AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
1933 ACT REGISTRATION NO. 33-18255
1940 ACT REGISTRATION NO. 811-5380
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.__
Post-Effective Amendment No. 32 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 33 X
(Check appropriate box or boxes)
PORTICO FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
PORTICO FUNDS CENTER
615 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53201-3011
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 287-3909
W. BRUCE MCCONNEL, III, ESQUIRE
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box).
immediately upon filing pursuant to paragraph (b)
X On November 1, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing on__________, 1997 pursuant to paragraph (a)(2)
on_________________, 19 pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of securities being registered: Shares of common stock.
_____
PORTICO FUNDS, INC.
Balanced Income Fund
Form N-1A
Cross Reference Sheet
Part A
Item No. Prospectus Heading
- ------- -------------------
1. Cover Page.................................. Cover Page
2. Synopsis.................................... Expense Summary
3. Condensed Financial Information............. Performance History;
Performance
Calculations
4. General Description of Registrant........... Cover Page;
Investment
Objectives and
Policies; Other
Investment
Information;
Description of
Shares; Invest-
ment Limitations
5. Management of the Fund...................... Management of the
Fund
5A. Management's Discussion of Fund Performance. Inapplicable
6. Capital Stock and Other Securities.......... Dividends and
Distributions;
Management of the
Fund; Taxes;
Description of
Shares
7. Purchase of Securities Being Offered........ Purchase of Shares;
Shareowner
Services; Net Asset
Value and Days of
Operation
8. Redemption or Repurchase.................... Redemption of
Shares; Shareowner
Services; Net Asset
Value and Days of
Operation
9. Pending Legal Proceedings................... Not Applicable
_____
PORTICO FUNDS, INC.
Balanced Income Fund
Form N-1A
Cross Reference Sheet
Part B
Item No. Heading
- -------- --------
10. Cover Page................................ Cover Page
11. Table of Contents......................... Table of Contents
12. General Information and History........... Inapplicable
13. Investment Objectives and Policies........ Investment
Objectives and
Policies
14. Management of the Fund.................... Management of the
Company
15. Control Persons and Principal Holders
of Securities............................. Management of the
Company;
Miscellaneous
16. Investment Advisory and Other Services ... Management of the
the Company;
Custodian, Transfer
Agent and
Accounting
Services Agent;
Independent
Accountants; Counsel
17. Brokerage Allocation and Other Practices.. Management of the
Company
18. Capital Stock and Other Securities........ Description of
Shares
19. Purchase, Redemption and Pricing of Securities Net Asset Value;
Being Offered............................... Additional Purchase
and Redemption
Information
20. Tax Status................................ Additional
Information
Concerning Taxes
21. Underwriters................................ Management of the
Company
22. Calculation of Performance Data............. Additional
Information
on Performance
PART C
Information to be included in Part C is set forth under the appropriate item so
numbered in Part C to this Registration Statement.
_____
PORTICO FUNDS(R)
BALANCED INCOME FUND
This Prospectus describes the Balanced Income Fund, one of the eighteen mutual
funds in the Portico family of funds. The Balanced Income Fund seeks current
income and the preservation of capital through a balanced portfolio of dividend
paying equity and fixed income securities. Portico Funds offer a variety of
portfolios with different investment objectives designed to meet the needs of
individual and institutional investors, including fixed income, balanced,
domestic and international equity and money market funds, which are described in
separate prospectuses.
Firstar Investment Research & Management Company, LLC ("FIRMCO" or the
"Adviser") serves as investment adviser to the Fund, and the Fund is sponsored
by B. C. Ziegler and Company (the "Distributor.") Shareowner Organizations
may perform shareowner servicing and assistance in connection with the
distribution of the Fund's Retail Shares and receive fees from the Fund for
their services. (See "Management of the Fund.")
This Prospectus sets forth concisely the information about the Balanced Income
Fund that a prospective investor should consider before investing. You should
read this Prospectus and retain it for future reference. Additional information
about the Fund, contained in a Statement of Additional Information, has been
filed with the Securities and Exchange Commission and is available upon request
without charge by writing Portico Investor Services at 615 East Michigan Street,
P.O. Box 3011, Milwaukee, Wisconsin 53201-3011, or by calling 1-800-982-8909 or
414-287-3710 (Milwaukee area). The SEC maintains a website
(http://www.sec.gov). that contains the Statement of Additional Information,
material incorporated by reference and other information regarding registrants
that file electronically with the SEC. The Statement of Additional Information
bears the same date as this Prospectus and is incorporated by reference in its
entirety into the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT BANK DEPOSITS, AND ARE NEITHER ENDORSED BY, INSURED
BY, GUARANTEED BY, OBLIGATIONS OF, NOR OTHERWISE SUPPORTED BY THE FDIC, THE
FEDERAL RESERVE BOARD, FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY, LLC,
FIRSTAR TRUST COMPANY, FIRSTAR CORPORATION, ITS AFFILIATES OR ANY OTHER BANK, OR
OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE PORTICO FUNDS INVOLVES
INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NOVEMBER 1, 1997
TABLE OF CONTENTS
Page
----
Expense Summary........................................... 3
Performance History....................................... 5
Investment Objective and Policies......................... 6
Other Investment Information.............................. 8
Purchase of Shares........................................ 14
How to Purchase Retail Shares...................... 15
How to Purchase Institutional Shares............... 19
Redemption of Shares...................................... 21
How to Redeem Retail Shares........................ 21
How to Redeem Institutional Shares................. 23
Shareowner Services (Retail Shareowners Only)............. 27
Shareowner Reports .................................... 27
Automated Teleresponse Service ......................... 27
Retirement Plans ....................................... 28
Dividends and Distributions............................... 28
Management of the Fund.................................... 28
Expenses.................................................. 31
Investment Limitations.................................... 31
Taxes..................................................... 32
Description of Shares..................................... 33
Net Asset Value and Days of Operation..................... 35
Performance Calculations.................................. 36
EXPENSE SUMMARY
Below is a summary of the shareowner transaction expenses and the annual
operating expenses expected to be incurred by Retail and Institutional Shares of
the Balanced Income Fund during its first twelve months of operations. An
example based on the summary is also shown.
Retail Institutional
Shares Shares
SHAREOWNER TRANSACTION ------ ------
EXPENSES
Maximum Sales Charge Imposed
on Purchases................. 4.00% None
Maximum Sales Charge Imposed
on Reinvested Dividends...... None None
Deferred Sales Charge........ None None
Redemption Fees ............. None<F1> None<F1>
Exchange Fees ............... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees After Fee
Waivers<F2>.................. 0.30% 0.30%
12b-1 Fees .................. 0% <F3> 0%
All Other Expenses After Fee
Waivers
Shareowner Servicing Fees.. 0.25%<F3> 0%
Other Expenses After
Fee Waivers<F4>.......... 0.45% 0.70% 0.45% 0.45%
----- ----- ----- -----
Total Fund Operating Expenses
After Fee Waivers<F5>...... 1.00% 0.75%
===== =====
<F1> A fee of $12.00 is charged for each wire redemption on Retail Shares. See
"Redemption of Shares."
<F2> The Adviser has voluntarily agreed to waive a portion of its fees to the
extent that the Fund's total operating expenses exceed 1.00% for Retail
Shares and .75% for Institutional Shares during the first twelve months of
operations. Absent such waivers, advisory fees would be .75%, which is
higher than the advisory fee payable by most other investment companies.
See "Management of the Fund" in this Prospectus for a more complete
discussion.
<F3> The total of all 12b-1 fees and Shareowner Servicing Fees paid by Retail
Shares of the Fund may not exceed, in the aggregate, the annual rate of
0.25% of the Fund's average daily net assets. The Fund does not expect
to pay any 12b-1 fees for the current year. If 12b-1 fees are paid in
the future, long-term shareowners may pay more than the economic
equivalent of the maximum front end sales charge permitted by the
National Association of Securities Dealers.
<F4> The Administrator anticipates voluntarily waiving 0.07% of its fees to the
Fund during the first twelve months of operations. Without the fee waiver,
"Other Expenses" would be 0.52% for both Retail and Institutional Shares.
<F5> Absent fee waivers, total operating expenses would be 1.52% and 1.27% for
Retail and Institutional Shares, respectively.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return; and (2) redemption of your investment at the end of the
following periods:
1 Year 3 Years
------ -------
Retail Shares $50 $71
Institutional Shares $8 $24
The foregoing tables are intended to assist investors in understanding the
expenses that shareowners bear either directly or indirectly and reflect
anticipated fees. In addition, Shareowner Organizations or Institutions (as
defined below) may charge fees for providing services in connection with their
clients' investments in the Fund's shares.
The example shown above should not be considered a representation of future
investment return or operating expenses. Actual investment return and operating
expenses may be more or less than those shown. The Balanced Income Fund is new
and the above figures are based on estimates of expenses expected during its
first twelve months of operations.
Information regarding the Fund's actual performance will appear in its annual
report to shareowners. The annual report for its first fiscal year, which may
be obtained without charge by calling Portico Investor Services at 1-800-982-
8909, will be available within 60 days after the end of the fiscal year. Each
shareowner of record at the close of the fiscal year will be sent the annual
report.
UNDERSTANDING EXPENSES
OPERATING A MUTUAL FUND INVOLVES A VARIETY OF EXPENSES FOR PORTFOLIO
MANAGEMENT, SHAREOWNER STATEMENTS AND REPORTS, AND OTHER SERVICES.
THESE COSTS ARE PAID FROM THE FUND'S ASSETS AND THEIR EFFECT, EXCEPT FOR
FEES CHARGED DIRECTLY BY A SHAREOWNER ORGANIZATION OR INSTITUTION TO ITS
CUSTOMERS, ARE FACTORED INTO ANY QUOTED SHARE PRICE OR RETURN.
Performance History
Average Annual Total Return*
Since inception
1 Year 3 Years 5 Years (inception date)
------ ------- ------- ---------------
Total Return Balanced Income Fund 25.48% 20.52% 14.75% 15.49%
(Institutional Shares) (Jan. 1, 1989)
Total Return Balanced Income Fund 20.22% 18.65% 13.56% 14.70%
(Retail Shares) (Jan. 1, 1989)
* Average annual total return calculations are for periods ended September 30,
1997 and reflect the 4.00% front end sales charge for retail shares.
The performance above is the performance of a common trust fund managed by
FIRMCO which operated during the periods prior to commencement of operations of
the Portico Balanced Income Fund using substantially similar investment
objectives, policies and restrictions as the Portico Balanced Income Fund.
In connection with the commencement of operations of the Balanced Income Fund,
the common trust fund will transfer its assets to the Balanced Income Fund.
The common trust fund is not registered under the Investment Company Act of
1940 (the "1940 Act"), and is not subject to certain restrictions that are
imposed by the 1940 Act and the Internal Revenue Code. If the common trust
fund had been registered under the 1940 Act, performance may have been
adversely affected. The performance of the common trust fund has been
restated to reflect Portico Balanced Income Fund's expenses set forth in the
Expense Summary for both Institutional and Retail shares. The performance of
the common trust fund also has been restated to reflect Portico Balanced
Income Fund's maximum 4.00% sales charge on retail shares.
Performance assumes the reinvestment of all net investment income and
capital gains and reflects fee waivers. In the absence of fee waivers,
performance would be reduced. Performance quotations represent past
performance, and should not be considered as representative of future results.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of the Balanced Income Fund is
to seek current income and the preservation of capital through investment in a
balanced portfolio of dividend paying equity and fixed income securities.
Common stocks purchased by the Fund will be selected primarily from a universe
of domestic companies that have established dividend-paying histories. Fixed
income securities will be selected in an effort to provide an annual rate of
total return with respect to the fixed income portion of the Fund's portfolio
that is similar to the annual rate of total return of the Lehman Brothers
Intermediate Government/Corporate Bond Index on a consistent basis. In
investing in fixed income securities, the Adviser will use specialized
quantitative investment techniques. (For a description of the Lehman Brothers
Intermediate Government/Corporate Bond Index and the specialized quantitative
investment techniques see "Investment Techniques" below). There is no
assurance that the Fund's investment objective will be attained. An investor
should not consider an investment in the Fund to be a complete investment
program.
Currently, it is expected that, in general, the Fund will invest approximately
50% of the value of its total assets in fixed income securities and 50% of the
value of its total assets in equity securities. The Fund's policy is to invest
at least 40% of the value of its total assets in fixed income securities and at
least 20% and no more than 60% in equity securities during normal market
conditions. The actual percentage of assets invested in fixed income and equity
securities will vary from time to time, depending on the judgment of the Adviser
as to the general market and economic conditions, trends and yields, interest
rates and fiscal and monetary developments.
Investment Techniques. Common stocks purchased by the Fund will be selected
primarily from a universe of domestic companies that have established dividend-
paying histories, although up to 25% of its total assets may be invested, either
directly or through investments in sponsored American Depository Receipts, in
the securities of foreign issuers. Each company initially selected for
inclusion in the Fund's portfolio must pay a current dividend. From time to
time, the Fund may also acquire bonds, notes, debentures and preferred stocks
convertible into common stocks but only to the extent that those securities also
provide a current interest or dividend payment stream. Although convertible
securities frequently have speculative characteristics and may be acquired by
the Fund without regard to minimum quality ratings, the Fund intends to invest
less than 5% of its net assets in non-investment grade securities. The Fund may
also purchase put and call options, sell covered call options and enter into
transactions involving futures contracts and options on futures as described
later in this Prospectus.
The Fund primarily invests in companies that the Adviser considers to be well-
managed and to have "attractive fundamental financial characteristics."
Attractive fundamental financial characteristics include, among other factors,
low debt, return on equity above the market average and consistent revenue and
earnings per share growth over the prior three to five years. Companies in
which the Fund may make equity investments generally will have stock market
capitalizations over $750 million. The median stock market capitalization is
generally anticipated to be between $3 billion and $5 billion and the weighted
average stock market capitalization between $10 billion and $20 billion. Stock
market capitalizations are calculated by multiplying the total number of common
shares outstanding by the market price per share. The Fund may also invest from
time to time a portion of its assets, not to exceed 20% of total assets at the
time of purchase, in companies with larger or smaller market capitalizations.
In constructing and maintaining the fixed income portion of the portfolio, the
Adviser attempts to achieve an annual rate of total return, before fund
expenses, comparable to that of its benchmark, the Lehman Brothers Intermediate
Government/Corporate Bond Index. Specialized structured investment management
techniques are used in conjunction with traditional methods of investment
management that rely on economic, financial and market analysis to select
portfolio investments. The Fund may invest a substantial portion of its fixed
income portfolio in securities that are not included in its benchmark index.
The Fund therefore is not an "index" fund, which typically holds only
securities that are included in the index it attempts to replicate.
The approach employed by the Adviser in managing the fixed income portion of the
Fund's portfolio is to define and measure the various duration characteristics
of the Lehman Brothers Intermediate Government/Corporate Bond Index.
"Duration" is a term used to express the average time to receipt of expected
cash flows (discounted to their present value) on a particular fixed-income
instrument or a portfolio of instruments. For example, the duration of a five-
year zero coupon bond which pays no interest or principal until the maturity of
the bond is five years. This is because a zero coupon bond produces no cash
flow until the maturity date. On the other hand, a coupon bond that pays
interest semiannually and matures in five years will have a duration of less
than five years reflecting the semiannual cash flows resulting from coupon
payments.
Duration generally defines the effect of interest rate changes on bond prices.
However, for large interest rate changes (generally changes of 1% or more) this
measure will not completely explain the interest rate sensitivity of a bond.
The Lehman Brothers Intermediate Government/Corporate Bond Index is a market
value weighted total return index measuring both the principal price change of
and income provided by the underlying universe of securities underlying the
index. The Lehman Brothers Intermediate Government/Corporate Bond Index is
intended to measure performance of its respective fixed-rate debt market over
given time intervals. Securities included in the Lehman Brothers Intermediate
Government/Corporate Bond Index must meet the following criteria, as defined by
Lehman Brothers:
. Fixed as opposed to variable rate
. From one to ten years remaining until maturity
. Minimum outstanding principal value of $100 million
. Minimum quality rating of Baa by Moody's or, if unrated by Moody's BBB by
S&P
As of August 31, 1997, 3,847 issues were included in the Lehman Brothers
Intermediate Government/Corporate Bond Index representing $2.4 trillion in
market value.
The Lehman Brothers Intermediate Government/Corporate Bond Index is a trademark
of Lehman Brothers. The Fund, its Adviser and the Co-Administrators are not
affiliated in any way with Lehman Brothers. See "Management of the Funds."
Inclusion of a security in the bond index in no way implies an opinion by Lehman
Brothers as to its attractiveness or appropriateness as an investment. Lehman
Brothers' publication of the bond index is not made in connection with any sale
or offer for sale of securities or any solicitations of orders for the purchase
of securities.
Fixed income securities purchased by the Fund may include a broad range of
corporate, government, government agency, stripped government, asset-backed and
mortgage-backed obligations. The Fund may purchase fixed income securities
without regard to any maturity limitation.
Debt obligations acquired by the Fund will be "investment grade" at the time
of purchase; that is, obligations rated within the four highest rating
categories by S&P (AAA, AA, A and BBB), Moody's (Aaa, Aa, A and Baa) or other
nationally recognized rating agencies or obligations that are unrated but
determined by the Adviser to be comparable in quality to instruments that are so
rated. Obligations rated in the lowest of the top four rating categories are
considered to have speculative characteristics and are subject to greater credit
and market risk than higher rated securities. As a result, the market value of
these securities may be expected to fluctuate more than those of securities with
higher ratings.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum rating required for purchase by
the Fund. The Adviser will consider such an event in determining whether the
Fund should continue to hold the security. The Adviser will sell promptly any
securities that are not rated investment grade by at least one nationally
recognized rating agency and that exceed 5% of the Fund's net assets.
OTHER INVESTMENT INFORMATION
Money Market Instruments. The Fund may hold short-term U.S. Government
obligations, high quality money market instruments (i.e., rated A-1 or better by
S&P or Prime-1 by Moody's or unrated instruments deemed by the Adviser to be of
comparable quality), repurchase agreements, bank obligations and cash, pending
investment, to meet anticipated redemption requests, or if, in the opinion of
the Adviser, other suitable securities are unavailable. The foregoing
investments may include among other things commercial paper and variable amount
master demand notes and corporate bonds with remaining maturities of thirteen
months or less, and may be in such proportions as, in the opinion of the
Adviser, existing circumstances may warrant. Variable amount master demand
notes are unsecured instruments that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate. Although the notes
are not normally traded and there may be no secondary market in the notes, the
Fund may demand payment of the principal of the instrument at any time. The
notes are not typically rated by credit rating agencies, but they must satisfy
the same criteria set forth above for high quality money market instruments. If
an issuer of a variable amount master demand note defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and might, for this or other reasons, suffer a
loss to the extent of the default. The Fund invests in variable amount master
notes only when the Adviser deems the investment to involve minimal credit risk.
The Fund may invest in obligations of foreign banks and foreign branches of
U.S. banks. The Fund may also invest in securities issued by other investment
companies which invest in high quality, short-term debt instruments. Securities
of other investment companies will be acquired by the Fund within the limits
prescribed by the Investment Company Act of 1940. The Fund will not invest in
any other Portico Fund. In addition to the advisory fees and other expenses the
Fund bears directly in connection with its own operations, as a shareowner of
another investment company, the Fund would bear its pro rata portion of the
other investment company's advisory fees and other expenses, and such fees and
other expenses will be borne indirectly by the Fund's shareowners.
Government Obligations. To the extent consistent with its objectives, the Fund
may invest in a variety of U.S. Treasury obligations consisting of bills, notes
and bonds, which principally differ only in their interest rates, maturities and
time of issuance. The Fund may also invest in other securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities, such as the Government
National Mortgage Association ("GNMA"), are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association
("FNMA"), are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
Mortgage-Backed and Asset-Backed Securities. The Fund may purchase residential
and commercial mortgage-backed securities, as well as other asset-backed
securities (i.e., securities backed by credit card receivables, automobile loans
or other assets). The average life of these securities varies with the
maturities of the underlying instruments which, in the case of mortgages, have
maximum maturities of thirty years. The average life of a mortgage-backed
instrument may be substantially less than the original maturity of the mortgages
underlying the securities as the result of scheduled principal payments and
mortgage prepayments. The rate of such mortgage prepayments, and hence the life
of the certificates, will be a function of current market rates and current
conditions in the relevant housing and commercial markets. In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by the Fund will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. As a result, the relationship between mortgage
prepayments and interest rates may give some high-yielding mortgage-related
securities less potential for growth in value than non-callable bonds with
comparable maturities. In calculating the average weighted maturity of the
Fund, the maturity of asset-backed securities will be based on estimates of
average life. There can be no assurance that these estimates will be accurate.
Presently there are several types of mortgage-backed securities which provide
the holder with a pro rata interest in the underlying mortgages, and
collateralized mortgage obligations ("CMOs") which provide the holder with a
specified interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date. The
relative payment rights of the various CMO classes may be subject to greater
volatility and interest rate risk than other types of mortgage-backed
obligations.
Asset-backed securities may involve certain risks that are not presented by
mortgage-backed securities arising primarily from the nature of the underlying
assets (i.e., credit card and automobile loan receivables as opposed to real
estate mortgages). For example, credit card receivables are generally unsecured
and may require the repossession of personal property upon the default of the
debtor which may be difficult or impracticable in some cases.
Non-mortgage asset-backed securities do not have the benefit of the same
security in the collateral as mortgage-backed securities. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to reduce the balance due on the credit cards.
Most issuers of automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is the risk that the purchaser would acquire an interest
superior to that of the owners of related automobile receivables. In addition,
because of the large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee for the owners of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
payments on the receivables together with recoveries on repossessed collateral
may not, in some cases, be able to support payments on these securities.
Asset-backed securities may be subject to greater risk of default during periods
of economic downturn than other instruments. Also, while the secondary market
for asset-backed securities is ordinarily quite liquid, in times of financial
stress the secondary market may not be as liquid as the market for other types
of securities, which could result in the Fund experiencing difficulty in valuing
or liquidating such securities.
Restricted Securities. The Fund will not knowingly invest more than 10%, and in
all cases will not invest more than 15%, of the value of its net assets in
securities that are illiquid at the time of purchase. Repurchase agreements and
time deposits that do not provide for payment to the Fund within seven days,
over-the-counter options, and securities that are not registered under the
Securities Act of 1933 (the "Act") but may be purchased by institutional
buyers under Rule 144A, are subject to this 15% limit (unless such securities
are variable amount master demand notes with maturities of nine months or less
or unless the Board of Directors or the Adviser, pursuant to guidelines adopted
by the Board of Directors, determines that a liquid trading market exists).
Borrowings. The Fund may borrow money to the extent described below under
"Investment Limitations." The Fund would borrow money to meet redemption
requests prior to the settlement of securities already sold or in the process of
being sold by the Fund. If the securities held by the Fund should decline in
value while borrowings are outstanding, the net asset value of the Fund's
outstanding shares will decline in value by proportionately more than the
decline in value suffered by the Fund's securities. As a result, the Fund's
share price may be subject to greater fluctuation until the borrowing is paid
off.
Reverse repurchase agreements are considered to be borrowings under the 1940
Act. At the time the Fund enters into a reverse repurchase agreement (an
agreement under which the Fund sells portfolio securities and agrees to
repurchase them at an agreed-upon date and price), it will place in a segregated
custodial account U.S. Government securities or other liquid high-grade debt
securities having a value equal to or greater than the repurchase price
(including accrued interest), and will subsequently monitor the account to
insure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Fund may decline below
the price of the securities it is obligated to repurchase.
When-Issued Purchases and Forward Commitments. The Fund may purchase
securities on a "when-issued" or delayed delivery basis and may purchase or sell
securities on a "forward commitment" basis. These transactions, which involve a
commitment by the Fund to purchase or sell particular securities with payment
and delivery taking place at a future date (perhaps one or two months later),
permit the Fund to lock in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. The Fund does not
accrue income until the securities delivery occurs. When-issued and forward
commitment transactions involve the risk, however, that the price or yield
obtained in a transaction (and therefore the value of the security) may be less
favorable than the price or yield (and therefore the value of the security)
available in the market when the securities delivery takes place. The Fund's
forward commitments and when-issued purchases are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Fund does
not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
Foreign Securities. The Fund may invest in foreign securities. The Fund's
investments in the securities of foreign issuers may include both securities of
foreign corporations and banks, as well as securities of foreign governments and
their political subdivisions. Investments in foreign securities, whether made
directly or through American Depository Receipts, involve certain inherent risks
and considerations not typically associated with investing in U.S. companies,
such as political or economic instability of the issuer or the country of issue,
the difficulty of predicting international trade patterns, changes in exchange
rates of foreign currencies and the possibility of adverse changes in investment
or exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company. Foreign
companies are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. In
addition, foreign banks and foreign branches of U.S. banks are subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and record keeping standards than those applicable to domestic branches of U.S.
banks. Further, foreign stock markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets volume and liquidity
are less than in the U.S. Fixed commissions on foreign stock exchanges are
generally higher than the negotiated commissions on U.S. exchanges, and there is
generally less government supervision and regulation of foreign stock exchanges,
brokers and companies than in the U.S. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of assets or diplomatic developments that could
affect investment within those countries. Additionally, foreign securities and
dividends and interest payable on those securities may be subject to foreign
taxes, including foreign withholding taxes, and other foreign taxes may apply
with respect to securities transactions. See "Taxes." Transactions in
foreign securities may involve greater time from the trade date until the
settlement date than for domestic securities transactions, and may involve the
risk of possible losses through the holding of securities in custodians and
securities depositories in foreign countries. Additional costs associated with
an investment in foreign securities may include higher transaction costs and the
cost of foreign currency conversions. Changes in foreign exchange rates will
also affect the value of securities denominated or quoted in currencies other
than the U.S. dollar. In this regard, the Fund does not intend to hedge against
foreign currency risk, and changes in currency exchange rates will impact the
Fund's net asset value (positively or negatively) irrespective of the
performance of the portfolio securities held by the Fund. The Fund and its
shareowners may encounter substantial difficulties in obtaining and enforcing
judgments against non-U.S. resident individuals and companies. Because of these
and other factors, securities of foreign companies acquired by the Fund may be
subject to greater fluctuation in price than securities of domestic companies.
Stripped Securities. To the extent consistent with its investment objective,
the Fund may purchase participation in trusts that hold U.S. Treasury and agency
securities (such as TIGRs and CATs) and also may purchase Treasury receipts and
other "stripped" securities that evidence ownership in either the future
interest payments or the future principal payments of U.S. Government
obligations. These participations are issued at a discount to their "face
value," and may (particularly in the case of stripped mortgage-backed
securities) exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The SEC staff believes that participations in CATs and TIGRs and
other similar trusts are not U.S. Government securities.
Options. The Fund may purchase put and call options in an amount not to exceed
5% of its net assets. Such options may relate to particular securities or
various stock indices and may or may not be listed on a national securities
exchange and issued by the Options Clearing Corporation. Purchasing options is
a specialized investment technique which entails a substantial risk of a
complete loss of the amount paid as premiums to the writer of the option.
The Fund may purchase put options on portfolio securities at or about the same
time that it purchases the underlying security or at a later time. By buying a
put, the Fund limits its risk of loss from a decline in the market value of the
security until the put expires. Any appreciation in the value of and yield
otherwise available from the underlying security, however, will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Call options may be purchased by the Fund in order to
acquire the underlying security at a later date at a price that avoids any
additional cost that would result from an increase in the market value of the
security. A call option may also be purchased to increase the Fund's return to
investors at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security. Prior to its expiration, a
purchased put or call option may be sold in a "closing sale transaction" (a sale
by the Fund, prior to the exercise of the option that it has purchased, of an
option of the same series), and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the option
plus the related transaction costs.
In addition, the Fund may write call options on securities and on various stock
indices. The Fund may write a call option only if the option is "covered" by
the Fund's holding a position in the underlying securities or otherwise, which
would allow for immediate satisfaction of its obligation. Such options will be
listed on a national securities exchange and the aggregate value of the Fund's
assets subject to options written by the Fund will not exceed 5% of the value of
its net assets during the current year. In order to close out an option
position, the Fund will be required to enter into a "closing purchase
transaction" (the purchase of a call option on a security or an index with the
same exercise price and expiration date as the call option which it previously
wrote on the same security or index).
By writing a covered call option on a security, the Fund foregoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents such
a profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Fund effects a closing purchase transaction by
purchasing an option of the same series. Except to the extent that a written
call option on an index is covered by an option on the same index purchased by
the Fund, movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of securities held by the Fund
during the period the option was outstanding. The use of covered call options
will not be a primary investment technique of the Fund. For additional
information relating to option trading practices and related risks, see the
Statement of Additional Information.
Futures Contracts and Related Options. The Adviser may determine that it would
be in the interest of the Fund to purchase or sell futures contracts, or options
thereon, as a hedge against changes resulting from market conditions in the
value of the securities held by the Fund, or of securities which it intends to
purchase, to maintain liquidity, to have fuller exposure to price movements in a
security index or to reduce transaction costs. For example, the Fund may
enter into transactions involving a stock index futures contract which is a
bilateral agreement pursuant to which the parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stocks
included in the index) at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying bonds or stocks in the index is made. The Adviser
may also determine it would be in the interest of the Fund to purchase or sell
interest rate futures contracts, or options thereon, which provide for the
future delivery of specified fixed-income securities. The Fund will not use
futures contracts for speculative purposes.
Risks associated with the use of futures contracts include (a) imperfect
correlation between the change in market values of the securities held by the
Fund and the prices of bond or stock index futures contracts, and (b) the
possible lack of a liquid secondary market for futures contracts and the
resulting inability of the Fund to close open futures positions. During the
current fiscal year, the Fund intends to limit its transactions in futures
contracts and related options so that not more than 5% of its net assets are at
risk. For a more detailed description of futures contracts and futures options,
including a discussion of the limitations imposed by federal tax law, see
Appendix A to the Statement of Additional Information.
Convertible Securities. The Fund may invest in convertible securities,
including bonds, notes and preferred stock, that may be converted into common
stock either at a stated price or within a specified period of time. In
investing in convertibles, the Fund is looking for the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible, while earning higher current
income than is available from the common stock.
During normal market conditions, no more than 5% of the Fund's net assets will
be purchased or held in convertible or other securities rated below investment
grade. Securities rated below investment grade are predominantly speculative
and are commonly referred to as junk bonds. To the extent the Fund purchases
convertibles rated below investment grade or convertibles that are not rated, a
greater risk exists as to the timely repayment of the principal of, and the
timely payment of interest or dividends on, such securities. Subsequent to its
purchase, a rated security may cease to be rated or its rating may be reduced
below a minimum rating for purchase by the Fund. The Adviser will consider such
an event in determining whether the Fund should continue to hold the security.
The Adviser will sell promptly any securities that are non-investment grade as a
result of these events and that exceed 5% of the Fund's net assets.
Concentration. The Adviser anticipates that from time to time certain industry
sectors will not be represented in the Funds' portfolios while other sectors
will represent a significant portion. As a matter of fundamental policy,
however, the Adviser will not purchase any securities which would cause 25% or
more of a Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry, and the Fund's investment will be diversified among individual
issuers.
Small Companies. Small companies in which the Fund may invest may have limited
product lines, markets, or financial resources, or may be dependent upon a small
management group, and their securities may be subject to more abrupt or erratic
market movements than larger, more established companies, both because their
securities are typically traded in lower volume and because the issuers are
typically subject to greater degree of changes in their earnings and prospects.
Portfolio Turnover. The Fund may sell a portfolio investment soon after its
acquisition if the Adviser believes that such a disposition is consistent with
attaining the investment objective of the Fund. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover (over 100%) may involve
correspondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by the Fund and ultimately by its
shareowners. High portfolio turnover may result in their realization of
substantial net capital gains; to the extent net short-term capital gains are
realized, distributions resulting from such gains may be ordinary income for
federal income tax purposes. (See "Taxes-Federal.") The Funds' portfolio
turnover rate is not expected to exceed 75% per year, and the portfolio turnover
rate for the equity portion of the Fund is not expected to exceed 100%.
Warrants. The Fund may purchase warrants and similar rights, which are
privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at the specified price
during a specified period of time. The purchase of warrants involves the risk
that the Fund could lose the purchase value of a warrant if the right to
subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security. During
normal market conditions, no more than 5% of the Fund's net assets will be
invested in warrants.
PURCHASE OF SHARES
Shares of the Fund are offered and sold by the distributor for the Fund, B.C.
Ziegler and Company (the "Distributor"), which is independent of the Adviser.
The Distributor is a registered broker/dealer with offices at 215 North Main
Street, West Bend, Wisconsin 53095.
Retail and Institutional Shares of the Fund will be offered at net asset value
per share, plus in the case of Retail Shares the applicable sales charge
described below (unless a waiver applies).
Institutional Shares of the Fund are exclusively sold to and held by (a) trust,
agency or custodial accounts opened through a Firstar Corporation trust
department, trust company or trust affiliate; (b) employer-sponsored qualified
retirement plans; and (c) all clients of FIRMCO. All other persons must
purchase Retail Shares of the Fund.
THE MINIMUM INITIAL INVESTMENT FOR RETAIL SHARES IN THE FUND IS $1,000; WITH THE
EXCEPTION OF IRAS, WHICH HAVE A MINIMUM INITIAL INVESTMENT OF $100. The minimum
subsequent investment for Retail Shares in the Fund is $50. The minimum initial
investment will be waived if you participate in the Periodic Investment Plan.
The Fund reserves the right to close your account if the value is less than
$1,000 and you are not currently participating in the Periodic Investment Plan.
For additional information on involuntary redemptions, see "Other Redemption
Information' below. The $1,000 minimum account balance applies only to
accounts opened with Portico on or after February 28, 1997. Accounts opened
with Portico on or before February 27, 1997 must maintain a minimum account
balance of $50.
There is no minimum initial or subsequent investment for Institutional Shares.
HOW TO PURCHASE RETAIL SHARES
Purchase orders for Retail Shares may be placed through the transfer agent of
the Fund, registered representatives of Firstar Investment Services, Inc.
("FIS"), or organizations that have entered into distribution or servicing
agreements with the Fund (including FIS, "Shareowner Organizations.') For a
discussion of transactions through Shareowner Organizations, see "Shareowner
Organizations" below.
Once each business day, two share prices of the Retail Shares are calculated for
the Fund: the offering price and the net asset value (NAV). Retail Shares are
purchased at the offering price which is the net asset value plus a sales charge
which varies in accordance with the amount of the purchase as indicated below:
Shareowner
Organization
Sales Charge as a Sales Charge as Reallowance as a
Amount of Transaction Percentage of a Percentage of Percentage of
at Offering Price Offering Price Net Asset Value Offering Price
- --------------------- -------------- --------------- --------------
Less than $50,000 4.00% 4.16% 3.50%
$50,000 to $99,999 3.00% 3.09% 2.50%
$100,000 to $249,999 2.00% 2.04% 1.50%
$250,000 or more none none none
The Distributor may reallow the entire sales charge to certain Shareowner
Organizations. To the extent that 90% or more of the sales charge is reallowed,
Shareowner Organizations may be deemed to be underwriters under the Act.
You may purchase Retail Shares without a sales charge if: (a) you were a Portico
shareowner as of January 1, 1995 and have continuously maintained a shareowner
account with the Company; (b) you make any purchase within 60 days of a
redemption of Portico Institutional Shares; (c) you are an employee, director or
retiree of Firstar Corporation or its affiliates or of Portico; (d) you maintain
a personal trust account with an affiliate of Firstar Corporation at the time of
purchase; (e) you make any purchase within 60 days of a termination of a
personal trust account with an affiliate of Firstar Corporation; (f) you make
any purchase for your medical savings account for which Firstar Corporation or
an affiliate serves in a custodial capacity; (g) you make any purchase for your
individual retirement account; (h) you make any purchase within 60 days of a
redemption of a mutual fund on which you paid an initial sales charge or a
contingent deferred sales charge; (i) you are a registered investment adviser
that has entered into an agreement with the Distributor to purchase shares for
your own account or for discretionary client accounts; (j) you are a spouse,
parent or child of an individual who falls within the preceding categories (a)
or (d) above; or (k) you are a spouse, parent, sibling or child of an individual
who falls within the preceding category (c) above. In addition, you may
reinvest all or any portion of your proceeds from redemption of shares of the
Fund in Retail Shares of other Portico funds, within 365 days of redemption
without paying a sales charge. Shares so reinvested will be purchased at a
price equal to the net asset value next determined after the transfer agent
receives payment in proper form.
Quantity Discounts. You may be entitled to reduced sales charges through the
Right of Accumulation or under a Letter of Intent, even if you do not make an
investment of a size that would normally qualify for a quantity discount.
To qualify for a reduction of or exception to the sales charge, you must notify
your Shareowner Organization or the Distributor at the time of purchase or
exchange. The reduction in sales charge is subject to confirmation of your
holdings through a check of records. The Fund may modify or terminate quantity
discounts at any time. For more information about quantity discounts, contact
your Shareowner Organization or Portico Investors Services at 1-800-982-8909.
Rights of Accumulation. A reduced sales charge applies to any purchase of
Retail Shares of any Portico Fund that is sold with a sales charge (an
"Eligible Fund") where an investor's then current aggregate investment is
$50,000 or more. "Aggregate investment" means the total of: (a) the dollar
amount of the then current purchase of shares of an Eligible Fund, and (b) the
value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales charge has been
paid. If, for example, an investor beneficially owns shares of one or more
Eligible Funds, with an aggregate current value of $49,000 on which a sales
charge has been paid and subsequently purchases shares of an Eligible Fund
having a current value of $1,000, the sales charge applicable to the subsequent
purchase would be reduced to 3.00% of the offering price. Similarly, each
subsequent investment in Eligible Fund shares may be added to an investor's
aggregate investment at the time of purchase to determine the applicable sales
charge.
Letter of Intent. By signing a Letter of Intent (available from the Distributor
and Shareowner Organizations), an investor becomes eligible for the reduced
sales charge applicable to the total number of Eligible Fund shares purchased in
a 13-month period pursuant to the terms and under the conditions set forth in
the Letter of Intent. To compute the applicable sales charge, the offering
price of shares of an Eligible Fund on which a sales charge has been paid,
beneficially owned by an investor on the date of submission of the Letter of
Intent, may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales charge will be applied only to new purchases.
During the term of the Letter of Intent, the Transfer Agent will hold in escrow
shares equal to 5% of the amount indicated in the Letter of Intent for payment
of a higher sales charge if an investor does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when an investor
fulfills the terms of the Letter of Intent by purchasing the specified amount.
Any redemptions made during the 13-month period will be subtracted from the
amount of purchases in determining whether the Letter of Intent has been
completed. If total purchases qualify for a further sales charge reduction, the
sales charge will be adjusted to reflect an investor's total purchases. If
total purchases are less than the amount specified in the Letter of Intent, an
investor will be requested to remit an amount equal to the difference between
the sales charge actually paid and the sales charge applicable to the total
purchases. If such remittance is not received within 20 days, the transfer
agent, as attorney-in-fact pursuant to the terms of the Letter of Intent and at
the Distributor's direction, will redeem an appropriate number of shares held in
escrow to realize the difference. Signing a Letter of Intent does not bind an
investor to purchase the full amount indicated at the sales charge in effect at
the time of signing, but an investor must complete the intended purchase in
accordance with the terms of the Letter of Intent to obtain the reduced sales
charge. To apply, an investor must indicate his or her intention to do so under
a Letter of Intent at the time of purchase of Shares.
Qualification for Discounts. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account, or the aggregate
investments of a trustee or other fiduciary or IRA for the benefit of the
persons listed above.
Purchase Orders. Investors may purchase Retail Shares of the Fund through
registered representatives of Firstar Investment Services, Inc. located at
Firstar Banks ("Firstar Investment Offices"), or directly with the Fund's
transfer agent. All checks must be drawn on a bank located within the United
States and must be payable in U.S. dollars. Subsequent investments in an
existing account in the Fund may be made at any time by sending to the address
below a check or money order payable to the Fund, along with a letter stating
the amount of the investment, the name of the Fund and the account number in
which the investment is to be made. A $20 fee will be imposed by the Fund's
transfer agent if any check used for investment in an account does not clear,
and the investor involved will be responsible for any loss incurred by the Fund.
PURCHASE ORDERS PLACED THROUGH REGISTERED REPRESENTATIVES
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
-------------------- ----------------------
In Person . Complete an application . Bring your check to a
at a Firstar Investment Firstar Investment
Office. Call 1-800- Office. Call 1-800-982-
982-8909 for the office 8909 for the office
nearest you. nearest you.
By Phone . Call your registered . Call your registered
representative or call representative at the
1-800-982-8909 for the number on your
office nearest you. statement or call 1-
800-982-8909 for the
office nearest you.
Automatic . Call your registered . Complete a Periodic
ally representative to Investment Plan
obtain a purchase Application to
application which automatically purchase
includes information more shares.
about a Periodic
Investment Plan.
PURCHASE ORDERS PLACED THROUGH THE TRANSFER AGENT
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
By Mail . Complete an application . Make your check payable
and mail it along with a to Portico Funds. Please
check payable to Portico include your account
Funds, P.O. Box 3011, number on your check and
Milwaukee, WI 53201- mail it to the address on
3011. your statement.
Overnight . Complete an application . Make your check payable
Delivery and deliver it along with to Portico Funds. Please
a check payable to include your account
Portico Funds, 615 E. number on your check and
Michigan St., Milwaukee, deliver it to the address
WI 53202. at the left.
In Person . Bring your application . Bring your check to a
and check to a Firstar Firstar Investment
Investment Office. Call Office. Call 1-800-982-
1-800-982-8909 for the 8909 for the office
office nearest you. nearest you.
Automatical . Call 1-800-982-8909 to . Complete a Periodic
ly obtain a purchase Investment Plan
application which Application to
includes information for automatically purchase
a Periodic Investment more shares.
Plan.
. Open a ConvertiFundR
account to automatically
invest proceeds from one
account to another
account of the Portico
family of funds.
By Wire . Call 1-800-228-1024 to . Call 1-800-228-1024 to
arrange a wire arrange a wire
transaction. Ask your transaction. Ask your
bank to transmit bank to transmit
immediately available immediately available
funds by wire in the funds by wire as
amount of your purchase described at the left.
to Firstar Bank Please also include your
Milwaukee, N.A., ABA # account number.
0750-00022, Account #
112-952-137 for further
credit to Portico
Balanced Income Fund
[name/title on the
account].
By Phone . Call 1-800-228-1024 to . Call 1-800-228-1024 to
exchange from another exchange from another
Portico Fund account with Portico Fund account with
the same registration the same registration
including name, address including name, address
and taxpayer ID number. and taxpayer ID number.
Investors making initial investments by wire must promptly complete a Purchase
Application and forward it to the Fund. REDEMPTIONS WILL NOT BE PAID UNTIL THE
COMPLETED APPLICATION HAS BEEN RECEIVED BY THE TRANSFER AGENT.
If an order and payment are received by the transfer agent in proper form (as
described above) before the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 3:00 p.m. Central Time, on a business day,
Fund shares will be purchased as of the determination of net asset value on that
day. Purchase orders which are received after the close of regular trading hours
on the Exchange, or on non-business days, and orders for which payment is not
received by the close of regular trading hours on the Exchange on a business
day, will be executed on the next business day after receipt of both the order
and payment in proper form by the transfer agent.
The Fund will not accept payment in cash or third party checks for the purchase
of shares. Federal regulations require that each investor provide a Social
Security number or other certified taxpayer identification number upon opening
or reopening an account. The Fund reserves the right to reject applications
without such a number or an indication that a number has been applied for. If a
number has been applied for, the number must be provided and certified within
sixty days of the date of the application. Any accounts opened without a proper
number will be subject to backup withholding at a rate of 31% on all
liquidations and dividend and capital gain distributions.
Certificates for shares will be issued only upon shareowner request. The Fund
reserves the right to reject any purchase order. Payment for shares of the Fund
in the amount of $1,000,000 or more may, at the discretion of the Adviser, be
made in the form of securities that are permissible investments for the Fund.
For further information see the Statement of Additional Information or contact
Portico Investor Services at 1-800-982-8909 or 414-287-3710 (Milwaukee area).
HOW TO PURCHASE INSTITUTIONAL SHARES
All Institutional Share purchases are effected pursuant to a customer's account
at Firstar Trust Company ("Firstar Trust") or at another chosen institution
pursuant to procedures established in connection with the requirements of the
account. Confirmations of share purchases and redemptions will be sent to
Firstar Trust or the other institution involved. Firstar Trust and the other
institutions (or their nominees) (collectively referred to as "Institutions")
will normally be the owners of record of Fund shares, and will reflect their
customers' beneficial ownership of shares in the account statements provided by
them to their customers. The exercise of voting rights and the delivery to
customers of shareowner communications from the Fund will be governed by the
customers' account agreements with Firstar Trust and the other Institutions.
Investors wishing to purchase shares of the Fund should contact their account
representatives.
Institutional Shares are sold without a charge imposed by the Fund, although
Institutions may charge fees for providing administrative or other services in
connection with investments in Fund shares.
Purchase orders must be transmitted to the Fund's transfer agent by telephone
(1-800-228-1024; in Milwaukee area: 414-287-3808 or by fax 414-287-3781 only if
preceded by a telephone call) and will be effected by the transfer agent at its
Milwaukee office. Purchase orders that are received by the transfer agent
before the close of regular trading hours on the New York Stock Exchange (the
"Exchange"), currently 3:00 p.m. Central Time, will be executed as of the
close of regular trading hours on the Exchange, provided that payment is
received by the close of regular trading hours. Purchase orders that are
received after the close of regular trading hours on the Exchange or on non-
business days, and orders for which payment is not received by the close of
regular trading hours on the Exchange on a business day, will be executed on the
next business day after receipt of both the order and payment in proper form by
the transfer agent.
Payment for Institutional Shares should be transmitted by wire in immediately
available funds to:
Firstar Bank Milwaukee, N.A.
ABA #0750-00022,
Account #112-952-137
For further credit to
Portico Balanced Income Fund
[the investor's account number and the name/title of the account].
Payment may also be made by check payable to: Portico Funds, P.O. Box 3011,
Milwaukee, WI 53201-3011, or delivered (via overnight delivery or in person) to
615 E. Michigan St., Milwaukee, WI 53202.
It is the responsibility of Institutions to transmit orders and payment for the
purchase of shares by their customers to the transfer agent on a timely basis,
in accordance with the procedures stated above.
Certificates for shares will be issued only upon the request of an Institution.
The Fund reserves the right to reject any purchase order.
Payment for shares of the Fund in the amount of $1,000,000 or more may, at the
discretion of the Fund, be made in the form of securities that are permissible
investments for the Fund as described in this Prospectus. For further
information see the Statement of Additional Information or contact Portico
Investor Services at 1-800-982-8909 or 414-287-3710 (Milwaukee area).
REDEMPTION OF SHARES
HOW TO REDEEM RETAIL SHARES
Redemption orders are effected at the net asset value per share next determined
after receipt of the order by the transfer agent or FIS. If a redemption order
is received in proper form (as described below) before the close of regular
trading hours on the Exchange, currently 3:00 p.m. Central Time, on a business
day, Fund shares will be redeemed as of the determination of net asset value on
that day. Redemption orders which are received after the close of regular
trading hours on the Exchange, or on non-business days, will be executed on the
next business day. Depending upon the current net asset value of the redeemed
shares at the time of redemption, the value of the shares redeemed may be more
or less than the investor's cost.
Redemption Orders
THROUGH A REGISTERED
THROUGH THE TRANSFER AGENT REPRESENTATIVE
-------------------------- --------------------
By Phone . Call 1-800-228-1024 with . Call your registered
your account name, representative at the
account number and number on your
amount of redemption statement, or 1-800-
(minimum $500). 982-8909.
Redemption proceeds will
only be sent to a
shareowner's address or
bank account of a
commercial bank located
within the United States
as shown on the transfer
agent's records.
[Available only if
established on the
account application and
if there has been no
change of address by
telephone within the
preceding 15 days.]
By Mail, . Mail your instructions . Mail your instructions
Overnight to the Portico Funds, to the Portico Funds,
Delivery P.O. Box 3011, P.O. Box 3011,
or In Milwaukee, Wisconsin Milwaukee, WI 53201-
Person 53201-3011, or deliver 3011, or deliver them
them (via overnight to 615 E. Michigan
delivery or in person) Street, Milwaukee, WI
to 615 E. Michigan St., 53202, or bring your
Milwaukee, WI 53202. instructions to your
Include the number of registered
shares or the amount to representative's
be redeemed, your office.
shareowner account
number and Social
Security number or other
taxpayer identification
number. Your
instructions must be
signed by all persons
required to sign for
transactions exactly as
their names appear on
the account. If the
redemption amount
exceeds $50,000, or if
the proceeds are to be
sent elsewhere than the
address of record, or
the address of record
has been changed within
the preceding 15 days,
each signature must be
guaranteed in writing by
either a commercial bank
that is a member of the
FDIC, a trust company, a
credit union, a savings
association, a member
firm of a national
securities exchange or
other eligible guarantor
institution.
Automatic . Call 1-800-982-8909 for . Call your registered
ally a Systematic Withdrawal representative to
Plan application establish a Systematic
($15,000 account minimum Withdrawal Plan.
and $100 minimum per
transaction).
Guarantees must be signed by an eligible guarantor institution and "Signature
Guaranteed' must appear with the signature. If certificates have been issued,
the certificates, properly endorsed or accompanied by a properly executed stock
power and accompanied by signature guarantees, must be received by the transfer
agent or FIS. The Fund may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees and
guardians. A redemption request will not be deemed to be properly received
until the transfer agent or FIS receives all required documents in proper form.
Purchases of additional shares concurrently with withdrawals could be
disadvantageous because of the sales charge involved in the additional
purchases.
The transfer agent charges a $12.00 fee for each payment made by wire of
redemption proceeds, which will be deducted from the shareowner's account. The
transfer agent also charges a $15.00 fee for each IRA distribution (unless it is
part of a Systematic Withdrawal Plan), which will be deducted from the
shareowner's account.
In order to arrange for telephone redemptions after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Portico Investor Services at the address listed
above or contact your registered representative. The request must be signed by
each shareowner of the account. Further documentation may be requested from
corporations, executors, administrators, trustees and guardians.
The Fund reserves the right to refuse a telephone redemption if it believes it
is advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated by the Fund at any time upon notice to shareowners.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If a shareowner is unable to contact the
transfer agent by telephone, shares may also be redeemed by delivering the
redemption request to the transfer agent.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, Portico and the transfer agent employ reasonable procedures specified
by the Fund to confirm that such instructions are genuine. Among the procedures
used to determine authenticity, investors electing to redeem or exchange by
telephone will be required to provide their account number. All such telephone
transactions will be tape recorded and confirmed in writing to the shareowner.
Portico may implement other procedures from time to time. If reasonable
procedures are not implemented, Portico and/or the transfer agent may be liable
for any loss due to unauthorized or fraudulent transactions. In all other
cases, the shareowner is liable for any loss for unauthorized transactions.
Other Redemption Information
The Fund will make payment for redeemed shares typically within one or two
business days, but no later than the seventh day after receipt by the transfer
agent of a request in proper form, except as provided by the rules of the SEC.
HOWEVER, IF ANY PORTION OF THE SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY CHECK, THE FUND MAY DELAY THE PAYMENT OF THE REDEMPTION PROCEEDS UNTIL
THE TRANSFER AGENT IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED,
WHICH MAY TAKE TWELVE DAYS FROM THE PURCHASE DATE. This procedure does not
apply to shares purchased by wire payment. An investor must have filed a
Purchase Application before any redemption requests can be paid.
The Fund imposes no charge when shares are redeemed and reserves the right to
redeem an account involuntarily, upon sixty days' written notice, if redemptions
cause the account's net asset value to remain at less than $1,000. The Fund may
also redeem shares involuntarily if it is appropriate to do so to carry out the
Fund's responsibilities under the 1940 Act and, in certain cases, may make
payment for redemption in securities. Investors would bear any brokerage or
other transaction costs incurred in converting the securities so received to
cash. See the Statement of Additional Information for examples of when such
redemptions might be appropriate.
Questions concerning the proper form for redemption requests should be directed
to Portico Investor Services at 1-800-228-1024 or 414-287-3808 (Milwaukee area).
HOW TO REDEEM INSTITUTIONAL SHARES
Customers who purchase Institutional Shares of the Fund through accounts at an
Institution may redeem all or part of their shares in accordance with the
instructions and limitations pertaining to such accounts. The procedures will
vary according to the type of account and Institution involved, and customers
should consult their account representatives in this regard.
Redemption orders must be transmitted by an Institution to the transfer agent in
writing or by telephone in the manner described under "How to Purchase
Institutional Shares.' Shares are redeemed at the net asset value per share
next determined after the transfer agent's receipt of the redemption order.
Payment for redeemed shares will normally be wired in federal funds on the next
business day if the redemption order is received by the transfer agent before
3:00 p.m. Central Time. The Fund reserves the right, however, to delay the
wiring of redemption proceeds for up to seven days after receipt of a redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
affect the Fund. However, if any portion of the shares to be redeemed
represents an investment made by check, the Fund may delay the payment of the
redemption proceeds until the transfer agent is reasonably satisfied that the
check has been collected, which may take twelve days from the purchase date.
The transfer agent currently charges a $15.00 fee for each IRA distribution,
which will be deducted from the shareowner's account or, at the request of an
Institution, billed directly to the Institution requesting the redemption.
Portico imposes no charge when shares are redeemed. However, Institutions may
charge a fee for providing administrative or other services in connection with
investments in Fund shares. If a customer has agreed with a particular
Institution to maintain a minimum account balance and the balance falls below
that minimum, the customer may be obliged by the Institution to redeem all or
part of the customer's shares in the Fund to the extent necessary to maintain
the required minimum balance. Portico may also redeem shares of the Fund
involuntarily or make payment for redemption in securities if it appears
appropriate to do so in light of Portico's responsibilities under the 1940 Act.
Investors would bear any brokerage or other transaction costs incurred in
converting the securities received to cash. See the Statement of Additional
Information for examples of when such redemptions might be appropriate.
It is the responsibility of Institutions to transmit redemption orders and
credit their customers' accounts with the redemption proceeds on a timely basis
in accordance with their agreements with the customers and to provide their
customers with account statements with respect to share transactions made for
the accounts.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, Portico and the transfer agent employ reasonable procedures specified
by the Fund to confirm that such instructions are genuine. Among the procedures
used to determine authenticity, investors electing to redeem or exchange by
telephone will be required to provide their account number. All such telephone
transactions will be tape recorded and confirmed in writing to the shareowner.
Portico may implement other procedures from time to time. If reasonable
procedures are not implemented, Portico and/or the transfer agent may be liable
for any loss due to unauthorized or fraudulent transactions. In all other
cases, the shareowner is liable for any loss for unauthorized transactions.
EXCHANGE OF SHARES
If shares may legally be sold in the state of the investor's residence, Retail
shareowners are generally permitted to exchange their Retail Shares in the Fund
(with a minimum current value of $1,000) for Retail Shares of other funds in the
Portico family of funds without charge or commission by the Fund. A sales
charge will be imposed on the exchange if the shares of the Fund being acquired
have a sales charge and the shares being redeemed were purchased or otherwise
acquired without a sales charge unless a shareowner qualifies for a sales charge
exemption as described in the section "Purchase of Shares". Institutional
shareowners also are generally permitted to exchange their Institutional Shares
in the Fund (with a minimum current value of $1,000) for Institutional Shares of
other funds in the Portico family of funds, provided such other shares may
legally be sold in the state of the investor's residence and the investor is
eligible for Institutional Shares at the time of the exchange. This exchange
privilege does not apply to shares of the Institutional Money Market Fund.
Telephone exchange privileges automatically apply to each shareowner of record
and the representative of record unless and until the transfer agent receives
written instructions from the shareowner(s) of record canceling the privilege.
Portico reserves the right to terminate indefinitely the exchange privilege of
any shareowner, broker, investment adviser, agent, or account representative who
requests more than four exchanges within a calendar year, whether for oneself or
one's customers. Portico may determine to do so with prior notice to the
shareowner, broker, investment adviser, agent, or account representative based
on a consideration of both the number of exchanges the particular shareowner,
broker, investment adviser, agent, or account representative has requested and
the time period over which those exchange requests have been made, together with
the level of expense to the Funds or other adverse effects which may result from
the additional exchange requests. If any portion of the shares to be exchanged
represents an investment made by check, a Fund may delay the acquisition of new
shares in an exchange until the transfer agent is reasonably satisfied that the
check has been collected, which may take twelve days from the purchase date.
Investors may find the exchange privilege useful if their investment objectives
or market outlook should change after they invest in the Portico family of
funds. For federal income tax purposes, an exchange of shares is a taxable
event and, accordingly, a capital gain or loss may be realized by an investor.
Before making an exchange request, an investor should consult a tax or other
financial adviser to determine the tax consequences of a particular exchange.
No exchange fee is currently imposed by Portico on exchanges. Portico reserves,
however, the right to impose a charge in the future. In addition, Institutions
may charge a fee for providing administrative or other services in connection
with exchanges.
In order to request an exchange by telephone, a shareowner must give the account
name, account number and the amount or number of shares to be exchanged. During
periods of significant economic or market change, telephone exchanges may be
difficult to implement. If a shareowner is unable to contact the transfer agent
by telephone, shares may also be exchanged by delivering the exchange request to
the transfer agent in person or by mail at the address listed above under
"Redemption of Shares."
The Fund reserves the right to reject any exchange request with prior notice to
a shareowner and the exchange privilege may be modified or terminated at any
time. At least sixty days' notice will be given to shareowners of any material
modification or termination except where notice is not required under SEC
regulations. The responsibility of the Fund and its transfer agent for the
authenticity of telephone exchange instructions is limited as described above
under "Redemption of Shares."
SHAREOWNER SERVICES (Retail Shareowners Only)
The services and privileges described below are available to Retail Shareowners
of the Fund. These may be modified or terminated at any time upon notice to
shareowners.
Shareowner Reports
Shareowners will be provided with a report showing portfolio investments and
other information at least semiannually; and after the close of the Fund's
fiscal year with an annual report containing audited financial statements. To
eliminate unnecessary duplication, only one copy of shareowner reports will be
sent to shareowners with the same mailing address. Shareowners who desire a
duplicate copy of shareowner reports to be mailed to their residence should call
Portico Investor Services at 1-800-982-8909, or write Portico Investor Services
at the address listed above.
In addition, account statements will be mailed to shareowners after each
purchase, reinvestment of dividends and redemption.
Automated Teleresponse Service
Shareowners using a touch-tone telephone can access information on the Fund
twenty-four hours a day, seven days a week. When calling Portico Investor
Services at 1-800-228-1024, shareowners may choose to use the automated
information feature or, during regular business hours (8:00 a.m. to 7:00 p.m.
Central Time, Monday through Friday), speak with a Portico Investor Services
representative.
The automated service provides the information most frequently requested by
shareowners. After calling the 800-number, pressing "2" on their touch-tone
phone, shareowners can:
1. Determine closing prices for the Fund.
2. Learn how the price of the Fund has changed from the previous day.
3. Hear daily yields for Portico money market funds.
Money market fund yields reflect fee waivers in effect, represent past
performance and will vary. If fees were not waived, yields would be reduced.
Past performance is no guarantee of future results. Current yield refers to
income earned by a fund's investments over a 7-day period. It is then
annualized and stated as a percentage of the investment. Effective yield is the
same as current yield except that it assumes the income earned by an investment
in a fund will be reinvested. An investment in any one of the Portico money
market funds is neither insured nor guaranteed by the U.S. Government nor is
there any assurance the funds will be able to maintain a stable net asset value
of $1.00 per share.
To speak with a Portico Investor Services representative any time during an
automated teleresponse session (during regular business hours), shareowners may
press "0."
For total return information, shareowners must call Portico Investor Services at
1-800-982-8909 or 414-287-3710 (Milwaukee area).
Retirement Plans
The Fund offers individual retirement accounts and prototype defined
contribution plans, including simplified employee, 401(k), profit-sharing and
money purchase pension plans ("Retirement Plans"). For details concerning
Retirement Plans (including service fees), please call Portico Investors
Services at 1-800-982-8909 or 414-287-3710 (Milwaukee area).
DIVIDENDS AND DISTRIBUTIONS
Dividends from the Fund's net investment income are declared and paid quarterly.
The Fund's net realized capital gains are distributed at least annually to
avoid tax to the Fund.
Dividends and distributions will reduce the net asset value of the Retail and
Institutional Shares by the amount of the dividend or distribution. Dividends
and distributions are automatically reinvested in additional Retail or
Institutional Shares of the Fund (as applicable) on which the dividend or
distribution is paid at their net asset value per share (as determined on the
payable date), unless the shareowner notifies the Fund's transfer agent or
registered representative, as appropriate, that dividends or capital gains
distributions, or both, should be paid in cash. Cash dividends and
distributions will be paid by check unless the Fund's transfer agent receives a
voided check or deposit ticket to enable the dividends or distributions to be
directly deposited into the shareowner's bank account. Cash dividends and
distributions will be paid within five business days after the end of the month
in which dividends are declared or within five business days after a redemption
of all of a shareowner's shares of the Fund. Reinvested dividends and
distributions receive the same tax treatment as those paid in cash.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Board of Directors of the Portico Funds, Inc. ("Portico" or the "Company").
The Statement of Additional Information contains the name and background
information regarding each Director.
Advisory Services
FIRMCO, a Wisconsin limited liability company and subsidiary of Firstar
Corporation, a bank holding company, serves as investment adviser to the Fund.
FIRMCO, with principal offices at Firstar Center, 777 East Wisconsin Avenue, 8th
Floor, Milwaukee, Wisconsin 53202, has been engaged in the business of providing
investment advisory services since 1986. FIRMCO currently has $22.4 billion in
assets under active management, of which $13.1 billion is invested in fixed
income and money market securities and $9.3 billion in equity securities.
Subject to the general supervision of the Board of Directors and in accordance
with the investment objective and policies of the Fund, the Adviser manages the
Fund's portfolio, makes decisions with respect to and places orders for all
purchases and sales of the Fund's portfolio securities, and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to Shareowner Organizations,
including, in the case of agency transactions, Shareowner Organizations which
are affiliated with the Adviser, if the Adviser believes that the quality of the
transaction and the amount of the commission are comparable to what they would
be with other qualified brokerage firms.
The Adviser is entitled to receive from the Fund a fee, calculated daily and
payable monthly, at the annual rate of 0.75% of the Fund's average daily net
assets. The Adviser may voluntarily waive all or a portion of the advisory fee
otherwise payable by the Fund from time to time. These waivers may be
terminated at any time at the Adviser's discretion.
The Adviser's portfolio management services for the Fund are conducted by Marian
Zentmyer and Warren Pierson. Ms. Zentmyer has been with Firstar since 1982 and
has nineteen years of investment experience. She is a Senior Vice President and
Senior Portfolio Manager of FIRMCO. Mr. Pierson joined Firstar in 1985 and has
twelve years of fixed income experience at Firstar. He is a Vice President and
Senior Portfolio Manager of FIRMCO. Both Ms. Zentmyer and Mr. Pierson are
Chartered Financial Analysts. In addition, Ms. Zentmyer is a Certified
Financial Planner.
Administrative Services
Firstar Trust Company, 615 East Michigan Street, Milwaukee, WI 53202 ("Firstar
Trust') and B. C. Ziegler and Company (""Ziegler") serve as the Co-
Administrators (the "Co-Administrators.") The Co-Administrators have agreed
to provide the following administrative services for the Portico Funds: assist
in maintaining office facilities for the Funds; furnish clerical and certain
other services required by the Funds; compile data for and prepare notices to
the SEC; prepare semiannual reports to the SEC and current shareowners and
filings with state securities commissions; coordinate federal and state tax
returns; monitor the arrangements pertaining to the Funds' agreements with
Shareowner Organizations and Institutions; monitor the Funds' expense accruals;
monitor compliance with the Funds' investment policies and limitations; and
generally assist the Funds' operations. As further described in the Statement
of Additional Information, certain services under the Co-Administration
Agreement are provided jointly by Firstar Trust and Ziegler and other services
are provided separately by either Firstar Trust or Ziegler. The Co-
Administrators are entitled to receive a fee for their administrative services,
computed daily and payable monthly, at the annual rate of .125% of Portico's
first $2 billion of average aggregate daily net assets, plus .10% of Portico's
average aggregate daily net assets in excess of $2 billion. The Co-
Administrators may voluntarily waive all or a portion of their administrative
fee from time to time. These waivers may be terminated at any time at the Co-
Administrators' discretion.
Shareowner Organizations
Portico may enter into agreements from time to time with certain Shareowner
Organizations, including affiliates of the Adviser (such as FIS), providing for
certain support and/or distribution services to their customers who are the
beneficial owners of Retail Shares of the Fund. Under the Service Agreements,
shareowner support services, which are described more fully in the Statement of
Additional Information, may include assisting investors in processing purchase,
exchange and redemption requests; processing dividend and distribution payments
from the Funds; providing information periodically to customers showing their
positions in Retail Shares of the Funds; and providing sub-accounting with
respect to Retail Shares beneficially owned by customers or the information
necessary for sub-accounting. In addition, Shareowner Organizations under a
Distribution and Service Agreement may provide the foregoing shareowner support
services and may also provide assistance, such as the forwarding of sales
literature and advertising to their customers, in connection with the
distribution of Retail Shares. For their services, Shareowner Organizations may
be entitled to receive fees from the Fund at annual rates of up to 0.25% of the
average daily net asset value of the Retail Shares covered by their agreements.
Under the terms of their agreements with Portico, Shareowner Organizations are
required to provide a schedule of any fees that they may charge to their
customers relating to the investment of their assets in Retail Shares covered by
the agreements. Investors should read this Prospectus in light of such fee
schedules and under the terms of their Shareowner Organization's agreement with
Portico. In addition, investors should contact their Shareowner Organization
with respect to the availability of shareowner services and the particular
Shareowner Organization's procedures for purchasing and redeeming shares. It is
the responsibility of Shareowner Organizations to transmit purchase and
redemption orders and record those orders in customers' accounts on a timely
basis in accordance with their agreements with customers. At the request of a
Shareowner Organization, the transfer agent's charge of $12.00 for each payment
made by wire of redemption proceeds may be billed directly to the Shareowner
Organization.
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in the business of underwriting securities. Accordingly,
banks will be engaged under agreements with Portico only to perform the
administrative and investor servicing functions described above, and will
represent to Portico that in no event will the services provided by them under
the agreements be primarily intended to result in the sale of Retail Shares.
Conflict-of-interest restrictions may apply to the receipt of compensation paid
by Portico to a Shareowner Organization in connection with the investment of
fiduciary funds in Retail Shares. Institutions, including banks regulated by
the Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult legal counsel before entering into
agreements with Portico.
Agreements that contemplate the provision of distribution services by Shareowner
Organizations are governed by a Distribution and Service Plan (the "Plan") that
has been adopted by Portico pursuant to Rule 12b-1 under the 1940 Act. In the
case of the Fund, no payments are made to its Distributor under the Plan.
However, payments to Shareowner Organizations, including affiliates of the
Adviser, under the Plan are not tied directly to their own out-of-pocket
expenses and therefore may be used as they elect (for example, to defray their
overhead expenses), and may exceed their direct and indirect costs.
Custodian, Transfer and Dividend Disbursing Agent, and Accounting Services Agent
Firstar Trust, an affiliate of the Adviser, provides custodial, transfer agency,
dividend disbursing agency services and accounting services for the Fund. Total
custodial, transfer agency dividend disbursing agency and accounting services
fees paid to Firstar Trust for the first twelve months of the Fund's operations
are expected to be approximately 0.21% of the Fund's average net assets.
Additional information regarding the fees payable by the Fund to Firstar Trust
for these services is provided in the Statement of Additional Information.
Inquiries to the transfer agent may be sent to the following address: Firstar
Trust Company, P.O. Box 3011, Milwaukee, WI 53201-3011.
EXPENSES
Operating expenses borne by the Fund include taxes, interest, fees and expenses
of Directors and officers, Securities and Exchange Commission fees, state
securities and qualification fees, advisory fees, administration fees,
Shareowner Organization fees (Retail Shares only), charges of the custodian and
transfer agent, dividend disbursing agent and accounting services agent, certain
insurance premiums, outside auditing and legal expenses, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareowners, cost of shareowner reports and meetings and any extraordinary
expenses. The Fund also pays any brokerage fees, commissions and other
transactions charges (if any) incurred in connection with the purchase or sale
of portfolio securities.
INVESTMENT LIMITATIONS
Except for the limitations detailed below, the investment objective and policies
of the Fund described in this Prospectus are not fundamental and may be changed
by the Board of Directors without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. If there is a change in the Fund's
investment objective, shareowners should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs. The following descriptions summarize several of the Fund's fundamental
investment limitations which are set forth in full in the Statement of
Additional Information.
The Fund May Not:
1. Purchase securities of any one issuer (other than U.S. Government
securities) if more than 5% of the value of its total assets will be
invested in the securities of such issuer, except that up to 25% of the
value of a Fund's total assets may be invested without regard to this 5%
limitation.
2. Subject to the foregoing 25% exception, purchase more than 10% of the
outstanding voting securities of any issuer.
3. Invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry.
4. Borrow money or enter into reverse repurchase agreements except for
temporary purposes in amounts up to 10% of the value of the total assets at
the time of such borrowing, or mortgage, pledge or hypothecate any assets
except in connection with such borrowings. Whenever borrowings (including
reverse repurchase agreements) exceed 5% of the Fund's total assets, the
Fund will not make any investments.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's portfolio securities will not constitute a violation of such
limitation. If due to market fluctuations or other reasons the amount of
borrowings or reverse repurchase agreements exceed the 10% limit stated above,
the Fund will promptly reduce such amount.
TAXES
Federal
Portico's management intends that the Fund will qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code.") Such qualification generally will relieve the Fund of liability for
federal income taxes to the extent its earnings are distributed in accordance
with the Code.
The Fund contemplates declaring as dividends each year at least 90% of its
investment company taxable income.
Any dividend or distribution out of "net capital gain" (the excess of the
Fund's net long-term capital gain over its net short-term capital loss), if any,
of the Fund, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxable to a shareowner of the Fund as long-term
capital gain or mid-term capital gain, as the case may be, regardless of how
long the shareowner has held shares of the Fund. All other distributions, to
the extent that they are taxable, are taxed to shareowners as ordinary income.
The Fund will notify its shareholders annually as to the tax status of dividend
and capital gains distributions paid by the Fund. A sale or redemption of
shares of the Fund is a taxable event and may result in a capital gain or loss.
Dividend distributions, capital gains distributions and capital gains or losses
from redemptions may be subject to state and local taxes.
Before purchasing Fund shares, the impact of dividend or capital gain
distributions which are expected to be declared or have been declared but not
paid, should be carefully considered. Any dividend or distribution paid by the
Fund shortly after the purchase of shares of the Fund will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. Such dividends or distributions, although in effect a return
of capital to shareowners, are subject to income taxes.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of the dividends or gross proceeds paid to any shareowner (i) who
has provided either an incorrect Social Security or Taxpayer Identification
Number or no number at all, (ii) who is subject to withholding by the Internal
Revenue Service for failure to properly include on his return payments of
interest or dividends or (iii) who has failed, when required to do so, to
certify that he or she is not subject to backup withholding. The Fund generally
will also withhold and remit to the U.S. Treasury 10% of all distributions from
individual retirement accounts (including simplified employee plans) to any
investor unless the transfer agent receives a written request not to withhold
federal income tax from the investor prior to the distribution date; withholding
on distributions from other types of Retirement Plans may be mandatory and may
be at a higher rate.
A taxable gain or loss may be realized by a shareowner upon a redemption,
transfer or exchange of Fund shares, depending on the tax basis of the shares
and their price at the time of such disposition.
Generally, a shareowner may include sales charges incurred upon the purchase of
Retail Shares in his or her tax basis for such shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of shares.
However, if the shareowner effects an exchange of such shares for Retail Shares
of another fund of the Company within 90 days of the purchase and is able to
reduce the sales charge applicable to the new shares (by virtue of the Company's
exchange privilege), the amount equal to such reduction may not be included in
the tax basis of the shareowner's exchanged shares, but may be included (subject
to the limitation) in the tax basis of the new shares. If a shareowner held
shares for six months or less, any loss realized by the shareowner will be
treated as long-term loss to the extent of any long-term capital distribution
received.
The foregoing is only a brief summary of some of the important federal income
tax considerations generally affecting the Fund and its shareowners, and is not
intended as a substitute for careful tax planning and is based on tax laws and
regulations which are in effect on the date of this Prospectus. Such laws and
regulations may be changed by legislative or administrative action.
Accordingly, investors in the Fund should consult their tax advisers with
specific reference to their own tax situation. Shareowners will be advised at
least annually as to the federal income tax consequences of dividends and
distributions made each year.
State and Local
Investors are advised to consult their tax advisers concerning the application
of state and local tax laws, which may have different consequences from those of
the federal income tax law described above.
DESCRIPTION OF SHARES
The Company was incorporated under the laws of the State of Wisconsin on
February 15, 1988 and is registered with the SEC as an open-end management
company. The Articles of Incorporation authorize the Board of Directors to
issue up to 150 billion full and fractional shares of common stock, $.0001 par
value per share. The Company currently has 18 classes representing interests in
18 existing investment portfolios. Each class of the Funds is currently divided
into two separate series, a Retail and Institutional Series representing
interests in the same Fund. Of these authorized shares, 100 million shares have
been classified for each of the Retail and Institutional Series discussed in
this Prospectus.
Shares of each series bear their pro rata portion of all operating expenses paid
by the Fund, except certain payments of up to 0.25% of the average daily net
assets of the Retail Shares under the Fund's Distribution and Service Plan and
Shareowner Servicing Plan applicable only to Retail Series Shares. In addition,
Retail Shares, subject to certain exceptions described under Purchase of Shares
above, are sold with a maximum sales charge of 4.00% with respect to the
Company's equity funds and 2.00% with respect to the Company's fixed income
funds. Institutional Shares are sold without a sales charge. The differences
in expenses and sales charges will affect the performance of Institutional and
Retail Shares. Institutional Shares are only available to (i) trust, agency or
custodial accounts opened through trust companies or trust departments
affiliated with Firstar Corporation; (ii) all employer-sponsored qualified
retirement plans; and (iii) clients of the Adviser. Retail Shares are available
to any investor who does not fall within the three preceding categories.
Portico Funds offer various services and privileges in connection with Retail
Shares that are not offered in connection with the Institutional Shares,
including a Periodic Investment Plan, ConvertiFunda, and Systematic Withdrawal
Plan. A salesperson and any other person or Shareowner Organization entitled to
receive compensation for selling or servicing shares may receive different
compensation with respect to different series of shares.
For information regarding the other funds and series, contact Portico Investor
Services at 1-800-982-8909 or 414-287-3710 (Milwaukee area) or your Shareowner
Organization.
Portico does not presently intend to hold annual meetings of shareowners except
as required by the 1940 Act or other applicable law. Portico will call a
meeting of shareowners for the purpose of voting upon the question of removal of
a member of the Board of Directors upon written request of shareowners owning at
least 10% of the outstanding shares of Portico that are entitled to vote. To
the extent required by law, Portico will assist in shareowner communication in
such matters.
Shareowners of each class of Portico Funds are entitled to one vote for each
full share held and proportionate fractional votes for fractional shares held,
and will vote in the aggregate and not by Fund except where otherwise required
by law. It is contemplated that shareowners of the Fund will vote separately on
matters relating to its investment advisory agreement and any changes in its
fundamental investment limitations. On any matter submitted to the vote of
shareowners which only pertains to agreements, liabilities or expenses
applicable to the Retail Shares but not the Institutional Shares of the Fund,
only the Retail Shares will be entitled to vote. Shares of Portico have
noncumulative voting rights and, accordingly, the owners of more than 50% of
Portico's outstanding shares (irrespective of Fund) may elect all of the
Directors. As of September 30, 1997, the Adviser and its affiliates held, on
behalf of their underlying accounts, approximately 73% of Portico's shares that
were outstanding on that date.
Each Retail and Institutional Share of the Fund represents an equal
proportionate interest with other shares of the same series in the Fund, and is
entitled to such dividends and distributions earned on its assets as are
declared at the discretion of the Board of Directors. Shares of the Fund do not
have preemptive rights. The Fund is classified as a diversified company under
the 1940 Act.
NET ASSET VALUE AND DAYS OF OPERATION
The net asset value of each series of the Fund for purposes of pricing purchase
and redemption orders is determined as of the close of regular trading hours on
the Exchange, currently, 3:00 p.m. Central Time, on each day the Exchange is
open for trading. As a result, shares of the Fund will not be priced on the
days which the Exchange observes: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Retail and
Institutional Share is calculated by dividing the value of all securities and
other assets owned by the Fund that are allocated to Retail or Institutional
Shares, respectively, less the liabilities charged to the particular series by
the number of the Fund's outstanding Shares of that series.
Securities which are traded on a recognized domestic stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Portfolio securities which are primarily traded on foreign securities exchanges
are generally valued at the preceding closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed such value. In such an event, the
fair value of those securities will be determined through the consideration of
other factors by or under the direction of the Board of Directors. Exchange-
traded securities for which there were no transactions are valued at the current
bid prices. Securities traded on only over-the-counter markets are valued on
the basis of closing over-the-counter bid prices. Restricted securities,
securities for which market quotations are not readily available and other
assets are valued at fair value by the Adviser under the supervision of the
Board of Directors. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, unless the amortized cost does not approximate
market value.
The Fund's securities may be valued based on valuations provided by an
independent pricing service. These valuations are reviewed by the Adviser. If
the Adviser believes that a valuation received from the service does not
represent a fair value, it values the security by a method that the Board of
Directors believes will determine a fair value. Any pricing service used may
employ electronic data processing techniques, including a "matrix" system, to
determine valuations.
Quotations of foreign securities in foreign currency are converted to U.S.
dollar equivalents using the foreign exchange quotation in effect at the time
net asset value is computed. Foreign securities held by the Fund may trade in
their local markets on days the Fund is closed, and the Fund's net asset value
may, therefore, change on days when investors may not purchase or redeem shares.
PERFORMANCE CALCULATIONS
From time to time, total return data for Retail or Institutional Shares of the
Fund may be quoted in advertisements or in communications to shareowners. The
total return of the Fund's Retail or Institutional Shares will be calculated on
an average annual (compound) total return basis, and may also be calculated on
an aggregate total return basis, for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in Retail or Institutional shares of the Fund over the measuring period.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return assume that
dividends and capital gain distributions made by the Retail and Institutional
Shares of the Fund during the period are reinvested in Retail and Institutional
Shares of the Fund, respectively, and that, for Retail Shares, the maximum sales
charge during the period has been deducted from the investment at the time of
purchase.
The Fund may advertise total return data for Retail Shares of the Fund without
reflecting the sales charge if it is accompanied, in accordance with the rules
of the Securities and Exchange Commission, by average annual total return data
reflecting the maximum sales charge. Quotations which do not reflect the sales
charge will, of course, be higher than quotations which do.
The total return of the Fund's Retail and Institutional Shares may be compared
to those of other mutual funds with similar investment objectives and to stock,
bond and other relevant indices or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, the total return of the Fund's Retail and
Institutional Shares may be compared to data prepared by Lipper Analytical
Services, Inc. In addition, the total return of the Fund's Retail and
Institutional Shares may be compared to the S&P 500 Index; the S&P MidCap 400
Index; the S&P SmallCap 600 Index; the NASDAQ Composite Index, an index of
unmanaged groups of common stocks of domestic companies that are quoted on the
National Association of Securities Quotation System; the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange; the Wilshire Top 750 Index, an
index of all domestic equity issues which are traded over the national exchanges
(consists of approximately 5,000 issues); the Value Line Composite Index, an
unmanaged index of nearly 1,700 stocks reviewed in Ratings & Reports; Lehman
Brothers Intermediate Government/Corporate Bond Index; and the Consumer Price
Index. Total return data as reported in national financial publications, such
as Money Magazine, Forbes, Barron's, Morningstar Mutual Funds, The Wall Street
Journal and The New York Times, or in publications of a local or regional
nature, may also be used in comparing the performance of the Fund.
Performance quotations represent past performance, and should not be considered
as representative of future results. The investment return and principal value
of an investment in the Fund's Retail and Institutional Shares will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Since performance will fluctuate, performance data for the Fund
cannot necessarily be used to compare an investment in the Fund's Retail and
Institutional Shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Investors should remember that performance is generally
a function of the kind and quality of the investments held in a portfolio,
portfolio maturity, operating expenses and market conditions. Any fees charged
by Shareowner Organizations directly to their customer accounts in connection
with investments in the Fund will not be included in the Fund's calculations of
total return and will reduce the total return received by the accounts. The
methods used to compute total return are described in more detail in the
Statement of Additional Information.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TO OPEN AN ACCOUNT OR REQUEST INFORMATION
1-800-982-8909
1-414-287-3710
FOR ACCOUNT BALANCES AND INVESTOR SERVICES
1-800-228-1024
1-414-287-3808
PORTICO INVESTOR SERVICES
615 EAST MICHIGAN STREET
P.O. BOX 3011
MILWAUKEE, WI 53201-3011
xxxxx
PORTICO FUNDS, INC.
Statement of Additional Information
for the
Balanced Income Fund
November 1, 1997
TABLE OF CONTENTS
Page
----
Portico Funds ................................................ 2
Investment Objective and Policies ............................ 2
Net Asset Value .............................................. 16
Additional Purchase and Redemption Information ............... 16
Description of Shares ........................................ 20
Additional Information Concerning Taxes ...................... 22
Management of the Company .................................... 23
Custodian, Transfer Agent and Accounting Services Agent ...... 29
Independent Accountants ...................................... 30
Counsel ...................................................... 30
Additional Information on Performance ....................... 30
Miscellaneous ................................................ 32
Appendix A ................................................... A-1
Appendix B ................................................... B-1
This Statement of Additional Information is meant to be read in
conjunction with the Portico Fund Prospectus dated November 1, 1997, for the
Retail and Institutional Shares of the Balanced Income Fund (the "Fund") and
is incorporated by reference in its entirety into the Prospectus. Because
this Statement of Additional Information is not itself a prospectus, no
investment in shares of this Fund should be made solely upon the information
contained herein. Copies of the Prospectus for the Fund may be obtained by
writing Portico Investor Services at 615 East Michigan Street, P.O. Box
3011, Milwaukee, Wisconsin 53202-3011, or by calling 1-800-982-8909 or 414-
287-3710 (Milwaukee area). Capitalized terms used but not defined herein
have the same meanings as in the Prospectus.
SHARES OF THE FUND ARE NOT BANK DEPOSITS, AND ARE NEITHER ENDORSED BY,
INSURED BY, GUARANTEED BY, OBLIGATIONS OF, NOR OTHERWISE SUPPORTED BY THE
FDIC, THE FEDERAL RESERVE BOARD, FIRSTAR INVESTMENT RESEARCH & MANAGEMENT
COMPANY, LLC, FIRSTAR TRUST COMPANY, FIRSTAR CORPORATION, ITS AFFILIATES OR
ANY OTHER BANK, OR OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE PORTICO
FUNDS INVOLVES RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PORTICO FUNDS
Portico Funds, Inc. (the "Company") is a Wisconsin corporation which
was incorporated on February 15, 1988 as a management investment company. The
Company is authorized to issue separate classes of shares of Common Stock
representing interests in separate investment portfolios. Each class for the
Funds is currently divided into two series, a retail and institutional series.
This Statement of Additional Information pertains to Retail Series and
Institutional Series Shares of the Balanced Income Fund. The Company also
offers other investment portfolios which are described in separate Prospectuses
and Statements of Additional Information. For information concerning these
other portfolios contact Portico Investor Services at 1-800-982-8909 or write to
615 East Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53202-3011.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Balanced Income Fund is to seek
current income and the preservation of capital through investment in a balanced
portfolio of dividend paying equity and fixed income securities. There is no
assurance, however, that the Fund's investment objective will in fact be
attained. The following policies supplement the Fund's investment objective and
policies as set forth in the Prospectus.
Portfolio Transactions
Subject to the general supervision of the Board of Directors, the
Adviser is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for the Fund.
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions, and the Fund may engage in short-term trading to achieve its
investment objective.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Unlike transactions on
U.S. stock exchanges which involve the payment of negotiated brokerage
commissions, transactions in foreign securities generally involve the payment of
fixed brokerage commissions which are generally higher than those in the United
States.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Adviser will normally deal directly with dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.
Fixed income securities purchased and sold by the Fund are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Fund may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Fund will engage in this practice, however, only when the Adviser in its
sole discretion, believes such practice to be in the Fund's interests.
The Advisory Agreement between the Company and the Adviser provides
that, in executing portfolio transactions and selecting brokers or dealers, the
Adviser will seek to obtain the best overall terms available. In assessing the
best overall terms available for any transaction, the Adviser shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commissions, if any, both
for the specific transaction and on a continuing basis. In addition, the
Agreement authorizes the Adviser to cause the Fund to pay a broker-dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker-dealer for effecting the same transaction,
provided that the Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Adviser to the Fund. Such
brokerage and research services might consist of reports and statistics relating
to specific companies or industries, general summaries of groups of stocks or
bonds and their comparative earnings and yields, or broad overviews of the
stock, bond and government securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Adviser and does not
reduce the advisory fees payable to it by the Fund. The Directors will
periodically review the commissions paid by the Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Portfolio securities will not be purchased from or sold to (and
savings deposits will not be made in and repurchase and reverse repurchase
agreements will not be entered into with) the Adviser and the Distributor or an
affiliated person of any of them (as such term is defined in the 1940 Act)
acting as principal. In addition, the Fund will not purchase securities during
the existence of any underwriting or selling group relating thereto of which the
Distributor or its Adviser, or an affiliated person of any of them, is a member,
except to the extent permitted by the Securities and Exchange Commission
("SEC").
Investment decisions for the Fund are made independently from those
for other investment companies and accounts advised or managed by its Adviser.
Such other investment companies and accounts may also invest in the same
securities as the Fund. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another investment company
or account, the transaction will be averaged as to price and available
investments allocated as to amount, in a manner which the Adviser believes to be
equitable to the Fund and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by the Fund. To
the extent permitted by law, the Adviser may aggregate the securities to be sold
or purchased for a Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions.
From time to time the Fund may hold securities of its regular brokers
or dealers (as defined under the 1940 Act) or their parents.
Additional Information On Portfolio Instruments
Ratings. The ratings of Standard & Poor's, Moody's and other
nationally recognized rating agencies represent their opinions as to the quality
of debt securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and debt securities with the same
maturity, interest rate and rating may have different yields while debt
securities of the same maturity and interest rate with different ratings may
have the same yield.
The payment of principal and interest on most debt securities
purchased by the Fund will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its debt securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. The power or ability of an issuer to meet
its obligations for the payment of interest on, and principal of, its debt
securities may be materially adversely affected by litigation or other
conditions.
Subsequent to its purchase by the Fund, a rated security may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the security. For a more detailed
description of ratings, see Appendix A to the Statement of Additional
Information.
Securities Lending. Although the Fund does not intend to during the
current fiscal year, it may lend its portfolio securities to unaffiliated
domestic broker/dealers and other institutional investors pursuant to agreements
requiring that the loans be secured by collateral equal in value to at least the
market value of the securities loaned in order to increase return on portfolio
securities. Collateral for such loans may include cash, securities of the U.S.
Government, its agencies or instrumentalities, or an irrevocable letter of
credit issued by a bank which meets the investment standards stated below under
"Money Market Instruments," or any combination thereof. There may be risks of
delay in receiving additional collateral or in recovering the securities loaned
or even a loss of rights in the collateral should the borrower of the securities
fail financially. However, loans will be made only to borrowers deemed by the
Adviser to be of good standing and when, in the Adviser's judgment, the income
to be earned from the loan justifies the attendant risks. When a Fund lends its
securities, it continues to receive interest or dividends on the securities
loaned and may simultaneously earn interest on the investment of the cash
collateral which will be invested in readily marketable, high-quality, short-
term obligations. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by the Fund if a material
event affecting the investment is to occur.
Securities lending arrangements with broker/dealers require that the
loans be secured by collateral equal in value to at least the market value of
the securities loaned. During the term of such arrangements, the Fund will
maintain such value by the daily marking-to-market of the collateral.
Money Market Instruments. As described in the Prospectus, the Fund
may invest from time to time in "money market instruments," a term that
includes, among other things, bank obligations, commercial paper, variable
amount master demand notes and corporate bonds with remaining maturities of
thirteen months or less.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Fund will invest in money market obligations
of foreign banks or foreign branches of U.S. banks only where the Adviser
determines the instrument to present minimal credit risks, such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase, and investments by the Fund in the
obligations of foreign banks and foreign branches of U.S. banks will not exceed
25% of the Fund's total assets at the time of purchase. The Fund may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its net assets.
Investments by the Fund in commercial paper will consist of issues
rated at the time A-1 and/or P-1 by Standard & Poor's, Moody's or similar rating
by another nationally recognized rating agency. In addition, the Fund may
acquire unrated commercial paper and corporate bonds that are determined by the
Adviser at the time of purchase to be of comparable quality rated instruments
that may be acquired by the Fund as previously described.
The Fund may also purchase variable amount master demand notes which
are unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, the Fund
may demand payment of the principal of the instrument at any time. The notes
are not typically rated by credit rating agencies, but issuers of variable
amount master demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable amount master demand
note defaulted on its payment obligation, the Fund might be unable to dispose of
the note because of the absence of a secondary market and might, for this or
other reasons, suffer a loss to the extent of the default. The Fund will invest
in variable amount master notes only when the Adviser deems the investment to
involve minimal credit risk.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements"). During the term of the
agreement, the Adviser will continue to monitor the creditworthiness of the
seller and will require the seller to maintain the value of the securities
subject to the agreement at not less than 102% of the repurchase price. Default
or bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying securities. The securities held subject to a repurchase
agreement may have stated maturities exceeding one year, provided the repurchase
agreement itself matures in less than one year.
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by the Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements will be held by the Fund's custodian or in the Federal
Reserve/Treasury book-entry system or other authorized securities depository.
Repurchase agreements are considered to be loans under the 1940 Act.
Reverse Repurchase Agreements. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act. At the time the Fund enters
into a reverse repurchase agreement (an agreement under which the Fund sells
portfolio securities and agrees to repurchase them at an agreed-upon date and
price), it will place in a segregated custodial account U.S. Government
securities or other liquid high-grade debt securities having a value equal to or
greater than the repurchase price (including accrued interest), and will
subsequently monitor the account to insure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price of the securities it is
obligated to repurchase.
Investment Companies. The Fund currently intends to limit its
investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made: (i) not
more than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund or by the Company as a
whole.
The Fund may invest from time to time in securities issued by other
investment companies which invest in high-quality, short-term debt securities.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the 1940 Act. As a shareowner of another investment
company, the Fund would bear, along with other shareowners, its pro rata portion
of the other investment company's expenses, including advisory fees and such
fees and other expenses will be borne indirectly by the Fund's shareowners.
These expenses would be in addition to the advisory and other expenses that the
Fund bears directly in connection with its own operations.
U.S. Government Obligations. Examples of the types of U.S. Government
obligations that may be acquired by the Fund include U.S. Treasury bonds, notes
and bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Federal National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Maritime Administration, and
Resolution Trust Corp.
Bank Obligations. For purposes of the Fund's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. The Fund's
investments in the obligations of foreign branches of U.S. banks and of foreign
banks may subject the Fund to investment risks (similar to those discussed below
under "Foreign Securities and American Depository Receipts") that are different
in some respects from those of investments in obligations of U.S. domestic
issuers. Such risks include future political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest of such obligations. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and record keeping standards than those applicable to domestic
branches of U.S. banks.
Other Investment Considerations
The Balanced Income Fund maintains a long-term investment horizon with
respect to investments in equity securities. However, when a company's growth
in earnings and valuation results in price appreciation that reaches a level
which meets the Fund's established return objective, the stock is normally sold.
Holdings are also sold if there has been significant deterioration in the
underlying fundamentals of the securities involved since their acquisition.
Sale proceeds are either re-invested in money market instruments or in other
securities which meet the Fund's investment criteria.
The increase or decrease of cash equivalents in the Fund is primarily
the residual effect of the research process. The portion of the Fund invested
in cash equivalents tends to rise when the pool of acceptable securities is
limited and tends to fall when the Fund's valuation screening process identifies
a large number of attractive securities. Short-term forecasts for the economy
and financial markets are not an important determinant of the level of cash
equivalents in the Fund. As stated in the Prospectus, however, under normal
market conditions the Fund may hold money market instruments or cash, pending
investment to meet anticipated redemptions or if in the opinion of the Adviser
other suitable securities are unavailable. The Fund does not attempt to "time"
the securities market.
When-Issued Purchases, Delayed Delivery and Forward Commitments. When
the Fund agrees to purchase securities on a when-issued or delayed delivery
basis or enter into a forward commitment to purchase securities, its custodian
will set aside cash or liquid high grade debt securities equal to the amount of
the commitment in a segregated account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets in the segregated
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitments. It may be expected that the market value of
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Fund will set aside cash or liquid assets to satisfy its
purchase commitments in the manner described, the Fund's liquidity and ability
to manage its portfolio might be affected in the event its commitments ever
exceeded 25% of the value of its assets. In the case of a forward commitment to
sell portfolio securities, the Fund's custodian will hold the portfolio
securities themselves in a segregated account while the commitment is
outstanding. When-issued and forward commitment transactions involve the risk
that the price or yield obtained in a transaction (and therefore the value of a
security) may be less favorable then the price or yield (and therefore the value
of a security) available in the market when the securities delivery takes place.
The Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When the Fund engages in when-issued, delayed delivery and forward
commitment transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, are taken into account when determining the net asset
value of the Fund starting on the day the Fund agrees to purchase the
securities. The Fund does not earn interest on the securities it has committed
to purchase until they are paid for and delivered on the settlement date. When
the Fund makes a forward commitment to sell securities it owns, the proceeds to
be received upon settlement are included in the Fund's assets. Fluctuations in
the market value of the underlying securities are not reflected in the Fund's
net asset value as long as the commitment remains in effect.
Mortgage-Backed and Asset-Backed Securities. The Balanced Income Fund
may purchase residential and commercial mortgage-backed as well as other asset-
backed securities (collectively called "asset-backed securities") that are
secured or backed by automobile loans, installment sale contracts, credit card
receivables or other assets and are issued by entities such as Government
National Mortgage Association ("GNMA"), Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), commercial banks,
trusts, financial companies, finance subsidiaries of industrial companies,
savings and loan associations, mortgage banks and investment banks. These
securities represent interests in pools of assets in which periodic payments of
interest and/or principal on the securities are made, thus, in effect passing
through periodic payments made by the individual borrowers on the assets that
underlie the securities, net of any fees paid to the issuer or guarantor of the
securities. The average life of these securities varies with the maturities and
the prepayment experience of the underlying instruments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-backed securities issued by FNMA
include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are solely the obligations of FNMA and are not backed by or
entitled to the full faith and credit of the United States, but are supported by
the right of the issuer to borrow from the Treasury. FNMA is a government-
sponsored organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-backed securities issued by the FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress. Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
As stated in the Prospectus for the Balanced Income Fund, mortgage-
backed securities such as CMOs may be purchased. CMOs are issued in multiple
classes and their relative payment rights may be structured in many ways. In
many cases, however, payments of principal are applied to the CMO classes in
order of their respective maturities, so that no principal payments will be made
on a CMO class until all other classes having an earlier maturity date are paid
in full. The classes may include accrual certificates (also known as "Z-
Bonds"), which do not accrue interest at a specified rate until other specified
classes have been retired and are converted thereafter to interest-paying
securities. They may also include planned amortization classes ("PACs") which
generally require, within certain limits, that specified amounts of principal be
applied to each payment date, and generally exhibit less yield and market
volatility than other classes. Investments in CMO certificates can expose the
Fund to greater volatility and interest rate risk than other types of mortgage-
backed obligations. Prepayments on mortgage-backed securities generally
increase with falling interest rates and decrease with rising interest rates;
furthermore, prepayment rates are influenced by a variety of economic and social
factors.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Variable Rate Medium Term Notes. The Fund may purchase variable rate
medium term notes which provide for periodic adjustments in the interest rates.
The adjustments in interest rates reflect changes in an index (i.e., the Lehman
Brothers Intermediate Government/Corporate Bond Index).
Other Portfolio Information
Options Trading. As stated in the Fund's Prospectus, the Fund may
purchase put and call options. Option purchases by the Fund will not exceed 5%
of its net assets. Such options may relate to particular securities or to
various indices. This is a highly specialized activity which entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying securities or
indices, and therefore, on a percentage basis, an investment in options may be
subject to greater fluctuation than an investment in the underlying securities.
In contrast to an option on a particular security, an option on an index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
A call option gives the purchaser of the option the right to buy, and
a writer the obligation to sell, the underlying security or index at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A put
option gives the purchaser the right to sell the underlying security or index at
the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security or index. Put and call
options purchased by the Fund will be valued at the last sale price or, in the
absence of such a price, at the mean between bid and asked prices.
The Fund may also sell covered call options listed on a national
securities exchange. Such options may relate to particular securities or to
various indices. A call option on a security is covered if the Fund owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, cash or cash equivalents in such amount as required
are held in a segregated account by its custodian) upon conversion or exchange
of other securities held by it. A call option on an index is covered if the
Fund maintains with its custodian cash or cash equivalents equal to the contract
value. A call option is also covered if the Fund holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Fund in cash or cash equivalents in a segregated account with
its custodian.
The Fund's obligation under a covered call option written by it may be
terminated prior to the expiration date of the option by the Fund's executing a
closing purchase transaction, which is effected by purchasing on an exchange an
option of the same series (i.e., same underlying security or index, exercise
price and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security or to permit the writing of a new option containing
different terms. The cost of such a liquidation purchase plus transactions
costs may be greater than the premium received upon the original option, in
which event the Fund will have incurred a loss in the transaction. An option
position may be closed out only on an exchange which provides a secondary market
for an option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, will not be able
to sell an underlying security until the option expires or the underlying
security is delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline during such period.
The Fund will write an option on a particular security only if the Adviser
believes that a liquid secondary market will exist on an exchange for options of
the same series which will permit the Fund to make a closing purchase
transaction in order to close out its position.
When the Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities. The
amount of the liability will be subsequently marked-to-market to reflect the
current value of the option written. The current value of the traded option is
the last sale price or, in the absence of a sale, the average of the closing bid
and asked prices. If an option expires on the stipulated expiration date or if
the Fund enters into a closing purchase transaction, it will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the liability related to such option will
be eliminated. Any gain on a covered call option on a security may be offset by
a decline in the market price of the underlying security during the option
period. If a covered call option on a security is exercised, the Fund may
deliver the underlying security held by it or purchase the underlying security
in the open market. In either event, the proceeds of the sale will be increased
by the net premium originally received, and the Fund will realize a gain or
loss. Premiums from expired options written by the Fund and net gains from
closing purchase transactions are treated as short-term capital gains for
federal income tax purposes, and losses on closing purchase transactions are
short-term capital losses.
As noted previously, there are several risks associated with
transactions in options on securities and indices. For example, there are
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when and
how to use options involves the exercise of skill and judgment, and a
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
Futures Contracts and Related Options The Adviser may determine that
it would be in the interest of the Fund to purchase or sell futures contracts,
or options thereon, as a hedge against changes resulting from market conditions
in the value of the securities held by the Fund, or of securities which it
intends to purchase. For example, the Fund may enter into transactions involving
an index futures contract, which is a bilateral agreement pursuant to which the
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value (which assigns
relative values to the securities included in the index) at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
During the current fiscal year, the Fund intends to limit its
transactions in futures contracts and related options so that not more than 5%
of its net assets are at risk . In connection with a futures transaction,
unless the transaction is covered in accordance with SEC positions, the Fund
will maintain a segregated account with its custodian or sub-custodian
consisting of cash or liquid high grade debt securities equal to the entire
amount at risk (less margin deposits) on a continuous basis. For a more
detailed description of futures contracts and related options, including a
discussion of the limitations imposed by federal tax law, see Appendix B to the
Statement of Additional Information.
Foreign Securities and American Depository Receipts ("ADRs"). In
addition to investing directly in foreign securities the Fund may also invest in
sponsored ADRs, which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs
may be listed on a national securities exchange or may trade in the over-the-
counter market. ADR prices are denominated in U.S. dollars; the underlying
security may be denominated in a foreign currency. The underlying security may
be subject to foreign government taxes which would reduce the yield on such
securities. Investments in foreign securities and ADRs also involve certain
inherent risks, such as political or economic instability of the country of
issue, the difficulty of predicting international trade patterns and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. With
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, or diplomatic developments which could affect investment
in those countries.
Zero Coupon Bonds. Zero coupon obligations have greater price
volatility than coupon obligations and will not result in the payment of
interest until maturity, provided that the Fund will purchase such zero coupon
obligations only if the likely relative greater price volatility of such zero
coupon obligations is not inconsistent with the Fund's investment objective.
Although zero coupon securities pay no interest to holders prior to maturity,
interest on these securities is reported as income to the Fund and distributed
to its shareowners. These distributions must be made from the Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
Additional income producing securities may not be able to be purchased with cash
used to make such distributions and its current income ultimately may be reduced
as a result.
Convertible Securities. The Fund may hold convertible securities.
Convertible securities entitle the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the securities mature or are
redeemed, converted or exchanged. Prior to conversion, convertible securities
have characteristics similar to ordinary debt securities in that they normally
provide a stable stream of income with generally higher yields than those of
common stock of the same or similar issuers. Convertible securities rank senior
to common stock in a corporation's capital structure and therefore generally
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 a fixed income security.
As described in its Prospectus, the Fund may invest a portion of its assets
in convertible securities that are rated below investment grade.
Warrants. Warrants basically are options to purchase equity securities at a
specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. They have no
voting rights, pay no dividends and have no rights with respect to the assets of
the company issuing them. Warrants differ from call options in that warrants
are issued by the issuer of the security which may be purchased on their
exercise, whereas call options may be written or issued by anyone. The prices
of warrants do not necessarily move parallel to the prices of the underlying
securities.
Investment Limitations
The Fund is subject to the investment limitations enumerated in this
subsection which may be changed only by a vote of the holders of a majority of
the Fund's outstanding shares (as defined under "Miscellaneous" below).
The Fund may not:
1. Make loans, except that the Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding 30% of its total assets.
2. Purchase securities of companies for the purpose of exercising
control.
3. Purchase or sell real estate except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
4. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
5. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Fund might be deemed to be an
underwriter upon the disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of securities directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitations may be deemed to be
underwriting.
6. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities, indices
of securities, futures contracts and options on futures contracts.
7. Purchase securities on margin, make short sales of securities or
maintain a short position except that (a) this investment limitation shall not
apply to the Fund's transactions in futures contracts and related options, and
(b) the Fund may obtain short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
8. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may, to the extent
appropriate to its investment objective, purchase publicly traded securities of
companies engaging in whole or in part in such activities and may enter into
futures contracts and related options.
In addition, as summarized in the Prospectus, the Fund may not:
9. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund or Portico
Funds, Inc. ("the Company"), except that up to 25% of the value of the Fund's
total assets may be invested without regard to these limitations. For purposes
of this limitation, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantor when the
value of all securities issued and guaranteed by the guarantor, and owned by the
Fund, does not exceed 10% of the value of the Fund's total assets.
10. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry; provided that, (a) there is no limitation with respect to
instruments issued or guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements secured by such instruments; (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
11. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of the total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of such borrowing. Securities held in escrow or separate accounts in
connection with the Fund's investment practices described in this Statement of
Additional Information or in the Prospectus are not deemed to be pledged for
purposes of this limitation.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in the
value of the Fund's portfolio securities will not constitute a violation of such
limitation. If due to market fluctuations or other reasons the amount of
borrowings and reverse repurchase agreements exceed the 10% limit stated above,
the Fund will promptly reduce such amount. As a matter of fundamental policy,
the Fund will not purchase securities while its borrowings (including reverse
repurchase agreements) in excess of 5% of its total assets are outstanding.
NET ASSET VALUE
The net asset value per share of the Fund is calculated separately for
the Institutional Series and Retail Series by adding the value of all portfolio
securities and other assets belonging to the Fund that are allocable to a
particular series, subtracting the liabilities charged to that series, and
dividing the result by the number of outstanding shares of that series. Assets
belonging to the Fund consist of the consideration received upon the issuance of
shares of the Fund together with all net investment income, realized
gains/losses and proceeds derived from the investment thereof, including any
proceeds from the sale of such investments, any funds or payments derived from
any reinvestment of such proceeds, and a portion of any general assets of the
Company not belonging to a particular investment portfolio. The liabilities that
are charged to the Fund are borne by each share of the Fund, except for certain
payments under the Fund's Distribution and Service Plan and Shareowner Servicing
Plan applicable only to Retail Shares. Subject to the provisions of the Articles
of Incorporation, determinations by the Board of Directors as to the direct and
allocable liabilities, and the allocable portion of any general assets, with
respect to the Fund are conclusive.
The value of the Fund's portfolio securities that are traded on stock
exchanges outside the United States are based upon the price on the exchange as
of the close of business of the exchange immediately preceding the time of
valuation, except when an occurrence subsequent to the time a value was so
established is likely to have changed such value. Securities trading in over-
the-counter markets in European and Pacific Basin countries is normally
completed well before 3:00 P.M. Central Time. In addition, European and Pacific
Basin securities trading may not take place on all business days. Furthermore,
trading takes place in Japanese markets on certain Saturdays and in various
foreign markets on days which are not business days in New York and on which net
asset value of the Fund is not calculated. The calculation of the net asset
value of the Fund may not take place contemporaneously with the determination of
the prices of portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and 3:00 P.M. Central Time, and at other times, may not be reflected
in the calculation of net asset value of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Computation of Offering Price of the Funds. An illustration of the
computation of the initial offering price per share of the Retail Shares of the
Balanced Income Fund, follows:
Net Assets $ 9.60
Numbers of Shares Outstanding 1
Net Asset Value Per Share $ 9.60
Sales Charge, 4.00% of Offering Price $ .40
(4.16% of net asset value per share) ------
Public Offering Price $10.00
Retail Shares are sold with a front-end sales charge. A front-end
sales charge will not be imposed on reinvested dividends or distributions.
Likewise, there is no front-end sales charge (provided the status of the
investment is explained at the time of investment) on purchases of Retail Shares
if (a) you were a Portico shareowner as of January 1, 1995 and have continuously
maintained a shareowner account with the Company; (b) you make any purchase
within 60 days of a redemption of Portico Institutional Shares, (c) you are an
employee, director or retiree of Firstar Corporation or its affiliates or of
Portico; (d) you maintain a personal trust account with an affiliate of Firstar
Corporation at the time of purchase; (e) you make any purchase within 60 days of
a termination of a personal trust account with an affiliate of Firstar
Corporation; (f) you make any purchase for your medical savings account for
which an affiliate of Firstar Corporation serves in a custodial capacity; (g)
you make any purchase for your individual retirement account; (h) you make any
purchase within 60 days of a redemption of a mutual fund on which you paid an
initial sales charge or a contingent deferred sales charge; (i) you are a
registered investment adviser that has entered into an agreement with the
Distributor to purchase shares for your own account or for discretionary client
accounts; (j) you are a spouse, parent or child of an individual who falls
within the preceding categories (a) or (d) above; or (k) you are a spouse,
parent, sibling or child of an individual who falls within the preceding
category (c) above. These exemptions to the imposition of a front-end sales
charge are due to the nature of the investors and/or the reduced sales efforts
that will be needed in obtaining such investments.
Shareowner Organizations or Institutions may be paid by the Fund for
advertising, distribution or shareowner services. Depending on the terms of the
particular account, Shareowner Organizations or Institutions also may charge
their customers fees for automatic investment, redemption and other services
provided. Such fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Shareowner Organizations or Institutions are responsible for
providing information concerning these services and any charges to any customer
who must authorize the purchase of Fund shares prior to such purchase.
Shares of the Fund for which a redemption order is received in proper
form by the transfer agent or Firstar Investment Services, Inc. ("FIS"),
before the close of the Exchange (currently 3:00 p.m. Central Time) on a
business day will be redeemed as of the determination of net asset value on that
day. Orders for a redemption received on a business day after the close of the
Exchange or on a non-business day will be priced as of the determination of net
asset value on the next day on which shares of the particular Fund are priced.
If a shareowner requests that redemption proceeds be paid by federal funds wire,
the proceeds will be wired to a correspondent member bank if the investor's
designated bank is not a member of the Federal Reserve System.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC. (The Fund may also suspend or postpone the recording
of the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
The Company's Articles of Incorporation permit the Fund to redeem an
account involuntarily, upon sixty days' notice, if redemptions cause the
account's net asset value to remain at $1,000.
In addition to the situations described in the Fund's Prospectus under
"Redemption of Shares," the Fund may redeem shares involuntarily to reimburse
the Fund for any loss sustained by reason of the failure of a shareowner to make
full payment for shares purchased by the shareowner or to collect any charge
relating to a transaction effected for the benefit of a shareowner which is
applicable to Fund shares as provided in the Prospectus from time to time.
Exchange Privilege. By use of the exchange privilege, shareowners
authorize the transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the shareowner or in
some cases, the shareowner's registered representative of record, and believed
by the transfer agent to be genuine. The transfer agent's records of such
instructions are binding. The exchange privilege may be modified or terminated
at any time upon notice to shareowners.
Exchange transactions as described in paragraphs A, B, and C below will be made
on the basis of the relative net asset values per share of the Funds involved in
the transaction.
A. Retail Shares of any Fund purchased with a sales charge may be exchanged
without a sales charge for Retail Shares of any other Fund offered by the
Company with a sales charge.
B. Shares of any Fund offered by the Company acquired by a previous
exchange transaction involving Retail Shares on which a sales charge has
directly or indirectly been paid (e.g. shares purchased with a sales charge or
issued in connection with an exchange involving shares that had been purchased
with a sales charge) as well as additional Shares acquired through reinvestment
of dividends or distributions on such Shares may be exchanged without a sales
charge for Retail Shares of any other Fund offered by the Company with a sales
charge. To accomplish an exchange under the provisions of this paragraph,
investors must notify the transfer agent of their prior ownership of Retail
Shares and their account number.
C. Shares of any Fund offered by the Company may be exchanged without a
sales charge for Shares of any other Fund of the Company that is offered without
a sales charge.
Except as stated above, a sales charge will be imposed when Shares of a
Fund that were purchased or otherwise acquired without a sales charge are
redeemed and the proceeds are used to purchase Retail Shares of another Fund of
the Company with a sales charge.
Shares in a Fund from which the shareowner 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 shareowner is investing will be
purchased at the net asset value per share next determined (plus any applicable
sales charge) after acceptance of the request by the Company in accordance with
the policies for accepting investments. Exchanges of Shares will be available
only in states where they may legally be made.
For federal income tax purposes, share exchanges are treated as sales
on which the shareowner may realize a gain or loss, depending upon whether the
value of the shares to be given up in exchange is more or less than the basis in
such shares at the time of the exchange. Investors exercising the exchange
privilege should request and review the Prospectus for the shares to be acquired
in the exchange prior to making an exchange.
Additional Information Regarding Shareowner Services for Retail Shares
The Retail Shares of the Fund offer a Periodic Investment Plan whereby
a shareowner may automatically make purchases of shares of the Fund on a
regular, monthly basis ($50 minimum per transaction). Under the Periodic
Investment Plan, a shareowner's designated bank or other financial institution
debits a preauthorized amount on the shareowner's account each month and applies
the amount to the purchase of Retail Shares. The Periodic Investment Plan must
be implemented with a financial institution that is a member of the Automated
Clearing House. No service fee is currently charged by the Fund for
participation in the Periodic Investment Plan. A $20 fee will be imposed by the
transfer agent if sufficient funds are not available in the shareowner's account
or the shareowner's account has been closed at the time of the automatic
transaction.
The Periodic Investment Plan permits an investor to use "Dollar Cost
Averaging" in making investments. Instead of trying to time market
performance, a fixed dollar amount is invested in Retail Shares at predetermined
intervals. This may help investors to reduce their average cost per share
because the agreed upon fixed investment amount allows more Retail Shares to be
purchased during periods of lower Retail Share prices and fewer Retail Shares to
be purchased during periods of higher Retail Share prices. In order to be
effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. Investors should be aware, however, that Retail Shares bought
using Dollar Cost Averaging are purchased without regard to their price on the
day of investment or to market trends. Dollar Cost Averaging does not assure a
profit and does not protect against losses in a declining market. In addition,
while investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an investor ultimately redeems his Retail Shares at a price
which is lower than their purchase price. An investor may want to consider his
financial ability to continue purchases through periods of low price levels.
The Retail Shares of the Fund permits shareowners to effect
ConvertiFundR transactions, an automated method by which a Retail shareowner may
invest proceeds from one account to another account of the Retail Shares of the
Portico family of funds. Such proceeds include dividend distributions, capital
gain distributions and systematic withdrawals. ConvertiFundR transactions may be
used to invest funds from a regular account to another regular account, from a
qualified plan account to another qualified plan account, or from a qualified
plan account to a regular account.
The Retail Shares of the Fund offers shareowners a Systematic
Withdrawal Plan, which allows a shareowner who owns shares of a Fund worth at
least $15,000 at current net asset value at the time the shareowner initiates
the Systematic Withdrawal Plan to designate that a fixed sum ($50 minimum per
transaction) be distributed to the shareowner or as otherwise directed at
regular intervals. Purchase of additional shares concurrently with withdrawals
will be disadvantageous because of the sales charge involved in the additional
purchases.
Special Procedures for In-Kind Payments
Payment for shares of the Fund may, in the discretion of the Fund, be
made in the form of securities that are permissible investments for the Fund as
described in its Prospectus. For further information about this form of
payment, contact Investor Services at 414-287-3710. In connection with an
in-kind securities payment, the Fund will require, among other things, that the
securities be valued on the day of purchase in accordance with the pricing
methods used by the Fund; that the Fund receive satisfactory assurances that it
will have good and marketable title to the securities received by it; that the
securities be in proper form for transfer to the Fund; that adequate information
be provided to the Fund concerning the basis and other tax matters relating to
the securities; and that the amount of the purchase be at least $1,000,000.
DESCRIPTION OF SHARES
The Company's Articles of Incorporation authorize the Board of
Directors to issue up to 150,000,000,000 full and fractional shares of common
stock, $.0001 par value per share, divided into thirty classes (each, a
"Class" or "Fund"). Each Class is divided into two series designated as
Institutional Series and Series A/Retail Series (each, a "Series") and, in the
case of the Fund, consists of the number of shares set forth in the table below:
Class-Series of Fund in which Stock Number of Authorized
Common Stock Represents Interest Shares in Each Series
- -------------- ------------------- ---------------------
17-Institutional Balanced Income 100 Million
17-A/Retail 100 Million
The Board of Directors has also authorized the issuance of Classes 1
through 16 and Class 18 common stock representing interests in seventeen other
separate investment portfolios which are described in separate Statements of
Additional Information. The remaining authorized shares are classified into
twelve additional classes representing interests in other potential future
investment portfolios of the Company. The Directors may similarly classify or
reclassify any particular class of shares into one or more additional series.
In the event of a liquidation or dissolution of the Company or the
Fund, shareowners of the Fund would be entitled to receive the assets available
for distribution belonging to the Fund, and a proportionate distribution, based
upon the relative assets of the Company's respective investment portfolios, of
any general assets not belonging to any particular portfolio which are available
for distribution. Subject to the allocation of certain costs, expenses, charges
and reserves attributed to the operation of a particular series as described in
the Fund's Prospectus, shareowners of the Fund are entitled to participate
equally in the net distributable assets of the Fund on liquidation, based on the
number of shares of the Fund that are held by each shareowner.
Shareowners of the Fund, as well as those of any other investment
portfolio offered by the Company, will vote together in the aggregate and not
separately on a portfolio-by-portfolio basis, except as otherwise required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareowners of a particular class or a
particular series within a class. Rule 18f-2 under the 1940 Act provides that
any matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Company shall not be deemed to
have been effectively acted upon unless approved by the shareowners of each
portfolio affected by the matter. A portfolio is affected by a matter unless it
is clear that the interests of each portfolio in the matter are substantially
identical or that the matter does not affect any interest of the portfolio.
Under the Rule, the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to a portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, the Rule also provides that the ratification of the
appointment of independent accountants, the approval of principal underwriting
contracts and the election of Directors may be effectively acted upon by
shareowners of the Company voting together in the aggregate without regard to
particular portfolios. Similarly, on any matter submitted to the vote of
shareowners which only pertains to agreements, liabilities or expenses
applicable to one series of the Fund (such as the Distribution and Service Plan
applicable to Retail Shares) but not the other series of the Fund, only the
affected series will be entitled to vote.
When issued for payment as described in the Fund's Prospectus and this
Statement of Additional Information, shares of the Fund will be fully paid and
non-assessable by the Company, except as provided in Section 180.0622(2)(b) of
the Wisconsin Business Corporation Law, as amended, which in general provides
for personal liability on the part of a corporation's shareowners for unpaid
wages of employees. The Company does not intend to have any employees and, to
that extent, the foregoing statute will be inapplicable to holders of Fund
shares and will not have a material effect on the Company.
The Articles of Incorporation authorize the Board of Directors,
without shareowner approval (unless otherwise required by applicable law), to:
(a) sell and convey the assets belonging to a series of shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such series to be redeemed at a price which is equal to their net
asset value and which may be paid in cash or by distribution of the securities
or other consideration received from the sale and conveyance; (b) sell and
convert the assets belonging to a series of shares into money and, in connection
therewith, to cause all outstanding shares of such series to be redeemed at
their net asset value; or (c) combine the assets belonging to a series of shares
with the assets belonging to one or more other series of shares if the Board of
Directors reasonably determines that such combination will not have a material
adverse effect on the shareowners of any series participating in such
combination and, in connection therewith, to cause all outstanding shares of any
such series to be redeemed or converted into shares of another series of shares
at their net asset value.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareowners that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareowners, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are advised to consult their tax advisers with
specific reference to their own tax situations.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income with respect to each calendar year to avoid liability for this excise
tax.
The Fund is treated as a separate tax entity under the Code. Although
the Fund expects to qualify as a "regulated investment company" and to be
relieved of all or substantially all federal income taxes, depending upon the
extent of the Company's activities in states and localities, the Fund may be
subject to the tax laws of such states or localities. In addition, in those
states and localities which have income tax laws, the treatment of the Fund and
its shareowners under such laws may differ from their treatment under federal
income tax laws.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareowners). In such event,
dividend distributions would be taxable as ordinary income to shareowners to the
extent of the Fund's current and accumulated earnings and profits, and would be
eligible for the dividends received deduction in the case of corporate
shareowners.
The Fund will designate any distribution out of the excess of net
long-term capital gain over net short-term capital loss and out of the portion
of such net capital gain that constitutes mid-term capital gains as a capital
gain dividend in a written notice mailed to shareowners within 60 days after the
close of the Fund's taxable year.
Income received by the 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 U.S. may reduce or eliminate such
taxes.
The foregoing discussion is based on federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action.
MANAGEMENT OF THE COMPANY
Directors and Officers
The Directors and Officers of the Company, their addresses, principal
occupations during the past five years and other affiliations are as follows:
Position Principal Occupations During
Name, Address & with the Past 5 Years and Other
Age Company Affiliations
- ---------------- ---------- ----------------------------
Steven R. Parish President Executive Vice President of
W290 N3967 Dry and Trust and Investments ,
Creek Ct. Treasurer Firstar Corporation since
Pewaukee, WI 1996, Vice President and
53072 Portfolio Manager, FIRMCO
Age: 39 1991-1994.
James M. Wade Chairman of Vice President and Chief
2802 Wind Bluff the Board Financial Officer, Johnson
Circle Controls, Inc. (a controls
Wilmington, NC manufacturing company)
28409 January 1987 May 1991.
Age: 53
Glen R. Bomberger Director Executive Vice President,
One Park Plaza Chief Financial Officer and
11270 West Park Director, A.O. Smith
Place Corporation (a diversified
Milwaukee, WI manufacturing company) since
53224-3690 January 1987. Director of
Age: 59 companies affiliated with A.O.
Smith Corporation; Chief
Financial Officer, Director
and Vice President, Smith
Investment Company; Officer
and Director of companies
affiliated with Smith
Investment Company.
Jerry G. Remmel Director Vice President, Treasurer and
16650A Lake Circle Chief Financial Officer of
Brookfield, WI Wisconsin Energy Corporation
53005 1994-1996; Treasurer of
Age: 65 Wisconsin Electric Power
Company 1973-1996; Director of
Wisconsin Electric Power
Company 1989-1996; Senior Vice
President, Wisconsin Electric
Power Company 1988 - 1994;
Chief Financial Officer,
Wisconsin Electric Power
Company 1983-1996; Vice
President and Treasurer,
Wisconsin Electric Power
Company, 1983 - 1989.
Richard K. Director President, Chief Executive
Riederer Officer, and Chief Operating
400 Three Springs Officer of Weirton Steel since
Drive 1995, Executive Vice President
Weirton, WV and Chief Financial Officer,
26062-4989 Weirton Steel January 1994 -
Age: 52 1995; Vice President of
Finance and Chief Financial
Officer, Weirton Steel January
1989-1994; Member - Board of
Directors of American Iron and
Steel Institute 1995; Member -
Board of Directors, National
Association of Manufacturers
since 1995.
Charles R. Roy* Director Vice President - Finance,
14245 Heatherwood Chief Financial Officer and
Court Secretary, Rexnord Corporation
Elm Grove, WI (an equipment manufacturing
53122 company), 1988 - 1992; Vice
Age: 66 President - Finance and
Administration, Rexnord Inc.,
1982 - 1988; Officer and
Director of several Rexnord
subsidiaries until 1992.
Mary Ellen Stanek Vice President and Chief Operating
777 E. Wisconsin President Officer, FIRMCO since 1994,
Avenue, Director since 1992 and
Suite 800 Director Fixed Income
Milwaukee, WI Securities of FIRMCO since
53202 1990.
Age: 40
W. Bruce McConnel, Secretary Partner of the law firm of
III Drinker Biddle & Reath LLP.
Philadelphia
National Bank
Building
1345 Chestnut
Street
Philadelphia, PA
19107
Age: 53
* Messrs. Parish and Roy are considered by the Company to be "interested
directors" of the Company as defined in the 1940 Act.
The following chart provides certain information about the Director fees
for the year ended October 31, 1996 of the Company's Directors.
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM
AGGREGATE BENEFITS ANNUAL COMPANY
COMPENSATION ACCRUED AS BENEFITS AND FUND
NAME OF FROM THE PART OF FUND UPON COMPLEX* PAID
PERSON/POSITION COMPANY EXPENSES RETIREMENT DIRECTORS
- --------------- ------- -------- ---------- ---------
James M. Wade $15,000 $0 $0 $15,000
Chairman of
the Board
Glen R. Bombeger $12,000+ $0 $0 $12,000
Director
Jerry G. Remmel $12,000 $0 $0 $12,000
Director
Richard K. Riederer $12,000 $0 $0 $12,000
Director
Charles R. Roy $12,000 $0 $0 $12,000
Director
*The "Fund Complex" includes only the Company.
+Includes $12,000 which Mr. Bomberger elected to defer under the Company's
deferred compensation plan.
Each Director receives an annual fee of $10,000, a $1,000 per meeting
attendance fee and reimbursement of expenses incurred as a Director. The
Chairman of the Board is entitled to receive an additional $3,500 per annum for
services in such capacity. For the fiscal year ended October 31, 1996, the
Directors and Officers received aggregate fees and reimbursed expenses of
$63,000. Mr. Parish and Ms. Stanek receive no fees from the Company for their
services as President and Vice President, respectively, although FIRMCO, of
which Ms. Stanek is President, receives fees from the Company for advisory
services. FIRMCO is a wholly owned subsidiary of Firstar Corporation, of which
Mr. Parish is Executive Vice President. Drinker Biddle & Reath LLP, of which
Mr. McConnel is a partner, receives legal fees as counsel to the Company. As of
the date of this Statement of Additional Information, the Directors and Officers
of the Company, as a group, owned less than 1% of the outstanding shares of the
Fund.
Advisory Services
FIRMCO is the Investment Adviser to the Fund. In its Investment
Advisory Agreement, the Adviser has agreed to pay all expenses incurred by it in
connection with its advisory activities, other than the cost of securities and
other investments, including brokerage commissions and other transaction
charges, if any, purchased or sold for the Funds. The Adviser may voluntarily
waive advisory fees otherwise payable by the fund.
In addition to the compensation stated in the prospectus, the Adviser
is entitled to 4/10ths of the gross income earned by the Fund on each loan of
its securities, excluding capital gains or losses, if any. Pursuant to current
policy of the Securities and Exchange Commission, the Adviser does not intend to
receive separate compensation for securities lending activity.
Under its Investment Advisory Agreement, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of such Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
its reckless disregard of its duties and obligations under the Agreement.
Banking Laws and Regulations. Banking laws and regulations, including the
Glass-Steagall Act as presently interpreted by the Board of Governors of the
Federal Reserve System, presently (a) prohibit a bank holding company registered
under the Federal Bank Holding Company Act of 1956 or any bank or non-bank
affiliate thereof from sponsoring, organizing, controlling or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from underwriting
securities, but (b) do not prohibit such a bank holding company or affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent and upon order of a customer. In 1971, the United States Supreme Court
held in Investment Company Institute vs. Camp that the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act"), or any non-bank affiliate thereof from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, but did not prohibit such a holding
company or affiliate from acting as investment adviser, transfer agent and
custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies. FIRMCO and Firstar Trust Company
are subject to such banking laws and regulations.
FIRMCO and Firstar Trust Company believe that they may perform the
services for the Fund contemplated by their respective agreements with the
Company without violation of the Glass-Steagall Act or other applicable banking
laws or regulations. These companies further believe that, if the question were
properly presented, a court should hold that these companies may each perform
such activities without violation of the Glass-Steagall Act or other applicable
banking laws and or regulations. It should be noted, however, there have been
no cases deciding whether banks and their affiliates may perform services
comparable to those performed by these companies, and future changes in either
federal or state statutes and regulations relating to permissible activities of
banks or trust companies and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent such companies from continuing to
perform such services for the Fund. If the companies were prohibited from
continuing to perform advisory, accounting, shareowner servicing and custody
services for the Fund, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory agreement would be subject to
shareowner approval.
Shares of the Fund are not bank deposits, are neither endorsed by,
insured by, or guaranteed by, obligations of, nor otherwise supported by the
FDIC, the Federal Reserve Board, Firstar Trust Company or FIRMCO, their
affiliates or any other bank, or any other governmental agency. An investment
in the Fund involves risks including possible loss of principal.
Administration and Distribution Services
Firstar Trust Company ("Firstar") and B. C. Ziegler and Company
("Ziegler") serve as the Co-Administrators. Under the Co-Administration
Agreement, the following administrative services will be provided jointly by the
Co-Administrators: assist in maintaining office facilities; furnish clerical
services and stationery and office supplies; monitor the Company's arrangements
with respect to services provided by Shareowner Organizations and Institutions;
and generally assist in the Funds' operations. The following administrative
services will be provided by Ziegler: review and comment upon the registration
statement and amendments thereto prepared by Firstar or counsel to the Company,
as requested by Firstar; review and comment upon sales literature and
advertising relating to the Company, as requested by Firstar; assist in the
administration of the marketing budget; periodically review Blue Sky
registration and sales reports for the Funds; attend meetings of the Board of
Directors, as requested by the Board of Directors of the Funds; and such other
services as may be requested in writing and expressly agreed to by Ziegler. The
following administrative services will be provided by Firstar: compile data for
and prepare with respect to the Fund timely Notices to the Securities and
Exchange Commission required pursuant to Rule 24f-2 under the 1940 Act and Semi-
Annual Reports on Form N-SAR; coordinate execution and filing by the Company of
all federal and state tax returns and required tax filings other than those
required to be made by the Company's custodian and transfer agent; prepare
compliance filings and Blue Sky registrations pursuant to state securities laws
with the advice of the Company's counsel; assist to the extent requested by
the Company with the Company's preparation of Annual and Semi-Annual Reports to
Fund shareowners and Registration Statements for the Funds; monitor the Fund's
expense accruals and cause all appropriate expenses to be paid on proper
authorization from the Fund; monitor the Fund's status as a regulated investment
company under Subchapter M of the Code; maintain the Fund's fidelity bond as
required by the 1940 Act; and monitor compliance with the policies and
limitations of the Fund as set forth in the Prospectus, Statement of Additional
Information, By-laws and Articles of Incorporation.
Each of the Co-Administrators have agreed to pay all expenses incurred
by it in connection with its administrative activities. Under the Co-
Administration Agreement, the Co-Administrators are not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the Co-Administration Agreement, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the Co-
Administrators in the performance of their respective duties or from their
reckless disregard of their duties and obligations under the Agreement.
The Distributor provides distribution services for the Fund as
described in the Fund's Prospectus pursuant to a Distribution Agreement with the
Fund under which the Distributor, as agent, sells shares of the Fund on a
continuous basis. The Distributor has agreed to use its best efforts to solicit
orders for the sale of shares, although it is not obliged to sell any particular
amount of shares. The Distributor causes expenses to be paid for the cost of
printing and distributing prospectuses to persons who are not shareowners of the
Fund (excluding preparation and printing expenses necessary for the continued
registration of the Fund's shares) and of printing and distributing all sales
literature. The Distributor is not entitled to receive fees from the Fund for
its distribution services.
Shareowner Organizations
As stated in the Fund's Prospectus, for Retail Shares the Fund intends
to enter into agreements from time to time with Shareowner Organizations
providing for support and/or distribution services to customers of the
Shareowner Organizations who are the beneficial owners of Retail Shares of the
Fund. Under the agreements, the Fund may pay Shareowner Organizations up to
0.25% (on an annualized basis) of the average daily net asset value of Retail
Shares beneficially owned by their customers. Support services provided by
Shareowner Organizations under their Service Agreements or Distribution and
Service Agreements may include: (i) processing dividend and distribution
payments from the Fund; (ii) providing information periodically to customers
showing their share positions; (iii) arranging for bank wires; (iv) responding
to customer inquiries; (v) providing sub-accounting with respect to shares
beneficially owned by customers or the information necessary for sub-accounting;
(vi) forwarding shareowner communications; (vii) assisting in processing share
purchase, exchange and redemption requests from customers; (viii) assisting
customers in changing dividend options, account designations and addresses; and
(ix) other similar services requested by the Fund. In addition, Shareowner
Organizations, under the Distribution and Service Plan, may provide assistance
(such as the forwarding of sales literature and advertising to their customers)
in connection with the distribution of Retail Shares. All fees paid under these
agreements are borne exclusively by the Fund's Retail Shares.
The Fund's arrangements with Shareowner Organizations under the
agreements are governed by two Plans (a Service Plan and a Distribution and
Service Plan), which have been adopted by the Board of Directors. Because the
Distribution and Service Plan contemplates the provision of services related to
the distribution of Retail Shares (in addition to support services), that Plan
has been adopted in accordance with Rule 12b-1 under the 1940 Act. In
accordance with the Plans, the Board of Directors reviews, at least quarterly, a
written report of the amounts expended in connection with the Fund's
arrangements with Shareowner Organizations and the purposes for which the
expenditures were made. In addition, the Fund's arrangements with Shareowner
Organizations must be approved annually by a majority of the Directors,
including a majority of the Directors who are not "interested persons" of the
Funds as defined in the 1940 Act and have no direct or indirect financial
interest in such arrangements (the "Disinterested Directors").
The Fund believes that there is a reasonable likelihood that its
arrangements with Shareowner Organizations will benefit the holders of Retail
Shares as a way of allowing Shareowner Organizations to participate with the
Fund in the provision of support and distribution services to customers of the
Shareowner Organization who own Retail Shares. Any material amendment to the
arrangements with Shareowner Organizations under the agreements must be approved
by a majority of the Board of Directors (including a majority of the
Disinterested Directors), and any amendment to increase materially the costs
under the Distribution and Service Plan with respect to the Fund must be
approved by the holders of a majority of the outstanding Retail Shares of the
Fund. So long as the Plans are in effect, the selection and nomination of the
members of the Board of Directors who are not "interested persons" (as defined
in the 1940 Act) of the Fund will be committed to the discretion of such
disinterested Directors.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
Firstar Trust Company serves as custodian of all the Fund's assets.
Under the Custody Agreement, Firstar Trust Company has agreed to (i) maintain a
separate account in the name of the Fund, (ii) make receipts and disbursements
of money on behalf of the Fund, (iii) collect and receive all income and other
payments and distributions on account of the Fund's portfolio investments, (iv)
respond to correspondence from shareowners, security brokers and others relating
to its duties and (v) make periodic reports to the Company concerning the Fund's
operations. Firstar Trust Company may, at its own expense, open and maintain a
custody account or accounts on behalf of the Fund with other banks or trust
companies, provided that Firstar Trust Company shall remain liable for the
performance of all of its duties under the Custody Agreement notwithstanding any
delegation. For its services as custodian, Firstar Trust Company is entitled to
receive a fee, payable monthly, based on the annual rate of $0.20 per $1,000 of
the market value of the Fund's first $2 billion of assets, $0.15 per $1,000 of
the market value of the Fund's next $2 billion of assets, and $0.10 per $1,000
of the balance of such assets. In addition, Firstar Trust Company, as
custodian, is entitled to certain charges for securities transactions and
reimbursement for expenses.
Firstar Trust also serves as transfer agent and dividend disbursing
agent for the Fund under a Shareowner Servicing Agent Agreement. As transfer
and dividend disbursing agent, Firstar Trust has agreed to (i) issue and redeem
shares of the Fund, (ii) make dividend and other distributions to shareowners of
the Fund, (iii) respond to correspondence by Fund shareowners and others
relating to its duties, (iv) maintain shareowner accounts, and (v) make periodic
reports to the Fund. For its transfer agency and dividend disbursing services
for the Fund, Firstar Trust is entitled to receive fees at the rate of $15.00
per shareowner account with an annual minimum of $24,000 per portfolio, plus
certain other transaction charges and reimbursement for expenses.
In addition, the Fund has entered into a Fund Accounting Servicing
Agreement with Firstar Trust Company pursuant to which Firstar Trust has agreed
to maintain the financial accounts and records of the Fund in compliance with
the 1940 Act and to provide other accounting services to the Fund. For its
accounting services, Firstar Trust Company is entitled to receive fees, payable
monthly, at the following annual rates of the market value of the Fund's assets:
-- $27,500 on the first $40 million, 1.25/100th of 1% on the next $200
million, and 6.25/1000ths of 1% on the balance, plus out-of-pocket expenses,
including pricing expenses.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, independent accountants, 100 East Wisconsin
Avenue, Suite 1500, Milwaukee, Wisconsin, 53202, serve as auditors for the
Company.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Company, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107, serve as counsel to the Company and
will pass upon the legality of the shares offered by the Fund's Prospectus.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of the Retail Shares and
Institutional Shares of the Fund may be quoted in advertisements, shareowner
reports or other communications to shareowners. Performance information is
generally available by calling the Portico Investors Services at 1-800-982-8909.
Total Return Calculations.
The Fund computes "average annual total return" separately for its
Retail and Institutional Shares by determining the average annual compounded
rates of return during specified periods that equate the initial amount invested
in a particular series to the ending redeemable value of such investment in the
series. This is done by dividing the ending redeemable value of a hypothetical
$1,000 initial payment by $1,000 and raising the quotient to a power equal to
one divided by the number of years (or fractional portion thereof) covered by
the computation and subtracting one from the result. This calculation can be
expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Fund computes its aggregate total returns separately for Retail
and Institutional Shares, by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular series to the ending redeemable value of such investment in the
series. The formula for calculating aggregate total return is as follows:
ERV
T = [(-----) - 1]
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations. In addition, the Fund's
average annual total return and aggregate total return reflect the deduction of
the maximum front-end sales charge of 4% in connection with the purchase of
Retail Shares. The Fund may also advertise total return data without reflecting
sales charges in accordance with the rules of the Securities and Exchange
Commission. Quotations that do not reflect the sales charge will, of course, be
higher than quotations that do reflect the sales charge.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on the Fund's
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distribution had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of the Fund, economic conditions, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements or communications to shareowners may summarize the substance of
information contained in shareowner reports (including the investment
composition of the Fund), as well as the views of the Adviser as to market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund. The Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stocks,
bonds, treasury bills and shares of the Fund. In addition, advertisement or
shareowner communications may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such advertisements or
communications may include symbols, headlines or other materials which highlight
or summarize the information discussed in more detail therein.
MISCELLANEOUS
As used in this Statement of Additional Information and in the Fund's
Prospectus, a majority of the outstanding shares of the Fund or portfolio means,
with respect to the approval of an investment advisory agreement or a charge in
a fundamental investment policy, the lesser of (1) 67% of the shares of the Fund
or portfolio represented at a meeting at which the holders of more than 50% of
the outstanding shares of the Fund or portfolio are present in person or by
proxy, or (2) more than 50% of the outstanding shares of the Fund or portfolio.
As of September 30, 1997 the Adviser and its affiliates held of record
substantially all of the outstanding shares of each of the Company's investment
portfolios as agent, custodian, trustee or investment adviser on behalf of their
customers.
At such date, Firstar Trust Company, P.O. Box 2054, Milwaukee,
Wisconsin 53201, and its affiliated banks held as beneficial owner five percent
or more of the outstanding shares of the following investment portfolios of the
Company because they possessed sole voting or investment power with respect to
such shares: Money Market Fund (8%); Institutional Money Market Fund (90%); Tax-
Exempt Money Market Fund (52%); U.S. Treasury Money Market Fund (31%); U.S.
Government Money Market Fund (71%); Growth and Income Fund (65%); Short-Term
Bond Market Fund (63%); Special Growth Fund (74%); Emerging Growth Fund (71%);
Bond IMMDEX/TM Fund (79%); Equity Index Fund (76%); Balanced Fund (78%);
Intermediate Bond Market Fund (80%); Growth Fund (85%); Tax-Exempt Intermediate
Bond Fund (68%); International Equity Fund (88%); MicroCap Fund (82%). At such
date, no other person was known by the Company to hold of record or beneficially
5% or more of the outstanding shares of any investment portfolio of the Company.
xxxxx
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper.
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B"- Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered to
have a 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 alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D- 1," ""D- 2" and "D- 3." Duff
& Phelps employs three designations, "D- 1+," "" D- 1" and "D- 1-," within
the highest rating category. The following summarizes the rating categories
used by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty for timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and ""F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal or interest of unsubordinated instruments having a
maturity of one year or less which is issued by United States commercial banks,
thrifts and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation indicates that 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."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
the capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short term debt ratings:
"A1+" - Obligations which possess a particularly strong credit feature
and are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligation for which there is an uncertainty as to the capacity to
ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which are
currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit 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," and "C" - Debt 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.
"CI" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. Rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through ""CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds 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 are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds
may be in default.
Con. (--) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes the probable credit stature
upon completion of construction or elimination of basis of condition.
(P) - When applied to forward delivery bonds, indicates that the rating is
provisional pending delivery of the bonds. The ratings may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer 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 issuer ranks at the lower end of its generic rating
category.
The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when
due. Debt rated "B" possesses the risk that obligations will not be met when
due. Debt rated "CCC" is well below investment grade and has considerable
uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP"
represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debts of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to ""D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "C" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long-term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," ""B," "CCC," and ""CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree
of speculation and "CC" the highest degree of speculation.
"D" - this designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Rating Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1" / "VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2" / "VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3" / ""VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4" / ""VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Duff & Phelps and Fitch use the short-term ratings described under commercial
Paper Ratings for Municipal notes.
xxxxx
APPENDIX B
ADDITIONAL INFORMATION CONCERNING FUTURES AND RELATED
OPTIONS
As stated in the Prospectus, certain of the Funds may enter into futures
contracts and options for hedging purposes. Such transactions are described in
this Appendix. In addition, the Equity Index Fund will purchase and sell
futures and related options (based only on the S&P 500 Index in the case of the
Equity Index Fund) to maintain cash reserves while-simulating full investment
in the stocks underlying the S&P 500 Index, to keep substantially all of its
assets exposed to the market (as represented by the S&P 500 Index), and to
reduce transaction costs. The International Equity Fund may also purchase and
sell futures contracts including interest rate, index, and currency futures
for the purpose of remaining fully invested and reducing transactions costs.
During the current fiscal year, the Short-Term Bond Market, Intermediate Bond
Market, Bond IMMDEXTM and Growth and Income Funds intend to limit their
transactions in futures contracts and options so that not more than 5% of their
net assets, if any, are at risk and the Equity Index Fund and International
Equity Fund will limit their transactions in futures such that obligations
under the transactions and contracts represent not more than 10% and 25%,
respectively, of their assets. Furthermore, in no event would any Fund
purchase or sell futures contracts, or related options thereon if, immediately
thereafter, the aggregate initial margin that is required to be posted by the
Fund under the rules of the exchange on which the futures contract (or futures
option) is traded, plus any premiums paid by the Fund on its open futures
options positions, exceeds 5% of the fund's total assets, after taking into
account any unrealized profits and unrealized losses on the Fund's open
contracts and excluding the amount that a futures option is "in-the-money" at
the time of purchase (an option to buy a futures contract is "in-the-money"
if the value of the contract that is subject to the option exceeds the exercise
price; and option to sell a futures contract is "in-the-money" if the
exercise price exceeds the value of the contract that is subject of the
option). The International Equity Fund will only enter into futures contracts
and futures options which are standardized and traded on a U.S. or foreign
exchange, board of trade or similar entity, or in the case of futures options,
for which an established over-the-counter market exists.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Short-Term Bond Market Fund,
Intermediate Bond Market Fund, Bond IMMDEXTM Fund and International Equity Fund
may use interest rate futures as a defense, or hedge, against anticipated
interest rate changes and not for speculation. As described below, this would
include the use of futures contract sales to protect against expected increases
in interest rates and futures contract purchases to offset the impact of
interest rate declines.
The Short-Term Bond Market Fund, Intermediate Bond Market Fund, Bond
IMMDEXTM Fund and International Equity Fund presently could accomplish a
similar result to that which they hope to achieve through the use of futures
contracts by selling bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to increase, or conversely,
selling short-term bonds and investing in long-term bonds when interest rates
are expected to decline. However, because of the liquidity that is often
available in the futures market the protection is more likely to be achieved,
perhaps at a lower cost and without changing the rate of interest being earned
by the Fund, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
contract sale would create an obligation by the Short-Term Bond Market Fund,
Intermediate Bond Market Fund, Bond IMMDEXTM Fund and International Equity
Fund, as seller, to deliver the specific type of financial instrument called
for in the contract at a specific future time for a specified price. A futures
contract purchase would create an obligation by the Fund, as purchaser, to take
delivery of the specific type of financial instrument at a specific future time
at a specific price. The specific securities delivered or taken, respectively,
at settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Fund's
entering into a futures contract sale. If the offsetting sale price exceeds
the purchase price, the Fund realizes a gain, and if the purchase price exceeds
the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage-backed
securities; three-month U.S. Treasury Bills; and ninety-day commercial paper.
The Short-Term Bond Market Fund, Intermediate Bond Market Fund, Bond IMMDEXTM
Fund and International Equity Fund may trade in any futures contract for which
there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. The Short-Term Bond Market Fund,
Intermediate Bond Market Fund, Bond IMMDEXTM Fund and International Equity Fund
would engage in an interest rate futures contract sale to maintain the income
advantage from continued holding of a long-term bond while endeavoring to avoid
part or all of the loss in market value that would otherwise accompany a
decline in long-term securities prices. Assume that the market value of a
certain security in a Fund tends to move in concert with the futures market
prices of long-term U.S. Treasury bonds ("Treasury bonds"). The Adviser
wishes to fix the current market value of this portfolio security until some
point in the future. Assume the portfolio security has a market value of 100,
and the Adviser believes that, because of an anticipated rise in interest
rates, the value will decline to 95. The Fund might enter into futures
contract sales of Treasury bonds for an equivalent of 98. If the market value
of the portfolio security does indeed decline from 100 to 95, the equivalent
futures market price for the Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by
the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Futures Contract Purchase. A Fund might engage in an
interest rate futures contract purchase when it is not fully invested in long-
term bonds but wishes to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter-
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investment in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The Adviser wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the long-
term bond has a market price of 100, and the Adviser believes that, because of
an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. A Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, a Fund could, for example, assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to
105, the equivalent futures market price for Treasury bonds might also rise
from 98 to 103. In that case, the 5-point increase in the price that the Fund
pays for the long-term bond would be offset by the 5-point gain realized by
closing out the futures contract purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or
below, it is possible that the fund would continue with its purchase program
for long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will
be reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses would also be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indexes, such as the Standard & Poor's 500 or the New
York Stock Exchange Composite Index. In contrast, certain exchanges offer
futures contracts on narrower market indexes, such as the Standard & Poor's 100
or indexes based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through
a clearing corporation, which guarantees the performance of the parties to each
contract. With regard to the International Equity Fund, the Sub-Adviser
anticipates engaging in transactions, from time to time, in foreign stock index
futures such as the ALL-ORDS (Australia), CAC-40 (France), TOPIX (Japan) and
the FTSE-100 (United Kingdom).
The Growth and Income Fund, the Equity Index and International Equity
Funds may sell index futures contracts in order to offset a decrease in market
value of its portfolio securities that might otherwise result from a market
decline. The Funds may do so either to hedge the value of its portfolio as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, these Funds may
purchase index futures contracts in anticipation of purchases of securities,
with respect to the Equity Index Fund and International Equity Fund, to
maintain cash reserves while simulating full investment in stocks underlying
the S&P 500 Index (in the case of the Equity Index Fund) and in foreign stock
indices (in the case of the International Equity Fund) and to keep
substantially all of its assets exposed to the market. In a substantial
majority of these transactions, the Funds will purchase such securities upon
termination of the long futures position, but a long futures position may be
terminated without a corresponding purchase of securities.
In addition, the Funds may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. The Funds may
also sell futures contracts in connection with this strategy, in order to
protect against the possibility that the value of the securities to be sold as
part of the restructuring of the portfolio will decline prior to the time of
sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future Hedge
Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures=$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio - Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If however, the market moved in the opposite direction, that is, market value
decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures=$62,500/Contract
Portfolio Futures
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio - Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio Value = $40,000 Loss on Futures = $40,000
III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency, for an amount fixed in U.S.
dollars. Foreign currency futures may be used by the International Equity Fund
to hedge against exposure to fluctuations in exchange rates between the U.S.
dollar and other currencies arising from multinational transactions.
IV. Margin Payments.
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, in accordance with the terms of the exchange on which such futures
contract is traded, the Fund may be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
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 assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying security or index
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as marking to the market. For example, when a
Fund has purchased a futures contract and the price of the contract has risen
in response to a rise in the underlying instruments, that position will have
increased in value and the Fund will be entitled to receive from the broker a
variation margin payment equal to that increase in value. Conversely, where a
Fund has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable and the Fund would be required to make a variation
margin payment to the broker. At any time prior to expiration of the futures
contract, the Adviser and the Sub-Adviser may elect to close the position by
taking an opposite position, subject to the availability of a secondary market,
which will operate to terminate the Fund's position in the futures contract. 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
gain.
V. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may
move more than or less than the price of the securities being hedged. If the
price of the future moves less than the price of the securities which are the
subject of the hedge, the hedge will not be fully effective but, if the price
of the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price
of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, the Fund
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, a Fund may buy or sell futures contracts in a greater dollar amount
than the dollar amount of securities being hedged if the volatility over a
particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to
be appropriate by the Adviser. Conversely, a Fund may buy or sell fewer
futures contracts if the volatility over a particular time period of the prices
of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the Adviser. It is also possible that, where a Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held by the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest
in securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial
futures contracts, the liquidity of the futures market depends on participants
entering into off-setting transactions rather than making or taking delivery.
To the extent participants decide to make or take delivery, liquidity in the
futures market could be reduced thus producing distortions. Third, from the
point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser and Sub-Adviser
may still not result in a successful hedging transaction over a short time
frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation
limits' established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at
a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by a Fund is also subject to the Adviser's or
the Sub-Adviser's (in the case of the International Equity Fund) ability to
predict correctly movements in the direction of the market. For example, if a
Fund has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value
of its securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to
sell securities at a time when it may be disadvantageous to do so.
VI. Options on Futures Contracts.
A Fund may purchase options on the futures contracts described above. The
International Equity Fund may also sell options on futures contracts. A
futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. A Fund will
be required to deposit initial margin and variation margin with respect to put
and call options on futures contracts written by it pursuant to brokers'
requirements similar to those described above. Net option premiums received
will be included as initial margin deposits. As an example, in anticipation of
a decline in interest rates, a Fund may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge
against a possible increase in the price of securities which the Fund intends
to purchase. Similarly, if the value of the securities held by a Fund is
expected to decline as a result of an increase in interest rates, the Fund
might purchase put options or sell call options on futures contracts rather
than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the
purchase or sale of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value of
the option purchased. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts
may frequently involve less potential risk to a Fund because the maximum amount
at risk is the premium paid for the options (plus transaction costs). Although
permitted by their fundamental investment policies, the Funds do not currently
intend to write futures options, and will not do so in the future absent any
necessary regulatory approvals.
VII. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Generally, futures contracts held by a Fund at the close of the Fund's
taxable year will be treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss without
regard to the length of time the Fund holds the futures contract ("the 40%-60%
rule'). The amount of any capital gain or loss actually realized by a Fund in
a subsequent sale or other disposition of those futures contracts will be
adjusted to reflect any capital gain or loss taken into account by the Fund in
a prior year as a result of the constructive sale of the contracts. With
respect to futures contracts to sell, which will be regarded as parts of a
"mixed straddle" because their values fluctuate inversely to the values of
specific securities held by the Fund, losses from such contracts to sell will
be subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules,
which will also be applicable, the holding period of the securities forming
part of the straddle will (if they have not been held for the long-term holding
period) be deemed not to begin prior to termination of the straddle. With
respect to certain futures contracts, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such, a
Fund may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales, loss deferral rules and
the requirement to capitalize interest and carrying charges. Under temporary
regulations, a Fund would be allowed (in lieu of the foregoing) to elect either
(1) to offset gains or losses from positions which are part of a mixed straddle
by separately identifying each mixed straddle to which such treatment applies,
or (2) to establish a mixed straddle account for which gains and losses would
be recognized and offset on a periodic basis during the taxable year. Under
either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term
and no more than 40% of any net loss may be treated as short-term. Options on
futures contracts generally receive federal tax treatment similar to that
described above.
Certain foreign currency contracts entered into by the International
Equity Fund may be subject to the "marking to market" process, but gain or
loss will be treated as 100% ordinary income or loss. To receive such federal
income tax treatment, a foreign currency contract must meet the following
conditions: (1) the contract must require delivery of, or settlement by
reference to the value of, a foreign currency of a type in which regulated
futures contracts are traded; (2) the contract must be entered into at arm's
length at a price determined by reference to the price in the interbank market;
and (3) the contract must be traded in the interbank market. The Treasury
Department has broad authority to issue regulations under the provisions
respecting foreign currency contracts. As of the date of this Additional
Statement, the Treasury Department has not issued any such regulations. Other
foreign currency contracts entered into by the International Equity Fund may
result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales
rules and the requirement to capitalize interest and carrying charges may
apply.
Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include
the following: (i) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option or similar financial instrument. However,
foreign currency-related regulated futures contracts and nonequity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the mark-to-
market rules, unless an election is made to have such currency rules apply.
The disposition of a currency other than the U.S. dollar by a U.S. taxpayer is
also treated as a transaction subject to the special currency rules. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. The Fund may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the Fund and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions
subject to the special currency rules that are part of a "Section 988 hedging
transactions' (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. "Section 988 hedging transactions"
are not subject to the mark-to-market or loss deferral rules under the Code.
It is possible that some of the non-U.S. dollar denominated investments that
Growth and Income Fund and International Equity Fund may make will be subject
to the special currency rules described above. Gain or loss attributable to
the foreign currency component of transactions engaged in by a Fund which are
not subject to the special currency rules (such as foreign equity investment
other than certain preferred stocks) will be treated as capital gain or loss
and will not be segregated from the gain or loss on the underlying transaction.
Qualification as a regulated investment company under the Code requires
that each Fund satisfy certain requirements with respect to the source of its
income during a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including but not limited to gains
from options, futures or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of
investment in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investment in stock, securities or currencies only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.
xxxxx
10/29/97
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements for the Balanced Income Fund:
(1) (a) Articles of Incorporation filed February 19,
1988 is incorporated by reference to Exhibit (1)(a) to Post-
Effective Amendment No. 28 to the Registration Statement,
filed February 15, 1996 ("Post-Effective Amendment No.
28").
(a) Amendment No. 1 to the Articles of Incorporation
filed June 30, 1989 is incorporated by reference to Exhibit
(1)(b) to Post-Effective Amendment No. 28.
(b) Amendment No. 2 to the Articles of Incorporation
filed June 30, 1989 is incorporated by reference to Exhibit
(1)(c) to Post-Effective Amendment No. 28.
(c) Amendment No. 3 to the Articles of Incorporation
filed November 12, 1991 is incorporated by reference to
Exhibit (1)(d) to Post-Effective Amendment No. 28.
(d) Amendment No. 4 to the Articles of Incorporation
filed August 18, 1992 is incorporated by reference to
Exhibit (1)(e) to Post-Effective Amendment No. 28.
(e) Amendment No. 5 to the Articles of Incorporation
filed October 23, 1992 is incorporated by reference to
Exhibit (1)(f) to Post-Effective Amendment No. 28.
(f) Amendment No. 6 to the Articles of Incorporation
filed January 26, 1993 is incorporated by reference to
Exhibit (1)(g) to Post-Effective Amendment No. 28.
(g) Amendment No. 7 to the Articles of Incorporation
filed February 10, 1994 is incorporated by reference to
Exhibit (1)(h) to Post-Effective Amendment No. 28.
(i) Amendment No. 8 to the Articles of Incorporation filed
December 29, 1994 is incorporated by reference to Exhibit
(1)(i) to Post-Effective Amendment No. 28.
(j) Amendment No. 9 to the Articles of Incorporation filed July
20, 1995 is incorporated by reference to Exhibit (1)(j) to
Post-Effective Amendment No. 28.
(k) Amendment No. 10 to the Articles of Incorporation filed
November 10, 1995 is incorporated by reference to Exhibit
(1)(k) to Post-Effective Amendment No. 28.
(l) Amendment No. 11 to Articles of Incorporation filed July 21,
1997 with respect to the Emerging Growth Fund.
(2) (a) Registrant's By-laws dated September 9, 1988 are
incorporated by reference to Exhibit (2)(a) to Post-
Effective Amendment No. 28.
(a) Amendment to By-Laws as approved by the
Registrant's Board of Directors on February 23, 1990 is
incorporated by reference to Exhibit (2)(b) to Post-
Effective Amendment No. 28.
(b) Amendment to By-Laws as approved by the
Registrant's Board of Directors on February 15, 1991 is
incorporated by reference to Exhibit (2)(c) to Post-
Effective Amendment No. 28.
(c) Amendment to By-Laws as approved by the
Registrant's Board of Directors on June 21, 1991 is
incorporated by reference to Exhibit (2)(d) to Post-
Effective Amendment No. 28.{tc \l 4 "(c) Amendment to
By-Laws as approved by the Registrant's Board of Directors
on June 21, 1991 is incorporated by reference to
Exhibit (2)(d) to Post-Effective Amendment No. 28."}
(3) None.
(4) (a) See Articles V and VII of the Articles of
Incorporation which are incorporated by reference to
Exhibits (1)(a) and (1)(i) to Post-Effective Amendment No.
28 and Article II, Sections 1, 9 and 10 of Article III,
Sections 1, 2 and 3 of Article V and Section II of Article
VII of the By-laws which are incorporated by reference to
Exhibits 2(a)-2(d) of Post-Effective Amendment No. 28.
(5) (a) Investment Advisory Agreement between Registrant
and First Wisconsin Trust Company dated August 29, 1991 with
respect to the Money Market Fund, U.S. Government Money
Market Fund, Tax-Exempt Money Market Fund, Income and Growth
Fund, Short-Intermediate Fixed Income Fund, Special Growth
Fund, Bond IMMDEX/TM fund, Equity Index Fund, Institutional
Money Market Fund and U.S. Federal Money Market Fund is
incorporated by reference to Exhibit (5)(a) to Post-
Effective Amendment No. 28.
(a) Assumption and Guarantee Agreement between First
Wisconsin Trust Company and First Wisconsin Asset Management
dated February 3, 1992 is incorporated by reference to
Exhibit (5)(b) to Post-Effective Amendment No. 28.
Investment Advisory Agreement between Registrant and
First Wisconsin Asset Management dated March 27, 1992 with
respect to the Balanced Fund is incorporated by reference to
Exhibit (5)(c) to Post-Effective Amendment No. 28.
(c) Addendum No. 1 dated December 27, 1992 to
Investment Advisory Agreement between Registrant and Firstar
Investment Research and Management Company dated March 27,
1992 with respect to the MidCore Growth Fund and
Intermediate Bond Market Fund is incorporated by reference
to Exhibit (5)(d) to Post-Effective Amendment No. 28.
(d) Addendum No. 2 dated February 5, 1993, to
Investment Advisory Agreement between the Registrant and
Firstar Investment Research and Management Company dated
March 27, 1992 with respect to the Tax-Exempt Intermediate
Bond Fund is incorporated by reference to Exhibit (5)(e) to
Post-Effective Amendment No. 28.
(e) Assumption and Guarantee Agreement between Firstar
Trust Company and Firstar Investment Research and Management
Company dated June 17, 1993 with respect to the Income and
Growth Fund is incorporated by reference to Exhibit (5)(f)
to Post-Effective Amendment No. 28.
(f) Addendum No. 3 dated September 2, 1997, to
Investment Advisory Agreement between the Registrant and
Firstar Investment Research and Management Company dated
March 27, 1992 with respect to the International Equity
Fund.
(g) Amended and Restated Sub-Advisory Agreement among
Firstar Investment Research and Management Company, the
Registrant and Hansberger Global, Inc. dated June 15, 1997
with respect to the International Equity Fund.
(h) Addendum No. 4 to the Investment Advisory Agreement
between Registrant and Firstar Investment Research and
Management Company dated March 27, 1992 with respect to the
MicroCap Fund is incorporated by reference to Exhibit (5)(i)
to Post-Effective Amendment No. 28.
(i) Form of Addendum No. 6 to the Investment Advisory
Agreement between Registrant and Firstar Investment Research
& Management Company dated March 27, 1992 with respect to
the Balanced Income Fund is incorporated by reference to
Exhibit (5)(j) to Post-Effective Amendment No. 28.
(j) Addendum No. 5 to the Investment Advisory Agreement
between Registrant and Firstar Investment Research &
Management Company dated as of August 15, 1997 with respect
to the Emerging Growth Fund.
(6) (a) Distribution Agreement between Registrant and B.C.
Ziegler & Company dated as of January 1, 1995, with respect
to Money Market Fund, U.S. Government Money Market Fund,
Tax-Exempt Money Market Fund, Growth and Income Fund, Short-
Term Bond Market Fund, Special Growth Fund, Bond IMMDEX/TM
Fund, Equity Index Fund, Institutional Money Market Fund,
U.S. Treasury Money Market Fund, Balanced Fund, Intermediate
Bond Market Fund, MidCore Growth Fund, Tax-Exempt
Intermediate Bond Fund and International Equity Fund is
incorporated by reference to Exhibit (6)(a) to Post-
Effective Amendment No. 28.
Addendum No. 1 to the Distribution Agreement between
Registrant and B.C. Ziegler and Company dated as of January
1, 1995 with respect to the MicroCap Fund is incorporated by
reference to Exhibit (6)(b) to Post-Effective Amendment No.
28.
(b) Form of Addendum No. 3 to the Distribution
Agreement between Registrant and B.C. Ziegler and Company
dated as of January 1, 1995 with respect to the Balanced
Income Fund is incorporated by reference to Exhibit (6)(c)
to Post-Effective Amendment No. 28.
(c) Addendum No. 2 to the Distribution Agreement
between Registrant and B.C. Ziegler and Company dated as of
August 15, 1997 with respect to the Emerging Growth Fund.
(7) Deferred Compensation Plan dated September 16, 1994 and
Deferred Compensation Agreement between Registrant and its
Directors is incorporated by reference to Exhibit (7) to Post-
Effective Amendment No. 28.
(8) (a) Custodian Agreement between Registrant and First
Wisconsin Trust Company dated July 29, 1988 is incorporated
by reference to Exhibit (8)(a) to Post-Effective Amendment
No. 28.
(a) Letter dated December 28, 1989 with respect to the
Custodian Agreement with respect to the Equity Index Fund is
incorporated by reference to Exhibit (8)(b) to Post-
Effective Amendment No. 28.
(b) Revised Mutual Fund Custodial Agent Service Annual
Fee Schedule dated February 23, 1990 to the Custodian
Agreement is incorporated by reference to Exhibit (8)(c) to
Post-Effective Amendment No. 28.
(c) Amendment dated May 1, 1990 to the Custodian
Agreement between Registrant and First Wisconsin Trust
Company is incorporated by reference to Exhibit (8)(d) to
Post-Effective Amendment No. 28.
(d) Letter dated April 19, 1991 with respect to the
Custodian Agreement with respect to the Institutional Money
Market Fund and U.S. Federal Money Market Fund is
incorporated by reference to Exhibit (8)(e) to Post-
Effective Amendment No. 28.
(e) Letter dated March 27, 1992 with respect to the
Custodian Agreement with respect to the Balanced Fund is
incorporated by reference to Exhibit (8)(f) to Post-
Effective Amendment No. 28.
(f) Letter dated December 27, 1992 with respect to the
Custodian Agreement with respect to the Intermediate Bond
Market Fund and MidCore Growth Fund is incorporated by
reference to Exhibit (8)(g) to Post-Effective Amendment No.
28.
(g) Letter dated February 5, 1993 with respect to the
Custodian Agreement with respect to the Tax-Exempt
Intermediate Bond Fund is incorporated by reference to
Exhibit (8)(h) to Post-Effective Amendment No. 28.
(h) Letter Agreement with respect to the Custodian
Agreement dated as of September 2, 1997 with respect to the
International Equity Fund.
(i) Letter Agreement dated August 1, 1995 with respect
to the Custodian Agreement with respect to the MicroCap Fund
is incorporated by reference to Exhibit (8)(j) to Post-
Effective Amendment No. 28.
(j) Form of Letter Agreement with respect to the
Custodian Agreement with respect to the Balanced Income Fund
is incorporated by reference to Exhibit (8)(k) to Post-
Effective Amendment No. 28.
(k) Letter Agreement with respect to the Custodian
Agreement dated as of August 15, 1997 with respect to the
Emerging Growth Fund.
(l) Foreign Custodian Monitoring Agreement between
Registrant and Firstar Investment Research and Management
Company dated June 13, 1997 with respect to the
International Equity Fund.
(9) (a) Co-Administration Agreement Among the
Registrant, B.C. Ziegler & Company and Firstar Trust Company
dated as of January 1, 1995 is incorporated by reference to
Exhibit (9)(a) to Post-Effective Amendment No. 28.
(a) Addendum No. 1 to the Co-Administration Agreement
among the Registrant, B.C. Ziegler and Company and Firstar
Trust Company dated as of January 1, 1995 with respect to
the MicroCap Fund is incorporated by reference to Exhibit
(9)(b) to Post-Effective Amendment No. 28.
(b) Form of Addendum No. 3 to the Co-Administration
Agreement among the Registrant, B.C. Ziegler and Company and
Firstar Trust Company dated as of January 1, 1995 with
respect to the Balanced Income Fund is incorporated by
reference to Exhibit (9)(c) to Post-Effective Amendment No.
28.
(c) Fund Accounting Servicing Agreement dated March 23,
1988 between Registrant and First Wisconsin Trust Company is
incorporated by reference to Exhibit (9)(d) to Post-
Effective Amendment No. 28.
(d) Letter dated July 29, 1988 with respect to the Fund
Accounting Servicing Agreement is incorporated by reference
to Exhibit (9)(e) to Post-Effective Amendment No. 28.
(e) Letter dated December 28, 1989 with respect to the
Fund Accounting Servicing Agreement with respect to the
Equity Index Fund is incorporated by reference to Exhibit
(9)(f) to Post-Effective Amendment No. 28.
(f) Letter dated April 19, 1991 with respect to the
Fund Accounting Servicing Agreement with respect to the
Institutional Money Market Fund and U.S. Federal Money
Market Fund is incorporated by reference to Exhibit (9)(g)
to Post-Effective Amendment No. 28.
(g) Letter dated March 27, 1992 with respect to the
Fund Accounting Servicing Agreement with respect to the
Balanced Fund is incorporated by reference to Exhibit (9)(h)
to Post-Effective Amendment No. 28.
(h) Letter dated December 27, 1992 with respect to the
Fund Accounting Servicing Agreement with respect to the
Intermediate Bond Market Fund and MidCore Growth Fund is
incorporated by reference to Exhibit (9)(i) to Post-
Effective Amendment No. 28.
(i) Letter dated February 5, 1993 with respect to the
Fund Accounting Servicing Agreement with respect to the Tax-
Exempt Intermediate Bond Fund is incorporated by reference
to Exhibit (9)(j) to Post-Effective Amendment No. 29.
(j) Revised Fund Valuation and Accounting Fee Schedule
dated February 23, 1990 to the Fund Accounting Servicing
Agreement with respect to the Money Market Fund, Tax-Exempt
Money Market Fund and U.S. Government Money Market Fund is
incorporated by reference to Exhibit (9)(k) to Post-
Effective Amendment No. 28.
(k) Revised Fund Valuation and Accounting Fee Schedule
dated February 23, 1990 to the Fund Accounting Servicing
Agreement with respect to the Equity Index Fund is
incorporated by reference to Exhibit (9)(l) to Post-
Effective Amendment No. 28.
(l) Revised Fund Valuation and Accounting Fee Schedule
dated November 1, 1990 to the Fund Accounting and Servicing
Agreement with respect to the Equity Index Fund, Income and
Growth Fund, Special Growth Fund, Short- Intermediate Fixed
Income Fund, and Bond IMMDEX/TM Fund is incorporated by
reference to Exhibit (9)(m) to Post-Effective Amendment No.
28.
(m) Letter Agreement dated August 1, 1995 with respect
to the Fund Accounting Servicing Agreement with respect to
the MicroCap Fund is incorporated by reference to Exhibit
(9)(n) to Post-Effective Amendment No. 28.
(n) Form of Letter Agreement with respect to the Fund
Accounting Servicing Agreement with respect to the Balanced
Income Fund is incorporated by reference to Exhibit (9)(o)
to Post-Effective Amendment No. 28.
(o) Shareholder Servicing Agent Agreement dated March
23, 1988 between Registrant and First Wisconsin Trust
Company is incorporated by reference to Exhibit (9)(p) to
Post-Effective Amendment No. 28.
(p) Letter dated July 29, 1988 with respect to
Shareholder Servicing Agent Agreement is incorporated by
reference to Exhibit (9)(q) to Post-Effective Amendment No.
28.
(q) Letter dated December 28, 1989 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Equity Index Fund is incorporated by reference to Exhibit
(9)(r) to Post-Effective Amendment No. 28.
(r) Letter dated April 23, 1991 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Institutional Money Market Fund and U.S. Federal Money
Market Fund is incorporated by reference to Exhibit (9)(s)
to Post-Effective Amendment No. 28.
(s) Letter dated March 27, 1992 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Balanced Fund is incorporated by reference to Exhibit (9)(t)
to Post-Effective Amendment No. 28.
(t) Letter dated December 27, 1992 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Intermediate Bond Market Fund and MidCore Growth Fund is
incorporated by reference to Exhibit (9)(u) to Post-
Effective Amendment No. 28.
(u) Letter dated February 5, 1993 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Tax-Exempt Intermediate Bond Fund is incorporated by
reference to Exhibit (9)(v) to Post-Effective Amendment No.
29.
Letter dated April 26, 1994 with respect to the
Shareholder Servicing Agent Agreement with respect to the
International Equity Fund is incorporated by reference to
Exhibit (9)(w) to Post-Effective Amendment No. 28.
(w) Amendment dated May 1, 1990 to the Shareholder
Servicing Agent Agreement between Registrant and First
Wisconsin Trust Company is incorporated by reference to
Exhibit (9)(x) to Post-Effective Amendment No. 28.
(x) Letter Agreement dated August 1, 1995 with respect
to Shareholder Servicing Agent Agreement with respect to the
MicroCap Fund is incorporated by reference to Exhibit (9)(y)
to Post-Effective Amendment No. 28.
(y) Form of Letter with respect to Shareholder
Servicing Agent Agreement with respect to the Balanced
Income Fund is incorporated by reference to Exhibit (9)(z)
to Post-Effective Amendment No. 28.
(z) Plan of Reorganization is incorporated by reference
to Exhibit (9)(aa) to Post-Effective Amendment No. 28.
(aa) Purchase and Assumption Agreement dated
February 22, 1988 is incorporated by reference to Exhibit
(9)(ab) to Post-Effective Amendment No. 28.
(kkk) Addendum No. 2 to the Co-Administration Agreement
among the Registrant, B.C. Ziegler and Company and Firstar
Trust Company with respect to the Emerging Growth Fund.
(cc) Letter Agreement with respect to the Fund
Accounting Servicing Agreement with respect to the Emerging
Growth Fund.
Letter Agreement with respect to Shareholder Servicing
Agent Agreement with respect to the Emerging Growth Fund.
(ee) Letter Agreement with respect to the Fund
Accounting Servicing Agreement dated as of September 2, 1997
with respect to the International Equity Fund.
(10) Opinion and Consent of Counsel.
(11) (a) Consent of Drinker Biddle & Reath LLP.
(a) Consent of Price Waterhouse LLP
(12) None.
(13) (a) Purchase Agreement between Registrant and ALPS
Securities, Inc. is incorporated by reference to Exhibit
(13)(a) to Post-Effective Amendment No. 29.
(a) Purchase Agreement between ALPS Securities, Inc.
and Sunstone Financial Group, Inc. is incorporated by
reference to Exhibit (13)(b) to Post-Effective Amendment No.
29.
(14) Individual Retirement Account Documents is incorporated by
reference to Exhibit (14) to Post-Effective Amendment No. 28.
(14) (a) Amended and Restated Distribution and Service
Plan and Form of Distribution and Servicing Agreement is
incorporated by reference to Exhibit (14)(a) to Post-
Effective Amendment No. 30.
(15) (a) Schedule for Computation of Performance
Quotations -- Money Market Fund is incorporated by reference
to Exhibit (16)(a) to Post-Effective Amendment No. 28.
Schedule for Computation of Performance Quotations --
Tax-Exempt Money Market Fund is incorporated by reference to
Exhibit (16)(b) to Post-Effective Amendment No. 28.
(b) Schedule for Computation of Performance Quotations
-- U.S. Government Money Market Fund is incorporated by
reference to Exhibit (16)(c) to Post-Effective Amendment No.
28.
(c) Schedule of Computation of Performance Quotations -
- Growth and Income Fund is incorporated by reference to
Exhibit (16)(d) to Post-Effective Amendment No. 28.
(d) Schedule of Computation of Performance Quotations -
- Short-Term Bond Market Fund is incorporated by reference
to Exhibit (16)(e) to Post-Effective Amendment No. 28.
(e) Schedule of Computation of Performance Quotations -
- Special Growth Fund is incorporated by reference to
Exhibit (16)(f) to Post-Effective Amendment No. 28.
(f) Schedule of Computation of Performance Quotations -
- Bond IMMDEX/TM Fund is incorporated by reference to
Exhibit (16)(g) to Post-Effective Amendment No. 28.
(g) Schedule of Computation of Performance Quotations -
- Equity Index Fund is incorporated by reference to Exhibit
(16)(h) to Post-Effective Amendment No. 28.
(h) Schedule of Computation of Performance Quotations -
- Institutional Money Market Fund is incorporated by
reference to Exhibit (16)(i) to Post-Effective Amendment No.
28.
(i) Schedule of Computation of Performance Quotations -
- U.S. Treasury Money Market Fund is incorporated by
reference to Exhibit (16)(j) to Post-Effective Amendment No.
28.
(j) Schedule of Computation of Performance Quotations -
- Balanced Fund is incorporated by reference to Exhibit
(16)(k) to Post-Effective Amendment No. 28.
(k) Schedule of Computation of Performance Quotations -
- MidCore Growth Fund is incorporated by reference to
Exhibit (16)(l) to Post-Effective Amendment No. 28.
(l) Schedule of Computation of Performance Quotations -
- Intermediate Bond Market Fund is incorporated by reference
to Exhibit (16)(m) to Post-Effective Amendment No. 28.
(m) Schedule of Computation of Performance Quotations -
- Tax-Exempt Intermediate Bond Fund is incorporated by
reference to Exhibit (16)(n) to Post-Effective Amendment No.
28.
(n) Schedule of Computation of Performance Quotations -
- International Equity Fund is incorporated by reference to
Exhibit (16)(o) to Post-Effective Amendment No. 28.
(p) Schedule of Computation of Performance Quotations -- MicroCap
Fund is incorporated by reference to Exhibit (16)(p) to
Post-Effective Amendment No. 29.
(17) Financial Data Schedules - None.
(18)(a) Form of Amended and Restated Plan Pursuant to
Rule 18f-3 for Operation of a Multi-Series
System.
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
As of September 30, 1997:
Number of
Title of Class Series Record Holders
-------------- ----- --------------
Money Market Fund 1-A 3,809
Number of
Title of Class Series Record Holders
-------------- ----- --------------
Tax-Exempt Money Market Fund 2-A 335
U.S. Government Money Market Fund 3-A 254
Institutional Money Market Fund 4-A 76
U.S. Treasury Money Market Fund 5-A 111
Special Growth Fund 6-Institutional 445
6-A 6,709
Bond IMMDEX/TM Fund 7-Institutional 128
7-A 888
Equity Index Fund 8-Institutional 173
8-A 2,036
Growth and Income Fund 9-Institutional 100
9-A 3,693
Short-Term Bond Market Fund 10-Institutional 63
10-A 1,412
Balanced Fund 11-Institutional 179
11-A 1,601
Growth Fund 12-Institutional 100
12-A 877
Intermediate Bond Market Fund 13-Institutional 38
13-A 249
Tax-Exempt Intermediate Bond Fund 14-Institutional 14
Number of
Title of Class Series Record Holders
-------------- ----- --------------
14-A 139
International Equity Fund 15-Institutional 46
15-A 337
MicroCap Fund 16-Institutional 25
16-A 237
Emerging Growth Fund 18-Institutional 12
18-A 114
Item 27. Indemnification
Indemnification of Registrant's principal underwriter, custodians and
transfer agents against certain losses is provided for, respectively, in Section
1.9 of the Distribution Agreement, incorporated by reference as Exhibit (6)(a)
hereto, Section 11 of the Custodian Agreement, incorporated by reference as
Exhibit (8)(a) hereto, and Section 6(c) of the Shareholder Servicing Agent
Agreement incorporated by reference as Exhibit (9)(p) hereto. Registrant has
obtained from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions.
Article IX of Registrant's Articles of Incorporation, incorporated by
reference as Exhibit (1)(a) hereto, provides for the indemnification of
Registrant's directors and officers to the full extent permitted by the
Wisconsin Business Corporation Law and the Investment Company Act of 1940.
Article VII of the By-laws of the Registrant, incorporated by
reference as Exhibit (2)(a) hereto, provides that officers and directors of the
Registrant shall be indemnified by the Registrant against judgments, penalties,
fines, excise taxes, settlements and reasonable expenses (including attorney's
fees) incurred in connection with a legal action, suit or proceeding to the full
extent permissible under the Wisconsin Business Corporation Law, the Securities
Act of 1933 and the Investment Company Act of 1940.
In no event will Registrant indemnify any of its directors or officers
against any liability to which such person would otherwise be subject by reason
of his willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office. Registrant will comply
with Rule 484 under the Securities Act of 1933 and Release No. 11330 under the
Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
Firstar Investment Research and Management Company, investment adviser
to the Money Market Fund, Institutional Money Market Fund, U.S. Treasury Money
Market Fund, U.S. Government Money Market Fund, Tax-Exempt Money Market Fund,
Short-Term Bond Market Fund, Growth and Income Fund, Special Growth Fund, Bond
IMMDEX/TM Fund, Equity Index Fund, Balanced Fund, Intermediate Bond Market Fund,
MidCore Growth Fund, Tax-Exempt Intermediate Bond Fund, International Equity
Fund and MicroCap Fund, is a registered investment adviser under the Investment
Advisers Act of 1940.
To Registrant's knowledge, none of the directors or senior executive
officers of Firstar Investment Research and Management Company, except those set
forth below, is, or has been at any time during Registrant's past two fiscal
years, engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers of Firstar
Investment Research and Management Company also hold various positions with, and
engage in business for, their respective affiliates. Set forth below are the
names and principal businesses of the directors and certain of the senior
executive officers of Firstar Investment Research and Management Company who are
or have been engaged in any other business, profession, vocation or employment
of a substantial nature.
FIRSTAR INVESTMENT RESEARCH AND MANAGEMENT COMPANY
Position with
Firstar Investment
Research and Other Business Type of
Name Management Company Connections Business
- ----- ------------------ ------------------- ----------
John A. Becker Director President, Firstar Bank
Corporation, 777 E. Holding Co.
Wisconsin Avenue,
Milwaukee, WI 53201
J. Scott Harkness Director and None
Chairman
Steven R. Parish Director Executive Vice Bank
President, Firstar Holding Co.
Corporation, 777
E. Wisconsin Avenue,
Suite 800
Milwaukee, WI 53201
Mary Ellen Stanek Director, Chief Vice President, Investment
Operating Officer Portico Funds, Inc. Company
and President Portico Funds
Center, 615 East
Michigan Street,
P.O. Box 3011,
Milwaukee, WI
53201-3011
Matthew Uselman Director Senior Vice Bank
President,
Firstar Bank
Wisconsin
1 South Pinckney,
Suite 401
Madison, WI 53703
Robert L. Webster Director President, Trust Company
Firstar Trust
Company, 777 E.
Wisconsin Avenue,
Milwaukee, WI 53202
Hansberger Global Investors, Inc. serves as sub-investment
adviser to the International Equity Fund.
To Registrant's knowledge, none of the directors or senior
executive officers of Hansberger Global Investors, Inc. except those set forth
below, is, or has been at any time during Registrant's past two fiscal years,
engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers of Hansberger
Global Investors, Inc. also hold various positions with, and engage in business
for, their respective affiliates. Set forth below are the names and principal
businesses of the directors and certain of the senior executive officers of
Hansberger Global Investors, Inc. who are or have been engaged in any other
business, profession, vocation or employment of a substantial nature.
HANSBERGER GLOBAL INVESTORS, INC.
Position with Other Business
Hansberger Connections and Type of
Name Global Investors, Inc. Address* Business
- ---- ---------------------- ----------------- --------------
Thomas L. Hansberger Chairman, CEO, Director, Mutual Fund
President, Director, Schroder Korea Fund
and Treasurer PLC
33 Gutter Lane
London,
EC2B+A124 8AS
Director, Mutual Fund
The Bankok Fund
Bangkok, Thailand
Advisory Board Mutual Fund
Member,
The India Fund
India
Alberto Cribiore Director Director, Privately-owned
WESCO distributor of
Distribution, Inc. electrical
Pittsburgh, PA products
Director, Privately-owned
Riverwood supplier of
International paperboard
Corp. packaging and
Atlanta, GA producer of
coated
unbleached
Kraft
paperboard
Member & Distributor
Chairman of the electronically
Board, McCarthy, of financial
Crisanti & information
Maffel, Inc.
One Chase Manhattan
Way
37th Floor
New York, NY 10005
Director, Publicly-owned
Tyco International conglomerate
Ltd.
Exeter, NH
Member & Private
Managing Principal equity
Brera Capital interest firm
Partners, LLC
590 Madison Avenue
Suite 18C
New York, NY 10022
Max C. Chapman, Jr. Director Management Financial Financial
Committee Member, Services
Tudor/Nomura Group
Trading Partnership
2 World Financial
Center
Bldg B
New York, NY
10281-1198
Director, Investment
McCarthy, Crisanti, Adviser
& Maffel, Inc.
One Chase Manhattan
Plaza
New York, NY 10005
Director, Holding
MCM Group, Inc. Company
One Chase Manhattan
Plaza
New York, NY 10005
Chairman, Holding
Nomura Holding Company
America, Inc.
2 World Financial
Center
Bldg B
New York, NY
10281-1198
Director & Financial
Managing Director, Services
Nomura Securities
Co. LTD
Tokyo, Japan
Chairman & Director, Financial
Nomura Grand Caymen Services
LTD
Caymen Islands
Chairman & CEO, Financial
Nomura American Services
Foundation
2 World Financial
Center
Bldg B
New York, NY
10281-1198
Director, Financial
Nomura International Services
PLC
London, England
Chairman, Financial
Nomura Asset Services
Securitization Corp.
New York, NY
Chairman & Director, Financial
Nomura Asset Capital Services
Corporation
New York, NY
Chairman, Director Holding
& CEO, Company
NGP Holding Company
Salah Al-Maousherji Director Director, Paper
Gulf Paper Manufacturer
Kuwait
President, Corporate
Mashora Consulting Finance
Services
Robert Druskin Director Vice Chairman & Brokerage/
Director, Advisory
Smith Barney Inc.
New York, NY
James Everett Chaney Chief Investment None
Officer
Kimberly Ann Scott Senior Vice None
Presidentand Chief
Compliance Officer
J. Christopher Jackson Senior Vice None
President and
General Counsel
Louretta Ann Reeves Director of Research None
Francisco Jose Alzuru Managing Director None
Erik Erwin Bieck Managing Director None
Wesley Edmond Freeman Managing Director None
Mark Poon Managing Director None
Vladimir Tyurenkov Managing Director None
* Address of all individuals: 515 East Las Olas Blvd., Suite 1300, Fort
Lauderdale, FL 33301.
Item 29. Principal Underwriter
(a) B.C. Ziegler & Company ("B.C. Ziegler"), the Registrant's current
principal underwriter, serves as principal underwriter of the shares of the
Principal Preservation Funds, American Tax-Exempt Bond Trust, Series 1 (and
subsequent series); Ziegler U.S. Government Securities Trust, Series 1 (and
subsequent series); American Income Trust, Series 1 (and subsequent series);
Ziegler Money Market Trust; and The Insured American Tax-Exempt Bond Trust,
Series 1 (and subsequent series).
(b) To the best of Registrant's knowledge, the directors and
executive officers of B.C. Ziegler & Company are as follows:
Name and Principal Position and Offices Positions and
Business Address with B. C. Ziegler Offices with
Registrant
- ------------------ -------------------- --------------
Peter D. Ziegler Chairman, President, None
Chief Executive
Officer and Director
S. Charles O'Meara Senior Vice President None
and General Counsel
and Director
D. A. Wallestad Senior Vice President None
- Acquisition
Chief Finanacial
Officer and Director
Donald A. Carlson, Jr. Senior Vice President None
Name and Principal Position and Offices Positions and
Business Address with B. C. Ziegler Offices with
Registrant
- ------------------- ------------------- --------------
J.C. Wagner Senior Vice None
President -
Retail Sales and
Director
Neil L. Fuerbringer Senior Vice President None
- Administration
Michael P. Doyle Senior Vice President None
- Retail Operations
Ronald N. Spears Senior Vice President None
Jeffrey C. Vredenbregt Vice President, None
Treasurer, Controller
and Director
Charles G. Stevens Vice President - None
Marketing Director
Jack H. Downer Vice President - None
MIS Director
Robert J. Tuszynski Senior Vice President None
Gerry Aman Vice President - None
Insurance
Sheila K. Hittman Vice President - None
Personnel
Name and Principal Position and Offices Positions and
Business Address with B. C. Ziegler Offices with
Registrant
- ------------------- ------------------- --------------
Robert J. Johnson Vice President - None
Compliance
James M. Bushman Vice President - None
Recruiting and
Training Coordinator
Lay C. Rosenheimer Vice President - Bond None
Sales Control
Darrell P. Frank Vice President - None
Director of Strategic
Change
M.L. McBain Vice President - None
Equity Securities
James L. Brendemuehl Vice President - None
Managed Products
Ronald C. Strzok Vice President - None
Administration
Roxanne Dalnodar Vice President - None
Operations
Janine R. Yovanovich Corporate Secretary None
Kathleen A. Lochen Assistant Secretary None
The address of each of the foregoing is 215 North Main Street,
West Bend, Wisconsin 53095, (414) 334-5521.
(e) None.
Item 30. Location of Accounts and Records
(1) Firstar Trust Company, 615 E. Michigan Street, Milwaukee,
WI 53202 (records relating to its function as custodian, transfer
agent, fund accounting servicing agent, shareholder servicing
agent and co-administrator).
(2) Firstar Investment Research and Management Company,
Firstar Center, 777 E. Wisconsin Avenue, Suite 800, Milwaukee, WI
53202 (records relating to its function as investment adviser).
(3) Hansberger Global Investors, Inc., 515 East Las Olas
Blvd., Suite 1300, Fort Lauderdale, FL 33301 (records relating to
its function as sub-investment adviser for the International
Equity Fund).
(4) B.C. Ziegler & Company, 215 North Main Street, West Bend,
Wisconsin 53095-3348 (records relating to its functions as
distributor and co-administrator).
(5) Drinker Biddle & Reath LLP, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107
(Registrant's Articles of Incorporation, By-laws and Minute
Books).
Item 31. Management Services
None.
Item 32. Undertakings
(1) The Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without
charge.
(2) The Registrant hereby undertakes to file a post-effective
amendment using financial statements which need not be certified,
within four to six months from the effective date of this Post-
Effective Amendment No. 32 to Registrant's 1933 Act registration
statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 32 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, and Commonwealth of Pennsylvania, on
the 30th day of October, 1997.
PORTICO FUNDS, INC.
Registrant
By *Steven R. Parish
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 32 to the Registration Statement of the Registrant has
been signed by the following persons in the capacities and on the dates
indicated:
Signature Title Date
President,
*Steven R. Parish Treasurer and October 30, 1997
(Steven R. Parish) Director
*James M. Wade Chairman and October 30, 1997
(James M. Wade) Director
*Richard Riederer Director October 30, 1997
(Richard Riederer)
*Jerry Remmel Director October 30, 1997
(Jerry Remmel)
*Glen R. Bomberger Director October 30, 1997
(Glen R. Bomberger)
*Charles R. Roy Director October 30, 1997
(Charles R. Roy)
*By /s/ W. Bruce McConnel III October 30, 1997
W. Bruce McConnel, III
Attorney-in-fact
xxxxx
POWER OF ATTORNEY
Charles R. Roy, whose signature appears below, does hereby constitute
and appoint James M. Wade and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Portico Funds, Inc.
(the "Company") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Date: February 23, 1990 /s/ Charles R. Roy
Charles R. Roy
POWER OF ATTORNEY
Glen R. Bomberger, whose signature appears below, does hereby
constitute and appoint James M. Wade and W. Bruce McConnel, III, and either of
them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Portico Funds, Inc.
(the "Company") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Date: February 23, 1990 /s/ Glen R. Bomberger
Glen R. Bomberger
POWER OF ATTORNEY
James M. Wade, whose signature appears below, does hereby constitute
and appoint W. Bruce McConnel, III his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorney and agent may deem
necessary or advisable or which may be required to enable Portico Funds, Inc.
(the "Company") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
Date: February 23, 1990 /s/ James M. Wade
James M. Wade
POWER OF ATTORNEY
Richard K. Riederer, whose signature appears below, does hereby
constitute and appoint James M. Wade and W. Bruce McConnel, III, and either of
them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Portico Funds, Inc.
(the "Company") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Date: February 23, 1990 /s/ Richard K. Riederer
Richard K. Riederer
POWER OF ATTORNEY
Jerry Remmel, whose signature appears below, does hereby constitute
and appoint James M. Wade and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Portico Funds, Inc.
(the "Company") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Date: February 23, 1990 /s/ Jerry Remmel
Jerry Remmel
POWER OF ATTORNEY
Steve R. Parish, whose signature appears below, does hereby constitute
and appoint James M. Wade and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Portico Funds, Inc.
(the "Company") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Date: October 2, 1997 /s/ Steven R. Parish
Steven R. Parish
xxxxx
{PRIVATE }
PORTICO FUNDS, INC.
CERTIFICATE OF SECRETARY
The following resolution was duly adopted by the Board of Directors of
Portico Funds, Inc. on June 16, 1995 and remains in effect on the date hereof:
FURTHER RESOLVED, that the directors and officers of the Company who
may be required to execute any amendments to the Registration Statement of
the Company be, and each of them hereby is, authorized to execute a Power
of Attorney appointing James M. Wade and W. Bruce McConnel, III, and either
of them, their true and lawful attorney or attorneys, to execute in their
name, place and stead, in their capacity as director or officer, or both,
of the Company any and all amendments to said Registration Statement, and
all instruments necessary or incidental in connection therewith, and to
file the same with the Securities and Exchange Commission; and either of
said attorneys shall have the power to act thereunder with or without the
other said attorney and shall have full power of substitution and
resubstitution; and either of said attorneys shall have full power and
authority to do in the name and on behalf of said directors and officers,
or any or all of them, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises, as fully and to all
intents and purposes as each of said directors or officers, or any or all
of them, might or could do in person, said acts of said attorneys, or
either of them, being hereby ratified and approved.
PORTICO FUNDS, INC.
By: /s/ W. Bruce McConnel III
W. Bruce McConnel, III
Secretary
Dated: October 30, 1997
xxxxx
EXHIBIT INDEX
Exhibit No. Item
(1)(l) Amendment No. 11 to Articles of Incorporation.
(5)(g) Addendum No. 3 to the Investment Advisory Agreement between
Registrant and Firstar Investment Research and Management Company
with respect to the International Equity Fund.
(5)(h) Amended and Restated Sub-Advisory Agreement among Firstar
Investment Research and Management Company, the Registrant and
Hansberger Global, Inc. with respect to the International Equity
Fund.
(5)(k) Addendum No. 5 to the Investment Advisory Agreement between
Registrant and Firstar Investment Research & Management Company
LLC with respect to the Emerging Growth Fund.
(6)(d) Addendum No. 2 to the Distribution Agreement between Registrant
and B.C. Ziegler and Company with respect to the Emerging Growth
Fund.
(8)(i) Letter Agreement with respect to Custodian Agreement with respect
to the International Equity Fund.
(8)(l) Letter Agreement with respect to the Custodian Agreement with
respect to the Emerging Growth Fund.
(8)(m) Foriegn Custodian Monitoring Agreement between Registrant and
Firstar Investment Research and Management Company with respect
to the International Equity Fund.
(9)(ac) Addendum No. 2 to the Co-Administration Agreement among
Registrant, B.C. Ziegler and Company and Firstar Trust Company
dated with respect to the Emerging Growth Fund.
(9)(ad) Letter Agreement with respect to the Fund Accounting Servicing
Agreement with respect to the Emerging Growth Fund.
(9)(ae) Letter Agreement with respect to Shareholder Servicing Agent
Agreement with respect to the Emerging Growth Fund.
(9)(af) Letter Agreement with respect to the Fund Accounting Servicing
Agreement with respect to the International Equity Agreement.
(10) Opinion and Consent of Counsel.
(11)(a) Consent of Drinker Biddle & Reath LLP.
(11)(b) Consent of Price Waterhouse LLP
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of
a Multi-Series System.
EXHIBIT (1)(L)
ARTICLES OF AMENDMENT Stock(for profit)
- ---------------------------------
Kenneth L. Greenberg, <- Please indicate where you
Esquire would like the acknowledgement
DRINKER BIDDLE & REATH copy of the filed document sent.
PNB Building, 11th Floor Please include complete name and
1345 Chestnut Street mailing address.
Philadelphia, PA 19107
- ---------------------------------
Your phone number during the day: (215) 988-1152
--------------
INSTRUCTIONS (Ref. sec. 180.1006 Wis. Stats. for document content)
Submit one original and one exact copy to Secretary of State, P.O. Box
7846, Madison, Wisconsin, 53707-7846. (If sent by EXPRESS or PRIORITY U.S.
mail, address to 30 W. Mifflin Street, 9th Floor, Madison, WI 53703). The
original must include an original manual signature (sec. 180.0120(3)(c), Wis.
Stats). If you have any additional questions, please call the Corporations
Division at 608-266-3590.
A. State the name of the corporation (before any changes effected by this
amendment) and the text of the amendment(s). The text should recite the
resolution adopted (e.g.) "RESOLVED, THAT, Article 1 of the Articles of
Incorporation is hereby amended to read as follows.... etc.").
If an amendment provides for an exchange, reclassification or cancellation
of issued shares, state the provisions for implementing the amendment if not
contained in the amendment itself.
B. Enter the date of adoption of the amendment(s). If there is more than one
amendment, identify the date of adoption of each. Mark one of the three choices
to indicate the method of adoption of the amendment(s).
By Board of Directors - Refer to sec. 180.1002 Wis. Stats. for specific
information on the character of amendments that may be adopted by the Board of
Directors without shareholder action.
By Board of Directors and Shareholders - Amendments proposed by the Board
of Directors and adopted by shareholder approval. Voting requirements differ
with circumstances and provisions in the articles of incorporation. See sec.
180.1003 Wis. Stats. for specific information.
By Incorporators or Board of Directors - Before issuance of shares - See
sec. 180.1005 Wis. Stats. for conditions attached to the adoption of an
amendment approved by a vote or consent of less than 2/3rds of the shares
subscribed for.
C. Enter the date of execution and the name and title of the person signing
the document. The document must be signed by one of the following: An officer
(or incorporator if directors have not been elected) of the corporation or the
fiduciary if the corporation is in the hands of a receiver, trustee, or other
court appointed fiduciary. At least one copy must bear an original manual
signature.
D. If the document is executed in Wisconsin, sec. 14.38(14) Wis. Stats.
provides that it shall not be filed unless the name of the drafter (either an
individual or a governmental agency) is printed in a legible manner. If
document is NOT drafted in Wisconsin, please so state.
FILING FEES
- -----------
Submit the document with a minimum filing fee of $40.00, payable to
SECRETARY OF STATE. If the amendment causes an increase in the number of
authorized shares, provide an additional fee of 1 cent for each new authorized
share. When the document has been filed, an acknowledgement copy stamped
"FILED" will be sent to the address indicated above.
ARTICLES OF AMENDMENT
STOCK (FOR PROFIT)
A. Name of Corporation: Portico Funds, Inc.
---------------------
(prior to any change effected by this amendment)
Text of Amendment (Refer to the existing articles of incorporation and
instruction A. Determine those items to changed and set forth below the
number identifying the paragraph being changed and how the amended
paragraph is to read.)
RESOLVED, THAT, the articles of incorporation be amended as follows:
SEE ATTACHED
B. Amendment(s) adopted on May 23, 1997
------------
(date)
Indicate the method of adoption by checking the appropriate choice below:
( X ) In accordance with sec. 180.1002, Wis. Stats. (By the Board of
Directors)
OR
( ) In accordance with sec. 180.1003, Wis. Stats. (By the Board of
Directors and Shareholders)
OR
( ) In accordance with sec. 180.1005, Wis. Stats. (By Incorporators
or Board of Directors, before issuance of shares)
C. Executed on behalf of the
corporation on July 21, 1997
_____________________________
(date)
/s/ Mary Ellen Stanek
_____________________________
(signature)
Mary Ellen Stanek
_____________________________
(printed name)
Vice President
_____________________________
(officer's title)
D. This document was drafted by Kenneth L.Greenberg, Esq.
_____________________________
(name of individual required by law)
FILING FEE - $40.00 OR MORE
SEE REVERSE for Instructions, Suggestions, Filing Fees and Procedures
AMENDMENT TO ARTICLES OF INCORPORATION
ADOPTED BY BOARD OF DIRECTORS ON MAY 23, 1997
PURSUANT SECTION 180.1002 OF THE WISCONSIN STATUTES.
(a) The name of the Company is Portico Funds, Inc.
(b) and (c) The text of the Amendment which determines the terms of
the Company's Class 18 - Institutional Series and Class 18-A
Series Common Stock and the number of shares thereof is as
follows: RESOLVED, that pursuant to Article V of the Articles
of Incorporation of the Company, One Hundred Million
authorized, unissued and unclassified shares of Class 18
Common Stock of the Company be, and hereby are, divided into
and classified as Class 18 - Institutional Series and One
Hundred Million authorized, unissued and unclassified
shares of Class 18 Common Stock of the Company be, and hereby
are divided into and classified as Class 18-A Series Common
Stock, with all of the preferences, limitations and relative
rights set forth in Article V. B. of said Articles of
Incorporation.
(d) No shares of the Company's Class 18 - Institutional Series and
Class 18-A Series Common Stock have been issued.
(e) The Amendment was adopted on May 23, 1997.
(f) The Amendment was unanimously adopted by the Board of Directors
and shareholder action was not required.
EXHIBIT (5)(G)
AMENDED AND RESTATED
ADDENDUM NO. 3 TO INVESTMENT ADVISORY AGREEMENT
This Addendum, dated as of the 2nd day of September, 1997, is entered into
between PORTICO FUNDS, INC. (the "Company"), a Wisconsin corporation, and
Firstar Investment Research and Management Company, LLC (the "Investment
Adviser").
WHEREAS, the Company and the Investment Adviser have entered into an
Investment Advisory Agreement dated as of March 27, 1992 (the "Advisory
Agreement"), pursuant to which the Company appointed the Investment Adviser to
act as investment adviser to the Company for its Balanced Fund;
WHEREAS, Section 1(b) of the Advisory Agreement provides that in the event
the Company establishes one or more additional investment portfolios with
respect to which it desires to retain the Investment Adviser to act as the
investment adviser under the Advisory Agreement, the Company shall so notify the
Investment Adviser in writing and if the Investment Adviser is willing to render
such services it shall notify the Company in writing, and the compensation to be
paid to the Investment Adviser shall be that which is agreed to in writing by
the Company and the Investment Adviser; and
WHEREAS, pursuant to Section 1(b) of the Advisory Agreement, the Company
has notified the Investment Adviser that it has established the International
Equity Fund and that it desires to retain the Investment Adviser to act as the
investment adviser therefor, and the Investment Adviser has notified the Company
that it is willing to serve as investment adviser for the International Equity
Fund (the "Fund");
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT. The Company hereby appoints the Investment Adviser to
act as investment adviser to the Company for the International Equity Fund for
the period and the terms set forth herein and in the Advisory Agreement. The
Investment Adviser hereby accepts such appointment and agrees to render the
services set forth herein and in the Advisory Agreement, for the compensation
herein provided.
2. SUBCONTRACTORS. It is understood that the Investment Adviser may from
time to time employ or associate with itself such person or persons as the
Investment Adviser may believe to be particularly fitted to assist in the
performance of this Agreement; provided, however, that the compensation of such
person or person shall be paid by the Investment Adviser; and that any person
providing investment advisory services to the Fund shall be approved in
accordance with the provisions of the 1940 Act. Each such sub-adviser is
hereinafter referred to as a "Sub-Adviser".
Notwithstanding the approval of any such Sub-Adviser(s), however, in
carrying out its obligations hereunder the Investment Adviser shall in all
events:
a. assist and consult with any Sub-Adviser with respect to the Fund
in connection with the Fund's continuous investment program;
b. establish and monitor general investment criteria and policies for
the Fund;
c. review, monitor and analyze on a periodic basis the Fund's
portfolio holdings and transactions to determine that each Sub-Adviser
performs its sub-advisory services in accordance with the Fund's investment
objective, policies and restrictions as stated in its prospectus and
statement of additional information and to determine that such portfolio
holdings are appropriate in light of the Fund's shareholder base;
d. review, monitor and analyze on a periodic basis the policies
established by any Sub-Adviser for the Fund with respect to the placement
of orders for the purchase and sale of portfolio securities;
e. review, monitor, analyze and report to the Board of Directors on
the performance of the Sub-Adviser(s);
f. furnish to the Board of Directors or the Sub-Adviser(s), reports,
statistical and economic information as may be requested; and
g. recommend, either in its sole discretion or in conjunction with
the Sub-Adviser(s), potential changes in investment policy.
In the event that any Sub-Adviser appointed hereunder is terminated, the
Investment Adviser may provide all investment advisory services pursuant to this
Agreement without a Sub-adviser or further shareholder approval.
3. COMPENSATION. For the services provided and the expenses assumed with
respect to the International Equity Fund pursuant to the Advisory Agreement and
this Addendum, the Company will pay the Investment Adviser and the Investment
Adviser will accept as full compensation therefor (a) 4/10 of the gross income
earned by the Fund on the loan of its securities (excluding capital gains and
losses if any), plus (b) a fee, computed daily and paid monthly, at the annual
rate of 1.50% of the first $25 million of the Fund's average net assets, 1.25%
of the next $75 million of the Fund's average net assets, and 1.10% of the
Fund's average net assets exceeding $100 million.
4. MISCELLANEOUS. Except to the extent supplemented hereby, the Advisory
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Addendum as of the date and year first above written.
PORTICO FUNDS, INC.
By: /s/ Steven R. Parish
-------------------------
(Authorized Officer)
FIRSTAR INVESTMENT RESEARCH AND MANAGEMENT
COMPANY, LLC
By: /s/ Mary Ellen Stanek
----------------------
(Authorized Officer)
EXHIBIT (5)(H)
AMENDED AND RESTATED
INVESTMENT SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made this 13th day of June, 1997, is by and among Firstar
Investment Research & Management Company, a Wisconsin corporation registered as
an investment adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act") (the "Adviser"), Hansberger Global Investors, Inc., a Delaware
corporation registered as an investment adviser under the Advisers Act (the
"Sub-Adviser"), and Portico Funds, Inc. (the "Company"), an open-end diversified
management investment company of the series type, registered under the
Investment Company Act of 1940, as amended (the "1940 Act").
WHEREAS, the Adviser is the investment adviser to the Portico International
Equity Fund (the "Fund") of the Company, and the Adviser desires to retain the
Sub-Adviser to furnish it with portfolio selection and related research and
statistical services in connection with the Adviser's investment advisory
activities on behalf of the Fund, and the Sub-Adviser desires to furnish such
services to the Adviser;
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, it is agreed as follows:
1. Appointment of Sub-Adviser
--------------------------
In accordance with and subject to the investment advisory agreement (the
"Investment Advisory Agreement") between the Company and the Adviser, the
Adviser hereby appoints the Sub-Adviser to perform portfolio selection and
related research and statistical services described herein for investment and
reinvestment of the Fund's investment assets, subject to the control and
direction of the Company's Board of Directors, for the period and on the terms
hereinafter set forth. The Sub-Adviser accepts such appointment and agrees to
furnish the services hereinafter set forth for the compensation herein provided.
The Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized, have no
authority to act for or represent the Company or the Adviser in any way or
otherwise be deemed an agent of the Company or the Adviser.
2. Obligations of and Services to be Provided by the Sub-Adviser
-------------------------------------------------------------------
(a) The Sub-Adviser shall provide the following services and assume the
following obligations with respect to the Fund:
(1) The investment of the assets of the Fund shall at all times be
subject to the applicable provisions of the articles of
incorporation, the by-laws, the registration statement, the
effective prospectus and the statement of additional information
of the Company relating to the Fund (the "Fund Documents") and
shall conform to the investment objectives, policies and
restrictions of the Fund as set forth in such documents and as
interpreted from time to time by the Board of Directors of the
Company and by the Adviser. Copies of the Fund Documents have
been or will be submitted to the Sub-Adviser. The Company agrees
to provide copies of all amendments to or restatements of the
Fund Documents to the Sub-Adviser on a timely and on-going basis
but in all events prior to such time as said amendments or
restatements become effective. The Sub-Adviser will be entitled
to rely on all such documents furnished to it by the Company, the
Fund, or the Adviser. Within the framework of the investment
objectives, policies and restrictions of the Fund, and subject to
the supervision of the Adviser, the Sub-Adviser shall have
responsibility for making and executing investment decisions for
the Fund.
(2) In carrying out its obligations to manage the investments and
reinvestments of the assets of the Fund, the Sub-Adviser shall:
(1) obtain and evaluate pertinent economic, statistical,
financial and other information affecting the economy generally
and individual companies or industries, the securities of which
are included in the Fund's investment portfolio or are under
consideration for inclusion therein; (2) under the supervision of
the Adviser, formulate and implement a continuous investment
program for the Fund consistent with the investment objective and
related investment policies for the Fund as set forth in the Fund
Documents, as amended; and (3) take such steps as are necessary
to implement the aforementioned investment program by purchase
and sale of securities including the placing, or directing the
placement through an affiliate of the Sub-Adviser in accordance
with applicable regulatory requirements, of orders for such
purchases and sales.
(3) In connection with the purchase and sale of securities of the
Fund, the Sub-Adviser shall arrange for the transmission to the
Adviser and the Custodian for the Fund and, as directed by the
Adviser, any other persons retained by the Fund on a daily basis
such confirmations, trade tickets and other documents as may be
necessary to enable them to perform their administrative
responsibilities with respect to the Fund's investment portfolio.
The Sub-Adviser shall render such reports to the Adviser and/or
to the Company's Board of Directors concerning the investment
activity and portfolio composition of the Fund in such form and
at such intervals as the Adviser or the Board may from time to
time require.
(4) The Sub-Adviser shall, in the name of the Fund, place or direct
the placement of orders for the execution of portfolio
transactions in accordance with the policies of the Fund, as set
forth in the Fund Documents, as amended from time to time, and
under the Securities Act of 1933, as amended (the " 1933 Act"),
and the 1940 Act. In connection with the placement of orders for
the execution of the Fund's portfolio transactions, the Sub-
Adviser shall create and maintain all necessary brokerage records
of the Fund in accordance with all applicable laws, rules and
regulations, including but not limited to, records required by
Section 31(a) of the 1940 Act. All records shall be the property
of the Company and shall be available for inspection and use by
the Securities and Exchange Commission ("SEC"), the Company, the
Adviser, or any other person retained by the Company. The Sub-
Adviser agrees to surrender promptly to the Company any of such
records upon the Company's request. Where applicable, such
records shall be maintained by the Sub-Adviser for the period and
in the place required by the 1940 Act. The Sub-Adviser shall, in
the name of the Fund, vote all proxies solicited by or with
respect to the issuers of securities in which the Fund may be
invested from time to time.
(5) In placing orders or directing the placement of orders for the
execution of portfolio transactions, the Sub-Adviser shall select
brokers and dealers for the execution of the Fund's transactions.
In selecting brokers or dealers to execute such orders, the Sub-
Adviser will use its best efforts to seek on behalf of the Fund
the best overall terms available. In assessing the best overall
terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the
breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in selecting the
broker-dealer to execute a particular transaction, the Sub-
Adviser is expressly authorized to consider the fact that a
broker or dealer has furnished statistical, research or other
information or services which enhance the Sub-Adviser's
investment research and portfolio management capability
generally. It is further understood in accordance with Section
28(e) of the Securities Exchange Act of 1934, as amended, that
the Sub-Adviser may, subject to prior approval of the Investment
Adviser, negotiate with and assign to a broker a commission which
may exceed the commission which another broker would have charged
for effecting the action if the Sub-Adviser determines in good
faith that the amount of commission charged was reasonable in
relation to the value of brokerage and/or research services (as
defined in Section 28(e)) provided by such broker, viewed in
terms either of the Fund or the Sub-Adviser's overall
responsibilities to the Sub-Adviser's discretionary accounts. In
addition, the Sub-Adviser is authorized to take into account the
sale of shares of the Company in allocating purchase and sale
orders for portfolio securities to brokers or dealers (including
brokers and dealers that are affiliated with the Adviser, Sub-
Adviser or the Company's principal underwriter), provided that
the Sub-Adviser believes that the quality of the transaction and
the commission are comparable to what they would be with other
qualified firms. In no instance, however, will portfolio
securities be purchased from or sold to the Sub-Adviser, the
Adviser, the Company's principal underwriter, or any affiliated
person of either the Company, the Adviser, Sub-Adviser or the
principal underwriter, acting as principal in the transaction,
except to the extent permitted by the SEC through rules,
regulations, decisions and no-action letters.
(b) The Sub-Adviser shall use the same skill and care in providing
services to the Fund as it uses in providing services to fiduciary
accounts for which it has investment responsibility. The Sub-Adviser
will conform with all applicable federal and state laws, rules and
regulations.
3. Expenses
--------
The Sub-Adviser will bear all expenses in connection with the performance
of its services under this Agreement, which expenses shall not include brokerage
fees or commissions in connection with the effectuation of securities
transactions for the Fund. The Fund (or the Adviser) will bear certain other
expenses to be incurred in the Fund's operation, including but not limited to:
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; SEC fees and state blue sky qualification fees; expenses of custodians,
transfer and dividend disbursing agents and the Fund's co-administrators;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Fund's existence; costs attributable to investor services, including without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Fund and of the officers or Board of
Directors of the Fund; and any extraordinary expenses.
4. Compensation
------------
In payment for the investment sub-advisory services to be rendered by the
Sub-Adviser in respect of the Fund hereunder, the Adviser shall pay to the Sub-
Adviser as full compensation for all services hereunder a fee computed at an
annual rate which shall be a percentage of the average net assets of the Fund.
The fee shall be accrued daily and shall be based on the net asset values of all
of the issued and outstanding shares of the Fund as determined as of the close
of each business day pursuant to the Fund Documents. The fee shall be payable
in arrears during the following calendar month.
The amount of such annual fee, as applied to the average daily value of the
net assets of the Fund shall be as described in the schedule below:
Assets Fee
------ ----
On the first $25 million in assets .75%
On the next $75 million in assets .50%
On the assets in excess of $100 million .35%
5. Effective Date, Renewal and Termination
---------------------------------------
This Agreement is subject to satisfaction of the following conditions:
(a) approval by the Board of Directors of the Company on or about June 13,
1997; and
(b) approval by a majority of the outstanding voting securities of the
Fund on or about August 15, 1997.
If both conditions are satisfied, this Agreement shall become effective August
22, 1997 and, unless otherwise terminated, shall continue until February 27,
1998 and from year to year thereafter so long as approved annually in accordance
with the 1940 Act and the rules thereunder. This Agreement may be terminated
without penalty on sixty (60) days' written notice to the Sub-Adviser (i) by the
Adviser, (ii) by vote of the Board of Directors of the Company or (iii) by vote
of a majority of the outstanding voting securities of the Fund; or it may be
terminated without penalty on sixty (60) days' written notice to the Adviser by
the Sub-Adviser. This Agreement will terminate automatically in the event of
its assignment or upon any termination of the Investment Advisory Agreement.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act. The Adviser,
Sub-Adviser and Company agree that the Adviser's reorganization as a limited
liability company on or about July 1, 1997 shall not constitute an "assignment"
under the 1940 Act.
6. Representations of the Company, Adviser and the Sub-Adviser
-----------------------------------------------------------
The Company and Fund represent that (i) a copy of the Company's Articles of
Incorporation, dated February 15, 1988, together with all amendments thereto, is
on file in the office of the Wisconsin Department of Financial Institutions,
(ii) the appointment of the Adviser has been duly authorized, (iii) the
appointment of the Sub-Adviser has been duly authorized, and (iv) they have
acted and will continue to act in conformity with the 1940 Act, and other
applicable laws.
The Adviser represents that (i) it is authorized to perform the services
herein, (ii) the appointment of the Sub-Adviser has been duly authorized, and
(iii) it will act in conformity with the 1940 Act, and other applicable laws.
The Sub-Adviser represents that it is authorized to perform the services
described herein.
7. Materials
---------
Neither the Adviser, the Company, or the Fund shall publish or distribute
any information including but not limited to, registration statements,
advertising or promotional material regarding the provision of investment
advisory services by the Sub-Adviser pursuant to this Agreement, without the
prior written consent of the Sub-Adviser, which consent shall not be
unreasonably withheld or delayed. If the Sub-Adviser has not notified the
Adviser of its disapproval of sample materials within five (5) days after its
receipt thereof, such materials shall be deemed approved. Materials
substantially similar to materials approved on an earlier occasion, with the
exception of any regulatory filings, shall also be deemed approved.
Notwithstanding the foregoing, the Adviser may distribute information regarding
the provision of investment advisory services by the Sub-Adviser to the
Company's Board of Directors ("Board Materials") without the prior written
consent of the Sub-Adviser. The Adviser shall provide copies of the Board
Materials to the Sub-Adviser within a reasonable time following distribution to
the Company's Board of Directors.
The Sub-Adviser shall not publish or distribute any information including
but not limited to, registration statements, advertising or promotional material
regarding the provision of investment advisory services by the Sub-Adviser
pursuant to this Agreement, without the prior written consent of the Adviser and
the Company, which consent shall not be unreasonably withheld or delayed. If
the Adviser or Company has not notified the Sub-Adviser of its disapproval of
sample materials within five (5) days after its receipt thereof, such materials
shall be deemed approved. Materials substantially similar to materials approved
on an earlier occasion, with the exception of any regulatory filings, shall also
be deemed approved.
8. General Provisions
------------------
(a) The Sub-Adviser may rely on information reasonably believed by it to
be accurate and reliable. Except as may otherwise be provided by the
1940 Act, neither the Sub-Adviser nor its officers, directors,
employees or agents shall be subject to any liability for any error of
judgment or mistake of law or for any loss arising out of any
investment or other act or omission in the performance by the Sub-
Adviser of its duties under this Agreement or for any loss or damage
resulting from the imposition by any government or exchange control
restrictions which might affect the liquidity of the Fund's assets, or
from acts or omissions of custodians or securities depositories, or
from any war or political act of any foreign government to which such
assets might be exposed, provided that nothing herein shall be deemed
to protect or purport to protect, the Sub-Adviser against any
liability to the Adviser or the Company or to its shareholders to
which the Sub-Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties hereunder, or by reason of the Sub-Adviser's reckless disregard
of its obligations and duties hereunder or a breach of its fiduciary
duty.
(b) The Adviser and the Fund understand that the Sub-Adviser now acts,
will continue to act, or may act in the future, as investment adviser
or investment sub-adviser to fiduciary and other managed accounts,
including other investment companies and the Adviser and the Fund have
no objection to the Sub-Adviser so acting provided that the Sub-
Adviser duly performs all obligations under this Agreement. The
Adviser and the Fund also understand that the Sub-Adviser may give
advice and take action with respect to any of its other clients or for
its own account which may differ from the timing or nature of action
taken by the Sub-Adviser, with respect to the Fund. Nothing in this
Agreement shall impose upon the Sub-Adviser any obligation to purchase
or sell or to recommend for purchase or sale, with respect to the
Fund, any security which the Sub-Adviser or its shareholders,
directors, officers, employees or affiliates may purchase or sell for
its or their own account(s) or for the account of any other client.
(c) Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the right of the
Sub-Adviser, or the right of any of its officers, directors or
employees who may also be an officer, director or employee of the
Company, or person otherwise affiliated with the Company (within the
meaning of the 1940 Act) to engage in any other business or to devote
time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render
services of any kind to any other trust, corporation, firm, individual
or association.
(d) Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Florida. The captions in this
Agreement are included for convenience only and in no way defame or
delimit any of the provisions hereof or otherwise affect their
construction or effect.
(e) Any notice under this Agreement shall be in writing, addressed and
delivered or mailed postage pre-paid to the appropriate party at the
following address: The Adviser, the Company and the Fund at 777 East
Wisconsin Avenue, Suite 800, Milwaukee, Wisconsin 53202, and the Sub-
Adviser at 515 East Las Olas Blvd., Suite 1300, Fort Lauderdale,
Florida 33301, Attention: General Counsel.
(f) Sub-Adviser agrees to notify Adviser of any change in Sub-Adviser's
senior officers, portfolio managers, and directors within a reasonable
time after such change. Sub-Adviser further agrees to provide Adviser
with any amendments to Parts I and II of its ADV within a reasonable
time after such amendments and notify Adviser of any regulatory, civil
or criminal proceedings, actions or complaints involving the Sub-
Adviser or its affiliates within a reasonable time.
(g) This Agreement may be amended in accordance with the 1940 Act.
(h) This Agreement constitutes the entire agreement among the parties
hereto.
(i) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first above written.
HANSBERGER GLOBAL INVESTORS, INC.
By:/s/ Thomas L. Hansberger
-------------------------------
Thomas L. Hansberger, President
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY
By:/s/ Scott Harkness
------------------
Name: Scott Harkness
Title: Chairman
PORTICO FUNDS, INC.
By:/s/ Mary Ellen Stanek
-----------------
Name: Mary Ellen Stanek
Title: Vice President
EXHIBIT (5)(K)
ADDENDUM NO. 5 TO THE INVESTMENT ADVISORY AGREEMENT
This Addendum, dated as of the 15th day of August, 1997, is entered into
between PORTICO FUNDS, INC. (the "Company"), a Wisconsin corporation, and
Firstar Investment Research and Management Company, LLC (the "Investment
Adviser").
WHEREAS, the Company and the Investment Adviser have entered into an
Investment Advisory Agreement dated as of March 27, 1992 (the "Advisory
Agreement"), pursuant to which the Company appointed the Investment Adviser to
act as investment adviser to the Company for its Balanced Fund;
WHEREAS, Section 1(b) of the Advisory Agreement provides that in the event
the Company establishes one or more additional investment portfolios with
respect to which it desires to retain the Investment Adviser to act as the
investment adviser under the Advisory Agreement, the Company shall so notify the
Investment Adviser in writing, and if the Investment Adviser is willing to
render such services it shall notify the Company in writing, and the
compensation to be paid to the Investment Adviser shall be that which is agreed
to in writing by the Company and the Investment Adviser; and
WHEREAS, pursuant to Section 1(b) of the Advisory Agreement, the Company
has notified the Investment Adviser that it has established the Emerging Growth
Fund and that it desires to retain the Investment Adviser to act as the
investment adviser therefor, and the Investment Adviser has notified the Company
that it is willing to serve as investment adviser for the Emerging Growth Fund
(the "Fund");
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT. The Company hereby appoints the Investment Adviser to
act as investment adviser to the Company for the Emerging Growth Fund for the
period and the terms set forth herein and in the Advisory Agreement. The
Investment Adviser hereby accepts such appointment and agrees to render the
services set forth herein and in the Advisory Agreement, for the compensation
herein provided.
2. COMPENSATION. For the services provided and the expenses assumed with
respect to the Emerging Growth Fund pursuant to the Advisory Agreement and this
Addendum, the Company will pay the Investment Adviser and the Investment Adviser
will accept as full compensation therefor (a) 4/10 of the gross income earned by
the Fund on the loan of its securities (excluding capital gains and losses if
any), plus (b) a fee, computed daily and paid monthly, at the annual rate of
.75% of the Fund's average daily net assets.
3. MISCELLANEOUS. Except to the extent supplemented hereby, the Advisory
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of the
date and year first above written.
PORTICO FUNDS, INC.
By:/s/ James M. Wade
-----------------------
(Authorized Officer)
FIRSTAR INVESTMENT RESEARCH
AND MANAGEMENT COMPANY, LLC
By:/s/ Mary Ellen Stanek
-----------------------
(Authorized Officer)
EXHIBIT (6)(D)
ADDENDUM NO. 2 TO THE DISTRIBUTION AGREEMENT
This Addendum, dated as of the 15th day of August 1997, is entered into
between Portico Funds, Inc. (the "Company"), a Wisconsin corporation, and B.C.
Ziegler and Company, a Wisconsin corporation ("BCZ").
WHEREAS, the Company and BCZ have entered into a Distribution Agreement
dated as of January 1, 1995 and amended as of August 1, 1995, (the "Distribution
Agreement"), pursuant to which the Company appointed BCZ to provide distribution
services to the Company for its Money Market Fund, Tax-Exempt Money Market Fund,
Growth and Income Fund, Short-Term Bond Market Fund, Bond IMMDEX/TM Fund,
Special Growth Fund, U.S. Government Money Market Fund, Equity Index Fund,
Institutional Money Market Fund, U.S. Treasury Money Market Fund, Balanced
Fund, MidCore Growth Fund, Intermediate Bond Market Fund, Tax-Exempt
Intermediate Bond Fund, International Equity Fund, and MicroCap Fund, and any
other Portico Funds that may be contemplated;
WHEREAS, the Company is establishing one additional investment portfolio to
be known as the Emerging Growth Fund and desires to retain BCZ to act as the
distributor under the Distribution Agreement; and
WHEREAS, BCZ is willing to serve as distributor for the Emerging Growth
Fund (the "Fund");
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT. The Company hereby appoints BCZ to act as distributor to
the Company for the Emerging Growth Fund for the period and the terms set forth
herein and in the Distribution Agreement. BCZ hereby accepts such appointment
and agrees to render the services set forth herein and in the Distribution
Agreement.
2. MISCELLANEOUS. Except to the extent supplemented hereby, the
Distribution Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of the
date and year first above written.
PORTICO FUNDS, INC.
By:/s/ James M. Wade
--------------------------
(Authorized Officer)
B.C. ZIEGLER AND COMPANY
By:/s/ Robert J. Tuszynski
--------------------------
(Authorized Officer)
EXHIBIT (8)(I)
CUSTODIAN AGREEMENT
(ADDITION OF THE INTERNATIONAL EQUITY FUND)
Firstar Trust Company
P.O. Box 2054
Milwaukee, WI 53201
Gentlemen:
Pursuant to Paragraph 16 of the Custodian Agreement dated as of
July 29, 1988 and amended as of May 1, 1990, between you and Portico Funds, Inc.
(formerly, Elan Funds, Inc.) (the "Company"), the Company requests that you
render services as Custodian under the terms of said agreement with respect to
the International Equity Fund. Your compensation for the services provided
under said agreement for said additional portfolio shall be determined in
accordance with the fee schedule attached hereto.
Please sign two copies of this letter where indicated to signify your
agreement to serve as Custodian and to the compensation terms set forth on the
attached fee schedule.
Sincerely,
Dated: August 19, 1997 PORTICO FUNDS, INC.
By:/s/ James M. Wade
--------------------------
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:/s/ Joseph C. Neuberger Dated: August 19, 1997
----------------------------
(Authorized Officer)
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
MUTUAL FUND CUSTODIAL AGENT SERVICE ANNUAL FEE SCHEDULE
FOR
International Equity Fund
-------------------------
Annual Fee based on total assets of the Portico Fund:
- ----------
0.02% on the first $2 billion
0.15% on the next $2 billion
0.01% on the balance in excess of $4 billion
Investment Transactions: Purchase, sale, exchange, tender, redemption
(maturity), receipt and delivery.
$12.00 per Book Entry Securities (Depository or Federal
Reserve System).
$25.00 per Definitive Security (Physical).
$75.00 per Euroclear.
$ 8.00 per Principal reduction on pass-through certificates.
$35.00 per Option/Futures Contract.
$15.00 per variation margin transaction.
$25.00 per Mutual Fund trade
$15.00 per Fed Wire deposit or withdrawal
Extraordinary expenses based on time and complexity involved.
Out-of-Pocket Expenses: Charged on the account.
Fees are billed quarterly based on the value at the beginning of the quarter.
EXHIBIT (8)(L)
CUSTODIAN AGREEMENT
(ADDITION OF THE EMERGING GROWTH FUND)
Firstar Trust Company
P.O. Box 2054
Milwaukee, WI 53201
Gentlemen:
Pursuant to Paragraph 16 of the Custodian Agreement dated as of
July 29, 1988 and amended as of May 1, 1990, between you and Portico Funds, Inc.
(formerly, Elan Funds, Inc.) (the "Company"), the Company requests that you
render services as Custodian under the terms of said agreement with respect to
the Emerging Growth Fund, an additional portfolio which the Company is
establishing. Your compensation for the services provided under said agreement
for said additional portfolio shall be determined in accordance with the fee
schedule attached hereto.
Please sign two copies of this letter where indicated to signify your
agreement to serve as Custodian and to the compensation terms set forth on the
attached fee schedule.
Sincerely,
Dated: August 15, 1997 PORTICO FUNDS, INC.
By:/s/ James M. Wade
--------------------------
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:/s/ Joseph C. Neuberger Dated: August 15, 1997
--------------------------
(Authorized Officer)
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
MUTUAL FUND CUSTODIAL AGENT SERVICE ANNUAL FEE SCHEDULE
FOR
Emerging Growth Fund
--------------------
Annual Fee based on total assets of the Portico Fund:
0.02% on the first $2 billion
0.15% on the next $2 billion
0.01% on the balance in excess of $4 billion
Investment Transactions: Purchase, sale, exchange, tender, redemption
(maturity), receipt and delivery.
$12.00 per Book Entry Securities (Depository or Federal
Reserve System).
$25.00 per Definitive Security (Physical).
$75.00 per Euroclear.
$ 8.00 per Principal reduction on pass-through certificates.
$35.00 per Option/Futures Contract.
$15.00 per variation margin transaction.
$25.00 per Mutual Fund trade
$15.00 per Fed Wire deposit or withdrawal
Extraordinary expenses based on time and complexity involved.
Out-of-Pocket Expenses: Charged on the account.
Fees are billed quarterly based on the value at the beginning of the quarter.
EXHIBIT (8)(M)
FOREIGN CUSTODIAN MONITORING AGREEMENT
AGREEMENT made as of June 13, 1997 between Portico Funds, Inc., a Wisconsin
corporation ("Portico") and Firstar Investment Research and Management Company
("FIRMCO").
WHEREAS, Portico is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, Portico has retained FIRMCO to furnish investment advisory and
other services;
WHEREAS, the Board of Directors of Portico wishes to delegate to FIRMCO the
responsibility of monitoring Portico's foreign custody arrangements as provided
in Rule 17f-5 under the 1940 Act, and FIRMCO is willing to undertake such
responsibility;
WHEREAS, the Board of Directors of Portico has determined that it is
reasonable to rely on FIRMCO to perform the responsibilities delegated to it
under this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and intending to be legally bound, the parties hereto agree as follows:
1. Portico hereby delegates to FIRMCO the responsibility of monitoring
foreign custody arrangements for Portico's existing and future investment
portfolios in accordance with Rule 17f-5 under the 1940 Act, and FIRMCO accepts
such delegation and agrees to furnish the services set forth herein.
2. With respect to each foreign custodian that holds assets of any
investment portfolio of Portico, FIRMCO shall:
(a) determine that Portico's assets will be subject to reasonable
care, based on the standards applicable to custodians in the relevant
market, if maintained with such foreign custodian, after considering
all factors relevant to the safekeeping of such assets, including,
without limitation:
(i) the foreign custodian's practices, procedures
and internal controls, including but not limited to, the physical
protections available for certificated securities (if
applicable), the method of keeping custodial records and the
security and data protection practices;
(ii) whether the foreign custodian has the requisite financial
strength to provide reasonable care for the Portico's assets;
(iii) the foreign custodian's general reputation and standing
and, in the case of a foreign securities depository, the
depository's operating history and number of participants;
and
(iv) whether Portico will have jurisdiction over and be able to
enforce judgments against the foreign custodian, such as by
virtue of the existence of any offices of the foreign custodian
in the United States or the foreign custodian's consent
to service of process in the United States.
(b) determine that the written contract with such foreign custodian
governing the foreign custody arrangements (or, in the case of a
foreign securities depository, that a written contract, the rules or
established practices or procedures of the depository or any
combination of the foregoing) will provide reasonable care for
Portico's assets based on the standards specified in paragraph 2(a)
above, and that such contract includes provisions that at least
provide the following; provided, however, that such contract may
contain, in lieu of any or all of the provisions specified in (b)(i)
through (b)(v), such other provisions that FIRMCO determines will
provide, in their entirety, the same or a greater level of care and
protection for Portico's assets as those provided in (b)(i) through
(b)(v) in their entirety:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that Portico will be
adequately protected against the risk of loss of assets held
in accordance with such contract;
(ii) that Portico's assets will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of
the foreign custodian or its creditors except a claim of payment
for their safe custody or administration or, in the case of cash
deposits, liens or rights in favor of creditors of the custodian
arising under bankruptcy, insolvency, or similar laws;
(iii) that beneficial ownership for Portico's assets will be
freely transferable without the payment of money or value other
than for safe custody or administration;
(iv) that adequate records will be maintained identifying the
assets as belonging to Portico or as being held by a third party
for the benefit of Portico and that Portico's independent public
accountants will be given access to those records or confirmation
of the contents of those records; and
(v) that Portico will receive periodic reports with respect to
the safekeeping of Portico's assets, including, but not limited
to, notification of any transfer to or from Portico's account or
a third party account containing assets held for the benefit of
Portico.
(c) establish a system to monitor the appropriateness of maintaining
Portico's assets with such foreign custodian and the contract
governing Portico's foreign custody arrangements;
(d) provide to Portico's Board of Directors, at least annually,
written reports notifying the Board of the placement of Portico's
assets with a particular foreign custodian and quarterly, of any
material change in Portico's foreign custodian arrangements; and
(e) withdraw Portico's assets from any foreign custodian as soon as
reasonably practicable, if the foreign custody arrangement no longer
meets the requirement of Rule 17f-5.
3. In providing the services set forth above, FIRMCO agrees to exercise
reasonable care, prudence and diligence such as a person having responsibility
for the safekeeping of Portico Funds' assets would exercise.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written
PORTICO FUNDS, INC.
By /s/ James M. Wade
-----------------------
(Authorized Officer)
FIRSTAR INVESTMENT RESEARCH AND
MANAGEMENT COMPANY
By /s/ Laura Rauman
-----------------------
(Authorized Officer)
EXHIBIT (9)(AC)
ADDENDUM NO. 2 TO THE CO-ADMINISTRATION AGREEMENT
This Addendum, dated as of the 15th day of August, 1997, is entered into
among Portico Funds, Inc. (the "Company"), a Wisconsin corporation, Firstar
Trust Company, a Wisconsin corporation ("Firstar"), and B.C. Ziegler and
Company, a Wisconsin corporation ("BCZ").
WHEREAS, the Company, Firstar and BCZ have entered into a Co-Administration
Agreement dated as of January 1, 1995 and amended as of August 1, 1995 (the "Co-
Administration Agreement"), pursuant to which the Company appointed Firstar and
BCZ to provide certain co-administrative services to the Company for its Money
Market Fund, Tax-Exempt Money Market Fund, Growth and Income Fund, Short-Term
Bond Market Fund, Bond IMMDEXTM Fund, Special Growth Fund, U.S. Government Money
Market Fund, Equity Index Fund, Institutional Money Market Fund, U.S. Treasury
Money Market Fund, Balanced Fund, MidCore Growth Fund, Intermediate Bond Market
Fund, Tax-Exempt Intermediate Bond Fund, International Equity Fund, MicroCap
Fund, and any other Portico Funds that may be contemplated (collectively, the
"Funds");
WHEREAS, the Company is establishing one additional investment portfolio to
be known as the Emerging Growth Fund and desires to retain Firstar and BCZ to
act as the co-administrators under the Co-Administration Agreement; and
WHEREAS, Firstar and BCZ are willing to serve as co- administrators for the
Emerging Growth Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT. The Company hereby appoints Firstar and BCZ to act as
co-administrators to the Company for the Emerging Growth Fund for the period and
the terms set forth herein and in the Co-Administration Agreement. Firstar and
BCZ hereby accept such appointment and agree to render the services set forth
herein and in the Co-Administration Agreement, for the compensation herein
provided.
2. COMPENSATION. For the services provided and the expenses assumed with
respect to the Emerging Growth Fund and the other Funds pursuant to the Co-
Administration Agreement and this Addendum, the Company will pay Firstar and
BCZ, and Firstar and BCZ will accept as full compensation therefor, a fee,
computed daily and payable monthly, at the annual rate of .125% of the Funds'
first $2 billion of average aggregate daily net assets, plus 0.10% of the Funds'
average aggregate daily net assets in excess of $2 billion. Such fee as is
attributable to the Emerging Growth Fund shall be a separate charge to such Fund
and shall be the obligation of the Emerging Growth Fund.
3. MISCELLANEOUS. Except to the extent supplemented hereby, the Co-
Administration Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of the
date and year first above written.
PORTICO FUNDS, INC.
By:/s/ James M. Wade
---------------------------
(Authorized Officer)
FIRSTAR TRUST COMPANY
By:/s/ Joseph C. Neuberger
---------------------------
(Authorized Officer)
B.C. ZIEGLER AND COMPANY
By:/s/ Robert J. Tuszynski
---------------------------
(Authorized Officer)
EXHIBIT (9)(AD)
FUND ACCOUNTING SERVICING AGREEMENT
(ADDITION OF EMERGING GROWTH FUND)
Firstar Trust Company
P.O. Box 2054
Milwaukee, WI 53201
Gentlemen:
Pursuant to Paragraph 4 of the Fund Accounting Servicing Agreement
dated March 23, 1988 that you and we have entered into, we are writing to
request that you render accounting services under the terms of said agreement
with respect to the Emerging Growth Fund, one additional portfolio we are
establishing. Your compensation for the services provided under said agreement
for said additional portfolio shall be determined in accordance with the fee
schedule attached hereto. Please sign two copies of this letter where indicated
to signify your agreement to provide said services and to the compensation terms
set forth on the attached fee schedule.
Sincerely,
Dated: August 15, 1997 PORTICO FUNDS, INC.
By: /s/ James M. Wade
----------------------
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:/s/ Joseph C. Neuberger Dated: August 15, 1997
------------------------
(Authorized Officer)
FIRSTAR TRUST COMPANY
FUND VALUATION AND ACCOUNTING
FOR
PORTICO FUNDS, INC.
Emerging Growth Fund
Portfolio Services
Annual fee schedule for Emerging Growth Fund based on market value of assets.
$27,500 for first $40,000,000.00
1.25/100 of 1% on the next $200,000,000.00
6.25/100 of 1% on the balance.
Out-of-Pocket Expenses: Charged on the Account.
Fees are billed monthly.
EXHIBIT (9)(AE)
SHAREHOLDER SERVICING AGENT AGREEMENT
(ADDITION OF THE EMERGING GROWTH FUND)
Firstar Trust Company
P.O. Box 2054
Milwaukee, WI 53201
Gentlemen:
Pursuant to Paragraph 7 of the Shareholder Servicing Agent Agreement
dated as of March 23, 1988 and amended as of May 1, 1990, between you and
Portico Funds, Inc. (formerly, Elan Funds, Inc.) (the "Company"), the Company
requests that you render services as Shareholder Servicing Agent under the terms
of said agreement with respect to the Emerging Growth Fund, one additional
portfolio the Company is establishing. Your compensation for the services
provided under said agreement for said additional portfolio shall be determined
in accordance with the fee schedule attached hereto.
Please sign two copies of this letter where indicated to signify your
agreement to so serve as Shareholder Servicing Agent for the Emerging Growth
Fund and to the compensation terms set forth on the attached fee schedule for
the new Fund, which terms are to become effective as of the date set forth
below.
Sincerely,
Dated: August 15, 1997 PORTICO FUNDS, INC.
By: /s/ James M. Wade
------------------------
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By: /s/ Andrea McVoy Dated: August 15, 1997
-------------------------
(Authorized Officer)
FIRSTAR TRUST COMPANY
MUTUAL FUND SHAREHOLDER SERVICES
FOR
PORTICO FUNDS, INC.
Emerging Growth Fund
--------------------
Annual Fee Schedule
- -------------------
$15.00 per Shareholder account
$ 5.00 per telephone exchange
$12.00 per wire transfer
Minimum annual fee of $24,000 per Fund.
Account fees shall be waived on the initial 800 accounts per series.
Fees billed monthly.
Plus out-of-pocket expenses including, but not limited to:
- Telephone--Toll-free lines
- Postage
- Programming
- Stationery/Envelopes
- Mailing
- Proxies
- Insurance
- Retention of Records
- Microfilm/Microfiche of Records
- Special Reports
- All other out-of pocket expenses
Plus, with respect to Two-Dimensional Transaction:
$1.00 per shareholder account to set-up
$1.00 per shareholder account to alter
AUTOMATIC INVESTMENT PLAN PROCESSING
------------------------------------
$125.00 per cycle
$ 0.50 per account set-up and/or change
$ 0.50 per item for AIP purchases
$ 3.50 per correction, reversal or return item
EXHIBIT (9)(AF)
FUND ACCOUNTING SERVICING AGREEMENT
(Addition of International Equity Fund)
Firstar Trust Company
P.O. Box 2054
Milwaukee, WI 53201
Gentlemen:
Pursuant to Paragraph 4 of the Fund Accounting Servicing Agreement
dated March 23, 1988 that you and we have entered into, we are writing to
request that you render accounting services under the terms of said agreement
with respect to the International Equity Fund. Your compensation for the
services provided under said agreement for said additional portfolio shall be
determined in accordance with the fee schedule attached hereto. Please sign two
copies of this letter where indicated to signify your agreement to provide said
services and to the compensation terms set forth on the attached fee schedule.
Sincerely,
Dated: September 2, 1997 PORTICO FUNDS, INC.
By:/s/ Mary Ellen Stanek
---------------------------
(Authorized Officer)
ACKNOWLEDGED AND AGREED:
FIRSTAR TRUST COMPANY
By:/s/ Andrea McVoy Dated: September 2, 1997
--------------------
(Authorized Officer)
FIRSTAR TRUST COMPANY
FUND VALUATION AND ACCOUNTING
FOR
PORTICO FUNDS, INC.
International Equity Fund
-------------------------
Portfolio Services
- ------------------
Annual fee schedule for International Equity Fund based on market value of
assets.
$31,250 for first $40,000,000.00
2.5/100 of 1% on the next $200,000,000.00
1.25/100 of 1% on the next $200,000,000.00
6.25/1000 of 1% on the balance.
Out-of-Pocket Expenses: Charged on the Account.
Fees are billed monthly.
October 30, 1997
Portico Funds, Inc.
Portico Funds Center
615 East Michigan Street
Milwaukee, WI 53201-3011
Re: Portico Funds, Inc. - Classes 1 through 30 Common Stock
Gentlemen:
We have acted as counsel for Portico Funds, Inc., a Wisconsin
corporation ("Portico"), in connection with the registration by Portico of its
shares of common stock, par value $.0001 per share. The Articles of
Incorporation of Portico authorize the issuance of one hundred fifty billion
(150,000,000,000) shares of common stock, which are divided into thirty (30)
classes, designated as Classes 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14,
15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29 and 30, respectively
(each, a "Class" and collectively, the "Classes"). The Board of Directors of
Portico (the "Board") has previously classified certain of the shares of common
stock of each of Classes 1 through 18 into two series, designated as
Institutional Series and Series A and has previously authorized the issuance of
shares of these series to the public. The shares of Common Stock designated
into each such series are referred to herein as the "Current Series Common
Stock"; the shares of Common Stock that are not designated into series are
referred to herein as the "Future Common Stock"; and the Current Series Common
Stock and the Future Common Stock are referred to collectively herein as the
"Common Stock." You have asked for our opinion on certain matters relating to
the Common Stock.
We have reviewed Portico's Articles of Incorporation and By-laws,
resolutions of Portico's Board, certificates of public officials and of
Portico's officers and such other legal and factual matters as we have deemed
appropriate. We have also reviewed Portico's Registration Statement on Form N-
1A under the Securities Act of 1933 (the "Registration Statement"), as amended
through Post-Effective Amendment No. 32 thereto.
This opinion is based exclusively on the laws of the State of
Wisconsin and the federal law of the United States of America. We have relied
on an opinion of Foley & Lardner, special Wisconsin counsel to Portico, insofar
as our opinion relates to matters arising under the laws of the State of
Wisconsin.
We have also assumed the following for purposes of this opinion:
1. The shares of Current Series Common Stock have been, and will
continue to be, issued in accordance with the Articles of Incorporation and By-
laws of Portico and resolutions of Portico's Board and shareholders relating to
the creation, authorization and issuance of the Current Series Common Stock.
2. Prior to the issuance of any shares of Future Common Stock, the
Board (a) will duly authorize the issuance of such Future Common Stock, (b) will
determine with respect to each class of such Future Common Stock the
preferences, limitations and relative rights applicable thereto and (c) if such
Future Common Stock is classified into separate series, will duly take the
action necessary (i) to create such series and to determine the number of shares
of such series and the relative designations, preferences, limitations and
relative rights thereof ("Future Series Designations") and (ii) to amend
Portico's Articles of Incorporation to provide for such additional series.
3. With respect to the shares of Future Common Stock, there will be
compliance with the terms, conditions and restrictions applicable to the
issuance of such shares that are set forth in (i) Portico's Articles of
Incorporation and By-laws, each as amended as of the date of such issuance, and
(ii) the applicable Future Series Designations.
4. The Board will not change the number of shares of any series of
Common Stock, or the preferences, limitations or relative rights of any class or
series of Common Stock after any shares of such class or series have been
issued.
Based upon the foregoing, we are of the opinion that:
1. Portico is authorized to issue (a) the number of shares of each
of Classes 1 through 30 of its Common Stock set forth in the table below, (b)
the number of shares of each series of Current Series Common Stock set forth in
the table below, and (c) the number of shares of each of Classes 1 through 30 of
its Common Stock unclassified as to series set forth in the table below:
(b) and (c)
Shares in Series
(a) and Shares Unclassified
Class Shares in Class as to Series
--------------- --------------
1 20,000,000,000
1-Institutional 5,000,000,000
1-A 5,000,000,000
1-Unclassified as to Series 10,000,000,000
2 20,000,000,000
2-Institutional 5,000,000,000
2-A 5,000,000,000
2-Unclassified as to Series 10,000,000,000
3 20,000,000,000
3-Institutional 5,000,000,000
3-A 5,000,000,000
3-Unclassified as to Series 10,000,000,000
4 20,000,000,000
4-Institutional 5,000,000,000
4-A 5,000,000,000
4-Unclassified as to Series 10,000,000,000
5 20,000,000,000
5-Institutional 5,000,000,000
5-A 5,000,000,000
5-Unclassified as to Series 10,000,000,000
6 2,000,000,000
6-Institutional 500,000,000
6-A 500,000,000
6-Unclassified as to Series 1,000,000,000
7 2,000,000,000
7-Institutional 500,000,000
7-A 500,000,000
7-Unclassified as to Series 1,000,000,000
8 2,000,000,000
8-Institutional 500,000,000
8-A 500,000,000
8-Unclassified as to Series 1,000,000,000
9 2,000,000,000
9-Institutional 500,000,000
9-A 500,000,000
9-Unclassified as to Series 1,000,000,000
10 2,000,000,000
10-Institutional 500,000,000
10-A 500,000,000
10-Unclassified as to Series 1,000,000,000
11 2,000,000,000
11-Institutional 500,000,000
11-A 500,000,000
11-Unclassified as to Series 1,000,000,000
12 2,000,000,000
12-Institutional 500,000,000
12-A 500,000,000
12-Unclassified as to Series 1,000,000,000
13 2,000,000,000
13-Institutional 500,000,000
13-A 500,000,000
13-Unclassified as to Series 1,000,000,000
14 2,000,000,000
14-Institutional 500,000,000
14-A 500,000,000
14-Unclassified as to Series 1,000,000,000
15 2,000,000,000
15-Institutional 500,000,000
15-A 500,000,000
15-Unclassified as to Series 1,000,000,000
16 2,000,000,000
16-Institutional 50,000,000
16-A 50,000,000
16-Unclassified as to Series 1,900,000,000
17 2,000,000,000
17-Institutional 100,000,000
17-A 100,000,000
17-Unclassified as to Series 1,800,000,000
18 2,000,000,000
18-Institutional 100,000,000
18-A 100,000,000
18-Unclassified as to Series 1,800,000,000
19 All Unclassified as to Series 2,000,000,000
20 All Unclassified as to Series 2,000,000,000
21 All Unclassified as to Series 2,000,000,000
22 All Unclassified as to Series 2,000,000,000
23 All Unclassified as to Series 2,000,000,000
24 All Unclassified as to Series 2,000,000,000
25 All Unclassified as to Series 2,000,000,000
26 All Unclassified as to Series 2,000,000,000
27 All Unclassified as to Series 2,000,000,000
28 All Unclassified as to Series 2,000,000,000
29 All Unclassified as to Series 2,000,000,000
30 All Unclassified as to Series 2,000,000,000
2. Portico's Board is authorized (i) to create from time to time one
or more additional series of shares in any or all of its thirty Classes of
Common Stock, (ii) to determine, at the time of creation of any such series, the
number of shares of such series and the designations, preferences, limitations
and relative rights thereof and (iii) to amend the Articles of Incorporation to
provide for such additional series.
3. All necessary action by Portico to authorize the Current Series
Common Stock has been taken, and Portico has the power to issue the shares of
Current Series Common Stock.
4. The shares of Common Stock will be, when issued
in accordance with, and sold for the consideration described in, the
Registration Statement (provided that (i) the price of such shares is not less
than the par value thereof and (ii) the number of shares of any class or series
issued does not exceed the authorized number of shares for such class or series
as of the date of issuance of the shares), validly issued, fully paid and
(except as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law and judicial interpretations thereof) non-assessable by Portico.
We consent to the filing of this opinion with Post-Effective Amendment No.
32 to the Registration Statement to be filed by Portico with the Securities and
Exchange Commission.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
EXHIBIT 11 (A)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to
our Firm under the caption "Counsel" in the Statement of Additional Information
that is included in Post-Effective Amendment No. 32 to the Registration
Statement (No. 33-18255) on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, of Portico Funds, Inc. This consent
does not constitute a consent under section 7 of the Securities Act of 1933, and
in consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ Drinker Biddle & Reath LLP
---------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
October 30, 1997
Exhibit (11) (b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information constituting part of
this Post-Effective Amendment No. 32 to the Portico Funds, Inc. registration
statement on Form N-1A.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
October 30, 1997
EXHIBIT (18)
PORTICO FUNDS, INC.
(THE "COMPANY")
AMENDED AND RESTATED
PLAN PURSUANT TO RULE 18F-3 FOR OPERATION OF
A MULTI-SERIES SYSTEM
---------------------
I. INTRODUCTION
----------------
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act") which permits the creation and operation of a multi-
class distribution structure (or in the case of the Company, a multi-series
distribution structure) without the need to obtain an exemptive order under
Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among classes, including the various services
offered to shareholders, different distribution arrangements for each class,
methods for allocating expenses relating to those differences and any conversion
features or exchange privileges. Currently, the Company operates a multi-series
distribution structure pursuant to an exemptive order granted by the Commission
on December 6, 1994. On March 17, 1995, the Board of Directors of the Company
authorized the Company to operate its current multi-series distribution
structure in compliance with Rule 18f-3. This Plan pursuant to Rule 18f-3 for
operation of a multi-series system became effective on April 3, 1995, was
amended and restated on June 16, 1995 and September 15, 1995 and is hereby
amended and restated on June 13, 1997.
II. ATTRIBUTES OF SERIES
------------------------
A. Generally
- ------------
The Company shall initially offer two series-- Institutional and
Series A ("Retail") shares. In general, shares of each series shall be
identical except for different expense variables (which will result in different
returns for each series), certain related rights and certain shareholder
services. More particularly, the Institutional and Retail shares of an
investment portfolio (a "Fund") of the Company shall represent interests in the
same portfolio of investments of the particular Fund, and shall be identical in
all respects, except for: (a) the impact of (i) expenses assessed to a series
pursuant to a Service Plan and Distribution and Service Plan (collectively, the
"Plans"), and (ii) any other incremental expenses subsequently identified that
should be properly allocated to one series so long as any subsequent changes in
expense allocations are reviewed and approved by a vote of the Board of
Directors, including a majority of the independent directors; (b) the fact that
the series shall vote separately with respect to a Fund's Plans and any matter
submitted to shareholders relating to series expenses; (c) the different
exchange privileges of the series of shares; (d) the designation of each series
of shares of a Fund; (e) the sales load applicable to Retail shares and (f) the
different shareholder services relating to a series of shares.
B. Distribution Arrangements, Expenses and Sales Charges
- --------------------------------------------------------
RETAIL SHARES- NON-MONEY MARKET FUNDS
Retail shares of the Growth and Income Fund, Short-Term Bond Market
Fund, Special Growth Fund, Bond IMMDEXTM Fund, Equity Index Fund, Balanced Fund,
MidCore Growth Fund, Intermediate Bond Market Fund, Tax-Exempt Intermediate Bond
Fund, International Equity Fund, MicroCap Fund, Balanced Income Fund and
Emerging Growth Fund (the "Non-Money Market Funds") shall be offered to the
general public and shall be subject to a shareholder servicing and/or
distribution fee payable pursuant to the Plans which shall not initially exceed
0.25% (on an annual basis) of the average daily net assets attributable to
Retail shares of the Non-Money Market Funds. Retail shares of the Growth and
Income Fund, Special Growth Fund, Equity Index Fund, Balanced Fund, MidCore
Growth Fund, International Equity Fund, Balanced Income Fund, MicroCap Fund and
Emerging Growth Fund shall be further subject to a sales charge which shall not
initially exceed 4.0% of the offering price of the Retail shares of those Funds.
Retail shares of the Short-Term Bond Market Fund, Bond IMMDEXTM Fund,
Intermediate Bond Market Fund and Tax-Exempt Intermediate Bond Fund shall be
further subject to a sales charge which shall not initially exceed 2.0% of the
offering price of the Retail shares of those Funds.
Shareholder services under the Plans may include: (i) processing
dividend and distribution payments; (ii) providing information periodically to
customers showing their positions in Retail shares; (iii) arranging for bank
wires; (iv) responding to customer inquiries relating to the services performed
by shareholder service organizations; (v) providing subaccounting with respect
to Retail shares beneficially owned by customers or the information necessary
for subaccounting; (vi) forwarding shareholder communications (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (vii) processing exchange and
redemption requests from customers and placing net exchange and redemption
orders with the Company's service contractors; (viii) assisting customers in
changing dividend options, account designations and addresses; and (ix)
developing, monitoring and providing ongoing consulting services regarding
expedited purchase, redemption and exchange programs (the "Program") relating to
the purchase of Retail Shares by customers who also own shares of other
unaffiliated investment companies; (x) reviewing the description of the Program
in the materials prepared by the Company and such other investment companies for
distribution to customers; (xi) responding to telephone inquiries from customers
regarding the Programs and their investments in Retail Shares; (xii) acting as a
liaison between customers and the company, including assistance in correcting
errors and resolving problems; (xiii) providing such statistical and other
information as the Company may reasonably request or may be necessary for us to
comply with applicable federal and state laws. In addition, distribution
services may be provided under the Distribution and Service Plan such as
assistance by broker/dealers in forwarding sales literature and advertising to
customers.
RETAIL SHARES - MONEY MARKET FUNDS
Retail shares of the Money Market Fund, Tax-Exempt Money Market Fund,
U.S. Government Money Market Fund, Institutional Money Market Fund and U.S.
Treasury Money Market Fund (the "Money Market Funds") shall be offered to
institutional investors and the general public and, except for the Institutional
Money Market Fund, shall be subject to a shareholder servicing and/or
distribution fee payable pursuant to the Plans which shall not initially exceed
0.25% (on an annual basis) of the average daily net assets attributable to
Retail shares of the Money Market Funds. Retail shares of the Money Market
Funds shall not be subject to a sales charge.
INSTITUTIONAL SHARES - NON-MONEY MARKET FUNDS
Institutional shares of the Non-Money Market Funds shall be offered to
(i) all trust, agency or custodial accounts opened through trust companies or
trust departments affiliated with Firstar Corporation, (ii) all employer-
sponsored qualified retirement plans and (iii) all clients of Firstar Investment
Research & Management Company. Institutional shares shall be offered without a
sales charge and shall not be subject to a shareholder servicing and/or
distribution fee payable pursuant to the Plans.
C. Exchange Privileges
- ----------------------
RETAIL SHARES (EXCEPT THE INSTITUTIONAL MONEY MARKET FUND)
Retail shareholders shall be generally permitted to exchange their
shares in a Fund for Retail shares of other Funds of the Company without charge
or commission by the Fund (except a wire redemption fee which may be waived). A
sales charge shall be imposed on the exchange, in accordance with the
regulations of the Securities and Exchange Commission, if the shares of the Fund
being acquired have a sales charge and the shares being redeemed were purchased
without a sales charge.
INSTITUTIONAL SHARES
The Company shall not initially offer Institutional shares an exchange
privilege.
D. Shareholder Services
- -----------------------
1. Periodic Investment Plan
---------------------------
RETAIL SHARES
Retail shares of the Funds shall initially offer a periodic investment
plan whereby a shareholder may automatically make purchases of shares of a Fund
on a regular, periodic basis.
INSTITUTIONAL SHARES
The Company shall not initially offer Institutional shares a periodic
investment plan.
2. Convertifund/TM Transactions
-------------------------------
RETAIL SHARES
Retail shares shall initially permit shareholders to effect
ConvertifundTM transactions whereby a Retail shareholder may invest proceeds,
including dividend distributions, capital gain distributions and systematic
withdrawals, from one account to another account of the Retail shares of the
Company. ConvertifundTM transactions may be used to invest funds from a regular
account to another regular account, from a qualified plan to another qualified
plan account or from a qualified plan account to a regular account.
INSTITUTIONAL SHARES
The Company shall not initially offer Institutional shares the
ConvertifundTM transaction service.
3. Systematic Withdrawal Plan
-----------------------------
RETAIL SHARES
Retail shares shall initially offer a systematic withdrawal plan which
allows a shareholder to designate a fixed sum to be distributed to the
shareholder or as otherwise directed at regular intervals.
INSTITUTIONAL SHARES
The Company shall not initially offer Institutional shares a
systematic withdrawal plan.
E. Methodology for Allocating Expenses Between Series
- -----------------------------------------------------
In allocating expenses a determination shall be made as to which
expenses are series level and which expenses are Fund level.
Prior to determining the day's net asset value or
dividends/distributions, the following expense items must be calculated as
indicated:
1. ADVISER'S FEE
The current day's accrual shall be calculated using the beginning of
the day's total net assets of the Fund, and shall be allocated to each series
based upon the relative "adjusted net assets" of each series or the relative
"value of adjusted dividend shares" of each series as appropriate.
2. DISTRIBUTION AND SERVICE AND SHAREHOLDER SERVICE FEES ("SERVICE
FEES")
The current day's accrual shall be calculated using the beginning of
the day's net assets attributable to Retail shares, based on the rates as stated
in the Plans. Service fees shall not be charged to the Institutional shares.
3. OTHER SERIES SPECIFIC EXPENSES
Daily accruals shall be made for each series based on budgeted
expenses attributable to each such series.
4. OTHER EXPENSES
Daily accruals shall be determined from expense budgets and will be
allocated to each series based upon the relative "adjusted net assets" of each
series or the relative "value of adjusted dividend shares" of each series, as
appropriate.
