mineral leases, rights or
royalty contracts or exploration or development programs,
except that the Growth Fund and the Growth and Income Fund,
may invest in the securities of companies which invest in or
sponsor such programs;
5. Invest in companies for the purpose of acquiring
control or management thereof;
6. Invest in the securities of other open-end
investment companies, or invest in the securities of
closed-end investment companies except through purchase in
the open market in a transaction involving no commission or
profit to a sponsor or dealer (other than the customary
brokers commission) or as part of a merger, consolidation or
other acquisition, except that the Growth Fund, the Growth
and Income Fund and the Municipal Bond Fund may acquire
shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting them from
the limitations imposed by Section 12(d)(1) of the 1940 Act;
7. Purchase a restricted security or a security for
which market quotations are not readily available if as a
result of such purchase more than 5% of the Fund's assets
would be invested in such securities; provided, however,
that with respect to the Growth Fund, the Growth and Income
Fund and the Municipal Bond Fund, this limitation shall
exclude shares of other open-end investment companies owned
by the Fund but include the Fund's pro rata portion of the
securities and other assets owned by any such company.
Illiquid securities include securities subject to legal or
contractual restrictions on resale, which include repurchase
agreements which have a maturity of longer than seven days.
This policy does not apply to restricted securities eligible
for resale pursuant to Rule 144A under the 1933 Act which
the Trustees or the Adviser under Board approved guidelines
may determine are liquid nor does it apply to other
securities for which, notwithstanding legal or contractual
restrictions on resale, a liquid market exists;
8. Invest more than 5% of its assets in companies
having a record together with predecessors, of less than
three years' continuous operation, except that the Growth
Fund, the Growth and Income Fund and the Municipal Bond
Fund, may acquire shares of other open-end investment
companies to the extent permitted by rule or order of the
SEC exempting them from the limitations imposed by
Section 12(d)(1) of the 1940 Act;
9. Engage in option writing for speculative purposes
or purchase call or put options on securities if, as a
result, more than 5% of its net assets of the Fund would be
invested in premiums on such options; and
10. Purchase any security issued by any company
deriving more than 25% of its gross revenues from the
manufacture of alcohol or tobacco.
The Trust has adopted additional investment restrictions,
with respect to the above referenced Funds, which may be changed
by the Trustees without a vote of shareholders, as follows:
The Trust shall not make short sales of securities unless at
the time of sale a Fund owns or has the right to acquire at no
additional cost securities identical to those sold short; provided
that this prohibition does not apply to the writing of options or
the sale of forward contracts, futures, foreign currency futures
or related options.
Foreign Investments. The Growth Fund and the Growth and
Income Fund may not invest in the securities of a foreign issuer
if, at the time of acquisition, more than 20% of the value of the
Fund's total assets would be invested in such securities.
Futures Contracts and Options. In addition, the Growth Fund
and the Growth and Income Fund may not write, purchase or sell
puts, calls or combinations thereof, except that each Fund may
(a) write covered call options with respect to any part or all of
its portfolio securities, write secured put options, or enter into
closing purchase transactions with respect to such options,
(b) purchase and sell put options to the extent that the premiums
paid for all such options do not exceed 10% of its total assets
and only if the Fund owns the securities covered by the put option
at the time of purchase, and (c) engage in futures contracts and
related options transactions as described herein. The Growth Fund
and the Growth and Income Fund may purchase put and call options
which are purchased on an exchange in other markets, or currencies
and, as developed from time to time, various futures contracts on
market indices and other instruments. Purchasing options may
increase investment flexibility and improve total return, but also
risks loss of the option premium if an asset the Fund has the
option to buy declines in value.
The Government Fund may not write, purchase or sell puts,
calls or combinations thereof, except that the Fund may (a) write
covered or fully collateralized call options, write secured put
options, and enter into closing or offsetting purchase
transactions with respect to such options, (b) purchase and sell
options to the extent that the premiums paid for all such options
owned at any time do not exceed 10% of its total assets, and
(c) engage in futures contracts and related options transactions
as described herein.
The Municipal Bond Fund may engage in futures contracts and
related options as described herein.
The following restrictions apply to the Emerging Growth Fund and
the International Equity Fund:
A Fund shall not:
1. Make any investment in real estate, commodities or
commodities contracts, except that each Fund may engage in
transactions in forward commitments, futures contracts,
foreign currency futures and related options and may
purchase or sell securities which are secured by real estate
or interests therein; or issued by companies; including real
estate investment trusts, which invest in real estate or
interests therein; and the International Equity Fund may
engage in currency transactions; and
2. Issue senior securities, as defined in the 1940
Act, except that this restriction shall not be deemed to
prohibit a Fund from (i) making and collateralizing any
permitted borrowings, (ii) making any permitted loans of its
portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts and foreign
currency futures and options thereon, forward contracts,
forward commitments and other investment strategies and
instruments that would be considered "senior securities" but
for the maintenance by the Fund of a segregated account with
its custodian or some other form of "cover."
The Trust has adopted additional investment restrictions
with respect to the Emerging Growth Fund and the International
Equity Fund, which may be changed by the Trustees without a vote
of shareholders. These restrictions provide that a Fund shall not:
1. Purchase securities on margin, except that a Fund
may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities. The
deposit or payment by a Fund of an initial or variation
margin in connection with forward contracts, futures
contracts, foreign currency futures or related option
transactions is not considered the purchase of a security on
margin;
2. Invest in securities of any company if any officer
or trustee of the Trust or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such company,
and such officers and trustees own more than 5% of the
outstanding securities of such issuer;
3. Invest in oil or other mineral leases, rights or
royalty contracts or exploration or development programs,
except that the Emerging Growth Fund and the International
Equity Fund may invest in the securities of companies which
invest in or sponsor such programs;
4. Invest in companies for the purpose of acquiring
control or management thereof;
5. Invest in the securities of other open-end
investment companies, or invest in the securities of
closed-end investment companies except through purchase in
the open market in a transaction involving no commission or
profit to a sponsor or dealer (other than the customary
brokers commission) or as part of a merger, consolidation or
other acquisition, except that the Emerging Growth Fund and
the International Equity Fund, may acquire shares of other
open-end investment companies to the extent permitted by
rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act;
6. Purchase an illiquid security if, as a result of
such purchase, more than 15% of the Fund's net assets would
be invested in such securities; provided, however, that with
respect to the Emerging Growth Fund and the International
Equity Fund, this limitation shall exclude shares of other
open-end investment companies owned by the Fund but include
the Fund's pro rata portion of the securities and other
assets owned by any such company. Illiquid securities
include securities subject to legal or contractual
restrictions on resale, which include repurchase agreements
which have a maturity of longer than seven days. This policy
does not apply to restricted securities eligible for resale
pursuant to Rule 144A under the 1933 Act which the Trustees
or the Adviser or Subadviser under Board-approved
guidelines, may determine are liquid nor does it apply to
other securities for which, notwithstanding legal or
contractual restrictions on resale, a liquid market exists;
7. Invest more than 5% of its assets in companies
having a record together with predecessors, of less than
three years' continuous operation, except that the Emerging
Growth Fund and the International Equity Fund, may acquire
shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting them from
the limitations imposed by Section 12(d)(1) of the 1940 Act;
8. Except for the International Equity Fund, purchase
any security issued by any company deriving more than 25% of
its gross revenues from the manufacture of alcohol or
tobacco;
9. Make short sales of securities, unless at the time
of sale a Fund owns or has the right to acquire at no
additional cost securities identical to those sold short;
provided that this prohibition does not apply to the writing
of options or the sale of forward contracts, futures,
foreign currency futures or related options; and
10. Invest more than 5% of its net assets in warrants
or rights valued at the lower of cost or market, nor more
than 2% of its net assets in warrants or rights (valued on
such basis) which are not listed on the New York or American
Stock Exchanges. Warrants or rights acquired in units or
attached to other securities are not subject to the
foregoing limitations.
Foreign Investments for Funds Other than the International
Equity Fund. The Emerging Growth Fund may not invest in the
securities of a foreign issuer if, at the time of acquisition,
more than 20% of the value of the Fund's total assets would be
invested in such securities.
Futures Contracts and Options. In addition, the Emerging
Growth Fund and the International Equity Fund may purchase put and
call options which are purchased on an exchange in other markets,
or currencies and, as developed from time to time, various futures
contracts on market indices and other instruments. Purchasing
options may increase investment flexibility and improve total
return, but also risks loss of the option premium if an asset the
Fund has the option to buy declines in value.
TRUSTEES AND OFFICERS
The Trustees and executive officers and their principal
occupations for the past five years are listed below.
TRUSTEES
DONALD M. CARLTON, Trustee. Radian International L.L.C.,
8501 N. Mopac Blvd., Building No. 6, Austin, Texas 78759.
President and Chief Executive of Radian International L.L.C.
(chemical engineering). Director of National Instruments Corp. and
Central and Southwest Corporation. Formerly Director of The
Hartford Steam Boiler Inspection and Insurance Company
(insurance/engineering services); 60.
A. BENTON COCANOUGHER, Trustee. Texas A & M University,
601 Blocker Bldg., College Station, Texas 77843-4113. Dean of
College of Business Administration and Graduate School of Business
of Texas A & M University; Director of Randall's Food Markets,
Inc.; Director of First American Bank; and Director of First
American Savings Bank; 59.
STEPHEN RANDOLPH GROSS, Trustee. 2625 Cumberland Parkway,
Suite 400, Atlanta, Georgia 30339. Managing Partner of Gross,
Collins & Cress, P.C. (accounting firm); Director of Charter Bank
& Trust; 50.
HEATH B. McLENDON,* Trustee. Managing Director of Smith
Barney; President and Director of the Adviser and Travelers
Investment Adviser, Inc. ("TIA"); Chairman of Smith Barney
Strategy Advisers Inc. Prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc., Vice Chairman of
Shearson Asset Management, Director of Pan-Agora Asset Management,
Inc. and Pan-Agora Asset Management Limited; 64.
ALAN G. MERTEN, Trustee. George Mason University, 4400
University Drive, Fairfax, Virginia 22030-4444. President of
George Mason University. Director of Comshare, Inc. (information
technology), and Tompkins County Trust Company, Ithaca, New York;
formerly The Anne and Elmer Lindseth Dean of Johnson Graduate
School of Management of Cornell University; 56.
R. RICHARDSON PETTIT, Trustee. Department of Finance,
College of Business, University of Houston, 4800 Calhoun, Houston,
Texas 77204-6283. Duncan Professor of Finance of the University
of Houston; formerly Hanson Distinguished Professor of Business of
the University of Washington; 55.
ALAN B. SHEPARD, JR., Trustee. 1512 Bonifacio Road, P.O. Box
63, Pebble Beach, California 93953-0063. President of Seven
Fourteen Enterprises, Inc. (investments); Partner of Houston
Partners (venture capital); Director and Vice Chairman of
Kwik-Kopy Corporation (printing); Director of Allied Waste
Industries (waste treatment).(1)(2); 74
* Such Trustees are "interested persons" (within the meaning
of Section 2(a)(19) of the Investment Company Act of 1940).
Mr. McLendon is an interested person of the Adviser and the
Trust by reason of his position with the Adviser.
OFFICERS
Heath B. McLendon, President (See description under
"Trustees").
Lewis E. Daidone, Senior Vice President and Treasurer (Age
40). Managing Director of Smith Barney; Director and Senior Vice
President of MMC and TIA. Mr. Daidone serves as Senior Vice
President and Treasurer of 42 Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
Sandip A. Bhagat, Vice President and Investment Officer (Age
37). President of TIMCO; prior to 1995, Senior Portfolio Manager
for TIMCO. His address is One Tower Square, Hartford, Connecticut
06183-2030.
James E. Conroy, Vice President and Investment Officer (Age
46). Managing Director of Smith Barney; prior to July 1993,
Managing Director of Shearson Lehman Advisors ("SLA"). Mr.
Conroy serves as Investment Officer of four Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York, New York
10013.
Joseph P. Deane, Vice President and Investment Officer (Age
50). Managing Director of Smith Barney; prior to July 1993,
Managing Director of SLA. Mr. Deane serves as Investment Officer
of 8 Smith Barney Mutual Funds. His address is 388 Greenwich
Street, New York, New York 10013.
R. Jay Gerken, Vice President and Investment Officer (Age
46). Managing Director of Smith Barney; prior to July 1993,
Managing Director of SLA. Mr. Gerken is Vice President and
Investment Officer of two other Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
Jeffrey Russell, Vice President and Investment Officer (Age
40). Managing Director of Smith Barney; Mr. Russell is Vice
President and Investment Officer of six other Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York, New York
10013.
Larry Weissman, Vice President and Investment Officer; (Age
36 ). Managing Director of Smith Barney; Prior to October 1997,
Portfolio Manager of Newberger & Berman LLC; Prior to 1995,
Portfolio Manager of College Retirement Equities Fund.
Christina T. Sydor, Secretary (Age 47). Managing Director of
Smith Barney; General Counsel and Secretary of MMC and TIA. Ms.
Sydor also serves as Secretary of 42 Smith Barney Mutual Funds.
Her address is 388 Greenwich Street, New York, New York 10013.
As of February 12, 1998, the Trustees and officers of the
Trust as a group own less than one percent of the outstanding
shares of each Fund of the Trust. The Trustees who are not
affiliated with the Adviser or Distributor initially will be
compensated by the Trust at the annual rate of $ plus a fee
of $ per day for each Board meeting attended. During the
fiscal period ended October 31, 1997, the Trustees who were not
affiliated with the Adviser received as a group $19,936, $16,741,
$191,675, $80,659, $30,342, and $21,772 in Trustees' fees from the
Emerging Growth Fund, the International Equity Fund, the Growth
Fund, the Growth and Income Fund, the Government Fund, and the
Municipal Bond Fund respectively, in addition to certain
out-of-pocket expenses.
Additional information regarding compensation paid by the
Funds and the related mutual funds for which the Trustees serve as
trustees noted above is set forth below. The compensation shown
for the Funds is for the fiscal year ended October 31, 1997, while
the total compensation shown for the Funds and other related
mutual funds is for the calendar year ended December 31, 1997. Mr.
McLendon is not compensated for his service as Trustee, because of
his affiliation with the Adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total(1) Number of
Pension or Compensation of Funds
Retirement From For Which
Benefits Registrant Trustee
Aggregate Compensation Accrued as and Fund Serves
From Registrant(3) Part of Fund Paid Within Fund
Name of Person EM INT G G/I GVT MB Expenses(4) to Directors Complex
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Donald M. Carlton $2,464 $2,173 $15,811 $7,600 $3,082 $2,575 - $33,703 1
Dr. A. Benton Cocanougher 2,210 1,949 14,181 6,816 2,764 2,309 - 30,229 1
Stephen Randolph Gross 2,692 2,375 17,278 8,305 3,368 2,814 - 36,832 1
Dr. Norman Hackerman(2) 388 137 16,.274 5,360 1,731 652 - 24,543 0
Heath B. McLendon* - - - - - - - - 42
Robert D. H. Harvey(2) 407 144 17,078 5,625 1,817 684 - 25,757 0
Dr. Alan G. Merten 2,134 1,882 13,692 6,581 2,669 2,230 - 29,187 1
Dr. Steven Muller(2) 2,210 1,949 14,181 6,816 2,764 2,309 - 30,239 0
Dr. F. Robert Paulsen(2) 1,981 1,444 22,881 9,094 3,040 2,050 - 40,490 0
Dr. R. Richardson Pettit 2,184 2,184 14,018 6,738 2,733 2,283 - 30,139 1
Alan B. Shepard, Jr. 2,553 2,251 16,381 7,874 3,139 2,668 - 34,920 1
Miller Upton(2) 383 136 16,069 5,293 1,709 644 - 24,254 0
Benjamin N. Woodson(2) 330 117 13,834 4,557 1,472 554 - 20,863 0
</TABLE>
- --------------------------------------
*Represents Interested Trustee.
(1) Amounts reflected are for the calendar year ended
December 31, 1997.
(2) Messrs. Hackerman, Harvey, Upton and Woodson retired as
Trustees on March 31, 1996. Mr. Paulsen retired as a Trustee
on April 10, 1997. Mr. Muller retired as a Trustee on
January 2, 1998.
(3) The Trustees of the Trust instituted a Retirement Plan
effective April 1, 1996. For the current Trustees not
affiliated with the Adviser, the annual retirement benefit
payable per year for a ten year period is based upon the
highest total annual compensation received in any of the
three calendar years preceding retirement. Trustees with
more than five but less than ten years of service at
retirement will receive a prorated reduced benefit.
(4) Retirement Benefits accrued are $3,406, $777, $173,126,
$62,617, $21,389, and $7,794, per the Emerging Growth Fund, the
International Equity Fund, the Growth Fund, the Growth and Income
Fund, the Government Fund and the Municipal Bond Fund,
respectively, as part of each Fund's expenses.
Legend:
EM = Emerging Growth Fund
INT = International Equity Fund
G = Growth Fund
G/I = Growth and Income Fund
GVT = Government Fund
MB = Municipal Bond Fund
Legal Counsel
Sullivan & Worcester LLP
INVESTMENT ADVISORY AGREEMENTS
The Trust and the Adviser are parties to a separate
Investment Advisory Agreement for each Fund (each, an "Advisory
Agreement" and together, the "Advisory Agreements"). An
investment advisory agreement with the Adviser and the Trust, on
behalf of each Fund had been approved by the Board of Trustees of
the Trust at a meeting held on June 10, 1997 and by shareholders
of each Fund at a meeting held on December 18, 1997. Under the
Advisory Agreements, the Trust retains the Adviser to manage the
investment of its assets and to place orders for the purchase and
sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data
and for formulating and implementing investment programs in
furtherance of each Fund's investment objectives. The Adviser also
furnishes at no cost to the Trust (except as noted herein) the
services of sufficient executive and clerical personnel for the
Trust as are necessary to prepare registration statements,
prospectuses, shareholder reports, and notices and proxy
solicitation materials. In addition, the Adviser furnishes at no
cost to the Trust the services of a President of the Trust, one or
more Vice Presidents as needed, and a Secretary.
Under the Advisory Agreements, the Trust bears the cost of
its accounting services, which includes maintaining its financial
books and records and calculating the daily net asset value of
each Fund. The costs of such accounting services include the
salaries and overhead expenses of a Treasurer or other principal
financial officer and the personnel operating under his direction.
The services are provided at cost which is allocated among all
investment companies advised or subadvised by the Adviser. The
Trust also pays transfer agency fees, custodian fees, legal fees,
the costs of reports to shareholders and all other ordinary
expenses not specifically assumed by the Adviser.
The Trust retains the Adviser to manage the investment of
its assets and to place orders for the purchase and sale of its
portfolio securities. Under the relevant Advisory Agreement, the
Trust pays the Adviser an annual fee for the Emerging Growth Fund,
the Growth Fund and the Growth and Income Fund calculated
separately for each Fund, at the rate of 0.65% of the first
$1 billion of the Fund's average daily net assets; 0.60% of the
next $1 billion of the Fund's average daily net assets; 0.55% of
the next $1 billion of the Fund's average daily net assets; 0.50%
of the next $1 billion of the Fund's average daily net assets; and
0.45% of the Fund's average daily net assets in excess of
$4 billion. The Trust pays the Adviser an annual fee for the
International Equity Fund at the rate of 1.00% of the Fund's
average daily net assets. This fee is higher than that charged by
most other mutual funds but the Trust believes it is justified by
the special international nature of the Fund and is not
necessarily higher than the fees charged by certain mutual funds
with investment goals and policies similar to those of the Fund.
The Trust pays the Adviser an annual fee for the Government Fund
at the rate of 0.60% of the first $1 billion of the Fund's average
daily net assets; 0.55% of the next $1 billion of the Fund's
average daily net assets; 0.50% of the next $1 billion of the
Fund's average daily net assets; 0.45% of the next $1 billion of
the Fund's average daily net assets; 0.40% of the next $1 billion
of the Fund's average daily net assets; and 0.35% of the Fund's
average daily net assets in excess of $5 billion. The Trust pays
the Adviser an annual fee for the Municipal Bond Fund at the rate
of 0.60% of the first $1 billion of the Fund's average daily net
assets; 0.55% of the next $1 billion of the Fund's average daily
net assets; 0.50% of the next $1 billion of the Fund's average
daily net assets; and 0.45% of the Fund's average daily net assets
in excess of $3 billion.
The average daily net assets of each Fund are determined by
taking the average of all of the determinations of net asset value
of such Fund for each business day during a given calendar month.
Such fee is payable for each calendar month as soon as practicable
after the end of that month.
The following table shows expenses paid under the relevant
investment advisory agreement during the periods ended October 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
Emerging International Growth & Municipal
Growth Equity Growth Income Government Bond
<S> <C> <C> <C> <C> <C> <C>
October 31, 1997
Accounting Services $37,198 $21,601 $420,043 $161,748 $55,786 $39,999
Gross Advisory Fees 904,959 267,897 20,533,544 7,574,209 1,702,968 704,693
Contractual Expense
Reimbursement -- -- -- -- -- --
Voluntary Expense
Reimbursement -- -- -- -- -- --
October 31, 1996
Accounting Services $ 79,620 $ 30,600 $ 406,931 $ 168,039 $ 93,056 $ 99,374
Gross Advisory Fees 376,436 130,149 17,148,560 6,017,204 1,883,666 728,210
Contractual Expense
Reimbursement -- 130,149 -- -- -- --
Voluntary Expense
Reimbursement -- 47,998 -- -- -- --
October 31, 1995
Accounting Services $ 6,356 $ 4,807 $ 277,991 $ 123,458 $ 92,277 $ 90,522
Gross Advisory Fees 47,662 35,227 14,436,748 4,937,121 1,979,623 678,530
Contractual Expense
Reimbursement -- -- -- -- -- --
Voluntary Expense
Reimbursement -- -- -- -- -- --
</TABLE>
For these periods, Van Kampen American Capital Asset
Management Inc. ("VKAC") served as the Trust's investment adviser.
Effective December 31, 1997, Mutual Management Corp. (formerly
Smith Barney Mutual Funds Management Inc.) replaced VKAC as
investment adviser to each Fund of the Trust.
The Advisory Agreements also provide that, in the event the
ordinary business expenses of the Trust, calculated separately for
each Fund, for any fiscal year should exceed the most restrictive
expense limitation applicable in the states where the Trust's
shares are qualified for sale, unless waived, the compensation due
the Adviser will be reduced by the amount of such excess and that,
if a reduction in and refund of the advisory fee is insufficient,
the Adviser will pay the Trust monthly an amount sufficient to
make up the deficiency, subject to readjustment during the year.
Ordinary business expenses do not include (1) interest and taxes,
(2) brokerage commissions, (3) certain litigation and
indemnification expenses as described in the Advisory Agreements
and (4) payments made by a Fund pursuant to the Distribution
Plans. Each Fund's Advisory Agreement also provides that the
Adviser shall not be liable to the Trust for any actions or
omissions if it acted in good faith without negligence or
misconduct. The Advisory Agreements also provide that the Adviser
shall not be liable to the Trust for any actions or omissions if
it acted in good faith without negligence or misconduct.
Each Advisory Agreement has an initial term of two years and
thereafter with respect to each Fund may be continued from year to
year if specifically approved at least annually (a)(i) by the
Trustees or (ii) by vote of a majority of the Fund's outstanding
voting securities, and (b) by the affirmative vote of a majority
of the Trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting
called for such purpose. The Advisory Agreements provide that they
shall terminate automatically if assigned and that they may be
terminated without penalty by either party on 60 days written
notice.
[Currently, the most restrictive applicable limitations are
2.50% of the first $30 million, 2% of the next $70 million, and
1.50% of the remaining average net assets. The Trust has received
from California (the state with the most restrictive expense
limitation) a waiver, effective retroactive to the inception of
the Trust, which allows each Fund to exclude shareholder service
costs from the calculation of the expense limitation.]
DISTRIBUTOR
The Distributor acts as the principal underwriter of the
shares of the Trust pursuant to a written agreement for the Funds
("Underwriting Agreement"). The Distributor has entered into a
selling agreement with PFS Investments giving PFS Investments the
exclusive right to sell shares of each Fund of the Trust on behalf
of the Distributor. The Distributor's obligation is an agency or
"best efforts" arrangement under which the Distributor is required
to take and pay only for such shares of each Fund as may be sold
to the public. The Distributor is not obligated to sell any stated
number of shares. The Underwriting Agreement is renewable from
year to year if approved (a) by the Trustees or by a vote of a
majority of the Trust's outstanding voting securities, and (b) by
the affirmative vote of a majority of Trustees who are not parties
to the Agreement or interested persons of any party by votes cast
in person at a meeting called for such purpose. The Underwriting
Agreement provides that it will terminate if assigned, and that it
may be terminated without penalty by either party on 60 days'
written notice.
The following table shows commissions paid, amounts retained
by the Distributor and amounts received by PFS Investments during
the periods ended October 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Emerging International Growth & Municipal
Growth Equity Growth Income Government Bond
<S> <C> <C> <C> <C> <C> <C>
October 31, 1997
Total Underwriting
Commissions $3,846,082 $608,726 $18,002,508 $6,979,966 $808,858 $487,303
Amount Retained By
Distributor 251,247 37,018 2,787,423 825,118 98,702 87,157
Amount Received By PFS
Investments 3,594,835 571,708 15,215,088 6,154,848 710,156 400,146
October 31, 1996
Total Underwriting
Commissions $1,519,351 $235,791 $19,303,603 $5,144,500 $ 950,019 $1,029,147
Amount Retained By
Distributor 124,777 21,437 3,405,104 888,760 162,072 124,395
Amount Received By PFS
Investments 1,394,574 214,354 15,898,499 4,255,740 1,173,867 904,752
October 31, 1995
Total Underwriting
Commissions $ 569,333 $147,459 $21,001,021 $5,352,114 $1,871,172 $1,033,937
Amount Retained By
Distributor 47,949 11,149 3,711,115 929,500 378,331 118,219
Amount Received By PFS
Investments 521,384 136,310 17,289,906 4,422,614 1,492,841 915,718
</TABLE>
The Distributor bears the cost of printing (but not
typesetting) prospectuses used in connection with this offering
and the cost and expense of supplemental sales literature,
promotion and advertising. The Trust pays all expenses
attributable to the registrations of its shares under federal and
state blue sky laws, including registration and filing fees, the
cost of preparation of the prospectuses, related legal and
auditing expenses, and the cost of printing prospectuses for
current shareholders.
PORTFOLIO TURNOVER
The portfolio turnover rate may vary greatly from year to
year as well as within a year. Each Fund's portfolio turnover rate
for prior years is shown under the "Financial Highlights" in the
Prospectus.
DISTRIBUTION PLANS
The Trust has adopted a Class A distribution plan and a
Class B distribution plan (the "Class A Plan" and "Class B Plan,"
respectively) to permit each Fund directly or indirectly to pay
expenses associated with servicing shareholders and in the case of
the Class B Plan the distribution of its shares (the Class A Plan
and the Class B Plan are sometimes referred to herein collectively
as "Plans" and individually as a "Plan").
With respect to the Class A Plan, each Fund is authorized to
pay the Distributor, as compensation for the Distributor's
services, a service fee at an annual rate of 0.25% of the average
daily net assets of the Fund's Class A shares. Such fee shall be
calculated and accrued daily and paid monthly. With respect to the
Class A Plan, the Distributor intends to make payments thereunder
only to compensate PFS Investments for personal service and the
maintenance of shareholder accounts. With respect to the Class B
Plan, authorized payments by each Fund include payments at an
annual rate of 0.25% of the average daily net assets of the
Class B shares to the Distributor for payments for personal
service and/or the maintenance of shareholder accounts. With
respect to the Class B Plan, authorized payments by each Fund also
include payments at an annual rate of 0.75% of the average daily
net assets of the Class B shares to the Distributor as
compensation for providing sales and promotional activities and
services.
In reporting amounts expended under the Plans to the
Trustees, the Distributor will allocate expenses attributable to
the sale of both Class A and Class B shares to each class based on
the ratio of sales of Class A and Class B shares to the sales of
both classes of shares. The service fees paid by the Class A
shares will not be used to subsidize the sale of Class B shares;
similarly, the service fees, if any, and distribution fees paid by
the Class B shares will not be used to subsidize the sale of
Class A shares.
As required by Rule 12b-1 under the 1940 Act, each Plan and
the forms of servicing agreements were approved by the Trustees,
including a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of any of
the Plans or in any agreements related to each Plan ("Independent
Trustees"). In approving each Plan in accordance with the
requirements of Rule 12b-1, the Trustees determined that there is
a reasonable likelihood that each Plan will benefit the Trust and
its shareholders.
Each Plan requires the Distributor to provide the Trustees
at least quarterly with a written report of the amounts expended
pursuant to each Plan and the purposes for which such expenditures
were made. Unless sooner terminated in accordance with its terms,
the Plans will continue in effect for a period of one year and
thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including
a majority of Independent Trustees.
Each Plan may be terminated by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding
voting shares of the respective class. Any change in any of the
Plans that would materially increase the distribution or service
expenses borne by the Trust requires shareholder approval, voting
separately by class; otherwise, it may be amended by a majority of
the Trustees, including a majority of the Independent Trustees, by
vote cast in person at a meeting called for the purpose of voting
upon such amendment. So long as the Plan is in effect, the
selection or nomination of the Independent Trustees is committed
to the discretion of the Independent Trustees.
With respect to each Plan, the Trustees considered all
compensation that the Distributor would receive under the Plan and
the Underwriting Agreement, including service fees and, as
applicable, initial sales charges, distribution fees and
contingent deferred sales charges. The Trustees also considered
the benefits that would accrue to the Distributor under each Plan
in that the Distributor would receive service fees and
distribution fees and the Adviser would receive advisory fees
which are calculated based upon a percentage of the average net
assets of each Fund, which fees would increase if the Plans were
successful and each Fund attained and maintained significant asset
levels.
For the fiscal year ended October 31, 1997, the aggregate
expenses for the Emerging Growth Fund under the Fund's Class A
Plan were $193,021 or 0.25%, respectively, of the Class A shares'
average net assets. Such expenses were paid to reimburse the
Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A
Plan. For the fiscal year ended October 31, 1997, the Fund's
aggregate expenses under the Class B Plan were $587,117 or 1.00%
of the Class B shares' average net assets. Such expenses were paid
to reimburse the Distributor for the following payments: $146,779
for commissions and transaction fees paid to broker-dealers and
other Service Organizations in respect of sales of Class B shares
of the Fund and $440,338 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B
Plan.
For the fiscal year ended October 31, 1997, the aggregate
expenses for the International Equity Fund under the Fund's
Class A Plan were $36,192 or 0.25%, respectively, of the Class A
shares' average net assets. Such expenses were paid to reimburse
the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A
Plan. For the fiscal year ended October 31, 1997, the Fund's
aggregate expenses under the Class B Plan were $113,854 or 1.00%
of the Class B shares' average net assets. Such expenses were paid
to reimburse the Distributor for the following payments: $28,464
for commissions and transaction fees paid to broker-dealers and
other Service Organizations in respect of sales of Class B shares
of the Fund and $85,390 for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.
For the fiscal year ended October 31, 1997, the aggregate
expenses for the Growth Fund under the Class A Plan were $192,932
or 0.25%, respectively, of the Class A shares' average net assets.
Such expenses were paid to reimburse the Distributor for payments
made to Service Organizations for servicing Fund shareholders and
for administering the Class A Plan. For the fiscal year ended
October 31, 1997, the Fund's aggregate expenses under the Class B
Plan were $999,572 or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for
the following payments: $249,893 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in
respect of sales of Class B shares of the Fund and $749,679 for
fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.
For the fiscal year ended October 31, 1997, the aggregate
expenses for the Growth and Income Fund under the Fund's Class A
Plan were $137,612 or 0.25%, respectively, of the Class A shares'
average net assets. Such expenses were paid to reimburse the
Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A
Plan. For the fiscal year ended October 31, 1997, the Fund's
aggregate expenses under the Class B Plan were $752,643 or 1.00%
of the Class B shares' average net assets. Such expenses were paid
to reimburse the Distributor for the following payments: $188,161
for commissions and transaction fees paid to broker-dealers and
other Service Organizations in respect of sales of Class B shares
of the Fund and $564,482 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B
Plan.
For the fiscal year ended October 31, 1997, the aggregate
expenses for the Government Fund under the Fund's Class A Plan
were $30,357 or 0.25%, respectively, of the Class A shares'
average net assets. Such expenses were paid to reimburse the
Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A
Plan. For the fiscal year ended October 31, 1997, the Fund's
aggregate expenses under the Class B Plan were $128,349 or 1.00%
of the Class B shares' average net assets. Such expenses were paid
to reimburse the Distributor for the following payments: $32,087
for commissions and transaction fees paid to broker-dealers and
other Service Organizations in respect of sales of Class B shares
of the Fund and $96,262 for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.
For the fiscal year ended October 31, 1997, the aggregate
expenses for the Municipal Bond Fund under the Fund's Class A Plan
were $13,371 or 0.25%, respectively, of the Class A shares'
average net assets. Such expenses were paid to reimburse the
Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A
Plan. For the fiscal year ended October 31, 1997, the Fund's
aggregate expenses under the Class B Plan were $16,121 or 1.00% of
the Class B shares' average net assets. Such expenses were paid
to reimburse the Distributor for the following payments: $4,030
for commissions and transaction fees paid to broker-dealers and
other Service Organizations in respect of sales of Class B shares
of the Fund and $12,091 for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell
securities for the Trust and for the placement of its portfolio
business and the negotiation of any commissions paid on such
transactions. It is the policy of the Advisers to seek the best
security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a
principal market maker unless it is believed that a better price
and execution can be obtained by using a broker. Except to the
extent that the Trust may pay higher brokerage commissions for
brokerage and research services (as described below) on a portion
of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission
rate. From time to time, the Fund may place brokerage transactions
with affiliated persons of the Adviser. In selecting
broker/dealers and in negotiating commissions, the Adviser
considers the firm's reliability, the quality of its execution
services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference
may be given to firms which also provide research services to the
Trust or the Adviser.
Section 28(e) of the Securities Exchange Act of 1934
("Section 28(e)") permits an investment adviser, under certain
circumstances, to cause an account to pay a broker or dealer who
supplies brokerage and research services a commission for
effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for
effecting the transaction. Brokerage and research services include
(a) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, (c) effecting
securities transactions and performing functions incidental
thereto (such as clearance, settlement and custody), and
(d) furnishing other products or services that assist the Adviser
or the Subadviser in fulfilling their investment-decision making
responsibilities.
Pursuant to provisions of the relevant Advisory Agreement,
the Trustees have authorized the Adviser to cause the Trust to
incur brokerage commissions in an amount higher than the lowest
available rate in return for research services provided to the
Adviser. The Adviser is of the opinion that the continued receipt
of supplemental investment research services from dealers is
essential to its provision of high quality portfolio management
services to the Trust. The Adviser undertakes that such higher
commissions will not be paid by the Trust unless (a) the Adviser
determines in good faith that the amount is reasonable in relation
to the services in terms of the particular transaction or in terms
of the Adviser's overall responsibilities with respect to the
accounts as to which it exercises investment discretion, (b) such
payment is made in compliance with the provisions of
Section 28(e) and other applicable state and federal laws, and (c)
in the opinion of the Adviser, the total commissions paid by the
Trust are reasonable in relation to the expected benefits to the
Trust over the long term. The investment advisory fees paid by the
Trust under the Advisory Agreements are not reduced as a result of
the Adviser's receipt of research services.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
best execution and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Trust
as a factor in the selection of firms to execute portfolio
transactions for the Trust.
The Adviser places portfolio transactions for other advisory
accounts including other investment companies. Research services
furnished by firms through which the Trust effects its securities
transactions may be used by the Adviser in servicing all of its
accounts; not all of such services may be used by the Adviser in
connection with the Trust. In the opinion of the Adviser, the
benefits from research services to the Funds of the Trust and to
the accounts managed by the Adviser cannot be measured separately.
Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of
the lowest available rate paid by each account for brokerage and
research services will vary. However, in the opinion of the
Adviser, such costs to the Trust will not be disproportionate to
the benefits received by the Trust on a continuing basis.
The Adviser will seek to allocate portfolio transactions
equitably whenever concurrent decisions are made to purchase or
sell securities by the Trust and other accounts that the Adviser
may establish in the future. In some cases, this procedure could
have an adverse effect on the price or the amount of securities
available to the Trust. In making such allocations among the Trust
and other advisory accounts, the main factors considered by the
Adviser is the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment
commitments generally held, and opinions of the persons
responsible for recommending the investment.
The following table summarizes for each Fund the total
brokerage commissions paid, the amount of commissions paid to
brokers selected primarily on the basis of research services
provided to the Adviser and the value of these specific
transactions.
<TABLE>
<CAPTION>
Emerging International Growth & Municipal
Growth Equity Growth Income Government Bond
<S> <C> <C> <C> <C> <C> <C>
1997
Total Brokerage Commissions $185,242 $10,105,482 $2,428,087 $140,190 --
Commissions for Research
Services 77,926 -- 3,257,868 759,080 --
Value of Research
Transactions 90,303,044 -- 1,471,817,568 612,451,022 -- --
1996
Total Brokerage Commissions $ 99,218 $94,895 $ 10,114,647 $
2,273,725 $160,181 --
Commissions for Research
Services 73,884 -- 3,194,442 896,669 -- --
Value of Research
Transactions 13,016,975 -- 2,657,952,353 821,323,593 -- --
1995
Total Brokerage Commissions $ 33,144 $51,642 $11,276,872 $2,443,026 $125,499 --
Commissions for Research
Services 27,920 -- 2,878,071 880,873 -- --
Value of Research
Transactions 24,893,286 -- 1,995,983,303 524,158,962 -- --
</TABLE>
The Funds may from time to time place brokerage transactions
with brokers that may be considered affiliated persons of the
Adviser or the Distributor. Such affiliated persons include Smith
Barney Inc. ("Smith Barney") and Robinson Humphrey, Inc.
("Robinson Humphrey", [Effective October 31, 1996, Morgan Stanley
Group Inc. ("Morgan Stanley") became an affiliate of VKAC.
Effective May 31, 1997, Dean Witter Discover & Co. ("Dean Witter")
became an affiliate of VKAC.] The negotiated commission paid to
an affiliated broker on any transaction would be comparable to
that payable to a non-affiliated broker in a similar transaction.
The Funds paid the following commissions to these brokers during
the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
Robinson Smith Morgan Dean
Fiscal 1997 Commissions Humphrey Barney Stanley Witter
<S> <C> <C> <C> <C>
Emerging Growth -- -- -- --
International Equity -- -- $ 9,368 --
Growth $4,500 $327,320 20,688 $17,100
Growth & Income -- 90,639 375 --
Government -- 27,848 -- --
Municipal Bond -- -- -- --
Fiscal 1997 Percentage
Emerging Growth -- -- -- --
International Equity -- -- 8.14% --
Growth 0.04% 3.24% 0.20% 0.17%
Growth & Income -- 3.73% 0.02% --
Government -- 19.86% -- --
Municipal Bond -- -- -- --
Valuation of transactions with
affiliates to total transactions
Emerging Growth -- -- -- --
International Equity -- -- 1.43% --
Growth 0% 0.04% 0% 0.28%
Growth & Income -- -- 0% --
Government -- 2.34% -- --
Municipal Bond -- -- -- --
Fiscal 1996 Commissions
Emerging Growth -- $ 1,835
International Equity -- --
Growth $7,200 240,982
Growth & Income 2,400 92,761
Government -- 28,322
Municipal Bond -- --
</TABLE>
<TABLE>
<CAPTION>
Robinson Smith
Fiscal 1996 Percentages Humphrey Barney
<S> <C> <C>
Emerging Growth -- 1.87%
International Equity -- --
Growth 0.07% 2.38%
Growth & Income 0.10% 4.08%
Government -- 17.68%
Municipal Bond -- --
</TABLE>
<TABLE>
<CAPTION>
Value of transactions with Robinson Smith
affiliates to total transactions Humphrey Barney
<S> <S> <S>
Emerging Growth -- --
International Equity -- --
Growth -- 0.002%
Growth & Income -- 0.027%
Government -- 4.65%
Municipal Bond -- 5.35%
</TABLE>
<TABLE>
<CAPTION>
Robinson Smith
Fiscal 1995 Commissions Humphrey Barney
<C> <S> <S>
Emerging Growth $ -- $ 310
International Equity -- 1,077
Growth 5,250 253,827
Growth & Income 189 118,952
Government -- 20,942
Municipal Bond -- --
</TABLE>
<TABLE>
<CAPTION>
Robinson Smith
Fiscal 1995 Percentages Humphrey Barney
<S> <C> <C>
Commissions with affiliates
to total commissions
Emerging Growth -- 0.94%
International Equity -- 2.10%
Growth 0.05% 2.25%
Growth & Income 0.01% 4.87%
Government -- 16.69%
Municipal Bond -- --
</TABLE>
<TABLE>
<CAPTION>
Value of transactions with Robinson Smith
affiliates to total transactions Humphrey Barney
<S> <C> <C>
Emerging Growth -- 0.35%
International Equity -- 1.23%
Growth 0.03% 7.40%
Growth & Income -- 10.52%
Government -- 15.55%
Municipal Bond -- --
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Fund is determined
as of the close of the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m., New York time) on each business day on which
the Exchange is open.
The Emerging Growth Fund, The International Equity Fund, The
Growth Fund and The Growth and Income Fund Net Asset Valuation
The net asset value of each Fund is computed by (i) valuing
securities listed or traded on a national securities exchange at
the last reported sales price, or if there has been no sale that
day at the last reported bid price, using prices as of the close
of trading on the Exchange, (ii) valuing unlisted securities for
which over-the-counter market quotations are readily available at
the most recent bid price as supplied by the National Association
of Securities Dealers Automated Quotations (NASDAQ) or by
broker-dealers, and (iii) valuing any securities for which market
quotations are not readily available, and any other assets at fair
value as determined in good faith by the Trustees. Options on
stocks, options on stock indexes and stock index futures contracts
and options thereon, which are traded on exchanges, are valued at
their last sales or settlement price as of the close of such
exchanges, or, if no sales are reported, at the mean between the
last reported bid and asked prices. Debt securities with a
remaining maturity of 60 days or less are valued on an amortized
cost basis which approximates market value.
Foreign securities trading may not take place on all days on
which the Exchange is open. Further, trading takes place in
various foreign markets on days on which the Exchange is not open.
Accordingly, the determination of the net asset value of a Fund
may not take place contemporaneously with the determination of the
prices of investments held by such Fund. Events affecting the
values of investments that occur between the time their prices are
determined and 4:00 p.m. Eastern time on each day that the
Exchange is open will not be reflected in a Fund's net asset value
unless the Adviser, under the supervision of the Trustees,
determines that the particular event would materially affect net
asset value. As a result, a Fund's net asset value may be
significantly affected by such trading on days when a shareholder
has no access to the Funds.
Government Fund Net Asset Valuation
U.S. Government securities are traded in the
over-the-counter market and are valued at the last available bid
price. Such valuations are based on quotations of one of more
dealers that make markets in the securities as obtained from such
dealers or from a pricing service. Options and interest rate
futures contracts and options thereon, which are traded on
exchanges, are valued at their last sales or settlement price as
of the close of such exchanges, or, if no sales are reported, at
the mean between the last reported bid and asked prices.
Securities with a remaining maturity of 60 days or less are valued
on an amortized cost basis which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by
or under the direction of the Trustees. Such valuations and
procedures will be reviewed periodically by the Trustees.
The Municipal Bond Fund Net Asset Valuation
Municipal Bonds owned by the Fund are valued by an
independent pricing service ("Service"). When, in the judgment of
the Service, quoted bid prices for investments are readily
available and are representative of the bid side of the market,
these investments are valued at such quoted bid prices (as
obtained by the Service from dealers in such securities). Other
investments are carried at fair value as determined by the
Service, based on methods which include consideration of: yields
or prices of municipal bonds of comparable quality, coupon,
maturity and type; indications as to values from dealers; and
general market conditions. The Service may employ electronic data
processing techniques and/or a matrix system to determine
valuations. Any assets which are not valued by the Service would
be valued at fair value using methods determined in good faith by
the Trustees.
General
The assets belonging to the Class A, Class B and Class 1
shares of each Fund will be invested together in a single
portfolio. The net asset value of each class will be determined
separately by subtracting the expenses and liabilities allocated
to that class.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements the sections in the
Funds' Prospectus captioned "Purchase of Shares" and "Redemption
of Shares."
Purchase of Shares
Shares of each Fund are sold in a continuous offering and
may be purchased on any business day through PFS Investments.
Alternative Sales Arrangement
Each Fund issues two classes of shares: Class A shares are
subject to an initial sales charge and Class B shares are sold at
net asset value and are subject to a contingent deferred sales
charge. Each Fund offers Class 1 shares only to accounts of
previously established shareholders or members of a family unit
comprising husband, wife and minor children, and Class 1
shareholders of other Common Share Funds exchanging their Class 1
shares for Class 1 shares of the Fund. The classes of shares each
represent interests in the same Fund's portfolio of investments,
have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the deferred sales
arrangements, distribution fees, and any expenses (including any
incremental transfer agency costs) resulting from such sales
arrangements, and except that each class has exclusive voting
rights with respect to the Rule 12b-1 distribution plan pursuant
to which its distribution fees are paid.
During special promotions, the entire sales charge on
Class A shares may be reallowed to dealers, and at such times PFS
Investments may be deemed to be an underwriter for purposes of the
1933 Act.
Investments by Mail
A shareholder investment account may be opened by completing
the application accompanying the Prospectus and forwarding the
application, through PFS Investments to the Transfer Agent at 3100
Breckinridge Boulevard, Bldg. 200, Duluth, Georgia 30199-0062. The
account is opened only upon acceptance of the application by the
Transfer Agent. The minimum initial investment of $250 or more in
the form of a check payable to the Trust, must accompany the
application. This minimum may be waived by the Distributor for
plans involving continuing investments. Subsequent investments of
$25 or more may be mailed directly to the Transfer Agent. All such
investments are made at the public offering price of the Fund's
shares next computed following receipt of payment by the Transfer
Agent. Confirmations of the opening of an account and of all
subsequent transactions in the account are forwarded by the
Transfer Agent to the shareholder.
In processing applications and investments, the Transfer
Agent acts as agent for the investor and for PFS Investments and
also as agent for the Distributor, in accordance with the terms of
the Prospectus. If the Transfer Agent ceases to act as such, a
successor company named by the Trust will act in the same capacity
so long as the account remains open.
Cumulative Purchase Discount
The reduced sales load reflected in the sales charge table
as shown in the Prospectus applies to purchases of Class A and
Class 1 shares of the Emerging Growth Fund, the International
Equity Fund, the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Bond Fund. An aggregate
investment includes all shares of all of the above Funds and
shares of other Common Sense Funds previously purchased and still
owned, plus the shares being purchased. The current offering price
is used to determine the value of all such shares. The same
reduction is applicable to purchases under a Letter of Intent as
described in the next paragraph. PFS Investments must notify the
Distributor at the time an order is placed for a purchase which
would qualify for the reduced charge on the basis of previous
purchases. Similar notification must be given in writing when such
an order is placed by mail. The reduced sales charge will not be
applied if such notification is not furnished at the time of the
order. The reduced sales charge will also not be applied unless
the records of the Distributor or the Transfer Agent confirm the
investor's representations concerning his holdings.
Letter of Intent
A Letter of Intent applies to purchases of Class A and
Class 1 shares of all Funds. When an investor submits a Letter of
Intent to attain an investment goal within a 13-month period, the
Transfer Agent escrows shares totaling 5% of the dollar amount of
the Letter of Intent in the name of the investor. The Letter of
Intent does not obligate the investor to purchase the indicated
amount. In the event the Letter of Intent goal is not achieved
within the 13-month period, the investor is required to pay the
difference between the sales charge otherwise applicable to the
purchases made during this period and the sales charge actually
paid. Such payment may be made directly to the Distributor or, if
not paid, the Distributor will liquidate sufficient escrow shares
to obtain such difference. If the goal is exceeded in an amount
which qualifies for a lower sales charge, a price adjustment is
made at the end of the 13-month period by refunding to the
investor the amount of excess sales commissions, if any, paid
during the 13-month period.
Waiver of Contingent Deferred Sales Charge ("CDSC")
The CDSC is waived on redemptions of Class A and Class B
shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Trust may waive the CDSC on redemptions following the
death or disability of a Class A or Class B shareholder. An
individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the Code,
which in pertinent part defines a person as disabled if such
person "is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of
long-continued and indefinite duration." While the Trust does not
specifically adopt the balance of the Code's definition which
pertains to furnishing the Secretary of Treasury with such proof
as he or she may require, the Distributor will require
satisfactory proof of death or disability before it determines to
waive the CDSC.
In cases of disability or death, the CDSC may be waived
where the decedent or disabled person is either an individual
shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or
fiduciary account, and where the redemption is made within one
year of the death or initial determination of disability. This
waiver of the CDSC applies to a total or partial redemption, but
only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from
Retirement Plans
The Trust may waive the CDSC when a total or partial
redemption is made in connection with certain distributions from
Retirement Plans. The charge may be waived upon the tax-free
rollover or transfer of assets to another Retirement Plan invested
in one or more of the Funds; in such event, as described below,
the Fund will "tack" the period for which the original shares were
held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any,
CDSC is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also may
be waived on any redemption which results from the return of an
excess contribution pursuant to Section 408(d)(4) or (5) of the
Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of
the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In
addition, the charge may be waived on any minimum distribution
required to be distributed in accordance with Code
Section 401(a)(9).
The Trust does not intend to waive the CDSC for any
distributions from IRAs or other Retirement Plans not specifically
described above.
(c) Redemption Pursuant to the Trust's Systematic Withdrawal
Plan
A shareholder may elect to participate in a systematic
withdrawal plan ("Plan") with respect to the shareholder's
investment in a Fund. Under the Plan, a dollar amount of a
participating shareholder's investment in the Fund will be
redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and
frequency of the systematic withdrawals will be specified by the
shareholder upon his or her election to participate in the Plan.
The CDSC may be waived on redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the
time the election to participate in the Plan is made with respect
to the Fund is hereinafter referred to as the "initial account
balance." The amount to be systematically redeemed from such Fund
without the imposition of a CDSC may not exceed a maximum of 12%
annually of the shareholder's initial account balance. The Trust
reserves the right to change the terms and conditions of the Plan
and the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts that Do Not
Have the Required Minimum Balance
The Trust reserves the right to redeem shareholder accounts
with balances of less than a specified dollar amount as set forth
in the Prospectus. Prior to such redemptions, shareholders will be
notified in writing and allowed a specified period of time to
purchase additional shares to bring the account up to the required
minimum balance. Any involuntary redemption may only occur if the
shareholder account is less than the amount specified in the
Prospectus due to shareholder redemptions. The Trust may waive the
CDSC upon such involuntary redemption.
(e) Redemption by Adviser
The Trust may waive the CDSC when a total or partial
redemption is made by the Adviser with respect to its investments
in a Fund.
Redemption of Shares
Redemptions are not made on days during which the Exchange
is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during
any period when (a) the Exchange is closed for other than
customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Trust to
fairly determine the value of its net assets; or (d) the SEC, by
order, so permits.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder
Services -- Exchange Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes
the Transfer Agent to act on written exchange instructions from
any person representing himself to be the investor or the agent of
the investor and believed by the Transfer Agent to be genuine. The
Transfer Agent's records of such instructions are binding.
For purposes of determining the sales charge rate previously
paid on Class A and Class 1 shares of a Fund, all sales charges
paid on the exchanged security and on any security previously
exchanged for such security or for any of its predecessors shall
be included. If the exchanged security was acquired through
reinvestment, that security is deemed to have been sold with a
sales charge rate equal to the rate previously paid on the
security on which the dividend or distribution was paid. If a
shareholder exchanges less than all of his securities, the
security upon which the highest sales charge rate was previously
paid is deemed exchanged first.
Exchange requests received on a business day prior to the
time shares of a Fund involved in the request are priced will be
processed on the date of receipt. "Processing" a request means
that shares in a fund from which the shareholder is withdrawing an
investment will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased
at the net asset value per share, plus any applicable sales
charge, next determined on the date of receipt. Exchange requests
received on a business day after the time shares of the Funds
involved in the request are priced will be processed on the next
business day in the manner described above.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The Emerging Growth Fund, the International Equity Fund and
the Growth Fund distribute dividends and capital gains annually;
the Growth and Income Fund declares and pays dividends quarterly.
The Government Fund and the Municipal Bond Fund declare and
distribute dividends monthly substantially all of their net
investment income to shareholders. The per share dividends on
Class B shares of each Fund will be lower than the per share
dividends on Class A and Class 1 shares as a result of the
distribution fees and incremental transfer agency fees, if any,
applicable to the Class B shares. Each Fund intends similarly to
distribute to shareholders any taxable net realized capital gains.
Taxable net realized capital gains are the excess, if any, of the
Fund's total profits on the sale of securities during the year
over its total losses on the sale of securities, including capital
losses carried forward from prior years in accordance with the tax
laws. Such capital gains, if any, are distributed at least once a
year. All income dividends and capital gains distributions are
reinvested in shares of a Fund at net asset value without sales
charge on the record date, except that any shareholder may
otherwise instruct the shareholder service agent in writing and
receive cash. Shareholders are informed as to the sources of
distributions at the time of payment.
Each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Code. By so qualifying, a Fund
will not be subject to federal income taxes on amounts paid by it
as dividends and distributions to shareholders. If any Fund were
to fail to qualify as a regulated investment company under the
Code, all of its income (without deduction for income dividends or
capital gain distributions paid to shareholders) would be subject
to tax at corporate rates. Each Fund expects to be treated as a
separate entity for purposes of determining federal tax treatment.
The Code permits a regulated investment company whose assets
consist primarily of tax-exempt Municipal Bonds to pass through to
its investors, tax-exempt, net Municipal Bond interest income. In
order for the Municipal Bond Fund to be eligible to pay
exempt-interest dividends during any taxable year, at the close of
each fiscal quarter, at least 50% of the aggregate value of the
Fund's assets must consist of exempt-interest obligations. In
addition, the Fund must distribute at least (i) 90% of the excess
of its exempt-interest income over certain disallowed deductions,
and (ii) 90% of its "investment company taxable net income" (i.e.,
its ordinary taxable income and the excess, if any, of its net
short-term capital gains over any net long-term capital losses)
recognized by the Fund during the taxable year.
Not later than 60 days after the close of its taxable year,
the Municipal Bond Fund will notify its shareholders of the
portion of the dividends paid by the Fund to the shareholders for
the taxable year which constitutes exempt interest dividends. The
aggregate amount of dividends so designated cannot exceed,
however, the excess of the amount of interest exempt from tax
under Section 103 of the Code received by the Fund during the year
over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. Since the percentage of dividends which are
"exempt-interest" dividends is determined on an average annual
method for the fiscal year, the percentage of income designated as
tax-exempt for any particular dividend may be substantially
different from the percentage of the Fund's income that was
tax-exempt during the period covered by the dividend.
Although exempt-interest dividends generally may be treated
by the Municipal Bond Fund's shareholders as items of interest
excluded from their gross income, each shareholder is advised to
consult his or her tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the shareholder
should be treated as a "substantial user" or a "related person"
with respect to any of the tax-exempt obligations held by the
Fund. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses in
his trade or business a part of any facilities financed with the
tax-exempt obligations and whose gross revenues derived from such
facilities exceed five percent of the total revenues derived from
the facilities by all users, or who occupies more than five
percent of the usable area of the facilities or for whom the
facilities or a part thereof were specifically constructed,
reconstructed or acquired. Examples of "related persons" include
certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its
shareholders.
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Municipal Bond Fund is not
deductible for federal income tax purposes if the Fund distributes
exempt-interest dividends during the shareholder's taxable year.
If a shareholder receives an exempt-interest dividend with respect
to any shares and such shares are held for six months or less, any
capital loss on the sale or exchange of the shares will be
disallowed to the extent of the amount of such exempt-interest
dividend.
If, during any taxable year, the Municipal Bond Fund
realizes net capital gains (the excess of net long-term capital
gains over net short-term capital losses) from the sale or other
disposition of Municipal Bonds or other assets, the Fund will have
no tax liability with respect to such gains if they are
distributed to shareholders. Distributions designated as capital
gains dividends are taxable to shareholders as long-term capital
gains, regardless of how long a shareholder has held his or her
shares. Not later than 60 days after the close of the Fund's
taxable year, the Fund will send to its shareholders a written
notice designating the amount of any distributions made during the
year which constitute capital gain.
While the Municipal Bond Fund expects that a major portion
of its investment income will constitute tax-exempt interest, a
portion may consist of "investment company taxable income" and
"net capital gains". As pointed out above, the Fund will be
subject to tax for any year on its undistributed investment
company taxable income and net capital gains.
Each Fund is subject to a 4% excise tax to the extent it
fails to distribute to its shareholders during any calendar year
at least (1) 98% of its ordinary taxable income for the twelve
months ended December 31, plus (2) 98% of its capital gain net
income for the twelve months ended October 31 of such year. Each
Fund intends to distribute sufficient amounts to avoid liability
for the excise tax.
The Tax Reform Act added a provision that, for years
beginning after December 31, 1989, 75% of the excess of a
corporation's adjusted current earnings (generally, earning and
profits, with adjustments) over its other alternative minimum
taxable income is an item of tax preference for corporations. All
tax-exempt interest is included in the definition of "adjusted
current earnings" so a portion of such interest is included in
computing the alternative minimum tax on corporations. For
shareholders that are financial institutions, the Tax Reform Act
eliminates their ability to deduct interest payments to the extent
allocated on a pro rata basis to the purchase of Fund shares.
Dividends from net investment income and distributions from
any short-term capital gains are taxable to shareholders as
ordinary income. A portion of dividends taxable as ordinary income
paid by the Emerging Growth Fund, the International Equity Fund,
the Growth Fund and the Growth and Income Fund qualify for the 70%
dividends received deduction for corporations. To qualify for the
dividends received deduction, a corporate shareholder must hold
the shares on which the dividend is paid for more than 45 days.
Dividends and distributions declared payable to shareholders
of record after September 30 of any year and paid before
February 1 of the following year are considered taxable income to
shareholders on December 31 even though paid in the next year.
A capital gain dividend received after the purchase of the
shares of any one of the Funds in the Trust reduces the net asset
value of the shares by the amount of the distribution and will be
subject to income taxes. Distributions from long-term capital
gains are taxable to shareholders as long-term capital gains,
regardless of how long the shareholder has held Fund shares. Such
dividends and distributions from short-term capital gains are not
eligible for the dividends received deduction referred to above.
Any loss on the sale of Fund shares held for less than six months
is treated as a long-term capital loss to the extent of any
long-term capital gain distribution paid on such shares, subject
to any exception that may be provided by IRS regulations for
losses incurred under certain systematic withdrawal plans. All
dividends and distributions are taxable to the shareholder whether
or not reinvested in shares. Shareholders are notified annually by
the Fund as to the federal tax status of dividends and
distributions paid by the Fund.
If shares of each Fund are sold or exchanged within 90 days
of acquisition, and shares of the same or a related mutual fund
are acquired, to the extent the sales charge is reduced or waived
on the subsequent acquisition, the sales charge may not be used to
determine the basis in the disposed shares for purposes of
determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is
capitalized in the basis of the subsequent shares.
Dividends to shareholders who are non-resident aliens may be
subject to a United States withholding tax at a rate of up to 30%
under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty laws.
Non-resident shareholders are urged to consult their own tax
advisers concerning the applicability of the United States
withholding tax.
Dividends and capital gains distributions may also be
subject to state and local taxes. Shareholders are urged to
consult their attorneys or tax advisers regarding specific
questions as to federal, state or local taxes.
Back-up Withholding. The Trust is required to withhold and
remit to the United States Treasury 31% of (i) reportable taxable
dividends and distributions and (ii) the proceeds of any
redemptions of Trust shares with respect to any shareholder who is
not exempt from withholding and who fails to furnish the Trust
with a correct taxpayer identification number, who fails to report
fully dividend or interest income or who fails to certify to the
Trust that he has provided a correct taxpayer identification
number and that he is not subject to withholding. (An individual's
taxpayer identification number is his or her social security
number.) The 31% "Back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular federal
income tax liability.
The Code includes special rules applicable to certain listed
options (excluding equity options as defined in the Code), futures
contracts, and options on futures contracts which the Emerging
Growth Fund, the International Equity Fund, the Growth Fund, the
Growth and Income Fund, the Government Fund and the Municipal Bond
Fund may write, purchase or sell. Such options and contracts are
classified as Section 1256 contracts under the Code. The character
of gain or loss resulting from the sale, disposition, closing out,
expiration or other termination of Section 1256 contracts is
generally treated as long-term capital gain or loss to the extent
of 60 percent thereof and short-term capital gain or loss to the
extent of 40 percent thereof ("60/40 gain or loss"). Such
contracts, when held by the Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on
the last day of such fiscal year for federal income tax purposes
("marked-to-market"). Over-the-counter options are not classified
as Section 1256 contracts and are not subject to the
marked-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by the Government Fund from
transactions in over-the-counter options generally constitute
short-term capital gains or losses. If over-the-counter call
options written, or over-the-counter put options purchased, by the
Government Fund are exercised, the gain or loss realized on the
sale of the underlying securities may be either short-term or
long-term, depending on the holding period of the securities. In
determining the amount of gain or loss, the sales proceeds are
reduced by the premium paid for over-the-counter puts or increased
by the premium received for over-the-counter calls.
Certain of the Emerging Growth Fund's, the International
Equity Fund's, the Growth Fund's, the Growth and Income Fund's,
the Government Fund's and the Municipal Bond Fund's transactions
in options, futures contracts, or options on futures contracts,
particularly their hedging transactions, may constitute
"straddles" which are defined in the Code as offsetting positions
with respect to personal property. A straddle in which at least
one (but not all) of the positions are Section 1256 contracts is a
"mixed straddle" under the Code if certain conditions are met.
The Code generally provides with respect to straddles
(i) "loss deferral" rules which may postpone recognition for tax
purposes of losses from certain closing purchase transactions or
other dispositions of a position in the straddle to the extent of
unrealized gains in the offsetting position, (ii) "wash sale"
rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired
within a prescribed period and (iii) "short sale" rules which may
terminate the holding period of securities owned by the Fund when
offsetting positions are established and which may convert certain
losses from short-term to long-term.
The Code provides that certain elections may be made for
mixed straddles that can alter the character of the capital gain
or loss recognized upon disposition of positions which form part
of a straddle. Certain other elections are also provided in the
Code. No determination has been reached to make any of these
elections.
The Municipal Bond Fund may acquire an option to "put"
specified portfolio securities to banks or municipal bond dealers
from whom the securities are purchased. See "Stand-By
Commitments," in the Prospectus. The Fund has been advised by its
legal counsel that it will be treated for federal income tax
purposes as the owner of the Municipal Securities acquired subject
to the put; and the interest on the Municipal Securities will be
tax-exempt to the Fund. Counsel has pointed out that although the
Internal Revenue Service has issued a favorable published ruling
on a similar but not identical situation, it could reach a
different conclusion from that of counsel. Counsel has also
advised the Fund that the Internal Revenue Service presently will
not ordinarily issue private letter rulings regarding the
ownership of securities subject to stand-by commitments.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations
presently in effect. For the complete provisions, reference should
be made to the pertinent Code sections and the Treasury
Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative
action either prospectively or retroactively.
OTHER INFORMATION
Performance Information
The average annual total return (computed in the manner
described in the Prospectus) and yield for each Fund are shown in
the table below. These results are based on historical earnings
and asset value fluctuations and are not intended to indicate
future performance. Such information should be considered in light
of each Fund's investment objectives and policies as well as the
risks incurred in each Fund's investment practices.
<TABLE>
<CAPTION>
Class 1 Class A Class B
Shares Shares Shares
<S> <C> <C> <C>
Emerging Growth Fund
i) total return for one year period ended
10/31/97 9.01%
12.37% 12.94%
ii) total return for five year period ended
10/31/97 -- -- --
iii) total return since inception
(based on inception date of 2/21/95) --
23.55% 24.46%
iv) total return since inception
(based on inception date of 8/08/96) 10.68% -- --
International Equity Fund
i) total return for one year period ended
10/31/97 0.66%
3.72% 3.93%
ii) total return for five year period ended
10/31/97 -- -- --
iii) total return since inception
(based on inception date of 3/17/95) -- 14.83% 15.60%
iv) total return since inception
(based on inception date of 8/08/96) 3.10% -- --
Growth Fund
i) total return for one year period ended
10/31/97 16.15% 19.66% 20.66%
ii) total return for five year period ended
10/31/97 15.03% --
--
iii) Total return for the ten year period ended
10/31/97 15.00% -- --
iv) total return since inception
(based on inception date of 4/14/87) 12.02% -- --
v) total return since inception
(based on inception date of 5/03/94)
- -- 17.22% 17.86%
</TABLE>
<TABLE>
<CAPTION>
Class 1 Class A Class B
Shares Shares Shares
<S> <C> <C> <C>
Growth and Income Fund
i) total return for one year period ended
10/31/97 16.54% 20.08% 21.08%
ii) total return for five year period ended
10/31/97 14.57% -- --
ii) total return since inception
(based on inception date of 4/14/87) 11.43% -- --
iv) total return since inception
(based on inception date of 5/03/94) -- 16.86% 17.42%
Government Fund
i) total return for one year period ended
10/31/97 1.26% 3.19% 3.55%
ii) total return for five year period ended
10/31/97 4.80% -- --
iii) total return since inception
(based on inception date of 4/14/87) 6.93% -- --
iv) total return since inception
(based on inception date of 5/03/94) --
4.43% 4.29%
v) yield 5.42% 5.30% 4.79%
Municipal Bond Fund
i) total return for one year period ended
10/31/97 2.90% 2.93% 2.98%
ii) total return for five year period ended
10/31/97 6.24% -- --
iii) total return since inception
(based on inception date of 7/13/88) 7.20% -- --
iv) total return since inception
(based on inception date of 8/08/96) --
3.29% 3.22%
v) yield -- -- --
vi) tax equivalent yield -- -- --
</TABLE>
The yield for Class A and Class B shares is not fixed and
will fluctuate in response to prevailing interest rates and the
market value of portfolio securities, and as a function of the
type of securities owned by the Fund, portfolio maturity and the
Fund's expenses.
Yield and total return for the Government Fund and the
Municipal Bond Fund are computed separately for each class
of shares.
The Funds may illustrate in advertising materials the use of
a Payroll Deduction Plan as a convenient way for business owners
to help their employees set up either IRA or voluntary mutual fund
accounts. The Funds may illustrate in advertising materials
retirement planning through employee contributions and/or salary
reductions. Such advertising material will illustrate that
employees may have the opportunity to save for retirement and
reduce taxes by electing to defer a portion of their salary into a
special mutual fund IRA account. The Funds may illustrate in
advertising materials that Uniform Gift to Minors Act accounts may
be used as a vehicle for saving for a child's financial future.
Such illustrations will include statements to the effect that upon
reaching the age of majority, such custodial accounts become the
child's property.
Shareholder Services
Uniform Gifts to Minors Act. The Trust recognizes the
importance to a child of establishing a savings and investment
plan early in life for education and other purposes when the child
becomes older. The advantages of regular investment with interest
or earnings compounding over a number of years are great. In
addition, taxes on these earnings are assessed against the income
of the child rather than the donor, usually at a lower bracket.
Investors wishing to establish a UGMA account should call
the Trust for an application. Individuals desiring to open an
account under UGMA are also advised to consult with a tax adviser
before establishing the account.
Individual Retirement Account. Any individual who has
compensation or earned income from employment or self-employment
and who is under age 70 1/2 may establish an IRA. The limitation
on the maximum annual contribution to an IRA is the lesser of 100%
of compensation or $2,000. An IRA may also be established for a
spouse who has no compensation (or who elects to be treated as
having no compensation), and the limitation on the maximum annual
contributions to the two IRAs is the lesser of 100% of
compensation or $2,250.
Under the Tax Reform Act of 1986, whether contributions to
an IRA are deductible for federal income tax purposes depends on
whether an individual (or his/her spouse) is a participant in an
employer-sponsored plan and on the adjusted gross income of the
individual.
In the case of an individual who is a participant in an
employer-sponsored plan, no deduction is available for IRA
contributions if his adjusted gross income reaches certain levels
($35,000 for a single individual, $50,000 for married individuals
filing jointly and $10,000 for married individuals filing
separately) and the deduction is phased out ratably if his
adjusted gross income falls within certain ranges ($25,000-$35,000
for a single individual, $40,000-$50,000 for married individuals
filing jointly and $0-$10,000 for married individuals filing
separately). IRA contributions, up to the annual limit, remain
fully deductible for all single individuals with less than $25,000
of annual adjusted gross income and all married individuals with
less than $40,000 of annual adjusted gross income. Individuals who
are disqualified from making deductible IRA contributions can make
non-deductible contributions to their IRAs, subject to the same
limitation on maximum annual contribution discussed above.
In addition, any individual, regardless of age, may
establish a rollover IRA to receive an eligible rollover
distribution from an employer-sponsored plan.
Simplified Employee Pension Plan (SEP) and Salary Reduction
Simplified Employee Pension Plan (SARSEP). A SEP/SARSEP is a means
for an employer to provide retirement contributions to IRAs for
all employees, without the complicated reporting and record
keeping involved in a qualified plan. Employees covered by a
SEP/SARSEP can use the same IRA to receive their own allowable IRA
contribution.
Section 403(b)(7) Plan. Employees of certain exempt
organizations and schools can have a portion of their compensation
set aside, and income taxes attributable to such portion deferred,
in a Section 403(b)(7) plan. Teachers, school administrators,
ministers, employees of hospitals, libraries, community chests,
funds, foundations, and many others may be eligible. The employer
must be an organization described in Section 501(c)(3) of the
Internal Revenue Code and must be exempt from tax under
Section 501(a) of the Code. In addition, any employee of most
public educational institutions is eligible if his employer is a
state or a political subdivision of a state, or any agency or
instrumentality of either. The employee is not taxed on the amount
set aside or the earnings thereon until the funds are withdrawn,
normally at retirement.
Custody of Assets
Effective December 31, 1997, securities owned by the Trust
and all cash, including proceeds from the sale of shares of the
Trust and of securities in the Trust's investment portfolio, are
held by PNC Bank, National Association, located at 17th and
Chestnut Streets, Philadelphia, PA 19103, as Custodian for each
Fund other than the International Equity Fund. Chase Manhattan
Bank, located at Chase Metrotech Center, Brooklyn, NY 11245
serves as Custodian for the International Equity Fund.
Shareholder Reports
Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent
accountants.
Independent Auditors
Ernst & Young LLP, 1221 McKinney, Suite 2400, Houston, Texas
77010, the independent auditors for the Trust, perform annual
examinations of the Trust's financial statements.
Shareholder and Trustee Responsibility
Under the laws of certain states, including Massachusetts
where the Trust was organized, shareholders of a Massachusetts
business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Trust.
However, the risk of a shareholder incurring any financial loss on
account of shareholder liability is limited to circumstances in
which the Trust itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and
provides that notice of the disclaimer may be given in each
agreement, obligation, or instrument which is entered into or
executed by the Trust or Trustees. The Declaration of Trust
provides for indemnification out of Trust property to any
shareholder held personally liable for the obligations of the
Trust and also provides for the Trust to reimburse such
shareholder for all legal and other expenses reasonably incurred
in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees and Officers
are not liable for actions or failure to act; however, they are
not protected from liability by reason of their willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of their office. The Trust will
provide indemnification to its Trustees and Officers as authorized
by its By-Laws and by the 1940 Act and the rules and regulations
thereunder.
10
Part C. Other Information
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Report of Independent Auditors*
Financial Statements*
Notes to Financial Statements*
____________________________
* The Registrant's Annual Report for the year
ended October 31, 1997 and the Report of
Independent Accountants are incorporated by
reference to the Definitive 30b-1 filed on
December 18, 1997 as
Accession #950131-97-7344.
(b) Exhibits
1.1 Agreement and Declaration of Trust dated
January 29, 1987. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.2 Certificate of Designation of Common Sense
Money Market Fund dated September 30, 1987.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.3 Certificate of Designation Common Sense
Municipal Bond Fund dated April 4, 1988.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.4 Certificate of Resolution dated January 8,
1992. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.5 Certificate of Amendment dated January 20,
1994. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.6 Certificate of Designation of Common Sense II
Aggressive Opportunity Fund dated January 27,
1994. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.7 Certificate of Designation of Common Sense II
Government Fund dated January 27, 1994.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.8 Certificate of Designation of Common Sense II
Growth Fund dated January 27, 1994.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.9 Certificate of Designation of Common Sense II
Growth and Income Fund dated January 27,
1994. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.10 Certificate of Amendment of the Agreement and
Declaration of Trust dated May 10, 1996.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
1.11 Amended and Restated Certificate of
Designation of Common Sense II Emerging
Growth Fund dated May 10, 1996. (Incorporated
herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18,
filed on February 28, 1997.)
1.12 Amended and Restated Certificate of
Designation of Common Sense II International
Equity Fund dated May 10, 1996. (Incorporated
herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18,
filed on February 28, 1997.)
1.13 Amended and Restated Certificate of
Designation of Common Sense Money Market Fund
dated May 10, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.14 Amended and Restated Certificate of
Designation of Common Sense Municipal Bond
Fund dated May 10, 1996. (Incorporated herein
by reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.15 Certificate of Amendment Amending the Amended
and Restated Certificate of Designation of
Common Sense Emerging Growth Fund dated
July 2, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.16 Certificate of Amendment Amending the Amended
and Restated Certificate of Designation of
Common Sense International Equity Fund dated
July 2, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
2 Bylaws as amended July 10, 1996.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
3 Not Applicable
4.1 Specimen copy of Share of Beneficial Interest
in Common Sense Trust for Class A shares.
(Incorporated herein by reference to Form
N-1A of Registrant's Post-Effective Amendment
No. 17, filed on March 21, 1996.)
4.2 Specimen copy of Share of Beneficial Interest
in Common Sense Trust for Class B shares.
(Incorporated herein by reference to Form
N-1A of Registrant's Post-Effective Amendment
No. 17, filed on March 21, 1996.)
4.3 Specimen copy of Share of Beneficial Interest
in Common Sense Trust for Class 1 shares.
(Incorporated herein by reference to Form
N-1A of Registrant's Post-Effective Amendment
No. 17, filed on March 21, 1996.)
5.1 Form of Investment Advisory Agreement for Concert Investment Series.
6.1 Form of Underwriting Agreement for Common
Sense Trust(Incorporated herein by reference
to Form N-1A of Registrant's Post-Effective
Amendment No. 17, filed on March 21, 1996.).
6.2 Form of Selling Agreement with PFS
Investments, Inc. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 17, filed on
March 21, 1996.)
7 Not applicable.
8.1 Form of Custodian Agreements filed herein.
8.2 Form of Transfer Agency Agreement filed
herein.
8.3 Form of Sub-Transfer Agency Agreement filed herein.
10 Not applicable
11 Consent of Independent Auditors is filed
herein.
13.1 Investment Letter for Common Sense Funds.
(Incorporated by reference to Exhibit 13
filed with Pre-Effective Amendment No. 2,
filed March 31, 1987.)
13.2 Investment Letter for Common Sense II Funds
dated May 2, 1994. (Incorporated herein by
reference to Exhibit 13.2 filed with
Post-Effective Amendment No. 12, filed
October 28, 1994.)
13.3 Investment Letter for Common Sense II
Emerging Growth Fund and Common Sense II
International Equity Fund (Incorporated
herein by reference to Exhibit 13.3 filed
with Post-Effective Amendment No. 15, filed
August 11, 1995).
14.1 Individual Retirement Account Application.
(Incorporated by reference to Exhibit 14.1
with Post-Effective Amendment No. 9, filed
November 10, 1993.)
14.2 403(b)(7) Custodial Account Application.
(Incorporated by reference to Exhibit 14.2
with Post-Effective Amendment No. 9, filed
November 10, 1993.)
14.3 Simplified Employee Pension Account
Application. (Incorporated by reference to
Exhibit 14.3 filed with Post-Effective
Amendment No. 9, filed November 10, 1993.)
15.1 Form of Class A Distribution Plan
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 17, filed on March 21, 1996.).
15.2 Form of Class B Distribution
Plan(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 17, filed on March 21, 1996.).
15.3 Form of Servicing Agreement for Class A
shares of Common Sense Trust (Incorporated
herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 17,
filed on March 21, 1996.).
15.4 Form of Servicing Agreement for Class B
shares of Common Sense Trust(Incorporated
herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 17,
filed on March 21, 1996.).
16 Computation Measure for Performance
Information (Incorporated
herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 17,
filed on March 21, 1996.).
18 Rule 18f-3 Plan. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
27 Financial Data Schedules.
+ To be filed by further amendment.
Item 25. Persons Controlled by or under Common Control with
Registrant.
None
Item 26. Number of Holders of Securities.
As of February 12, 1998
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest, $0.01 par value Class A Class B Class 1
Emerging Growth Fund 33,070 27,848 1,041
International Equity Fund 5,246 4,745 347
Growth Fund 40,506 35,901 471,899
Growth and Income Fund 14,797 16,376 105,841
Government Fund 2,493 1,814 20,429
Municipal Bond Fund 1,582 377 8,867
Item 27. Indemnification.
Item 27 is incorporated herein by reference to Form N-1A of
Registrants Registration No. 33-11716, Post Effective Amendment
No. 11, filed on March 2, 1994.
Item 28. Business and Other Connections of Investment Adviser
Investment Adviser - Mutual Management Corp. ("MMC)
(Formerly known as Smith Barney Mutual Funds Management
Inc.)
MMC, through its predecessors, has been in the investment
counseling business since 1934 and was incorporated in
December 1968 under the laws of the State of Delaware. MMC
is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc.,which in turn is a wholly owned subsidiary
of Travelers Group Inc.("Travelers"). MMC is registered as an
investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act").
The list required by this Item 28 of the officer and
directors of MMC together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officer and directors
during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by MMC
pursuant to the Advisers Act (SEC File No. 801-8314).
Item 29. Principal Underwriters.
(a) PFS Distributors ("PFS") currently acts as distributor
for: Concert Investment Series; Concert Social
Awareness Fund; Concert Peachtree Growth Fund;
Smith Barney Appreciation Fund, Inc.
Smith Barney Concert Allocation Series Inc;
Smith Barney Money Funds, Inc. - Cash Portfolio;
Smith Barney Exchange Reserve Fund;
and Smith Barney Investment Grade Bond Fund.
On May 8, 1995, PFS changed its name from Common Sense
Distributors to PFS Distributors, its current name. The
information required by this Item 29 with respect to
each director, officer and partner of PFS is
incorporated by reference to Schedule A of FORM BD,
filed by PFS pursuant to the Securities Exchange Act of
1934 (SEC File No. 8-37352).
(c) Commissions and other compensation received by each
principal underwriter who is not an affiliated person of the
Registrant or an affiliated person of such an affiliated person,
directly or indirectly, from the Registrant during the Registrant's
last fiscal year.
Inapplicable.
Item 30. Location of Books and Records.
All accounts, books and other documents required by
Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder to be maintained (i) by Registrant will be maintained at
its offices, located at Mutual Management Corp., 388 Greenwich
Street, 22nd Floor, New York, NY 10013, PFS Shareholder Services,
3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia 30199-0062, or at
PNC Bank,National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103 or Chase Manhattan Bank, Chase
Metrotech Center, Brooklyn, New York 11245; (ii) by the Adviser, will
be maintained at its offices, located at Mutual Management Corp.,
388 Greenwich Street, 22nd Floor, New York, NY 10013; and (iii) by
the Distributor, the principal underwriter, will be maintained at its
offices located at PFS Distributors, Inc., 3120 Breckinridge Blvd.,
Bldg. 1200, Duluth, Georgia 30199-0001.
Item 31. Management Services.
There are no management related services contracts not
discussed in Part A or Part B.
Item 32. Undertakings.
Registrant hereby undertakes to furnish to each person to whom
a prospectus is delivered a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
Registrant hereby undertakes, if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares, to
call a meeting of shareholders for the purpose of voting upon the
question of removal of a trustee or trustees and to assist in
communications with other shareholders as required by Section 16(c)
of the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended,
and the Investment Company Act of 1940, as amended, the Registrant
has duly
caused this Post-Effective Amendment No. 20 to its Registration
Statement on
Form N-1A to be signed on its behalf by the undersigned, thereunto
duly
authorized, in the City of New York, on the
27th day of February,
1998.
CONCERT INVESTMENT SERIES
By /s/ HEATH B. MCLENDON
_________________
Heath B. McLendon
Chairman of the Board and
Chief Executive Officer
We, the undersigned, hereby severally constitute and appoint
Heath B. McLendon, Christina T. Sydor and Robert Vegliante and each
of them singly, our true and lawful attorneys, with full power to
them and each of them to sign for us, and in our hands and in the
capacities indicated below, any and all Amendments to this
Registration Statement and to file the same, with all exhibits
thereto, and other documents therewith, with the Securities and
Exchange Commission, granting unto said attorneys and each of them,
acting alone, full authority and power to do and perform each and
every act and thing requisite or necessary to be done in the
premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys
or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above
Power of Attorney has been signed below by the following persons in
the capacities and as of the dates indicated.
Signature:
Title:
Date:
/s/Heath B. McLendon
Chairman of the
Board
February 27, 1998
Heath B. McLendon
(Chief Executive
Officer)
/s/ Lewis E. Daidone
Senior Vice
President and
February 27, 1998
Lewis E. Daidone
Treasurer(Chief
Financial
and Accounting
Officer)
DONALD M. CARLTON
(Donald M. Carlton) Trustee February
27, 1998
A. BENTON COCANOUGHER
(A. Benton Cocanougher) Trustee February
27, 1998
STEPHEN R. GROSS
(Stephen R. Gross) Trustee February
27, 1998
ALAN G. MERTEN
(Alan G. Merten) Trustee February
27, 1998
R. RICHARDSON PETTIT
(R. Richardson Pettit) Trustee February
27, 1998
ALAN B. SHEPARD, JR.
(Alan B. Shepard, Jr.) Trustee February
27, 1998
EXHIBIT INDEX
5.1 Form of Investment Advisory Agreement for Concert Investment Series.
8.1 Form of Custodian Agreements filed herein.
8.2 Form of Transfer Agency Agreement filed
herein.
8.3 Form of Sub-Transfer Agency Agreement filed herein.
11.Consent of Independent Auditors is filed
herein.
27. Financial Data Schedules is filed herein..
FORM OF INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this_______day of ____________________, 199__ by and
between COMMON SENSE TRUST, a Massachusetts business trust,
hereinafter referred to as the "TRUST,"
and____________________________, a_____________________corporation,
hereinafter referred to as the "Adviser."
The TRUST and the ADVISER agree as follows:
(1.) Appointment
a. The TRUST hereby appoints the ADVISER to act as investment
adviser to the TRUST's Common Sense________Fund (the "Fund") for the
period and on the terms set forth in this Agreement. The ADVISER
accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
b. In the event that the TRUST establishes one or more funds with
respect to which it desires to retain the ADVISER to act as investment
adviser hereunder, it shall notify the ADVISER in writing. If the
ADVISER is willing to render such services it shall notify the TRUST
in writing whereupon such fund shall become a fund hereunder and the
compensation payable by such new fund to the ADVISER will be as agreed
in writing at that time.
(2.) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of
the TRUST's Trustees and in conformity with applicable laws, the
TRUST's Declaration of Trust, Bylaws, registration statement,
prospectuses and the stated investment objectives, policies and
restrictions of the Fund, shall:
a. manage the investment and reinvestment of the TRUST's assets
including, by way of illustration, the evaluation of pertinent
economic, statistical, financial and other data, determination of
the industries and companies to be represented in the Fund, and
formulation and implementation of investment programs;
b. maintain a trading desk and place all orders for the purchase
and sale of portfolio investments for the account of the Fund of the
TRUST with brokers or dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST
including, by way of illustration, the preparation of registration
statements, prospectuses, reports, proxy solicitation materials and
amendments thereto, the furnishing of legal services except for
services provided by outside counsel to the TRUST selected by the
Trustees, and the supervision of the TRUST's Treasurer and the
personnel working under his direction; and
d. furnish to the TRUST office space, facilities, equipment and
personnel adequate to provide the services described in paragraphs
a., b., and c. above and pay the compensation of each TRUST trustee
and TRUST officer who is an affiliated person of the ADVISER, except
the compensation of the TRUST's Treasurer and related expenses as
provided below.
In performing the services described in paragraph b. above, the
ADVISER shall use its best efforts to obtain for the TRUST and the
Fund the most favorable price and execution available and shall
maintain records adequate to demonstrate compliance with this
requirement. Subject to prior authorization by the TRUST's Trustees of
appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the TRUST to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of
commission for effecting a fund investment transaction in excess of
the amount of commission another broker or dealer would have charged
for effecting that transaction. In the event of such authorization and
to the extent authorized by law the ADVISER shall not be deemed to
have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the
TRUST shall pay, or arrange for others to pay, all its expenses other
than those expressly stated to be payable by the ADVISER hereunder,
which expenses payable by the TRUST shall include (i) interest and
taxes; (ii) brokerage commissions and other costs in connection with
the purchase and sale of fund investments; (iii) compensation of its
trustees and officers other than those who are affiliated persons of
the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of
office space, facilities, and equipment used by the Treasurer and such
personnel in the performance of their normal duties for the TRUST
which consist of maintenance of the accounts, books and other
documents which constitute the record forming the basis for the
TRUST's financial statements, preparation of such financial statements
and other TRUST documents and reports of a financial nature required
by federal and state laws, and participation in the production of the
TRUST's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to
and of independent accountants of the TRUST selected by the Trustees;
(vi) custodian, registrar and shareholder service agent fees and
expenses; (vii) expenses related to the repurchase or redemption of
its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of
its shares against payment therefor by or on behalf of the subscribers
thereto; (ix) fees and related expenses of registering and qualifying
the TRUST and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation
materials of the TRUST; (xi) all other expenses incidental to holding
meetings of the TRUST's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii)
insurance premiums for fidelity coverage and errors and omissions
insurance; (xiv) dues for the TRUST's membership in trade associations
approved by the Trustees; and (xv) such non-recurring expenses as may
arise, including those associated with actions, suits, or proceedings
to which the TRUST is a party and the legal obligation which the TRUST
may have to indemnify its officers and trustees with respect thereto.
To the extent that any of the foregoing expenses are allocated between
the TRUST and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
(3.) Role of ADVISER
The ADVISER, and any person controlled by or under common control
with the ADVISER, shall be free to render similar services to others
and engage in other activities, so long as the services rendered to
the TRUST are not impaired.
Except as otherwise required by the Investment Company Act of 1940
("1940 Act") any of the shareholders, trustees, officers and employees
of the TRUST may be a shareholder, director, officer or employee of,
or be otherwise interested in, the ADVISER, and in any person
controlled by or under common control with the ADVISER, and the
ADVISER, and any person controlled by or under common control with the
ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance,
bad faith, negligence, or reckless disregard of obligations or duties
hereunder on the part of the ADVISER, the ADVISER shall not be subject
to liability to the TRUST, or to any shareholder of the TRUST, for any
act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.
(4.) Compensation Payable to ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, with
respect to the Fund, a monthly fee calculated at the following annual
rates:
A. Common Sense Emerging Growth Fund
Common Sense Growth Fund
Common Sense Growth and Income Fund
.65% of the first $1 billion of average daily net assets; .60% of
the next $1 billion; .55% of the next $1 billion; .50% of the next
$1 billion; and .45% of average daily net assets in excess of $4
billion.
B. Common Sense Government Fund
.60% of the first $1 billion of average daily net assets; .55% of
the next $1 billion; .50% of the next $1 billion; .45% of the next
$1 billion; .40% of the next $1 billion; and .35% of average daily
net assets in excess of $5 billion.
C. Common Sense International Equity Fund
1.00% of the Fund's average daily net assets.
D. Common Sense Municipal Bond Fund
.60% of the first $1 billion of average daily net assets; .55% of
the next $1 billion; .50% of the next $1 billion; and .45% of
average daily net assets in excess of $3 billion.
Average daily net assets of the Fund shall be determined by taking
the average of the net assets for each business day during a given
calendar month, made in the manner provided in the TRUST's Declaration
of Trust.
In the event that the ordinary business expenses of the Fund, for
any fiscal year should exceed the most restrictive expense limitation
applicable in the states where the TRUST's shares are qualified for
sale, unless waived, the compensation due to the ADVISER for such
fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund
thereof, at the time such compensation is payable after the end of
each calendar month during such fiscal year of the TRUST, and if such
amount should exceed such monthly compensation, the ADVISER shall pay
the Fund an amount sufficient to make up the deficiency, subject to
readjustment during the TRUST's fiscal year. For purposes of this
paragraph, all ordinary business expenses of the Fund include the
investment advisory fee and other operating costs paid by the Fund
except for (i) interest and taxes; (ii) brokerage commissions; (iii)
expenses incurred as a result of litigation in connection with a suit
involving a claim for recovery by the Fund; (iv) as a result of
litigation involving a defense against a liability asserted against
the TRUST and the Fund, provided that, if the ADVISER made the
decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification
paid by the TRUST to its officers and trustees and the ADVISER in
accordance with applicable state and federal laws as a result of such
litigation; and (vi) amounts paid to PFS Distributors, Inc., the
distributor of the Trust's shares, in connection with a distribution
plan adopted by the Trust's Trustees pursuant to Rule 12b-1 under the
1940 Act.
If the ADVISER shall serve for less than the whole of any month, the
foregoing compensation shall be prorated.
(5.) Books and Records
In compliance with the requirements of the 1940 Act, the ADVISER
hereby agrees that, to the extent required by law, all records which
it maintains for the TRUST are the property of the TRUST and further
agrees to surrender promptly to the TRUST any of such records upon the
TRUST's request. The ADVISER further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
(6.) Duration and Termination
This Agreement will become effective with respect to the Fund on the
date hereof, and with respect to any additional funds, on the date of
receipt by the TRUST of notice from the ADVISER in accordance with
Section 1(b) hereof that the ADVISER is willing to serve as investment
adviser with respect to such fund, provided that this Agreement (as
supplemented by the terms specified in any notice and agreement
pursuant to Section 1(b) hereof) shall have been approved by the
shareholders of the Fund subject to this Agreement, in accordance with
the requirements under the 1940 Act, and, unless sooner terminated as
provided herein, shall continue in effect for a period of two years.
Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each,
provided such continuance is specifically approved at least annually,
(a) by the vote of a majority of those members of the TRUST's Trustees
who are not interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval,
and (b) by the TRUST's Trustees or by vote of a majority of the
outstanding voting securities of the Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to the Fund at any
time, without the payment of any penalty, by the TRUST (by vote of the
TRUST's Trustees or by vote of a majority of the outstanding voting
securities of the Fund), or by the ADVISER, on sixty days' written
notice. This Agreement will immediately terminate in the event of its
assignment.
(7.) Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought. No amendment of this Agreement shall be
effective as to the Fund until approved by vote of a majority of the
outstanding voting securities of the Fund if such vote is required by
the 1940 Act.
(8.) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person",
"assignment," "interested person," and "majority of the outstanding
voting securities" shall have their respective meanings defined in the
1940 Act and the Rules and Regulations thereunder, subject, however,
to such exemptions as may be granted to either the ADVISER or the
TRUST by the Securities and Exchange Commission, or such interpretive
positions as may be taken by the Commission or its staff, under said
Act, and the term "brokerage and research services" shall have the
meaning given in the Securities Exchange Act of 1934 and the Rules and
Regulations thereunder.
The Declaration of Trust establishing Common Sense Trust, dated
January 29, 1987, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Common
Sense Trust" refers to the Trustees under the Declaration collectively
as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of said TRUST shall be held to
any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of said TRUST, but the Trust Estate
only shall be liable. All obligations of the TRUST under this
Agreement shall apply only on a Fund by Fund basis and the assets of
one Fund shall not be liable for the obligations of any other Fund.
The parties hereto each have caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above
date.
COMMON SENSE TRUST
By:
Name:
Its:
By:
Name:
Its:
ADVAGT.DOC
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective ___________________, 199_, and is between
THE CHASE MANHATTAN BANK ("Bank") and
("Customer").
1. Customer Accounts.
Bank shall establish and maintain the following accounts ("Accounts"):
(a) A custody account in the name of Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether certificated or
uncertificated as may be received by Bank or its Subcustodian (as defined in
Section 3) for the account of Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit Account") for
any and all cash in any currency received by Bank or its Subcustodian for the
account of Customer, which cash shall not be subject to withdrawal by draft or
check.
Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer, additional Accounts
may be established and separately accounted for as additional Accounts
hereunder.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Securities shall be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such
Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as Customer may direct, if acceptable to Bank. For purposes
hereof, the term "Affiliate" shall mean an entity controlling, controlled by,
or under common control with, Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3
(or their securities depositories), such arrangement must be authorized by a
written agreement, signed by Bank and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in Schedule A
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of the
Securities in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
A. Upon request by Customer, Bank shall identify the name, address and
principal place of business of any Subcustodian of Customer's Assets and the
name and address of the governmental agency or other regulatory authority that
supervises or regulates such Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to
Customer.
(b) A Subcustodian shall hold such Assets together with assets
belonging to other customers of Bank in accounts identified on such
Subcustodian's books as custody accounts for the exclusive benefit of
customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian shall be subject only
to the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding
Bank's customers' assets shall provide that such assets shall not be subject
to any right, charge, security interest, lien or claim of any kind in favor of
such Subcustodian except for safe custody or administration, and that the
beneficial ownership of such assets shall be freely transferable without the
payment of money or value other than for safe custody or administration. The
foregoing shall not apply to the extent of any special agreement or
arrangement made by Customer with any particular Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, Bank, in its discretion,
may advance Customer such excess amount which shall be deemed a loan payable
on demand, bearing interest at the rate customarily charged by Bank on similar
loans.
(c) If Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account,
with interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that
such amount has not been received in the ordinary course of business or (ii)
that such amount was incorrectly credited. If Customer does not promptly
return any amount upon such notification, Bank shall be entitled, upon oral or
written notification to Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings, file a claim
or a proof of claim in any insolvency proceeding or take any other action with
respect to the collection of such amount, but may act for Customer upon
Instructions after consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions shall be
credited or debited to the Accounts on the date cash or Securities are
actually received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to the Accounts in
its discretion if the related transaction fails to settle within a
reasonable period, determined by Bank in its discretion, after the
contractual settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, Bank may reverse the credits and
debits of the particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank
shall:
(i) Present for payment any Securities which are called,
redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation, to the
extent that Bank or Subcustodian is actually aware of such
opportunities.
(ii) Execute in the name of Customer such ownership and other
certificates as may be required to obtain payments in respect of
Securities.
(iii) Exchange interim receipts or temporary Securities for
definitive Securities.
(iv) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, Affiliates of Bank or any
Subcustodian.
(v) Issue statements to Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications
shall indicate the identity of the entity having custody of the Assets.
Unless Customer sends Bank a written exception or objection to any Bank
statement within sixty (60) days of receipt, Customer shall be deemed to have
approved such statement. In such event, or where Customer has otherwise
approved any such statement, Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters set forth in
such statement or reasonably implied therefrom as though it had been settled
by the decree of a court of competent jurisdiction in an action where Customer
and all persons having or claiming an interest in Customer or Customer's
Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of
Customer. Bank shall have no liability for any loss occasioned by delay in
the actual receipt of notice by Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Securities in the Custody Account in
respect of which Bank has agreed to take any action hereunder.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information concerning
the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or other
material intended to be transmitted to securities holders ("Corporate
Actions"), Bank shall give Customer notice of such Corporate Actions to the
extent that Bank's central corporate actions department has actual knowledge
of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Bank shall endeavor to obtain
Instructions from Customer or its Authorized Person, but if Instructions are
not received in time for Bank to take timely action, or actual notice of such
Corporate Action was received too late to seek Instructions, Bank is
authorized to sell such rights entitlement or fractional interest and to
credit the Deposit Account with the proceeds or take any other action it
deems, in good faith, to be appropriate in which case it shall be held
harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if elected
by Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in
part, by one or more third parties appointed by Bank (which may be Affiliates
of Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Securities for the benefit of Customer which Bank believes
may be available to such Customer.
(ii) The provision of tax reclaim services by Bank is conditional
upon Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from Bank).
Customer acknowledges that, if Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation shall
be deducted from all income received in respect of Securities issued
outside the United Kingdom and that U.S. non-resident alien tax or U.S.
backup withholding tax shall be deducted from U.S. source income.
Customer shall provide to Bank such documentation and information as it
may require in connection with taxation, and warrants that, when given,
this information shall be true and correct in every respect, not
misleading in any way, and contain all material information. Customer
undertakes to notify Bank immediately if any such information requires
updating or amendment.
(iii) Bank shall not be liable to Customer or any third party for
any tax, fines or penalties payable by Bank or Customer, and shall be
indemnified accordingly, whether these result from the inaccurate
completion of documents by Customer or any third party, or as a result
of the provision to Bank or any third party of inaccurate or misleading
information or the withholding of material information by Customer or
any other third party, or as a result of any delay of any revenue
authority or any other matter beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct from any
cash received or credited to the Deposit Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
Customer from time to time and Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the
tax reclaim services are offered. Other than as expressly provided in
this sub-clause, Bank shall have no responsibility with regard to
Customer's tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to Customer or the Securities and/or Cash held for Customer.
(vii) Tax reclaim services may be provided by Bank or, in whole or
in part, by one or more third parties appointed by Bank (which may be
Affiliates of Bank); provided that Bank shall be liable for the
performance of any such third party to the same extent as Bank would
have been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository,
as the case may be. Bank may without notice to Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
Bank may allot the called portion to the respective beneficial holders of such
class of security in any manner Bank deems to be fair and equitable. Customer
shall hold Bank, Subcustodians, and their respective nominees harmless from
any liability arising directly or indirectly from their status as a mere
record holder of Securities in the Custody Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank
receives Instructions from Customer or its designated agent that any such
employee or agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but Customer shall hold Bank
harmless for the failure of an Authorized Person to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or Bank's failure to produce such confirmation at any
subsequent time. Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which Bank shall make available
to Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such duties
as are set forth herein or expressly contained in Instructions which are
consistent with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its
obligations hereunder and the safekeeping of Assets. Bank shall be
liable to Customer for any loss which shall occur as the result of the
failure of a Subcustodian to exercise reasonable care with respect to
the safekeeping of such Assets to the same extent that Bank would be
liable to Customer if Bank were holding such Assets in New York. In the
event of any loss to Customer by reason of the failure of Bank or its
Subcustodian to utilize reasonable care, Bank shall be liable to
Customer only to the extent of Customer's direct damages, to be
determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and without
reference to any special conditions or circumstances. Bank shall have
no liability whatsoever for any consequential, special, indirect or
speculative loss or damages (including, but not limited to, lost
profits) suffered by Customer in connection with the transactions
contemplated hereby and the relationship established hereby even if Bank
has been advised as to the possibility of the same and regardless of the
form of the action. Bank shall not be responsible for the insolvency of
any Subcustodian which is not a branch or Affiliate of Bank.
(ii) Bank shall not be responsible for any act, omission, default
or the solvency of any broker or agent which it or a Subcustodian
appoints unless such appointment was made negligently or in bad faith.
(iii) Bank shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or
omission was in good faith, without negligence. In performing its
obligations hereunder, Bank may rely on the genuineness of any document
which it believes in good faith to have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) Bank need not maintain any insurance for the benefit of
Customer.
(vii) Without limiting the foregoing, Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from malfunction, interruption of or error
in the transmission of information caused by any machines or system or
interruption of communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions; regulation
of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the
orderly execution of securities transactions or affect the value of
Assets.
(viii) Neither party shall be liable to the other for any
loss due to forces beyond their control including, but not limited to
strikes or work stoppages, acts of war (whether declared or undeclared)
or terrorism, insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than
as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to
which Securities are delivered or payments are made pursuant hereto; and
(v) review or reconcile trade confirmations received from
brokers. Customer or its Authorized Persons (as defined in Section 10)
issuing Instructions shall bear any responsibility to review such
confirmations against Instructions issued to and statements issued by
Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that
Bank or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act in the
same transaction as agent for more than one customer, have a material interest
in the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder the fees set forth in
Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses,
including, but not limited to, legal fees. Bank shall have a lien on and is
authorized to charge any Accounts of Customer for any amount owing to Bank
under any provision hereof
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration
of Customer's trading and investment activity, Bank is authorized to enter
into spot or forward foreign exchange contracts with Customer or an Authorized
Person for Customer and may also provide foreign exchange through its
subsidiaries, Affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of Bank,
its subsidiary, Affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in
residency. Bank may rely upon this certification or the certification of such
other facts as may be required to administer Bank's obligations hereunder.
Customer shall indemnify Bank against all losses, liability, claims or demands
arising directly or indirectly from any such certifications.
(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as
is required in connection with their examination of books and records
pertaining to Customer's affairs. Subject to restrictions under applicable
law, Bank shall also obtain an undertaking to permit Customer's independent
public accountants reasonable access to the records of any Subcustodian which
has physical possession of any Assets as may be required in connection with
the examination of Customer's books and records.
(d) Governing Law; Successors and Assigns, Captions THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN NEW YORK and shall not be assignable by
either party, but shall bind the successors in interest of Customer and Bank.
The captions given to the sections and subsections of this Agreement are for
convenience of reference only and are not to be used to interpret this
Agreement.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules
and regulations;
Neither of the above.
This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - _______ and the following Rider(s)
[Check applicable rider(s)]:
ERISA
INVESTMENT COMPANY
__ PROXY VOTING
SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or delay
on the part of either party in exercising any power or right hereunder
operates as a waiver, nor does any single or partial exercise of any power or
right preclude any other or further exercise, or the exercise of any other
power or right. No waiver by a party of any provision hereof, or waiver of
any breach or default, is effective unless in writing and signed by the party
against whom the waiver is to be enforced.
(h) Representations and Warranties. (i) Customer hereby represents
and warrants to Bank that: (A) it has full authority and power to deposit and
control the Securities and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement is its
legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has
the power and authority to perform its obligations hereunder, (B) this
Agreement constitutes a legal, valid and binding obligation on it;
enforceable in accordance with its terms; and (C) that it has taken all
necessary action to authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required
hereunder are to be sent to the parties at the following addresses or such
other addresses as may subsequently be given to the other party in writing:
(a) Bank: The Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, NY
11245, Attention: Global Custody Division; and (b) Customer:
,
,
(j) Termination. This Agreement may be terminated by Customer or Bank
by giving sixty (60) days written notice to the other, provided that such
notice to Bank shall specify the names of the persons to whom Bank shall
deliver the Assets in the Accounts. If notice of termination is given by
Bank, Customer shall, within sixty (60) days following receipt of the notice,
deliver to Bank Instructions specifying the names of the persons to whom Bank
shall deliver the Assets. In either case Bank shall deliver the Assets to the
persons so specified, after deducting any amounts which Bank determines in
good faith to be owed to it under Section 13. If within sixty (60) days
following receipt of a notice of termination by Bank, Bank does not receive
Instructions from Customer specifying the names of the persons to whom Bank
shall deliver the Assets, Bank, at its election, may deliver the Assets to a
bank or trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions hereof, or to Authorized Persons, or
may continue to hold the Assets until Instructions are provided to Bank.
(k) Money Laundering. Customer warrants and undertakes to Bank for
itself and its agents that all Customer's customers are properly identified in
accordance with U.S. Money Laundering Regulations as in effect from time to
time.
(l) Imputation of certain information. Bank shall not be held
responsible for and shall not be required to have regard to information held
by any person by imputation or information of which Bank is not aware by
virtue of a "Chinese Wall" arrangement. If Bank becomes aware of confidential
information which in good faith it feels inhibits it from effecting a
transaction hereunder Bank may refrain from effecting it.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first-above written.
CUSTOMER
By:____________________________________________
Title:
Date:
THE CHASE MANHATTAN BANK
By:____________________________________________
Title:
Date:
78111
STATE OF )
: ss.
COUNTY OF )
On this day of
, 199 , before me personally came
, to me known, who
being by me duly sworn, did depose and say that he/she resides in
at
, that he/she is
of
, the entity described in and which executed the foregoing
instrument; that he/she knows the seal of said entity, that the seal affixed
to said instrument is such seal, that it was so affixed by order of said
entity, and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 199 .
Notary
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of
, 199 , before me personally came
, to me known, who being by me duly sworn, did depose and say that
he/she resides in at
; that
he/she is a Vice President of THE CHASE MANHATTAN BANK, the corporation
described in and which executed the foregoing instrument; that he/she knows
the seal of said corporation, that the seal affixed to said instrument is such
corporate seal, that it was so affixed by order of the Board of Directors of
said corporation, and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 199 .
Notary
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
_________________________________________
effective __________________
Customer represents that the Assets being placed in Bank's custody are
subject to the Investment Company Act of 1940, as amended (the "1940 Act"), as
the same may be amended from time to time.
Except to the extent that Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the Securities and Exchange Commission ("SEC") or the Exemptive
Order applicable to accounts of this nature issued to Bank (1940 Act, Release
No. 12053, November 20, 1981), as amended, or unless Bank has otherwise
specifically agreed, Customer shall be solely responsible to assure that the
maintenance of Assets hereunder complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of
the Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used herein shall
mean a branch of a qualified U.S. bank, an eligible foreign custodian or
an eligible foreign securities depository, which are further defined as
follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the 1940 Act;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company, incorporated or organized under the laws of a country
other than the United States, that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign currency
equivalent thereof) as of the close of its fiscal year most recently
completed prior to the date hereof, (ii) a majority owned direct or
indirect subsidiary of a qualified U.S. bank or bank holding company
that is incorporated or organized under the laws of a country other than
the United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent thereof) as
of the close of its fiscal year most recently completed prior to the
date hereof, (iii) a banking institution or trust company incorporated
or organized under the laws of a country other than the United States or
a majority owned direct or indirect subsidiary of a qualified U.S. bank
or bank holding company that is incorporated or organized under the laws
of a country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by
Bank; or (iv) any other entity that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws
of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book-entries in
that country, or (ii) a transnational system for the central handling of
securities or equivalent book-entries.
Customer represents that its Board of Directors has approved each of the
Subcustodians listed in Schedule A hereto and the terms of the subcustody
agreements between Bank and each Subcustodian, which are attached as Exhibits
I through of Schedule A, and further represents that its Board has
determined that the use of each Subcustodian and the terms of each subcustody
agreement are consistent with the best interests of the Fund(s) and its
(their) shareholders. Bank shall supply Customer with any amendment to
Schedule A for approval. Customer has supplied or shall supply Bank with
certified copies of its Board of Directors resolution(s) with respect to the
foregoing prior to placing Assets with any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 hereof may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction
is to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions
applicable to Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to Customer;
(i) For the purpose of redeeming shares of the capital stock of
Customer and the delivery to, or the crediting to the account of, Bank,
its Subcustodian or Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in kind shares of Customer against
delivery to Bank, its Subcustodian or Customer's transfer agent of such
shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among Customer, Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of The National Association of
Securities Dealers, Inc., relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by
Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to Bank of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option,
or at expiration, Bank shall receive from brokers the Securities
previously deposited. Bank shall act strictly in accordance with
Instructions in the delivery of Securities to be held in escrow and
shall have no responsibility or liability for any such Securities which
are not returned promptly when due other than to make proper request for
such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions
issued by an officer of Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of
the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the instruments
governing Customer; and
(o) Upon the termination hereof as set forth in Section 14(j).
Section 12. Standard of Care; Liabilities.
Add the following at the end of Section as 12:
(d) Bank hereby warrants to Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. Bank, each eligible foreign
custodian and each eligible foreign securities depository holding
Customer's Securities pursuant hereto afford protection for such
Securities at least equal to that afforded by Bank's established
procedures with respect to similar securities held by Bank and its
securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from Customer, Bank shall furnish Customer such
reports (or portions thereof) of Bank's system of internal accounting
controls applicable to Bank's duties hereunder. Bank shall endeavor to
obtain and furnish Customer with such similar reports as it may
reasonably request with respect to each Subcustodian and securities
depository holding Assets.
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
____________________________________
dated 199_.
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from time to
time on prior notice to Customer. The Procedures are incorporated by
reference herein and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by
Bank to Customer of the dates of pending shareholder meetings,
resolutions to be voted upon and the return dates as may be received by
Bank or provided to Bank by its Subcustodians or third parties, and (b)
voting by Bank of proxies based on Customer Directions. Original proxy
materials or copies thereof shall not be provided. Notifications shall
generally be in English and, where necessary, shall be summarized and
translated from such non-English materials as have been made available
to Bank or its Subcustodian. In this respect Bank's only obligation is
to provide information from sources it believes to be reliable and/or to
provide materials summarized and/or translated in good faith. Bank
reserves the right to provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request by Customer, backup
information relative to Notifications, such as annual reports,
explanatory material concerning resolutions, management recommendations
or other material relevant to the exercise of proxy voting rights shall
be provided as available, but without translation.
3. While Bank shall attempt to provide accurate and complete Notifications,
whether or not translated, Bank shall not be liable for any losses or
other consequences that may result from reliance by Customer upon
Notifications where Bank prepared the same in good faith.
4 Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as
the agent of Customer, and shall not exercise any discretion with regard
to such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Securities are: (i) on loan; (ii) at registrar for registration or
reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Bank or its
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations or
practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.
6 Customer acknowledges that in certain countries Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g., a net yes or no vote given the voting instructions received
from all customers).
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall
in no event sell, license, give or otherwise make the information
provided hereunder available, to any third party, and shall not directly
or indirectly compete with Bank or diminish the market for Proxy
Services by provision of such information, in whole or in part, for
compensation or otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished to
Bank in accordance with Sec.10 of the Agreement. Proxy Services fees shall
be as set forth in Sec.13 of the Agreement or as separately agreed.
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH
___________________________________
DATE
___________________________________
DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the provisions of
Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of
Bank's nominee or the nominee of a central depository) and
communications with respect to Securities in the Custody Account
as call for voting or relate to legal proceedings within a
reasonable time after sufficient copies are received by Bank for
forwarding to its customers. In addition, Bank shall follow
coupon payments, redemptions, exchanges or similar matters with
respect to Securities in the Custody Account and advise Customer
or the Authorized Person for such Account of rights issued, tender
offers or any other discretionary rights with respect to such
Securities, in each case, of which Bank has received notice from
the issuer of the Securities, or as to which notice is published
in publications routinely utilized by Bank for this purpose.
Fees
The fees referenced in Section 13 hereof cover only domestic and euro-dollar
holdings. There shall be no Schedule A hereto, as there are no foreign assets
in the Accounts.
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of
Bank's nominee or the nominee of a central depository) and
communications with respect to Securities in the Custody Account
as call for voting or relate to legal proceedings within a
reasonable time after sufficient copies are received by Bank for
forwarding to its customers. In addition, Bank shall follow
coupon payments, redemptions, exchanges or similar matters with
respect to Securities in the Custody Account and advise Customer
or the Authorized Person for such Account of rights issued, tender
offers or any other discretionary rights with respect to such
Securities, in each case, of which Bank has received notice from
the issuer of the Securities, or as to which notice is published
in publications routinely utilized by Bank for this purpose.
FORM OF CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of____________, 199__ by
and between_____________, a ____________ corporation
(the "Fund") and PNC BANK, NATIONAL ASSOCIATION, a
national banking association ("PNC Bank").
The Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund wishes to retain PNC
Bank to provide custodian services and PNC Bank wishes
to furnish such services, either directly or through an
affiliate or affiliates, as more fully described herein.
In consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term
"Authorized Person" shall mean any officer of the Fund
and any other person, who is duly authorized by the
Fund's Governing Board, to give Oral and Written
Instructions on behalf of the Fund. Such persons are
listed in the Certificate attached hereto as the
Authorized Persons Appendix, as such Appendix may be
amended in writing by the Fund's Governing Board from
time to time.
(b) "Book-Entry System". The term
"Book-Entry System" means Federal Reserve Treasury
book-entry system for United States and federal agency
securities, its successor or successors, and its nominee
or nominees and any book-entry system maintained by an
exchange registered with the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean
the Commodities Futures Trading Commission.
(d) "Governing Board". The term
"Governing Board" shall mean the Fund's Board of
Directors if the Fund is a corporation or the Fund's
Board of Trustees if the Fund is a trust, or, where duly
authorized, a competent committee thereof.
(e) "Oral Instructions". The term "Oral
Instructions" shall mean oral instructions received by
PNC Bank from an Authorized Person or from a person
reasonably believed by PNC Bank to be an Authorized
Person.
(f) "SEC". The term "SEC" shall mean the
Securities and Exchange Commission.
(g) "Securities and Commodities Laws".
The term "Securities and Commodities Laws" shall mean
the "1933 Act" which shall mean the Securities Act of
1933, the "1934 Act" which shall mean the Securities
Exchange Act of 1934, the 1940 Act, and the "CEA" which
shall mean the Commodities Exchange Act, each as
amended.
(h) "Shares". The term "Shares" shall
mean the shares of stock of any series or class of the
Fund, or, where appropriate, units of beneficial
interest in a trust where the Fund is organized as a
Trust.
(i) "Property". The term "Property" shall
mean:
(i) any and all securities and
other investment items which
the Fund may from time to time
deposit, or cause to be
deposited, with PNC Bank or
which PNC Bank may from time to
time hold for the Fund;
(ii) all income in respect of any of
such securities or other
investment items;
(iii) all proceeds of the sale of any
of such securities or
investment items; and
(iv) all proceeds of the sale of
securities issued by the Fund,
which are received by PNC Bank
from time to time, from or on
behalf of the Fund.
(j) "Written Instructions". The term
"Written Instructions" shall mean written instructions
signed by one Authorized Person and received by PNC
Bank. The instructions may be delivered by hand, mail,
tested telegram, cable, telex or facsimile sending
device.
2. Appointment. The Fund hereby appoints PNC
Bank to provide custodian services to the Fund, and PNC
Bank accepts such appointment and agrees to furnish such
services.
3. Delivery of Documents. The Fund has provided
or, where applicable, will provide PNC Bank with the
following:
(a) certified or authenticated copies of
the resolutions of the Fund's Governing Board, approving
the appointment of PNC Bank or its affiliates to provide
services;
(b) a copy of the Fund's most recent
effective registration statement;
(c) a copy of the Fund's advisory
agreement or agreements;
(d) a copy of the Fund's distribution
agreement or agreements;
(e) a copy of the Fund's administration
agreements if PNC Bank is not providing the Fund with
such services; (f) copies of any
shareholder servicing agreements made in respect of the
Fund; and
(g) certified or authenticated copies of
any and all amendments or supplements to the foregoing.
4. Compliance with Government Rules and
Regulations. PNC Bank undertakes to comply with
all applicable requirements of the Securities and
Commodities Laws and any laws, rules and regulations of
governmental authorities having jurisdiction with
respect to all duties to be performed by PNC Bank
hereunder. Except as specifically set forth herein, PNC
Bank assumes no responsibility for such compliance by
the Fund.
5. Instructions. Unless otherwise provided in
this Agreement, PNC Bank shall act only upon Oral and
Written Instructions. PNC Bank shall be entitled to
rely upon any Oral and Written Instructions it receives
from an Authorized Person (or from a person reasonably
believed by PNC Bank to be an Authorized Person)
pursuant to this Agreement. PNC Bank may assume that
any Oral or Written Instructions received hereunder are
not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any
vote, resolution or proceeding of the Fund's Governing
Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions so that PNC
Bank receives the Written Instructions by the close of
business on the same day that such Oral Instructions are
received. The fact that such confirming Written
Instructions are not received by PNC Bank shall in no
way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur
no liability to the Fund in acting upon Oral or Written
Instructions provided such instructions reasonably
appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in
doubt as to any action it should or should not take, PNC
Bank may request directions or advice, including Oral or
Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall
be in doubt as to any questions of law pertaining to any
action it should or should not take, PNC Bank may
request advice at its own cost from such counsel of its
own choosing (who may be counsel for the Fund, the
Fund's advisor or PNC Bank, at the option of PNC Bank).
(c) Conflicting Advice. In the event of a
conflict between directions, advice or Oral or Written
Instructions PNC Bank receives from the Fund, and the
advice it receives from counsel, PNC Bank shall be
entitled to rely upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank
shall be protected in any action it takes or does not
take in reliance upon directions, advice or Oral or
Written Instructions it receives from the Fund or from
counsel and which PNC Bank believes, in good faith, to
be consistent with those directions, advice or Oral or
Written Instructions.
Nothing in this paragraph shall be construed so
as to impose an obligation upon PNC Bank (i) to seek
such directions, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions,
advice or Oral or Written Instructions unless, under the
terms of other provisions of this Agreement, the same is
a condition of PNC Bank's properly taking or not taking
such action.
7. Records. The books and records pertaining to
the Fund which are in the possession of PNC Bank, shall
be the property of the Fund. Such books and records
shall be prepared and maintained as required by the 1940
Act and other applicable securities laws, rules and
regulations. The Fund, or the Fund's Authorized
Persons, shall have access to such books and records at
all time during PNC Bank's normal business hours. Upon
the reasonable request of the Fund, copies of any such
books and records shall be provided by PNC Bank to the
Fund or to an Authorized Person of the Fund, at the
Fund's expense.
8. Confidentiality. PNC Bank agrees to keep
confidential all records of the Fund and information
relative to the Fund and its shareholders (past, present
and potential), unless the release of such records or
information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not
be unreasonably withheld and may not be withheld where
PNC Bank may be exposed to civil or criminal contempt
proceedings or when required to divulge. The Fund
further agrees that, should PNC Bank be required to
provide such information or records to duly constituted
authorities (who may institute civil or criminal
contempt proceedings for failure to comply), PNC Bank
shall not be required to seek the Fund's consent prior
to disclosing such information.
9. Cooperation with Accountants. PNC Bank shall
cooperate with the Fund's independent public accountants
and shall take all reasonable action in the performance
of its obligations under this Agreement to ensure that
the necessary information is made available to such
accountants for the expression of their opinion, as
required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into
and shall maintain in effect with appropriate parties
one or more agreements making reasonable provision for
emergency use of electronic data processing equipment to
the extent appropriate equipment is available. In the
event of equipment failures, PNC Bank shall, at no
additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no
liability with respect thereto.
11. Compensation. As compensation for custody
services rendered by PNC Bank during the term of this
Agreement, the Fund will pay to PNC Bank a fee or fees
as may be agreed to from time to time in writing by the
Fund and PNC Bank.
12. Indemnification. The Fund agrees to
indemnify and hold harmless PNC Bank and its nominees
from all taxes, charges, expenses, assessment, claims
and liabilities (including, without limitation,
liabilities arising under the Securities and Commodities
Laws and any state and foreign securities and blue sky
laws, and amendments thereto, and expenses, including
(without limitation) attorneys' fees and disbursements,
arising directly or indirectly from any action which PNC
Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or
(ii) upon Oral or Written Instructions. Neither PNC
Bank, nor any of its nominees, shall be indemnified
against any liability to the Fund or to its shareholders
(or any expenses incident to such liability) arising out
of PNC Bank's own willful misfeasance, bad faith,
negligence or reckless disregard of its duties and
obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall
be under no duty to take any action on behalf of the
Fund except as specifically set forth herein or as may
be specifically agreed to by PNC Bank, in writing. PNC
Bank shall be obligated to exercise care and diligence
in the performance of its duties hereunder, to act in
good faith and to use its best effort, within reasonable
limits, in performing services provided for under this
Agreement. PNC Bank shall be responsible for its own
negligent failure to perform its duties under this
Agreement. Notwithstanding the foregoing, PNC Bank shall
not be responsible for losses beyond its control,
provided that PNC Bank has acted in accordance with the
standard of care set forth above; and provided further
that PNC Bank shall only be responsible for that portion
of losses or damages suffered by the Fund that are
attributable to the negligence of PNC Bank.
Without limiting the generality of the foregoing
or of any other provision of this Agreement, PNC Bank,
in connection with its duties under this Agreement,
shall not be under any duty or obligation to inquire
into and shall not be liable for (a) the validity or
invalidity or authority or lack thereof of any Oral or
Written Instruction, notice or other instrument which
conforms to the applicable requirements of this
Agreement, and which PNC Bank reasonably believes to be
genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's
control, including acts of civil or military authority,
national emergencies, labor difficulties, fire, flood or
catastrophe, acts of God, insurrection, war, riots or
failure of the mails, transportation, communication or
power supply.
Notwithstanding anything in this Agreement to the
contrary, PNC Bank shall have no liability to the Fund
for any consequential, special or indirect losses or
damages which the Fund may incur or suffer by or as a
consequence of PNC Bank's performance of the services
provided hereunder, whether or not the likelihood of
such losses or damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund
will deliver or arrange for delivery to PNC Bank, all
the property owned by the Fund, including cash received
as a result of the distribution of its Shares, during
the period that is set forth in this Agreement. PNC
Bank will not be responsible for such property until
actual receipt.
(b) Receipt and Disbursement of Money.
PNC Bank, acting upon Written Instructions, shall open
and maintain separate account(s) in the Fund's name
using all cash received from or for the account of the
Fund, subject to the terms of this Agreement. In
addition, upon Written Instructions, PNC Bank shall open
separate custodial accounts for each separate series,
class or portfolio of the Fund and shall hold in such
account(s) all cash received from or for the accounts of
the Fund specifically designated to each separate
series, class or portfolio. PNC Bank shall make cash
payments from or for the account of the Fund only for:
(i) purchases of securities in the
name of the Fund or PNC Bank or
PNC Bank's nominee as provided
in sub-paragraph j and for
which PNC Bank has received a
copy of the broker's or
dealer's confirmation or
payee's invoice, as
appropriate;
(ii) purchase or redemption of
Shares of the Fund delivered
to PNC Bank;
(iii) payment of, subject to Written
Instructions, interest, taxes,
administration, accounting,
distribution, advisory,
management fees or similar
expenses which are to be borne
by the Fund;
(iv) payment to, subject to receipt
of Written Instructions, the
Fund's transfer agent, as agent
for the shareholders, an amount
equal to the amount of
dividends and distributions
stated in the Written
Instructions to be distributed
in cash by the transfer agent
to shareholders, or, in lieu of
paying the Fund's transfer
agent, PNC Bank may arrange for
the direct payment of cash
dividends and distributions to
shareholders in accordance with
procedures mutually agreed upon
from time to time by and among
the Fund, PNC Bank and the
Fund's transfer agent;
(v) payments, upon receipt of
Written Instructions, in
connection with the conversion,
exchange or surrender of
securities owned or subscribed
to by the Fund and held by or
delivered to PNC Bank;
(vi) payments of the amounts of
dividends received with
respect to securities sold
short; payments made to a
sub-custodian pursuant to
provisions in sub-paragraph c
of this Paragraph; and
(viii) payments, upon Written
Instructions made for other
proper Fund purposes. PNC Bank
is hereby authorized to endorse
and collect all checks, drafts
or other orders for the payment
of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all
securities received by it for
the account of the Fund in a
separate account that
physically segregates such
securities from those of any
other persons, firms or
corporations, except for
securities held in a Book-Entry
System. All such securities
shall be held or disposed of
only upon Written Instructions
of the Fund pursuant to the
terms of this Agreement. PNC
Bank shall have no power or
authority to assign,
hypothecate, pledge or
otherwise dispose of any such
securities or investment,
except upon the express terms
of this Agreement and upon
Written Instructions,
accompanied by a certified
resolution of the Fund's
Governing Board, authorizing
the transaction. In no case
may any member of the Fund's
Governing Board, or any
officer, employee or agent of
the Fund withdraw any
securities. At PNC Bank's own
expense and for its own
convenience, PNC Bank may enter
into sub-custodian agreements
with other banks or trust
companies to perform duties
described in this sub-paragraph
c. Such bank or trust company
shall have an aggregate
capital, surplus and undivided
profits, according to its last
published report, of at least
one million dollars
($1,000,000), if it is a
subsidiary or affiliate of PNC
Bank, or at least twenty
million dollars ($20,000,000)
if such bank or trust company
is not a subsidiary or
affiliate of PNC Bank. In
addition, such bank or trust
company must agree to comply
with the relevant provisions of
the 1940 Act and other
applicable rules and
regulations. PNC Bank shall
remain responsible for the
performance of all of its
duties as described in this
Agreement and shall hold the
Fund harmless from PNC Bank's
own (or any sub-custodian
chosen by PNC Bank under the
terms of this sub-paragraph c)
acts or omissions, under the
standards of care provided for
herein.
(d) Transactions Requiring Instructions.
Upon receipt of Oral or Written Instructions and not
otherwise, PNC Bank, directly or through the use of the
Book-Entry System, shall:
(i) deliver any securities held for
the Fund against the receipt of
payment for the sale of such
securities;
(ii) execute and deliver to such
persons as may be designated
in such Oral or Written
Instructions, proxies,
consents, authorizations, and
any other instruments whereby
the authority of the Fund as
owner of any securities may be
exercised;
(iii) deliver any securities to the
issuer thereof, or its agent,
when such securities are
called, redeemed, retired or
otherwise become payable;
provided that, in any such
case, the cash or other
consideration is to be
delivered to PNC Bank;
(iv) deliver any securities held for
the Fund against receipt of
other securities or cash issued
or paid in connection with the
liquidation, reorganization,
refinancing, tender offer,
merger, consolidation or
recapitalization of any
corporation, or the exercise of
any conversion privilege;
(v) deliver any securities held for
the Fund to any protective
committee, reorganization
committee or other person in
connection with the
reorganization, refinancing,
merger, consolidation,
recapitalization or sale of
assets of any corporation, and
receive and hold under the
terms of this Agreement such
certificates of deposit,
interim receipts or other
instruments or documents as may
be issued to it to evidence
such delivery;
(vi) make such transfer or exchanges
of the assets of the Fund and
take such other steps as shall
be stated in said Oral or
Written Instructions to be for
the purpose of effectuating a
duly authorized plan of
liquidation, reorganization,
merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to
the Fund to any bank or trust
company for the purpose of a
pledge or hypothecation to
secure any loan incurred by the
Fund; provided, however, that
securities shall be released
only upon payment to PNC Bank
of the monies borrowed, except
that in cases where additional
collateral is required to
secure a borrowing already made
subject to proper prior
authorization, further
securities may be released for
that purpose; and repay such
loan upon redelivery to it of
the securities pledged or
hypothecated therefor and upon
surrender of the note or notes
evidencing the loan;
(viii) release and deliver securities
owned by the Fund in connection
with any repurchase agreement
entered into on behalf of the
Fund, but only on receipt of
payment therefor; and pay out
moneys of the Fund in
connection with such repurchase
agreements, but only upon the
delivery of the securities;
(ix) release and deliver or exchange
securities owned by the Fund in
connection with any conversion
of such securities, pursuant to
their terms, into other
securities;
(x) release and deliver securities
owned by the Fund for the
purpose of redeeming in kind
shares of the Fund upon
delivery thereof to PNC Bank;
and
(xi) release and deliver or exchange
securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a
certified resolution describing
the nature of the corporate
purpose and the name and
address of the person(s) to
whom delivery shall be made
when such action is pursuant to
sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall
deliver to PNC Bank certified resolutions of the Fund's
Governing Board approving, authorizing and instructing
PNC Bank on a continuous and on-going basis, to deposit
in the Book-Entry System all securities belonging to the
Fund eligible for deposit therein and to utilize the
Book-Entry System to the extent possible in connection
with settlements of purchases and sales of securities by
the Fund, and deliveries and returns of securities
loaned, subject to repurchase agreements or used as
collateral in connection with borrowings. PNC Bank
shall continue to perform such duties until it receives
Written or Oral Instructions authorizing contrary
actions(s).
To administer the Book-Entry System properly, the
following provisions shall apply:
(i) With respect to securities of
the Fund which are maintained
in the Book-Entry system,
established pursuant to this
sub-paragraph e hereof, the
records of PNC Bank shall
identify by Book-Entry or
otherwise those securities
belonging to the Fund. PNC
Bank shall furnish the Fund a
detailed statement of the
Property held for the Fund
under this Agreement at least
monthly and from time to time
and upon written request.
(ii) Securities and any cash of the
Fund deposited in the
Book-Entry System will at all
times be segregated from any
assets and cash controlled by
PNC Bank in other than a
fiduciary or custodian capacity
but may be commingled with
other assets held in such
capacities. PNC Bank and its
sub-custodian, if any, will pay
out money only upon receipt of
securities and will deliver
securities only upon the
receipt of money.
(iii) All books and records
maintained by PNC Bank which
relate to the Fund's
participation in the Book-Entry
System will at all times during
PNC Bank's regular business
hours be open to the inspection
of the Fund's duly authorized
employees or agents, and the
Fund will be furnished with all
information in respect of the
services rendered to it as it
may require.
(iv) PNC Bank will provide the Fund
with copies of any report
obtained by PNC Bank on the
system of internal accounting
control of the Book-Entry
System promptly after receipt
of such a report by PNC Bank.
PNC Bank will also provide the
Fund with such reports on its
own system of internal control
as the Fund may reasonably
request from time to time.
(f) Registration of Securities. All
Securities held for the Fund which are issued or
issuable only in bearer form, except such securities
held in the Book-Entry System, shall be held by PNC Bank
in bearer form; all other securities held for the Fund
may be registered in the name of the Fund; PNC Bank; the
Book-Entry System; a sub-custodian; or any duly
appointed nominee(s) of the Fund, PNC Bank, Book-Entry
system or sub-custodian. The Fund reserves the right to
instruct PNC Bank as to the method of registration and
safekeeping of the securities of the Fund. The Fund
agrees to furnish to PNC Bank appropriate instruments to
enable PNC Bank to hold or deliver in proper form for
transfer, or to register its registered nominee or in
the name of the Book-Entry System, any securities which
it may hold for the account of the Fund and which may
from time to time be registered in the name of the Fund.
PNC Bank shall hold all such securities which are not
held in the Book-Entry System in a separate account for
the Fund in the name of the Fund physically segregated
at all times from those of any other person or persons.
(g) Voting and Other Action. Neither PNC
Bank nor its nominee shall vote any of the securities
held pursuant to this Agreement by or for the account of
the Fund, except in accordance with Written
Instructions. PNC Bank, directly or through the use of
the Book-Entry System, shall execute in blank and
promptly deliver all notice, proxies, and proxy
soliciting materials to the registered holder of such
securities. If the registered holder is not the Fund
then Written or Oral Instructions must designate the
person(s) who owns such securities.
(h) Transactions Not Requiring
Instructions. In the absence of contrary Written
Instructions, PNC Bank is authorized to take the
following actions:
(i) Collection of Income and Other
Payments.
(A) collect and receive for
the account of the Fund,
all income, dividends,
distributions, coupons,
option premiums, other
payments and similar
items, included or to be
included in the Property,
and, in addition,
promptly advise the Fund
of such receipt and
credit such income, as
collected, to the Fund's
custodian account;
(B) endorse and deposit for
collection, in the name
of the Fund, checks,
drafts, or other orders
for the payment of money;
(C) receive and hold for the
account of the Fund all
securities received as a
distribution on the
Fund's portfolio
securities as a result of
a stock dividend, share
split-up or
reorganization,
recapitalization,
readjustment or other
rearrangement or
distribution of rights or
similar securities issued
with respect to any
portfolio securities
belonging to the Fund
held by PNC Bank
hereunder;
(D) present for payment and
collect the amount
payable upon all
securities which may
mature or be called,
redeemed, or retired, or
otherwise become payable
on the date such
securities become
payable; and
(E) take any action which may
be necessary and proper
in connection with the
collection and receipt of
such income and other
payments and the
endorsement for
collection of checks,
drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to
deliver or cause to be
delivered Property
against payment or other
consideration or written
receipt therefor in the
following cases:
(1) for examination by
a broker or dealer
selling for the
account of the
Fund in accordance
with street
delivery custom;
(2) for the exchange
of interim
receipts or
temporary
securities for
definitive
securities; and
(3) for transfer of
securities into
the name of the
Fund or PNC Bank
or nominee of
either, or for
exchange of
securities for a
different number
of
bonds,certificates
, or other
evidence,
representing the
same aggregate
face amount or
number of units
bearing the same
interest rate,
maturity date and
call provisions,
if any; provided
that, in any such
case, the new
securities are to
be delivered to
PNC Bank.
(B) Unless and until PNC Bank
receives Oral or Written
Instructions to the
contrary, PNC Bank shall:
(1) pay all income
items held by it
which call for
payment upon
presentation and
hold the cash
received by it
upon such payment
for the account of
the Fund;
(2) collect interest
and cash dividends
received, with
notice to the
Fund, to the
Fund's account;
(3) hold for the
account of the
Fund all stock
dividends, rights
and similar
securities issued
with respect to
any securities
held by PNC Bank;
and
(4) execute as agent
on behalf of
the Fund all
necessary
ownership
certificates
required by the
Internal Revenue
Code or the Income
Tax Regulations of
the United States
Treasury
Department or
under the laws of
any State now or
hereafter in
effect, inserting
the Fund's name,
on such
certificate as the
owner of the
securities covered
thereby, to the
extent it may
lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of
Written or Oral Instructions
establish and maintain
segregated account(s) on its
records for and on behalf of
the Fund. Such account(s) may
be used to transfer cash and
securities, including
securities in the Book-Entry
System:
(A) for the purposes of
compliance by the Fund
with the procedures
required by a securities
or option exchange,
providing such procedures
comply with the 1940 Act
and any releases of the
SEC relating to the
maintenance of segregated
accounts by registered
investment companies; and
(B) Upon receipt of Written
Instructions, for other
proper corporate
purposes.
(ii) PNC Bank may enter into
separate custodial agreements
with various futures commission
merchants ("FCMs") that the
Fund uses ("FCM Agreement").
Pursuant to an FCM Agreement,
the Fund's margin deposits in
any transactions involving
futures contracts and options
on futures contracts will be
held by PNC Bank in accounts
("FCM Account") subject to the
disposition by the FCM involved
in such contracts and in
accordance with the customer
contract between FCM and the
Fund ("FCM Contract"), SEC
rules and the rules of the
applicable commodities
exchange. Such FCM Agreements
shall only be entered into
upon receipt of Written
Instructions from the Fund
which state that:
(A) a customer agreement
between the FCM and the
Fund has been entered
into; and
(B) the Fund is in compliance
with all the rules and
regulations of the CFTC.
Transfers of initial
margin shall be made into
a FCM Account only upon
Written Instructions;
transfers of premium and
variation margin may be
made into a FCM Account
pursuant to Oral
Instructions.
Transfers of funds from a
FCM Account to the FCM
for which PNC Bank holds
such an account may only
occur upon certification
by the FCM to PNC Bank
that pursuant to the FCM
Agreement and the FCM
Contract, all conditions
precedent to its right to
give PNC Bank such
instructions have been
satisfied.
(iii) PNC Bank shall arrange for the
establishment of IRA custodian
accounts for such share-
holders holding Shares through
IRA accounts, in accordance
with the Fund's prospectuses,
the Internal Revenue Code
(including regulations), and
with such other procedures as
are mutually agreed upon from
time to time by and among the
Fund, PNC Bank and the Fund's
transfer agent.
(j) Purchases of Securities. PNC Bank
shall settle purchased securities upon receipt of Oral
or Written Instructions from the Fund or its investment
advisor(s) that specify:
(i) the name of the issuer and the
title of the securities,
including CUSIP number if
applicable;
(ii) the number of shares or the
principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and
settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon
such purchase; and
(vi) the name of the person from
whom or the broker through whom
the purchase was made. PNC Bank
shall upon receipt of
securities purchased by or for
the Fund pay out of the moneys
held for the account of the
Fund the total amount payable
to the person from whom or the
broker through whom the
purchase was made, provided
that the same conforms to the
total amount payable as set
forth in such Oral or Written
Instructions.
(k) Sales of Securities. PNC Bank shall
settle sold securities upon receipt of Oral or Written
Instructions from the Fund that specify:
(i) the name of the issuer and the
title of the security,
including CUSIP number if
applicable;
(ii) the number of shares or
principal amount sold, and
accrued interest, if any;
(iii) the date of trade, settlement
and sale;
(iv) the sale price per unit;
(v) the total amount payable to the
Fund upon such sale;
(vi) the name of the broker through
whom or the person to whom the
sale was made; and
(vii) the location to which the
security must be delivered and
delivery deadline, if any. PNC
Bank shall deliver the
securities upon receipt of the
total amount payable to the
Fund upon such sale, provided
that the total amount payable
is the same as was set forth in
the Oral or Written
Instructions. Subject to the
foregoing, PNC Bank may accept
payment in such form as shall
be satisfactory to it, and may
deliver securities and arrange
for payment in accordance with
the customs prevailing among
dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund
the following reports:
(A) such periodic and special
reports as the Fund may
reasonably request;
(B) a monthly statement
summarizing all
transactions and entries
for the account of the
Fund, listing the
portfolio securities
belonging to the Fund
with the adjusted average
cost of each issue and
the market value at the
end of such month, and
stating the cash account
of the Fund including
disbursement;
(C) the reports to be
furnished to the Fund
pursuant to Rule 17f-4;
and
(D) such other information as
may be agreed upon from
time to time between the
Fund and PNC Bank.
(ii) PNC Bank shall transmit
promptly to the Fund any proxy
statement, proxy material,
notice of a call or conversion
or similar communication
received by it as custodian of
the Property. PNC Bank shall be
under no other obligation to
inform the Fund as to such
actions or events.
(m) Collections. All collections of
monies or other property, in respect, or which are to
become part of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole
risk of the Fund. If payment is not received by PNC
Bank within a reasonable time after proper demands have
been made, PNC Bank shall notify the Fund in writing,
including copies of all demand letters, any written
responses, memoranda of all oral responses and
telephonic demands thereto, and await instructions from
the Fund. PNC Bank shall not be obliged to take legal
action for collection unless and until reasonably
indemnified to its satisfaction. PNC Bank shall also
notify the Fund as soon as reasonably practicable
whenever income due on securities is not collected in
due course.
15. Duration and Termination. This Agreement
shall continue until terminated by the Fund or by PNC
Bank on sixty (60) days' prior written notice to the
other party. In the event this Agreement is terminated
(pending appointment of a successor to PNC Bank or vote
of the shareholders of the Fund to dissolve or to
function without a custodian of its cash, securities or
other property), PNC Bank shall not deliver cash,
securities or other property of the Fund to the Fund.
It may deliver them to a bank or trust company of PNC
Bank's choice, having an aggregate capital, surplus and
undivided profits, as shown by its last published
report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held
under terms similar to those of this Agreement. PNC
Bank shall not be required to make any such delivery or
payment until full payment shall have been made to PNC
Bank of all of its fees, compensation, costs and
expenses. PNC Bank shall have a security interest in
and shall have a right of setoff against Property in the
Fund's possession as security for the payment of such
fees, compensation, costs and expenses.
16. Notices. All notices and other
communications, including Written Instructions, shall be
in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a)
if to PNC Bank at PNC Bank's address: Airport Business
Center, International Court 2, 200 Stevens Drive,
Lester, Pennsylvania 19113, marked for the attention of
the Custodian Services Department (or its successor) (b)
if to the Fund, at the address of the Fund; or (c) if to
neither of the foregoing, at such other address as shall
have been notified to the sender of any such notice or
other communication. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed
to have been given five days after it has been mailed.
If notice is sent by messenger, it shall be deemed to
have been given on the day it is delivered.
17. Amendments. This Agreement, or any term
hereof, may be changed or waived only by a written
amendment, signed by the party against whom enforcement
of such change or waiver is sought. 18.
Delegation. PNC Bank may assign its rights and delegate
its duties hereunder to any wholly-owned direct or
indirect subsidiary of PNC Bank, National Association or
PNC Bank Corp., provided that (i) PNC Bank gives the
Fund thirty (30) days prior written notice; (ii) the
delegate agrees with PNC Bank to comply with all
relevant provisions of the 1940 Act; and (iii) PNC Bank
and such delegate promptly provide such information as
the Fund may request, and respond to such questions as
the Fund may ask, relative to the assignment, including
(without limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be
deemed an original, but all of which together shall
constitute one and the same instrument. 20. Further
Actions. Each party agrees to perform such further acts
and execute such further documents as are necessary to
effectuate the purposes hereof.
21. Miscellaneous. This Agreement embodies the
entire agreement and understanding between the parties
and supersedes all prior agreements and understandings
relating to the subject matter hereof, provided that the
parties may embody in one or more separate documents
their agreement, if any, with respect to delegated
duties and/or Oral Instructions. The captions in this
Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law,
without regard to principles of conflicts of law. 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. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their officers
designated below on the day and year first above
written.
PNC BANK, NATIONAL
ASSOCIATION
By:
Title:
[NAME OF FUND]
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type)
SIGNATURE
39
FORM OF
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of ___________, 199_ between
(the "Fund"), a corporation organized under the laws of
______and having its principal place of business
at________________, and First Data Investors Services
Group, Inc.INC. (MA) (the "Transfer Agent"), a
Massachusetts corporation with principal offices at One
Exchange Place, 53 State Street, Boston, Massachusetts
02109.
W I T N E S S E T H
That for and in consideration of the mutual
covenants and promises hereinafter set forth, the Fund and
the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement,
the following words and phrases, unless the context
otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean
the Articles of Incorporation, Declaration of Trust,
Partnership Agreement, or similar organizational document
as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to
include any person, whether or not such person is an
officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the
Fund as indicated in a certificate furnished to the
Transfer Agent pursuant to Section 4(c) hereof as may be
received by the Transfer Agent from time to time.
(c) "Board of Directors" shall mean the Board
of Directors, Board of Trustees or, if the Fund is a
limited partnership, the General Partner(s) of the Fund,
as the case may be.
(d) "Commission" shall mean the Securities
and Exchange Commission.
(e) "Custodian" refers to any custodian or
subcustodian of securities and other property which the
Fund may from time to time deposit, or cause to be
deposited or held under the name or account of such a
custodian pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing
this Agreement, and if it is a series fund, as such term
is used in the 1940 Act, such term shall mean each series
of the Fund hereafter created, except that appropriate
documentation with respect to each series must be
presented to the Transfer Agent before this Agreement
shall become effective with respect to each such series.
(g) "1940 Act" shall mean the Investment
Company Act of 1940.
(h) "Oral Instructions" shall mean
instructions, other than Written Instructions, actually
received by the Transfer Agent from a person reasonably
believed by the Transfer Agent to be an Authorized Person;
(i) "Prospectus" shall mean the most recently
dated Fund Prospectus and Statement of Additional
Information, including any supplements thereto if any,
which has become effective under the Securities Act of
1933 and the 1940 Act.
(j) "Shares" refers collectively to such
shares of capital stock, beneficial interest or limited
partnership interests, as the case may be, of the Fund as
may be issued from time to time and, if the Fund is a
closed-end or a series fund, as such terms are used in the
1940 Act any other classes or series of stock, shares of
beneficial interest or limited partnership interests that
may be issued from time to time.
(k) "Shareholder" shall mean a holder of
shares of capital stock, beneficial interest or any other
class or series, and also refers to partners of limited
partnerships.
(l) "Written Instructions" shall mean a
written communication signed by a person reasonably
believed by the Transfer Agent to be an Authorized Person
and actually received by the Transfer Agent. Written
Instructions shall include manually executed originals and
authorized electronic transmissions, including
telefacsimile of a manually executed original or other
process.
2. Appointment of the Transfer Agent. The Fund
hereby appoints and constitutes the Transfer Agent as
transfer agent, registrar and dividend disbursing agent
for Shares of the Fund and as shareholder servicing agent
for the Fund. The Transfer Agent accepts such
appointments and agrees to perform the duties hereinafter
set forth.
3. Compensation.
(a) The Fund will compensate or cause the
Transfer Agent to be compensated for the performance of
its obligations hereunder in accordance with the fees set
forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent
will transmit an invoice to the Fund as soon as
practicable after the end of each calendar month which
will be detailed in accordance with Schedule A, and the
Fund will pay to the Transfer Agent the amount of such
invoice within thirty (30) days after the Fund's receipt
of the invoice.
In addition, the Fund agrees to pay, and will be
billed separately for, reasonable out-of-pocket expenses
incurred by the Transfer Agent in the performance of its
duties hereunder. Out-of-pocket expenses shall include,
but shall not be limited to, the items specified in the
written schedule of out-of-pocket charges annexed hereto
as Schedule B and incorporated herein. Unspecified
out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by the Transfer
Agent in the performance of its obligations hereunder.
Reimbursement by the Fund for expenses incurred by the
Transfer Agent in any month shall be made as soon as
practicable but no later than 15 days after the receipt of
an itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may
be adjusted from time to time by attaching to Schedule A,
a revised fee schedule executed and dated by the parties
hereto.
4. Documents. In connection with the appointment
of the Transfer Agent the Fund shall deliver or caused to
be delivered to the Transfer Agent the following documents
on or before the date this Agreement goes into effect, but
in any case within a reasonable period of time for the
Transfer Agent to prepare to perform its duties hereunder:
(a) If applicable, specimens of the
certificates for Shares of the Fund;
(b) All account application forms and other
documents relating to Shareholder accounts or to any plan,
program or service offered by the Fund;
(c) A signature card bearing the signatures
of any officer of the Fund or other Authorized Person who
will sign Written Instructions or is authorized to give
Oral Instructions.
(d) A certified copy of the Articles of
Incorporation, as amended;
(e) A certified copy of the By-laws of the
Fund, as amended;
(f) A copy of the resolution of the Board of
Directors authorizing the execution and delivery of this
Agreement;
(g) A certified list of Shareholders of the
Fund with the name, address and taxpayer identification
number of each Shareholder, and the number of Shares of
the Fund held by each, certificate numbers and
denominations (if any certificates have been issued),
lists of any accounts against which stop transfer orders
have been placed, together with the reasons therefore, and
the number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with
respect to the validity of the Shares and the status of
such Shares under the Securities Act of 1933, as amended.
5. Further Documentation. The Fund will also
furnish the Transfer Agent with copies of the following
documents promptly after the same shall become available:
(a) each resolution of the Board of Directors
authorizing the issuance of Shares;
(b) any registration statements filed on
behalf of the Fund and all pre-effective and
post-effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment to the
Articles of Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of
the Board of Directors or other authorization designating
Authorized Persons; and
(e) such other certificates, documents or
opinions as the TransferAgent may reasonably request in
connection with the performance of its duties hereunder.
6. Representations of the Fund. The Fund
represents to the Transfer Agent that all outstanding
Shares are validly issued, fully paid and non-assessable.
When Shares are hereafter issued in accordance with the
terms of the Fund'sArticles of Incorporation and its
Prospectus, such Shares shall be validly issued, fully
paid and non-assessable.
7. Distributions Payable in Shares. In the event
that the Board of Directors of the Fund shall declare a
distribution payable in Shares, the Fund shall deliver or
cause to be delivered to the Transfer Agent written notice
of such declaration signed on behalf of the Fund by an
officer thereof, upon which the Transfer Agent shall be
entitled to rely for all purposes, certifying (i) the
identity of the Shares involved, (ii) the number of Shares
involved, and (iii) that all appropriate action has been
taken.
8. Duties of the Transfer Agent. The Transfer
Agent shall be responsible for administering and/or
performing those functions typically performed by a
transfer agent; for acting as service agent in connection
with dividend and distribution functions; and for
performing shareholder account and administrative agent
functions in connection with the issuance, transfer and
redemption or repurchase (including coordination with the
Custodian) of Shares in accordance with the terms of the
Prospectus and applicable law. The operating standards and
procedures to be followed shall be determined from time to
time by agreement between the Fund and the Transfer Agent
and shall initially be as described in Schedule C attached
hereto. In addition, the Fund shall deliver to the
Transfer Agent all notices issued by the Fund with respect
to the Shares in accordance with and pursuant to the
Articles of Incorporation or By-laws of the Fund or as
required by law and shall perform such other specific
duties as are set forth in the
9. Record Keeping and Other Information. The
Transfer Agent shall create and maintain all records
required of it pursuant to its duties hereunder and as set
forth in Schedule C in accordance with all applicable
laws, rules and regulations, including records required by
Section 31(a) of the 1940 Act. All records shall be
available during regular business hours for inspection and
use by the Fund. Where applicable, such records shall be
maintained by the Transfer Agent for the periods and in
the places required by Rule 31a-2 under the 1940 Act.
Upon reasonable notice by the Fund, the Transfer
Agent shall make available during regular business hours
such of its facilities and premises employed in connection
with the performance of its duties under this Agreement
for reasonable visitation by the Fund, or any person
retained by the Fund as may be necessary for the Fund to
evaluate the quality of the services performed by the
Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set
forth in Schedule C, the Transfer Agent shall perform such
other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in
writing between the Fund and the Transfer Agent. The
compensation for such other duties and functions shall be
reflected in a written amendment to Schedule A or B and
the duties and functions shall be reflected in an
amendment to Schedule C, both dated and signed by
authorized persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability
when acting upon Written or Oral Instructions believed to
have been executed or orally communicated by an Authorized
Person and will not be held to have any notice of any
change of authority of any person until receipt of a
Written Instruction thereof from the Fund pursuant to
Section 4(c). The Transfer Agent will also have no
liability when processing Share certificates which it
reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Fund and the proper
countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply
to any Authorized Person of the Fund for Written
Instructions and may seek advice from legal counsel for
the Fund, or its own legal counsel, with respect to any
matter arising in connection with this Agreement, and it
shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such
Written Instructions or in accordance with the opinion of
counsel for the Fund or for the Transfer Agent. Written
Instructions requested by the Transfer Agent will be
provided by the Fund within a reasonable period of time.
In addition, the Transfer Agent, its officers, agents or
employees, shall accept Oral Instructions or Written
Instructions given to them by any person representing or
acting on behalf of the Fund only if said representative
is an Authorized Person. The Fund agrees that all Oral
Instructions shall be followed within one business day by
confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect the
Transfer Agent's right to rely on Oral Instructions. The
Transfer Agent shall have no duty or obligation to inquire
into, nor shall the Transfer Agent be responsible for, the
legality of any act done by it upon the request or
direction of a person reasonably believed by the Transfer
Agent to be an Authorized Person.
(c) Notwithstanding any of the foregoing
provisions of this Agreement, the Transfer Agent shall be
under no duty or obligation to inquire into, and shall not
be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the redemption of
any Shares, or the propriety of the amount to be paid
therefor; (iii) the legality of the declaration of any
dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv)
the legality of any recapitalization or readjustment of
the Shares.
12. Acts of God, etc. The Transfer Agent will not
be liable or responsible for delays or errors by acts of
God or by reason of circumstances beyond its control,
including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown,
insurrection, war, riots, or failure or unavailability of
transportation, communication or power supply, fire, flood
or other catastrophe.
13. Duty of Care and Indemnification. Each party
hereto (the "Indemnifying Party') will indemnify the other
party (the "Indemnified Party") against and hold it
harmless from any and all losses, claims, damages,
liabilities or expenses of any sort or kind (including
reasonable counsel fees and expenses) resulting from any
claim, demand, action or suit or other proceeding (a
"Claim") unless such Claim has resulted from a negligent
failure to act or omission to act or bad faith of the
Indemnified Party in the performance of its duties
hereunder. In addition, the Fund will indemnify the
Transfer Agent against and hold it harmless from any
Claim, damages, liabilities or expenses (including
reasonable counsel fees) that is a result of: (i) any
action taken in accordance with Written or Oral
Instructions, or any other instructions, or share
certificates reasonably believed by the Transfer Agent to
be genuine and to be signed, countersigned or executed, or
orally communicated by an Authorized Person; (ii) any
action taken in accordance with written or oral advice
reasonably believed by the Transfer Agent to have been
given by counsel for the Fund or its own counsel; or (iii)
any action taken as a result of any error or omission in
any record (including but not limited to magnetic tapes,
computer printouts, hard copies and microfilm copies)
delivered, or caused to be delivered by the Fund to the
Transfer Agent in connection with this Agreement.
In any case in which the Indemnifying Party may be
asked to indemnify or hold the Indemnified Party harmless,
the Indemnifying Party shall be advised of all pertinent
facts concerning the situation in question. The
Indemnified Party will notify the Indemnifying Party
promptly after identifying any situation which it believes
presents or appears likely to present a claim for
indemnification against the Indemnifying Party although
the failure to do so shall not prevent recovery by the
Indemnified Party. The Indemnifying Party shall have the
option to defend the Indemnified Party against any Claim
which may be the subject of this indemnification, and, in
the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the
Indemnifying Party and satisfactory to the Indemnified
Party, and thereupon the Indemnifying Party shall take
over complete defense of the Claim and the Indemnified
Party shall sustain no further legal or other expenses in
respect of such Claim. The Indemnified Party will not
confess any Claim or make any compromise in any case in
which the Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's
prior written consent. The obligations of the parties
hereto under this Section shall survive the termination of
this Agreement.
14. Consequential Damages. In no event and under
no circumstances shall either party under this Agreement
be liable to the other party for indirect loss of profits,
reputation or business or any other special damages under
any provision of this Agreement or for any act or failure
to act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the
date first written above and shall continue until
September 2, 1994, and thereafter shall automatically
continue for successive annual periods ending on the
anniversary of the date first written above, provided that
it may be terminated by either party upon written notice
given at least 60 days prior to termination.
(b) In the event a termination notice is
given by the Fund, it shall be accompanied by a resolution
of the Board of Directors, certified by the Secretary of
the Fund, designating a successor transfer agent or
transfer agents. Upon such termination and at the expense
of the Fund, the Transfer Agent will deliver to such
successor a certified list of shareholders of the Fund
(with names and addresses), and all other relevant books,
records, correspondence and other Fund records or data in
the possession of the Transfer Agent, and the Transfer
Agent will cooperate with the Fund and any successor
transfer agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree
that any non public information obtained hereunder
concerning the other party is confidential and may not be
disclosed to any other person without the consent of the
other party, except as may be required by applicable law
or at the request of the Commission or other governmental
agency. The parties further agree that a breach of this
provision would irreparably damage the other party and
accordingly agree that each of them is entitled, without
bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
17. Amendment. This Agreement may only be amended
or modified by a written instrument executed by both
parties.
18. Subcontracting. The Fund agrees that the
Transfer Agent may, in its discretion, subcontract for
certain of the services described under this Agreement or
the Schedules hereto; provided that the appointment of any
such Transfer Agent shall not relieve the Transfer Agent
of its responsibilities hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument
authorized or required by this Agreement to be given in
writing to the Fund or the Transfer Agent, shall be
sufficiently given if addressed to that party and received
by it at its office set forth below or at such other place
as it may from time to time designate in writing.
To the Fund:
[NAME OF FUND]
388 Greenwich Street, 22 Floor
New York, NY 10013
Attention:Heath B. McLendon
To the Transfer Agent:
The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(b) Successors. This Agreement shall extend
to and shall be binding upon the parties hereto, and their
respective successors and assigns, provided, however, that
this Agreement shall not be assigned to any person other
than a person controlling, controlled by or under common
control with the assignor without the written consent of
the other party, which consent shall not be unreasonably
withheld.
(c) Governing Law. This Agreement shall be
governed exclusively by the laws of the State of New York
without reference to the choice of law provisions thereof.
Each party hereto hereby agrees that (i) the Supreme Court
of New York sitting in New York County shall have
exclusive jurisdiction over any and all disputes arising
hereunder; (ii) hereby consents to the personal
jurisdiction of such court over the parties hereto, hereby
waiving any defense of lack of personal jurisdiction; and
(iii) appoints the person to whom notices hereunder are to
be sent as agent for service of process.
(d) Counterparts. This Agreement may be
executed in any number of counterparts, each of which
shall be deemed to be an original; but such counterparts
shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement
are included for convenience of reference only and in no
way define or delimit any of the provisions hreof or
otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund
shall not use the name of the Transfer Agent in any
Prospectus, Statement of Additional Information,
shareholders' report, sales literature or other material
relating to the Fund in a manner not approved prior
thereto in writing; provided, that the Transfer Agent need
only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment
hereunder or which are required by any government agency
or applicable law or rule. Notwithstanding the foregoing,
any reference to the Transfer Agent shall include a
statement to the effect that it is a wholly owned
subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent
shall not use the name of the Fund or material relating to
the Fund on any documents or forms for other than internal
use in a manner not approved prior thereto in writing;
provided, that the Fund need only receive notice of all
reasonable uses of its name which merely refer in accurate
terms to the appointment of the Transfer Agent or which
are required by any government agency or applicable law or
rule.
(h) Independent Contractors. The parties
agree that they are independent contractors and not
partners or co-venturers.
(i) Entire Agreement; Severability. This
Agreement and the Schedules attached hereto constitute the
entire agreement of the parties hereto relating to the
matters covered hereby and supersede any previous
agreements. If any provision is held to be illegal,
unenforceable or invalid for any reason, the remaining
provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be executed by their duly
authorized officers, as of the day and year first above
written.
[NAME OF FUND]
By: _______________
FIRST DATA INVESTORS SERVICES GROUP, INC.
By:__________________
A-1
Transfer Agent Fee
Schedule A
Class A shares
The Fund shall pay the Transfer Agent an annualized fee of
$11.00 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an annualized fee of
$12.50 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
Class C shares
The Fund shall pay the Transfer Agent an annualized fee of
$8.50 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
A-2
Class D shares
The Fund shall pay the Transfer Agent an annualized fee of
$9.50 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly
for applicable out-of-pocket expenses, including, but not
limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates,
envelopes, checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding,
first class) direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs,
including
all lease, maintenance and line costs
- Proxy solicitations, mailings and
tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and
insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and
other equipment and any expenses incurred in connection
with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction
costs, including, but not limited to exit fees charged by
third party record keeping vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably
incurred by the Transfer Agent in performing its duties
and responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses
will be paid on the day of or prior to mailing as agreed
with the Transfer Agent. In addition, the Fund will
promptly reimburse the Transfer Agent for any other
unscheduled expenses incurred by the Transfer Agent
whenever the Fund and the Transfer Agent mutually agree
that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under
the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer
Agent or its agent shall maintain a record of the number
of Shares held by each holder of record which shall
include name, address, taxpayer identification and which
shall indicate whether such Shares are held in
certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent or
its agent will investigate all inquiries from shareholders
of the Fund relating to Shareholder accounts and will
respond to all communications from Shareholders and others
relating to its duties hereunder and such other
correspondence as may from time to time be mutually agreed
upon between the Transfer Agent and the Fund. The
Transfer Agent shall provide the Fund with reports
concerning shareholder inquires and the responses thereto
by the Transfer Agent, in such form and at such times as
are agreed to by the Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall
supply the Transfer Agent or its agent with an adequate
supply of blank share certificates to meet the Transfer
Agent or its agent's requirements therefor. Such Share
certificates shall be properly signed by facsimile. The
Fund agrees that, notwithstanding the death, resignation,
or removal of any officer of the Fund whose signature
appears on such certificates, the Transfer Agent or its
agent may continue to countersign certificates which bear
such signatures until otherwise directed by Written
Instructions.
(b) The Transfer Agent or its agent shall
issue replacement Share certificates in lieu of
certificates which have been lost, stolen or destroyed,
upon receipt by the Transfer Agent or its agent of
properly executed affidavits and lost certificate bonds,
in form satisfactory to the Transfer Agent or its agent,
with the Fund and the Transfer Agent or its agent as
obligees under the bond.
(c) The Transfer Agent or its agent shall
also maintain a record of each certificate issued, the
number of Shares represented thereby and the holder of
record. With respect to Shares held in open accounts or
uncertificated form, i.e., no certificate being issued
with respect thereto, the Transfer Agent or its agent
shall maintain comparable records of the record holders
thereof, including their names, addresses and taxpayer
identification. The Transfer Agent or its agent shall
further maintain a stop transfer record on lost and/or
replaced certificates.
C-2
4. Mailing Communications to Shareholders; Proxy
Materials. The Transfer Agent or its agent will address
and mail to
Shareholders of the Fund, all reports to Shareholders,
dividend and distribution notices and proxy material for
the Fund's meetings of Shareholders. In connection with
meetings of Shareholders, the Transfer Agent or its Agent
will prepare Shareholder lists, mail and certify as to the
mailing of proxy materials, process and tabulate returned
proxy cards, report on proxies voted prior to meetings,
act as inspector of election at meetings and certify
Shares voted at meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The
Transfer Agent or its agent shall not be required to issue
any Shares of the Fund where it has received a Written
Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the
Fund has been suspended or discontinued. The existence of
such Written Instructions or such official notice shall be
conclusive evidence of the right of the Transfer Agent or
its agent to rely on such Written Instructions or official
notice.
(b) Returned Checks. In the event that any
check or other order for the payment of money is returned
unpaid for any reason, the Transfer Agent or its agent
will: (i) give prompt notice of such return to the Fund
or its designee; (ii) place a stop transfer order against
all Shares issued as a result of such check or order; and
(iii) take such actions as the Transfer Agent may from
time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase
of Shares. The Transfer Agent or its agent shall process
all requests to transfer or redeem Shares in accordance
with the transfer or repurchase procedures set forth in
the Fund's Prospectus.
The Transfer Agent or its agent will transfer
or repurchase Shares upon receipt of Oral or Written
Instructions or otherwise pursuant to the Prospectus and
Share certificates, if any, properly endorsed for transfer
or redemption, accompanied by such documents as the
Transfer Agent or its agent reasonably may deem necessary.
The Transfer Agent or its agent reserves the
right to refuse to transfer or repurchase Shares until it
is satisfied that the endorsement on the instructions is
valid and genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the requested transfer
or repurchase is legally authorized, and it shall incur no
liability for the refusal, in good faith, to make
transfers or repurchases which the Transfer Agent or its
agent, in
C-3
its good judgement, deems improper or unauthorized, or
until it is reasonably satisfied that there is no basis to
any claims adverse
to such transfer or repurchase.
(b) Notice to Custodian and Fund. When
Shares are redeemed, the Transfer Agent or its agent
shall, upon receipt of the instructions and documents in
proper form, deliver to the Custodian and the Fund or its
designee a notification setting forth the number of Shares
to be repurchased. Such repurchased shares shall be
reflected on appropriate accounts maintained by the
Transfer Agent or its agent reflecting outstanding Shares
of the Fund and Shares attributed to individual accounts.
(c) Payment of Repurchase Proceeds. The
Transfer Agent or its agent shall, upon receipt of the
moneys paid to it by the Custodian for the repurchase of
Shares, pay such moneys as are received from the
Custodian, all in accordance with the procedures described
in the written instruction received by the Transfer Agent
or its agent from the Fund.
The Transfer Agent or its agent shall not
process or effect any repurchase with respect to Shares of
the Fund after receipt by the Transfer Agent or its agent
of notification of the suspension of the determination of
the net asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the
declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with
respect to Shares of the Fund, the Fund shall furnish or
cause to be furnished to the Transfer Agent or its agent a
copy of a resolution of the Fund's Board of Directors
certified by the Secretary of the Fund setting forth the
date of the declaration of such dividend or distribution,
the ex-dividend date, the date of payment thereof, the
record date as of which shareholders entitled to payment
shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount
payable to the Transfer Agent or its agent on the payment
date and whether such dividend or distribution is to be
paid in Shares of such class at net asset value.
On or before the payment date specified in
such resolution of the Board of Directors, the Custodian
of the Fund will pay to the Transfer Agent sufficient cash
to make payment to the shareholders of record as of such
payment date.
(b) Insufficient Funds for Payments. If the
Transfer Agent or its agent does not receive sufficient
cash from the Custodian to make total dividend and/or
distribution payments to all shareholders of the Fund as
of the record date, the Transfer
C-4
Agent or its agent will, upon notifying the Fund, withhold
payment to all Shareholders of record as of the record
date until sufficient cash is provided to the Transfer
Agent or its agent.
C-5
Exhibit 1
to
Schedule C
Summary of Services
The services to be performed by the Transfer Agent
or its agent shall be as follows:
A. DAILY RECORDS
Maintain daily the following information with
respect to each Shareholder account as received:
Name and Address (Zip Code)
Class of Shares
Taxpayer Identification Number
Balance of Shares held by Agent
Beneficial owner code: i.e., male,
female, joint tenant, etc.
Dividend code (reinvestment)
Number of Shares held in certificate
form
B. OTHER DAILY ACTIVITY
Answer written inquiries relating to
Shareholder accounts (matters relating
to portfolio management, distribution of
Shares and other management policy
questions will be referred to the Fund).
Process additional payments into
established Shareholder accounts in
accordance with Written Instruction from
the Agent.
Upon receipt of proper instructions and
all required documentation, process
requests for repurchase of Shares.
Identify redemption requests made with
respect to accounts in which Shares have
been purchased within an agreed-upon
period of time for determining whether
good funds have been collected with
respect to such purchase and process as
agreed by the Agent in accordance with
written instructions set forth by the
Fund.
Examine and process all transfers of
Shares, ensuring that all transfer
requirements and legal documents have
been supplied.
C-6
Issue and mail replacement checks.
Open new accounts and maintain records
of exchanges between accounts
C. DIVIDEND ACTIVITY
Calculate and process Share dividends
and distributions as instructed by the
Fund.
Compute, prepare and mail all necessary
reports to Shareholders or various
authorities as requested by the Fund.
Report to the Fund reinvestment plan
share purchases and determination of the
reinvestment price.
D. MEETINGS OF SHAREHOLDERS
Cause to be mailed proxy and related
material for all meetings of
Shareholders. Tabulate returned proxies
(proxies must be adaptable to mechanical
equipment of the Agent or its agents)
and supply daily reports when sufficient
proxies have been received.
Prepare and submit to the Fund an
Affidavit of Mailing.
At the time of the meeting, furnish a
certified list of Shareholders, hard
copy, microfilm or microfiche and, if
requested by the Fund, Inspection of
Election.
E. PERIODIC ACTIVITIES
Cause to be mailed reports, Prospectuses, and
any other enclosures requested by the Fund
(material must be adaptable to mechanical
equipment of Agent or its agents).
Receive all notices issued by the Fund with
respect to the Preferred Shares in accordance
with and pursuant to the Articles of
Incorporation and the Indenture and perform
such other specific duties as are set forth in
the Articles of Incorporation including a
giving of notice of a special meeting and
notice of redemption in the circumstances and
otherwise in accordance with all relevant
provisions of the Articles of Incorporation.
DRAFT
SUB-TRANSFER AGENCY AGREEMENT
AGREEMENT made as of the [ ] day of December, 1997 by and between
Concert Investment Series, formerly known as Common Sense Trust on behalf
of the [Name of Fund] (the "Fund") and PFS Shareholders Services (the
"Sub-Transfer Agent").
WITNESSETH:
WHEREAS, the Fund desires that Sub-Transfer Agent be retained to perform
certain recordkeeping and accounting services and functions with respect
to transactions in the Fund's Class 1, Class A and Class B shares
("Shares") made by those beneficial owners of Fund shares (the
"Shareholders") with respect to which the Sub-Transfer Agent maintains
record ownership as nominee with the Fund's transfer agent ("Transfer
Agent") in a single master shareholder account; and
WHEREAS, Sub-Transfer Agent desires to provide such services on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the following premises and mutual
covenants, the parties agree as follows:
1. Services Provided by Sub-Transfer Agent
Sub-Transfer Agent agrees to perform recordkeeping and accounting
services and functions with respect to transactions in Shares made by the
Shareholders with respect to the Fund. Sub-Transfer Agent shall maintain
with the Transfer Agent a single master shareholder account. Sub-
Transfer Agent will provide the following services:
A. Maintain separate records for each Shareholder reflecting Shares
purchased, redeemed and exchanged on behalf of such Shareholder and
outstanding balances of Shares owned by or for the benefit of such
Shareholder.
B. Prepare and transmit to Shareholders periodic account statements
indicating the number of Shares of the Fund owned for the benefit
of Shareholders and purchases, redemptions and exchanges made on
behalf of Shareholders.
C. Process dividend and distribution payments from the Fund on
behalf of each Shareholder.
D. Transmit to Shareholders copies of proxy materials, periodic
reports and other materials relating to the Fund.
E. With respect to each Shareholder, aggregate all purchase,
redemption and exchange orders made on behalf of the Shareholders
and transmit instructions based on such aggregate orders
("Instructions") to the Transfer Agent for acceptance.
F. Transmit to the Shareholders confirmations of transactions made
in accordance with Instructions.
G. Provide to the Fund and/or other parties designated by them such
other information relating to transactions in and holdings of
Shares on behalf of the Shareholders as is reasonably requested.
H. Arrange for the delivery to the Transfer Agent of appropriate
documentation and, in the case of purchase orders, payment, in
connection with each aggregate order transmitted to the Transfer
Agent.
I. Provide to the Fund and/or other parties designated by them such
periodic reports as they shall reasonably conclude are necessary to
enable the Fund to comply with federal or state Blue Sky
requirements.
2. Appointment as Agent for Limited Purpose
Sub-Transfer Agent shall be deemed to be agent of the Fund for the sole
and limited purpose of receiving purchase, redemption and exchange orders
from Shareholders and transmitting corresponding Instructions to the
Transfer Agent. Except as provided specifically herein, neither Sub-
Transfer Agent nor any person to which Sub-Transfer Agent may delegate
any of its duties hereunder shall be or hold itself out as an agent of
the Transfer Agent or the Fund.
3. Delegation by Sub-Transfer Agent
With respect to any Shareholder, Sub-Transfer Agent may delegate some or
all of its duties under this Agreement to other parties which after
reasonable inquiry Sub-Transfer Agent deems to be competent to assume
such duties. In the event of any such delegation, Sub-Transfer Agent
shall enter into a written agreement with the delegatee in which the
delegatee will, among other things:
A. agree to forward Instructions to the Transfer Agent within such
time periods as are specified by the Transfer Agent, the Fund's
prospectus and applicable law and regulation; and
B. represent and warrant that it is duly registered as required
under all federal and state securities laws.
4. Records and Reporting
Sub-Transfer Agent will maintain and preserve all records as required by
law in connection with its provision of services under this Agreement.
Upon the request of the Fund or the Transfer Agent, Sub-Transfer Agent
will provide copies of: historical records relating to transactions
involving the Fund and Shareholders; written communications regarding the
Fund to or from Shareholders; and other materials relating to the
provision of services by Sub-Transfer Agent under this Agreement. Sub-
Transfer Agent will comply with any request for such information and
documents made by the board of directors of the Fund or any governmental
body or self-regulatory organization. Sub-Transfer Agent agrees that it
will permit the Fund, the Transfer Agent or their representatives to have
access to its personnel and records in order to facilitate the monitoring
of the quality of the services provided by Sub-Transfer Agent.
5. Sub-Transfer Agent's Ability to Provide Services
Sub-Transfer Agent agrees to notify the Fund promptly if for any reason
it is unable to perform its obligations under this Agreement.
6. Compensation
A. In consideration of performance of the services by Sub-Transfer
Agent hereunder and the costs it will incur in providing those
services, the Fund agrees to reimburse Sub-Transfer Agent for its
costs (including payments to delegatees) in amounts that do not
exceed those indicated in the maximum reimbursement schedule
attached as Schedule A hereto. With respect to any Shareholder, to
the extent Sub-Transfer Agent delegates any obligations hereunder
to a third party, Sub-Transfer Agent will negotiate in good faith
with such third party delegatee regarding the fees to be paid to
the delegatee. Sub-Transfer Agent, and not the Fund, will be solely
responsible for compensating such a delegatee. If as a result of
its fee negotiations with such a delegatee Sub-Transfer Agent is
required to pay the delegatee less than would be the case if
Schedule A were the delegatee's fee schedule, Sub-Transfer Agent
will reduce the amount of compensation it receives from the Fund
hereunder by the amount of such differential.
B. The Fund agrees to reimburse Sub-Transfer Agent or its
delegatees for their reasonable out-of-pocket costs, which shall
include, but shall not be limited to, the items specified in the
written schedule of out-of-pocket charges annexed hereto as
Schedule B and incorporated herein.
C. Sub-Transfer Agent will permit the Fund or its representatives
(including counsel and independent accountants) reasonable access
to its records to enable the Fund to verify that Sub-Transfer
Agent's charges to the Fund hereunder comply with the provisions of
this Agreement.
7. Representations and Warranties of Sub-Transfer Agent
Sub-Transfer Agent represents and warrants to the Fund that: (i) it is a
partnership duly organized and existing and in good standing under the
laws of the State of Georgia; (ii) it is duly qualified to carry on its
business in Georgia; (iii) it is empowered under applicable laws and by
its partnership agreement to enter into and perform this Agreement; (iv)
all requisite partnership proceedings have been taken to authorize it to
enter into and perform this Agreement; and (v) it has and will continue
to have during the term of this Agreement access to the necessary
facilities, equipment and personnel to perform its duties and obligations
hereunder.
8. Representations and Warranties of the Fund
The Fund represents and warrants to the Sub-Transfer Agent that: (i) it
is duly organized and existing and in good standing under the laws of the
Commonwealth of Massachusetts; (ii) it is empowered under applicable laws
and regulations and by its Master Trust Agreement and by-laws to enter
into and perform this Agreement; (iii) all requisite proceedings have
been taken by its Trustees to authorize it to enter into and perform this
Agreement; (iv) it is an open-end, diversified, management investment
company registered under the Investment Company Act of 1940; and (v) a
registration statement under the Securities Act of 1933 is currently
effective and will remain effective, and appropriate state securities
laws filings have been made and will continue to be made, with respect to
all Shares being offered for sale.
9. Indemnification
Sub-Transfer Agent shall indemnify and hold harmless the Fund from and
against any and all losses and liabilities that any one or more of them
may incur, including without limitation reasonable attorneys' fees,
expenses and costs arising out of or related to the performance or
non-performance of Sub-Transfer Agent or any of its delegatees of its
responsibilities under this Agreement; excluding, however, any such
claims, suits, loss, damage or costs caused by, contributed to or arising
from any noncompliance by the Fund with its obligations under this
Agreement, as to which the Fund shall indemnify, hold harmless and defend
Sub-Transfer Agent on the same basis as set forth above.
10. Termination
This Agreement may be terminated at any time by Sub-Transfer Agent or the
Fund upon 30 days' written notice. The provisions of paragraphs 4 and 9
shall continue in full force and effect after termination of this
Agreement.
11. Limitation of Liability
The Fund and Sub-Transfer Agent agree that the obligations of the Fund
under this Agreement shall not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Fund, individually, but are binding only
upon the assets and property of the Fund, as provided in the Master
Trust Agreement. The execution and delivery of this Agreement have
been authorized by the Trustees and signed by an authorized officer of
the Fund, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be
deemed to have been make by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust
property of the Fund as provided in its Master Trust Agreement.
12. Miscellaneous
This Agreement represents the entire agreement between the parties with
regard to the matters described herein, and may not be modified or
amended except by written instrument executed by all parties. This
Agreement may not be assigned by any party hereto without the prior
written consent of the other parties. This Agreement is made and shall be
construed under the laws of the State of New York. This Agreement
supersedes all previous agreements and understandings between the parties
with respect to its subject matter. If any provision of the Agreement
shall be held or made invalid by a statute, rule, regulation, decision of
a tribunal or otherwise, the remainder of the Agreement shall not be
affected thereby.
IN WITNESS HEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
CONCERT INVESTMENT SERIES PFS SHAREHOLDER
SERVICES
on behalf of [ ]
By: By:
__________________________
Title:
Title: __________________________
Schedule A
The fees are calculated based on an annual charge of:
[ %] with respect to Class 1 Shares
[ %] with respect to Class A Shares
] %] with respect to Class B Shares
of the average daily net assets of such shares invested in the Fund by
those beneficial owners of Fund shares with respect to which the Sub-
Transfer Agent maintains record ownership as nominee with the Fund's
transfer agent.
6
u:\legal\funds\cst\agreemnts\subtrans.pfs
u:\legal\funds\cst\agreemnts\subtrans.pfs
Consent of Independent Auditors
We consent to the references made to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
incorporation by reference herein of our reports dated November 14,
1997, with respect to the financial statements and financial
highlights of each of the funds constituting the Smith Barney Concert
Investment Series, formerly Van Kampen American Capital Common Sense
Trust included in Post Effective Amendment No. 20 to the Registration
Statement (Form N-1A No. 33-11716) and the related Prospectus of
Concert Investment Series.
ERNST & YOUNG LLP
Houston, Texas
February 25, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> Common Sense Trust Growth Fund
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 3,129,516,597<F1>
<INVESTMENTS-AT-VALUE> 3,845,782,574<F1>
<RECEIVABLES> 33,112,858<F1>
<ASSETS-OTHER> 709,800<F1>
<OTHER-ITEMS-ASSETS> 5,686<F1>
<TOTAL-ASSETS> 3,879,610,918<F1>
<PAYABLE-FOR-SECURITIES> 91,688,633<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 6,053,171<F1>
<TOTAL-LIABILITIES> 97,741,804<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,250,171,831
<SHARES-COMMON-STOCK> 169,366,980
<SHARES-COMMON-PRIOR> 167,171,713
<ACCUMULATED-NII-CURRENT> 22,702,297<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 603,678,844<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 716,265,977<F1>
<NET-ASSETS> 3,547,123,339
<DIVIDEND-INCOME> 40,919,149<F1>
<INTEREST-INCOME> 20,210,151<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (32,135,676)<F1>
<NET-INVESTMENT-INCOME> 28,993,624<F1>
<REALIZED-GAINS-CURRENT> 611,419,267<F1>
<APPREC-INCREASE-CURRENT> 183,638,067<F1>
<NET-CHANGE-FROM-OPS> 824,050,958<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (29,480,834)
<DISTRIBUTIONS-OF-GAINS> (224,652,726)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,880,085
<NUMBER-OF-SHARES-REDEEMED> (23,492,980)
<SHARES-REINVESTED> 14,808,162
<NET-CHANGE-IN-ASSETS> 541,960,770
<ACCUMULATED-NII-PRIOR> 24,137,555<F1>
<ACCUMULATED-GAINS-PRIOR> 226,812,341<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 20,533,544<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 32,135,676<F1>
<AVERAGE-NET-ASSETS> 3,332,256,020
<PER-SHARE-NAV-BEGIN> 17.977
<PER-SHARE-NII> 0.172
<PER-SHARE-GAIN-APPREC> 4.328
<PER-SHARE-DIVIDEND> (0.178)
<PER-SHARE-DISTRIBUTIONS> (1.356)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 20.943
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 12
[NAME] Common Sense Trust Growth Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 3,129,516,597<F1>
[INVESTMENTS-AT-VALUE] 3,845,782,574<F1>
[RECEIVABLES] 33,112,858<F1>
[ASSETS-OTHER] 709,800<F1>
[OTHER-ITEMS-ASSETS] 5,686<F1>
[TOTAL-ASSETS] 3,879,610,918<F1>
[PAYABLE-FOR-SECURITIES] 91,688,633<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 6,053,171<F1>
[TOTAL-LIABILITIES] 97,741,804<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 89,027,244
[SHARES-COMMON-STOCK] 5,193,124
[SHARES-COMMON-PRIOR] 2,744,250
[ACCUMULATED-NII-CURRENT] 22,702,297<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 603,678,844<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 716,265,977<F1>
[NET-ASSETS] 108,496,435
[DIVIDEND-INCOME] 40,919,149<F1>
[INTEREST-INCOME] 20,210,151<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (32,135,676)<F1>
[NET-INVESTMENT-INCOME] 28,993,624<F1>
[REALIZED-GAINS-CURRENT] 611,419,267<F1>
[APPREC-INCREASE-CURRENT] 183,638,067<F1>
[NET-CHANGE-FROM-OPS] 824,050,958<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (482,315)
[DISTRIBUTIONS-OF-GAINS] (4,062,147)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,879,483
[NUMBER-OF-SHARES-REDEEMED] (696,268)
[SHARES-REINVESTED] 265,659
[NET-CHANGE-IN-ASSETS] 59,211,591
[ACCUMULATED-NII-PRIOR] 24,137,555<F1>
[ACCUMULATED-GAINS-PRIOR] 226,812,341<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 20,533,544<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 32,135,676<F1>
[AVERAGE-NET-ASSETS] 77,110,108
[PER-SHARE-NAV-BEGIN] 17.959
[PER-SHARE-NII] 0.145
[PER-SHARE-GAIN-APPREC] 4.305
[PER-SHARE-DIVIDEND] (0.161)
[PER-SHARE-DISTRIBUTIONS] (1.356)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 20.892
[EXPENSE-RATIO] 1.13
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 13
[NAME] Common Sense Trust Growth Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 3,129,516,597<F1>
[INVESTMENTS-AT-VALUE] 3,845,782,574<F1>
[RECEIVABLES] 33,112,858<F1>
[ASSETS-OTHER] 709,800<F1>
[OTHER-ITEMS-ASSETS] 5,686<F1>
[TOTAL-ASSETS] 3,879,610,918<F1>
[PAYABLE-FOR-SECURITIES] 91,688,633<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 6,053,171<F1>
[TOTAL-LIABILITIES] 97,741,804<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 100,022,921
[SHARES-COMMON-STOCK] 6,083,077
[SHARES-COMMON-PRIOR] 4,135,444
[ACCUMULATED-NII-CURRENT] 22,702,297<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 603,678,844<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 716,265,977<F1>
[NET-ASSETS] 126,249,340
[DIVIDEND-INCOME] 40,919,149<F1>
[INTEREST-INCOME] 20,210,151<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (32,135,676)<F1>
[NET-INVESTMENT-INCOME] 28,993,624<F1>
[REALIZED-GAINS-CURRENT] 611,419,267<F1>
[APPREC-INCREASE-CURRENT] 183,638,067<F1>
[NET-CHANGE-FROM-OPS] 824,050,958<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (465,733)
[DISTRIBUTIONS-OF-GAINS] (5,837,891)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,294,738
[NUMBER-OF-SHARES-REDEEMED] (715,979)
[SHARES-REINVESTED] 368,874
[NET-CHANGE-IN-ASSETS] 52,109,418
[ACCUMULATED-NII-PRIOR] 24,137,555<F1>
[ACCUMULATED-GAINS-PRIOR] 226,812,341<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 20,533,544<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 32,135,676<F1>
[AVERAGE-NET-ASSETS] 99,977,113
[PER-SHARE-NAV-BEGIN] 17.928
[PER-SHARE-NII] 0.008
[PER-SHARE-GAIN-APPREC] 4.282
[PER-SHARE-DIVIDEND] (0.108)
[PER-SHARE-DISTRIBUTIONS] (1.356)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 20.754
[EXPENSE-RATIO] 1.88
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 21
[NAME] CST Growth and Income
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 1,065,865,695<F1>
[INVESTMENTS-AT-VALUE] 1,277,265,219<F1>
[RECEIVABLES] 22,200,522<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 259,643<F1>
[TOTAL-ASSETS] 1,299,725,384<F1>
[PAYABLE-FOR-SECURITIES] 20,834,808<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 2,397,137<F1>
[TOTAL-LIABILITIES] 23,231,945<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 704,924,274
[SHARES-COMMON-STOCK] 54,584,869
[SHARES-COMMON-PRIOR] 52,075,188
[ACCUMULATED-NII-CURRENT] 991,411<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 206,793,123<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 209,987,461<F1>
[NET-ASSETS] 1,097,202,968
[DIVIDEND-INCOME] 19,283,587<F1>
[INTEREST-INCOME] 5,752,864<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (11,255,261)<F1>
[NET-INVESTMENT-INCOME] 13,781,190<F1>
[REALIZED-GAINS-CURRENT] 209,833,719<F1>
[APPREC-INCREASE-CURRENT] 53,288,825<F1>
[NET-CHANGE-FROM-OPS] 276,903,734<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (16,077,880)
[DISTRIBUTIONS-OF-GAINS] (112,127,401)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,488,655
[NUMBER-OF-SHARES-REDEEMED] (8,410,702)
[SHARES-REINVESTED] 7,431,728
[NET-CHANGE-IN-ASSETS] 154,334,461
[ACCUMULATED-NII-PRIOR] 4,421,000<F1>
[ACCUMULATED-GAINS-PRIOR] 119,991,729<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 7,574,209<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 11,255,261<F1>
[AVERAGE-NET-ASSETS] 1,049,905,531
[PER-SHARE-NAV-BEGIN] 18.106
[PER-SHARE-NII] 0.237
[PER-SHARE-GAIN-APPREC] 4.235
[PER-SHARE-DIVIDEND] (0.295)
[PER-SHARE-DISTRIBUTIONS] (2.182)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 20.101
[EXPENSE-RATIO] 0.88
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 22
[NAME] CST Growth and Income
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 1,065,865,695<F1>
[INVESTMENTS-AT-VALUE] 1,277,265,219<F1>
[RECEIVABLES] 22,200,522<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 259,643<F1>
[TOTAL-ASSETS] 1,299,725,384<F1>
[PAYABLE-FOR-SECURITIES] 20,834,808<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 2,397,137<F1>
[TOTAL-LIABILITIES] 23,231,945<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 69,347,170
[SHARES-COMMON-STOCK] 3,972,090
[SHARES-COMMON-PRIOR] 1,794,453
[ACCUMULATED-NII-CURRENT] 991,411<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 206,793,123<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 209,987,461<F1>
[NET-ASSETS] 79,850,203
[DIVIDEND-INCOME] 19,283,587<F1>
[INTEREST-INCOME] 5,752,864<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (11,255,261)<F1>
[NET-INVESTMENT-INCOME] 13,781,190<F1>
[REALIZED-GAINS-CURRENT] 209,833,719<F1>
[APPREC-INCREASE-CURRENT] 53,288,825<F1>
[NET-CHANGE-FROM-OPS] 276,903,734<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (706,960)
[DISTRIBUTIONS-OF-GAINS] (4,331,457)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,492,244
[NUMBER-OF-SHARES-REDEEMED] (605,697)
[SHARES-REINVESTED] 291,090
[NET-CHANGE-IN-ASSETS] 47,360,868
[ACCUMULATED-NII-PRIOR] 4,421,000<F1>
[ACCUMULATED-GAINS-PRIOR] 119,991,729<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 7,574,209<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 11,255,261<F1>
[AVERAGE-NET-ASSETS] 55,002,206
[PER-SHARE-NAV-BEGIN] 18.105
[PER-SHARE-NII] 0.198
[PER-SHARE-GAIN-APPREC] 4.232
[PER-SHARE-DIVIDEND] (0.250)
[PER-SHARE-DISTRIBUTIONS] (2.182)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 20.103
[EXPENSE-RATIO] 1.12
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 23
[NAME] CST Growth and Income
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 1,065,865,695<F1>
[INVESTMENTS-AT-VALUE] 1,277,265,219<F1>
[RECEIVABLES] 22,200,522<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 259,643<F1>
[TOTAL-ASSETS] 1,299,725,384<F1>
[PAYABLE-FOR-SECURITIES] 20,834,808<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 2,397,137<F1>
[TOTAL-LIABILITIES] 23,231,945<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 84,450,000
[SHARES-COMMON-STOCK] 4,953,823
[SHARES-COMMON-PRIOR] 2,878,964
[ACCUMULATED-NII-CURRENT] 991,411<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 206,793,123<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 209,987,461<F1>
[NET-ASSETS] 99,440,268
[DIVIDEND-INCOME] 19,283,587<F1>
[INTEREST-INCOME] 5,752,864<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (11,255,261)<F1>
[NET-INVESTMENT-INCOME] 13,781,190<F1>
[REALIZED-GAINS-CURRENT] 209,833,719<F1>
[APPREC-INCREASE-CURRENT] 53,288,825<F1>
[NET-CHANGE-FROM-OPS] 276,903,734<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (425,939)
[DISTRIBUTIONS-OF-GAINS] (6,573,467)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,229,471
[NUMBER-OF-SHARES-REDEEMED] (566,087)
[SHARES-REINVESTED] 411,475
[NET-CHANGE-IN-ASSETS] 47,369,464
[ACCUMULATED-NII-PRIOR] 4,421,000<F1>
[ACCUMULATED-GAINS-PRIOR] 119,991,729<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 7,574,209<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 11,255,261<F1>
[AVERAGE-NET-ASSETS] 75,247,554
[PER-SHARE-NAV-BEGIN] 18.087
[PER-SHARE-NII] 0.060
[PER-SHARE-GAIN-APPREC] 4.221
[PER-SHARE-DIVIDEND] (0.113)
[PER-SHARE-DISTRIBUTIONS] (2.182)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 20.073
[EXPENSE-RATIO] 1.88
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 31
[NAME] CST Government
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 260,621,762<F1>
[INVESTMENTS-AT-VALUE] 268,237,110<F1>
[RECEIVABLES] 16,591,656<F1>
[ASSETS-OTHER] 85,395<F1>
[OTHER-ITEMS-ASSETS] 13,703<F1>
[TOTAL-ASSETS] 284,927,864<F1>
[PAYABLE-FOR-SECURITIES] 17,303,817<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 1,061,843<F1>
[TOTAL-LIABILITIES] 18,365,660<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 268,701,424
[SHARES-COMMON-STOCK] 22,741,103
[SHARES-COMMON-PRIOR] 27,616,551
[ACCUMULATED-NII-CURRENT] 277,980<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (37,847,576)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 9,903,471<F1>
[NET-ASSETS] 240,652,226
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 21,554,683<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (2,712,179)<F1>
[NET-INVESTMENT-INCOME] 18,842,504<F1>
[REALIZED-GAINS-CURRENT] (854,042)<F1>
[APPREC-INCREASE-CURRENT] 4,544,977<F1>
[NET-CHANGE-FROM-OPS] 22,533,439<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (17,132,863)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,205,980
[NUMBER-OF-SHARES-REDEEMED] (7,497,352)
[SHARES-REINVESTED] 1,415,924
[NET-CHANGE-IN-ASSETS] (46,722,049)
[ACCUMULATED-NII-PRIOR] (6,653)<F1>
[ACCUMULATED-GAINS-PRIOR] (36,909,849)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 1,702,968<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,712,179<F1>
[AVERAGE-NET-ASSETS] 258,969,479
[PER-SHARE-NAV-BEGIN] 10.406
[PER-SHARE-NII] 0.692
[PER-SHARE-GAIN-APPREC] 0.168
[PER-SHARE-DIVIDEND] (0.684)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 10.582
[EXPENSE-RATIO] 0.90
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 32
[NAME] CST Government
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 260,621,762<F1>
[INVESTMENTS-AT-VALUE] 268,237,110<F1>
[RECEIVABLES] 16,591,656<F1>
[ASSETS-OTHER] 85,395<F1>
[OTHER-ITEMS-ASSETS] 13,703<F1>
[TOTAL-ASSETS] 284,927,864<F1>
[PAYABLE-FOR-SECURITIES] 17,303,817<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 1,061,843<F1>
[TOTAL-LIABILITIES] 18,365,660<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 13,277,543
[SHARES-COMMON-STOCK] 1,278,958
[SHARES-COMMON-PRIOR] 1,068,402
[ACCUMULATED-NII-CURRENT] 277,980<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (37,847,576)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 9,903,471<F1>
[NET-ASSETS] 13,533,017
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 21,554,683<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (2,712,179)<F1>
[NET-INVESTMENT-INCOME] 18,842,504<F1>
[REALIZED-GAINS-CURRENT] (854,042)<F1>
[APPREC-INCREASE-CURRENT] 4,544,977<F1>
[NET-CHANGE-FROM-OPS] 22,533,439<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (779,374)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 693,337
[NUMBER-OF-SHARES-REDEEMED] (554,785)
[SHARES-REINVESTED] 72,004
[NET-CHANGE-IN-ASSETS] 2,409,403
[ACCUMULATED-NII-PRIOR] (6,653)<F1>
[ACCUMULATED-GAINS-PRIOR] (36,909,849)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 1,702,968<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,712,179<F1>
[AVERAGE-NET-ASSETS] 12,146,791
[PER-SHARE-NAV-BEGIN] 10.411
[PER-SHARE-NII] 0.666
[PER-SHARE-GAIN-APPREC] 0.168
[PER-SHARE-DIVIDEND] (0.664)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 10.581
[EXPENSE-RATIO] 1.15
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 33
[NAME] CST Government
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 260,621,762<F1>
[INVESTMENTS-AT-VALUE] 268,237,110<F1>
[RECEIVABLES] 16,591,656<F1>
[ASSETS-OTHER] 85,395<F1>
[OTHER-ITEMS-ASSETS] 13,703<F1>
[TOTAL-ASSETS] 284,927,864<F1>
[PAYABLE-FOR-SECURITIES] 17,303,817<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 1,061,843<F1>
[TOTAL-LIABILITIES] 18,365,660<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 12,249,362
[SHARES-COMMON-STOCK] 1,169,696
[SHARES-COMMON-PRIOR] 1,330,303
[ACCUMULATED-NII-CURRENT] 277,980<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (37,847,576)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 9,903,471<F1>
[NET-ASSETS] 12,376,961
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 21,554,683<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (2,712,179)<F1>
[NET-INVESTMENT-INCOME] 18,842,504<F1>
[REALIZED-GAINS-CURRENT] (854,042)<F1>
[APPREC-INCREASE-CURRENT] 4,544,977<F1>
[NET-CHANGE-FROM-OPS] 22,533,439<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (729,319)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 289,459
[NUMBER-OF-SHARES-REDEEMED] (518,360)
[SHARES-REINVESTED] 68,294
[NET-CHANGE-IN-ASSETS] (1,473,254)
[ACCUMULATED-NII-PRIOR] (6,653)<F1>
[ACCUMULATED-GAINS-PRIOR] (36,909,849)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 1,702,968<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,712,179<F1>
[AVERAGE-NET-ASSETS] 12,845,531
[PER-SHARE-NAV-BEGIN] 10.411
[PER-SHARE-NII] 0.590
[PER-SHARE-GAIN-APPREC] 0.167
[PER-SHARE-DIVIDEND] (0.587)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 10.581
[EXPENSE-RATIO] 1.90
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 41
[NAME] CST Money Market Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 59,996,760<F1>
[INVESTMENTS-AT-VALUE] 59,996,760<F1>
[RECEIVABLES] 992,560<F1>
[ASSETS-OTHER] 17,486<F1>
[OTHER-ITEMS-ASSETS] 136<F1>
[TOTAL-ASSETS] 61,006,942<F1>
[PAYABLE-FOR-SECURITIES] 0<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 345,107<F1>
[TOTAL-LIABILITIES] 345,107<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 52,989,206
[SHARES-COMMON-STOCK] 52,989,453
[SHARES-COMMON-PRIOR] 59,912,205
[ACCUMULATED-NII-CURRENT] 1,926<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 0<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 0<F1>
[NET-ASSETS] 52,990,886
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 3,360,214<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (617,206)<F1>
[NET-INVESTMENT-INCOME] 2,743,008<F1>
[REALIZED-GAINS-CURRENT] 0<F1>
[APPREC-INCREASE-CURRENT] 0<F1>
[NET-CHANGE-FROM-OPS] 2,743,008<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (2,556,414)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 56,118,841
[NUMBER-OF-SHARES-REDEEMED] (65,551,045)
[SHARES-REINVESTED] 2,509,452
[NET-CHANGE-IN-ASSETS] (6,922,448)
[ACCUMULATED-NII-PRIOR] 1,403<F1>
[ACCUMULATED-GAINS-PRIOR] 0<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 305,876<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 1,124,613<F1>
[AVERAGE-NET-ASSETS] 56,984,584
[PER-SHARE-NAV-BEGIN] 1.000
[PER-SHARE-NII] 0.045
[PER-SHARE-GAIN-APPREC] 0.000
[PER-SHARE-DIVIDEND] (0.045)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 1.000
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 42
[NAME] CST Money Market Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 59,996,760<F1>
[INVESTMENTS-AT-VALUE] 59,996,760<F1>
[RECEIVABLES] 992,560<F1>
[ASSETS-OTHER] 17,486<F1>
[OTHER-ITEMS-ASSETS] 136<F1>
[TOTAL-ASSETS] 61,006,942<F1>
[PAYABLE-FOR-SECURITIES] 0<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 345,107<F1>
[TOTAL-LIABILITIES] 345,107<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 7,396,005
[SHARES-COMMON-STOCK] 7,396,005
[SHARES-COMMON-PRIOR] 728,810
[ACCUMULATED-NII-CURRENT] 1,926<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 0<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 0<F1>
[NET-ASSETS] 7,396,242
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 3,360,214<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (617,206)<F1>
[NET-INVESTMENT-INCOME] 2,743,008<F1>
[REALIZED-GAINS-CURRENT] 0<F1>
[APPREC-INCREASE-CURRENT] 0<F1>
[NET-CHANGE-FROM-OPS] 2,743,008<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (180,211)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 13,489,220
[NUMBER-OF-SHARES-REDEEMED] (6,999,969)
[SHARES-REINVESTED] 177,944
[NET-CHANGE-IN-ASSETS] 6,667,407
[ACCUMULATED-NII-PRIOR] 1,403<F1>
[ACCUMULATED-GAINS-PRIOR] 0<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 305,876<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 1,124,613<F1>
[AVERAGE-NET-ASSETS] 4,058,082
[PER-SHARE-NAV-BEGIN] 1.000
[PER-SHARE-NII] 0.044
[PER-SHARE-GAIN-APPREC] 0.000
[PER-SHARE-DIVIDEND] (0.044)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 1.000
[EXPENSE-RATIO] 1.10
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 43
[NAME] CST Money Market Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 59,996,760<F1>
[INVESTMENTS-AT-VALUE] 59,996,760<F1>
[RECEIVABLES] 992,560<F1>
[ASSETS-OTHER] 17,486<F1>
[OTHER-ITEMS-ASSETS] 136<F1>
[TOTAL-ASSETS] 61,006,942<F1>
[PAYABLE-FOR-SECURITIES] 0<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 345,107<F1>
[TOTAL-LIABILITIES] 345,107<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 274,698
[SHARES-COMMON-STOCK] 274,699
[SHARES-COMMON-PRIOR] 13,654
[ACCUMULATED-NII-CURRENT] 1,926<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 0<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 0<F1>
[NET-ASSETS] 274,707
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 3,360,214<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (617,206)<F1>
[NET-INVESTMENT-INCOME] 2,743,008<F1>
[REALIZED-GAINS-CURRENT] 0<F1>
[APPREC-INCREASE-CURRENT] 0<F1>
[NET-CHANGE-FROM-OPS] 2,743,008<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (5,860)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 622,707
[NUMBER-OF-SHARES-REDEEMED] (367,021)
[SHARES-REINVESTED] 5,359
[NET-CHANGE-IN-ASSETS] 261,052
[ACCUMULATED-NII-PRIOR] 1,403<F1>
[ACCUMULATED-GAINS-PRIOR] 0<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 305,876<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 1,124,613<F1>
[AVERAGE-NET-ASSETS] 154,097
[PER-SHARE-NAV-BEGIN] 1.000
[PER-SHARE-NII] 0.037
[PER-SHARE-GAIN-APPREC] 0.000
[PER-SHARE-DIVIDEND] (0.037)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 1.000
[EXPENSE-RATIO] 1.76
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 51
[NAME] CST Municipal Bond Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 106,964,600<F1>
[INVESTMENTS-AT-VALUE] 115,219,826<F1>
[RECEIVABLES] 3,103,572<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 37,717<F1>
[TOTAL-ASSETS] 118,361,115<F1>
[PAYABLE-FOR-SECURITIES] 1,532,243<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 1,126,034<F1>
[TOTAL-LIABILITIES] 2,658,277<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 8,520,311
[SHARES-COMMON-STOCK] 615,828
[SHARES-COMMON-PRIOR] 153,942
[ACCUMULATED-NII-CURRENT] 295,311<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 948,278<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 8,365,945<F1>
[NET-ASSETS] 104,134,036
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 6,956,491<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (1,180,842)<F1>
[NET-INVESTMENT-INCOME] 5,775,649<F1>
[REALIZED-GAINS-CURRENT] 929,511<F1>
[APPREC-INCREASE-CURRENT] 2,335,756<F1>
[NET-CHANGE-FROM-OPS] 9,040,916<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (240,492)
[DISTRIBUTIONS-OF-GAINS] (8,242)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 589,115
[NUMBER-OF-SHARES-REDEEMED] (142,483)
[SHARES-REINVESTED] 15,254
[NET-CHANGE-IN-ASSETS] 6,622,380
[ACCUMULATED-NII-PRIOR] 89,045<F1>
[ACCUMULATED-GAINS-PRIOR] 341,691<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 704,693<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 1,180,842<F1>
[AVERAGE-NET-ASSETS] 5,342,123
[PER-SHARE-NAV-BEGIN] 13.827
[PER-SHARE-NII] 0.649
[PER-SHARE-GAIN-APPREC] 0.397
[PER-SHARE-DIVIDEND] (0.625)
[PER-SHARE-DISTRIBUTIONS] (0.038)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 14.210
[EXPENSE-RATIO] 1.19
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 52
[NAME] CST Municipal Bond Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 106,964,600<F1>
[INVESTMENTS-AT-VALUE] 115,219,826<F1>
[RECEIVABLES] 3,103,572<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 37,717<F1>
[TOTAL-ASSETS] 118,361,115<F1>
[PAYABLE-FOR-SECURITIES] 1,532,243<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 1,126,034<F1>
[TOTAL-LIABILITIES] 2,658,277<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2,751,796
[SHARES-COMMON-STOCK] 198,487
[SHARES-COMMON-PRIOR] 47,211
[ACCUMULATED-NII-CURRENT] 295,311<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 948,278<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 8,365,945<F1>
[NET-ASSETS] 8,750,932
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 6,956,491<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (1,180,842)<F1>
[NET-INVESTMENT-INCOME] 5,775,649<F1>
[REALIZED-GAINS-CURRENT] 929,511<F1>
[APPREC-INCREASE-CURRENT] 2,335,756<F1>
[NET-CHANGE-FROM-OPS] 9,040,916<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (61,030)
[DISTRIBUTIONS-OF-GAINS] (2,667)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 176,471
[NUMBER-OF-SHARES-REDEEMED] (29,641)
[SHARES-REINVESTED] 4,446
[NET-CHANGE-IN-ASSETS] 2,165,304
[ACCUMULATED-NII-PRIOR] 89,045<F1>
[ACCUMULATED-GAINS-PRIOR] 341,691<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 704,693<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 1,180,842<F1>
[AVERAGE-NET-ASSETS] 1,610,281
[PER-SHARE-NAV-BEGIN] 13.822
[PER-SHARE-NII] 0.540
[PER-SHARE-GAIN-APPREC] 0.395
[PER-SHARE-DIVIDEND] (0.522)
[PER-SHARE-DISTRIBUTIONS] (0.038)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 14.197
[EXPENSE-RATIO] 1.94
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 53
[NAME] CST Municipal Bond Fund
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 106,964,600<F1>
[INVESTMENTS-AT-VALUE] 115,219,826<F1>
[RECEIVABLES] 3,103,572<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 37,717<F1>
[TOTAL-ASSETS] 118,361,115<F1>
[PAYABLE-FOR-SECURITIES] 1,532,243<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 1,126,034<F1>
[TOTAL-LIABILITIES] 2,658,277<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 94,821,197
[SHARES-COMMON-STOCK] 7,328,426
[SHARES-COMMON-PRIOR] 8,582,302
[ACCUMULATED-NII-CURRENT] 295,311<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 948,278<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 8,365,945<F1>
[NET-ASSETS] 2,817,870
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 6,956,491<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (1,180,842)<F1>
[NET-INVESTMENT-INCOME] 5,775,649<F1>
[REALIZED-GAINS-CURRENT] 929,511<F1>
[APPREC-INCREASE-CURRENT] 2,335,756<F1>
[NET-CHANGE-FROM-OPS] 9,040,916<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (5,267,861)
[DISTRIBUTIONS-OF-GAINS] (312,015)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 835,266
[NUMBER-OF-SHARES-REDEEMED] (2,433,057)
[SHARES-REINVESTED] 343,915
[NET-CHANGE-IN-ASSETS] (14,550,476)
[ACCUMULATED-NII-PRIOR] 89,045<F1>
[ACCUMULATED-GAINS-PRIOR] 341,691<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 704,693<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 1,180,842<F1>
[AVERAGE-NET-ASSETS] 110,554,700
[PER-SHARE-NAV-BEGIN] 13.829
[PER-SHARE-NII] 0.688
[PER-SHARE-GAIN-APPREC] 0.391
[PER-SHARE-DIVIDEND] (0.660)
[PER-SHARE-DISTRIBUTIONS] (0.038)
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 14.210
[EXPENSE-RATIO] 0.98
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 101
[NAME] CST Emerging Growth
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 145,721,828<F1>
[INVESTMENTS-AT-VALUE] 185,896,046<F1>
[RECEIVABLES] 2,223,775<F1>
[ASSETS-OTHER] 20,287<F1>
[OTHER-ITEMS-ASSETS] 4,191<F1>
[TOTAL-ASSETS] 188,144,299<F1>
[PAYABLE-FOR-SECURITIES] 1,136,786<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 608,876<F1>
[TOTAL-LIABILITIES] 1,745,662<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 5,286,680
[SHARES-COMMON-STOCK] 276,032
[SHARES-COMMON-PRIOR] 38,105
[ACCUMULATED-NII-CURRENT] (2,504)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 1,828,333<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 40,174,218<F1>
[NET-ASSETS] 6,114,920
[DIVIDEND-INCOME] 305,574<F1>
[INTEREST-INCOME] 766,115<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (2,786,585)<F1>
[NET-INVESTMENT-INCOME] (1,714,896)<F1>
[REALIZED-GAINS-CURRENT] 5,617,110<F1>
[APPREC-INCREASE-CURRENT] 22,863,277<F1>
[NET-CHANGE-FROM-OPS] 26,765,491<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 251,646
[NUMBER-OF-SHARES-REDEEMED] (13,719)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 5,406,447
[ACCUMULATED-NII-PRIOR] (1,258)<F1>
[ACCUMULATED-GAINS-PRIOR] (3,788,777)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 904,959<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,786,585<F1>
[AVERAGE-NET-ASSETS] 3,429,212
[PER-SHARE-NAV-BEGIN] 18.593
[PER-SHARE-NII] (0.078)
[PER-SHARE-GAIN-APPREC] 3.638
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 22.153
[EXPENSE-RATIO] 1.39
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 102
[NAME] CST Emerging Growth
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 145,721,828<F1>
[INVESTMENTS-AT-VALUE] 185,896,046<F1>
[RECEIVABLES] 2,223,775<F1>
[ASSETS-OTHER] 20,287<F1>
[OTHER-ITEMS-ASSETS] 4,191<F1>
[TOTAL-ASSETS] 188,144,299<F1>
[PAYABLE-FOR-SECURITIES] 1,136,786<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 608,876<F1>
[TOTAL-LIABILITIES] 1,745,662<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 77,118,717
[SHARES-COMMON-STOCK] 4,555,287
[SHARES-COMMON-PRIOR] 2,771,815
[ACCUMULATED-NII-CURRENT] (2,504)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 1,828,333<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 40,174,218<F1>
[NET-ASSETS] 100,566,787
[DIVIDEND-INCOME] 305,574<F1>
[INTEREST-INCOME] 766,115<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (2,786,585)<F1>
[NET-INVESTMENT-INCOME] (1,714,896)<F1>
[REALIZED-GAINS-CURRENT] 5,617,110<F1>
[APPREC-INCREASE-CURRENT] 22,863,277<F1>
[NET-CHANGE-FROM-OPS] 26,765,491<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,551,721
[NUMBER-OF-SHARES-REDEEMED] (768,249)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 49,082,961
[ACCUMULATED-NII-PRIOR] (1,258)<F1>
[ACCUMULATED-GAINS-PRIOR] (3,788,777)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 904,959<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,786,585<F1>
[AVERAGE-NET-ASSETS] 77,205,590
[PER-SHARE-NAV-BEGIN] 18.574
[PER-SHARE-NII] (0.156)
[PER-SHARE-GAIN-APPREC] 3.659
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 22.077
[EXPENSE-RATIO] 1.69
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 103
[NAME] CST Emerging Growth
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 145,721,828<F1>
[INVESTMENTS-AT-VALUE] 185,896,046<F1>
[RECEIVABLES] 2,223,775<F1>
[ASSETS-OTHER] 20,287<F1>
[OTHER-ITEMS-ASSETS] 4,191<F1>
[TOTAL-ASSETS] 188,144,299<F1>
[PAYABLE-FOR-SECURITIES] 1,136,786<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 608,876<F1>
[TOTAL-LIABILITIES] 1,745,662<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 61,993,193
[SHARES-COMMON-STOCK] 3,684,878
[SHARES-COMMON-PRIOR] 2,131,160
[ACCUMULATED-NII-CURRENT] (2,504)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] 1,828,333<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 40,174,218<F1>
[NET-ASSETS] 79,716,930
[DIVIDEND-INCOME] 305,574<F1>
[INTEREST-INCOME] 766,115<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (2,786,585)<F1>
[NET-INVESTMENT-INCOME] (1,714,896)<F1>
[REALIZED-GAINS-CURRENT] 5,617,110<F1>
[APPREC-INCREASE-CURRENT] 22,863,277<F1>
[NET-CHANGE-FROM-OPS] 26,765,491<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,002,340
[NUMBER-OF-SHARES-REDEEMED] (448,622)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 40,632,593
[ACCUMULATED-NII-PRIOR] (1,258)<F1>
[ACCUMULATED-GAINS-PRIOR] (3,788,777)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 904,959<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,786,585<F1>
[AVERAGE-NET-ASSETS] 58,690,732
[PER-SHARE-NAV-BEGIN] 18.339
[PER-SHARE-NII] (0.266)
[PER-SHARE-GAIN-APPREC] 3.561
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 21.634
[EXPENSE-RATIO] 2.44
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 111
[NAME] CST International Equity
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 26,304,067<F1>
[INVESTMENTS-AT-VALUE] 32,687,933<F1>
[RECEIVABLES] 27,287<F1>
[ASSETS-OTHER] 13,799<F1>
[OTHER-ITEMS-ASSETS] 465,834<F1>
[TOTAL-ASSETS] 33,194,853<F1>
[PAYABLE-FOR-SECURITIES] 884,410<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 176,017<F1>
[TOTAL-LIABILITIES] 1,060,427<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,575,846
[SHARES-COMMON-STOCK] 90,545
[SHARES-COMMON-PRIOR] 9,813
[ACCUMULATED-NII-CURRENT] (394)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (910,647)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 6,378,021<F1>
[NET-ASSETS] 1,644,265
[DIVIDEND-INCOME] 232,842<F1>
[INTEREST-INCOME] 28,063<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (767,946)<F1>
[NET-INVESTMENT-INCOME] (507,041)<F1>
[REALIZED-GAINS-CURRENT] (897,364)<F1>
[APPREC-INCREASE-CURRENT] 3,531,967<F1>
[NET-CHANGE-FROM-OPS] 2,127,562<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 83,388
[NUMBER-OF-SHARES-REDEEMED] (2,656)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1,482,187
[ACCUMULATED-NII-PRIOR] (812)<F1>
[ACCUMULATED-GAINS-PRIOR] (33,287)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 267,897<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 767,946<F1>
[AVERAGE-NET-ASSETS] 927,479
[PER-SHARE-NAV-BEGIN] 16.517
[PER-SHARE-NII] (0.169)
[PER-SHARE-GAIN-APPREC] 1.812
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 18.160
[EXPENSE-RATIO] 2.26
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 112
[NAME] CST International Equity
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 26,304,067<F1>
[INVESTMENTS-AT-VALUE] 32,687,933<F1>
[RECEIVABLES] 27,287<F1>
[ASSETS-OTHER] 13,799<F1>
[OTHER-ITEMS-ASSETS] 465,834<F1>
[TOTAL-ASSETS] 33,194,853<F1>
[PAYABLE-FOR-SECURITIES] 884,410<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 176,017<F1>
[TOTAL-LIABILITIES] 1,060,427<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 13,239,185
[SHARES-COMMON-STOCK] 913,789
[SHARES-COMMON-PRIOR] 626,946
[ACCUMULATED-NII-CURRENT] (394)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (910,647)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 6,378,021<F1>
[NET-ASSETS] 16,572,917
[DIVIDEND-INCOME] 232,842<F1>
[INTEREST-INCOME] 28,063<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (767,946)<F1>
[NET-INVESTMENT-INCOME] (507,041)<F1>
[REALIZED-GAINS-CURRENT] (897,364)<F1>
[APPREC-INCREASE-CURRENT] 3,531,967<F1>
[NET-CHANGE-FROM-OPS] 2,127,562<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 453,796
[NUMBER-OF-SHARES-REDEEMED] (166,953)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 6,201,063
[ACCUMULATED-NII-PRIOR] (812)<F1>
[ACCUMULATED-GAINS-PRIOR] (33,287)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 267,897<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 767,946<F1>
[AVERAGE-NET-ASSETS] 14,476,854
[PER-SHARE-NAV-BEGIN] 16.543
[PER-SHARE-NII] (0.262)
[PER-SHARE-GAIN-APPREC] 1.855
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 18.136
[EXPENSE-RATIO] 2.56
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 113
[NAME] CST International Equity
[MULTIPLIER] 1
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1997
[PERIOD-START] NOV-01-1996
[PERIOD-END] OCT-31-1997
[INVESTMENTS-AT-COST] 26,304,067<F1>
[INVESTMENTS-AT-VALUE] 32,687,933<F1>
[RECEIVABLES] 27,287<F1>
[ASSETS-OTHER] 13,799<F1>
[OTHER-ITEMS-ASSETS] 465,834<F1>
[TOTAL-ASSETS] 33,194,853<F1>
[PAYABLE-FOR-SECURITIES] 884,410<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 176,017<F1>
[TOTAL-LIABILITIES] 1,060,427<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 11,852,415
[SHARES-COMMON-STOCK] 781,557
[SHARES-COMMON-PRIOR] 491,294
[ACCUMULATED-NII-CURRENT] (394)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (910,647)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 6,378,021<F1>
[NET-ASSETS] 13,917,244
[DIVIDEND-INCOME] 232,842<F1>
[INTEREST-INCOME] 28,063<F1>
[OTHER-INCOME] 0<F1>
[EXPENSES-NET] (767,946)<F1>
[NET-INVESTMENT-INCOME] (507,041)<F1>
[REALIZED-GAINS-CURRENT] (897,364)<F1>
[APPREC-INCREASE-CURRENT] 3,531,967<F1>
[NET-CHANGE-FROM-OPS] 2,127,562<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 382,972
[NUMBER-OF-SHARES-REDEEMED] (92,709)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 5,877,764
[ACCUMULATED-NII-PRIOR] (812)<F1>
[ACCUMULATED-GAINS-PRIOR] (33,287)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 267,897<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 767,946<F1>
[AVERAGE-NET-ASSETS] 11,385,386
[PER-SHARE-NAV-BEGIN] 16.364
[PER-SHARE-NII] (0.323)
[PER-SHARE-GAIN-APPREC] 1.766
[PER-SHARE-DIVIDEND] 0.000
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 17.807
[EXPENSE-RATIO] 3.30
[AVG-DEBT-OUTSTANDING] 0<F1>
[AVG-DEBT-PER-SHARE] 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a
class basis
</FN>
</TABLE>
