As filed with the Securities and Exchange Commission on December 15,
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. 21
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 21
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)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 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
MID CAP FUND
GROWTH FUND
GROWTH AND INCOME FUND
GOVERNMENT FUND
MUNICIPAL BOND FUND
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and
Documents:
Front Cover
Contents Page
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Part A
THE
CONCERT
INVESTMENT SERIES
COMBINED PROSPECTUS
------------------------------
Emerging Growth Fund
International Equity Fund
Mid Cap Fund
Growth Fund
Growth and Income Fund
Government Fund
Municipal Bond Fund
------------------------------
Class A Shares, Class B Shares
and Class 1 Shares
February 28, 1999
The Securities and Exchange Commission has not approved the funds'
shares as an investment or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
THE CONCERT INVESTMENT SERIES
- --------------------------------------------------------------------------------
Emerging Growth Fund Growth and Income Fund
International Equity Fund Government Fund
Mid Cap Fund Municipal Bond Fund
Growth Fund
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE FUNDS
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the funds' investments. These reports discuss the
market conditions and investment strategies that significantly affected each
fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION. The combined statement of additional
information provides more detailed information about each fund. It is
incorporated by reference into this combined prospectus.
HOW TO OBTAIN ADDITIONAL INFORMATION.
. You may obtain shareholder reports and the statement of additional
information without charge, by contacting PFS Shareholder Services, by
calling 1-800-544-5445 or writing the funds at 3100 Breckinridge Blvd.,
Bldg. 200, Duluth, Georgia 30099-0062
. You may review the funds' shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same reports and information free
from the Commission's Internet web site -- http://www.sec.gov
If someone provides you with information about the funds that is not in this
prospectus, you should not rely upon that information. Neither the funds nor
the distributor is offering to sell shares of the funds to any person to whom
the funds may not lawfully sell their shares.
(Investment Company Act file no. 811-_______)
[PFS 00000 2/99]
<PAGE>
- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
Fund goals, strategies and risks:
Emerging Growth Fund...................... 4
International Equity Fund................. 6
Mid Cap Fund.............................. 8
Growth Fund............................... 10
Growth and Income Fund.................... 12
Government Fund........................... 14
Municipal Bond Fund....................... 14
More on the funds' investments................. 18
Management..................................... 19
Choosing a class of shares to buy.............. 20
Sales charges:
Class A sales charge...................... 21
Class B sales charge...................... 22
Class 1 sales charge...................... 23
Buying and exchanging shares................... 24
Redeeming shares............................... 25
Other things to know about share transactions.. 26
Dividends, distributions and
taxes........................................ 27
Financial highlights........................... 28
Concert Investment Series -- 2
<PAGE>
- --------------------------------------------------------------------------------
THINGS YOU SHOULD KNOW BEFORE INVESTING
- --------------------------------------------------------------------------------
ABOUT THE MANAGER
The funds' investment manager is Mutual Management Corp., an affiliate of
Salomon Smith Barney Inc. The manager selects the funds' investments and
oversees their operations. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit
and charge cards, insurance, investments, investment banking and trading --
and use diverse channels to make them available to consumer and corporate
customers around the world. Among these businesses are Citibank, Commercial
Credit, Primerica Financial Services, Salomon Smith Barney, SSBC Asset
Management, Travelers Life & Annuity, and Travelers Property Casualty.
Smith Barney Mutual Funds, which includes The Concert Investment Series,
offers a distinctive family of fund choices tailored to help meet the varying
needs of large and small investors. Currently, Smith Barney Mutual Funds
offers more than 60 individual funds with assets of more than $xx billion.
ABOUT MUTUAL FUND RISKS
An investment in any of the funds is not a bank deposit and is not insured or
guaranteed by the FDIC or any other government agency.
Concert Investment Series -- 3
<PAGE>
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE The fund seeks capital appreciation.
================================================================================
The fund invests in common stocks of small and medium sized
KEY companies considered by the manager to be "emerging growth"
INVESTMENTS companies. These are primarily domestic companies, in the
early stages of their life cycles, characterized by relatively
high earnings growth. The manager selects investments
primarily from
among companies that have market capitalizations in the lowest
25% of all publicly traded U.S. companies.
================================================================================
HOW THE MANAGER The manager emphasizes individual security selection while
SELECTS THE spreading investments among many industries and sectors. The
FUND'S manager uses quantitative analysis to identify individual
INVESTMENTS companies that it believes offer exceptionally high prospects
for growth. The manager purchases these companies' stocks when
it believes they are reasonably priced. This style of stock
selection is commonly known as "growth at a reasonable price."
Quantitative methods are also used to control portfolio risk
related to broad macroeconomic factors, such as interest rate
changes. The manager selects investments for their potential
capital appreciation; any ordinary income is incidental. In
selecting individual companies for investment, the manager
looks for:
. Above average earnings growth
. A pattern of reported earnings that exceed market
expectations
. Rising earnings estimates over the next several quarters
. High relative return on invested capital
. Reasonable price/earnings multiple
================================================================================
PRINCIPAL RISKS Investors could lose money on their investment in the fund, or
OF INVESTING the fund may not perform as well as other investments, if any
IN THE FUND of the following occurs:
. Stock prices decline generally
. Small capitalization companies fall out of favor with
investors
. Emerging growth company stock prices decline further and
more abruptly than those of larger, more established
companies in response to negative stock market movements
. The manager's judgment about the attractiveness, value or
potential appreciation of a particular stock proves to be
incorrect
. A particular product or service developed by an emerging
growth company is unsuccessful, the company does not meet
earnings expectations or other events depress the value of
the company's stock
================================================================================
WHO MAY WANT TO The fund may be an appropriate investment if you:
INVEST IN THE
FUND . Are seeking to participate in the long term growth
potential of emerging growth companies
. Currently have exposure to fixed income investments and
less volatile equity investments and wish to broaden your
investment portfolio
. Are willing to accept the risks of the stock market and the
special risks of investing in emerging growth companies
with limited track records
Concert Investment Series -- 4
<PAGE>
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Past performance does not necessarily indicate how the fund will perform in the
future.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
The performance information in the chart does not reflect sales charges, which
would reduce your return.
TOTAL RETURN
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's Class A shares for each of the past 3 calendar years.
Class 1 and B shares would have different performance due to their different
expenses.
% TOTAL RETURN: CLASS A SHARES
[BAR CHART]
Calendar years
ended December 31
1996 22.82
1997 18.9
================================================================================
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the period, and the reinvestment
of distributions and dividends.
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the _____
Index, an unmanaged index of [small and medium company] stocks.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (CALENDAR YEARS ENDED DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
Class Inception Date 1 Year Since Inception
1 08/08/96
A 02/21/95
B 02/21/95
_____ Index n/a
================================================================================
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (paid directly from your investment) Class 1 Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 8.50% 5.00% None
Maximum deferred sales charge on redemptions (as a % of the lower of None None* 5.00%
net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a % of fund net assets)
Management fee 0.65% 0.65% 0.65%
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
Other expenses ----- ----- ----
Total annual fund operating expenses ===== ===== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
purchase you will pay a deferred sales charge of 1.00%.
================================================================================
EXAMPLE
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR* 3 YEARS* 5 YEARS* 10 YEARS*
<S> <C> <C> <C> <C>
Class 1 $ $ $ $
Class A $ $ $ $
Class B (Assuming redemption at end of period) $ $ $ $
Class B (Assuming no redemption) $ $ $ $
</TABLE>
*THE EXAMPLE ASSUMES: . YOU INVEST $10,000 FOR THE PERIOD SHOWN
. YOU REINVEST ALL DISTRIBUTIONS AND DIVIDENDS WITHOUT A
SALES CHARGE
. THE FUND'S OPERATING EXPENSES REMAIN THE SAME
. YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
Concert Investment Series -- 5
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE The fund seeks total return on its assets from growth of
capital and income.
================================================================================
KEY
INVESTMENTS The fund invests principally in a diversified portfolio of
equity securities of established non-U.S. issuers.
================================================================================
HOW THE MANAGER SELECTS THE FUND'S INVESTMENTS
By spreading the fund's investments across many international markets, the
manager seeks to reduce volatility compared to investing in a single region.
Unlike global mutual funds which may allocate a substantial portion of assets to
the U.S. markets, the fund invests substantially all of its assets in countries
outside of the U.S.
The manager emphasizes individual security selection while diversifying
the fund's investments across regions and countries, which can help to
reduce risk. While the manager selects investments primarily for their
capital appreciation potential, some investments have an income
component as well. Companies in which the fund invests may have large,
mid-size or small market capitalizations and may operate in any market
sector. In selecting individual companies for investment, the manager
looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit quality
Depending on the manager's assessment of overseas potential for long-
term growth, the fund's emphasis among foreign markets and types of
issuers may vary. In allocating assets among countries and regions, the
manager evaluates:
. Economic stability and favorable prospects for economic growth
. Low or decelerating inflation, creating a favorable environment for
securities markets
. Stable governments with policies that encourage economic growth,
equity investment and development of securities markets
. Currency stability
. The range of individual investment opportunities
================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S.
Investors could lose money on their investment in the fund, or the fund
may not perform as well as other investments, if any of the following
occurs:
. Foreign stock prices decline
. Adverse governmental action or political, economic or market
instability affects a foreign country or region
. The currency in which a security is priced declines in value relative
to the U.S. dollar
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
In some foreign countries, there is also less information available
about foreign issuers and markets because of less rigorous accounting
and regulatory standards than in the U.S. Currency fluctuations could
erase investment gains or add to investment losses. The risk of
investing in foreign securities is greater for emerging markets. In
Europe, Economic and Monetary Union (EMU) and the introduction of a
single currency is scheduled for 1999. There are significant political
and economic risks associated with EMU, which may increase the
volatility of the fund's European.
================================================================================
WHO MAY WANT TO INVEST IN THE FUND
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term total return potential of
international markets
. Currently have exposure to U.S. stock markets and wish to diversify
your investment portfolio by adding non-U.S. stocks that may not move
in tandem with U.S. stocks
. Are willing to accept the risks of the stock market and the special
risks of investing in foreign securities, including emerging market
securities
Concert Investment Series -- 6
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Past performance does not necessarily indicate how the fund will perform in the
future.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
The performance information in the chart does not reflect sales charges, which
would reduce your return.
Total return
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's Class A shares for each of the past 3 calendar years.
Class 1 and B shares would have different performance due to their different
expenses.
%TOTAL RETURN: CLASS A SHARES
[BAR CHART]
Calendar years
ended Decemer 31
1996 16.54
1997 18.14
1998
================================================================================
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the Comparative performance
period, and the reinvestment of distributions and dividends.
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the _____
Index, an unmanaged index of [international] stocks.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Class Inception Date 1 Year Since Inception
1 08/08/96
A 02/21/95
B 02/21/95
_____ Index n/a
================================================================================
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (paid directly from your investment) Class 1 Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 8.50% 5.00% None
Maximum deferred sales charge on redemptions (as a % of the lower of None None* 5.00%
net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a % of fund net assets)
Management fee 1.00% 1.00% 1.00%
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
Other expenses ---- ---- ----
Total annual fund operating expenses ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
purchase you will pay a deferred sales charge of 1.00%.
================================================================================
EXAMPLE
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR* 3 YEARS* 5 YEARS* 10 YEARS*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class 1 $ $ $ $
Class A $ $ $ $
Class B (Assuming redemption at end of period) $ $ $ $
Class B (Assuming no redemption) $ $ $ $
</TABLE>
*THE EXAMPLE ASSUMES: . YOU INVEST $10,000 FOR THE PERIOD SHOWN
. YOU REINVEST ALL DISTRIBUTIONS AND DIVIDENDS WITHOUT A
SALES CHARGE
. THE FUND'S OPERATING EXPENSES REMAIN THE SAME
. YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
Concert Investment Series -- 7
<PAGE>
- -------------------------------------------------------------------------------
MID CAP FUND
- -------------------------------------------------------------------------------
INVESTMENT The fund seeks long-term growth of capital.
OBJECTIVE
================================================================================
KEY The fund invests primarily in equity securities of medium
INVESTMENTS sized companies with market capitalizations of between $1
billion and $12 billion at the time of investment. Equity
securities include exchange traded and over-the-counter common
stocks, preferred stocks, debt securities convertible into
equity securities and warrants and rights relating to equity
securities. The fund also may invest up to 35% of its assets in
equity securities of companies with market capitalizations
smaller than $1 billion or larger than $5 billion (i.e., small
or large capitalization companies), and up to 25% of its assets
in securities of foreign issuers both directly and through
depositary receipts for those securities.
================================================================================
HOW THE The manager focuses on medium capitalization companies that
MANAGER exhibit either attractive growth characteristics or attractive
SELECTS value characteristics. The manager selects individual "growth"
THE stocks for investment in two ways: by identifying those
FUND'S companies which exhibit the most favorable growth prospects and
INVESTMENTS by identifying those companies which have favorable valuations
relative to their growth characteristics. This strategy is
commonly known as "growth at a reasonable price" and offers
investors style diversification within a single mutual fund. In
selecting companies for investment, the manager looks for:
. Growth characteristics, including high historic growth rates
and high relative growth compared with companies in the same
industry or sector
. Value characteristics, including low price/earnings ratios
and other statistics indicating that a security is
undervalued
. Increasing profits and sales
. Competitive advantages that could be more fully exploited by
a company
. Skilled management that is committed to long-term growth
. Potential for a long-term investment by the fund
The manager uses fundamental research to find stocks with
strong growth potential and also uses quantitative analysis to
determine whether these stocks are relatively undervalued or
overvalued compared to stocks with similar fundamental
characteristics. The manager's quantitative valuations
determine whether and when the fund will purchase and sell
stocks that it identifies through fundamental research.
================================================================================
PRINCIPAL RISKS Investors could lose money on their investment in the fund, or
OF INVESTING IN the fund may not perform as well as other investments, because
THE FUND of the following:
. U.S. stock markets go down, or perform poorly relative to
other types of investments
. An adverse company specific event, such as an unfavorable
earnings report, negatively affects the stock price of a
company in which the fund invests
. Medium capitalization stocks fall out of favor with investors
. The manager's judgment about the attractiveness, growth
prospects, value or potential appreciation of a particular
stock proves to be incorrect
Because the fund invests primarily in medium capitalization
companies, an investment in the fund may be more volatile and
more susceptible to loss than an investment in a fund which
invests primarily in large capitalization companies. Medium
capitalization companies may have more limited product lines,
markets and financial resources than large capitalization
companies. They may have shorter operating histories and more
erratic businesses, although they generally have more
established businesses than small capitalization companies. The
prices of medium capitalization company stocks tend to be more
volatile than the prices of large capitalization company
stocks.
Concert Investment Series -- 8
<PAGE>
- --------------------------------------------------------------------------------
MID CAP FUND
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST IN THE FUND
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of the U.S.
stock market
. Are looking for an investment with potentially greater return but higher risk
than a fund that invests primarily in large cap companies
. Are willing to accept the risks of the stock market
================================================================================
TOTAL RETURN AND PERFORMANCE
The fund's total return will vary from year to year, and its performance will
vary compared with that of unmanaged mid-cap stock indices. Although variations
in the fund's performance are an indication of the risks of investing in the
fund, past performance does not necessarily indicate how the fund will perform
in the future.
================================================================================
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
- -------------------------------------------------
SHAREHOLDER FEES (paid directly from your investment)
CLASS 1 CLASS A CLASS B
- ----------------------------------------------------------------------------
- -------------------------------------------------
<S>
<C> <C>
Maximum sales charge on purchases (as a % of offering price)
8.50% 5.00% None
Maximum deferred sales charge on redemptions (as a % of the
None None* 5.00%
lower of net asset value at purchase or redemption)
Annual fund operating expenses (paid by the fund as a % of fund net assets)
Management fee
0.95% 0.75% 0.75%
Distribution and service (12b-1) fee
0.00% 0.25% 1.00%
Other expenses/1/
---- ----
Total annual fund operating expenses
==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
purchase you will pay a deferred sales charge of 1.00%.
/1/ Other expenses and total annual operating expenses are based on estimated
amounts.
================================================================================
EXAMPLE
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR* 3 YEARS*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Class 1 $
$
Class A $ $
Class B (Assuming redemption at end of period) $ $
Class B (Assuming no redemption) $ $
</TABLE>
*THE EXAMPLE ASSUMES: . YOU INVEST $10,000 FOR THE PERIOD SHOWN
. YOU REINVEST ALL DISTRIBUTIONS AND DIVIDENDS WITHOUT A
SALES CHARGE
. THE FUND'S OPERATING EXPENSES REMAIN THE SAME
. YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
Concert Investment Series -- 9
<PAGE>
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE The fund seeks capital appreciation.
================================================================================
KEY The fund invests principally in U.S. common stocks,
INVESTMENTS typically of established companies with large market
capitalizations. The fund may also invest in other
equity securities, including options on U.S. common
stocks.
================================================================================
HOW THE The manager uses a "bottom-up" strategy, primarily
MANAGER focusing on individual security selection, with less
SELECTS THE emphasis on industry and sector allocation. The manager
FUND'S selects investments for their capital appreciation; any
INVESTMENTS ordinary income is incidental. In selecting individual
companies for investment, the manager looks for:
. Growth characteristsics, including high historic
growth rates and high relative growth compared with
companies in the same industry or sector
. Value characteristics, including low price/earnings
ratios and other statistics indicating that a
security is undervalued
. Increasing profits and sales
. Competitive advantages that could be more fully
exploited by a company
. Skilled management that is committed to long-term
growth
. Potential for a long-term investment by the fund
The manager uses fundamental research to find stocks
with strong growth potential, and then uses quantitative
analysis to determine whether these stocks are
relatively undervalued or overvalued compared to stocks
with similar fundamental characteristics. The manager's
quantitative valuations determine whether and when the
fund will purchase or sell the stocks that it identifies
through fundamental research. This style of stock
selection is commonly known as "growth at a reasonable
price."
================================================================================
PRINCIPAL RISKS Investors could lose money on their investment in the
OF INVESTING IN fund, or the fund may not perform as well as other
THE FUND investments, if any of the following occurs:
. Stock prices decline generally
. Large capitalization companies fall out of favor with
investors
. The manager's judgment about the attractiveness,
value or potential appreciation of a particular stock
proves to be incorrect
. The company does not meet earnings expectations or
other events depress the value of the company's stock
The fund may engage in active and frequent trading,
resulting in high portfolio turnover. This may lead to
the realization and distribution to shareholders of
higher capital gains, increasing their tax liability.
Frequent trading also increases transaction costs, which
could detract from the fund's performance.
================================================================================
WHO MAY WANT The fund may be an appropriate investment if you:
TO INVEST IN THE
FUND . Are an aggressive investor seeking to participate in
the long term growth potential of the stock market
. Are willing to accept the risks of investing in
common stocks
Concert Investment Series -- 10
<PAGE>
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
TOTAL RETURN
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's Class 1 shares for each of the past 10 calendar years.
Class A and B shares would have different performance due to their different
expenses.
Past performance does not necessarily indicate how the fund will perform in the
future.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
The performance information in the chart does not reflect sales charges, which
would reduce your return.
% TOTAL RETURN: CLASS 1 SHARES
[BAR CHART]
Calendar years
ended December 31
1989 22.9
1990 -8.73
1991 39.8
1992 9.83
1993 14.27
1994 2.04
1995 24.01
1996 19.94
1997 20.94
1998
================================================================================
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the _____
Index, an unmanaged index of common stocks.
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the period, and the reinvestment
of distributions and dividends.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Class Inception Date 1 Year 5 Years 10 Years Since Inception
1 XX/XX/87 n/a n/a
A 08/18/96 n/a n/a
B 08/18/96 n/a n/a
_____ Index n/a
================================================================================
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (paid direct from your investment) Class 1 Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 8.50% 5.00% None
Maximum deferred sales charge on redemptions (as a % of the lower of
None None* 5.00% of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a % of fund net assets)
Management fee 0.60% 0.60% 0.60%
Distribution and service (12b-1) 0.00% 0.25% 1.00%
Other expenses ---- ---- ----
Total annual fund operating expenses ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
purchase you will pay a deferred sales charge of 1.00%.
===============================================================================
EXAMPLE
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR* 3 YEARS* 5 YEARS* 10 YEARS*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class 1 $ $ $ $
Class A $ $ $ $
Class B (Assuming redemption at end of period) $ $ $ $
Class B (Assuming no redemption) $ $ $ $
</TABLE>
*THE EXAMPLE ASSUMES: . YOU INVEST $10,000 FOR THE PERIOD SHOWN
. YOU REINVEST ALL DISTRIBUTIONS AND DIVIDENDS WITHOUT A
SALES CHARGE
. THE FUND'S OPERATING EXPENSES REMAIN THE SAME
. YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
Concert Investment Series -- 11
<PAGE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE The fund seeks reasonable growth and income.
================================================================================
KEY The fund invests in a portfolio consisting principally
INVESTMENTS of equity securities, including convertible securities,
that provide dividend or interest income. However, it
may also invest in non-income producing investments for
potential appreciation in value. The fund emphasizes
U.S. stocks with large market capitalizations. The fund
also may purchase below investment grade bonds (commonly
known as "junk bonds").
================================================================================
HOW THE The manager emphasizes individual security selection
MANAGER while spreading the fund's investments among industries
SELECTS THE and sectors. The manager uses a two-step selection
FUND'S process commonly known as "growth at a reasonable
INVESTMENTS price."
First, the manager uses fundamental qualitative research
to find stocks with strong growth potential. Qualitative
factors include:
. Management with established track records, or
favorable changes in current management
. Improvement in a company's competitive position
. Positive changes in corporate strategy
Then the manager uses quantitative analysis to determine
whether these stocks are relatively undervalued or
overvalued. Quantitative factors include:
. Growth characteristics, including high historic
growth rates and high relative growth compared with
companies in the same industry or sector
. Value characteristics, including low price/earnings
ratios and other statistics indicating that a
security is undervalued
These valuations then influence the timing of the fund's
purchases and sales of stocks.
================================================================================
PRINCIPAL RISKS Investors could lose money on their investment in the
OF INVESTING IN fund, or the fund may not perform as well as other
THE FUND investments, if any of the following occurs:
. Stock prices decline generally
. Large capitalization companies fall out of favor with
investors
. Companies in which the fund invests suffer unexpected
losses or lower than expected earnings
. The manager's judgment about the attractiveness,
value or income potential of a particular security
proves to be incorrect
. The issuer of a debt security owned by the fund
defaults on its obligation to pay principal and/or
interest or has its credit rating downgraded. This
risk is higher for below investment grade bonds.
These bonds are considered speculative because they
have a higher risk of issuer default, are subject to
greater price volatility and may be illiquid
The fund may engage in active and frequent trading,
resulting in high portfolio turnover. This may lead to
the realization and distribution to shareholders of
higher capital gains, increasing their tax liability.
Frequent trading also increases transaction costs, which
could detract from the fund's performance.
================================================================================
WHO MAY WANT The fund may be an appropriate investment if you:
TO INVEST IN THE
FUND
. Are seeking reasonable long term growth and current
income
. Are willing to accept the risks of the stock market
Concert Investment Series -- 12
<PAGE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
TOTAL RETURN
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's Class 1 shares for each of the past 10 calendar years.
Class A and B shares would have different performance due to their different
expenses.
Past performance does not necessarily indicate how the fund will perform in the
future.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
The performance information in the chart does not reflect sales charges, which
would reduce your return.
% TOTAL RETURN: CLASS 1 SHARES
[CHART APPEARS HERE]
Calender years
ended December 31
1989 22.38
1990 -5.84
1991 31.68
1992 10.85
1993 14.13
1994 0.51
1995 22.45
1996 20.58
1997 27.35
1998
================================================================================
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the _____
Index, an unmanaged index of [preferred] stocks.
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the Comparative performance
period, and the reinvestment of distributions and dividends.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (CALENDAR YEARS ENDED DECEMBER 31, 1998)
- -------------------------------------------------------------------------------
Class Inception Date 1 Year 5 Years 10 Years Since Inception
1 08/08/96 n/a n/a
A 02/21/95 n/a n/a
B 02/21/95 n/a n/a
_____ Index n/a
================================================================================
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (paid directly from your investment) Class 1 Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 8.50% 5.00% None
Maximum deferred sales charge on redemptions (as a % of the lower None None* 5.00%
of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a % of fund net assets)
Management fee 0.65% 0.65% 0.65%
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
Other expenses ---- ---- ----
Total annual fund operating expenses ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
purchase you will pay a deferred sales charge of 1.00%.
===============================================================================
EXAMPLE
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR* 3 YEARS* 5 YEARS* 10 YEARS*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class 1 $ $ $ $
Class A $ $ $ $
Class B (Assuming redemption at end of period) $ $ $ $
Class B (Assuming no redemption) $ $ $ $
</TABLE>
*THE EXAMPLE ASSUMES: . YOU INVEST $10,000 FOR THE PERIOD SHOWN
. YOU REINVEST ALL DISTRIBUTIONS AND DIVIDENDS WITHOUT A
SALES CHARGE
. THE FUND'S OPERATING EXPENSES REMAIN THE SAME
. YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
Concert Investment Series -- 13
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT FUND
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE The fund seeks high current return consistent with
preservation of capital.
===============================================================================
KEY The fund invests primarily in government debt issued or
INVESTMENTS guaranteed by the U.S. government, its agencies or
instrumentalities. These securities include U.S.
Treasury securities, mortgage-related and asset-backed
securities. Some government guaranteed mortgage-related
securities are backed by the full faith and credit of
the U.S. Treasury, some are supported by the right of
the issuer to borrow from the U.S. government and some
are backed only by the credit of the issuer itself.
In order to hedge against changes in interest rates, the
fund also may purchase or sell options on U.S.
government securities and enter into interest rate
futures contracts and options on these contracts.
===============================================================================
HOW THE The manager focuses on identifying undervalued sectors
MANAGER and securities. Specifically, the manager:
SELECTS THE
FUND'S . Determines sector and maturity weightings based on
INVESTMENTS intermediate and long-term assessments of the
economic environment and relative value factors based
on interest rate outlook
. Uses research to uncover inefficient sectors of the
government and mortgage markets and adjusts portfolio
positions to take advantage of new information
. Measures the potential impact of supply/demand
imbalances, yield curve shifts and changing
prepayment patterns to identify individual securities
that balance potential return and risk
===============================================================================
PRINCIPAL RISKS Investors could lose money on their investment in the
OF INVESTING IN fund, or the fund may not perform as well as other
THE FUND investments, if any of the following occurs:
. Interest rates increase, causing the prices of fixed
income securities to decline and reducing the value
of the fund's portfolio
. Prepayment risk (or call risk). As interest rates
decline, the issuers of securities held by the fund
may prepay principal earlier than scheduled, forcing
the fund to reinvest in lower yielding securities
. Extension risk. As interest rates increase, slower
than expected principal payments may extend the
average life of fixed income securities, locking in
below-market interest rates and reducing the value of
these securities
. The manager's judgment about interest rates or the
attractiveness, value or income potential of a
particular security proves incorrect
===============================================================================
WHO MAY WANT The fund may be an appropriate investment if you:
TO INVEST IN THE
FUND . Are seeking income consistent with preservation of
capital
. Are willing to accept the interest rate risks and
market risks of investing in government bonds and
mortgage-related securities
Concert Investment Series -- 14
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT FUND
- --------------------------------------------------------------------------------
TOTAL RETURN
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's Class 1 shares for each of the past 10 calendar years.
Class A and B shares would have different performance due to their different
expenses.
Past performance does not necessarily indicate how the fund will perform in the
future.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
The performance information in the chart does not reflect sales charges, which
would reduce your return.
% TOTAL RETURN: CLASS 1 SHARES
[BAR CHART]
Calendar years
ended December 31
1989 12.87
1990 4.94
1991 15.16
1992 9.32
1993 10.55
1994 -5.45
1995 14.27
1996 4.58
1997 8.56
1998
================================================================================
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the _____
Index, an unmanaged index of [government bonds].
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the Comparative performance
period, and the reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Class Inception Date 1 Year 5 Years 10 Years Since Inception
1 XX/XX/87
A 08/08/95 n/a n/a
B 08/08/95 n/a n/a
_____ Index n/a
================================================================================
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (paid directly from your investment) Class 1 Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 6.75% 4.50% None
Maximum deferred sales charge on redemptions (as a % of the lower of None None* 4.50%
of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a % of fund net assets)
Management fee 0.60% 0.60% 0.60%
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
Other expenses ---- ---- ----
Total annual fund operating expenses ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
purchase you will pay a deferred sales charge of 1.00%.
===============================================================================
EXAMPLE
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR* 3 YEARS* 5 YEARS* 10 YEARS*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class 1 $ $ $ $
Class A $ $ $ $
Class B (Assuming redemption at end of period) $ $ $ $
Class B (Assuming no redemption) $ $ $ $
</TABLE>
*THE EXAMPLE ASSUMES: . YOU INVEST $10,000 FOR THE PERIOD SHOWN
. YOU REINVEST ALL DISTRIBUTIONS AND DIVIDENDS WITHOUT A
SALES CHARGE
. THE FUND'S OPERATING EXPENSES REMAIN THE SAME
. YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
Concert Investment Series -- 15
<PAGE>
- --------------------------------------------------------------------------------
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE The fund seeks as high a level of current interest
income exempt from federal income tax as is consistent
with the preservation of capital.
================================================================================
The fund invests in a diversified portfolio consisting
KEY a principally of tax exempt municipal bonds, which are
INVESTMENTS obligations issued by or on behalf of states,
territories or possessions of the United States and the
District of Columbia and their political subdivisions,
agencies and instrumentalities. Tax exempt means that
the bonds pay interest that is excluded from gross
income for federal income tax purposes.
The fund invests principally in municipal bonds rated at
the time of purchase within the three highest grades by
nationally recognized bond rating services, or, if
unrated, of equivalent quality. The fund's other
investments may include lower rated municipal bonds that
have speculative characteristics.
================================================================================
HOW THE The manager selects securities primarily by identifying
MANAGER undervalued sectors and individual securities, while
SELECTS THE also selecting securities that it believes will benefit
FUND'S from changes in relative interest rates. In selecting
INVESTMENTS individual securities, the manager:
. Uses fundamental credit analysis to estimate the
relative value and attractiveness of various
securities and sectors and to exploit inefficiencies
in the municipal bond market
. Actively trades among various sectors, such as
insured, general obligation, revenue and housing,
based on their apparent relative values
. Identifies individual securities with the most
potential for added value, such as those involving
unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or
innovative features
. Considers a security's maturity in light of the
outlook for the issuer and its sector
================================================================================
PRINCIPAL RISKS
OF INVESTING IN Investors could lose money on their investment in the
THE FUND fund, or the fund may not perform as well as other
investments, if any of the following occurs:
. Interest rates rise, causing the value of the fund's
portfolio generally to decline
. Municipal bonds fall out of favor with investors
. Unfavorable legislation affects the tax-exempt status
of municipal bonds
. The manager's judgment about the attractiveness,
value or income potential of a particular bond proves
to be incorrect
. The issuer of a security owned by the fund defaults
on its obligation to pay principal and/or interest or
has its credit rating downgraded. This risk is higher
for below investment grade bonds, which are
considered speculative because they have a higher
risk of issuer default, are subject to greater price
volatility and may be illiquid
It is possible that some of the fund's income and gains
may be subject to federal taxation. The fund may realize
taxable gains on the sale of its securities, and some of
the fund's income may be subject to the federal
alternative minimum tax. In addition, distributions of
the fund's income and gains will be subject to state
taxation.
================================================================================
WHO MAY WANT The fund may be an appropriate investment if you:
TO INVEST IN THE
FUND . Are in a high tax bracket and seeking income that is
exempt from federal taxation
. Currently have exposure to equity securities and
taxable fixed income securities and wish to broaden
your investment portfolio
. Are willing to accept the risks of municipal bonds,
including interest rate risk and credit risk
Concert Investment Series -- 16
<PAGE>
- -------------------------------------------------------------------------------
MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's Class 1 shares for each of the past 10 calendar years.
Class A and B shares would have different performance due to their different
expenses.
Past performance does not necessarily indicate how the fund will perform in the
future.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
The performance information in the chart does not reflect sales charges, which
would reduce your return.
% TOTAL RETURN: CLASS 1 SHARES
[BAR CHART]
Calendar years
ended December 31
1989 7.31
1990 4.77
1991 11.79
1992 7.57
1993 13.84
1994 -3.38
1995 12.72
1996 6.09
1997 8.04
1998
================================================================================
COMPARATIVE PERFORMANCE
This table indicates risks of investing in the fund comparing the the average
annual total return of each class for the periods shown to that of the _____
Index, an unmanaged index of municipal bonds.
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the period, and the reinvestment
of distributions and dividends.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Class Inception Date 1 Year 5 Years 10 Years Since Inception
1 XX/XX/87
A 08/18/96 n/a n/a
B 08/18/96 n/a n/a
_____ Index n/a
===============================================================================
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (paid directly from your investment) Class 1 Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 4.75% 4.50% None
Maximum deferred sales charge on redemptions (as a % of the lower of None None* 4.50%
of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a % of fund net assets)
Management fee 0.60% 0.60% 0.60%
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
Other expenses ---- ---- ----
Total annual fund operating expenses ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
purchase you will pay a deferred sales charge of 1.00%.
===============================================================================
EXAMPLE
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR* 3 YEARS* 5 YEARS* 10 YEARS*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class 1 $ $ $ $
Class A $ $ $ $
Class B (Assuming redemption at end of period) $ $ $ $
Class B (Assuming no redemption) $ $ $ $
</TABLE>
*THE EXAMPLE ASSUMES: . YOU INVEST $10,000 FOR THE PERIOD SHOWN
. YOU REINVEST ALL DISTRIBUTIONS AND DIVIDENDS WITHOUT A
SALES CHARGE
. THE FUND'S OPERATING EXPENSES REMAIN THE SAME
. YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
Concert Investment Series -- 17
<PAGE>
- --------------------------------------------------------------------------------
MORE ON THE FUNDS' INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY Equity securities include exchange traded and over-the-counter
SECURITIES common and preferred stocks, debt securities convertible into
equity securities, and warrants and rights relating to equity
securities.
================================================================================
SECURITIES OF International Equity Fund invests at least 65% of its assets
FOREIGN in equity securities of foreign issuers, including those in
ISSUERS emerging market countries. Emerging Growth Fund, Growth Fund
all funds except and Growth and Income Fund may invest up to 20% of their
Government assets, and Mid Cap Fund up to 50% of its assets, in foreign
Fund and securities, including those in issuers of emerging market
Municipal Bond countries.
Fund
Investments in securities of foreign entities and securities
denominated in foreign currencies involve special risks. These
include possible political and economic instability and the
possible imposition of exchange controls or other restrictions
on investments. Since each fund may invest in securities
denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency rates relative to the U.S.
dollar will affect the U.S. dollar value of the fund's assets.
Emerging market investments offer the potential for
significant gains but also involve greater risks than
investing in more developed countries. Political or economic
stability, lack of market liquidity and government actions
such as currency controls or seizure of private business or
property may be more likely in emerging markets.
================================================================================
DERIVATIVE The funds may, but need not, use derivative contracts, such as
TRANSACTIONS futures and options on securities, securities indices or
all funds currencies; options on these futures; forward currency
contracts; and interest rate or currency swaps for any of the
following purposes:
. To hedge against the economic impact of adverse changes in
the market value of portfolio securities due to changes in
stock market prices, currency exchange rates or interest
rates
. As a substitute for buying or selling securities
. To enhance a fund's return
A derivative contract will obligate or entitle a fund to
deliver or receive an asset or cash payment that is based on
the change in value of one or more securities, currencies or
indices. Even a small investment in derivative contracts can
have a big impact on a fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities
for gains when stock prices, currency rates or interest rates
are changing. A fund may not fully benefit from or may lose
money on derivatives if changes in their value do not
correspond accurately to changes in the value of the fund's
holdings. The other parties to certain derivative contracts
present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less
liquid and harder to value, especially in declining markets.
================================================================================
TEMPORARY Each of the funds may depart from its principal investment
DEFENSIVE strategies in response to adverse market, economic or
INVESTMENTS political conditions by taking temporary defensive positions
all funds in all types of money market and short-term debt securities.
If the fund takes a temporary defensive position, it may be
unable to achieve its investment objective.
================================================================================
SPECIAL Each fund, except International Equity Fund, will not purchase
RESTRICTIONS any securities issued by a company primarily engaged in the
all funds except manufacture of alchohol or tobacco.
International
Equity
================================================================================
GOALS/POLICIES Each fund's goal and investment policies generally may be
all funds changed by the trustees without shareholder approval.
Concert Investment Series -- 18
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
THE PORTFOLIO MANAGERS
The portfolio managers are primarily responsible for the day-to-day operation of
the funds indicated beside their names and business experience.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FUND PORTFOLIO MANAGER SINCE PAST 5 YEARS' BUSINESS EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Emerging Growth Sandip Bhagat 19xx investment officer of the manager and president of
Travelers Investment Management Company, an
affiliate of the manager
International Equity Jeffrey Russell 19xx managing director of Salomon Smith Barney
James Conheady 19xx managing director of Salomon Smith Barney
Mid Cap Larry Weissman 19xx investment officer of the manager and managing
and director of Salomon Smith Barney since October,
Growth 1997; portfolio manager of Neuberger & Berman,
LLC, 1995-97; portfolio manager of College
Retirement Equities Fund prior thereto
Growth and Income R. Jay Gerken 19xx investment officer of the manager and managing
director of Salomon Smith Barney
Government James E. Conroy 19xx investment officer of the manager and managing
director of Salomon Smith Barney
Municipal Bond Joseph P. Deane 19xx investment officer of the manager and managing
director of Salomon Smith Barney
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT FEES
MANAGEMENT FEES PAID DURING THE FISCAL YEAR ENDED OCTOBER 31, 1998
(as % of average daily net assets)
====================================================================================================================================
International Emerging Growth Growth Growth and Government Municipal
Equity Fund Fund Mid Cap Fund Fund Income Fund Fund Fund
- ------------- --------------- ------------ ----- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
x.xx% x.xx% x.xx% x.xx% x.xx% x.xx% x.xx%
====================================================================================================================================
</TABLE>
DISTRIBUTOR
CFBDS, Inc. serves as the funds' distributor. PFS Distributors, Inc. sells
shares of the funds to members of the public.
================================================================================
DISTRIBUTION PLANS
The funds each have adopted Rule 12b-1 distribution plans for their Class A and
B shares. Under each plan, the fund pays distribution and
service fees. These fees are an ongoing expense and over time, may cost you more
than other types of sales charges.
================================================================================
YEAR 2000 ISSUE
Information technology experts are concerned about computer systems' ability to
process date-related information on and after January 1, Year 2000 issue 2000.
This situation, commonly known as the "Year 2000" issue, could have an adverse
impact on the funds. The manager and distributor are addressing the for their
systems. Each fund has been informed by its other service providers that they
are taking similar measures. Although the funds do not expect the Year 2000
issue to adversely affect them, the funds cannot guarantee that the efforts of
each fund or its service providers to correct the problem will be successful.
Concert Investment Series -- 19
<PAGE>
- -------------------------------------------------------------------------------
CHOOSING A SHARE CLASS TO BUY
- -------------------------------------------------------------------------------
SHARE You can choose between Class A shares and Class B shares. If
CLASSES you, or your spouse or minor children, already own Class 1
shares of a fund, you may also be eligible to purchase
additional Class 1 shares. The classes have different sales
charges and expenses, allowing you to choose the class that best
meets your needs. When choosing which class of shares to buy,
you should consider:
. How much you plan to invest
. How long you expect to own the shares
. The expenses paid by each class
. Whether you qualify for any reduction or waiver of sales
charges
================================================================================
INVESTMENT Minimum initial and additional investment amounts vary depending
MINIMUMS on the class of shares you buy and the nature of your investment
account.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL INVESTMENT ADDITIONAL INVESTMENTS
Classes A and B All Classes
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General $1,000 $50
Individual Retirement Accounts, Self Employed Retirement
Plans, Uniform Gift to Minor Accounts $ 250 $50
Qualified Retirement Plans $ 25 $25
Monthly Systematic Investment Plans $ 25 $25
Pre-authorized Check Plan $ 25 $25
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are qualified under Section 403(b)(7) or Section
401(a) of the Internal Revenue Code, including 401(k) plans
================================================================================
COMPARING Your PFS Investments Registered Representative can help you
CLASSES decide which class meets your goals. Your PFS Investments
Registered Representative may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS 1
<S> <C> <C> <C>
KEY FEATURES . Initial sales charge . No initial sales charge . Only available to eligible
. You may qualify for reduction or . Deferred sales charge declines Class 1 shareholders
waiver of initial sales charge over time . Higher initial sales charge
. Lower annual expenses than . Convert to Class A shares . Lowest annual expenses
Class A shares after eight years
. Highest annual expenses
INITIAL SALES CHARGE Up to 5.00%, reduced or waived for large None Up to 8.50%, reduced for
purchases and certain investors. No charge large purchases
for purchases of $500,000 or more
DEFERRED SALES CHARGE None, except for purchases of $500,000 or Up to 5% charged when you None
more -- 1% if you redeem within 1 year of redeem shares. The charge
purchase is reduced over time and
there is no deferred sales
charge after 6 years
ANNUAL 12B-1 FEES 0.25% of average daily net assets 1% of average daily net assets None
EXCHANGEABLE INTO* Class A shares of Concert and certain Smith Class B shares of Concert and Class 1 shares of Concert
Barney mutual funds certain Smith Barney mutual funds that offer Class 1
funds shares and Class A shares of
other Concert and certain
Smith Barney mutual funds
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your PFS Investments Registered Representative about funds available for
exchange.
Concert Investment Series -- 20
<PAGE>
- --------------------------------------------------------------------------------
CLASS A SALES CHARGE
- --------------------------------------------------------------------------------
CLASS A SALES CHARGE
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends that you reinvest in additional Class A
shares.
To learn more about the accumulation and combination privileges, letters of
intent, waivers for certain investors and other options to reduce your sales
charge, ask your PFS Investments Registered Representative or consult the SAI.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FOR EMERGING GROWTH FUND,
INTERNATIONAL EQUITY FUND, MID CAP
FUND, GROWTH FUND AND GROWTH AND FOR MUNICIPAL BOND FUND AND
INCOME FUND GOVERNMENT FUND
- --------------------------------------------------------------------------------------------------------------------------
sales charge as sales charge as sales charge as % sales charge as
Amount of investment % of offering % of net amount of offering % of net amount
price invested price invested
<S> <C> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50% 4.71%
$25,000 but less than $50,000 4.00 4.17 4.00 4.17
$50,000 but less than $100,000 3.50 3.63 3.50 3.63
$100,000 but less than $250,000 3.00 3.09 2.50 2.56
$250,000 but less than $500,000 2.00 2.04 1.50 1.52
$500,000 or more* -0- -0- -0- -0-
</TABLE>
* You do not pay an initial sales charge when you buy $500,000 or more of Class
A shares. However, if you redeem these Class A shares within one year of
purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR REDUCED CLASS A SALES CHARGES. There are several ways you can
combine multiple purchases of Class A shares of Concert funds and certain other
Smith Barney funds to take advantage of the breakpoints in the sales charge
schedule.
. Accumulation privilege - lets you add the current value of Class A shares of
Concert funds and certain other Smith Barney funds already owned by you or
members of your immediate family (and for which you paid a sales charge) to the
amount of your next purchase of Class A shares for purposes of calculating the
sales charge. Certain trustees and fiduciaries may be entitled to combine
accounts in determining their sales charge
. Combination privilege - lets you combine current value of Class A shares
owned by your immediate family (your spouse and minor children) or accounts with
the same social security number with the amount of your next purchase of Class A
shares for purposes of calculating the initial sales charge. Certain trustees
and fiduciaries may be entitled to combine accounts in determining their sales
charge.
. Letter of intent - lets you purchase Class A shares of the fund, other Concert
funds and certain other Smith Barney funds over a 13-month period and pay the
same sales charge, if any, as if all shares had been purchased at once. You may
include purchases on which you paid a sales charge made within 90 days before
you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Investors who purchased through a PFS Investments Registered Representative
with proceeds from a prior mutual fund redemption, if certain conditions are
met
. Investors who redeemed Class A shares of Concert funds or certain other
Smith Barney funds in the past 60 days, if your PFS Investments Registered
Representative is notified
. Participants in the PFS Primerica Corporation Savings and Retirement Plan
Concert Investment Series -- 21
<PAGE>
- --------------------------------------------------------------------------------
CLASS B SALES CHARGE
- --------------------------------------------------------------------------------
CLASS B DEFERRED You buy Class B shares at net asset value without paying an
SALES CHARGE initial sales charge. However, if you redeem your Class B
shares within six years of purchase, you will pay a deferred
sales charge.
The deferred sales charge decreases as the number of years since your purchase
increases.
If you want to learn more about additional deferred sales charges and waivers of
deferred sales charges, contact your PFS Investments Registered -Representative
or consult the SAI.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
YEAR AFTER PURCHASE
DEFERRED SALES CHARGE FOR: 1ST 2ND 3RD 4TH 5TH 6TH AND OVER
<S> <C> <C> <C> <C> <C> <C>
Government and Municipal Funds 4.50% 4.00% 3.00% 2.00% 1.00% -0-
All other funds 5.00% 4.00% 3.00% 2.00% 1.00% -0-
---------------------------------------------------------------------------------------------------
</TABLE>
CALCULATION OF DEFERRED SALES CHARGE. The deferred sales
charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you
do not pay a sales charge on amounts representing
appreciation. In addition, you do not pay a deferred sales
charge on shares shares exchanged for shares of another
Concert or eligible Smith Barney mutual fund, shares
representing reinvested distributions and dividends or shares
no longer subject to the deferred sales charge.
Shares are redeemed in this order:
. Shares that represent appreciation
. Shares representing reinvested distributions and dividends
. Shares that are not subject to the deferred sales charge
. Class B shares held longest
Deferred sales charges are not imposed at the time you
exchange shares for shares of another fund.
DEFERRED SALES CHARGE WAIVERS. The deferred sales charge for
each share class will generally be waived:
. To make payments through certain systematic withdrawal
plans
. To make certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a
shareholder
Class B conversion. After 8 years, Class B shares
automatically convert into Class A shares. This helps you
because Class A shares have lower annual expenses. Your Class
B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SHARES ISSUED AT INITIAL SHARES ISSUED ON REINVESTMENT SHARES ISSUED UPON EXCHANGE
PURCHASE OF DISTRIBUTIONS AND DIVIDENDS FROM ANOTHER FUND
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eight years after the date of In same proportion that the On the date the shares
purchase number of Class B shares originally acquired would have
converting is to total Class converted into Class A shares
B shares you own
</TABLE>
Concert Investment Series -- 22
<PAGE>
- --------------------------------------------------------------------------------
CLASS 1 SALES CHARGE
- --------------------------------------------------------------------------------
CLASS 1 SALES CHARGE
Class 1 shares are offered to eligible Class 1 shareholders at the next
determined net asset value plus a sales charge. You do not pay a sales charge on
a fund's distributions or dividends that you reinvest in additional Class 1
shares.
You pay a lower sales charge as the size of your investment increases to certain
levels called breakpoints. As described in these tables, the Class 1 breakpoints
vary by fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EMERGING GROWTH, INTERNATIONAL EQUITY, GROWTH AND GROWTH AND INCOME FUNDS
- --------------------------------------------------------------------------------
sales charge as sales charge as
Amount of investment % of offering price % of net amount invested
<S> <C> <C>
Less than $10,000 8.50% 9.29%
$10,000 but less than $25,000 7.75% 8.40%
$25,000 but less than $50,000 6.00% 6.38%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $400,000 2.50% 2.56%
$400,000 but less than $600,000 2.00% 2.04%
$600,000 but less than $5,000,000 1.00% 1.01%
$5,000,000 or more 0.25% 0.25%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GOVERNMENT FUND
- --------------------------------------------------------------------------------
sales charge as sales charge as
Amount of investment % of offering price % of net amount invested
<S> <C> <C>
Less than $25,000 6.75% 7.24%
$25,000 but less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.25% 4.44%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 but less than $2,500,000 1.00% 1.01%
$2,500,000 but less than $5,000,000 0.50% 0.50%
$5,000,000 or more 0.25% 0.25%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
sales charge as sales charge as
Amount of investment % of offering price % of net amount invested
<S> <C> <C>
Less than $100,000 4.75% 4.99%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 but less than $2,500,000 1.00% 1.01%
$2,500,000 but less than $5,000,000 0.50% 0.50%
$5,000,000 or more 0.25% 0.25%
</TABLE>
Concert Investment Series -- 23
<PAGE>
- --------------------------------------------------------------------------------
BUYING SHARES AND EXCHANGING SHARES
- --------------------------------------------------------------------------------
BUYING SHARES . Initial purchases of shares of each fund must be made
BY MAIL through a PFS Investments Registered Representative by
completing the appropriate application. The completed
application should be forwarded to PFS Shareholder Services.
. Subsequent investments may be sent by mail directly to PFS
Shareholder Services, or, if you elect telephone purchases on
your account application you may call PFS Shareholder Services
and request a purchase through a transfer from your bank
account. Telephone purchases can be made between 9:00 a.m. and
6:00 p.m. eastern time on any day the exchange is open. The
minimum telephone investment is $250 and the maximum is
$10,000. You will be charged a fee if you have insufficient
funds to complete the investment.
. The address and telephone number of PFS Shareholder
Services is: 3100 Breckinridge Blvd., Bldg. 200 Duluth,
Georgia 30099-0062 (800) 544-5445
. You may also reach PFS Shareholder Services by calling
(800) 544-7278 for Spanish speaking representatives or (800)
824-1721 for the TDD Line for the Hearing Impaired.
. 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.
You may make subsequent purchases by mail or, if you elect, by telephone
================================================================================
BUYING SHARES Initial purchases of shares for $10,000 may be made by wire
BY WIRE order from your bank account. Contact PFS Shareholder
Services for details. In addition, once an account is open,
you may make additional wire orders through your PFS
Investments Representative.
================================================================================
SYSTEMATIC You may authorize PFS to automatically transfer funds on a
INVESTMENT PLAN monthly basis from a regular bank account or other financial
institution to buy shares of a fund.
. Amounts transferred should be at least $25 monthly.
. If you do not have sufficient funds in your bank account on
a transfer date, PFS Shareholder Services may charge you a
fee.
For more information, contact your PFS Investments Registered
Representative or consult the SAI.
================================================================================
EXCHANGE You should contact your PFS Investments Registered
PRIVILEGE Representative to exchange into other eligible Concert and
certain Smith Barney mutual funds. Be sure to read the
prospectus of the Concert or Smith Barney fund you are
exchanging into. An exchange is a taxable transaction.
. You may exchange shares only for shares of the same class
of another eligible Concert or Smith Barney mutual fund. Not
all Smith Barney funds offer all classes.
. You must meet the minimum investment amount for each fund.
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the exchange is effective.
. Your fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges.
. Your shares will not be subject to an initial sales charge
at the time of the exchange. Your deferred sales charge (if
any) will continue to be measured from the date of your
original purchase. If the fund that you exchange into has a
higher deferred sales charge, you will be subject to that
charge. If you exchange again to a fund with a lower charge,
the sales charge will not be reduced.
. You may exchange shares by telephone if you elect telephone
exchanges on your account application. Telephone exchanges are
subject to the same limitations as telephone redemptions.
To learn more about the exchange privileges and the Concert and Smith Barney
mutual funds that you may be eligible to exchange into, contact your PFS
Investments Registered Representative or consult the SAI
Concert Investment Series -- 24
<PAGE>
- --------------------------------------------------------------------------------
REDEEMING SHARES
- --------------------------------------------------------------------------------
REDEMPTIONS BY MAIL
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.
Any request that your redemption proceeds be sent to a destination other than
your bank account or address of record must be in writing and must include
signature guarantees
You may redeem some or all of your shares by sending a Redemption Form or other
written request in proper form to PFS Shareholder Services, 3100 Breckinridge
Blvd., Bldg. 200, Duluth, Georgia 30099-0062. You may also reach PFS Shareholder
Services by calling (800) 544-5445 or (800) 544-7278 for Spanish speaking
representatives or (800) 824-1721 for the TDD Line for the Hearing Impaired The
written request for redemption must be in good order. This means that you have
provided the following information. Your request will not be processed without
this information.
. Name of the fund
. Account number
. Dollar amount or number of shares to redeem
. Signature of each owner exactly as account is registered
. Other documentation required by PFS Shareholder Services
To be in good order, your request must include a signature guarantee if:
. The proceeds of the redemption exceed $50,000
. The proceeds are not paid to the record owner(s) at the record address
. The shareholder(s) has had an address change in the past 45 days
. The shareholder(s) is a corporation, sole proprietor, partnership, trust or
fiduciary
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
In all cases, your redemption price is the net asset value next determined after
your request is received in good order. Redemption proceeds normally will be
sent within three days. However, if you recently purchased your shares by check,
your redemption proceeds will not be sent to you until your original check
clears. Your redemption proceeds can be sent by check to your address of record
or by wire transfer to a bank account designated on your application. You will
be charged a $25 service fee for wire transfers.
================================================================================
REDEMPTIONS BY FAX
You may redeem shares by fax as long as a signature guarantee or other
documentary Redemptions by evidence is not required. Redemption requests should
be properly signed by all fax owners of the account and faxed to PFS Shareholder
Services at (800) 554-2374. If fax redemptions are not available for any reason,
you may use the Fund's regular redemption procedure described above.
================================================================================
REDEMPTIONS BY TELEPHONE
You may redeem shares by telephone if you elect the telephone redemption option
on your account application. This is available only for redemptions of $50,000
or less, and the proceeds must be mailed to your address of record. In addition,
you must be able to provide proper identification information. You may not
redeem by telephone if your address has changed within the past 45 days or if
your shares are in certificate form. Telephone redemption requests may be made
by calling PFS Shareholder Services at (800) 544-5445 between 9:00 a.m. and 6:00
p.m. eastern time on any day the exchange is open. If telephone redemptions are
not available for any reason, you may use the Fund's regular redemption
procedure described above.
================================================================================
AUTOMATIC CASH WITHDRAWAL PLAN
You can arrange for the automatic redemption of a portion of your shares on a
monthly or quarterly basis. To qualify you must own shares of the fund with a
value of at least $10,000 ($5,000 for retirement accounts) and each automatic
redemption must be at least $50. If your shares are subject to a deferred sales
charge, the sales charge will be waived if your automatic payments are equal to
or less the 1% per month of the value of your shares subject to a deferred sales
charge. The following conditions apply:
. Shares may not be represented by certificates
. All dividends and distributions must be reinvested
. You can establish a withdrawal plan for a retirement account only if you are
eligible to receive distributions from the account
Concert Investment Series -- 25
<PAGE>
- --------------------------------------------------------------------------------
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
SMALL ACCOUNT If your account falls below $500 due to redemption of fund
BALANCES shares, the fund may ask you to bring your account up to the
minimum requirement. If your account is still below $500 after
60 days, the fund may close your account and send you the
redemption proceeds.
================================================================================
SHARE Upon written request, a share certificate will be issued if
CERTIFICATES the request has been signed by all registered owners.
================================================================================
SHARE PRICE You may buy, exchange or redeem fund shares at the net asset
value, adjusted for any applicable sales charge, next
determined after receipt of your request in good order. Each
fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each
class of shares. Each fund calculates its net asset value
every day the New York Stock Exchange is open. This
calculation is done when regular trading closes on the
Exchange (normally 4:00 p.m., Eastern time).
The funds generally value their securities based on market
prices or quotations. The funds' currency conversions are done
when the London stock exchange closes, which is 12 noon
Eastern time. When market prices are not available, or when
the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring
after a foreign exchange closes, the funds may price those
securities at fair value. Fair value is determined in
accordance with procedures approved by the funds' board. A
fund that uses fair value to price securities may value those
securities higher or lower than another fund that uses market
quotations to price the same securities.
International markets may be open on days when U.S. markets
are closed and the value of foreign securities owned by a fund
could change on days when you cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, you must place your order with PFS before the New York
Stock Exchange closes. If the New York Stock Exchange closes
early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's
price.
Salomon Smith Barney or members of the funds' selling group
must transmit all orders to buy, exchange or redeem shares to
the funds' agent before the agent's close of business.
================================================================================
IMPORTANT Manager: Shareholder Services:
ADDRESSES
Mutual Management Corp. PFS Shareholder Services
388 Greenwich Street, MF2 3100 Breckinridge Blvd., Bldg. 200
New York, New York 10013 Duluth, Georgia 30099-0062
(800) 544-5445
Concert Investment Series -- 26
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Annual distributions of income and capital gain normally take place at the end
of the year in which the income or gain is realized or the beginning of the next
year.
The funds normally pay dividends and distribute capital gains, if any, as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
FUND INCOME DIVIDEND CAPITAL GAIN DISTRIBUTIONS
DISTRIBUTIONS DISTRIBUTIONS MOSTLY FROM
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Emerging Growth Annually Annually Gain
International Equity Annually Annually Gain
Mid Cap Annually Annually Gain
Growth Annually Annually Gain
Growth and Income Quarterly Annually Both
Government Monthly Annually Income
Municipal Bond Monthly Annually Income
</TABLE>
The funds may pay additional distributions and dividends at other times if
necessary for a fund to avoid a federal tax. Capital gains distributions and
dividends are reinvested in additional fund shares of the same class that you
hold. You do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your PFS Investments Registered Representative
or PFS to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is made.
================================================================================
TAXES
In general, redeeming shares, exchanging shares and receiving distributions
(whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TRANSACTION FEDERAL INCOME TAX STATUS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Redemption or exchange of shares Usually capital gain or loss; long-term only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income (for all funds except Municipal Bond Fund)*
</TABLE>
*Municipal Bond Fund intends to distribute the interest it earns on tax-exempt
municipal bonds as "exempt-interest" dividends, which are excludable from gross
income for federal income tax purposes but may be subject to state and local
income tax. Its distributions from other sources, if any, would be taxable as
described above.
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when a fund is about to declare a long-term capital gain
distribution or a taxable dividend, because it will be taxable to you even
though it may actually be a return of a portion of your investment.
After the end of each year, the funds will provide you with information about
the distributions and dividends that you received and any redemptions of shares
during the previous year. If you do not provide a fund with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions, dividends (other
than exempt-interest dividends), and redemption proceeds. Because each
shareholder's circumstances are different and special tax rules may apply, you
should consult with your tax adviser about your investment in a fund and your
receipt of dividends, distributions or redemption proceeds.
Concert Investment Series -- 27
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past five years (or since inception if less
than five years). Certain information reflects financial results for a single
share. Total returns represent the rate that a shareholder would have earned (or
lost) on a fund share assuming reinvestment of all dividends and distributions.
The information in the following tables was audited by Ernst & Young LLP,
independent auditors, whose report, along with the fund's financial statement
are included in the annual report (available upon request).
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR:
Emerging Growth Fund
<TABLE>
<CAPTION>
AUGUST 8, 1996
(COMMENCEMENT
YEAR ENDED YEAR ENDED OF DISTRIBUTION) TO
CLASS 1 SHARES OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF 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 PERIOD $22.15 $18.59
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 19.15% 3.91%(2)
- -------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (MILLIONS) $ 6 $ 1
- -------------------------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total returns do not reflect any applicable sales loads or deferred
sales charges.
(2) Not annualized.
<TABLE>
<CAPTION>
CLASS A SHARES YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY 21, 1995
October 31, October 31, October 31, (Commencement of Investment
1998 1997 1996 Operations) to October 31,
1995(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.57 $15.12 $11.81
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.15) (0.18) (0.24)
Net realized and unrealized gain 3.66 3.63 3.55
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.51 3.45 3.31
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $22.08 $18.57 $15.12
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 18.90% 22.82% 28.11%(3)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (MILLIONS) $101 $52 $16
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets* 1.69% 2.21% 2.75%
Ratio of net investment loss to average net
assets* (0.92) (1.52) (1.65)%
- -----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 100% 80% 83%(4)
* 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
Ratio of net investment loss to average
net assets N/A N/A 3.37%
N/A N/A (2.27%)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average share method.
(2) Total returns do not reflect any applicable sales loads, or deferred sales
charges.
(3) Total return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.
(4) Not annualized.
N/A=Not Applicable
Concert Investment Series -- 28
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
FEBRUARY 21, 1995
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
CLASS B SHARES OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(1)
=============================================================================================================================
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF 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(2) 17.94% 21.94% 27.43%(3)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (MILLIONS) $80 $39 $11
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets* 2.44% 2.96% 3.49%
Ratio of net investment loss to average
net assets*
(1.67) (2.27) (2.45)
- -----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 100% 80% 83%(4)
* 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
Ratio of net investment loss to average
net assets N/A N/A 4.11%
N/A N/A (3.07%)
=============================================================================================================================
</TABLE>
(1) Per share amounts calculated using the monthly average share method.
(2) Total returns do not reflect any applicable sales load or deferred sales
charges.
(3) Total return from March 17, 1995 (date the Fund's Investment strategy was
implemented) through October 31, 1995 without annualization.
(4) Not annualized.
N/A=Not Applicable
Concert Investment Series -- 29
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Growth Fund
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-----------------------------------------------
CLASS 1 SHARES 1998 1997 1996 1995 1994
=============================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $17.98 $17.46 $15.31 $16.26
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.17 .19 0.16 0.13
Net realized and unrealized gain 4.33 2.91 3.18 0.21
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 4.50 3.10 3.34 0.34
- -------------------------------------------------------------------------------------------------------------
LESS:
Distributions from net investment income (0.18) (0.18) (0.16) (0.11)
Distributions from and in excess of net realized gain
(1.36) (2.40) (1.03) (1.18)
- -------------------------------------------------------------------------------------------------------------
Total distributions (1.54) (2.58) (1.19) (1.29)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $20.94 $17.98 $17.46 $15.31
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 26.93% 19.94% 24.01% 2.04%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF YEAR (MILLIONS) $3,547 $3,005 $2,612 $2,170
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.88% 0.93% 1.00% 1.09%
Ratio of net investment income to average net assets 0.86 1.08 1.04 0.89
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 165% 202% 230% 164%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------------- ---------------------------------------
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1996(1) 1998 1997 1996(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $17.96 $16.63 $17.93 $16.63
PERIOD
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.15 .02 .01 (0.01)
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 (0.16) -0- (0.11) -0-
income
Distributions from net
realized gain (1.36) -0- (1.36) -0-
- --------------------------------------------------------------------------------------------------------------------
Total distributions (1.52) -0- (1.47) -0-
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $20.89 $17.96 $20.75 $17.93
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 26.65% 8.00%(3) 25.66% 7.82%(3)
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $109 $49 $126 $74
(MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average 1.13% 1.17% 1.88% 1.93%
net assets
Ratio of net investment
income (loss) to
average net assets 0.57 0.46 (0.16) (0.29)
- --------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 165% 202%(3) 165% 202%(3)
====================================================================================================================
</TABLE>
(1) Class A and Class B shares commenced distribution on August 8, 1996.
(2) Total Returns do not reflect any applicable sales load or deferred sales
charges.
(3) Not annualized.
Concert Investment Series -- 30
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
------------------------------------------
CLASS 1 SHARES 1998 1997 1996 1995 1994
=========================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $18.11 $16.95 $15.77 $17.13
- ---------------------------------------------------------------------------------------------------------
Net investment income 0.24 0.31 0.36 0.29
Net realized and unrealized gain/loss 4.23 2.94 2.72 (0.21)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 4.47 3.25 3.08 0.08
- ---------------------------------------------------------------------------------------------------------
LESS:
Distributions from net investment income (0.30) (0.34) (0.30) (0.28)
Distributions from and in excess of net realized gain (2.18) (1.75) (1.60) (1.16)
- ---------------------------------------------------------------------------------------------------------
Total distributions (2.48) (2.09) (1.90) (1.44)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $20.10 $18.11 $16.95 $15.77
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 27.35% 20.58% 22.45% 0.51%
- ---------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF YEAR (MILLIONS) $1,097 $ 943 $ 828 $ 712
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.88% 0.91% 0.96% 1.02%
Ratio of net investment income to average net assets 1.25 1.78 2.27 1.84
- ---------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 93% 121% 117% 88%
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------- -------------------------------------------
YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED YEAR ENDED ENDED PERIOD ENDED
OCTOBER OCTOBER OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
31, 1998 31, 1997 1996(2) 1998 1997 1996(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 4.22 0.91 4.22 0.90
- -----------------------------------------------------------------------------------------------------------------
Total from investment
operations 4.42 0.98 4.28 0.94
- -----------------------------------------------------------------------------------------------------------------
LESS:
Distributions from net
investment income (0.25) (0.06) (0.12) (0.04)
Distributions from net
realized gain (2.18) -0- (2.18) -0-
- -----------------------------------------------------------------------------------------------------------------
Total distributions (2.43) (0.06) (2.30) (0.04)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $20.10 $18.11 $20.07 $18.09
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 27.04% 5.72%(3) 26.08% 5.49%(3)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD
(MILLIONS) $80 $33 $99 $52
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average 1.12% 1.16% 1.88% 1.91%
net assets 0.96 1.78 0.22 1.05
Ratio of net investment income
to average net assets
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 93% 121% 93% 121%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total returns do not reflect any applicable sales load or deferred sales
charges.
(2) Class A and Class B shares commenced distribution on August 18, 1996.
(3) Not annualized.
Concert Investment Series -- 31
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
AUGUST 8, 1996
(COMMENCEMENT
YEAR ENDED YEAR ENDED OF DISTRIBUTION) TO
CLASS 1 SHARES OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 (1)
=========================================================================================================
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF 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 PERIOD $18.16 $16.52
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 9.99% 3.25%(3)
- ---------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (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%(3)
- ---------------------------------------------------------------------------------------------------------
* If certain expenses had not been waived
or reimbursed by VKAC, total return woul
have been lower and the ratios would hav
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 (2.62)
=========================================================================================================
</TABLE>
(1) Per share amounts calculated using the monthly average share method.
(2) Total returns do not reflect any applicable sales load or deferred sales
charges.
(3) Not Annualized.
N/A=Not Applicable
<TABLE>
<CAPTION>
FEBRUARY 21, 1995
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS A SHARES 1998 1997 1996 1995(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.54 $13.86 $11.81
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.26) (0.19) (0.14)
Net realized and unrealized gain 1.86 2.87 2.19
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.60 2.68 2.05
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.14 $16.54 $13.86
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 9.74% 19.34% 16.28%(4)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (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%(3)
- --------------------------------------------------------------------------------------------------------------------------
* 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>
(1) Per share amounts calculated using the monthly average share method.
(2) Total returns do not reflect any applicable sales load or deferred sales
charges.
(3) Not annualized.
(4) Total return from March 17, 1995 (date the Fund's Investment strategy was
implemented) through October 31, 1995 without annualization.
N/A=Not Applicable
Concert Investment Series -- 32
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FEBRUARY 21, 1995
(COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED OF INVESTMENT
OCTOBER 31, OCTOBER 31, OCTOBER 31, OPERATIONS) TO
CLASS B SHARES 1998 1997 1996 OCTOBER 31, 1995(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.36 $13.79 $11.81
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.32) (0.26) (0.21)
Net realized and unrealized gain 1.77 2.83 2.19
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.45 2.57 1.98
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $17.81 $16.36 $13.79
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 8.93% 18.64% 15.69(4)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (MILLIONS) $13 $8 $2
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets(*) 3.30% 3.50% 4.33%
Ratio of net investment loss to average net assets(*) (2.34) (2.31) (2.80)
- ----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 57% 78% 17%(3)
- ----------------------------------------------------------------------------------------------------------------------------------
*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
Ratio of net investment loss to average net assets N/A 4.87% 6.67%
N/A (3.67) (5.13)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average share method.
(2) Total returns do not reflect any applicable sales load or deferred sales
charges.
(3) Not annualized.
(4) Total return from March 17, 1995 (date the fund's investment strategy was
implemented) through October 31, 1995 without annualization.
N/A=Not Applicable
Concert Investment Series -- 33
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-------------------------------------------
CLASS 1 SHARES 1998 1997 1996 1995 1994
========================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.40 $10.67 $ 9.99 $11.80
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.69 0.70 0.70 0.69
Net realized and unrealized gain/loss 0.17 (0.25) 0.68 (1.36)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.86 0.45 1.38 (0.67)
- ------------------------------------------------------------------------------------------------------------------------
LESS:
Distributions from in and excess of net investment income (0.68) (0.72) (0.70) (0.69)
Distributions from and in excess of net realized gain ---- ---- ---- (0.45)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (0.68) (0.72) (0.70) (1.14)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.58 $10.40 $10.67 $ 9.99
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 8.56% 4.58% 14.27% (5.45%)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF YEAR (MILLIONS) $ 241 $ 287 $ 329 $ 335
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.90% 0.84% 0.83% 0.89%
Ratio of net investment income to average net assets 6.69 6.79 6.84 7.06
- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 104% 276% 214% 256%
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------------- ------------------------------------------
YEAR
YEAR ENDED ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1996(2) 1998 1997 1996(2)
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $10.41 $10.32 $10.41 $10.32
OF THE PERIOD
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.66 0.15 0.59 0.14
Net realized and unrealized 0.17 0.09 0.17 0.09
gain
- ---------------------------------------------------------------------------------------------------------------------
Total from investment 0.83 0.24 0.76 0.23
operations
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from and (0.66) (0.15) (0.59) (0.14)
in excess of net investment
income
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF THE
PERIOD $10.58 $10.41 $10.58 $10.41
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 8.35% 2.36%(3) 7.55% 2.18%(3)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD
(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%(3) 104% 276%(3)
=====================================================================================================================
</TABLE>
(1) Total Returns do not reflect any applicable sales load or deferred sales
charges.
(2) Class A and Class B shares commenced distribution on August 8, 1995.
(3) Not annualized.
Concert Investment Series -- 34
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-----------------------------------------
CLASS 1 SHARES 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.83 $13.77 $12.89 $14.07
- -------------------------------------------------------------------------------------------------------------------
Net investment income 0.69 0.70 0.74 0.71
Net realized and unrealized gain (loss) 0.39 0.11 0.87 (1.18)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.08 0.81 1.61 (0.47)
- -------------------------------------------------------------------------------------------------------------------
LESS:
Distributions from net investment income (0.66) (0.71) (0.73) (0.71)
Distributions from and in excess of net realized gain (0.04) (0.04) -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.70) (0.75) (0.73) (0.71)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.21 $13.83 $13.77 $12.89
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 8.04% 6.09% 12.72% (3.38%)
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (MILLIONS) $ 104 $ 119 $ 119 $ 112
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.98% 1.05% 0.96% 0.99%
Ratio of net investment income to average net assets 4.93 5.13 5.58 5.27
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER 50% 80% 49% 4%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------------- ------------------------------------------
YEAR
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1996(3) 1998 1997 1996(3)
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $13.83 $13.78 $13.82 $13.78
BEGINNING OF PERIOD
- ------------------------------------------------------------------------------------------------------------------
Net investment income 0.65 0.11 0.54 0.09
Net realized and 0.40 0.04 0.40 0.04
unrealized gain
- ------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.05 0.15 0.94 0.13
- ------------------------------------------------------------------------------------------------------------------
LESS:
Distributions from net (0.63) (0.10) (0.52) (0.09)
investments income
Distributions from net (0.04) -- (0.04) --
realized gains
- ------------------------------------------------------------------------------------------------------------------
Total distributions (0.67) (0.10) (0.56) (0.09)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $14.21 $13.83 $14.20 $13.82
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(1) 7.77% 1.12%(2) 6.98% 0.93%(2)
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF $9 $2 $3 $1
PERIOD (MILLIONS)
- ------------------------------------------------------------------------------------------------------------------
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%(2)
==================================================================================================================
</TABLE>
(1) Total returns do not reflect any applicable sales load or deferred sales
charges.
(2) Not annualized.
(3) Class A and Class B shares commenced distribution on August 18, 1996.
Concert Investment Series -- 35
Part B
STATEMENT OF ADDITIONAL INFORMATION
CONCERT INVESTMENT SERIES
388 Greenwich Street
New York, NY 10013
February 28, 1999
Concert Investment Series (the "Trust") is a diversified, open-end management
investment company with seven separate Funds which are discussed herein: the
Emerging Growth Fund, the International Equity Fund, the Mid Cap Fund, the
Growth Fund, the Growth and Income Fund, the Government Fund and 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 Shareholder Services (the "Sub-Transfer Agent") at 3100 Breckinridge
Boulevard, Bldg. 200, Duluth, Georgia 30199-0001. Please call Customer
Service at (800) 544-5445 for information about the Funds.
TABLE OF CONTENTS
Page
General Information
2
Goals and Investment Policies
2
Investment Restrictions
26
Trustees and Officers
30
Investment Advisory Agreements
32
Distributor
34
Portfolio Turnover
34
Distribution Plans
35
Portfolio Transactions and Brokerage
37
Determination of Net Asset Value
40
Dividends, Distributions and Federal Taxes
50
Other Information
57
Appendix A - Ratings of Municipal Bonds, Notes and Commercial Paper
1
GENERAL INFORMATION
Mutual Management Corp., formerly Smith Barney Mutual Funds Management Inc.
(the "manager"), was incorporated on March 12, 1968 and renders investment
management advice to investment companies with aggregate assets under
management in excess of $_____ billion as of November 30, 1998. The manager
is an affiliate of Salomon Smith Barney Inc. The manager and Salomon Smith
Barney are subsidiaries of Citigroup Inc., a financial services company that
uses diverse channels to offer a broad range of financial services to
consumer and corporate customers around the world.
CFBDS, Inc. (the "Distributor") is the distributor of the funds' shares.
PFS Investments, Inc. ("PFS Investments"), a selling agent of the fund, is
an indirect wholly-owned subsidiary of Citigroup. PFS Shareholder Services,
the Sub-Transfer Agent is a subsidiary of PFS Services, Inc., an affiliate of
Primerica Financial Services, Inc. ("Primerica Financial").
As of November 30, 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 in the Prospectus
and do not, standing alone, present a complete and accurate explanation of
the matters disclosed. Readers must refer also to the Prospectus for a
complete presentation of the matters disclosed below.
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. Although each Fund has a different goal which it
pursues through separate investment policies described below, each Fund,
except the International Equity Fund and the Mid Cap Fund, will not purchase
any securities issued by any company primarily engaged in the manufacture of
alcohol or tobacco.
Each of the Funds may depart from its principal investment strategies in
response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term
debt securities. If a Fund takes a temporary defensive position, it may be
unable to achieve its investment objective.
Emerging Growth Fund
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 the manager 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 the manager
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 the manager 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 securities 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 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 may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. 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.
International Equity Fund
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.
In seeking to achieve its goal, the Fund presently expects to invest at least
65% and substantially all of its assets in common stocks of established non-
United States companies which in the opinion of the manager 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 foreign governments and their
political subdivisions). When the manager 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 holdings (up to
a maximum of 35% of its assets) in such debt securities. In determining
whether the Fund will be invested for capital appreciation or for income or
any combination of both, the manager regularly analyzes a broad range of
international equity and fixed income markets in order to assess the degree
of risk and level of return that can be expected from each market.
The Fund generally invests its assets broadly among countries and normally
has represented in the portfolio business activities in not less than three
different foreign countries. Except as stated below, the Fund invests 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),
Australia, Canada and such other areas and countries as the manager 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. Concentration 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.
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.
Mid Cap Fund
Mid Cap Fund seeks long-term growth of capital. The Fund attempts to
achieve its investment objective by investing, under normal market
conditions, substantially all of its assets in equity securities and at least
65% of its total assets in equity securities of medium-sized companies with
market capitalizations of between $1 billion and $5 billion at the time of
investment. Companies whose capitalization falls outside this range after
purchase continue to be considered medium-sized companies for purposes of the
65% policy. Investing in medium-capitalization stocks may involve greater
risk than investing in large capitalization stocks since they can be subject
to more abrupt or erratic movements. However, they tend to involve less risk
than stocks of small capitalization companies. The Fund may invest up to 35%
of its assets in equity securities of companies with market capitalizations
less than $1 billion or more than $5 billion. See "Risk Factors--Small
Capitalization Companies."
The Fund will normally invest in all types of equity securities, including
common stocks, preferred stocks, securities that are convertible into common
or preferred stocks, such as warrants and convertible bonds, and depository
receipts for those securities. The Fund may maintain a portion of its assets,
which will usually not exceed 10%, in U.S. Government securities, money
market obligations, and in cash to provide for payment of the Fund's expenses
and to meet redemption requests. It is the policy of the Fund to be as fully
invested in equity securities as practicable at all times.
Consistent with its investment objective and policies described above, the
Fund may invest up to 25% of its total assets in foreign securities,
including both direct investments and investments made through depository
receipts. The Fund may also invest in real estate investment trusts; purchase
or sell securities on a when-issued or delayed-delivery basis; enter into
forward commitments to purchase securities; lend portfolio securities;
purchase and sell put and call options; and enter into interest rate futures
contracts, stock index futures contracts and related options.
Growth Fund
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.
The Fund also may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. The amount of assets the Fund may hold for liquidity purposes is
based on market conditions and the need to meet redemption requests. A
description of the ratings of commercial paper and bonds is contained in the
Appendix. Short-term investments may include repurchase agreements with
banks or broker-dealers.
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. The Fund may also
invest up to 20% of its total assets in securities of foreign issuers and in
investment companies. Since the Fund may take substantial risks in seeking
its goal of capital appreciation, it is not suitable for investors unable or
unwilling to assume such risks.
Growth and Income Fund
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 convertible into common and
preferred stocks.
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 security sells above its value as fixed income security. The Fund
may purchase convertible securities rated Ba or lower by Moody's or BB or
lower by S&P or in non-rated securities considered by the manager to be of
comparable quality. Although the Fund selects these securities primarily on
the basis of their equity characteristics, investors should be aware that
debt securities rated in these categories 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.
The Fund may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. The amount of assets the Fund may hold for liquidity purposes is
based on market conditions and the need to meet redemption requests. Short-
term investments may include repurchase agreements with banks or broker-
dealers. The Fund may also invest up to 20% of its total assets in
securities of foreign issuers and in investment companies. The Fund may
engage in portfolio management strategies and techniques involving options,
futures contracts and options on futures.
Government Fund
Government 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. 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. Government under the Separate Trading of
Registered Interest and Principal of Securities 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 mortgage-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 issuer to borrow
from the U.S. Government and some of which are backed only by the credit of
the issuer itself.
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers deemed creditworthy by the manager 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.
The Fund may engage in transactions involving obligations issued or
guaranteed 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. Government 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 Mortgage Association (''FNMA'').
While the Fund has no policy limiting the maturities of the debt securities
in which it may invest, the manager seeks to moderate market risk by
generally 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 maturity.'' 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
exposure of a security. In these and other similar situations, the manager
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 the manager
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 assurance that
the manager 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
premium 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 capital 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. The purchase and sale of options may result in a high portfolio
turnover rate.
Municipal Bond Fund
Municipal Bond Fund seeks as high a level of current interest income exempt
from federal income tax as is consistent with the preservation of capital.
The Fund seeks to achieve its objective by investing in a diversified
portfolio of obligations issued by or on behalf of states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, 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 the manager'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 Municipal Bonds, and options on
such contracts.
"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.
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.
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
represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Bonds acquired in
limited placements generally may be resold only in a privately negotiated
transaction to one or more other institutional investors. Restricted
securities are generally purchased 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 limitations 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.
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 maturities tend to produce higher yields and are subject to greater
market fluctuations as a result of changes in interest rates than Municipal
Bonds with shorter maturities and lower yields. The market value of Municipal
Bonds generally rises when interest rates decline and falls when interest
rates rise. Generally 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.
The Fund considers investments in Municipal Bonds not to be subject to
concentration 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 obligations 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 difficulties.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Bonds. It may be expected that similar proposals may be
introduced 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 market 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.
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. 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.
INVESTMENT PRACTICES
This section contains a discussion of various of the Funds' investment
practices. The Funds may engage in these and any other practices not
prohibited by their investment restrictions. For further information
regarding the risks associated with these practices, see "Risk Factors"
below.
EQUITY SECURITIES
Common Stocks (All Funds). Each Fund may purchase common stocks. Common
stocks are shares of a corporation or other entity that entitle the holder to
a pro rata share of the profits of the corporation, if any, without
preference over any other shareholder or class of shareholders, including
holders of the entity's preferred stock and other senior equity. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so.
Preferred Stocks and Convertible Securities(All Funds).Each Fund may invest in
convertible debt and preferred stocks. Convertible debt securities and
preferred stock entitle the holder to acquire the issuer's stock by exchange
or purchase for a predetermined rate. Convertible securities are subject
both to the credit and interest rate risks associated with fixed income
securities and to the stock market risk associated with equity securities.
Warrants (All Funds). Each Fund may purchase warrants. Warrants acquired by
a Fund entitle it to buy common stock from the issuer at a specified price
and time. Warrants are subject to the same market risks as stocks, but may
be more volatile in price. A Fund's investment in warrants will not entitle
it to receive dividends or exercise voting rights and will become worthless
if the warrants cannot be profitably exercised before the expiration dates.
REITs (All Funds). Each Fund may invest in shares of real estate investment
trusts (REITs), which are pooled investment vehicles that invest in real
estate or real estate loans or interests. Investing in REITs involves risks
similar to those associated with investing in equity securities of small
capitalization companies. REITs are dependent upon management skills, are
not diversified, and are subject to risks of project financing, default by
borrowers, self-liquidation, and the possibility of failing to qualify for
the exemption from taxation on distributed amounts under the Internal Revenue
Code of 1986, as amended (the "Code").
Illiquid and Restricted Securities (All Funds). The Emerging Growth Fund and
the International Equity Fund may each invest up to 15% of their net assets ,
the Mid Cap Fund may invest up to 10% of its net 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 in restricted securities and
other illiquid 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
limitation, however, are any restricted securities which are eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 and which have
been determined to be liquid by the Trustees or by the manager pursuant to
board-approved guidelines. The determination of liquidity is based on the
volume of reported trading 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 uninterested 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, 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.
Small Capitalization Companies (Emerging Growth Fund). Emerging Growth Fund
invests in securities of companies with market capitalization or estimated
revenues of not more than [$500 million] at the time of initial investment.
Small companies may (i) be subject to more volatile market movements than
securities of larger, more established companies; (ii) have limited product
lines, markets or financial resources; and (iii) depend upon a limited or
less experienced management group. The securities of small companies may be
traded only on the over-the-counter market or on a regional securities
exchange and may not be traded daily or in the volume typical of trading on a
national securities exchange. Disposition by the Fund of small company
securities in order to meet redemptions may require the Fund to sell these
securities at a discount from market prices, over a longer period of time or
during periods when disposition is not desirable.
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 and the Mid Cap Fund may invest up to 25% of
the value of its total assets in securities of foreign governments and
companies of developed 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
Depositary Receipts (''ADRs'') and European Depositary Receipts (''EDRs'') or
other securities 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 arrangement, 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 as reliable for an unsponsored ADR as it is for a sponsored ADR. Each Fund
may invest in ADRs through both sponsored and unsponsored arrangements.
With respect to certain foreign countries, there is the possibility of
expropriation 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 security issued by a U.S. company, and foreign entities
may not be subject to accounting, 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 distributions by the Fund to its
shareholders. See ''Dividends, Distributions and Taxes.'' 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 different 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
portfolio 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
possible 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 addition, 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 investments 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 volatility than those in the United
States. 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 Mid Cap Fund,
the Growth Fund and the Growth and Income Fund may invest in the securities
of developing countries. 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
governments were never finally settled. There can be no assurance that any
investments that the Fund might make in such emerging markets would not be
expropriated, 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.
FIXED INCOME SECURITIES
Corporate Debt Obligations (All Funds). Each Fund may invest in corporate
debt obligations and zero coupon securities issued by financial institutions
and corporations. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity. Zero coupon securities are securities sold at a
discount to par value and on which interest payments are not made during the
life of the security.
U.S. Government Securities (All Funds). The U.S. Government securities in
which the Funds may invest include: bills, certificates of indebtedness, and
notes and bonds issued by the U.S. Treasury or by agencies or
instrumentalities of the U.S. Government. Some U.S. Government securities,
such as U.S. Treasury bills and bonds, are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer
to borrow from the U.S. Treasury; others are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others are supported only by the credit of the instrumentality.
Mortgage Related Securities (Government Fund). 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. 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. Government itself. Interests in such pools
are collectively referred to as ''mortgage-related securities.''
Mortgage-related securities are characterized by monthly payments to the
holder, 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
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
securities 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 market price appreciation of mortgage-related securities.
If the Fund buys mortgage-related securities at a premium, mortgage
foreclosures or mortgage prepayments 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.
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.
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. 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.
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.
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.
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.
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.
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.
Forward Commitments (Government Fund). The Fund may purchase or sell U.S.
Government 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 covered 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.
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.
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
Commitment 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.
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 exceeding 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 adjustments are typically based upon the prime rate
of a bank or some other appropriate 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'').
Participating 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 principal balance plus accrued interest on the Participating VRDNs
from the institution upon a specified number of days' notice, not to exceed
seven days. The Fund has an undivided interest in the underlying obligation
and thus participates on the same basis as the institution in such obligation
except that the institution typically retains fees out of the interest paid
on the obligation for servicing the obligation and issuing the repurchase
commitment.
Stand-by Commitments (Municipal Fund). The Fund may acquire stand-by
commitments 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 underlying 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
unqualified. 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 the
manager'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
valuation of the underlying Municipal Bonds which would continue to be valued
in accordance with the method of valuation employed by the Fund. Stand-by
commitments 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 acquiring 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 delivery 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.
Short-Term Investments (All Funds). In certain circumstances the Funds may
invest without limitation in all types of short-term money market
instruments, including U.S. Government securities; certificates of deposit,
time deposits and bankers' acceptances issued by domestic banks (including
their branches located outside the United States and subsidiaries located in
Canada), domestic branches of foreign banks, savings and loan associations
and similar institutions; high grade commercial paper; and repurchase
agreements. To the extent a Fund is investing in short-term investments as a
temporary defensive posture, the applicable Fund's investment objective may
not be achieved.
Commercial Paper (All Funds). 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) (10% in the case of the Mid Cap Fund) of the value of the
Fund's total assets would be invested in such notes and other illiquid
securities.
Commercial Bank Obligations (International Equity Fund). 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.
DERIVATIVE CONTRACTS
Options, Futures Contracts and Related Options (All Funds)
Selling Call and Put Options (Emerging Growth Fund, International Equity
Fund, Mid Cap Fund, Growth Fund, Growth and Income Fund and Government Fund).
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. 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. Emerging Growth Fund,
International Equity Fund, Growth Fund and Growth and Income Fund sell call
options only on a covered basis. 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,
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 Government Fund only) to hedge against a security which the Fund
owns or has the right to acquire. In such circumstances, 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
manager wishes to purchase the underlying security for the Fund's portfolio
at a price lower than the current market price of the security.
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.
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 (Emerging Growth Fund, International Equity
Fund, Mid Cap Fund, Growth Fund, Growth and Income Fund and 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 (Emerging Growth Fund, International Equity Fund,
Mid Cap Fund, Growth Fund and 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 ( International Equity Fund and Mid Cap 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 manager 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.
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 (All Funds). Each fund 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 Funds are exempt from registration as a "commodity pool".
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.
International Equity Fund may enter into futures contracts for non-hedging
purposes, subject to applicable law.
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 appropriate securities as required by the 1940 Act 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.
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 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 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 manager.
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. International Equity Fund may also enter into futures
transactions for non-hedging purposes, subject to applicable law.
A Fund pays commissions on futures contracts and options transactions.
Options on Futures Contracts (All Funds). 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.
Forward Currency Contracts and Options on Currency (International Equity Fund
and Mid Cap 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 (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 manager 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 (All Funds). 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.
OTHER PRACTICES
Repurchase Agreements (All Funds). 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.
For the purpose of investing in repurchase agreements, the manager may
aggregate the cash that certain funds advised or subadvised by the manager 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. The manager believes that the joint account produces efficiencies
and economies of scale that may contribute to reduced transaction costs,
higher returns, higher quality investments 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 managed 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.
Reverse Repurchase Agreements (International Equity Fund and Mid Cap Fund).
International Equity Fund and Mid Cap Fund may invest in reverse repurchase
agreements. International Equity Fund does not currently intend to commit
more than 5% of its net assets to reverse repurchase agreements. The Funds
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
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 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
manager believes it will be advantageous to the 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.
Short Sales Against the Box (Emerging Growth Fund, International Equity Fund,
Mid Cap 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 conversion 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 securities 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
delivering securities already held by the Fund, because the Fund may want to
continue 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
appreciation 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.'' 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 borrowing 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 disadvantageous to the Fund.
Loans of Portfolio Securities (All Funds). 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.
RISK FACTORS
General. Investors should realize that risk of loss is inherent in the
ownership of any securities and that each Fund's net asset value will
fluctuate, reflecting fluctuations in the market value of its portfolio
positions.
Fixed Income Securities. Investments in fixed income securities may subject
the Funds to risks, including the following.
Interest Rate Risk. When interest rates decline, the market value of
fixed income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed income securities tends to decline. The
volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations, causing a Fund to sustain losses on such investments. A default
could impact both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be subject
to both call risk and extension risk. Call risk exists when the issuer may
exercise its right to pay principal on an obligation earlier than scheduled,
which would cause cash flows to be returned earlier than expected. This
typically results when interest rates have declined and a Fund will suffer
from having to reinvest in lower yielding securities. Extension risk exists
when the issuer may exercise its right to pay principal on an obligation
later than scheduled, which would cause cash flows to be returned later than
expected. This typically results when interest rates have increased, and a
Fund will suffer from the inability to invest in higher yield securities.
Below Investment Grade Fixed Income Securities. Securities which are rated
BBB by S&P or Baa by Moody's are generally regarded as having adequate
capacity to pay interest and repay principal, but may have some speculative
characteristics. Securities rated below Baa by Moody's or BBB by S&P may
have speculative characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price volatility based
upon interest rate sensitivity, questionable creditworthiness and relative
liquidity of the secondary trading market. Because high yield bonds have
been found to be more sensitive to adverse economic changes or individual
corporate developments and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could disrupt the market for
high yield bonds and adversely affect the value of outstanding bonds and the
ability of issuers to repay principal and interest. In addition, in a
declining interest rate market, issuers of high yield bonds may exercise
redemption or call provisions, which may force a Fund, to the extent it owns
such securities, to replace those securities with lower yielding securities.
This could result in a decreased return.
Foreign Securities. Investments in securities of foreign issuers involve
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include fluctuations in foreign exchange rates,
future political and economic developments, and the possible imposition of
exchange controls or other foreign governmental laws or restrictions. Since
each Fund will invest heavily in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will, to the extent the Fund does not adequately hedge against such
fluctuations, affect the value of securities in its portfolio and the
unrealized appreciation or depreciation of investments so far as U.S.
investors are concerned. In addition, with respect to certain countries,
there is the possibility of expropriation of assets, confiscatory taxation,
political or social instability or diplomatic developments which could
adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets, and securities of many foreign companies are less liquid and
their price more volatile than securities of comparable U.S. companies.
Transaction costs on foreign securities markets are generally higher than in
the U.S. There is generally less government supervision and regulation of
exchanges, brokers and issuers than there is in the U.S. A Fund might have
greater difficulty taking appropriate legal action in foreign courts.
Dividend and interest income from foreign securities will generally be
subject to withholding taxes by the country in which the issuer is located
and may not be recoverable by the Fund or the investors. Capital gains are
also subject to taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities denominated in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currency in which a
Fund's investments are denominated relative to the U.S. dollar will affect
the Fund's net asset value. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the
relative merits of investing in different countries and the intervention or
failure to intervene of U.S. or foreign governments and central banks.
However, currency exchange rates may fluctuate based on factors intrinsic to
a country's economy. Some emerging market countries also may have managed
currencies, which are not free floating against the U.S. dollar. In
addition, emerging markets are subject to the risk of restrictions upon the
free conversion of their currencies into other currencies. Any devaluations
relative to the U.S. dollar in the currencies in which a Fund's securities
are quoted would reduce the Fund's net asset value per share.
Special Risks of Countries in the Asia Pacific Region. Certain of the risks
associated with international investments are heightened for investments in
these countries. For example, some of the currencies of these countries have
experienced devaluations relative to the U.S. dollar, and adjustments have
been made periodically in certain of such currencies. Certain countries,
such as Indonesia, face serious exchange constraints. Jurisdictional
disputes also exist, for example, between South Korea and North Korea. In
addition, Hong Kong reverted to Chinese administration on July 1, 1997. The
long-term effects of this reversion are not known at this time.
Securities of Developing/Emerging Markets Countries. A developing or
emerging markets country generally is considered to be a country that is in
the initial stages of its industrialization cycle. Investing in the equity
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 economies of developed
countries; however, such markets often have provided higher rates of return
to investors.
One or more of the risks 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
of governments may remain unsettled. There can be no assurance that any
investments that a Fund might make in such emerging markets would not be
expropriated, 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.
Many of a Fund's investments in the securities of emerging markets may be
unrated or rated below investment grade. Securities rated below investment
grade (and comparable unrated securities) are the equivalent of high yield,
high risk bonds, commonly known as "junk bonds." Such securities are regarded
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations
and involve major risk exposure to adverse business, financial, economic, or
political conditions.
Derivative Instruments. In accordance with its investment policies, each
Fund may invest in certain derivative instruments which are securities or
contracts that provide for payments based on or "derived" from the
performance of an underlying asset, index or other economic benchmark.
Essentially, a derivative instrument is a financial arrangement or a contract
between two parties (and not a true security like a stock or a bond).
Transactions in derivative instruments can be, but are not necessarily,
riskier than investments in conventional stocks, bonds and money market
instruments. A derivative instrument is more accurately viewed as a way of
reallocating risk among different parties or substituting one type of risk
for another. Every investment by a Fund, including an investment in
conventional securities, reflects an implicit prediction about future changes
in the value of that investment. Every Fund investment also involves a risk
that the portfolio manager's expectations will be wrong. Transactions in
derivative instruments often enable a Fund to take investment positions that
more precisely reflect the portfolio manager's expectations concerning the
future performance of the various investments available to the Fund.
Derivative instruments can be a legitimate and often cost-effective method of
accomplishing the same investment goals as could be achieved through other
investment in conventional securities.
Derivative contracts include options, futures contracts, forward contracts,
forward commitment and when-issued securities transactions, forward foreign
currency exchange contracts and interest rate, mortgage and currency swaps.
The following are the principal risks associated with derivative instruments.
Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no different
from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market changes,
but this risk may be consistent with the investment objective of even a
conservative Fund in order to achieve an average portfolio volatility that is
within the expected range for that type of Fund.
Credit risk: The issuer of the instrument may default on its
obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are traded
in institutional markets rather than on an exchange. Nevertheless, many
derivative instruments are actively traded and can be priced with as much
accuracy as conventional securities. Derivative instruments that are custom
designed to meet the specialized investment needs of a relatively narrow
group of institutional investors such as the Funds are not readily marketable
and are subject to a Fund's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation between the price
of the derivative and the underlying asset. For example, there may be price
disparities between the trading markets for the derivative contract and the
underlying asset.
Each derivative instrument purchased for a Fund's portfolio is reviewed and
analyzed by the Fund's portfolio manager to assess the risk and reward of
each such instrument in relation the Fund's portfolio investment strategy.
The decision to invest in derivative instruments or conventional securities
is made by measuring the respective instrument's ability to provide value to
the Fund and its shareholders.
Special Risks of Using Futures Contracts. The prices of Futures Contracts
are volatile and are influenced by, among other things, actual and
anticipated changes in interest rates, which in turn are affected by fiscal
and monetary policies and national and international political and economic
events.
At best, the correlation between changes in prices of Futures Contracts and
of the securities or currencies being hedged can be only approximate. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for Futures and for debt securities
or currencies, including technical influences in Futures trading; and
differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading,
with respect to interest rate levels, maturities, and creditworthiness of
issuers. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the Futures Contract is deposited as margin, a subsequent
10% decrease in the value of the Futures Contract would result in a total
loss of the margin deposit, before any deduction for the transaction costs,
if the account were then closed out. A 15% decrease would result in a loss
equal to 150% of the original margin deposit, if the Futures Contract were
closed out. Thus, a purchase or sale of a Futures Contract may result in
losses in excess of the amount invested in the Futures Contract. A Fund,
however, would presumably have sustained comparable losses if, instead of the
Futures Contract, it had invested in the underlying financial instrument and
sold it after the decline. Where a Fund enters into Futures transactions for
non-hedging purposes, it will be subject to greater risks and could sustain
losses which are not offset by gains on other Fund assets.
Furthermore, in the case of a Futures Contract purchase, in order to be
certain that each Fund has sufficient assets to satisfy its obligations under
a Futures Contract, the Fund segregates and commits to back the Futures
Contract an amount of cash and liquid securities equal in value to the
current value of the underlying instrument less the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a Futures Contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type
of Futures Contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the limit
may prevent the liquidation of unfavorable positions. Futures Contract
prices have occasionally moved 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.
Economic and Monetary Union (EMU). EMU is scheduled to occur on January 1,
1999, when 11 European countries adopt a single currency - the euro. For
participating countries, EMU will mean sharing a single currency and single
official interest rate and adhering to agreed upon limits on government
borrowing. Budgetary decisions will remain in the hands of each
participating country, but will be subject to each country's commitment to
avoid "excessive deficits" and other more specific budgetary criteria. A
European Central Bank will be responsible for setting the official interest
rate to maintain price stability within the euro zone. EMU is driven by the
expectation of a number of economic benefits, including lower transaction
costs, reduced exchange risk, greater competition, and a broadening and
deepening of European financial markets. However, there are a number of
significant risks associated with EMU. Monetary and economic union on this
scale has never been attempted before. There is a significant degree of
uncertainty as to whether participating countries will remain committed to
EMU in the face of changing economic conditions. This uncertainty may
increase the volatility of European markets and may adversely affect the
prices of securities of European issuers in the Funds' portfolios.
Year 2000. The investment management services provided to each Fund by the
manager depend on the smooth functioning of its computer systems and those of
its service providers. Many computer 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 operations, including the handling of
securities trades, pricing and account services. The manager has advised each
Fund that it has been reviewing all of its computer systems and actively
working on necessary changes to its systems to prepare for the year 2000 and
expect that its systems will be compliant before that date. In addition, the
manager has been advised by each Fund's custodian, distributor, transfer
agent sub-transfer agent and accounting service agent that they are also in
the process of modifying their systems with the same goal. There can,
however, be no assurance that the manager 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. The foregoing is a year 2000
readiness disclosure.
Portfolio Turnover. 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 portfolio turnover is not a limiting factor when the manager 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, Distributions and
Taxes.''
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
Emerging Growth Fund and International Equity Fund); provided, however, that
with respect to Emerging Growth Fund, International Equity Fund, Growth Fund,
Growth and Income Fund and 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
Emerging Growth Fund and 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 Emerging Growth Fund, International Equity
Fund, Growth Fund, Growth and Income Fund and 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
Emerging Growth Fund, International Equity Fund, Growth Fund, Growth and
Income Fund and 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 Emerging Growth Fund and
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 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 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 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. International Equity Fund
may not mortgage or pledge its assets except to secure borrowings permitted
under this restriction.
The following restrictions apply to Growth Fund, Growth and Income Fund,
Government Fund and Municipal Bond Fund:
A Fund shall not:
1. Make any investment in real estate, commodities or commodities contracts,
or warrants except that Growth Fund, Growth and Income Fund, Government Fund
and Municipal Bond Fund may engage in transactions in futures and related
options, Government Fund may purchase or sell securities which are secured by
real estate, and 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 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 manager 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 Growth Fund and 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
Growth Fund, Growth and Income Fund and 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 Growth Fund, Growth and Income Fund and 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
manager 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 Growth Fund, Growth and Income Fund and 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. Growth Fund and 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, Growth Fund and 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. Growth Fund and 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.
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.
Municipal Bond Fund may engage in futures contracts and related options as
described herein.
The following restrictions apply to Emerging Growth Fund and 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 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
Emerging Growth Fund and 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 manager 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 Emerging Growth Fund and
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
Emerging Growth Fund and 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 Emerging Growth Fund and 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
manager 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 Emerging Growth Fund and 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 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.
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, Emerging Growth Fund and
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.
The following restrictions apply only to the Mid Cap Fund:
The Fund has adopted the following investment restrictions for the protection
of shareholders. Restrictions 1 through 7 below cannot be changed without
approval by the holders of a majority of the outstanding shares of the Fund,
defined as the lesser of (a) 67% or more of the Fund's shares present at a
meeting, if the holders of more than 50% of the outstanding shares are
present in person or by proxy or (b) more than 50% of the Fund's outstanding
shares. The remaining restrictions may be changed by the Fund's Board of
Trustees at any time. In accordance with these restrictions, the Fund will
not:
1. Invest in a manner that would cause it to fail to be a "diversified
company" under the 1940 Act and the rules, regulations and orders
thereunder.
2. Issue "senior securities" as defined in the 1940 Act, and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act
and the rules, regulations and orders thereunder.
3. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in the same
industry. For purposes of this limitation, securities of the U.S. government
(including its agencies and instumentalities) and securities of state or
municipal governments and their political subdivisions are not considered to
be issued by members of any industry.
4. Borrow money, except that (a) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the untimely disposition of
securities, and (b) the Fund may, to the extent consistent with its
investment policies, enter into reverse repurchase agreements, forward roll
transactions and similar investment strategies and techniques. To the extent
that it engages in transactions described in (a) and (b), the Fund will be
limited so that no more than 33 1/3% of the value of its total assets
(including the amount borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed) valued at the time the
borrowing is made, is derived from such transactions.
5. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its investment
objective and policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under the 1940 Act.
6. Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in disposing of
portfolio securities.
7. Purchase or sell real estate, real estate mortgages, commodities or
commodity contracts, but this restriction shall not prevent the Fund from:
(a) investing in securities of issuers engaged in the real estate business or
the business of investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate business or the
business of investing in real estate) and securities which are secured by
real estate or interests therein; (b) holding or selling real estate received
in connection with securities it holds or held; (c) trading in futures
contracts and options on futures contracts (including options on currencies
to the extent consistent with the Funds' investment objective and policies);
or (d) investing in real estate investment trust securities.
8. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except "against the box"). For
purposes of this restriction, the deposit or payment by the Fund of
underlying securities and other assets in escrow and collateral agreements
with respect to initial or maintenance margin in connection with futures
contracts and related options and options on securities, indexes or similar
items is not considered to be the purchase of a security on margin.
9. Invest in oil, gas or other mineral exploration or development
programs.
10. Purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets would be invested in securities that are illiquid.
11. Invest for the purpose of exercising control of management.
If any percentage restriction described above is complied with at the time of
an investment, a later increase or decrease in percentage resulting from a
change in values or assets will not constitute a violation of such
restriction.
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); 61.
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; 60.
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; 51.
HEATH B. McLENDON,* Trustee. Managing Director of Salomon Smith Barney;
President and Director of the manager 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; 65.
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; 57.
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; 56.
* 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 manager and the Trust by reason of his position with
the manager.
OFFICERS
Heath B. McLendon, President (See description under "Trustees").
Lewis E. Daidone, Senior Vice President and Treasurer (Age 41). Managing
Director of Salomon Smith Barney; Director and Senior Vice President of the
manager 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 38).
Managing Director of Salomon Smith Barney. 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 47). Managing
Director of Salomon 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 51). Managing
Director of Salomon 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 47). Managing
Director of Salomon 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 41). Managing
Director of Salomon 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 37 ). Managing
Director of Salomon 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 48). Managing Director of Salomon Smith
Barney; General Counsel and Secretary of the manager 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 December 11, 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. As of December 11, 1998, to the knowledge of the Trust and its
Trustees, no shareholder or "group" (as the term is used in Section 13(d) of
the Securities Act of 1933) beneficially owned more than 5% of the
outstanding shares of each Fund of the Trust.
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, 1998, while the total compensation shown for the Funds and other
related mutual funds is for the calendar year ended December 31, 1998. Mr.
McLendon is not compensated for his service as Trustee, because of his
affiliation with the manager.
COMPENSATION TABLE
Name of Person
Aggregate Compensation
From Registrant (3)
EM INT G
G/I GVT MB
Pensio
n or
Retire
- -ment
Benefi
ts
Accrue
d as
Part
of
Fund
Expens
es
(4)
Total(
1)
Compen
sation
From
Regist
rant
and
Fund
Comple
x Paid
to
Direct
ors
Numb
er
of
Fund
s
For
Whic
h
Trus
tee
Serv
es
With
in
Fund
Com-
plex
Dr. Donald M.
Carlton
- -
1
Dr. A. Benton
Cocanougher
- -
1
Stephen Randolph
Gross
- -
1
Heath B.
McLendon*
- -
42
Dr. Alan G.
Merten
- -
1
Dr. Steven
Muller(2)
- -
0
Dr. R.
Richardson
Pettit
- -
1
Alan B. Shepard,
Jr.(2)
- -
1
*Represents Interested Trustee.
(1) Amounts reflected are for the calendar year ended December 31, 1998.
[During this period, the Mid Cap Fund had not commenced operations.]
(2) Mr. Muller and Mr. Shepard are no longer Trustees of the Trust.
(3) The Trustees instituted a retirement plan effective April 1, 1996. For
the current Trustees not affiliated with the manager, 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 $_______, $_______, $_______, $_______,
$_______, and $_______, per Emerging Growth Fund, International Equity Fund,
Growth Fund, Growth and Income Fund, Government Fund and 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
Investment Manager. Effective December 31, 1997, the manager replaced Van
Kampen American Capital Asset Management, Inc. ("VKAC") as investment adviser
to each Fund of the Trust. The manager provides investment advisory and
management services to investment companies affiliated with Salomon Smith
Barney and, prior to December 31, 1997 was the Sub-Advisor to International
Equity Fund.
The Trust and the manager 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 manager
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 manager to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. The manager 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 manager 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 manager 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 manager. 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 manager.
The Trust retains the manager 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 manager an annual fee for
Emerging Growth Fund, Growth Fund and 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 manager an annual fee for Mid Cap Fund at
the rate of 0.75% of the Fund's average daily net assets.] The Trust pays
the manager an annual fee for International Equity Fund at the rate of 1.00%
of the Fund's average daily net assets. The Trust pays the manager an annual
fee for 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 manager an annual fee for 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
manager may, from time to time, agree to waive its investment advisory fees
or any portion thereof or elect to reimburse a Fund for ordinary business
expenses in excess of an agreed upon amount.
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, 1998, 1997 and 1996.
The Mid Cap Fund had not commenced operations during these periods.
Emergi
ng
Growth
Internati
onal
Equity
Growth
Growt
h &
Incom
e
Governmen
t
Municip
al Bond
October 31, 1998
Accounting Services
Gross Advisory Fees
Contractual Expense
Reimbursement
Voluntary Expense
Reimbursement
October 31, 1997
Accounting Services
$37,19
8
$21,601
$420,04
3
$161,
748
$55,786
$39,999
Gross Advisory Fees
904,95
9
267,897
20,533,
544
7,574
,209
1,702,968
704,693
Contractual Expense
Reimbursement
-
-
-
-
-
-
Voluntary Expense
Reimbursement
-
-
-
-
-
-
October 31, 1996
Accounting Services
$79,62
0
$30,600
$406,93
1
$168,
039
$93,056
$99,374
Gross Advisory Fees
376,43
6
130,149
17,148,
560
6,017
,204
1,883,666
728,210
Contractual Expense
Reimbursement
-
130,149
-
-
-
-
Voluntary Expense
Reimbursement
-
47,998
-
-
-
-
For the fiscal years ended October 31, 1997 and 1996 and for the period from
November 1, 1997 to December 31, 1997, amounts paid by the Funds under the
relevant investment advisory agreements were paid to VKAC. Van Kampen
American Capital Asset Management Inc. served as the Trust's investment
adviser.
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 manager will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
manager 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
manager 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 manager 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.
Management's discussion and analysis and additional performance information
regarding the Funds during the fiscal year ended October 31, 1998 is included
in the Annual Report dated October 31, 1998. 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 Trust at the address or phone
number listed on page one.
DISTRIBUTOR
CFBDS, Inc., located at 21 Milk Street, Boston MA 02109-5408 (the
"Distributor"), distributes shares of the Funds as their principal
underwriter, and as such conducts a continuous offering pursuant to a "best
efforts" arrangement requiring the Distributor to take and pay for only those
securities sold to the public.
The Distributor may be deemed to be an underwriter for purposes of the
Securities Act of 1933. From time to time, the Distributor or its affiliates
may also pay for certain non-cash sales incentives provided to PFS
Investments Registered Representatives. 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 compensation to PFS Investments Registered Representatives
that sell shares of each Fund.
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, 1998, 1997 and 1996.
Emerg
ing
Growt
h
Interna
tional
Equity
Growth
Growth &
Income
Governm
ent
Municipa
l Bond
October 31, 1998
Total Underwriting
Commissions
Amount Retained By Funds'
Distributor*
Amount Received By PFS
Investments
October 31, 1997
Total Underwriting
Commissions
$3,84
6,082
$608,72
6
$18,00
2,508
$6,979,9
66
$808,85
8
$487,303
Amount Retained By Funds'
Distributor*
251,2
47
37,018
2,787,
423
825,118
98,702
87,157
Amount Received By PFS
Investments
3,594
,835
571,708
15,215
,088
6,154,84
8
710,156
400,146
October 31, 1996
Total Underwriting
Commissions
$1,51
9,351
$235,79
1
$19,30
3,603
$5,144,5
00
$950,01
9
$1,029,1
47
Amount Retained By Funds'
Distributor*
124,7
77
21,437
3,405,
104
888,760
162,072
124,395
Amount Received By PFS
Investments
1,394
,574
214,354
15,898
,499
4,255,74
0
1,173,8
67
904,752
* Prior to October 8, 1998, the Funds' disributor was PFS Distributors, Inc.
On October 8, 1998, CFBDS, Inc. became the funds' distributor. The portion
of commissions retained by the CFBDS in 1998 was ____________ for Emerging
Growth Fund, ____________ for International Equity Fund, ____________ for
Growth Fund, ____________ for Growth & Income Fund, ____________ for
Government Fund and ____________ for Municipal Bond Fund.
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
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 Trust, 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 Conduct 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 distribution 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
maintenance 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
aggregate average daily net assets attributable to such class of shares.
Payments by each Fund to the Distributor 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 the Distributor 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 the Distributor may consist of sales commissions to PFS
Investments for selling Class B shares, compensation, sales incentives and
payments 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 distributing promotional materials with respect to such Class B
shares.
The Distributor 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
compensation for its service and distribution activities, not as
reimbursement for specific expenses incurred. Thus, even if the Distributor'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 Distributor'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 distribution fees to the Distributor
until either the applicable Plan is terminated or not renewed. In that event,
the Distributor's expenses in excess of service fees and distribution fees
received or accrued through the termination date will be the Distributor'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 the Distributor's corresponding expenses for each class
separately.
Actual distribution expenditures paid by the Distributor 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 the Distributor incurred distribution 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 the Distributor 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 the Distributor for any
expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
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 manager 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, 1998, the aggregate expenses for the
Emerging Growth Fund under the Fund's Class A Plan were $_______ 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, 1998, the Fund's aggregate expenses under
the Class B Plan were $_______ or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the
following payments: $_______ 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 $_______ for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.
For the fiscal year ended October 31, 1998, the aggregate expenses for the
International Equity Fund under the Fund's Class A Plan were $_______ 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, 1998, the Fund's
aggregate expenses under the Class B Plan were $_______ or 1.00% of the
Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $_______ 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 $_______ for fees paid to
Service Organizations for servicing Class B shareholders and administering
the Class B Plan.
For the fiscal year ended October 31, 1998, the aggregate expenses for the
Growth Fund under the Class A Plan were $_______ 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, 1998, the Fund's aggregate expenses under the Class B Plan
were $_______ or 1.00% of the Class B shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$_______ 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 $_______ for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.
For the fiscal year ended October 31, 1998, the aggregate expenses for the
Growth and Income Fund under the Fund's Class A Plan were $_______ 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, 1998, the Fund's aggregate expenses under
the Class B Plan were $_______ or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the
following payments: $_______ 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 $_______ for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.
For the fiscal year ended October 31, 1998, the aggregate expenses for the
Government Fund under the Fund's Class A Plan were $_______ 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, 1998, the Fund's aggregate expenses under
the Class B Plan were $_______ or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the
following payments: $_______ 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 $_______ for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.
For the fiscal year ended October 31, 1998, the aggregate expenses for the
Municipal Bond Fund under the Fund's Class A Plan were $_______ 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, 1998, the Fund's aggregate expenses under
the Class B Plan were $_______ or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the
following payments: $_______ 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 $_______ for fees paid to Service Organizations for
servicing Class B shareholders and administering the Class B Plan.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The manager 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 manager
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 manager 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 manager. In selecting
broker/dealers and in negotiating commissions, the manager 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 manager.
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 manager or the Subadviser in fulfilling their
investment-decision making responsibilities.
Pursuant to provisions of the relevant Advisory Agreement, the Trustees have
authorized the manager 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 manager. The manager 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 manager undertakes that such higher commissions will not
be paid by the Trust unless (a) the manager 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 manager'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 manager, 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 manager's receipt of research
services.
Consistent with the Rules of Conduct of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Trustees may determine, the manager may consider sales of
shares of the Trust as a factor in the selection of firms to execute
portfolio transactions for the Trust.
The manager 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 manager in servicing all of its accounts; not all of such services may be
used by the manager in connection with the Trust. In the opinion of the
manager, the benefits from research services to the Funds of the Trust and to
the accounts managed by the manager 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 manager, such costs to the Trust will not be
disproportionate to the benefits received by the Trust on a continuing basis.
The manager 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 manager 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 manager
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 (except Mid Cap Fund, which had
not commenced operations during the relevant periods) the total brokerage
commissions paid, the amount of commissions paid to brokers selected
primarily on the basis of research services provided to the manager and the
value of these specific transactions.
Emergin
g
Growth
Interna
tional
Equity
Growth
Growth &
Income
Governm
ent
Municip
al Bond
1998
Total Brokerage
Commissions
Commissions for
Research Services
Value of Research
Transactions
1997
Total Brokerage
Commissions
$185,24
2
$115,01
6
$10,105,
482
$2,428,0
87
$140,19
0
-
Commissions for
Research Services
77,926
-
3,257,86
8
759,080
-
Value of Research
Transactions
90,303,
044
-
1,471,81
7,568
612,451,
022
-
-
1996
Total Brokerage
Commissions
$99,218
$94,895
$10,114,
647
$2,273,7
25
$160,18
1
-
Commissions for
Research Services
73,884
-
3,194,44
2
896,669
-
-
Value of Research
Transactions
13,016,
975
-
2,657,95
2,353
821,323,
593
-
-
The Funds may from time to time place brokerage transactions with brokers
that may be considered affiliated persons of the manager or the Distributor.
Such affiliated persons include Salomon Smith Barney Inc. ("Smith Barney")
and, prior to October 8, 1998, Robinson Humphrey, Inc. ("Robinson
Humphrey"). For the periods described above, as of October 31, 1996, Morgan
Stanley Group Inc. ("Morgan Stanley") became an affiliate of VKAC and as of
May 31, 1997, Dean Witter Discover & Co. ("Dean Witter") also became an
affiliate of VKAC. Effective December 31, 1997, Morgan Stanley and Dean
Witter were no longer considered affiliated persons of the manager or the
Distributor (or its predecessor). 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:
Salomon
Robinson Smith
Fiscal 1998 Commissions Humphrey Barney
Emerging Growth
International Equity
Growth
Growth & Income
Government
Municipal Bond
Fiscal 1998 Percentage
Emerging Growth
International Equity
Growth
Growth & Income
Government
Municipal Bond
Valuation of transactions with
affiliates to total transactions
Emerging Growth
International Equity
Growth
Growth & Income
Government
Municipal Bond
Salomon
Robinson Smith Morgan Dean
Fiscal 1997 Commissions Humphrey Barney Stanley
Witter
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 - --
Salomon
Robinson Smith
Fiscal 1996 Percentages Humphrey Barney
Emerging Growth -- 1.87%
International Equity - --
Growth 0.07% 2.38%
Growth & Income 0.10% 4.08%
Government - 17.68%
Municipal Bond - -
Salomon
Value of transactions with Robinson Smith
affiliates to total transactions Humphrey Barney
Emerging Growth - --
International Equity - --
Growth - 0.002%
Growth & Income - 0.027%
Government - 4.65%
Municipal Bond - 5.35%
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") (normally 4:00 p.m., New York
time) on each business day on which the Exchange is open.
Emerging Growth Fund, International Equity Fund, Growth Fund, Mid Cap Fund
and 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 manager,
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.
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 of Shares
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 contingent deferred sales charge ("CDSC")
payable upon certain redemptions. As of May 20, 1996, all of the previously
outstanding shares of Growth Fund, Growth and Income Fund, Government Fund,
and 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 International Equity Fund. Each Fund offers Class 1 shares
only to Eligible Class 1 Purchasers. Each class of shares represents an
interest in the same portfolio of investments of a Fund. See the Prospectus
for a discussion of factors to consider in selecting which Class of shares to
purchase.
Initial purchases of shares of each Fund must be made through a PFS
Investments Registered Representative by completing the appropriate
application 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.
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.
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 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 Investment 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 Citigroup and its subsidiaries, including Smith Barney,
Directors or Trustees of any of the Smith Barney Mutual Funds, and their
spouses and children. The Trust 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
regular 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 preauthorized transfers of $25 or more
to charge the regular bank account or other financial institution indicated
by the shareholder on a monthly basis to provide 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, Mid Cap Fund, Growth Fund and Growth and Income
Fund are as follows:
Sales
Charge
Dealers'
Reallowance as %
of
Offering
Price
Amount of
Investment
% of
Offering
Price
% of
Amount
Invested
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
*
*
*
The sales charges applicable to purchases of Class A shares of Government
Fund and Municipal Fund are as follows:
Sales
Charge
Dealers'
Reallowance as %
of
Offering
Price
Amount of
Investment
% of
Offering
Price
% of
Amount
Invested
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
*
*
*
* 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
applicable 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 Fund as defined in the Securities Act
of 1933, as amended. 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 Citigroup and
its subsidiaries and any of the Smith Barney Mutual Funds (including retired
Board Members and employees); the immediate 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 Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance 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 combination of such company
with the Fund by merger, acquisition of assets or otherwise; (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 redemption; (d) purchases
by accounts managed by registered investment advisory subsidiaries of
Citigroup; (e) sales through PFS Investments Registered Representatives 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 Salomon
Smith Barney401(k) Program (note: subsequent investments will be subject to
the applicable sales charge; (g) purchases by separate accounts used to fund
certain unregistered variable annuity contracts; and (h) purchases by
investors participating in a Salomon Smith Barneyfee 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 distributed by an entity other than PFS Investments. 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
Retirement Income Security Act of 1974, as amended (''ERISA''). Class A
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 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 Trust, 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 anticipated economies in sales efforts and
sales related expenses. The Trust may terminate, or amend the terms of,
offering shares of the Trust at net asset value to such persons at any time.
PFS may pay PFS Investments 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
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 certain
other Concert and Smith Barney mutual funds. 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 entity.
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 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 applicable 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.
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.
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 purchase payment, all purchase payments made during a month will be
aggregated and deemed to have been made on the last day of the preceding
statement month. The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders.
Years Since
Purchase
Payment Was
Made
CDSC
Applicable to
Emerging Growth
Fund,
International
Equity Fund,
Growth
Fund and Growth
and Income Fund
CDSC
Applicable to
Government
Fund and Municipal
Fund
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
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 proportion 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.
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 purposes, 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
additional 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.
Waiver of CDSC
The CDSC generally is waived on exchanges and 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 Sub-Transfer Agent 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 manager
The Trust may waive the CDSC when a total or partial redemption is made by
the manager with respect to its investments in a Fund.
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, Mid Cap Fund, Growth Fund
and Growth and Income Fund
Size of Investment
As % of
Net Amount
Invested
As % of
Offering
Price
Reallowed
to PFS
Investments
(as a % of
Offering
Price)*
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%
Government Fund
Size of Investment
As % of
Net Amount
Invested
As % of
Offering
Price
Reallowed
to PFS
Investments
(as a % of
Offering
Price)*
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%
Municipal Bond Fund
Size of Investment
As % of
Net Amount
Invested
As % of
Offering
Price
Reallowed
to PFS
Investments
(as a % of
Offering
Price)*
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%
* 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%.
PFS Investments may be deemed to be an underwriter for purposes of the
Securities 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
Representatives. 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
compensation to PFS Investments Registered Representatives that sell shares
of the Trust.
Class 1 shares of the Trust 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 Distributor, if such redemption has occurred no more than 60
days prior to the purchase of shares of the Trust 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 Trust may terminate, or amend the terms of, offering shares of the Trust
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 distributed by an entity other
than the Distributor. 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
entitled to reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are the same as those described above
under ''Purchases 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 subject to minimum investment requirements and all shares are subject to
the other requirements of the fund into which exchanges are made.
oConcert Peachtree Growth Fund
o Concert Social Awareness Fund
o Smith Barney Appreciation Fund Inc.
o Smith Barney Concert Allocation Series Inc.-Balanced Portfolio
o Smith Barney Concert Allocation Series Inc.-Conservative Portfolio
o Smith Barney Concert Allocation Series Inc.- Growth Portfolio
o Smith Barney Concert Allocation Series Inc.-High Growth Portfolio
o Smith Barney Concert Allocation Series Inc.-Income Portfolio
o Smith Barney Investment Grade Bond Fund
o *Smith Barney Money Funds, Inc.-Cash Portfolio
o **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.
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 Trust
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
Trust may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination by the Trust, the
Trust 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 Barney 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.
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.
Redemption 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 signature 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 prospectus describing the shares to be acquired. Each Fund reserves
the right to modify or discontinue exchange privileges upon 60 days' prior
notice to shareholders.
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 30095-0062. 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
registration. 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
shareholder(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, signature(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
administrator. Additionally, if a shareholder requests a redemption from a
Retirement 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.
After following the above-stated redemption guidelines, a shareholder(s) may
elect to have the redemption proceeds wire-transferred directly to the
shareholder's bank account of record (defined as a currently established pre-
authorized 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 Trust. 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 shareholder 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 Trust 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 Trust, however, will not redeem shares
based solely on market reductions in net asset value. Before the Trust
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.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
Emerging Growth Fund, International Equity Fund, Mid Cap Fund and Growth Fund
distribute dividends and capital gains annually; Growth and Income Fund
declares and pays dividends quarterly. Government Fund and 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 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, 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 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 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, 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 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 Emerging Growth Fund,
International Equity Fund, Mid Cap Fund, Growth Fund and 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 Emerging Growth Fund, International Equity
Fund, Growth Fund, Growth and Income Fund, Government Fund and 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 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 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
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.
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 "Investment Practices - Stand-By Commitments." 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
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 investments 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. 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 dividend
return may vary from time to time depending on market conditions, the
composition of the investment portfolio and its operating expenses. These
factors and possible differences in the methods used in calculating current
dividend 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.
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.
Class 1 Class A
Class B
Shares Shares
Shares
Emerging Growth Fund
i) total return for one year period ended
10/31/98
ii) total return for five year period ended
10/31/98 -- --
- --
iii) total return since inception
(based on inception date of 2/21/95) --
iv) total return since inception
(based on inception date of 8/08/96) --
--
International Equity Fund
i) total return for one year period ended
10/31/98
ii) total return for five year period ended
10/31/98 -- --
- --
iii) total return since inception
(based on inception date of 3/17/95) --
iv) total return since inception
(based on inception date of 8/08/96)
Growth Fund
i) total return for one year period ended
10/31/98
ii) total return for five year period ended
10/31/98 --
- --
iii) Total return for the ten year period ended
10/31/98
iv) total return since inception
(based on inception date of 4/14/87)
v) total return since inception
(based on inception date of 5/03/94)
Class 1 Class A
Class B
Shares Shares
Shares
Growth and Income Fund
i) total return for one year period ended
10/31/98
ii) total return for five year period ended
10/31/98
ii) total return since inception
(based on inception date of 4/14/87)
iv) total return since inception
(based on inception date of 5/03/94)
Government Fund
i) total return for one year period ended
10/31/98
ii) total return for five year period ended
10/31/98 --
- --
iii) total return since inception
(based on inception date of 4/14/87)
iv) total return since inception
(based on inception date of 5/03/94)
v) yield
Municipal Bond Fund
i) total return for one year period ended
10/31/98
ii) total return for five year period ended
10/31/98 --
- --
iii) total return since inception
(based on inception date of 7/13/88)
iv) total return since inception
(based on inception date of 8/08/96)
v) yield
vi) tax equivalent yield
* The Fund's equivalent taxable 30-day yield for a Class is computed by
dividing that portion of the Class' 30-day yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if
any, of the Class' yield that is not tax-exempt. The tax equivalent yield
assumes the payment of Federal income taxes at a rate of 31%.
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.
Transfer Agent
First Data Investor Services Group, Inc. is located at Exchange Place,
Boston, Massachusetts 02109. The Trust has engaged the services of PFS
Shareholder Services as the Sub-Transfer Agent. The Sub-Transfer Agent is
located at 3100 Breckinridge Blvd., Bldg 200, Duluth, Georgia 30095-0062.
Custody of Assets
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
International Equity Fund. Chase Manhattan Bank, located at Chase Metrotech
Center, Brooklyn, NY 11245 serves as Custodian for International Equity
Fund.
Shareholder Reports
Semi-annual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants. Also available at the
shareholder's request, is an Account Transcript identifying every financial
transaction in an account since it was opened. To defray administrative
expenses involved with providing multiple years worth of information, 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.
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, 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.
About the Trust
The Trust was organized on January 29, 1987 under the laws of The
Commonwealth of Massachusetts and is a business entity commonly known as a
''Massachusetts business trust.'' It is a diversified, open-end management
investment company 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
fractional votes for fractional shares held in the election of Trustees (to
the extent hereafter provided) and on other matters submitted to the vote of
shareholders. 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 purpose 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.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal year ended October 31, 1997 is
incorporated herein by reference in its entirety.
APPENDIX A
RATINGS OF MUNICIPAL BONDS, NOTES AND COMMERCIAL PAPER
Description of Four Highest Municipal Bond Ratings
Moody's Investors Service, Inc. ("Moody's"):
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa - Bonds that are rated Baa are considered medium-grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Standard & Poor's Ratings Group ("S&P"):
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB - Debt rated BBB is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Description of State and Local Government Municipal Note Ratings
Notes are assigned distinct rating symbols in recognition of the differences
between short-term and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk--
long-term secular trends for example-- may be less important over the short
run.
Moody's Investors Service, Inc.:
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG"). A short-term rating may also
be assigned on an issue having a demand feature, a variable-rate demand
obligation. Such ratings will be designated as "VMIG." Short-term ratings
on issues with demand features are differentiated by the use of the VMIG
symbol to reflect such characteristics as payment upon periodic demand rather
than fixed maturity dates and payment relying on external liquidity.
Additionally, investors should be alert to the fact that the source of
payment may be limited to the external liquidity with no or limited legal
recourse to the issuer in the event the demand is not met. Symbols used are
as follows:
MIG/VMIG 1 - Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 - Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
Standard & Poor's Ratings Group:
SP-1 - Very strong or strong capacity to pay principal interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
Description of Highest Commercial Paper Ratings
Moody's Investors Service, Inc.:
Prime-1 - Issuers (or related supporting institutions) rated Prime-1 have a
superior capacity for repayment of short-term promissory obligations. Prime-
1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of financial markets
and assured sources of alternate liquidity.
Standard & Poor's Ratings Group:
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
Part C. Other Information
Item 23. Exhibits.
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.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.)
a.17 Certificate of Amendment of the Agreement
and Declaration of Trust dated December 30,
1997 filed herewith.
a.18 Form of Certificate of Designation of Mid
Cap
Fund dated January 15, 1999 filed herewith.
b. 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.)
c.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.)
c.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.)
c.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.)
d. Form of Investment Advisory Agreement for
Concert Investment Series (Incorporated herein by reference
to Form N-1A of Registrant's Post-Effective
Amendment No. 20, filed on February 27, 1998).
e.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.).
e.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.).
f. Not applicable.
g. Form of Custodian Agreements (Incorporated
herein by reference to Form N-1A of Registrant's Post-Effective
Amendment No. 20, filed on February 27, 1998).
h.1 Form of Transfer Agency Agreement
(Incorporated herein by reference to Form N-1A of Registrant's Post-
Effective
Amendment No. 20, filed on February 27, 1998).
h.2 Form of Sub-Transfer Agency Agreement
(Incorporated herein by reference to Form N-1A of Registrant's Post-
Effective Amendment No. 20, filed on February 27, 1998).
h.3 Form of Administrative/Management Agreement
filed herewith.
h.4 Individual Retirement Account Application.
(Incorporated by reference to Exhibit 14.1
with Post-Effective Amendment No. 9, filed
November 10, 1993.)
h.5 403(b)(7) Custodial Account Application.
(Incorporated by reference to Exhibit 14.2
with Post-Effective Amendment No. 9, filed
November 10, 1993.)
h.6 Simplified Employee Pension Account
Application. (Incorporated by reference to
Exhibit 14.3 filed with Post-Effective
Amendment No. 9, filed November 10, 1993.)
i. Not applicable.
j. Consent of Independent Auditors filed
Herewith.
k. Not applicable.
l.1 Investment Letter for Common Sense Funds.
(Incorporated by reference to Exhibit 13
filed with Pre-Effective Amendment No. 2,
filed March 31, 1987.)
l.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.)
l.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).
m.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.).
m.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.).
m.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.).
m.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.).
m.5 Form of Distribution Agreement filed
herewith.
n. Financial Data Schedules.+
o. 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.)
+ To be filed by further amendment.
Item 25. Persons Controlled by or under Common Control with
Registrant.
None
Item 24. Indemnification.
Item 25 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 26. 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 Citigroup Inc. 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 27. 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 28. 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 29. Management Services.
There are no management related services contracts not
discussed in Part A or Part B.
Item 30. Undertakings.
None.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, CONCERT INVESTMENT SERIES, has duly caused this Post-
Effective Amendment No. 21 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 15th day of December,
1998.
CONCERT INVESTMENT SERIES
By /s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman of the Board and
Chief Executive Officer
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 December 15, 1998
Heath B. McLendon (Chief Executive
Officer)
/s/ Lewis E. Daidone Senior Vice President December 15, 1998
Lewis E. Daidone and Treasurer (Chief
Financial and
Accounting Officer)
/s/ Donald M. Carlton* Trustee December 15, 1998
Donald M. Carlton
/s/ A. Benton Cocanougher* Trustee December 15, 1998
A. Benton Cocanougher
/s/ Stephen R. Gross* Trustee December 15, 1998
Stephen R. Gross
/s/ Alan G. Merten* Trustee December 15, 1998
Alan G. Merten
/s/ R. Richardson Pettit* Trustee December 15, 1998
R. Richardson Pettit
*Signed by Heath B. McLendon, their duly authorized attorney-in-
fact, pursuant to power of attorney dated February 27, 1998.
EXHIBIT INDEX
a.17 Certificate of Amendment of the Agreement and
Declaration
Of Trust dated December 30, 1997.
a.18 Form of Certificate of Designation for Mid Cap Fund.
h.3 Form of Administrative/Management Agreement.
j. Consent of Independent Auditors.
m.5 Form of Distribution Agreement.
n. Financial Data Schedules.+
+To be filed by further amendment.
COMMON SENSE TRUST
Certificate of Amendment of the
Agreement and Declaration of Trust
of
Common Sense Trust
The undersigned, being the Assistant Secretary of Common Sense
Trust (hereinafter referred to as the "Trust"), a trust with
transferable shares of the type commonly called a Massachusetts
business trust, DOES HEREBY CERTIFY that, pursuant to the authority
conferred upon the Trustees of the Trust by Section 9.3 of the
Agreement and Declaration of Trust, dated January 29, 1987 (the
"Original Declaration", and as amended October 26, 1987, April 8,
1998, February 24, 1992, January 24, 1994, February 2, 1994, January
27, 1995, May 17, 1996 and October 16, 1996, the "Existing
Declaration", and as further amended hereby, the "Declaration"), and
by the affirmative vote of a Majority of the Trustees at a special
telephone meeting duly called and held on October 14, 1997, the
Existing Declaration is amended as follows:
1. The provisions of Section 1.1 of the Existing Declaration
are hereby amended to reflect that the name of the Trust is
being changed to Concert Investment Series and any and all
references to the Trust throughout the Existing Declaration
shall be so amended.
2. The provisions of Section 6.2 of the Existing Declaration,
as they apply to the Common Sense Growth Fund, the Common
Sense growth and Income Fund and the Common Sense
Government Fund (each a "Fund", and collectively, the
"Funds"), which were established as separate portfolios of
the Trust by the Original Declaration (but not as to any
other portfolio of the Trust), are hereby amended in the
following respects:
(a) The name of the Common Sense Growth fun shall be
changed to the Growth Fund.
(b) The name of the Common Sense Growth and Income Fund
shall be changed to the Growth and Income Fund.
(c) The name of the Common Sense (r) Government Fund shall
be changed to the Government Fund.
3. The Trustees further direct that, upon the execution of
this Certificate of Amendment, the Trust take all necessary
action to file a copy hereof with the Secretary of State of
the Commonwealth of Massachusetts and at any other place
required by law or by the Existing Declaration.
IN WITNESS WHEREOF, the undersigned has set her hand and the seal
of the Trust, this 30th day of December, 1997.
Nicholas Dalmaso, Assistant Secretary
[TRUST SEAL]
CONCERT INVESTMENT SERIES
Form of Certificate of Amendment Amending the
Amended and Restated Certificate of Designation
of
Concert Investment Series Mid Cap Fund
Certificate of Amendment Secretary of Concert Investment Series
(hereinafter referred to as the "Trust"), a trust with transferable
shares of the type commonly called Massachusetts business trust, DOES
HEREBY CERTIFY that, pursuant to the authority conferred upon the
Trustees of the Trust by Section 6.1(b) and Section 9.3 of the
Agreement and Declaration of Trust, dated January 29, 1987 (the
"Original Declaration", and as amended October 26, 1987, April 8,
1988, February 24, 1992, January 24, 1994, February 2, 1994, January
27, 1995, May 17, 1996, August 9, 1996, October 16, 1996 and December
31, 1997, the "Existing Declaration", and as further amended hereby,
the "Declaration"), and by the affirmative vote of Majority of the
Trustees at a meeting duly called and held on December 7, 1998, the
Certificate of Designation effective January 27, 1995, amending the
Declaration of Trust to establish the Concert Investment Series Mid Cap
Fund (the "Fund") as a separate Portfolio of the Trust (the
"Certificate"), as amended and restated by an amended and restated by
a Certificate of Amendment Amending the Amended and Restated
Certificate of Designation dated August 9, 1996 (the "Amended
Certificate"), is hereby amended to change the name of the Fund to
"International Equity Fund", wherever the name of the Fund appears in
the Amended Certificate.
IN WITNESS WHEREOF, the undersigned has set his hands and the
seal of the Trust, this 15th day of December, 1997.
Gordon E. Swartz Assistant Secretary
[TRUST SEAL]
U:\SECTOR\LEGAL\USERS\Ges\CISCertificateofAmendment.doc
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
[ ], 1998
Mutual Management Corp.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This Investment Management Agreement (the "Agreement") is made on
this [ ] day of [ ], 1997, by and between [Name of Trust], a
trust/Trust organized under the laws of the State of
Maryland/Massachusetts (the "Trust"), in respect of its series, [Name of
Fund] (the "Fund"), and Mutual Management Corp. ("MMC") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting
in investments of the kind and in accordance with the limitations
specified in: (i) the Trust's Declaration of Trust as amended from
time to time (the "Declaration of Trust"); (ii) the Fund's
Prospectus (the "Prospectus"); and (iii) the Fund's Statement of
Additional Information (the "Statement") filed with the Securities
and Exchange Commission (the "SEC") as part of the Fund's
Registration Statement on Form N-1A, as amended from time to time,
and in such manner and to such extent as may from time to time be
approved by the Board of Trustees of the Trust (the "Board").
Copies of the Fund's Prospectus and the Statement and the
Declaration of Trust have been or will be submitted to MMC. The
Trust desires to employ and hereby appoints MMC to act as
investment manager for the Fund. MMC accepts the appointment and
agrees to furnish the services for the compensation set forth
below. MMC is hereby authorized to retain third parties and is
hereby authorized to delegate some or all of its duties and
obligations hereunder to such persons, provided such persons shall
remain under the general supervision of MMC.
2. Services as Investment Manager
Subject to the supervision and direction of the Board, MMC will:
(a) assist in supervising all aspects of the Fund's operations;
(b) supply the Fund with office facilities (which may be in MMC's
own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services,
including, but not limited to, the calculation of (i) the net
asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and charges and (iii)
distribution fees, internal auditing and legal services, internal
executive and administrative services, and stationery and office
supplies; and (c) prepare reports to shareholders of the Fund, tax
returns and reports to and filings with the SEC and state blue sky
authorities.
3. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Trust will pay MMC, on the first business day of
each month, a fee for the previous month at an annual rate of [
%] of the Fund's average daily net assets. The fee for the period
from the date the Fund commences its investment operations to the
end of the month during which the Fund commences its investment
operations shall be pro-rated according to the proportion that such
period bears to the full monthly period. Upon any termination of
this Agreement before the end of any month, the fee for such part
of that month shall be pro-rated according to the proportion that
such period bears to the full monthly period and shall be payable
upon the date of termination of this Agreement. For the purpose of
determining fees payable to MMC, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the
Fund's Prospectus and/or the Statement, as from time to time in
effect.
4. Expenses
MMC will bear all expenses in connection with the performance of
its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including:
investment advisory and administration fees; charges of custodians
and transfer and dividend disbursing agents; fees for necessary
professional services, such as the Fund's and Board members'
proportionate share of insurance premiums, professional
associations, dues and/or assessments; and brokerage services,
including taxes, interest and commissions; costs attributable to
investor services, including without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses
and statements of additional information for regulatory purposes
and for distribution to existing shareholders; the costs of
regulatory compliance, such as SEC fees and state blue sky
qualifications fees; outside auditing and legal expenses and costs
associated with maintaining the Fund's legal existence; costs of
shareholders' reports and meetings of the officers or Board; fees
of the members of the Board who are not officers, directors or
employees of Smith Barney, Inc. or its affiliates or any person who
is an affiliate of any person to whom duties may be delegated
hereunder and any extraordinary expenses. In addition, the Fund
will pay all service and distribution fees pursuant to a Services
and Distribution Plan adopted under Rule 12b-1 of the Investment
Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund (including
fees pursuant to this Agreement, but excluding distribution fees,
interest, taxes, brokerage and, if permitted by state securities
commissions, extraordinary expenses) exceed the expense limitations
of any state having jurisdiction over the Fund, MMC will reimburse
the Fund for that excess expense to the extent required by state
law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of MMC will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Brokerage
In selecting brokers or dealers to execute transactions on behalf
of the Fund, MMC will seek the best overall terms available. In
assessing the best overall terms available for any transaction, MMC
will consider factors it deems relevant, including, but not limited
to, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any,
for the specific transaction and on a continuing basis. In
selecting brokers or dealers to execute a particular transaction,
and in evaluating the best overall terms available, MMC is
authorized to consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended) provided to the Fund and/or other accounts
over which MMC or its affiliates exercise investment discretion.
7. Information Provided to the Fund
MMC will keep the Trust informed of developments materially
affecting the Fund's portfolio, and will, on its own initiative,
furnish the Trust from time to time with whatever information MMC
believes is appropriate for this purpose.
8. Standard of Care
MMC shall exercise its best judgment in rendering the services
listed in paragraph 2 above. MMC shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates,
provided that nothing in this Agreement shall be deemed to protect
or purport to protect MMC against any liability to the Trust or to
the Fund's shareholders to which MMC would otherwise be subject by
reason of willful malfeasance, bad faith or gross negligence on its
part in the performance of its duties or by reason of MMC 's
reckless disregard of its obligations and duties under this
Agreement.
9. Services to Other Companies or Accounts
The Trust understands that MMC now acts, will continue to act and
may act in the future as: investment adviser to fiduciary and other
managed accounts, as well as to other investment companies; and the
Trust has no objection to MMC's so acting, provided that whenever
the Fund and one or more other investment companies advised by MMC
have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula
believed to be equitable to each company. The Trust recognizes
that in some cases this procedure may adversely affect the size of
the position obtainable for the Fund. In addition, the Trust
understands that the persons employed by MMC to assist in the
performance of MMC's duties under this Agreement will not devote
their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the right of MMC or
any affiliate of MMC to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
l0. Term of Agreement
This Agreement shall become effective as of the date the Fund
commences its investment operations and continue for an initial
two-year term and shall continue thereafter so long as such
continuance is specifically approved at least annually by (i) the
Board or (ii) a vote of a "majority" (as defined in the 1940 Act)
of the Fund's outstanding voting securities, provided that in
either event the continuance is also approved by a majority of the
Board members who are not "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person or
by proxy at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60
days' written notice, by the Board or by vote of holders of a
majority of the Fund's shares, or upon 90 days' written notice, by
MMC. This Agreement will also terminate automatically in the event
of its assignment (as defined in the 1940 Act).
11. Representation by the Trust
The Trust represents that a copy of the Declaration of Trust is on
file with the Commonwealth of Massachusetts.
12. Indemnification
The Trust agrees to indemnify MMC and its officers, directors,
employees, affiliates, controlling persons, agents (including
persons to whom responsibilities are delegated hereunder) against
any loss, claim, expense or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this
Agreement, or from the performance or failure to perform any act
hereunder, provided that no such indemnification shall be available
if the indemnitee violated the standard of care in paragraph 9
above. This indemnification shall be limited by the 1940 Act and
relevant state law. Each indemnitee shall be entitled to advance of
its expenses in accordance with the requirements of the 1940 Act
and the rules, regulations and interpretations thereof as in effect
from time to time.
13. Limitation of Liability
The Trust and MMC agree that the obligations of the Trust under
this Agreement shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Trust individually, but are binding
only upon the assets and property of the Fund, as provided in the
Declaration of Trust. The execution and delivery of this Agreement
have been duly authorized by the Trust and MMC, and signed by an
authorized officer of each, acting as such. Neither the
authorization by the Board members of the Trust, nor the Trust's
execution and delivery by the officer of the Trust shall be deemed
to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the assets
and property of the Fund as provided in the Declaration of Trust.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning the enclosed
copy of this Agreement to us.
Very truly yours,
[Name of Trust]
on behalf of
[Name of Fund]
By:
Title:
Accepted:
Smith Barney Mutual Funds Management Inc.
By:
Title:
Consent of Independent Auditors
We consent to the reference to our firm under the captions
"Financial Highlights" in the Prospectus and "Independent
Auditors" in the Statement of Additional Information and to the
incorporation by reference of our report dated November 14, 1997, in
this Registration Statement on Form N-1a of the Concert Investment
Series, formerly the Common Sense Trust (comprising, respectively the
Emerging Growth Fund, Government Fund, Growth Fund, Growth and Income
Fund, International Equity Fund, Municipal Bond Fund and Money Market
Fund).
Ernst & Young LLP
New York, New York
December 15, 1998
CONCERT INVESTMENT SERIES
FORM OF
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund
and each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, including any shares of
the Fund not designated by series, a "Series"). For purposes of this
Agreement, the term "Shares" shall mean shares of the each Series, or
one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you
or those with whom you have sales or servicing agreements for purchase
or redemption of Shares to the Transfer and Dividend Disbursing Agent
for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders
for the sale of Shares. It is contemplated that you will enter into
sales or servicing agreements with registered securities brokers and
banks and into servicing agreements with financial institutions and
other industry professionals, such as investment advisers, accountants
and estate planning firms. In entering into such agreements, you will
act only on your own behalf as principal underwriter and distributor.
You will not be responsible for making any distribution plan or service
fee payments pursuant to any plans the Fund may adopt or agreements it
may enter into.
1.3 You shall act as the non-exclusive principal
underwriter and distributor of Shares in compliance with all applicable
laws, rules, and regulations, including, without limitation, all rules
and regulations made or adopted from time to time by the Securities and
Exchange Commission (the "SEC") pursuant to the 1933 Act or the 1940
Act or by any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted for
any reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or
make any sales of, any Shares until such time as those officers deem it
advisable to accept such orders and to make such sales and the Fund
shall advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Fund hereunder, and all expenses in connection
with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that nothing contained
herein shall be deemed to require the Fund to pay any costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions
that may be reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of Shares for sale in such
states and other U.S. jurisdictions as the Fund may approve and
designate to you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such qualification.
You shall pay all expenses connected with your own qualification as a
securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in
this Agreement.
2.3 The Fund shall furnish you from time to time, for use
in connection with the sale of Shares, such information reports with
respect to the Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by one or more of the
Fund's duly authorized officers; and the Fund warrants that the
statements contained in any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you
upon request with (a) the reports of the annual audits of the financial
statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-
annual unaudited financial statements pertaining to each Series; (c)
quarterly earnings statements prepared by the Fund for any Series; (d) a
monthly itemized list of the securities in each Series' portfolio; (e)
monthly balance sheets as soon as practicable after the end of each
month; (f) the current net asset value and offering price per share
for each Series on each day such net asset value is computed and (g)
from time to time such additional information regarding the financial
condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said
Acts and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by
the Fund with the SEC and any amendments and supplements thereto filed
by the Fund with the SEC. The Fund represents and warrants to you that
any such registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended and
supplemented, includes at the time of such effectiveness, amendment or
supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact contained
in any registration statement, prospectus or statement of additional
information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the light of
future developments, may, in the opinion of the Fund, be necessary or
advisable. If the Fund shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your
option, terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving you reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right to file at any
time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any such counsel fees
incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act
or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any statement
of additional information or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of
them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or
expenses arising out of any statements or representations made by you or
your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and
further provided that the Fund's agreement to indemnify you and the
Fund's representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover any liability
to the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of
your obligations and duties under this Agreement. The Fund's agreement
to indemnify you, your officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is brought by
reason of any such untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund. In the event the Fund
elects to assume the defense of any such suit and retains counsel of
good standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
if the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by you or them.
The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of the controlling persons
and their successors. The Fund agrees to notify you promptly of the
commencement of any litigation or proceedings against the Fund or any of
its officers or Board members in connection with the issuance and sale
of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
that the Fund, its officers or Board members or any such controlling
person may incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by you to the Fund and
used in the answers to any of the items of the registration statement or
in the corresponding statements made in the prospectus or statement of
additional information, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in connection
with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such
information not misleading. Your agreement to indemnify the Fund, its
officers or Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any
action
brought against the Fund, its officers or Board members, or any such
controlling person, such notification to be given by letter or telegram
addressed to you at your principal office in Boston, Massachusetts and
sent to you by the person against whom such action is brought, within
ten days after the summons or other first legal process shall have been
served. You shall have the right to control the defense of such action,
with counsel of your own choosing, satisfactory to the Fund, if such
action is based solely upon such alleged misstatement or omission on
your part or with the Fund's consent, and in any event the Fund, its
officers or Board members or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any
such action with counsel of its own choosing reasonably acceptable to
you but shall not have the right to settle any such action without your
consent, which will not be unreasonably withheld. The failure to so
notify you of any such action shall not relieve you from any liability
that you may have to the Fund, its officers or Board members, or to such
controlling person by reason of any such untrue, or alleged untrue,
statement or omission, or alleged omission, otherwise than on account of
your indemnity agreement contained in this paragraph 4.2. You agree to
notify the Fund promptly of the commencement of any litigation or
proceedings against you or any of your officers or directors in
connection with the issuance and sale of any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale
of such Shares under this Agreement shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have any application to or
bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended
from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner
set forth in the Fund's charter documents and the then-current
prospectus and statement of additional information) plus (b) a sales
charge, if applicable, which shall be the percentage of the offering
price of such Shares as set forth in the Fund's then-current prospectus
relating to such Series. In addition to or in lieu of any sales charge
applicable at the time of sale, Shares of any class of any Series of the
Fund offered for sale by you may be subject to a contingent deferred
sales charge as set forth in the Fund's then-current prospectus and
statement of additional information. You shall be entitled to receive
any sales charge levied at the time of sale in respect of the Shares
without remitting any portion to the Fund. Any payments to a broker or
dealer through whom you sell Shares shall be governed by a separate
agreement between you and such broker or dealer and the Fund's then-
current prospectus and statement of additional information. Any
payments to any provider of services to you shall be governed by a
separate agreement between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by
the SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement,
prospectus or statement of additional
information then in effect or that requires
the making of a change in such registration
statement, prospectus or statement of
additional information in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the
prospectus or statement of additional
information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall
have an initial term of one year from the date hereof, and shall
continue for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's
Board or (b) by a vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable
with or without cause, without penalty, on 60 days' notice by the Fund's
Board or by vote of holders of a majority of the relevant Series
outstanding voting securities, or on 90 days' notice by you. This
Agreement will also terminate automatically, as to the relevant Series,
in the event of its assignment (as defined in the 1940 Act and the rules
and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under
this Agreement (collectively, a "Dispute") shall be settled by
arbitration administered under the rules of the American Arbitration
Association ("AAA") in New York, New York. Any arbitration and award
of the arbitrators, or a majority of them, shall be final and the
judgment upon the award rendered may be entered in any state or federal
court having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the persons employed by
you or any of your affiliates right to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature, provided, however, that in conducting such business or rendering
such services your employees and affiliates would take reasonable steps
to assure that the other parties involved are put on notice as to the
legal entity with which they are dealing. This Agreement and the terms
and conditions set forth herein shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect
to its conflict of interest principles.
11. Limitation of Liability (Massachusetts business trusts
only)
The Fund and you 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 made 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.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to
us the enclosed copy, whereupon this Agreement will become binding on
you.
Very truly yours,
CONCERT INVESTMENT SERIES
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
EXHIBIT A
Concert Investment Series
Emerging Growth Fund
International Equity Fund
Mid Cap Fund
Growth Fund
Growth and Income Fund
Government Fund
Municipal Bond Fund
Page: 3
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