As filed with the Securities and Exchange Commission on
February 26,
1999
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. 22
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 22
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:
[X] 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)
[ ] 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.
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
<PAGE>
DRAFT 12/10/98
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>
Contents
<TABLE>
<S> <C>
Fund goals, strategies and risks:
- --------------------------------------------------
Emerging Growth Fund 2
- --------------------------------------------------
International Equity Fund 4
- --------------------------------------------------
Mid Cap Fund 6
- --------------------------------------------------
Growth Fund 8
- --------------------------------------------------
Growth and Income Fund 10
- --------------------------------------------------
Government Fund 12
- --------------------------------------------------
Municipal Bond Fund 14
- --------------------------------------------------
More on the Funds' Investments 16
- --------------------------------------------------
Management 17
- --------------------------------------------------
Choosing a Share Class to Buy 18
- --------------------------------------------------
Sales Charges:
- --------------------------------------------------
Class A Sales Charge 19
- --------------------------------------------------
Class B Sales Charge 20
- --------------------------------------------------
Class 1 Sales Charge 21
- --------------------------------------------------
Buying Shares and Exchanging Shares 22
- --------------------------------------------------
Redeeming Shares 23
- --------------------------------------------------
Other Things to Know about Share Transactions 24
- --------------------------------------------------
Dividends, Distributions and Taxes 25
- --------------------------------------------------
Financial Highlights 26
- --------------------------------------------------
</TABLE>
About the manager
The funds' investment manager is SSBC Fund Management Inc., an affiliate of
Salomon Smith Barney Inc. The manager selects the funds' investments and
oversees their operations. The manager and Salomon Smith Barney are subsidiar-
ies of Citigroup Inc. Citigroup businesses produce a broad range of financial
services.
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.
1
The Concert Investment Series Prospectus
<PAGE>
Emerging Growth Fund
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests in common stocks of small and medium sized companies consid-
ered by the manager to be "emerging growth" companies. These are primarily do-
mestic companies, in the early stages of their life cycles, characterized by
relatively high earnings growth. The manager selects investments from among
companies that have market capitalizations in the lowest 25% of all publicly
traded U.S. companies.
How the manager selects the fund's investments
The manager emphasizes individual security selection while spreading invest-
ments among many industries and sectors. The manager uses quantitative analysis
to identify individual companies that it believes offer exceptionally high
prospects for growth. The manager purchases these companies' stocks when it be-
lieves 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 ap-
preciation; any ordinary income is incidental. In selecting individual compa-
nies 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 of investing in the fund
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:
. Stock prices decline generally
. Emerging growth companies fall out of favor with investors
. The manager's judgment about the attractiveness, value or potential apprecia-
tion 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
Compared to large, established companies, emerging growth companies are more
likely to have limited product lines, limited capital resources and less expe-
rienced management. In addition, securities of emerging growth companies are
more likely to:
. Experience sharper swings in market value
. Be harder to sell at times and prices the manager believes appropriate
. Offer greater potential for gains and losses
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 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 investing in the stock market and the spe-
cial risks of investing in emerging growth companies with limited track rec-
ords
2
The Concert Investment Series Prospectus
<PAGE>
Emerging Growth Fund, continued
Total return
- --------------------------------------------------------------------------------
This bar chart indicates the risks of investing in the fund by showing the per-
formance 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.
Past performance does not necessarily indicate how the fund will perform in the
future.
Quarterly returns: Highest: 25.10% in 4th quarter 1998; Lowest: (20.66)% in 3rd
quarter 1998
The performance information in the bar chart does not reflect sales charges,
which would reduce your return.
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART]
Calendar years ended Percentage Total Returns
December 31 for Class A shares
----------- ------------------
96 15.17%
97 20.87%
98 8.43%
<TABLE>
<CAPTION>
Comparative performance
- ---------------------------------------------------------------------------------------
This table in- Average annual total returns for periods ended December 31,
dicates the 1998
risks of -------------------------------------------------------------
investing in <S> <C> <C> <C>
the fund by Class Inception Date 1 Year Since Inception
comparing the -------------------------------------------------------------
average annual 1 08/08/96 (0.53)% 9.37%
total return of -------------------------------------------------------------
each class for A 02/21/95 2.46% 18.96%
the periods -------------------------------------------------------------
shown to that B 02/21/95 2.59% 18.50%
of the Russell -------------------------------------------------------------
2000 Stock In- Russell 2000 Stock Index n/a (2.55)% 15.46%*
dex, an unman- -------------------------------------------------------------
aged index of * The index comparison begins on 2/28/95.
smaller capi-
talization
stocks.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
</TABLE>
<TABLE>
<CAPTION>
Fees and expenses
- ---------------------------------------------------------------------------------------
This table sets Shareholder fees (paid directly from
forth the fees your investment) Class 1 Class A Class B
and expenses -------------------------------------------------------------
you will pay if <S> <C> <C> <C>
you invest in Maximum sales charge on purchases (as a
shares of the % of offering price) 8.50% 5.00% None
fund. -------------------------------------------------------------
Maximum deferred sales charge on
redemptions
(as a % of the lower of net asset value
at purchase or redemption) None None* 5.00%
-------------------------------------------------------------
Annual fund operating expenses
(paid from fund assets; shown as a % of
net assets)
-------------------------------------------------------------
Management fee 0.65% 0.65% 0.65%
-------------------------------------------------------------
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
-------------------------------------------------------------
Other expenses 0.61% 0.53% 0.53%
-------------------------------------------------------------
Total annual fund operating expenses 1.26% 1.43% 2.18%
-------------------------------------------------------------
* 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%.
</TABLE>
<TABLE>
<CAPTION>
Example
- ---------------------------------------------------------------------------------------
This example Number of years you own
helps you com- your shares 1 Year* 3 Years* 5 Years* 10 Years*
pare the costs ----------------------------------------------------------
of investing in <S> <C> <C> <C> <C>
the fund with Class 1 (with or without
those of other redemption) $967 $1216 $1483 $2243
mutual funds. ----------------------------------------------------------
Your actual Class A (with or without
costs may be redemption) $638 $ 930 $1243 $2127
higher or low- ----------------------------------------------------------
er. Class B (assuming
redemption at end of
period) $721 $ 982 $1269 $2321
----------------------------------------------------------
Class B (assuming no
redemption) $221 $ 682 $1169 $2321
----------------------------------------------------------
* 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
. Conversion of Class B shares to Class A shares after 8
years
</TABLE>
The Concert Investment Series Prospectus
3
<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 man-
ager seeks to reduce volatility compared to investing in a single region. Un-
like 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 in-
vestment, 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 (including emerging markets)
and types of issuers may vary. In allocating assets among countries and re-
gions, the manager evaluates:
. Economic stability and favorable prospects for economic growth
. Low or decelerating inflation, creating a favorable environment for securi-
ties markets
. Stable governments with policies that encourage economic growth, equity in-
vestment 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 securities prices decline
. Adverse governmental action or political, economic or market instability af-
fects 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 apprecia-
tion of a particular security proves to be incorrect
In some foreign countries, there is also less information available about for-
eign 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 began in 1999. There are significant po-
litical and economic risks associated with EMU, which may increase the volatil-
ity of the fund's European securities and present valuation problems.
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 inter-
national markets
. Currently have exposure to U.S. stock markets and wish to diversify your in-
vestment portfolio by adding non-U.S. stocks that may not move in tandem with
U.S. stocks
. Are willing to accept the risks of investing in the stock market and the spe-
cial risks of investing in foreign securities, including emerging market se-
curities
4
The Concert Investment Series Prospectus
<PAGE>
International Equity Fund, continued
Total return
- --------------------------------------------------------------------------------
This bar chart indicates the risks of investing in the fund by showing the per-
formance 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.
Past performance does not necessarily indicate how the fund will perform in the
future.
Quarterly Returns: Highest: 19.50% in 4th quarter 1998; Lowest: (20.43)% in 3rd
quarter 1998
The performance information in the chart does not reflect sales charges, which
would reduce your return.
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART]
Calendar years ended Percentage Total Returns
December 31 for Class A shares
----------- ------------------
96 17.59%
97 5.10%
98 22.47%
<TABLE>
<CAPTION>
Comparative performance
- ---------------------------------------------------------------------------------------
This table in- Average annual total returns for periods ended December 31,
dicates the 1998
risks of in- -------------------------------------------------------------
vesting in the <S> <C> <C> <C>
fund by compar- Class Inception Date 1 Year Since Inception
ing the average -------------------------------------------------------------
annual total 1 08/08/96 12.64% 9.71%
return of each -------------------------------------------------------------
class for the A 03/17/95 15.74% 15.37%
periods shown -------------------------------------------------------------
to that of the B 03/17/95 16.43% 15.78%
Morgan Stanley -------------------------------------------------------------
Capital Inter- Morgan Stanley EAFE Index n/a 20.00% 9.68%*
national EAFE -------------------------------------------------------------
Index, an un-
managed index * The index comparison begins on 3/31/95.
of
international
stocks.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the
period, and the
reinvestment of
distributions
and dividends.
</TABLE>
<TABLE>
<CAPTION>
Fees and expenses
- ---------------------------------------------------------------------------------------
This table sets Shareholder fees (paid directly from
forth the fees your investment) Class 1 Class A Class B
and expenses -------------------------------------------------------------
you will pay if <S> <C> <C> <C>
you invest in Maximum sales charge on purchases (as a
shares of the % of offering price) 8.50% 5.00% None
fund. -------------------------------------------------------------
Maximum deferred sales charge on
redemptions
(as a % of the lower of net asset value
at purchase or redemption) None None* 5.00%
-------------------------------------------------------------
Annual fund operating expenses
(paid from fund assets; shown as a % of
net assets)
-------------------------------------------------------------
Management fee 1.00% 1.00% 1.00%
-------------------------------------------------------------
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
-------------------------------------------------------------
Other expenses 0.79% 1.00% 1.11%
-------------------------------------------------------------
Total annual fund operating expenses 1.79% 2.25% 3.11%
-------------------------------------------------------------
* 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%.
</TABLE>
<TABLE>
<CAPTION>
Example
- ---------------------------------------------------------------------------------------
This example Number of years you own
helps you com- your shares 1 Year* 3 Years* 5 Years* 10 Years*
pare the costs ----------------------------------------------------------
of investing in <S> <C> <C> <C> <C>
the fund with Class 1 (with or without
those of other redemption) $1016 $1365 $1737 $2776
mutual funds. ----------------------------------------------------------
Your actual Class A (with or without
costs may be redemption) $ 717 $1168 $1645 $2956
higher or low- ----------------------------------------------------------
er. Class B (assuming
redemption at end of
period) $ 814 $1260 $1730 $3243
----------------------------------------------------------
Class B (assuming no
redemption) $ 314 $ 960 $1630 $3243
----------------------------------------------------------
* 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
. Conversion of Class B shares to Class A shares after 8
years
</TABLE>
The Concert Investment Series Prospectus
5
<PAGE>
Mid Cap Fund
Investment objective
The fund seeks long-term growth of capital.
Key investments
The fund invests primarily in equity securities of medium sized companies,
which are companies with market capitalizations within the range of capitaliza-
tions of the companies included in the Standard & Poors MidCap 400 Index at the
time of investment. Equity securities include exchange traded and over-the-
counter common stocks, preferred stocks, debt securities convertible into eq-
uity 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 or larger than those of medium sized companies
(i.e., companies considered to be 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 manager selects the fund's investments
The manager focuses on medium capitalization companies that exhibit either at-
tractive growth characteristics or attractive value characteristics. The man-
ager selects individual "growth" stocks for investment in two ways: by identi-
fying those companies which exhibit the most favorable growth prospects and by
identifying those companies which have favorable valuations relative to their
growth characteristics. This strategy is commonly known as "growth at a reason-
able 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 rela-
tive growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other statis-
tics 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 poten-
tial and also uses quantitative analysis to determine whether these stocks are
relatively undervalued or overvalued compared to stocks with similar fundamen-
tal characteristics. The manager's quantitative valuations determine whether
and when the fund will purchase and sell stocks that it identifies through fun-
damental research.
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, because of the following:
. U.S. stock markets go down, or perform poorly relative to other types of in-
vestments
. 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 in-
vestment 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 gener-
ally 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.
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 investing in the stock market
6
The Concert Investment Series Prospectus
<PAGE>
Mid Cap Fund, continued
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.
<TABLE>
<CAPTION>
Fees and expenses
- ---------------------------------------------------------------------------------------
This table sets Shareholder fees (paid directly from
forth the fees your investment) Class 1 Class A Class B
and expenses -------------------------------------------------------------
you will pay if <S> <C> <C> <C>
you invest in Maximum sales charge on purchases (as a
shares of the % of offering price) 8.50% 5.00% None
fund. -------------------------------------------------------------
Maximum deferred sales charge on
redemptions
(as a % of the lower of net asset value
at purchase or redemption) None None* 5.00%
-------------------------------------------------------------
Annual fund operating expenses
(paid from fund assets; shown as a % of
net assets)
-------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
-------------------------------------------------------------
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
-------------------------------------------------------------
Other expenses/1/ 0.50% 0.50% 0.50%
-------------------------------------------------------------
Total annual fund operating expenses 1.25% 1.50% 2.25%
-------------------------------------------------------------
* 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 are based on estimated amounts.
</TABLE>
<TABLE>
<CAPTION>
Example
- ---------------------------------------------------------------------------------------
This example Number of years you own
helps you com- your shares 1 Year* 3 Years* 5 Years* 10 Years*
pare the costs ----------------------------------------------------------
of investing in <S> <C> <C> <C> <C>
the fund with Class 1 (with or without
those of other redemption) $967 $1,213 $1,478 $2,233
mutual funds. ----------------------------------------------------------
Your actual Class A (with or without
costs may be redemption) $645 $ 950 $1,278 $2,201
higher or low- ----------------------------------------------------------
er. Class B (assuming
redemption at end of
period) $728 $1,003 $1,305 $2,393
----------------------------------------------------------
Class B (assuming no
redemption) $228 $ 703 $1,205 $2,393
----------------------------------------------------------
* 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
. Conversion of Class B shares to Class A shares after 8
years
</TABLE>
The Concert Investment Series Prospectus
7
<PAGE>
Growth Fund
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests principally in U.S. common stocks and other equity securities,
typically of established companies with large market capitalizations.
How the manager selects the fund's investments
The manager uses a "bottom-up" strategy, primarily focusing on individual secu-
rity selection, with less emphasis on industry and sector allocation. The man-
ager selects investments for their capital appreciation; any ordinary income is
incidental. In selecting individual companies for investment, the manager looks
for:
. Growth characteristics, including high historic growth rates and high rela-
tive growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other statis-
tics 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 poten-
tial, and then uses quantitative analysis to determine whether these stocks are
relatively underva lued or overvalued compared to stocks with similar fun-
|/ 7/8 2/3
damental 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 of investing in the fund
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:
. Stock prices decline generally
. Large capitalization companies fall out of favor with investors
. The manager's judgment about the attractiveness, value or potential apprecia-
tion 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 in-
creases transaction costs, which could detract from the fund's performance.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are an aggressive investor seeking to participate in the long term growth po-
tential of the stock market
. Are willing to accept the risks of investing in common stocks
8
The Concert Investment Series Prospectus
<PAGE>
Growth Fund, continued
Total return
- --------------------------------------------------------------------------------
This bar chart indicates the risks of investing in the fund by showing the per-
formance 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: 23.52% in 4th quarter 1998; Lowest: (26.08)% in 4th
quarter 1997
The performance information in the chart does not reflect sales charges, which
would reduce your return.
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART]
Calendar years ended Percentage Total Returns
December 31 for Class 1 shares
----------- ------------------
89 27.95%
90 -3.41%
91 38.59%
92 7.13%
93 9.37%
94 -2.29%
95 32.84%
96 18.87%
97 27.70%
98 28.50%
<TABLE>
<CAPTION>
Comparative performance
- --------------------------------------------------------------------------------------
This table in- Average annual total returns for
dicates the periods ended December 31, 1998
risks of ------------------------------------------------------------
investing in <S> <C> <C> <C> <C> <C>
the fund by Class Inception Date 1 Year 5 Years 10 Years Since Inception
comparing the ------------------------------------------------------------
average annual 1 04/14/87 17.59% 18.30% 16.61% 13.54%
total return of ------------------------------------------------------------
each class for A 05/03/94 21.12% n/a n/a 19.81%
the periods ------------------------------------------------------------
shown to that B 05/03/94 22.21% n/a n/a 20.29%
of the Standard ------------------------------------------------------------
& Poor's 500 S&P 500
Index, an un- Index n/a 28.74% 24.08% 19.20% 16.45%*
managed index ------------------------------------------------------------
of common
stocks. *The index comparison begins on 4/30/87.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
</TABLE>
<TABLE>
<CAPTION>
Fees and expenses
- ---------------------------------------------------------------------------------------
This table sets Shareholder fees (paid directly from
forth the fees and your investment) Class 1 Class A Class B
expenses you will -------------------------------------------------------------
pay if you invest <S> <C> <C> <C>
in shares of the Maximum sales charge on purchases (as a
fund. % of offering price) 8.50% 5.00% None
-------------------------------------------------------------
Maximum deferred sales charge on
redemptions
(as a % of the lower of net asset value
at purchase or redemption) None None* 5.00%
-------------------------------------------------------------
Annual fund operating expenses
(paid from fund assets; shown as a % of
net assets)
-------------------------------------------------------------
Management fee 0.65% 0.65% 0.65%
-------------------------------------------------------------
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
-------------------------------------------------------------
Other expenses 0.13% 0.12% 0.10%
-------------------------------------------------------------
Total annual fund operating expenses 0.78% 1.02% 1.75%
-------------------------------------------------------------
* 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%.
</TABLE>
<TABLE>
<CAPTION>
Example
- ---------------------------------------------------------------------------------------
This example Number of years you own
helps you com- your shares 1 Year* 3 Years* 5 Years* 10 Years*
pare the costs ----------------------------------------------------------
of investing in <S> <C> <C> <C> <C>
the fund with Class 1 (with or without
those of other redemption) $923 $1,078 $1,246 $1,734
mutual funds. ----------------------------------------------------------
Your actual Class A (with or without
costs may be redemption) $599 $ 808 $1,035 $1,685
higher or low- ----------------------------------------------------------
er. Class B (assuming
redemption at end of
period) $678 $ 851 $1,049 $1,862
----------------------------------------------------------
Class B (assuming no
redemption) $178 $ 551 $ 949 $1,862
----------------------------------------------------------
* 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
. Conversion of Class B shares to Class A shares after 8
years
</TABLE>
The Concert Investment Series Prospectus
9
<PAGE>
Growth and Income Fund
Investment objective
The fund seeks reasonable growth and income.
Key investments
The fund invests in a portfolio consisting principally 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 capi-
talizations. The fund's convertible securities may be of any credit quality and
may include below investment grade securities (commonly known as "junk bonds").
How the manager selects the fund's investments
The manager emphasizes individual security selection while spreading the fund's
investments among industries and sectors. The manager uses a two-step selection
process commonly known as "growth at a reasonable price."
First, the manager uses quantitative analysis to find stocks with strong growth
potential, and to determine whether these securi-
ties are relatively undervalued or overvalued. Quantitative factors include:
. Growth characteristics, including high historic growth rates and high rela-
tive growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other statis-
tics indicating that a security is undervalued
Then, the manager uses fundamental qualitative research to verify these equity
securities'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
These valuations then influence the timing of the fund's purchases and sales of
securities.
Principal risks of investing in the fund
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:
. 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 securities. These securities are consid-
ered speculative because they have a higher risk of issuer default, are sub-
ject 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 in-
creases transaction costs, which could detract from the fund's performance.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are seeking reasonable long term growth and current income
. Are willing to accept the risks of investing in the stock market
10
The Concert Investment Series Prospectus
<PAGE>
Growth and Income Fund, continued
Total return
- --------------------------------------------------------------------------------
This bar chart indicates the risks of investing in the fund by showing the per-
formance 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: 19.51% in 4th quarter 1998; Lowest: (20.82)% in 4th
quarter 1997
The performance information in the chart does not reflect sales charges, which
would reduce your return.
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART]
Calendar years ended Percentage Total Returns
December 31 for Class 1 shares
----------- ------------------
89 27.23%
90 -3.10%
91 31.30%
92 7.33%
93 9.40%
94 -3.17%
95 36.57%
96 17.93%
97 24.47%
98 19.32%
<TABLE>
<CAPTION>
Comparative performance
- --------------------------------------------------------------------------------------
This table in- Average annual total returns for
dicates the periods ended December 31, 1998
risks of ------------------------------------------------------------
investing in <S> <C> <C> <C> <C> <C>
the fund by Class Inception Date 1 Year 5 Years 10 Years Since Inception
comparing the ------------------------------------------------------------
average annual 1 08/08/86 9.17% 16.21% 14.95% 12.19%
total return of ------------------------------------------------------------
each class for A 08/18/96 12.48% n/a n/a 17.42%
the periods ------------------------------------------------------------
shown to that B 08/18/96 13.41% n/a n/a 17.87%
of the Standard ------------------------------------------------------------
& Poor's 500 S&P 500
Index, an un- Index n/a 28.74% 24.08% 19.20% 29.87%*
managed index ------------------------------------------------------------
of common
stocks. *The index comparison begins on 8/31/86.
This table as-
sumes the impo-
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
</TABLE>
<TABLE>
<CAPTION>
Fees and expenses
- ---------------------------------------------------------------------------------------
This table sets Shareholder fees (paid directly from
forth the fees your investment) Class 1 Class A Class B
and expenses -------------------------------------------------------------
you will pay if <S> <C> <C> <C>
you invest in Maximum sales charge on purchases (as a
shares of the % of offering price) 8.50% 5.00% None
fund. -------------------------------------------------------------
Maximum deferred sales charge on
redemptions
(as a % of the lower of net asset value
at purchase or redemption) None None* 5.00%
-------------------------------------------------------------
Annual fund operating expenses
(paid from fund assets; shown as a % of
net assets)
-------------------------------------------------------------
Management fee 0.65% 0.65% 0.65%
-------------------------------------------------------------
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
-------------------------------------------------------------
Other expenses 0.18% 0.17% 0.16%
-------------------------------------------------------------
Total annual fund operating expenses 0.83% 1.07% 1.81%
-------------------------------------------------------------
* 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%.
</TABLE>
<TABLE>
<CAPTION>
Example
- ------------------------------------------------------------------------------------
This example Number of years you own
helps you com- your shares 1 Year* 3 Years* 5 Years* 10 Years*
pare the costs ----------------------------------------------------------
of investing in <S> <C> <C> <C> <C>
the fund with Class 1 (with or without
those of other redemption) $928 $1092 $1271 $1788
mutual funds. ----------------------------------------------------------
Your actual Class A (with or without
costs may be redemption) $604 $ 823 $1061 $1740
higher or low- ----------------------------------------------------------
er. Class B (assuming
redemption at end of
period) $684 $ 869 $1080 $1928
----------------------------------------------------------
Class B (assuming no
redemption) $184 $ 569 $ 980 $1928
----------------------------------------------------------
* 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
. Conversion of Class B shares to Class A shares after 8
years
</TABLE>
The Concert Investment Series Prospectus
11
<PAGE>
Government Fund
Investment objective
The fund seeks high current return consistent with preservation of capital.
Key investments
The fund invests primarily in government debt issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include U.S.
Treasury securities, mortgage-related and asset-backed securities. Some govern-
ment 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 manager selects the fund's investments
The manager focuses on identifying undervalued sectors and securities. Specifi-
cally, the manager:
. Determines sector and maturity weightings based on 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 bal-
ance potential return and risk
Principal risks of investing in the fund
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:
. Interest rates increase, causing the prices of fixed income securities to de-
cline and reducing the value of the fund's portfolio
. Prepayment risk (or call risk). As interest rates decline, the issuers of se-
curities held by the fund may prepay principal earlier than scheduled, forc-
ing 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
. Changes in interest rates or the value of securities cause the value of op-
tions or futures contracts held by the fund to decline, resulting in dispro-
portionate losses to the fund's portfolio
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. 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
12
The Concert Investment Series Prospectus
<PAGE>
Government Fund, continued
Total return
- --------------------------------------------------------------------------------
This bar chart indicates the risks of investing in the fund by showing the per-
formance 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: 8.81% in 2nd quarter 1989; Lowest: (3.94)% in 1st
quarter 1994.
The performance information in the chart does not reflect sales charges, which
would reduce your return.
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART]
Calendar years ended Percentage Total REturns
December 31 for Class 1 shares
----------- ------------------
89 14.32%
90 8.09%
91 15.44%
92 6.79%
93 8.18%
94 -4.54%
95 16.97%
96 2.09%
97 9.68%
98 6.26%
<TABLE>
<CAPTION>
Comparative performance
- --------------------------------------------------------------------------------------
Average annual total returns for periods
This table in- ended December 31, 1998
dicates the ----------------------------------------------------------------
risks of in- <S> <C> <C> <C> <C> <C>
vesting in the Class Inception Date 1 Year 5 Years 10 Years Since Inception
fund by compar- ----------------------------------------------------------------
ing the average 1 04/14/87 (0.92)% 4.39% 7.40% 6.91%
annual total ----------------------------------------------------------------
return of each A 08/08/95 0.94% n/a n/a 4.93%
class for the ----------------------------------------------------------------
periods shown B 08/08/95 1.18% n/a n/a 4.98%
to that of the ----------------------------------------------------------------
Lehman Brothers Lehman
Mutual Fund Brothers
General U.S. Mutual
Government In- Fund
dex, an unman- General
aged index of U.S.
U.S. government Government
securities. Index n/a 9.85% 7.18% 9.17% 8.76%*
----------------------------------------------------------------
This table as-
sumes the impo-
sition of the * The index comparison begins on 4/30/87.
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
</TABLE>
<TABLE>
<CAPTION>
Fees and expenses
- --------------------------------------------------------------------------------
This table sets Shareholder fees (paid directly from
forth the fees your investment) Class 1 Class A Class B
and expenses -------------------------------------------------------------
you will pay if <S> <C> <C> <C>
you invest in Maximum sales charge on purchases (as a
shares of the % of offering price) 6.75% 4.50% None
fund. -------------------------------------------------------------
Maximum deferred sales charge on
redemptions
(as a % of the lower of net asset value
at purchase or redemption) None None* 4.50%
-------------------------------------------------------------
Annual fund operating expenses
(paid from fund assets; shown as a % of
net assets)
-------------------------------------------------------------
Management fee 0.60% 0.60% 0.60%
-------------------------------------------------------------
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
-------------------------------------------------------------
Other expenses 0.28% 0.27% 0.27%
-------------------------------------------------------------
Total annual fund operating expenses 0.88% 1.12% 1.87%
-------------------------------------------------------------
* 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%.
</TABLE>
<TABLE>
<CAPTION>
Example
- --------------------------------------------------------------------------------
This example Number of years you own
helps you com- your shares 1 Year* 3 Years* 5 Years* 10 Years*
pare the costs ----------------------------------------------------------
of investing in <S> <C> <C> <C> <C>
the fund with Class 1 (with or without
those of other redemption) $759 $937 $1,130 $1,686
mutual funds. ----------------------------------------------------------
Your actual Class A (with or without
costs may be redemption) $559 $790 $1,039 $1,752
higher or low- ----------------------------------------------------------
er. Class B (assuming
redemption at end of
period) $640 $888 $1,111 $1,992
----------------------------------------------------------
Class B (assuming no
redemption) $190 $588 $1,011 $1,992
----------------------------------------------------------
</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
. Conversion of Class B shares to Class A shares after 8
years
The Concert Investment Series Prospectus
13
<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.
Key investments
The fund invests in a diversified portfolio consisting principally of tax ex-
empt municipal bonds, which are 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 fed-
eral 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 may also invest up to 25% in
lower rated municipal bonds that have speculative characteristics.
How the manager selects the fund's investments
The manager selects securities primarily by identifying undervalued sectors and
individual securities, while also selecting securities that it believes will
benefit from changes in relative interest rates. In selecting individual secu-
rities, the manager:
. Uses fundamental credit analysis to estimate the relative value and attrac-
tiveness 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 the fund
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:
. 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 be-
cause 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. In addition, distributions of the fund's income and gains will be
subject to state taxation.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are in a high tax bracket and seeking income that is exempt from federal tax-
ation
. Currently have exposure to equity securities and taxable fixed income securi-
ties and wish to broaden your investment portfolio
. Are willing to accept the risks of investing in municipal bonds, including
interest rate risk and credit risk
14
The Concert Investment Series Prospectus
<PAGE>
Municipal Bond Fund, continued
Total return
- --------------------------------------------------------------------------------
This bar chart indicates the risks of investing in the fund by showing the per-
formance 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: 5.95% in 1st quarter 1995; Lowest: (4.04)% in 1st
quarter 1994
The performance information in the chart does not reflect sales charges, which
would reduce your return.
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART]
Calendar years ended Percentage Total Return
December 31 for Class 1 shares
----------- ------------------
89 8.50%
90 5.77%
91 11.29%
92 8.51%
93 11.17%
94 -4.27%
95 16.58%
96 3.99%
97 8.97%
98 5.40%
<TABLE>
<CAPTION>
Comparative performance
- --------------------------------------------------------------------------------
This table in- Average annual total returns for
dicates risks periods ended December 31, 1998
of investing in --------------------------------------------------------------
the fund com- <S> <C> <C> <C> <C> <C>
paring the av- Class Inception Date 1 Year 5 Years 10 Years Since Inception
erage annual --------------------------------------------------------------
total return of 1 07/13/88 0.40% 4.89% 6.94% 7.12%
each class for --------------------------------------------------------------
the periods A 08/18/96 0.42% n/a n/a 4.73%
shown to that --------------------------------------------------------------
of the Lehman B 08/18/96 0.36% n/a n/a 4.79%
Brothers Munic- --------------------------------------------------------------
ipal Bond In- Lehman
dex, an unman- Brothers
aged index of Municipal
municipal Bond
bonds. Index n/a 5.84% 6.10% 8.15% 8.20%*
--------------------------------------------------------------
This table as-
sumes the impo- * The index comparison begins on 7/31/88.
sition of the
maximum sales
charge applica-
ble to the
class, the re-
demption of
shares at the
end of the pe-
riod, and the
reinvestment of
distributions
and dividends.
</TABLE>
<TABLE>
<CAPTION>
Fees and expenses
- --------------------------------------------------------------------------------
This table sets Shareholder fees (paid directly from
forth the fees your investment) Class 1 Class A Class B
and expenses -------------------------------------------------------------
you will pay if <S> <C> <C> <C>
you invest in Maximum sales charge on purchases (as a
shares of the % of offering price) 4.75% 4.50% None
fund. -------------------------------------------------------------
Maximum deferred sales charge on
redemptions
(as a % of the lower of net asset value
at purchase or redemption) None None* 4.50%
-------------------------------------------------------------
Annual fund operating expenses
(paid from fund assets; shown as a % of
net assets)
-------------------------------------------------------------
Management fee 0.60% 0.60% 0.60%
-------------------------------------------------------------
Distribution and service (12b-1) fee 0.00% 0.25% 1.00%
-------------------------------------------------------------
Other expenses 0.41% 0.38% 0.35%
-------------------------------------------------------------
Total annual fund operating expenses 1.01% 1.23% 1.95%
-------------------------------------------------------------
</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%.
<TABLE>
<CAPTION>
Example
- --------------------------------------------------------------------------------
This example Number of years you
helps you com- own your shares 1 Year* 3 Years* 5 Years* 10 Years*
pare the costs -------------------------------------------------------
of investing in <S> <C> <C> <C> <C>
the fund with Class 1 $573 $781 $1,006 $1,653
those of other -------------------------------------------------------
mutual funds. Class A $570 $823 $1,095 $1,872
Your actual -------------------------------------------------------
costs may be Class B (Assuming
higher or low- redemption at end of
er. period) $648 $912 $1,152 $2,078
-------------------------------------------------------
Class B (Assuming no
redemption) $198 $612 $1,052 $2,078
-------------------------------------------------------
</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
. Conversion of Class B shares to Class A shares after 8
years
The Concert Investment Series Prospectus
15
<PAGE>
More on the Funds' Investments
Equity securities
Equity securities include exchange traded and over-the-counter common and pre-
ferred stocks, debt securities convertible into equity securities, and warrants
and rights relating to equity securities.
Securities of foreign issuers
all funds except Government Fund and Municipal Bond Fund
International Equity Fund invests at least 65% of its assets in equity securi-
ties of foreign issuers, including those in emerging market countries. Emerging
Growth Fund, Growth Fund and Growth and Income Fund may invest up to 20% of
their assets, and Mid Cap Fund up to 25% of its assets, in foreign securities,
including those of issuers in emerging market countries.
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 denomi-
nated 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 signifi-
cant gains but also involve greater risks than investing in more developed
countries. Political or economic stability, lack of market liquidity and gov-
ernment actions such as currency controls or seizure of private business or
property may be more likely in emerging markets.
Derivative transactions
All Funds
The funds may, but need not, use derivative contracts, such as futures and op-
tions on securities, securities indices or 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 because of 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 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. Deriva-
tives can also make a fund less liquid and harder to value, especially in de-
clining markets.
Temporary defensive investments
All Funds
Each of the funds may depart from its principal investment strategies in re-
sponse to adverse market, economic or political conditions by taking temporary
defensive positions in all types of money market and short-term debt securi-
ties. If the fund takes a temporary defensive position, it may be unable to
achieve its investment objective.
Special restrictions
All Funds Except International Equity Fund and Mid Cap Fund
Each fund, except International Equity Fund and Mid Cap Fund, will not purchase
any securities issued by a company primarily engaged in the manufacture of al-
cohol or tobacco.
Goals/Policies
All Funds
Each fund's goal and investment policies generally may be changed by the trust-
ees without shareholder approval.
16
The Concert Investment Series Prospectus
<PAGE>
Management
Smith Barney Mutual Funds, which includes the Concert Investment Series, offers
a distinct family of fund choices tailored to help meet the varying needs of
large and small investors. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses provide 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.
The portfolio managers
The portfolio managers are primarily responsible for the day-to-day operation
of the funds indicated below. The table also shows the business experience of
each portfolio manager.
<TABLE>
<CAPTION>
Portfolio
Fund Manager(s) Since Past 5 Years' Business Experience
- ----------------------------------------------------------------------------------------
<C> <C> <C> <S>
Emerging Growth Sandip Bhagat 1997 investment officer of the manager and pres-
ident of
Travelers Investment Management Company, an
affiliate of the manager
- ----------------------------------------------------------------------------------------
International Equity Jeffrey Russell 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
James Conheady 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
- ----------------------------------------------------------------------------------------
Mid Cap and Growth Larry Weissman 1997* investment officer of the manager and man-
aging director of Salomon Smith Barney
since October, 1997; portfolio manager of
Neuberger & Berman, LLC, 1995-97; portfolio
manager of College Retirement Equities Fund
prior thereto
- ----------------------------------------------------------------------------------------
Growth and Income R. Jay Gerken 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
- ----------------------------------------------------------------------------------------
Government James E. Conroy 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
- ----------------------------------------------------------------------------------------
Municipal Bond Joseph P. Deane 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
- ----------------------------------------------------------------------------------------
</TABLE>
*Mr. Weissman's responsibilities for the Mid Cap Fund will begin with the fil-
ing of this prospectus.
Management fees
Management fees paid during the fiscal year ended october 31, 1998
(as % of average daily net assets)
<TABLE>
<CAPTION>
Emerging Growth International Mid Cap Growth Growth and Government Municipal
Fund Equity Fund Fund Fund Income Fund Fund Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0.65% 1.00% N/A 0.65% 0.65% 0.60% 0.60%
- ----------------------------------------------------------------------------------------------
</TABLE>
Distributor
CFBDS, Inc. serves as the funds' distributor. PFS Investments 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, 2000. This situation,
commonly known as the "Year 2000" issue, could have an adverse impact on the
funds. Individual companies (or governmental issuers) that issue securities
held by one or more of the funds may also be adversely affected by the cost of
addressing their year 2000 systems problems, which could be substantial.The
manager and distributor are addressing the Year 2000 issue 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 ad-
versely affect them, the funds cannot guarantee that the efforts of each fund
(which are limited to requesting and receiving reports from its service provid-
ers) or the efforts of its service providers to correct the problem will be
successful.
17
The Concert Investment Series Prospectus
<PAGE>
Choosing a Share Class to Buy
Share classes
- --------------------------------------------------------------------------------
You can choose between Class A shares and Class B shares. If 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 .The expenses paid by each class
.How long you expect to own .Whether you qualify for any reduction or
the shares waiver of sales charges
<TABLE>
<CAPTION>
Investment minimums
- ------------------------------------------------------------------------------------------
Minimum initial Initial Investment Additional Investments
and additional Classes A and B All Classes
investment ----------------------------------------------------------------
amounts vary <S> <C> <C>
depending on the General $1,000 $50
class of shares ----------------------------------------------------------------
you buy and the Individual Retirement
nature of your Accounts, Self Employed
investment Retirement Plans,
account. Uniform Gift to Minor
Accounts $ 250 $50
----------------------------------------------------------------
Qualified Retirement
Plans $ 25 $25
----------------------------------------------------------------
Systematic Investment
Plans $ 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
<TABLE>
<CAPTION>
Comparing classes
- ------------------------------------------------------------------------------------------
Your PFS Investments Registered Representative can help you decide which class
meets your goals. Your PFS Investments Registered Representative may receive
different compensation depending upon which class you choose.
<S> <C> <C> <C>
Key Features Class A Class B Class 1
.Initial sales . No initial . Only avail-
charge sales charge able to eli-
gible Class 1
. You may qual- . Deferred shareholders
ify for re- sales charge
duction or declines over .Higher initial
waiver of time sales charge
initial sales
charge over . Convert to .Lowest annual
time Class A expenses
shares after
eight years
. Lower annual . Highest an-
expenses than nual expenses
Class B
shares
Initial Sales Up to 5.00%, None Up to 8.50%,
Charge reduced for reduced for
large pur- large purchases
chases. No
charge for pur-
chases of
$500,000 or
more, or for
certain invest-
ors
Deferred Sales None, except Up to 5% None
Charge for purchases charged when
of $500,000 or you redeem
more -- 1% if shares. The
you redeem charge is re-
within 1 year duced over time
of purchase and there is no
deferred sales
charge after 6
years
Annual 12b-1 Fees 0.25% of aver- 1% of average None
age daily net daily net as-
assets sets
Exchangeable Class A shares Class B shares Class 1 shares
Into* of Concert and of Concert and of Concert
certain Smith certain Smith funds that of-
Barney mutual Barney mutual fer Class 1
funds funds shares and
Class A shares
of other Con-
cert and cer-
tain Smith
Barney mutual
funds
</TABLE>
*Ask your PFS Investments Registered Representative about funds available for
exchange.
18
The Concert Investment Series Prospectus
<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 in-
creases 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 in-
tent, waivers for certain investors and other options to reduce your sales
charge, ask your PFS Investments Registered Representative or consult the
Statement of Additional Information (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 % % of Net Amount % of Offering % of Net Amount
Amount of Investment of Offering 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 pur-
chase, 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 calculat-
ing 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 one or more 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, in-
cluding:
. 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 Repre-
sentative is notified
. Participants in the PFS Primerica Corporation Savings and Retirement Plan
19
The Concert Investment Series Prospectus
<PAGE>
Class B Sales Charge
Class B deferred sales charge
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, 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 Representa-
tive or consult the SAI.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year After Purchase
- ---------------------------------------------------------------------------
Deferred Sales Charge for: 1st 2nd 3rd 4th 5th 6th through 8th
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Government Fund and
Municipal Fund 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 pur-
chase 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 de-
ferred sales charge on shares exchanged for shares of another Concert or eligi-
ble 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
Purchase
- -------------------------
<S> <C> <C> <C>
.Eight years after the
date of purchase
<CAPTION>
Shares
Issued on
Reinvestment
of
Distribution
and
Dividends
- -------------------------
<S> <C> <C> <C>
.In same proportion that
the number of Class B
shares converting is to
total Class B shares
you own
<CAPTION>
Shares
Issued upon
Exchange
from Another
Fund
- -------------------------
<S> <C> <C> <C>
.On the date the shares
originally acquired
would have converted
into Class A shares
- -------------------------
</TABLE>
20
The Concert Investment Series Prospectus
<PAGE>
Class 1 Sales Charge
Class 1 sales charge
Class 1 shares are offered to eligible Class 1 shareholders at the next deter-
mined 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 cer-
tain levels called breakpoints. As described in these tables, the Class 1
breakpoints vary by fund.
Emerging Growth, International Equity, Mid Cap, Growth and Growth and Income
Funds
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
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>
- --------------------------------------------------------------------------------
Government Fund
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
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>
- --------------------------------------------------------------------------------
Municipal Bond Fund
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
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>
21
The Concert Investment Series Prospectus
<PAGE>
Buying Shares and Exchanging Shares
Buying shares by mail
. Initial purchases of shares of each fund must be made through a PFS Invest-
ments 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 Serv-
ices, 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 New York Stock Exchange is open. Pur-
chase orders received after the close of regular trading on the Exchange are
priced at the net asset value next determined. The minimum telephone invest-
ment 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 Breck-
inridge 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.
Buying shares by wire
Initial purchases of shares for $10,000 may be made 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 In-
vestments Representative.
Systematic investment plan
You may authorize PFS to automatically transfer funds on a 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 privilege
You should contact your PFS Investments Registered 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 in-
to. 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. Some funds may not be offered in your
state of residence. 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 certifi-
cates 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 In-
vestments Registered Representative or consult the SAI.
22
The Concert Investment Series Prospectus
<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.
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 Share-
holder Services by calling (800) 544-5445 or (800) 544-7278 for Spanish speak-
ing representatives or (800) 824-1721 for the TDD Line for the Hearing Im-
paired. 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 af-
ter 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, which may take up to 15 days. 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 and a $2.50 service fee for transfers made directly to your bank by
the Automated Clearinghouse (ACH). 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.
Redemptions by fax
You may redeem shares by fax as long as a signature guarantee or other documen-
tary evidence is not required. Redemption requests should be properly signed by
all 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 addi-
tion, 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 New York Stock Exchange is open. Re-
quests received after the close of regular trading on the Exchange are priced
at the net asset value next computed. If telephone redemptions are not avail-
able for any reason, you may use the Fund's regular redemption procedure de-
scribed 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
23
The Concert Investment Series Prospectus
<PAGE>
Other Things to Know about Share Transactions
Small account balances
If your account falls below $500 due to redemption of fund 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 certificates
Upon written request, a share certificate will be issued if 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. The Exchange is closed on certain holidays listed in the SAI. 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 quota-
tions. 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 de-
termined 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 securi-
ties.
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 can-
not 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 addresses
Manager: Mutual Management Corp.
388 Greenwich Street, MF2
New York, New York 10013
Shareholder Services:
PFS Shareholder Services
3100 Breckinridge Blvd., Bldg. 200
Duluth, Georgia 30099-0062
(800) 544-5445
24
The Concert Investment Series Prospectus
<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 fol-
lows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Capital Distributions
Dividend Gain Mostly
Fund Distributions Distributions 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 nec-
essary for a fund to avoid a federal tax. Capital gains distributions and divi-
dends 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. Alter-
natively, 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 divi-
dend, 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 Usually capital gain or loss;
exchange long-term only if shares
of shares owned more than one year
- -------------------------------------------------
Long-term capital Long-term capital gain
gain
distributions
- -------------------------------------------------
Short-term Ordinary income
capital gain
distributions
- -------------------------------------------------
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 distri-
bution 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 tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends (other than ex-
empt-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 divi-
dends, distributions or redemption proceeds.
25
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
The financial For a Share of Each Class of Beneficial
highlights ta- Interest Outstanding Throughout Each
bles are in- Year:
tended to help
you understand Emerging Growth Fund
the performance -----------------------------------------------------------------------------------------------------
of each class Class 1 Shares August 8, 1996
for the past (Commencement
five years (or Year Ended Year Ended of Distribution) to
since inception October 31, 1998* October 31, 1997 October 31, 1996
if less than -----------------------------------------------------------------------------------------------------
five years). <S> <C> <C> <C>
Certain infor- Net Asset Value, Begin-
mation reflects ning of Period $ 22.15 $18.59 $17.89
financial re- -----------------------------------------------------------------------------------------------------
sults for a Income (loss) from oper-
single share. ations
Total returns Net investment loss (0.12) (0.08) (0.02)
represent the -----------------------------------------------------------------------------------------------------
rate that a Net realized and
shareholder unrealized gain (1.54) 3.64 0.72
would have -----------------------------------------------------------------------------------------------------
earned (or Total from investment
lost) on a fund operations (1.66) 3.56 0.70
share assuming -----------------------------------------------------------------------------------------------------
reinvestment of Less Distributions From:
all dividends Net investment income -- -- --
and distribu- Net realized gain (0.21) -- --
tions. The in- -----------------------------------------------------------------------------------------------------
formation in Total Distributions (0.21) -- --
the following ---------------------------------------------------------------------------------------------------
tables was au- Net Asset Value, End of
dited by Ernst Period $20.28 $22.15 $18.59
& Young LLP, -----------------------------------------------------------------------------------------------------
independent au- Total Return(1) (7.52)% 19.15% 3.91%(2)
ditors, whose -----------------------------------------------------------------------------------------------------
report, along Net Assets, End of Pe-
with the fund's riod (millions) $7 $6 $1
financial -----------------------------------------------------------------------------------------------------
statements are Ratio of expenses to
included in the average net assets 1.26% 1.39% 1.74%+
annual report -----------------------------------------------------------------------------------------------------
(available upon Ratio of net investment
request). No loss to average net
information is assets (0.60) (0.63) (1.09)+
presented for -----------------------------------------------------------------------------------------------------
Mid Cap Fund Portfolio Turnover 80% 100% 80%
because it had -----------------------------------------------------------------------------------------------------
not commenced
operations dur- (1) Total returns do not reflect any applicable sales loads
ing the periods or deferred sales charges.
covered by (2) Not annualized.
these tables. + Annualized.
* Effective December 31, 1997 SSBC Fund Management Inc.,
formerly known as Mutual Management Corp., replaced Van
Kampen American Capital Asset Management as the Fund
Manager.
</TABLE>
<TABLE>
<CAPTION>
Class A Shares February 21, 1995
Year Ended Year Ended Year Ended (Commencement of
October 31, October 31, October 31, Investment Operations)
1998* 1997 1996 to October 31, 1995(1)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $22.08 $18.57 $15.12 $11.81
----------------------------------------------------------------------------------
Income (loss) from
operations
Net investment loss (0.17) (0.15) (0.18) (0.24)
Net realized and
unrealized gain (1.55) 3.66 3.63 3.55
----------------------------------------------------------------------------------
Total from investment
operations (1.72) 3.51 3.45 3.31
----------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- --
Net realized gain (0.21) -- -- --
----------------------------------------------------------------------------------
Total Distributions (0.21) -- -- --
----------------------------------------------------------------------------------
Net Asset Value, End of
Period $20.15 $22.08 $18.57 $15.12
----------------------------------------------------------------------------------
Total Return(2) (7.81)% 18.90% 22.82% 28.11%(3)
----------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $108 $101 $52 $16
----------------------------------------------------------------------------------
Ratio of expenses to
average net assets* 1.43% 1.69% 2.21% 2.75%+
----------------------------------------------------------------------------------
Ratio of net investment
loss to average net
assets* (0.80) (0.92) (1.52) (1.65)%+
----------------------------------------------------------------------------------
Portfolio Turnover 80% 100% 80% 83%(4)
----------------------------------------------------------------------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
total return would
have been lower and
the ratios would have
been as follows:
----------------------------------------------------------------------------------
Ratio of expenses to
average net assets N/A N/A N/A 3.37%+
----------------------------------------------------------------------------------
Ratio of net investment
loss to average net
assets N/A 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.
+ Annualized.
N/A=Not Applicable
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset Manage-
ment as the Fund Manager.
The Concert Investment Series Prospectus
26
<PAGE>
Financial Highlights, continued
Emerging Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares February 21, 1995
(Commencement
of Investment
Year Ended Year Ended Year Ended Operations) to
October 31, 1998(5) October 31, 1997 October 31, 1996 October 31, 1995(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $21.63 $18.34 $15.04 $11.81
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
Net investment loss (0.30) (0.27) (0.27) (0.35)
Net realized and unrealized gain (1.52) 3.56 3.57 3.58
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.82) 3.29 3.30 3.23
- --------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- --
Net realized gain (0.21) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.21) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $19.60 $21.63 $18.34 $15.04
- --------------------------------------------------------------------------------------------------------------------------
Total Return(2) (8.45)% 17.94% 21.94% 27.43%(3)
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $91 $80 $39 $11
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets* 2.18% 2.44% 2.96% 3.49%+
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net
assets* (1.55) (1.67) (2.27) (2.45)+
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 80% 100% 80% 83%(4)
- --------------------------------------------------------------------------------------------------------------------------
* If certain expenses had not been waived or
reimbursed by the Fund's former manager,
total return would have been lower and the
ratios would have been as follows:
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets N/A N/A N/A 4.11%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to
average net assets N/A 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.
(5) Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund Manager.
+
Annualized.
N/A=Not Applicable
27
The Concert Investment Series Prospectus
<PAGE>
International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Shares August 8, 1996
(Commencement
Year Ended Year Ended of Distribution)
October 31, October 31, to October 31,
1998(4) 1997 1996(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $18.16 $16.52 $ 16.00
- ------------------------------------------------------------------------------
Income (loss) from operations
Net investment loss (0.21) (0.17) (0.03)
Net realized and unrealized gain 1.11 1.81 .55
- ------------------------------------------------------------------------------
Total from investment operations 0.90 1.64 .52
- ------------------------------------------------------------------------------
Net Asset Value, End of Period $19.06 $18.16 $16.52
- ------------------------------------------------------------------------------
Total Return(2) 4.96% 9.99% 3.25%(3)
- ------------------------------------------------------------------------------
Net Assets, End of Period (millions) $2 $2 $0.2
- ------------------------------------------------------------------------------
Ratio of expenses to average net
assets* 1.79% 2.26% 2.50%+
- ------------------------------------------------------------------------------
Ratio of net investment loss to
average net assets* (0.99) (1.24) (1.31)%+
- ------------------------------------------------------------------------------
Portfolio Turnover 63% 57% 78%(3)
- ------------------------------------------------------------------------------
* If certain expenses had not been
waived or reimbursed by the Fund's
former manager, total return would
have been lower and the ratios
would have been as follows:
- ------------------------------------------------------------------------------
Ratio of expenses to average net
assets N/A N/A 3.87%+
- ------------------------------------------------------------------------------
Ratio of net investment loss to
average net assets N/A 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.
(4) Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund Manager.
N/A=Not Applicable
+
Annualized.
<TABLE>
<CAPTION>
Class A Shares February 21, 1995
(Commencement
Year Ended Year Ended Year Ended of Investment
October 31, October 31, October 31, Operations) to
1998(5) 1997 1996 October 31, 1995(1)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $18.14 $16.54 $13.86 $11.81
- ---------------------------------------------------------------------------------
Income (loss) from
operations
Net investment loss (0.27) (0.26) (0.19) (0.14)
Net realized and
unrealized gain 1.07 1.86 2.87 2.19
- ---------------------------------------------------------------------------------
Total from investment
operations 0.80 1.60 2.68 2.05
- ---------------------------------------------------------------------------------
Net Asset Value, End of
Period $18.94 $18.14 $16.54 $13.86
- ---------------------------------------------------------------------------------
Total Return(2) 4.41% 9.74% 19.34% 16.28%(4)
- ---------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $20 $17 $10 $7
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets* 2.25% 2.56% 2.75% 3.64%+
- ---------------------------------------------------------------------------------
Ratio of net investment
loss to average net
assets* (1.46) (1.59) (1.56) (1.40)+
- ---------------------------------------------------------------------------------
Portfolio Turnover 63% 57% 78% 17%(3)
- ---------------------------------------------------------------------------------
* If certain expenses
had not been waived or
reimbursed by the
Fund's former manager,
Total Return would
have been lower and
the ratios would have
been as follows:
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets N/A N/A 4.12% 5.97%+
- ---------------------------------------------------------------------------------
Ratio of net investment
loss to average net
assets N/A 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.
(5) Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund Manager.
N/A=Not Applicable
+
Annualized.
The Concert Investment Series Prospectus
28
<PAGE>
Financial Highlights, continued
International Equity Fund, continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares February 21, 1995
(Commencement
Year Ended Year Ended Year Ended of Investment
October 31, October 31, October 31, Operations) to
1998(5) 1997 1996 October 31, 1995(1)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $17.81 $16.36 $13.79 $11.81
- ---------------------------------------------------------------------------------
Income (loss) from
operations
Net investment loss (0.39) (0.32) (0.26) (0.21)
Net realized and
unrealized gain 1.02 1.77 2.83 2.19
- ---------------------------------------------------------------------------------
Total from investment
operations 0.63 1.45 2.57 1.98
- ---------------------------------------------------------------------------------
Net Asset Value, End of
Period $18.44 $17.81 $16.36 $13.79
- ---------------------------------------------------------------------------------
Total Return(2) 3.54% 8.93% 18.64% 15.69(4)
- ---------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $18 $13 $8 $2
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets* 3.11% 3.30% 3.50% 4.33%+
- ---------------------------------------------------------------------------------
Ratio of net investment
loss to average net
assets* (2.32)% (2.34)% (2.31)% (2.80)%+
- ---------------------------------------------------------------------------------
Portfolio Turnover 63% 57% 78% 17%(3)
- ---------------------------------------------------------------------------------
* If certain expenses
had not been waived or
reimbursed by the
fund's former manager,
Total Return would
have been lower and
the ratios would have
been as follows:
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets N/A N/A 4.87% 6.67%+
- ---------------------------------------------------------------------------------
Ratio of net investment
loss to average net
assets N/A 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.
(5) Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the fund Manager.
N/A=Not Applicable
+
Annualized.
29
The Concert Investment Series Prospectus
<PAGE>
Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended October 31
- ---------------------------------------------------------------------------------
1998* 1997 1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $20.94 $17.98 $17.46 $15.31 $16.26
- ---------------------------------------------------------------------------------
Income (loss) from operations
Net investment income 0.13 0.17 .19 0.16 0.13
Net realized and unrealized gain 2.10 4.33 2.91 3.18 0.21
- ---------------------------------------------------------------------------------
Total from investment operations 2.23 4.50 3.10 3.34 0.34
- ---------------------------------------------------------------------------------
Less:
Distributions from net investment income (0.17) (0.18) (0.18) (0.16) (0.11)
Distributions from and in excess of net
realized gain (3.41) (1.36) (2.40) (1.03) (1.18)
- ---------------------------------------------------------------------------------
Total distributions (3.58) (1.54) (2.58) (1.19) (1.29)
- ---------------------------------------------------------------------------------
Net Asset Value, End of Year $19.59 $20.94 $17.98 $17.46 $15.31
- ---------------------------------------------------------------------------------
Total Return(2) 12.54% 26.93% 19.94% 24.01% 2.04%
- ---------------------------------------------------------------------------------
Net Assets, End of Year (millions) $3,657 $3,547 $3,005 $2,612 $2,170
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.78% 0.88% 0.93% 1.00% 1.09%
Ratio of net investment income to average
net assets 0.63 0.86 1.08 1.04 0.89
- ---------------------------------------------------------------------------------
Portfolio Turnover 113% 165% 202% 230% 164%
- ---------------------------------------------------------------------------------
</TABLE>
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the fund Manager.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
----------------------------------- -----------------------------------
Period Period
Year Ended Year Ended Ended Year Ended Year 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 Period $20.89 $17.96 $16.63 $20.75 $17.93 $16.63
- ------------------------------------------------------------------------------------------------
Income (loss) from
operations
Net investment income
(loss) 0.05 0.15 0.02 (0.11) 0.01 (0.01)
Net realized and
unrealized gain 2.13 4.30 1.31 2.14 4.28 1.31
- ------------------------------------------------------------------------------------------------
Total from investment
operations 2.18 4.45 1.33 2.03 4.29 1.30
- ------------------------------------------------------------------------------------------------
Less:
Distributions from net
investment income (0.12) (0.16) -- -- (0.11) --
Distributions from net
realized gain (3.41) (1.36) -- (3.41) (1.36) --
- ------------------------------------------------------------------------------------------------
Total distributions (3.53) (1.52) -- (3.41) (1.47) --
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $19.54 $20.89 $17.96 $19.37 $20.75 $17.93
- ------------------------------------------------------------------------------------------------
Total Return(2) 12.27% 26.65% 8.00%(3) 11.43% 25.66% 7.82%(3)
- ------------------------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $180 $109 $49 $182 $126 $74
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 1.02% 1.13% 1.17% 1.75% 1.88% 1.93%
Ratio of net investment
income (loss) to
average net assets 0.38 0.57 0.46 (0.35) (0.16) (0.29)
- ------------------------------------------------------------------------------------------------
Portfolio Turnover 113% 165% 202%(3) 113% 165% 202%(3)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A and Class B shares commenced distribution on August 18, 1996.
(2) Total Returns do not reflect any applicable sales load or deferred sales
charges.
(3) Not annualized.
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the fund Manager.
30
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights, continued
Growth And Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended October 31
- -----------------------------------------------------------------------------
1998* 1997 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $20.10 $18.11 $16.95 $15.77 $17.13
- -----------------------------------------------------------------------------
Income (loss) from operations
Net investment income 0.18 0.24 0.31 0.36 0.29
Net realized and unrealized gain/loss 1.70 4.23 2.94 2.72 (0.21)
- -----------------------------------------------------------------------------
Total from investment operations 1.88 4.47 3.25 3.08 0.08
- -----------------------------------------------------------------------------
Less:
Distributions from net investment income (0.20) (0.30) (0.34) (0.30) (0.28)
Distributions from and in excess of net
realized gain (3.25) (2.18) (1.75) (1.60) (1.16)
- -----------------------------------------------------------------------------
Total distributions (3.45) (2.48) (2.09) (1.90) (1.44)
- -----------------------------------------------------------------------------
Net Asset Value, End of Year $18.53 $20.10 $18.11 $16.95 $15.77
- -----------------------------------------------------------------------------
Total Return(1) 10.90% 27.35% 20.58% 22.45% 0.51%
- -----------------------------------------------------------------------------
Net Assets, End of Year (millions) $1,079 $1,097 $943 $828 $712
- -----------------------------------------------------------------------------
Ratio of expenses to average net assets 0.83% 0.88% 0.91% 0.96% 1.02%
- -----------------------------------------------------------------------------
Ratio of net investment income to average
net assets 0.90% 1.25% 1.78% 2.27% 1.84%
- -----------------------------------------------------------------------------
Portfolio Turnover 34% 93% 121% 117% 88%
- -----------------------------------------------------------------------------
</TABLE>
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund Manager.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
----------------------------------- -----------------------------------
Period Period
Year Ended Year Ended Ended Year Ended Year Ended 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 of Period $20.10 $18.11 $17.19 $20.07 $18.09 $17.19
- ------------------------------------------------------------------------------------------------
Income (loss) from
operations
Net investment income (0.02) 0.20 0.07 (0.01) 0.06 0.04
Net realized and
unrealized gain 1.85 4.22 0.91 1.71 4.22 0.90
- ------------------------------------------------------------------------------------------------
Total from investment
operations 1.83 4.42 0.98 1.70 4.28 0.94
- ------------------------------------------------------------------------------------------------
Less:
Distributions from net
investment income (0.15) (0.25) (0.06) (0.04) (0.12) (0.04)
Distributions from net
realized gain (3.25) (2.18) -0- (3.25) (2.18) -0-
- ------------------------------------------------------------------------------------------------
Total distributions (3.40) (2.43) (0.06) (3.29) (2.30) (0.04)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $18.53 $20.10 $18.11 $18.48 $20.07 $18.09
- ------------------------------------------------------------------------------------------------
Total Return(1) 10.63% 27.04% 5.72%(3) 9.85% 26.08% 5.49%(3)
- ------------------------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $124 $80 $33 $137 $99 $52
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 1.07% 1.12% 1.16%+ 1.81% 1.88% 1.91%+
- ------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 0.63% 0.96% 1.78%+ (0.09)% 0.22% 1.05%
- ------------------------------------------------------------------------------------------------
Portfolio Turnover 34% 93% 121% 34% 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.
+ Annualized
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund Manager.
31
The Concert Investment Series Prospectus
<PAGE>
Government Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended October 31
- ------------------------------------------------------------------------------
1998* 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.58 $10.40 $10.67 $9.99 $11.80
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.65 0.69 0.70 0.70 0.69
Net realized and unrealized gain/loss 0.10 0.17 (0.25) 0.68 (1.36)
- ------------------------------------------------------------------------------
Total from investment operations 0.75 0.86 0.45 1.38 (0.67)
- ------------------------------------------------------------------------------
Less:
Distributions from and in excess of net
investment income (0.67) (0.68) (0.72) (0.70) (0.69)
Distributions from and in excess of net
realized gain -- -- -- -- (0.45)
- ------------------------------------------------------------------------------
Total distributions (0.67) (0.68) (0.72) (0.70) (1.14)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $10.66 $10.58 $10.40 $10.67 $9.99
- ------------------------------------------------------------------------------
Total Return(1) 7.29% 8.56% 4.58% 14.27% (5.45%)
- ------------------------------------------------------------------------------
Net Assets, at End of Year (millions) $209 $241 $287 $329 $335
- ------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.88% 0.90% 0.84% 0.83% 0.89%
- ------------------------------------------------------------------------------
Ratio of net investment income to average
net assets 6.11% 6.69% 6.79% 6.84% 7.06%
- ------------------------------------------------------------------------------
Portfolio Turnover 141% 104% 276% 214% 256%
- ------------------------------------------------------------------------------
</TABLE>
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund Manager.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------ ------------------------------------
Year Ended Year 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 of Period $10.58 $10.41 $10.32 $10.58 $10.41 $10.32
- ---------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.62 0.66 0.15 0.54 0.59 0.14
Net realized and
unrealized gain 0.10 0.17 0.09 0.10 0.17 0.09
- ---------------------------------------------------------------------------------------------------
Total from investment
operations 0.72 0.83 0.24 0.64 0.76 0.23
- ---------------------------------------------------------------------------------------------------
Less distributions from
and income in excess of
net investment (0.64) (0.66) (0.15) (0.56) (0.59) (0.14)
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $10.66 $10.58 $10.41 $10.66 $10.58 $10.41
- ---------------------------------------------------------------------------------------------------
Total Return(1) 7.00% 8.35% 2.36%(3) 6.20% 7.55% 2.18%(3)
- ---------------------------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $17 $14 $11 $14 $12 $14
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 1.12% 1.15% 1.09% 1.87% 1.90% 1.84%
- ---------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 5.78% 6.44% 6.50%+ 5.04% 5.69% 5.74%+
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover 141% 104% 276%(3) 141% 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, 1996.
(3) Not annualized.
+ Annualized
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund Manager.
32
The Concert Investment Series Prospectus
<PAGE>
Financial Highlights, continued
Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Shares Year Ended October 31
- ------------------------------------------------------------------------------
1998* 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $14.21 $13.83 $13.77 $12.89 $14.07
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.68 0.69 0.70 0.74 0.71
Net realized and unrealized gain (loss) 0.31 0.39 0.11 0.87 (1.18)
- ------------------------------------------------------------------------------
Total from investment operations 0.99 1.08 0.81 1.61 (0.47)
- ------------------------------------------------------------------------------
Less:
Distributions from net investment income (0.66) (0.66) (0.71) (0.73) (0.71)
Distributions from and in excess of net
realized gain (0.13) (0.04) (0.04) -- --
- ------------------------------------------------------------------------------
Total distributions (0.79) (0.70) (0.75) (0.73) (0.71)
- ------------------------------------------------------------------------------
Net Asset Value, End of Period $14.41 $14.21 $13.83 $13.77 $12.89
- ------------------------------------------------------------------------------
Total Return(1) 7.20% 8.04% 6.09% 12.72% (3.38%)
- ------------------------------------------------------------------------------
Net Assets, End of Period (millions) $94 $104 $119 $119 $112
- ------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.01% 0.98% 1.05% 0.96% 0.99%
- ------------------------------------------------------------------------------
Ratio of net investment income to average
net assets 4.77% 4.93% 5.13% 5.58% 5.27%
- ------------------------------------------------------------------------------
Portfolio Turnover 28% 50% 80% 49% 4%
- ------------------------------------------------------------------------------
</TABLE>
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------ ------------------------------------
Year Ended Year Ended Period Ended Year Ended Year 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,
Beginning of Period $14.21 $13.83 $13.78 $14.20 $13.82 $13.78
- --------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.62 0.65 0.11 0.51 0.54 0.09
Net realized and
unrealized gain 0.34 0.40 0.04 0.33 0.40 0.04
- --------------------------------------------------------------------------------------------------
Total from investment
operations 0.96 1.05 0.15 0.84 0.94 0.13
- --------------------------------------------------------------------------------------------------
Less:
Distributions from net
investments income (0.63) (0.63) (0.10) (0.52) (0.52) (0.09)
Distributions from net
realized gains (0.13) (0.04) -- (0.13) (0.04) --
- --------------------------------------------------------------------------------------------------
Total distributions (0.76) (0.67) (0.10) (0.65) (0.56) (0.09)
- --------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $14.41 $14.21 $13.83 $14.39 $14.20 $13.82
- --------------------------------------------------------------------------------------------------
Total Return(1) 6.93% 7.77% 1.12%(2) 6.10% 6.98% 0.93%(2)
- --------------------------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $16 $9 $2 $6 $3 $1
- --------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 1.23% 1.19% 1.30%+ 1.95% 1.94% 2.05%+
- --------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 4.44% 4.79% 4.82%+ 3.67% 4.04% 4.06%+
- --------------------------------------------------------------------------------------------------
Portfolio Turnover 28% 50% 80% 28% 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.
+ Annualized.
* Effective December 31, 1997 SSBC Fund Management Inc., formerly known as
Mutual Management Corp., replaced Van Kampen American Capital Asset
Management as the Fund.
33
The Concert Investment Series Prospectus
<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' in-
vestments. These reports discuss
the market conditions and invest-
ment strategies that signifi-
cantly affected each fund's per-
formance during its last fiscal
year.
Statement of Additional Information.
The combined statement of addi-
tional information provides more
detailed information about each
fund. It is incorporated by ref-
erence into this combined pro-
spectus.
How to Obtain Additional
Information.
. You may obtain shareholder re-
ports and the statement of ad-
ditional information without
charge, by contacting PFS
Shareholder Services, by call-
ing 1-800-544-5445 or writing
the funds at 3100 Breckinridge
Blvd., Bldg. 200, Duluth, Geor-
gia 30099-0062
. You may review the funds'
shareholder reports, prospectus
and statement of additional in-
formation at the Securities and
Exchange Commission's Public
Reference Room in Washington,
D.C. Information about the pub-
lic reference room may be ob-
tained by calling 1-800-SEC-
0330. You may obtain copies of
these materials upon payment of
a duplicating fee, by writing
to the Public Reference Section
of the Commission, Washington,
D.C. 20549-60019. You can get
the same reports and informa-
tion 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. 811-05018)
[PFS 00000 2/99]
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 (collectively, the "Funds").
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
P
a
g
e
General Information
2
Goals and Investment Policies
2
Risk Factors
20
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
58
GENERAL INFORMATION
SSBC Fund Management, Inc., formerly Mutual Management Corp. (the
"manager"), was incorporated on March 12, 1968 and renders investment
management advice to investment companies with aggregate assets under
management in excess of $115 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.
Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management,
Travelers Life & Annuity, and Travelers Property Casualty.
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. The Fund normally 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. Medium sized companies are those whose market capitalization
is within the market capitalization range of companies in the S&P MidCap
Index at the time of the Fund's investment. The size of the companies
in the Index changes with market conditions and the composition of the
Index. As of January 29, 1999 the largest market capitalization of a
company in the Index was $11.4 billion and the smallest market
capitalization was $0.24 billion. 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 $12 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 Investors Service, Inc. ("Moody's") or BB or lower by
Standard & Poor's Ratings Group ("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.
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, S&P or another nationally recognized
statistical rating organization ("NRSRO"). 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 within the highest three categories by an NRSRO, i.e., rated
''A'' or higher. The Fund may invest up to 25% of its total assets in
Municipal Bonds rated in the fourth highest category by an NRSRO (e.g.
those rated ''Baa'' by Moody's or ''BBB'' by S&P) or any non-rated
Municipal Bonds having characteristics similar to Municipal Bonds so
rated. Municipal Bonds rated in the fourth highest category are still
considered "investment grade," but 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. These securities 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 requisite ratings, as described above. 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 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 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. 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
interest and principal on Municipal Bonds.
The Fund may invest up to 10% of its net assets in illiquid securities.
These securities may include Municipal Bonds issued in limited offerings
under which the Fund represents that it is purchasing for investment
purposes only ("restricted securities"), repurchase agreements maturing
in more than seven days, and other securities subject to legal or
contractual restrictions on resale. Municipal Bonds that are restricted
securities generally may be resold only in a privately negotiated
transaction or to one or more other institutional investors. Restricted
securities generally must be sold 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. 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. It is also
generally the case that lower rated Municipal Bonds provide a higher
yield than higher rated Municipal Bonds of similar maturity, but are
subject to greater 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
any concentration policy 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 related 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 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 except Government Fund and Municipal Bond
Fund). 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 except Government
Fund and Municipal Bond Fund). 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 except Government Fund and Municipal Bond Fund).
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 Fund except Government Fund and Municipal Bond Fund). 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 except Government Fund and
Municipal Bond Fund). 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.
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.
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.
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, commonly known as "emerging markets"
countries. See "Risk Factors Securities of Developing /Emerging Market
Countries". See "Risk Factors - Securities of Developing/Emerging
Market Countries".
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 GNMA 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 Investment
Company Act of 1940, as amended (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.
Small Capitalization Companies. 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.
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.
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.
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 occurred on January 1, 1999,
when 11 European countries adopted a single currency - the euro. For
participating countries, EMU means sharing a single currency and single
official interest rate and adhering to agreed upon limits on government
borrowing. Budgetary decisions remain in the hands of each
participating country, but are subject to each country's commitment to
avoid "excessive deficits" and other more specific budgetary criteria.
A European Central Bank is 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 except for Mid Cap Fund:
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:
Each of these Funds 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 Chairman of 59 investment companies associated with SSB;
President and Director of the manager and Travelers Investment Adviser,
Inc. ("TIA"); Chairman of Smith Barney Strategy Advisers Inc.; 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" of the Fund within the
meaning of the 1940 Act.
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; 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; 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; 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. His address is 388
Greenwich Street, New York, New York 10013.
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 to the Trustees is
set forth below. The compensation shown for the 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.
With the exception of Mr. McLendon, no Trustee serves on the Board of
any other investment company in the Smith Barney Fund Complex. During
this period, the Mid Cap Fund had not commenced operations, therefore,
the amounts shown reflect only the other funds, as set forth below.
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
COMPENSATION TABLE
Name of Person
Aggregate Compensation
From Registrant (3)
EM INT G
G/I GVT MB
Pension
or
Retire-
ment
Benefit
s
Accrued
as Part
of Fund
Expense
s
(1)
Total
Compensati
on Paid
From Trust
and Fund
Complex
Dr. Donald M.
Carlton
$264
0
$478
$3695
4
$1258
4
$226
9
$107
4
- -
$56,000
Dr. A. Benton
Cocanougher
2640
478
36954
12584
2269
1074
- -
56,000
Stephen Randolph
Gross
2640
478
36954
12584
2269
1074
- -
56,000
Heath B. McLendon*
- -
- -
- -
- -
- -
- -
- -
- -
Dr. Alan G. Merten
2472
443
33555
11491
2062
976
- -
51,000
Dr. Steven
Muller(2)
614
116
11957
3923
709
329
- -
17649
Dr. R. Richardson
Pettit
2640
478
36954
12584
2269
1074
- -
56,000
Alan B. Shepard,
Jr.(2)
2100
372
26093
9089
1592
754
- -
40,000
*Designates an "Interested Person," as defined under the 1940 Act.
(1) The Trustees instituted a retirement plan effective April 1, 1996.
For the current Trustees who are not "interested persons" of the Trust,
the retirement benefits payable, thereunder are payable for a ten year
period following retirement, with the annual payment to be 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
benefit. Total retirement benefits accrued under the plan for the 1998
calendar year were $14,481, $0, $932,542, $278,558, $88,194, and $0, for
the Emerging Growth Fund, International Equity Fund, Growth Fund, Growth
and Income Fund, Government Fund and Municipal Bond Fund, respectively.
The amount of benefits to be paid upon retirement is therefore not
currently determinable for any current Trustee.
(2) Mr. Muller and Mr. Shepard are no longer Trustees of the Trust.
(4) Retirement benefits accrued are $14,481, $0, $932,542, $278,558,
$88,194, and $0, 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.
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.
Emerging
Growth
Internatio
nal Equity
Growth
Growth &
Income
Governmen
t
Municipa
l Bond
October 31, 1998
Accounting
Services
- -
- -
- -
- -
- -
- -
Gross Advisory
Fees
$1,354,479
$376,585
$23,343,
634
$8,627,1
08
$1,523,61
3
$687,628
Contractual
Expense
Reimbursement
N/A
N/A
N/A
N/A
N/A
N/A
Voluntary
Expense
Reimbursement
N/A
N/A
N/A
N/A
N/A
N/A
October 31, 1997
Accounting
Services
$37,198
$21,601
$420,043
$161,748
$55,786
$39,999
Gross Advisory
Fees
904,959
267,897
20,533,5
44
7,574,20
9
1,702,968
704,693
Contractual
Expense
Reimbursement
-
-
-
-
-
-
Voluntary
Expense
Reimbursement
-
-
-
-
-
-
October 31, 1996
Accounting
Services
$79,620
$30,600
$406,931
$168,039
$93,056
$99,374
Gross Advisory
Fees
376,436
130,149
17,148,5
60
6,017,20
4
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 Van
Kampen American Capital Asset Management Inc. ("VKAC"). VKAC 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. Prior to October 8, 1998, PFS
Distributors, Inc. acted as Distributor.
The Distributor may be deemed to be an underwriter for purposes of the
Securities Act of 1933. From time to time, the Distributor, or PFS
Distributors, Inc. 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 Distributors, Inc. on behalf of PFS Investments (collectively,
"PFS") giving PFS 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. Prior to October 8, 1998, PFS
Distributors, Inc. acted as Distributor.
Emerging
Growth
Interna-
tional
Equity
Growth
Growth &
Income
Govern-
ment
Municipa
l Bond
October 31, 1998
Total Underwriting
Commissions
$3,282,9
07
$490,027
$17,475,
434
$6,769,9
89
$732,992
$810,575
Amount Retained By
Distributor
187,397
21,062
2,349,25
5
656,152
67,974
79,312
Amount Received By PFS
Investments
3,095,51
0
468,965
15,126,1
79
6,113,83
7
665,018
731,263
October 31, 1997
Total Underwriting
Commissions
$3,846,0
82
$608,726
$18,002,
508
$6,979,9
66
$808,858
$487,303
Amount Retained By
Distributor
251,247
37,018
2,787,42
3
825,118
98,702
87,157
Amount Received By PFS
Investments
3,594,83
5
571,708
15,215,0
88
6,154,84
8
710,156
400,146
October 31, 1996
Total Underwriting
Commissions
$1,519,3
51
$235,791
$19,303,
603
$5,144,5
00
$950,019
$1,029,1
47
Amount Retained By
Distributor
124,777
21,437
3,405,10
4
888,760
162,072
124,395
Amount Received By PFS
Investments
1,394,57
4
214,354
15,898,4
99
4,255,74
0
1,173,86
7
904,752
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 PFS under the Class B Plan are used
to make service fee payments to PFS Investments of 0.25% per annum of
average daily net assets. Each Fund pays PFS 0.75% of the aggregate
average daily net assets of Class B shares, as compensation for
providing sales and promotional activities and services. Such activities
and services relate to the sale, promotion and marketing of the Class B
shares. The expenditures under the Class B Plan 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 pays said amount to
PFS. PFS receives the contingent deferred sales charge paid upon
certain redemptions of Class B shares directily formt he Fund, 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 PFS's
expenses exceed its service or distribution fees for any Fund, the Fund
will not be obligated to pay more than those fees and, if PFS's expenses
are less than such fees, it will retain its full fees and realize a
profit. Each Fund will pay the service fees and distribution fees to PFS
until either the applicable Plan is terminated or not renewed. In that
event, PFS expenses in excess of service fees and distribution fees
received or accrued through the termination date will be PFS's sole
responsibility and not obligations of a Fund. In their annual
consideration of the continuation of each Fund's Plans, the Trustees
will review each Plan and the corresponding expenses for each class
separately.
Actual distribution expenditures incurred under the Class B Plan 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 not be carried forward in future years.
If the Class B Plan was terminated or not continued, the Fund would not
be contractually obligated and has no liability to pay 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 that the Trustees be provided 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 PFS under
each Plan in that PFS 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 $277,226 or
0.25%, respectively, of the Class A shares' average net assets. For the
fiscal year ended October 31, 1998, the Fund's aggregate expenses under
the Class B Plan were $903,219 or 1.00% of the Class B shares' average
net assets. Such expenses included $226,993 for commissions and
transaction fees and $674,800 for fees paid 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 $47,690
or 0.25%, respectively, of the Class A shares' average net assets. For
the fiscal year ended October 31, 1998, the Fund's aggregate expenses
under the Class B Plan were $166,306 or 1.00% of the Class B shares'
average net assets. Such expenses included $41,290 for commissions and
transaction fees and $123,371 for fees paid 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 $372,160 or 0.25%,
respectively, of the Class A shares' average net assets. For the fiscal
year ended October 31, 1998, the Fund's aggregate expenses under the
Class B Plan were $1,589,474 or 1.00% of the Class B shares' average net
assets. Such expenses included $390,858 for commissions and transaction
fees and $1,164,573 for fees 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 $262,767
or 0.25%, respectively, of the Class A shares' average net assets. For
the fiscal year ended October 31, 1998, the Fund's aggregate expenses
under the Class B Plan were $1,219,023 or 1.00% of the Class B shares'
average net assets. Such expenses included $300,735 for commissions and
transaction fees and $896,931 for fees paid 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 $38,540 or 0.25%,
respectively, of the Class A shares' average net assets. For the fiscal
year ended October 31, 1998, the Fund's aggregate expenses under the
Class B Plan were $134,001 or 1.00% of the Class B shares' average net
assets. Such expenses included $32,944 for commissions and transaction
fees and $98,333 for fees paid 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 $30,259 or
0.25%, respectively, of the Class A shares' average net assets. For the
fiscal year ended October 31, 1998, the Fund's aggregate expenses under
the Class B Plan were $38,339 or 1.00% of the Class B shares' average
net assets. Such expenses included $9,074 for commissions and
transaction fees and $27,221 for fees paid for servicing Class B
shareholders and administering the Class B Plan.
The Mid Cap Fund did not begin operations in the fiscal year ended
October 31, 1998, and, thus, had no expenses.
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 that 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. During the fiscal year ended October 31, 1998, the Trust
directed the payment of $519,062 in brokerage commissions to brokers
because of research services provided.
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.
Fiscal
Year
Ended
10/31
Emerging
Growth
Internationa
l Equity
Growth
Growth &
Income
Governmen
t
Municipal
Bond
1998
$348,867
$142,261
$8,191,23
7
$1,123,715
- -
- -
1997
$185,242
$115,016
$10,105,4
82
$2,428,087
$140,190
- -
1996
$99,218
$94,895
$10,114,6
47
$2,273,725
$160,181
- -
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 currently include Salomon Smith
Barney Inc. ("Smith Barney") and 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 commission to affiliated brokers during the
periods shown:
Salomon
Robinson Smith
Fiscal 1998 Commissions Humphrey Barney
Emerging Growth $12,679 $29,294
International Equity -0- 9,442
Growth 34,230 363,234
Growth & Income 3,300 99,771
Government - -
Municipal Bond - -
Fiscal 1998 Percentage
Emerging Growth 3.63% 8.40%
International Equity N/A 6.60%
Growth 0.42% 4.43%
Growth & Income 0.29% 8.88%
Government - -
Municipal Bond - -
Salomon
Robinson Smith
Humphrey Barney
Percentage of Transactions with
Affiliates to Total Transactions
Emerging Growth 3.81% 6.31%
International Equity - 7.30%
Growth 0.52% 3.94%
Growth & Income 0.15% 9.12%
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 - - - -
Percentage of Transactions with
Affiliates to Total Transactions
Emerging Growth - - - -
International Equity - - 1.43% -
Growth - 0.04% - 0.28%
Growth & Income - - - -
Government - 2.34% - -
Municipal Bond - - - -
Salomon
Robinson Smith
Fiscal 1996 Commissions Humphrey Barney
Emerging Growth - $1,835
International Equity - -
Growth $7,200 240,982
Growth & Income 2,400 92,761
Government - 28,322
Municipal Bond - -
Fiscal 1996 Percentages
Emerging Growth - 1.87%
International Equity - -
Growth 0.07% 2.38%
Growth & Income 0.10% 4.08%
Government - 17.68%
Municipal Bond - -
Percentage of Transactions with
Affiliates to Total Transactions
Emerging Growth - -
International Equity - -
Growth - 0.002%
Growth & Income - 0.027%
Government - 4.65%
Municipal Bond - 5.35%
DETERMINATION OF NET ASSET VALUE
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. 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
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
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
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.
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, Mid Cap
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.
For the year ended October 31, 1998, CDSCs paid for Class B shares were
approximately:
Fund CDSC
Emerging Growth: $445,331
Government: $75,664
Growth: $552,399
Growth and Income: $458,157
International Equity: $63,366
Municipal Bond: $27,338
The Mid Cap Fund had not commenced operations during the relevant
period.
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%.
The Distributor or PFS 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.
- - Concert Peachtree Growth Fund
- - Concert Social Awareness Fund
- - Smith Barney Appreciation Fund Inc.
- - Smith Barney Concert Allocation Series Inc.-Balanced Portfolio
- - Smith Barney Concert Allocation Series Inc.-Conservative
Portfolio
- - Smith Barney Concert Allocation Series Inc.- Growth Portfolio
- - Smith Barney Concert Allocation Series Inc.-High Growth Portfolio
- - Smith Barney Concert Allocation Series Inc.-Income Portfolio
- - Smith Barney Investment Grade Bond Fund
- - *Smith Barney Money Funds, Inc.-Cash Portfolio
- - **Smith Barney Exchange Reserve Fund
* Available for exchange with Class A shares of a Fund.
** Available for exchange with Class B shares of a Fund.
Class A Exchanges. Class A shareholders of each Fund who wish to
exchange all or a portion of their shares for Class A shares in any of
the funds identified above may do so without imposition of any charge.
Class B Exchanges. In the event a Class B shareholder wishes to
exchange all or a portion of his or her shares into any of the funds
imposing a higher CDSC than that imposed by a Fund, the exchanged Class
B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased
on the same date as the Class B shares of the Fund that have been
exchanged.
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. An exchange
involves a redemption of shares, which is a taxable transaction. 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 savings 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 the
shareholder's 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. A
redemption of shares is a taxable transaction for the shareholder.
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.
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 and certain other transaction
during the year over its total losses on such sales and transactions,
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 complying with certain requirements
regarding the sources and distribution of its income and the
diversification of its assets. By so qualifying, a Fund will not be
subject to federal income tax on amounts paid by it as dividends and
distributions to shareholders in compliance with the Code's timing and
other requirements. 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. A Fund would be subject to a
nondeductible, 4% federal excise tax if it fail to meet certain
distribution requirements with respect to each calendar year, generally
applicable to its ordinary (taxable) income for that year and the excess
of its capital gains over its capital losses for the one-year period
ended on October 31 of that year. The Funds intend generally to make
distributions sufficient to avoid or minimize any liability for the
excise tax. Each Fund expects to be treated as a separate entity for
purposes of determining its federal tax treatment.
Municipal Bond Fund
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 interest income as "exempt-interest
dividends". 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 obligations that pay interest exempt from taxation under
Section 103(a) of the Code. In addition, the Fund must distribute at
least (i) 90% of the excess of its tax-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 gain over any net long-term
capital loss) 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-exempts 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. Shareholders
are required to report their receipt of tax-exempt interest, including
exempt-interest dividends, on their Federal income tax returns.
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.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of Municipal Bond Fund is not deductible for federal income tax
purposes to the extent it is treated as related to exempt-interest
dividends paid as such shares. If a shareholder receives an
exempt-interest dividend any capital loss on the sale or exchange of the
shares with respect to which the dividend is received will be disallowed
to the extent of the amount of such exempt-interest dividend if the
shares are not held for more than six months.
Although Municipal Bond Fund does not intend to acquire bonds the
interest on which is a specific item of tax preference for alternative
minimum tax purposes, its exempt-interest dividends may nevertheless
result in or increase a corporate shareholder's liability for the
corporate alternative minimum tax, because tax-exempt interest,
including exempt-interest dividends that are not items of tax
preference, is taken into account in determining a corporation's
potential liability for this tax.
The Code also requires a shareholder who receives exempt-interest
dividends to, in some cases, treat as taxable income a portion of
certain otherwise non-taxable social security or railroad retirement
benefits.
Shareholders should also consider, in determining when to redeem any
shares of Municipal Bond Fund, that the Fund declares and distributes
its exempt-interest dividends monthly. The net asset value of shares
redeemed shortly before the end of a month will include tax-exempt
interest accrued for that month but not yet declared as an exempt-
interest dividend. The amount of the redemption proceeds attributable
to this accrued tax-exempt interest will not be treated as tax-exempt
interest, but instead will be part of the shareholder's redemption
proceeds potentially subject to taxation.
If, during any taxable year, Municipal Bond Fund realizes net capital
gain (the excess of net long-term capital gain over net short-term
capital loss) 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 gain 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 gain". For example,
income or gains from certain taxable investments or transactions,
including sales of securities, options and futures transactions,
repurchase agreements, securities lending, the recognition of accrued
market discount, and the disposition of rights to when-issued securities
prior to issuance, are included in investment company taxable income or
net capital gain. Distributions of investment company taxable income
are taxable as ordinary income, and distributions of net capital gain
are taxable as long-term capital gains.
All Funds
Dividends from net investment income and any excess of net short-term
capital gain over net long-term capital loss 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 may qualify for the 70% dividends
received deduction for corporations. Qualifying dividends include only
dividends attributable to dividends a Fund receives from U.S. domestic
corporations with respect to stock for which the Fund satisfies
applicable holding period requirements.
The portion of the dividends received from a Fund which qualifies for
the dividends-received deduction for corporations will be reduced to the
extent that the Fund holds dividend-paying stock for less than 46 days
(91 days for certain preferred stock). The Fund's holding period
requirement must be satisfied separately for each dividend during a
prescribed period before and after the ex-dividend date and will not
include any period during which the Fund has reduced its risk of loss
from holding the stock by purchasing an option to sell, granting an
option to buy, or entering into a short sale of substantially identical
stock or securities, such as securities convertible into the stock. The
holding period for stock may also be reduced if the Fund diminishes its
risk of loss by holding one or more positions in substantially similar
or related property. The dividends-received deduction will be allowed
only with respect to dividends on Fund shares for which a corporate
shareholder satisfies the same holding period rules applicable to the
Fund.
Receipt of dividends that qualify for the dividends-received reduction
may increase a corporate shareholder's liability, if any, for the
alternative minimum tax. Such a shareholder should also consult its tax
adviser regarding the possibility that its federal tax basis in its Fund
shares may be reduced by the receipt of "extraordinary dividends" from
the Fund and, to the extent such basis would be reduced below zero,
current recognition of income would be required.
For federal income tax purposes, dividends declared by a Fund in
October, November or December as of a record date in such a month and
which are actually paid in January of the following year will be treated
as if they were paid on December 31 of the year in which they are
declared. These dividends will be taxable to shareholders as if actually
received on December 31 rather than in the year in which shareholders
actually receive the dividends.
A capital gain dividend (i.e., a dividend from the excess of a funds net
long-term capital gain over its net short-term capital loss) received
after the purchase of the shares of any of the Funds reduces the net
asset value of the shares by the amount of the distribution and will
nevertheless be subject to income taxes. The same is true of dividends
treated as ordinary income, as described above. Investors may therefore
wish to avoid purchasing Fund shares shortly before an anticipated
dividend (other than an exempt-interest dividend from Municipal Bond
Fund) or capital gain dividend in order to avoid being taxed on a
distribution that is economically a return of a portion of the purchase
price. These capital gain dividends are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held
Fund shares. Any loss on the sale of Fund shares held for six months or
less is treated as a long-term capital loss to the extent of any capital
gain dividend paid on such shares. All dividends and distributions are
taxable to the shareholder in the same manner 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 a Fund purchased subject to a sales charge are sold or
exchanged within 90 days of acquisition, and shares of the same or
another mutual fund are acquired, to the extent the sales charge on the
initial purchase 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. Additionally,
any loss realized on a redemption or exchange of Fund shares may be
disallowed under "wash sale" rules to the extent the shares disposed of
are replaced with other shares of the same Fund within a period of 61
days, beginning 30 days before and ending 30 days after such
disposition, such as pursuant to reinvestment of dividends in Fund
shares.
It should be noted that periodic withdrawals under the systematic
withdrawal plan involve redemptions of shares, which may result in tax
liability for the redeeming shareholder. Additionally, any redemption of
shares is a potentially taxable transaction, even if a reinvestment
privilege is later exercised.
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. Each Fund 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 Fund shares
with respect to any shareholder who is not exempt from withholding and
who fails to furnish the Fund 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 a Fund may write, purchase or
sell. Such options and contracts are generally 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, equity options, and
certain other options or future comments are not classified as
Section 1256 contracts and are not subject to the mark-to-market rule or
to 60/40 gain or loss treatment. Any gains or losses 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 a 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 a transactions in options, futures contracts, or options on
futures contracts, particularly their hedging transactions, may
constitute "straddles" which are defined in the Code as offsetting
positions with respect to personal property. A straddle in which at
least one (but not all) of the positions are Section 1256 contracts is a
"mixed straddle" under the Code if certain conditions are met.
The Code generally provides with respect to straddles (i) "loss
deferral" rules which may postpone recognition for tax purposes of
losses from certain closing purchase transactions or other dispositions
of a position in the straddle to the extent of unrealized gains in the
offsetting position, (ii) "wash sale" rules which may postpone
recognition for tax purposes of losses where a position is sold and a
new offsetting position is acquired within a prescribed period and
(iii) "short sale" rules which may terminate the holding period of
securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.
The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other
elections are also provided in the Code. No determination has been
reached to make any of these elections.
The effect of the tax rules described above with respect to options and
futures contracts may be to change the amount, timing and character of a
Fund's income, gains and losses and therefore of its distributions to
shareholders.
These rules also generally apply to options, futures and forward
contracts relating to foreign currency, except that (1) options, futures
and forward contracts on certain foreign currencies are not governed by
Section 1256, (2) gains and losses on foreign currency forward contracts
are generally treated as ordinary income and losses, and (3) gains and
losses on a Fund's foreign currency options and futures contracts that
are not governed by Section 1256, if any, are generally treated as
ordinary income and loss.
Additionally, under the Code gains or losses attributable to
fluctuations in exchange rates between the time a Fund accrues income or
receivables or expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such income or pays
such liabilities, are treated as ordinary income or ordinary loss.
Similarly, gains or losses on the disposition of debt securities
denominated in foreign currency, to the extent attributable to
fluctuations in exchange rates between the acquisition and disposition
dates, are treated as ordinary income or loss.
If a Fund purchases shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Fund itself
may be subject to U.S. federal income tax and an additional charge in
the nature of interest on a portion of any "excess distribution" from
such company or gain from the disposition of such shares, even if the
distribution or gain is distributed by the Fund to its shareholders in a
manner that satisfies the distribution requirements referred to above.
If a Fund were able and elected to treat a passive foreign investment
company as a "qualified electing fund," in lieu of the treatment
described above, the Fund would be required each year to include in
income, and distribute to shareholders in accordance with the
distribution requirements described above, the Fund's pro rata share of
the ordinary earnings and net capital gains of the company, whether or
not actually received by the Fund. A Fund generally should be able to
make an alternative election to mark these investments to market
annually, resulting in the recognition of ordinary income (rather than
capital gain) or ordinary loss, subject to limitations on the ability to
use any such loss.
A Fund may be required to treat amounts as taxable income or gain,
subject to the distribution requirements referred to above, even though
no corresponding amounts of cash are received concurrently, as a result
of (1) mark to market, constructive sale or other rules applicable to
passive foreign investment companies, partnerships or trusts in which
the Fund invests or to certain options, futures, forward contracts, or
"appreciated financial positions" or (2) the inability to obtain cash
distributions or other amounts due to currency controls or restrictions
on repatriation imposed by a foreign country with respect to the Fund's
investments in issuers in such country or (3) tax rules applicable to
debt obligations acquired with "original issue discount," including
zero-coupon or deferred payment bonds and pay-in-kind debt obligations,
or to market discount if an election is made with respect to such market
discount. A Fund may therefore be required to obtain cash to be used to
satisfy these distribution requirements by selling portfolio securities
at times that it might not otherwise be desirable to do so or borrowing
the necessary cash, thereby incurring interest expenses.
Dividends or other income (including, in some cases, capital gains)
received by a Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce
or eliminate such taxes in some cases. If eligible, the International
Equity Fund will determine whether to make an election to treat any
qualified foreign income taxes paid by it as paid by its shareholders.
In determining whether to make this election, the Fund will take into
consideration such factors as the amount of foreign taxes paid and the
administrative costs associated with making the election. If the
election is made, shareholders of the Fund would be required to include
their respective pro rata portions of such qualified foreign taxes in
computing their taxable income and would then generally be entitled to
credit such amounts against their United States federal income taxes
due, if any, provided that certain holding period requirements are
satisfied, or to include such amounts in their itemized deductions, if
any. For any year for which it makes such an election, the
International Equity Fund will report to its shareholders (shortly after
the close of its fiscal year) the amount per share of such foreign taxes
that must be included in the shareholder's gross income and will be
potentially available as a credit or deduction, subject to the
limitations generally applicable under the Code. The other Funds will
not qualify to make this election, and consequently their shareholders
will not report on their own tax returns their shares of the foreign
taxes paid by these Funds.
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, and
no attempt is made to describe special tax rules that may be applicable
to certain categories of shareholders, such as tax-exempt or tax-
deferred entities or retirement plans, insurance companies, and
financial institutions. 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 1, 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 the 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 (except
Mid Cap Fund, which had not commenced operations during the relevant
period). 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 (7.52)%
(7.81)% (8.45)%
10/31/98
iii) total return since inception
(based on inception date of 2/21/95) -- 15.88%
15.02%
iii) total return since inception
(based on inception date of 8/08/96) 6.26% --
--
International Equity Fund
i) total return for one year period ended
10/31/98 4.96% 4.41%
3.54%
ii) total return since inception
(based on inception date of 2/21/95) -- 13.62%
12.78%
iii) total return since inception
(based on inception date of 8/08/96) 8.16% --
--
Class 1 Class A
Class B
Shares Shares
Shares
Growth Fund
i) total return for one year period ended
10/31/98 12.54% 12.27%
11.43
ii) total return for five year period ended
10/31/98 16.75% --
--
iii) Total return for the ten year period ended
10/31/98 15.62% --
--
iv) total return since inception
(based on inception date of 4/14/87) 12.93%
-- --
v) total return since inception
(based on inception date of 8/18/96) -- 17.58
16.77%
Growth and Income Fund
i) total return for one year period ended
10/31/98 10.90% 10.63%
9.85%
ii) total return for five year period ended
10/31/98 15.95% --
--
iii) total return for ten year period ended
10/31/98 14.88% --
--
iv) total return since inception
(based on inception date of 4/14/87) 12.23%
-- --
v) total return since inception
(based on inception date of 8/18/96) -- 16.92%
16.07%
Government Fund
i) total return for one year period ended
10/31/98 7.29% 7.00%
6.20%
ii) total return for five year period ended
10/31/98 5.64% --
--
iii) total return for ten year period ended
10/31/98 8.05% --
--
iv) total return since inception
(based on inception date of 4/14/87) 7.60% --
--
v) total return since inception
(based on inception date of 8/08/96) -- 6.15%
5.36%
vi) yield 5.04% 4.91% 4.41%
Municipal Bond Fund
i) total return for one year period ended
10/31/98 7.20% 6.93%
6.10%
ii) total return for five year period ended
10/31/98 6.00% --
--
iii) total return for ten year period ended
10/31/98 7.49% --
--
iv) total return since inception
(based on inception date of 7/13/88) 7.70% --
--
v) total return since inception
(based on inception date of 8/18/96) -- 7.10%
6.28%
vi) yield 3.58% 3.36% 2.77%
vii) tax equivalent yield 5.19% 4.87%
4.01%
* 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 an individual's annual
contribution to an IRA is the lesser of 100% of compensation or $2,000.
The Small Business Job Protection Act of 1996 changed the eligibility
requirements for participants in Individual Retirement Accounts
("IRAs"). Under these new provisions, if you or your spouse have earned
income, each of you may establish an IRA and make maximum annual
contributions equal to the lesser of earned income or $2,000. As a
result of this legislation, married couples where one spouse is non-
working may now contribute a total of $4,000 annually to their IRAs.
The Taxpayer Relief Act of 1997 changed the requirements for determining
whether or not you are eligible to make a deductible IRA contribution.
Under the new rules effective beginning January 1, 1998, if you are
considered an active participant in an employer-sponsored retirement
plan, you may still be eligible for a full or partial deduction
depending upon your combined adjusted gross income ("AGI"). For married
couples filing jointly for 1998 a full deduction is permitted if your
combined AGI is $50,000 or less ($30,000 for unmarried individuals); a
partial deduction will be allowed when AGI is between $50,000-$60,000
($30,000-$40,000 for an unmarried individual); and no deduction is
available when AGI is above $60,000 ($40,000 for an unmarried
individual). However, if you are married and your spouse is covered by
an employer-sponsored retirement plan, but you are not, you will be
eligible for a full deduction if your combined AGI is $150,000 or less.
A partial deduction is permitted if your combined AGI is between
$150,000-160,000, and no deduction is permitted when AGI is above
$160,000.
The rules applicable to so-called "Roth IRAs" differ from those
described 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, 1998 is
incorporated herein by reference in its entirety.
APPENDIX A
RATINGS OF MUNICIPAL BONDS, NOTES AND COMMERCIAL PAPER
Moody's Investors Service, Inc.
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 edged." 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 that 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 that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as 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.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Standard & Poor's
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. 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 highest 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 an 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.
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' or 'C' is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. 'BB' indicates the lowest degree of speculation
and 'C' the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from 'AA' to 'B' may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise judgment
with respect to such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the principal
amount of those bonds where the underlying deposit collateral is fully
insured by the Federal Savings & Loan Insurance Corp. or the Federal
Deposit Insurance Corp.
+ - Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.
* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.
NR - Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Fitch IBCA, Inc.
AAA - Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely
payment of financial commitments which is highly unlikely to be
adversely affected by foreseeable events.
AA - Bonds rated AA by Fitch have a very low expectation of credit risk.
They indicate very strong capacity for timely payment of financial
commitment. This capacity is not significantly vulnerable to foreseeable
events.
A - Bonds rated A by Fitch are considered to have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be strong, but may be more vulnerable to changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to impair this capacity. This is
the lowest investment grade category assigned by Fitch.
BB - Bonds rated BB by Fitch carry the possibility of credit risk
developing, particularly as the result of adverse economic change over
time. Business or financial alternatives may, however, be available to
allow financial commitments to be met. Securities rated in this category
are not considered by Fitch to be investment grade.
B - Bonds rated B by Fitch carry significant credit risk, however, a
limited margin of safety remains. Although financial commitments are
currently being met, capacity for continued payment depends upon a
sustained, favorable business and economic environment.
CCC, CC, C - Default on bonds rated CCC, CC, and C by Fitch is a real
possibility. The capacity to meet financial commitments depends solely
on a sustained, favorable business and economic environment. Default of
some kind on bonds rated CC appears probable, a C rating indicates
imminent default.
Plus and minus signs are used by Fitch to indicate the relative position
of a credit within a rating category. Plus and minus signs however, are
not used in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment 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
changes and high internal cash generation; well-established access to a
range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issuers
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc.
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet financial commitment in a
timely manner.
Fitch's short-term ratings are as follows:
F1+ - Issues assigned this rating are regarded as having the strongest
capacity for timely payments of financial commitments. The "+" denotes
an exceptionally strong credit feature.
F1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.
F2 - Issues assigned this rating have a satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction
to non investment grade.
Duff & Phelps Inc.
Duff 1+ - Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free
United States Treasury short-term obligations.
Duff 1 - Indicates a high certainty of timely payment.
Duff 2 - Indicates a good certainty of timely payment: liquidity factors
and company fundamentals are sound. The Thomson BankWatch ("TBW")
TBW-1 - Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - While the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not
as high as for issues rated TBW-1.
92
96
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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(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.)
(17) Certificate of Amendment of the
Agreement and Declaration of Trust dated December 30, 1997
incorporated by reference to Registrant's Amendment No. 21,
filed on December 15, 1998.
(18) Form of Certificate of Designation of Mid
Cap Fund dated February 17, 1999 is 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 certificate for
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.)
(2) Specimen copy of certificate for 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.)
(3) Specimen copy of certificate for 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) Distribution Agreement with
CFBDS, Inc. is incorporated by reference to Registrant's
Amendment No. 21, filed on December 15, 1998.
(2) Form of Dealer Agreement is filed
herewith.
(f) Retirement Plan for Directors is filed
herewith.
(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).
(i) Previously filed.
(j) Consent of Independent Auditors is
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 Amended and Restated
Class A Distribution Plan filed herewith.
(m)(2) Form of Amended and Restated
Class B Distribution Plan filed herewith.
(m)(3) Form of Amended and Restated
Servicing Agreement for Class A shares filed herewith.
(m)(4) Form of Amended and Restated
Servicing Agreement for Class B shares filed herewith.
(n) Financial Data Schedule is filed
herewith.
(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.)
Item 24. Persons Controlled by or under Common Control with
Registrant.
None
Item 25. 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 - SSBC Funds Management Inc., formerly
Mutual Management Corp. ("MMC), and also 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 26 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.
CFBDS, Inc., ("CFBDS") the Registrant's
Distributor, is also the distributor for the following Smith
Barney funds: Concert Investment Series, Consulting Group
Capital Markets Funds, Greenwich Street Series Fund, Smith
Barney Adjustable Rate Government Income Fund, Smith Barney
Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Arizona Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Smith Barney Concert
Allocation Series Inc., Smith Barney Equity Funds, Smith
Barney Fundamental Value Fund Inc., Smith Barney Funds, Inc.,
Smith Barney Income Funds, Smith Barney Institutional Cash
Management Fund, Inc., Smith Barney Investment Funds Inc.,
Smith Barney Investment Trust, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund
Inc., Smith Barney Massachusetts Municipals Fund, Smith Barney
Money Funds, Inc., Smith Barney Muni Funds, Smith Barney
Municipal Money Market Fund, Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund
Inc., Smith Barney Principal Return Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Trust,
Smith Barney Variable Account Funds, Smith Barney World Funds,
Inc., Travelers Series Fund Inc., and various series of unit
investment trusts.
CFBDS also serves as the distributor for the following funds:
The Travelers Fund UL for Variable Annuities, The Travelers
Fund VA for Variable Annuities, The Travelers Fund BD for
Variable Annuities, The Travelers Fund BD II for Variable
Annuities, The Travelers Fund BD III for Variable Annuities,
The Travelers Fund BD IV for Variable Annuities, The Travelers
Fund ABD for Variable Annuities, The Travelers Fund ABD II for
Variable Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account PF II for
Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for
Variable Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account Five for
Variable Annuities, The Travelers Separate Account Six for
Variable Annuities, The Travelers Separate Account Seven for
Variable Annuities, The Travelers Separate Account Eight for
Variable Annuities, The Travelers Fund UL for Variable
Annuities, The Travelers Fund UL II for Variable Annuities,
The Travelers Variable Life Insurance Separate Account One,
The Travelers Variable Life Insurance Separate Account Two,
The Travelers Variable Life Insurance Separate Account Three,
The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate
Account MGA II, The Travelers Growth and Income Stock Account
for Variable Annuities, The Travelers Quality Bond Account for
Variable Annuities, The Travelers Money Market Account for
Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed
Short-Term Bond Account for Variable Annuities, The Travelers
Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust,
CitiFunds Premium Trust, CitiFunds Institutional Trust,
CitiFunds Tax Free Reserves, CitiFunds Trust I, CitiFunds
Trust II, CitiFunds Trust III, CitiFunds International Trust,
CitiFunds Fixed Income Trust, CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect
VIP Folio 500, CitiFunds Small Cap Growth VIP Portfolio.
CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio, Short-
Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income
Portfolio, Large Cap Growth Portfolio, Small Cap Growth
Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash
Reserves Portfolio and U.S. Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following
Salomon Brothers funds: Salomon Brothers Opportunity Fund
Inc., Salomon Brothers Investors Fund Inc., Salomon Brothers
Capital Fund Inc., Salomon Brothers Series Funds Inc., Salomon
Brothers Institutional Series Funds Inc., Salomon Brothers
Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion
Funds, Inc.
(b) The information required by this Item 27 with respect to
each director and officer of CFBDS is incorporated by
reference to Schedule A of Form BD filed by CFBDS pursuant to
the Securities and Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
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 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 MMC as the
Adviser, will be maintained at its offices, located at 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 CFBDS Inc, 21 Milk Street, Boston, MA
02109-5408.
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, certifies that it
meets all requirements for effectiveness of this registration
statement under Rule 485(b) under the Securities Act and has
duly caused this Post-Effective Amendment No. 22 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 26th day of February, 1999.
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 February 26,
1999
Heath B. McLendon (Chief Executive
Officer)
/s/ Lewis E. Daidone Senior Vice President February 26,
1999
Lewis E. Daidone and Treasurer (Chief
Financial and
Accounting Officer)
/s/ Donald M. Carlton* Trustee February 26,
1999
Donald M. Carlton
/s/ A. Benton Cocanougher* Trustee February 26,
1999
A. Benton Cocanougher
/s/ Stephen R. Gross* Trustee February 26,
1999
Stephen R. Gross
/s/ Alan G. Merten* Trustee February 26,
1998
Alan G. Merten
/s/ R. Richardson Pettit* Trustee February 26,
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)(18) Form of Certificate of Designation
(e)(2) Form of Dealer Agreement
(f) Retirement Plan for Directors
(j) Consent of Independent Auditors
(m)(1) Form of Amended and Restated Class A Distribution
Plan
(m)(2) Form of Amended and Restated Class B Distribution
Plan
(m)(3) Form of Amended and Restated Servicing Agreement
for Class A shares
(m)(4) Form of Amended and Restated Servicing Agreement
for Class B shares
(n) Financial Data Schedule
CERTIFICATE OF DESIGNATION ESTABLISHING A PORTFOLIO OF
CONCERT INVESTMENT SERIES DESIGNATED
"MID CAP FUND"
AND THE RIGHTS AND PREFERENCES OF A SERIES OF
SHARES OF BENEFICIAL INTEREST
Dated: February 17, 1999
CERTIFICATE OF DESIGNATION ESTABLISHING A PORTFOLIO OF
CONCERT INVESTMENT SERIES DESIGNATED
"MID CAP FUND" AND
THE RIGHTS AND PREFERENCES OF A SERIES OF
SHARES OF BENEFICIAL INTEREST
The undersigned, being an officer of Concert Investment Series
(the "Trust"), a trust with transferable shares under Massachusetts law
established under an Agreement and Declaration of Trust dated January
29, 1987 and filed on such date in the offices of the Secretary of State
of the Commonwealth of Massachusetts and of the City Clerk of the City
of Boston in accordance with the requirements of Chapter 182 of the
General Laws of Massachusetts (the "Declaration"), DOES HEREBY CERTIFY:
1. That, pursuant to the authority conferred upon the Trustees
of the Trust by Section 6.2 of the Declaration, the Trustees have
established a Series ("Portfolio") to be designated "MID CAP FUND".
2. That the Shares of MID CAP FUND have the following relative
rights and preferences set forth in Section 6.2 of the Declaration, to
wit:
(a) Assets Belonging to Portfolios. Any portion of the
Trust property allocated to a particular Portfolio, and all
consideration received by the Trust for the issue or sale of Shares of
such Portfolio, together with all assets in which such consideration is
invested or reinvested, all interest, dividends, income, earnings,
profits and gains therefrom, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be held by the Trustees in trust
for the benefit of the Shareholders of that Portfolio and shall
irrevocably belong to that Portfolio for all purposes, and shall be so
recorded upon the books and accounts of the Trust, and the Shareholders
of such Portfolio shall not have, and shall be conclusively deemed to
have waived, any claims to the assets of any Portfolio of Shares of
which they are not Shareholders. Such consideration, assets, interest,
dividends, income, earnings, profits, gains and proceeds, together with
any general items allocated to that Portfolio as provided in the
following sentence, are herein referred to collectively as "Portfolio
Assets" of such Portfolio, and as assets "belonging to that Portfolio."
In the event that there are any assets, interest, dividends, income,
earnings, profits, gains and proceeds which are not readily identifiable
as belonging to any particular Portfolio (collectively, "General Items",
the Trustees shall allocate such General Items to and among any one or
more of the Portfolios established and designated from time to time in
such manner and on such basis as they, in their sole discretion, deem
fair and equitable; and any general items so allocated to a particular
Portfolio shall belong to that Portfolio. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all
Portfolios for all purposes.
(b) Liabilities of Portfolios. The assets belonging to
each particular Portfolio shall be charged with the liabilities in
respect of that Portfolio and all expenses, costs, charges and reserves
attributable to that Portfolio, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily
identifiable as pertaining to any particular Portfolio shall be
allocated and charged by the Trustees to and among any one or more of
the Portfolios established and designated from time to time in such
manner and on such basis as the Trustees, in their sole discretion, deem
fair and equitable. The indebtedness, expenses, costs, charges and
reserves allocated and so charged to a particular Series are herein
referred to as "liabilities of" that Portfolio. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall
be conclusive and binding upon the Shareholders of all Portfolios for
all purposes. Any creditor of any Portfolio may look only to the assets
of that Portfolio to satisfy such creditor's debt.
(c) Dividends. Dividends and distributions on Shares of a
particular Portfolio may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as
the Trustees may determine, to the shareholders of that Portfolio, from
such of the income, accrued or realized, and capital gains, realized or
unrealized, and out of the assets belonging to that Portfolio, as the
Trustees may determine, after providing for actual and accrued
liabilities of that Portfolio. All dividends and distributions on
Shares of a particular Portfolio shall be distributed pro rata to the
Shareholders of that Portfolio in proportion to the number of such
Shares held by such holders at the date and time of record established
for the payment of such dividends or distributions, except that in
connection with any dividend or distribution program or procedure the
Trustees may determine that no dividend or distribution will be payable
on Shares as to which the Shareholder's purchase order and/or payment
have not been received by the time or times established by the Trustees
under such program or procedure, or that dividends or distributions
shall be payable on Shares which have been tendered by the holder
thereof for redemption or repurchase, but the redemption or repurchase
proceeds of which have not yet been paid to such Shareholder. Such
dividends and distributions may be made in cash or Shares of that
Portfolio or a combination thereof as determined by the Trustees, or
pursuant to any program that the Trustees may have in effect at the time
for the election by each Shareholder of the mode of the making of such
dividend or distribution to that Shareholder. Any such dividend or
distribution paid in Shares will be paid at the net asset value thereof
as determined in accordance with subsection (h) of Section 6.2 of the
Declaration.
(d) Liquidation. In the event of the liquidation or
dissolution of the Trust, the Shareholders of each Portfolio of which
Shares are outstanding shall be entitled to receive, when and as
declared by the Trustees, the excess of the Portfolio assets over the
liabilities of such Portfolio. The assets so distributable to the
Shareholders of any particular Portfolio shall be distributed among such
Shareholders in proportion to the number of Shares of that Portfolio
held by them and recorded on the books of that Trust. The liquidation
of any particular Portfolio may be authorized by vote of a Majority of
the Trustees, subject to the affirmative vote of a "majority of the
outstanding voting securities" of that Portfolio, as the quoted phrase
is defined in the 1940 Act, determined in accordance with clause(iii) of
the definition of "Majority Shareholder Vote" in Section 1.4 of the
Declaration.
(e) Voting. The Shareholders shall have the voting rights
set forth in or determined under Article VII of the Declaration.
(f) Redemption by Shareholder. Each holder of Shares of a
particular Portfolio shall have the right at such times as may be
permitted by the Trust, but no less frequently than once each week, to
require the Trust to redeem all or any part of his Shares of that
Portfolio at a redemption price equal to the net asset value per Share
of that Portfolio next determined in accordance with subsection (h) of
Section 6.2 of the Declaration after the Shares are properly tendered
for redemption; provided, that the Trustees may from time to time, in
their discretion, determine and impose a fee for such redemption.
Payment of the redemption price shall be in cash; provided, however,
that if the Trustees determine, which determination shall be conclusive,
that conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may make payment wholly or partly in Securities
or other assets belonging to such Portfolio at the value of such
Securities or assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of
any Portfolio to require the Trust to redeem Shares of that Portfolio
during any period or at any time when and to the extent permissible
under the 1940 Act.
(g) Redemption at the Option of the Trust. Each Share of
any Portfolio shall be subject to redemption at the option of the Trust
at the redemption price which would be applicable if such Share were
then being redeemed by the Shareholder pursuant to subsection (f) of
Section 6.0 of the Declaration: (i) at any time, if the Trustees
determine in their sole discretion that failure to so redeem may have
materially adverse consequences to the holders of the Shares of the
Trust or of any Portfolio, or (ii) upon such other conditions with
respect to maintenance of Shareholder accounts of a minimum amount as
may from time to time be determined by the Trustees and set forth in the
then current Prospectus of such Portfolio. Upon such redemption the
holders of the Shares so redeemed shall have no further right with
respect thereto other than to receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any
Portfolio at any time shall be the quotient obtained by dividing the
value of the net assets of such Portfolio at such time (being the
current value of the assets belonging to such Portfolio, less its then
existing liabilities) by the total number of Shares of that Portfolio
then outstanding, all determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time. The Trustees may
determine to maintain the net asset value per share of any Portfolio at
a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declaration of income attributable to that Portfolio as dividends
payable in additional Shares of that Portfolio at the designated
constant dollar amount and for the handling of any losses attributable
to that Portfolio. Such procedures may provide that in the event of any
loss each Shareholder shall be deemed to have contributed to the shares
of beneficial interest account of that Portfolio his pro rata portion of
the total number of Shares required to be canceled in order to permit
the net asset value per Share of that Portfolio to be maintained, after
reflecting such loss, at the designated constant dollar amount. Each
Shareholder of the Trust shall be deemed to have expressly agreed, by
his investment in any Portfolio with respect to which the Trustees shall
have adopted any such procedure, to make the contribution referred to in
the preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Portfolio
shall be transferable, but transfers of Shares of a particular Portfolio
will be recorded on the Share transfer records of the Trust applicable
to that Portfolio only at such times as Shareholders shall have the
right to require the Trust to redeem Shares of that Portfolio and at
such other times as may be permitted by the Trustees.
(j) Equality. All Shares of each particular Portfolio
shall represent an equal proportionate interest in the assets belonging
to that Portfolio (subject to the liabilities of that Portfolio), and
each Share of any particular portfolio shall be equal to each other
share thereof; but the provisions of this sentence shall not restrict
any distinction permissible under subsection (c) of Section 6.2 of the
Declaration that may exist with respect to dividends and distributions
of Shares of the same Portfolio. The Trustees may from time to time
divide or combine the Shares of any particular Portfolio into a greater
or lesser number of Shares of that Portfolio without thereby changing
the proportionate beneficial interest in the assets belonging to that
Portfolio or in any way affecting the rights of the holders of Shares of
any other Portfolio.
(k) Rights of Fractional Shares. Any fractional Share of
any Portfolio shall carry proportionately all the rights and obligations
of a whole Share of that Portfolio, including rights and obligations of
a whole Share of that Portfolio, including rights and obligations with
respect to voting, receipt of dividends and distributions, redemption of
Shares, and liquidation of the Trust or of the Portfolio to which they
pertain.
(l) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to
provide that holders of Shares of any Portfolio shall have the right to
convert said Shares into Shares of one or more other Portfolios in
accordance with such requirements and procedures as the Trustees may
establish.
3. That the undersigned has been authorized pursuant to a
resolution of the Board of Trustees adopted at a regular meeting held on
December 14, 1998 to execute this Certificate of Designation.
4. That the Trustees have directed that, upon said execution
and acknowledgment of this Certificate of Designation, a copy hereof
shall be filed with the Secretary of State of the Commonwealth of
Massachusetts and the City Clerk of the City of Boston, as well as with
any other governmental office where such filing may from time to time be
required.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal of this 17th day of February, 1999.
/s/Heath B. McLendon
Heath B. McLendon
U:\LEGAL\FUNDS\CIS\MISC\MidCapDesig.doc
- -6-
CONCERT INVESTMENT SERIES
BROKER DEALER CONTRACT
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
PFS Distributors, Inc.
3100 Breckinridge Boulevard
Duluth, Georgia 30199-0062
Ladies and Gentlemen:
We, CFBDS, Inc. ("CFBDS"), have agreements with the
Concert Investment Series for which Mutual Management Corp. serves as
investment adviser (the "Trust") pursuant to which we act as
nonexclusive principal underwriter and distributor for the sale of
shares of capital stock ("shares") of the various series of the
Trust, and as such have the right to distribute shares for resale.
The Trust is an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act") and the
shares being offered to the public are registered under the
Securities Act of 1933, as amended (the "1933 Act"). Each series of
the Trust covered by a Distribution Agreement from time to time is
referred to in this agreement as a "Fund" and collectively as the
"Funds." The term "Prospectus", as used herein, refers to the
prospectus and related statement of additional information (the
"Statement of Additional Information") incorporated therein by
reference (as amended or supplemented) on file with the Securities
and Exchange Commission at the time in question. As a broker in the
capacity of principal underwriter and distributor for the Trust, we
offer to sell to you, as a broker or dealer, shares of each Fund upon
the following terms and conditions:
1. In all sales to the public you shall act as broker
for your customers or as dealer for your own account, and in no
transaction shall you have any authority to act as agent for the
Trust, for us or for any other dealer.
2. Orders received from you will be accepted through us
only at the public offering price per share (i.e. the net asset value
per share plus the applicable front-end sales charge, if any)
applicable to each order, and all orders for redemption of any shares
shall be executed at the net asset value per share less any
contingent deferred sales charge, if any, in each case as set forth
in the Prospectus. You will be entitled to receive and retain any
contingent deferred sales charge amounts in partial consideration of
your payment to financial consultants of commission amounts at the
time of sale and we will obligate any other brokers with whom we
enter into similar agreements to pay such amounts directly to you.
The procedure relating to the handling of orders shall be subject to
paragraph 4 hereof and instructions which we or the Trust shall
forward from time to time to you. All orders are subject to
acceptance or rejection by the applicable Fund or us in the sole
discretion of either. The minimum initial purchase and the minimum
subsequent purchase of any shares shall be as set forth in the
Prospectus pertaining to the relevant Fund.
3. You shall not place orders for any shares unless you
have already received purchase orders for those shares at the
applicable public offering price and subject to the terms hereof.
You agree that you will not offer or sell any shares except under
circumstances that will result in compliance with the applicable
Federal and state securities laws, the applicable rules and
regulations thereunder and the rules and regulations of applicable
regulatory agencies or authorities and that in connection with sales
and offers to sell shares you will furnish to each person to whom any
such sale or offer is made, a copy of the Prospectus and, upon
request, the Statement of Additional Information, and will not
furnish to any person any information relating to shares which is
inconsistent in any respect with the information contained in the
Prospectus or Statement of Additional Information (as then amended or
supplemented). You shall not furnish or cause to be furnished to any
person or display or publish any information or materials relating to
the shares (including, without limitation, promotional materials and
sales literature, advertisements, press releases, announcements,
statements, posters, signs or other similar material), except such
information and materials as may be furnished to you by or on behalf
of us or the Trust, and such other information and materials as may
be approved in writing by or on behalf of us or the Trust.
4. As a broker dealer, you are hereby authorized (i) to
place orders directly with the Trust for shares subject to the
applicable terms and conditions governing the placement of orders by
us set forth in the Prospectus and (ii) to tender shares directly to
the Trust or its agent for redemption subject to the applicable terms
and conditions governing the redemption of shares applicable to us
set forth in the Prospectus.
5. You shall not withhold placing orders received from
your customers so as to profit yourself as a result of such
withholding, e.g., by a change in the "net asset value" from that
used in determining the offering price to your customers.
6. In determining the amount of any sales concession
payable to you hereunder, we reserve the right to exclude any sales
which we reasonably determine are not made in accordance with the
terms of the Prospectus and the provisions of this Agreement. Unless
at the time of transmitting an order we advise you or the transfer
agent to the contrary, the shares ordered will be deemed to be the
total holdings of the specified investor.
7. (a) You agree that payment for orders from you for
the purchase of shares will be made in accordance with the terms of
the Prospectus. On or before the business day following the
settlement date of each purchase order for shares, you shall transfer
same day funds to an account designated by us with the transfer agent
in an amount equal to the public offering price on the date of
purchase of the shares being purchased less your sales concession, if
any, with respect to such purchase order determined in accordance
with the Prospectus. If payment for any purchase order is not
received in accordance with the terms of the Prospectus, we reserve
the right, without notice, to cancel the sale and to hold you
responsible for any loss sustained as a result thereof.
(b) If any shares sold under the terms of this Agreement
are sold with a sales charge and are redeemed or are tendered for
redemption within seven (7) business days after confirmation of your
purchase order for such shares: (i) you shall forthwith refund to us
the full sales concession received by you on the sale; and (ii) we
shall forthwith pay to the applicable Fund our portion of the sales
charge on the sale which has been retained by us, if any, and shall
also pay to the applicable Fund the amount refunded by you.
(c) We will not be obligated to pay or cause to be paid
to you any ongoing trail commission or shareholder service fees with
respect to shares of the Funds purchased through you and held by or
for your customers, which you shall collect directly from the Trust.
(d) Certificates evidencing shares shall be available
only upon request. Upon payment for shares in accordance with
paragraph 7(a) above, the transfer agent will issue and transmit to
you or your customer a confirmation statement evidencing the purchase
of such shares. Any transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases, shall be effected
and evidenced by book-entry on the records of the transfer agent.
8. No person is authorized to make any representations
concerning shares except those contained in the current Prospectus
and Statement of Additional Information and in printed information
subsequently issued by us or the Trust as information supplemental to
the Prospectus and the Statement of Additional Information. In
purchasing or offering shares pursuant to this Agreement you shall
rely solely on the representations contained in the Prospectus, the
Statement of Additional Information and the supplemental information
above mentioned.
9. You agree to deliver to each purchaser making a
purchase of shares from or through you a copy of the Prospectus at or
prior to the time of offering or sale, and, upon request, the
Statement of Additional Information. You may instruct the transfer
agent to register shares purchased in your name and account as
nominee for your customers. You agree thereafter to deliver to any
purchaser whose shares you or your nominee are holding as record
holder copies of the annual and interim reports and proxy
solicitation materials and any other information and materials
relating to the Trust and prepared by or on behalf of us, the Trust
or the investment adviser, custodian, transfer agent or dividend
disbursing agent for distribution to beneficial holders of shares.
The Trust shall be responsible for the costs associated with
forwarding such reports, materials and other information and shall
reimburse you in full for such costs. You further agree to make
reasonable efforts to endeavor to obtain proxies from such purchasers
whose shares you or your nominee are holding as record holder. You
further agree to obtain from each customer to whom you sell shares
any taxpayer identification number certification required under
Section 3406 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder, and to provide
us or our designee with timely written notice of any failure to
obtain such taxpayer identification number certification in order to
enable the implementation of any required backup withholding in
accordance with Section 3406 of the Code and the regulations
thereunder. Additional copies of the Prospectus, Statement of
Additional Information, annual or interim reports, proxy solicitation
materials and any such other information and materials relating to
the Trust will be supplied to you in reasonable quantities upon
request.
10. (a) In accordance with the terms of the Prospectus,
a reduced sales charge may be available to customers, depending on
the amount of the investment or proposed investment. In each case
where a reduced sales charge is applicable, you agree to furnish to
the transfer agent sufficient information to permit confirmation of
qualification for a reduced sales charge, and acceptance of the
purchase order is subject to such confirmation. Reduced sales
charges may be modified or terminated at any time in the sole
discretion of the Trust.
(b) You acknowledge that certain classes of investors
may be entitled to purchase shares at net asset value without a sales
charge as provided in the Prospectus and Statement of Additional
Information.
(c) You agree to advise us promptly as to the amount of
any and all sales by you qualifying for a reduced sales charge or no
sales charge.
(d) Exchanges (i.e., the investment of the proceeds from
the liquidation of shares of one Fund in the shares of another Fund,
each of which is managed by the same or an affiliated investment
adviser) shall, where available, be made in accordance with the terms
of each Prospectus.
11. We and the Trust reserve the right in our
discretion, without notice, to suspend sales or withdraw the offering
of any shares entirely. Each party hereto has the right to cancel
the portions of this Agreement to which it is party upon notice to
the other parties; provided, however, that no cancellation shall
affect any party's obligations hereunder with respect to any
transactions or activities occurring prior to the effective time of
cancellation. We reserve the right to amend this Agreement in any
respect effective on notice to you.
12. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering of shares. We shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by
us herein. Nothing contained in this paragraph 12 is intended to
operate as, and the provisions of this paragraph 12 shall not in any way
whatsoever constitute a waiver by you of compliance with, any provisions
of the 1933 Act or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
13. You agree that: (a) you shall not effect any
transactions (including, without limitation, any purchases and
redemptions) in any shares registered in the name of, or beneficially
owned by, any customer unless such customer has granted you full
right, power and authority to effect such transactions on his behalf,
(b) we shall have full authority to act upon your express
instructions to sell, repurchase or exchange shares through us on
behalf of your customers under the terms and conditions provided in
the Prospectus and (c) we, the Trust, the investment adviser, the
administrator, the transfer agent, the sub-transfer agent and our and
their respective officers, directors or trustees, agents, employees
and affiliates shall not be liable for, and shall be fully
indemnified and held harmless by you from and against, any and all
claims, demands, liabilities and expenses (including, without
limitation, reasonable attorneys' fees) which may be incurred by us
or any of the foregoing persons entitled to indemnification from you
hereunder arising out of or in connection with (i) the execution of
any transactions in shares registered in the name of, or beneficially
owned by, any customer in reliance upon any oral or written
instructions believed to be genuine and to have been given by or on
behalf of you, (ii) any statements or representations that you or
your employees or representatives make concerning the Trust that are
inconsistent with the Trust's Prospectus, (iii) any written materials
used by you or your employees or representatives in connection with
making offers or sales of shares that were not furnished by us, the
Trust or the investment adviser or an affiliate thereof and (iv) any
sale of shares of the Trust where the Trust or its shares were not
properly registered or qualified for sale in any state, any U.S.
territory or the District of Columbia, when we have indicated to you
that the Trust or its shares were not properly registered or
qualified. The indemnification agreement contained in this Paragraph
13 shall survive the termination of this Agreement.
14. You represent that: (a) you are a member in good
standing of the National Association of Securities Dealers, Inc. (the
"NASD"), or, if a foreign dealer who is not eligible for membership
in the NASD, that (i) you will not make any sales of shares in, or to
nationals of, the United States of America, its territories or its
possessions, and (ii) in making any sales of shares you will comply
with the NASD's Conduct Rules and (b) you are a member in good
standing of the Securities Investor Protection Corporation ("SIPC").
You agree that you will provide us with timely written notice of any
change in your NASD or SIPC status.
15. We shall inform you as to the states or other
jurisdictions in which the Trust has advised us that shares have been
qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your qualification to sell shares
in any jurisdiction.
16. 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.
17. All communications to us should be sent, postage
prepaid, to 21 Milk Street, Boston, Massachusetts 02109 Attention:
Philip Coolidge. Any notice to you shall be duly given if mailed,
telegraphed or telecopied to you at the address specified by you
below. Communications regarding placement of orders for shares
should be sent, postage prepaid, to First Data Investor Services
Group, Inc., P.O. Box 5128, Westborough, Massachusetts 01581-5128.
18. This Agreement shall be binding upon both parties
hereto when signed by us and accepted by you in the space provided
below.
19. 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.
CFBDS, INC.
By:
(Authorized Signature)
Accepted:
Firm Name:
Address:
Accepted By (signature):
Name (print):
Title: Date:
u:\legal\general\forms\agreemts\dist12b-1\dealerag2.doc
COMMON SENSE TRUST
TRUSTEES RETIREMENTS PLAN
Common Sense Trust (the "Trust"), a registered investment company
having its principal office at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, has adopted this Retirement Plan ("Plan") for its
Independent Trustees (as defined herein) in order to recognize and
reward the valued services provided by such trustees to the Trust.
An Independent Trustee is a trustee who is not an officer, director
or employee of Van Kampen American Capital Asset Management, Inc., or
any affiliated person thereof.
The Trust is responsible for the payment of the retirement benefits,
as well as all expenses of administration of this Plan, including
without limitation all administrative, accounting and legal fees.
This Plan is separate and distinct from any other retirement plan
adopted by any other investment company in the Van Kampen American
Capital Group of Funds and all rights, duties, responsibilities and
obligations under this Plan shall be between the Trust and its
Independent Trustees.
This Plan shall be administered by the Nominating Committee of the
Trust.
To be eligible to receive retirement benefits under this Plan, an
Independent Trustee may retire upon attaining the age of 67 and must
retire as of the last day of the calendar year in which he or she
attains the age of 75. The retirement benefit shall be based upon
the highest total annual compensation (i.e. annual retainer and board
and committee meeting fees) the retiring Independent Trustee received
in any of the three calendar years preceding such Independent
Trustee's termination of service. Such retirement benefit shall
begin at 50% of such total compensation for any Independent Trustee
with five (5) years of service and shall increase by 10% for each
year of service by such Independent Trustee in excess of five (5)
years of service up to a maximum amount of 100% of the compensation
for any Independent Trustee who has completed ten (10) or more years
of service, as set forth in the following table:
Years of Service
Percentage of Compensation
Less than 5
0%
5
50
6
60
7
70
8
80
9
90
10 or more
100%
Such aggregate amount of the retirement benefit will be fixed at the
date of retirement and shall be payable for each of the ten (10)
years commencing in the calendar year in which the Independent
Trustee retires. Payment will be made at the end of each calendar
quarter to the Retired Independent Trustee in forth(40) equal
installments, commencing on the first business day of the calendar
quarter following the date on which the Independent Trustee retires.
Notwithstanding the foregoing, any Independent Trustee who is
seventy-five (75) years of age or older on the date this Plan is
adopted by the Trust will receive a retirement benefit as determined
by a resolution of the board of directors of the Trust adopted in
conjunction with the adoption of this Plan and conforming in all
other respects to the provisions of this Plan.
No retirement payment benefit may be anticipated, pledged, assigned,
either in law or equity, alienated, attached, garnished, levied or
subject to any other legal or equitable process. All payments under
this Plan are subject to the condition that the recipient's conduct
not be inconsistent with the Code of Ethics established by the Trust
and such payments may be discontinued at any time if in the sole
judgment of the Nominating Committee the recipient's conduct in
inconsistent with such Code.
An Independent Trustee may receive retirement benefits under this
Plan even if he or she retires before age 67 after five (5) years of
service as an Independent Trustee of the Trust if the Nominating
Committee in its sole judgment determines that as a consequence of
ill health, disability or for any other reason the earlier retirement
date is appropriate.
In the event of a retired Independent Trustee's death prior to
complete distribution under this Plan, such Independent Trustee's
beneficiary designated by his or her in writing to the Trust shall
receive the remaining retirement benefits in installments or in a
lump sum as determined by the Nominating Committee. The lump sum
shall be an amount equal to the present value of the remaining
retirement benefit as determined in good faith by the Nominating
Committee. Such a lump sum shall be paid by the Trust to the
Independent Trustee's estate in the event the Independent Trustee
survives his or her beneficiary or if no beneficiary had been
designated.
In the event an Independent Trustee's death occurs after five (5)
years of service, the Independent Trustee's beneficiary shall receive
the amount of the applicable retirement benefit in installments or a
lump sum as determined by the Nominating Committee. In the event the
Independent Trustee survived the beneficiary or no beneficiary was
named, the Trust shall pay a lump sum amount equal to the present
value of the applicable retirement benefit to the Independent
Trustee's estate.
In the event of a liquidation, dissolution or winding up of the Trust
or distribution of all or substantially all of the Trust's assets and
property, the Trust shall pay to each Independent Trustee serving as
a trustee of the Trust on the effective date of such liquidation,
dissolution, winding up or distribution a lump sum amount equal to
the present value of the applicable retirement benefit using the
effective date of such liquidation, dissolution, winding up or
distribution as the date of such Independent Trustee's termination of
service, unless such Independent Trustee continues to serve on the
board of a successor fund with a retirement plan at least as
favorable as this Plan. In the event an Independent Trustee
terminates service prior to such liquidation, dissolution, winding up
or distribution and such Independent Trustee (or his or her
beneficiary) is then receiving payment of benefits at the time of
such liquidation, dissolution, winding up or distribution, the Trust
shall pay to such Independent Trustee (or his or her beneficiary) on
the effective date of such liquidation, dissolution, winding up or
distribution a lump sum amount equal to the present value of the
remaining retirement benefit due to such Independent Trustee (or his
or her beneficiary).
This Plan does not create a right for any Independent Trustee to be
renominated nor is there any duty on the part of the members of the
Nominating Committee or the board to renominate a person for election
as a trustee.
The contingent obligations of the Trust under this Plan shall be
accounted for in accordance with generally accepted accounting
principles. Upon the retirement of an Independent Trustee, the Trust
at its option may purchase an annuity contract to meet its obligation
in respect of the Independent Trustee.
The Trust at any time may terminate this Plan or, from time to time,
may modify or change this Plan provided, however, that the right of
an Independent Trustee to receive payments under this Plan shall
become fixed upon five (5) years of service and no termination,
modification or change shall affect his or her rights to receive the
payments to which he or she was entitled under this Plan.
This Plan shall not be a qualified plan under Section 401 of the
Internal Revenue Code and need not be submitted for approval of
shareholders.
This Plan and any modification, change or termination shall be
approved by a majority of the Trustees who are not "interested
persons" of the Trust or "interested persons" of any investment
adviser of the Trust and by a majority of the Board as a whole.
U:\LEGAL\FUNDS\CIS\1999\SECDOCS\RetirePlane.doc
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report
dated December 15, 1998, on the Concert Investment Series (comprising,
respectively, the Emerging Growth Fund, Government Fund, Growth Fund,
Growth and Income Fund, International Equity Fund and Municipal Bond
Fund) which is incorporated by reference in this Registration Statement
(Form N-1A No. 33-11716 and 811-5018) of the Concert Investment Series.
ERNST & YOUNG LLP
New York, New York
February 23, 1999
AMENDED AND RESTATED
DISTRIBUTION PLAN FOR CLASS A SHARES
OF
CONCERT INVESTMENT SERIES
WHEREAS, Concert Investment Series (the "Trust") engages in
business as an open-end management investment company and is
registered under the Investment Company Act of 1940 (the "1940
Act")
WHEREAS, the Trust's Board of Trustees (the "Board") has
established separate series of shares of beneficial interest of the
Trust, including the following series: Emerging Growth Fund
("Emerging Growth Fund"), Growth Fund ("Growth Fund"), Growth and
Income Fund ("Growth and Income Fund"), Government Fund
("Government Fund"), International Equity Fund ("International
Equity Fund") and Municipal Bond Fund ("Municipal Bond Fund");
WHEREAS, the Trust hereafter may establish additional series
of shares of beneficial interest or determine that other existing
series of the Trust shall be subject hereto (any such additional
series, together with the Emerging Growth Fund, the Growth Fund, the
Growth and Income Fund, the Government Fund, the International
Equity Fund and the Municipal Bond Fund are collectively referred to
herein as the "Funds," and singly may be referred to herein as the
"Fund");
WHEREAS, the Trust desires to adopt an Amended and Restated
Plan of Distribution ("Plan") pursuant to Rule 12b-1 under the 1940
Act with respect to the Class A shares of the Emerging Growth Fund,
the Growth Fund, the Growth and Income Fund, the Government Fund,
the International Equity Fund and the Municipal Bond Fund and of
such other Funds as may hereafter be designated by the Board as
subject to this Plan and have Class A shares established; and
WHEREAS, the Trust has entered into a Distribution Agreement
("Agreement") with CFBDS, Inc. (the "Distributor") to serve as
distributor of the Class A shares of the Funds and the Distributor
has entered into a Broker Dealer Contract with PFS Distributors,
Inc. (the "Administrative Broker").
NOW, THEREFORE, the Trust hereby adopts this Amended and
Restated Plan with respect to the Class A shares of each Fund in
accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Fund is authorized to pay to the Administrative
Broker, as compensation for services with respect to the Class A
shares, a service fee at the rate of 0.25% on an annualized basis of
the average daily net assets of the Fund's Class A shares. Such fee
shall be calculated and accrued daily and paid monthly or at such
other intervals as the Board shall determine.
B. Any Fund may pay a service fee to the Administrative
Broker at a lesser rate than the fee specified in paragraph 1A of
this Plan, as agreed upon by the Board and the Administrative Broker
and as approved in the manner specified in paragraph 4 of this Plan.
2. As Administrative Broker of the Class A shares of each
Fund, the Administrative Broker may spend such amounts as it deems
appropriate on any activities or expenses primarily intended to
result in the servicing and maintenance of shareholder accounts with
respect to the Class A shares.
3. This Plan shall not take effect with respect to the Class A
shares of any Fund that has not previously issued such shares to the
public unless it first has been approved by a vote of the then sole
shareholder of the Class A shares of such Fund. This Plan shall not
take effect with respect to the Class A shares of any Fund that has
previously issued shares to the public, unless it has first been
approved by a vote of a majority of the outstanding voting securities
of the Class A shares of such Fund.
4. This Plan shall not take effect with respect to the Class A
shares of any Fund unless it first has been approved, together with
any related agreements, by votes of a majority of both (a) the Board
and (b) those Trustees of the Trust who are not "interested
persons" of the Trust and have no direct or indirect financial
interest in the operation of this Plan or any agreements related
thereto ("Independent Trustees") cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and
until the Trustees who approve the Plan's taking effect with respect
to such Fund's Class A shares have reached the conclusion required
by Rule 12b-1(e) under the 1940 Act.
5. So long as the Plan remains in effect, the selection and
nomination of persons to serve as Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of the Trustees then in office who are not "interested
persons" of the Trust.
6. Unless sooner terminated pursuant to paragraph 8, this Plan
shall continue in effect for a period of one year from the date it
takes effect with respect to a Fund, provided that the continuance
of the Plan is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 4.
7. The Administrative Broker shall provide the Board and the
Independent Trustees shall review, in exercise of their fiduciary
duties, at least quarterly, a written report of the amounts expended
with respect to Class A shares of each Fund by the Administrative
Broker under this Plan and the purposes for which such expenditures
were made. Only expenditures properly attributable to the sale of
Class A shares of any Fund will be used to justify any fee paid
pursuant to this Plan. The Administrative Broker shall submit only
information regarding amounts expended for "service activities," as
defined in this paragraph 7, to the Board in support of the service
fee payable hereunder. "Service activities" shall mean activities
covered by the definition of "service fee" contained in Rule 2830
of the Conduct Rules of the National Association of Securities
Dealers, Inc., as amended.
8. This Plan may be terminated with respect to the Class A
shares of any Fund, without payment of any penalty, at any time by
vote of the Board, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding voting securities of the
Class A shares of such Fund.
9. This Plan may not be amended to increase materially the
amount of service fees provided for in paragraph 1A hereof with
respect to the Class A shares of a Fund unless such amendment is
approved by a vote of a majority of the outstanding voting
securities of the Class A shares of such Fund, and no material
amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in paragraph 4 hereof.
10. The amount of the service fees payable by any Fund to
the Administrative Broker under paragraph 1A hereof is not related
directly to the expenses incurred by the Administrative Broker on
behalf of such Fund in serving as Administrative Broker of the Class
A shares, and paragraph 2 hereof does not obligate the Fund to
reimburse the Administrative Broker for such expenses. The service
fee set forth in paragraph 1A hereof will be paid by the Fund to the
Administrative Broker until the Plan is terminated or not renewed.
If the Plan is terminated or not renewed with respect to the Class A
shares of any Fund, any distribution expenses incurred by the
Administrative Broker on behalf of the Fund in excess of payments of
the service fee specified in paragraph 1A hereof which the
Administrative Broker has received or accrued through the
termination date are the sole responsibility and liability of the
Administrative Broker and are not obligations of the Fund.
11. Any agreement related to this Plan shall be in writing
and shall provide:
(a) That such agreement may be terminated at any time
without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote
of the outstanding securities of the Class A shares
of the applicable Fund on not more than 60 days
written notice to any other party to this
agreement; and
(b) That such agreement shall terminate automatically
in the event of its assignment.
12. The Declaration of Trust establishing Concert Investment
Series, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office to the Secretary of the
Commonwealth of Massachusetts, provides that the name of the Trust
refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of the Trust, but the Trust
Estate only shall be liable. All obligations of the Trust under
this Plan shall apply only on a Fund by Fund basis and the assets of
one Fund shall not be subject to the obligations of any other Fund.
13. As used in this Plan, the terms "majority of the
outstanding voting securities," "interested person" and
"assignment" shall have the same meaning as those terms have in the
1940 Act.
14. The Trust shall preserve copies of the Plan (including
any amendments thereto) and any related agreements and all reports
made pursuant to paragraph 7 hereof for a period of not less than
six years from the date of this Plan, the first two years in an
easily accessible place.
IN WITNESS WHEREOF, the Trust has executed this Amended and
Restated Plan of Distribution on the day and year set forth below.
Date: July , 1998
ATTEST: CONCERT INVESTMENT SERIES
____________________
By:___________________________
U:\LEGAL\FUNDS\CIS\AGREEMTS\ClassAdiste.doc
AMENDED AND RESTATED
DISTRIBUTION PLAN FOR CLASS B SHARES
OF
CONCERT INVESTMENT SERIES
WHEREAS, Concert Investment Series (the "Trust") engages in
business as an open-end management investment company and is
registered under the Investment Company Act of 1940 (the "1940
Act")
WHEREAS, the Trust's Board of Trustees (the "Board") has
established separate series of shares of beneficial interest of the
Trust, including the following series: Emerging Growth Fund
("Emerging Growth Fund"), Growth Fund ("Growth Fund"), Growth and
Income Fund ("Growth and Income Fund"), Government Fund
("Government Fund"), International Equity Fund ("International
Equity Fund") and Municipal Bond Fund ("Municipal Bond Fund");
WHEREAS, the Trust hereafter may establish additional series
of shares of beneficial interest or determine that other existing
series of the Trust shall be subject hereto (any such additional
series, together with the Emerging Growth Fund, the Growth Fund, the
Growth and Income Fund, the Government Fund, the International
Equity Fund and the Municipal Bond Fund are collectively referred to
herein as the "Funds," and singly may be referred to herein as the
"Fund");
WHEREAS, the Trust desires to adopt an Amended and Restated
Plan of Distribution ("Plan") pursuant to Rule 12b-1 under the 1940
Act with respect to the Class B shares of the Emerging Growth Fund,
the Growth Fund, the Growth and Income Fund, the Government Fund,
the International Equity Fund and the Municipal Bond Fund and of
such other Funds as may hereafter be designated by the Board as
subject to this Plan and have Class B shares established; and
WHEREAS, the Trust has entered into a Distribution Agreement
("Agreement") with CFBDS, Inc. (the "Distributor") to serve as
distributor of the Class B shares of the Funds and the Distributor
has entered into a Broker Dealer Contract with PFS Distributors,
Inc. (the "Administrative Broker").
NOW, THEREFORE, the Trust hereby adopts this Amended and
Restated Plan with respect to the Class B shares of each Fund in
accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Fund is authorized to pay the Administrative
Broker, as compensation for the Administrative Broker's services
with respect to the Fund's Class B shares, a distribution fee at the
rate of 0.75% on an annualized basis of the average daily net assets
of the Fund's Class B shares. Such fee shall be calculated and
accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. Each Fund is authorized to pay to the Administrative
Broker, as compensation for services with respect to the Class B
shares, a service fee at the rate of 0.25% on an annualized basis of
the average daily net assets of the Fund's Class B shares. Such fee
shall be calculated and accrued daily and paid monthly or at such
other intervals as the Board shall determine.
C. Any Fund may pay a distribution or service fee to the
Administrative Broker at a lesser rate than the fees specified in
paragraphs 1A or 1B, respectively, of this Plan, as agreed upon by
the Board and the Administrative Broker and as approved in the
manner specified in paragraph 4 of this Plan.
2. As Administrative Broker of the Class B shares of each
Fund, the Administrative Broker may spend such amounts as it deems
appropriate on any activities or expenses primarily intended to
result in the sale of the Fund's Class B shares or the servicing and
maintenance of shareholder accounts.
3. This Plan shall not take effect with respect to the Class B
shares of any Fund that has not previously issued such shares to the
public unless it first has been approved by a vote of the then sole
shareholder of the Class B shares of such Fund. This Plan shall not
take effect with respect to the Class B shares of any Fund that has
previously issued shares to the public, unless it has first been
approved by a vote of a majority of the outstanding voting securities
of the Class B shares of such Fund.
4. This Plan shall not take effect with respect to the Class B
shares of any Fund unless it first has been approved, together with
any related agreements, by votes of a majority of both (a) the Board
and (b) those Trustees of the Trust who are not "interested
persons" of the Trust and have no direct or indirect financial
interest in the operation of this Plan or any agreements related
thereto ("Independent Trustees") cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and
until the Trustees who approve the Plan's taking effect with respect
to such Fund's Class B shares have reached the conclusion required
by Rule 12b-1(e) under the 1940 Act.
5. So long as the Plan remains in effect, the selection and
nomination of persons to serve as Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of the Trustees then in office who are not "interested
persons" of the Trust.
6. Unless sooner terminated pursuant to paragraph 8, this Plan
shall continue in effect for a period of one year from the date it
takes effect with respect to a Fund, provided that the continuance
of the Plan is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 4.
7. The Administrative Broker shall provide the Board and the
Independent Trustees shall review, in exercise of their fiduciary
duties, at least quarterly, a written report of the amounts expended
with respect to Class B shares of each Fund by the Administrative
Broker under this Plan and the purposes for which such expenditures
were made. The Administrative Broker shall submit only information
regarding amounts expended for "distribution activities," as
defined in this paragraph 7, to the Board in support of the
distribution fee payable hereunder and shall submit only information
regarding amounts expended for "service activities," as defined in
this paragraph 7, to the Board in support of the service fee payable
hereunder. Only expenditures properly attributable to the sale of
Class B shares of any Fund will be used to justify any fee paid
pursuant to this Plan.
For purposes of this Plan, "distribution activities" shall
mean any activities in connection with the Administrative Broker's
performance of its obligations hereunder that are not deemed
"service activities. "Service activities" shall mean activities
covered by the definition of "service fee" contained in Rule 2830
of the Conduct Rules of the National Association of Securities
Dealers, Inc., as amended.
8. This Plan may be terminated with respect to the Class B
shares of any Fund, without payment of any penalty, at any time by
vote of the Board, by vote of a majority of the Independent Trustees
or by vote of a majority of the outstanding voting securities of the
Class B shares of such Fund.
9. This Plan may not be amended to increase materially the
amount of distribution fees provided for in paragraph 1A hereof or
the amount of service fees provided for in paragraph 1B hereof with
respect to the Class B shares of a Fund unless such amendment is
approved by a vote of a majority of the outstanding voting
securities of the Class B shares of such Fund, and no material
amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in paragraph 4 hereof.
10. The amount of the distribution and service fees payable
by any Fund to the Administrative Broker under paragraphs 1A and 1B
hereof is not related directly to the expenses incurred by the
Administrative Broker on behalf of such Fund in serving as
Administrative Broker of the Class B shares, and paragraph 2 hereof
does not obligate the Fund to reimburse the Administrative Broker
for such expenses. The distribution and service fees set forth in
paragraphs 1A and 1B hereof will be paid by the Fund to the
Administrative Broker until the Plan is terminated or not renewed.
If the Plan is terminated or not renewed with respect to the Class B
shares of any Fund, any distribution expenses incurred by the
Administrative Broker on behalf of the Fund in excess of payments of
the distribution and service fees specified in paragraphs 1A and 1B
hereof which the Administrative Broker has received or accrued
through the termination date are the sole responsibility and
liability of the Administrative Broker and are not obligations of
the Fund.
11. Any agreement related to this Plan shall be in writing
and shall provide:
(a) That such agreement may be terminated at any time
without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote
of the outstanding securities of the Class B shares
of the applicable Fund on not more than 60 days
written notice to any other party to this
agreement; and
(b) That such agreement shall terminate automatically
in the event of its assignment.
12. The Declaration of Trust establishing the Trust, dated
January 29, 1987, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office to the
Secretary of the Commonwealth of Massachusetts, provides that the
name "Concert Investment Series" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent
of the Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of
the Trust, but the Trust Estate only shall be liable. All
obligations of the Trust under this Plan shall apply only on a Fund
by Fund basis and the assets of one Fund shall not be subject to the
obligations of any other Fund.
13. As used in this Plan, the terms "majority of the
outstanding voting securities," "interested person" and
"assignment" shall have the same meaning as those terms have in the
1940 Act.
14. The Trust shall preserve copies of the Plan (including
any amendments thereto) and any related agreements and all reports
made pursuant to paragraph 7 hereof for a period of not less than
six years from the date of this Plan, the first two years in an
easily accessible place.
IN WITNESS WHEREOF, the Trust has executed this Amended and
Restated Plan of Distribution on the day and year set forth below.
Date: July , 1998
ATTEST: CONCERT INVESTMENT SERIES
____________________
By:___________________________
U:\LEGAL\FUNDS\CIS\AGREEMTS\ClassBdiste.doc
Servicing Agreement Relating to Class A Shares of Certain
Concert Investment Series Mutual Funds
Dear Sir:
This Amended and Restated Servicing Agreement (the "Agreement")
between PFS Distributors, Inc. ("Administrative Broker"), an
indirect subsidiary of Citigroup Inc., defines the services to be
provided by PFS Investments Inc. ("Dealer") for Class A shares for
which Dealer may receive payment pursuant to the Class A
Distribution Plan (hereinafter referred to as the "Plan") adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"Act") by the Emerging Growth Fund, Growth Fund, Growth and Income
Fund, Government Fund, International Equity Fund and Municipal Bond
Fund (the "Funds") of Concert Investment Series (the "Trust"). Each
such Fund has acted severally and not jointly in adopting the Plan
and the Agreement and hereinafter is referred to severally as the
"Fund". The Plan and the Agreement have been approved by a majority
of the Trustees including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or any related
agreements (the "non-interested Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan. Such approval
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan has also been approved by a vote of a
majority of the Fund's outstanding Class A voting securities, as
defined in the Act.
1. To the extent you provide servicing and maintenance of
Customers' accounts who may from time to time,
directly or beneficially own shares of the Funds,
including but not limited to, distributing
prospectuses and sales literature, answering routine
Customer inquires regarding the Fund, assisting
Customers in changing dividend options, account
designations and addresses, and in enrolling into the
pre-authorized check plan, systematic withdrawal plan
or any of several tax sheltered retirement plans
offered in connection with the purchase of shares in
the case of those Funds offering such Plans, assisting
in the establishment and maintenance of customer
accounts and records and in the processing of purchase
and redemption transactions, investing dividends and
capital gains distributions automatically in shares
and providing such other services as the Fund or the
Customer may reasonably request ("service
activities"), we shall pay you at least quarterly a
fee for Class A shares as indicated in each Fund's
then current Prospectus based on the net asset value
of Class A shares of the Fund. Such fee will be
payable only so long as the Plan remains in effect.
You understand and agree that you shall not be paid
such quarterly fee until we are in receipt of the
service fee described in the Fund's then current
Prospectus for the period in which you provide the
services described above, and our liability to you for
the payment of such quarterly fee is limited to the
proceeds of that Fund's service fee. No such
quarterly fee will be paid to you with respect to
shares purchased by you and redeemed or repurchased by
the Fund or by us as Agent within seven (7) business
days after the date of our confirmation of such
purchase. No such fee shall be payable with respect
to shares purchased at net asset value without a sales
charge by investors of the classes described in the
Fund's Prospectus pursuant to Rule 22d-1 under the Act
other than classes of net asset value categories
pursuant to Rule 22d-1 as may from time to time be
approved by the Fund. For purposes of this Agreement,
"service activities" shall mean activities covered by
the definition of "service fee" contained in Rule 2830
of the Conduct Rules of the National Association of
Securities Dealers, Inc.
2. By accepting such fee you agree to assign a
representative to each account, to require such
representative to contact the Customer regularly and
to pay at least a portion of such fee to such
representative. Additionally, you understand that
Administrative Broker will monitor service levels
which you provide to your Customers pursuant to this
agreement and that consistently low levels of service
will result in non-payment of the fee.
3. You agree to use your best efforts to support the
asset value of the Fund to the extent consistent with
the suitability requirements of your Customer. You
understand that Administrative Broker will monitor
levels of redemption and that redemption levels
consistently above those dictated by market conditions
will result in non-payment of the fee.
4. This Agreement does not require Dealer to hold Fund
shares in street name or to provide shareholder
accounting and record keeping services for any
Customers who are beneficial owners of Fund shares.
5. You shall furnish us and the Fund with such
information as shall reasonably be requested by either
the Trustees of the Fund or by us with respect to the
fees paid to you pursuant to this Agreement.
6. We shall furnish to the Trustees of the Fund, for
their review on a quarterly basis, a written report of
the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
7. Neither you nor any of your employees or agents are
authorized to make any representation concerning
shares of the Fund except those contained in the then
current Prospectus for the Fund, and you shall have no
authority to act as agent for the Fund, for the Fund's
distributor or for Administrative Broker.
8. This Agreement may be terminated with respect to any
Fund at any time without payment of any penalty by the
vote of a majority of the non-interested Trustees or
by a vote of a majority of the Fund's outstanding
Class A shares, on sixty (60) days written notice. It
will be terminated by any act which terminates either
the Fund's Distribution Agreement with the Fund's
distributor or the Selling Agreement between Dealer
and us and shall terminate automatically in the event
of its assignment as the term is defined in the Act.
9. The provisions of the Distribution Agreement between
the Fund and the Fund's distributor, insofar as they
relate to the Plan, are incorporated herein by
reference. This Agreement shall become effective upon
execution and delivery hereof and shall continue in
full force and effect so long as the continuance of
the Plan and this related Agreement are approved at
least annually by a vote of the Trustees, including a
majority of the non-interested Trustees, cast in
person at a meeting called for the purpose of voting
thereon. All communications to us should be sent to
3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified
by you below.
10. The Declaration of Trust establishing Concert
Investment Series, a copy of which, together with all
amendments thereto (the "Declaration"), is on file in
the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name of the Trust
refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder or officer of
said Trust shall be held to any personal liability,
nor shall resort be had to their private property for
the satisfaction of any obligation or claim or
otherwise in connection with the affairs of said
Trust, but only the assets and property of the Trust,
or of the particular series of the Trust in question,
as the case may be, shall be liable. All obligations
under this Agreement shall apply only on a Fund by
Fund basis and the assets of one Fund shall not be
liable for the obligations of any other Fund.
11. This Agreement shall be construed in accordance with
the laws of the State of Georgia.
PFS DISTRIBUTORS, INC.
By: _______________________________ Date: July
, 1998
Name: Gregory C. Pitts
Title: Senior Vice President
ACCEPTED:
PFS INVESTMENTS INC.
a Georgia corporation
By: ________________________________ Date: July
, 1998
Name: David Siegel
Title: President
u:/users/general/forms/agreemt/servagr.
Servicing Agreement Relating to Class B Shares of Certain
Concert Investment Series Mutual Funds
Dear Sir:
This Amended and Restated Servicing Agreement (the "Agreement")
between PFS Distributors, Inc. ("Administrative Broker"), an
indirect subsidiary of Citigroup Inc., defines the services to be
provided by PFS Investments Inc. ("Dealer") for Class B shares for
which Dealer may receive payment pursuant to the Class B
Distribution Plan (hereinafter referred to as the "Plan") adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"Act") by the Emerging Growth Fund, Growth Fund, Growth and Income
Fund, Government Fund, International Equity Fund and Municipal Bond
Fund (the "Funds") of Concert Investment Series (the "Trust").
Each such Fund has acted severally and not jointly in adopting the
Plan and the Agreement and hereinafter is referred to severally as
the "Fund". The Plan and the Agreement have been approved by a
majority of the Trustees including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any
related agreements (the "non-interested Trustees"), cast in person
at a meeting called for the purpose of voting on the Plan. Such
approval included a determination that in the exercise of their
reasonable business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders. The Plan has also been approved by a vote of
a majority of the Fund's outstanding Class B voting securities, as
defined in the Act.
1. To the extent you provide servicing and maintenance of
Customers' accounts who may from time to time,
directly or beneficially own shares of the Funds,
including but not limited to, distributing
prospectuses and sales literature, answering routine
Customer inquires regarding the Fund, assisting
Customers in changing dividend options, account
designations and addresses, and in enrolling into the
pre-authorized check plan, systematic withdrawal plan
or any of several tax sheltered retirement plans
offered in connection with the purchase of shares in
the case of those Funds offering such Plans, assisting
in the establishment and maintenance of customer
accounts and records and in the processing of purchase
and redemption transactions, investing dividends and
capital gains distributions automatically in shares
and providing such other services as the Fund or the
Customer may reasonably request ("service
activities"), we shall pay you at least quarterly a
fee for Class B shares as indicated in each Fund's
then current Prospectus based on the net asset value
of Class B shares of the Fund. Such fee will be
payable only so long as the Plan remains in effect.
You understand and agree that you shall not be paid
such quarterly fee until we are in receipt of the
service fee described in the Fund's then current
Prospectus for the period in which you provide the
services described above, and our liability to you for
the payment of such quarterly fee is limited to the
proceeds of that Fund's service fee. No such
quarterly fee will be paid to you with respect to
shares purchased by you and redeemed or repurchased by
the Fund or by us as Agent within seven (7) business
days after the date of our confirmation of such
purchase. No such fee shall be payable with respect
to shares purchased at net asset value without a sales
charge by investors of the classes described in the
Fund's Prospectus pursuant to Rule 22d-1 under the Act
other than classes of net asset value categories
pursuant to Rule 22d-1 as may from time to time be
approved by the Fund. For purposes of this Agreement,
"service activities" shall mean activities covered
by the definition of "service fee" contained in Rule
2830 of the Conduct Rules of the National Association
of Securities Dealers, Inc.
2. By accepting such fee you agree to assign a
representative to each account, to require such
representative to contact the Customer regularly and
to pay at least a portion of such fee to such
representative. Additionally, you understand that
Administrative Broker will monitor service levels
which you provide to your Customers pursuant to this
agreement and that consistently low levels of service
will result in non-payment of the fee.
3. You agree to use your best efforts to support the
asset value of the Fund to the extent consistent with
the suitability requirements of your Customer. You
understand that Administrative Broker will monitor
levels of redemption and that redemption levels
consistently above those dictated by market conditions
will result in non-payment of the fee.
4. This Agreement does not require Dealer to hold Fund
shares in street name or to provide shareholder
accounting and record keeping services for any
Customers who are beneficial owners of Fund shares.
5. You shall furnish us and the Fund with such
information as shall reasonably be requested by either
the Trustees of the Fund or by us with respect to the
fees paid to you pursuant to this Agreement.
6. We shall furnish to the Trustees of the Fund, for
their review on a quarterly basis, a written report of
the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
7. Neither you nor any of your employees or agents are
authorized to make any representation concerning
shares of the Fund except those contained in the then
current Prospectus for the Fund, and you shall have no
authority to act as agent for the Fund, for the Fund's
distributor or for Administrative Broker.
8. This Agreement may be terminated with respect to any
Fund at any time without payment of any penalty by the
vote of a majority of the non-interested Trustees or
by a vote of a majority of the Fund's outstanding
Class B shares, on sixty (60) days written notice. It
will be terminated by any act which terminates either
the Fund's Distribution Agreement with the Fund's
distributor or the Selling Agreement between Dealer
and us and shall terminate automatically in the event
of its assignment as the term is defined in the Act.
9. The provisions of the Distribution Agreement between
the Fund and the Fund's distributor, insofar as they
relate to the Plan, are incorporated herein by
reference. This Agreement shall become effective upon
execution and delivery hereof and shall continue in
full force and effect so long as the continuance of
the Plan and this related Agreement are approved at
least annually by a vote of the Trustees, including a
majority of the non-interested Trustees, cast in
person at a meeting called for the purpose of voting
thereon. All communications to us should be sent to
3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified
by you below.
10. The Declaration of Trust establishing Concert
Investment Series, a copy of which, together with all
amendments thereto (the "Declaration"), is on file
in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name of the Trust
refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder or officer of
said Trust shall be held to any personal liability,
nor shall resort be had to their private property for
the satisfaction of any obligation or claim or
otherwise in connection with the affairs of said
Trust, but only the assets and property of the Trust,
or of the particular series of the Trust in question,
as the case may be, shall be liable. All obligations
under this Agreement shall apply only on a Fund by
Fund basis and the assets of one Fund shall not be
liable for the obligations of any other Fund.
11. This Agreement shall be construed in accordance with
the laws of the State of Georgia.
PFS DISTRIBUTORS, INC.
By: _______________________________ Date: July
, 1998
Name: Gregory C. Pitts
Title: Senior Vice President
ACCEPTED:
PFS INVESTMENTS INC.
a Georgia corporation
By: ________________________________ Date: July
, 1998
Name: David Siegel
Title: President
u:/users/general/forms/agreemt/servagr.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> CONCERT INVESTMENT SERIES
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<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
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<NAME> INTERNATIONAL EQUITY FUND. CLASS 1
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000810271
<NAME> CONCERT INVESTMENT SERIES
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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