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[LOGO]
E M E R A L D
F U N D S
R E T A I L S H A R E S
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E M E R A L D E Q U I T Y F U N D
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E M E R A L D E Q U I T Y V A L U E F U N D
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E M E R A L D I N T E R N A T I O N A L E Q U I T Y F U N D
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E M E R A L D
S M A L L C A P I T A L I Z A T I O N F U N D
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E M E R A L D B A L A N C E D F U N D
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E M E R A L D S H O R T - T E R M
F I X E D I N C O M E F U N D
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E M E R A L D U . S . G O V E R N M E N T
S E C U R I T I E S F U N D
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E M E R A L D M A N A G E D
B O N D F U N D
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E M E R A L D
F L O R I D A T A X - E X E M P T F U N D
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E M E R A L D P R I M E F U N D
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E M E R A L D T R E A S U R Y F U N D
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E M E R A L D T A X - E X E M P T F U N D
FIRST OF APRIL
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1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
HIGHLIGHTS........................................................... 3
SUMMARY OF EXPENSES.................................................. 5
Expenses........................................................... 5
Financial Highlights............................................... 9
INVESTMENT PRINCIPLES AND POLICIES................................... 19
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................... 24
INVESTING IN EMERALD FUNDS........................................... 35
Your Money Manager................................................. 35
Getting Your Investment Started.................................... 35
If You Have Questions.............................................. 36
Other Service Providers............................................ 37
How To Buy Shares.................................................. 38
Opening and Adding to Your Emerald Fund Account.................. 38
Explanation of Sales Price....................................... 41
How To Sell Shares................................................. 41
Transaction Rules.................................................. 43
YOUR EMERALD FUND ACCOUNT............................................ 45
Shareholder Services............................................... 45
Dividends And Distributions........................................ 46
Distribution And Service Arrangements.............................. 47
The Emerald Family Of Funds........................................ 48
THE BUSINESS OF THE FUNDS............................................ 49
Fund Management.................................................... 49
Tax Implications................................................... 51
Measuring Performance.............................................. 53
</TABLE>
IF YOU HAVE QUESTIONS
800/637-3759
8:00 AM - 5:00 PM
For information regarding the Emerald Funds or for assistance with an existing
Emerald Fund account.
If you are investing in the Emerald Funds through an account with Barnett
Securities, Inc., please speak
directly with your assigned Financial Consultant, or contact 800/535-6579 for
assistance with your account.
<PAGE>
[LOGO]
E M E R A L D
F U N D S
April 1, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- -------------------- -------------------------------------------- ------------------------------------
<S> <C> <C>
EQUITY Long-term capital appreciation through Capital appreciation over the long
investments primarily in high quality common term and are willing to accept the
stocks and, secondarily, potential dividend relative risks associated with
income growth equity investments
- --------------------------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation with income Long-term capital appreciation and
as a secondary objective through investments are willing to accept the relative
primarily in common and preferred stock and risks associated with investments in
debt securities convertible into common undervalued stocks
stock
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation through Capital appreciation over the
investments primarily in equity securities long-term and are willing to accept
of foreign issuers the relative risks associated with
foreign investments
- --------------------------------------------------------------------------------------------------------
SMALL Long-term capital appreciation Long-term rewards that may exceed
CAPITALIZATION those provided by a fund investing
in larger, more established
companies and are willing to accept
the relative risks of smaller
companies
- --------------------------------------------------------------------------------------------------------
BALANCED Attractive investment return through a Asset allocation among equity
combination of growth of capital and current securities, fixed income securities
income and cash equivalents in light of
prevailing market and economic
conditions
- --------------------------------------------------------------------------------------------------------
SHORT-TERM Consistently positive current income with Current income greater than normally
FIXED INCOME relative stability of principal through available from a money market fund
investments in investment grade securities and less principal volatility than
and high quality money market instruments normally associated with a long-term
fund
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income through Current income from U.S. Government
SECURITIES investments principally in U.S. Government securities and can accept
securities and repurchase agreements fluctuations in price and yield
- --------------------------------------------------------------------------------------------------------
MANAGED BOND High level of current income and, Current income from corporate and
secondarily, capital appreciation government securities and can accept
fluctuations in price and yield
- --------------------------------------------------------------------------------------------------------
FLORIDA High tax-free income and current liquidity Current income from an investment
TAX-EXEMPT and, secondarily, long- term capital that is both free from regular
appreciation federal income tax and Florida
intangibles tax and has the
possibility of some price
appreciation
- --------------------------------------------------------------------------------------------------------
PRIME High current income, liquidity and the A flexible and convenient way to
preservation of capital through investments manage cash while earning money
in short-term money market instruments market returns
- --------------------------------------------------------------------------------------------------------
TREASURY High current income, liquidity and the A way to earn money market returns
preservation of capital through investments with the extra margin of safety
in short-term U.S. Treasury obligations, as associated with U.S. Treasury
well as related repurchase agreements obligations
- --------------------------------------------------------------------------------------------------------
TAX-EXEMPT High current income free of federal income A way to earn tax-free money market
tax, with liquidity and the preservation of returns
capital through investment in short-term
municipal obligations
- --------------------------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. PLEASE READ AND KEEP IT FOR FUTURE REFERENCE. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) 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.
<PAGE>
Fund shares are not bank deposits or obligations of, or guaranteed or endorsed
by, Barnett Banks Trust Company, N.A. or any of its affiliates and are not
federally insured by, guaranteed by or obligations of, or otherwise supported by
the U.S. Government, the FDIC, the Federal Reserve Board or any other
governmental agency. While the Prime, Treasury and Tax-Exempt Funds will attempt
to maintain their net asset value at $1.00 a share, there can be no assurance
that these Funds will be able to do so on a continuous basis. Investment in the
Funds involves investment risks, including the possible loss of principal. In
addition, the dividends paid by a Fund will go up and down. Barnett Banks Trust
Company, N.A. serves as investment adviser to the Funds, is paid a fee for its
services, and is not affiliated with Emerald Asset Management, Inc., the Funds'
distributor.
MISSOURI INVESTOR NOTICE: THE EMERALD SMALL CAPITALIZATION FUND, WHICH
CONCENTRATES ITS INVESTMENTS IN COMPANIES WITH SMALLER CAPITALIZATIONS, MAY BE
SUBJECT TO GREATER PRICE VOLATILITY THAN A FUND THAT CONCENTRATES ITS
INVESTMENTS IN LARGER CAPITALIZATION STOCKS. IN ADDITION, UP TO 15% OF THE TOTAL
ASSETS OF THE EQUITY, SMALL CAPITALIZATION AND BALANCED FUNDS MAY BE INVESTED IN
CONVERTIBLE SECURITIES RATED BELOW INVESTMENT GRADE AT THE TIME OF PURCHASE AND
ALL OF THE FUNDS MAY RETAIN SECURITIES THAT HAVE BEEN DOWNGRADED TO BELOW
INVESTMENT GRADE AFTER PURCHASE. EACH FUND MAY SELL PORTFOLIO SECURITIES SHORTLY
AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN HIGHER TRANSACTION COSTS AND
TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- ------------------------------------------
Q. WHAT KINDS OF FUNDS ARE OFFERED BY EMERALD FUNDS?
A. Emerald Funds offers a choice of 12 different Funds, each with separate
investment objectives and policies: the Equity, Equity Value, International
Equity, Small Capitalization and Balanced Funds (the "Equity Funds"); the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds (the "Fixed Income Funds"); and the Prime, Treasury and
Tax-Exempt Funds (the "Money Market Funds"). These Funds and their investment
goals are outlined on page 1.
Q. WHO ADVISES EMERALD FUNDS?
A. Barnett Banks Trust Company, N.A. ("Barnett") serves as investment adviser to
Emerald Funds. Barnett is the largest trust organization headquartered in
Florida with more than $9.8 billion under active management. A subsidiary of
Wilmington Trust Company serves as sub-adviser to the Emerald Tax-Exempt Fund.
See "The Business of the Funds."
Q. HOW CAN I PURCHASE SHARES?
A. Shares may be purchased through selected broker-dealers and financial
institutions, including Barnett Securities, Inc. They may also be purchased
directly through BISYS Fund Services Ohio, Inc. ("BISYS Ohio" or the "Transfer
Agent"). There is a $1,000 minimum initial investment, subject to lower minimums
for certain investment programs. See "How to Buy Shares."
Q. CAN I EXCHANGE MY SHARES AFTER PURCHASE?
A. Retail Shares of one Emerald Fund may be exchanged for Retail Shares of
another Emerald Fund.
Q. IS THERE A DIVIDEND REINVESTMENT PROGRAM?
A. You may choose to have dividends and capital gains automatically reinvested
in additional shares of the same class of shares that you own, or dividends and
capital gains may be paid in cash.
Q. WHEN ARE DIVIDENDS PAID?
A. Dividends from net investment income are declared daily and paid monthly for
each of the Money Market and Fixed Income Funds. The Equity Fund, Equity Value
Fund and Balanced Fund declare dividends quarterly, and the Small Capitalization
Fund and International Equity Fund declare dividends annually. Capital gains are
distributed at least annually by each Fund. See "Dividends and Distributions."
Q. HOW CAN I SELL MY SHARES?
A. If you buy shares directly through the Transfer Agent you may redeem (sell)
your Emerald Fund shares by mail, phone or hand delivery as described under "How
to Sell Shares." Emerald Funds also offers an automatic withdrawal program. If
you buy shares through an account at Barnett Securities, Inc. or another
financial institution, you may redeem shares in accordance with the instructions
applicable to your account. See "How to Sell Shares."
Q. WHAT POTENTIAL REWARDS AND RISKS DOES MY INVESTMENT PRESENT?
A. Investing in Emerald Funds presents the potential rewards and risks common to
securities investments. The Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds will invest in common stocks. Stocks have
historically presented greater potential for capital appreciation than debt
obligations, but do not provide the same protection of capital or assurance of
income. In addition, each of these five Funds is permitted to invest in the
stocks of smaller companies and in convertible securities rated below investment
grade, which present greater potential price volatility, I.E., the price may go
up or down.
The market value of debt obligations, which are a major part of the investments
of several of the Emerald Funds, will also fluctuate and will normally rise when
interest rates fall and vice versa. The value of some debt obligations (such as
collateralized mortgage obligations, "stripped" securities, municipal leases and
structured notes) may be more volatile than other types of instruments.
3
<PAGE>
Several of the Funds invest in foreign securities that are considered attractive
by Barnett, but may be subject to potential adverse political and governmental
developments and changes in foreign currency exchange rates.
In seeking to achieve its investment objective, the Florida Tax-Exempt Fund
concentrates its investments in Florida municipal obligations, and is classified
as a non-diversified fund, which means its portfolio may be dependent upon the
performance of a smaller number of securities than is the case with the other
Funds, which are diversified.
The Funds may invest in options and futures, may lend their securities and enter
into repurchase agreements and reverse repurchase agreements with banks and
broker/dealers, and may make limited investments in illiquid securities.
Each Fund's adviser or sub-adviser will evaluate the rewards and risks presented
by all securities purchased by the Fund, and will determine, in connection with
the management of the Fund, how these securities will be used in furtherance of
the Fund's investment objectives. It is possible, however, that these
evaluations will prove to be inaccurate or incomplete and, even when accurate
and complete, it is possible that a Fund will incur loss. For further
information, see "Investment Principles and Policies."
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES
- ------------------------------
EXPENSES
Shareholder Transaction Expenses are charges you pay when buying or selling
shares of a Fund. Annual Fund Operating Expenses are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
general Fund administration, accounting and other services.
Below is information regarding the shareholder transaction expenses and
operating expenses for the Funds' Retail Shares. Examples based on this
information are also provided.
<TABLE>
<CAPTION>
Small
Equity International Capitalization
Equity Fund Value Fund Equity Fund Fund Balanced Fund
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Front End Sales Charge Imposed on Purchases...... None None None None None
Sales Charge Imposed on Reinvested Dividends..... None None None None None
Deferred Sales Charge............................ None None None None None
Redemption Fee................................... None None None None None
Exchange Fee..................................... None None None None None
ANNUAL FUND OPERATING EXPENSES
AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees.................................... 0.60% 0.60% 1.00% 1.00% 0.60%
12b-1 Fees....................................... 0.25% 0.25% 0.25% 0.25% 0.25%
All Other Expenses (After Expense
Reimbursements)................................ 0.48% 0.50% 0.65% 0.50% 0.50%
----------- ----------- ----------- ----------- ------
Total Fund Operating Expenses
(After Expense Reimbursements)(1).............. 1.33% 1.35% 1.90% 1.75% 1.35%
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
</TABLE>
- ------------
(1) See footnote (1) on page 7.
5
<PAGE>
<TABLE>
<CAPTION>
Short-Term
Fixed U.S. Government Managed
Income Fund Securities Fund Bond Fund
--------------- --------------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Front End Sales Charge Imposed on Purchases.......................... None None None
Sales Charge Imposed on Reinvested Dividends......................... None None None
Deferred Sales Charge................................................ None None None
Redemption Fee....................................................... None None None
Exchange Fee......................................................... None None None
ANNUAL FUND OPERATING EXPENSES
AFTER EXPENSE REIMBURSEMENTS (as a percentage of average net assets):
Advisory Fees........................................................ 0.40% 0.40% 0.40%
12b-1 Fees........................................................... 0.25% 0.25% 0.25%
All Other Expenses (After Expense Reimbursements).................... 0.25% 0.45% 0.45%
------ ------ -----------
Total Fund Operating Expenses
(After Expense Reimbursements)(1).................................. 0.90% 1.10% 1.10%
------ ------ -----------
------ ------ -----------
</TABLE>
- ------------
(1) See footnote (1) on page 7.
6
<PAGE>
<TABLE>
<CAPTION>
Florida
Tax-Exempt Fund Prime Fund Treasury Fund Tax-Exempt Fund
--------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Front End Sales Charge Imposed on Purchases............ None None None None
Sales Charge Imposed on Reinvested Dividends........... None None None None
Deferred Sales Charge.................................. None None None None
Redemption Fee......................................... None None None None
Exchange Fee........................................... None None None None
ANNUAL FUND OPERATING EXPENSES
AFTER FEE WAIVERS AND EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees (After Fee Waivers)(1)................... 0.40% 0.23% 0.24% 0.15%
12b-1 Fees............................................. 0.25% 0.25% 0.25% 0.25%
All Other Expenses (After Expense Reimbursements)...... 0.25% 0.42% 0.41% 0.44%
------ ----------- ------ ------
Total Fund Operating Expenses
(After Fee Waivers and Expense Reimbursements)(1).... 0.90% 0.90% 0.90% 0.84%
------ ----------- ------ ------
------ ----------- ------ ------
</TABLE>
- ------------
(1) This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the
Funds. The operating expenses for the Equity, Small Capitalization,
Balanced, Short-Term Fixed Income, U.S. Government Securities, Managed Bond,
Florida Tax-Exempt, Prime, Treasury and Tax-Exempt Funds have been restated
using the current fees and operating expenses that would have been
applicable had they been in effect during the last fiscal year. The
operating expenses for the Equity Value and International Equity Funds are
based on estimated expenses expected to be incurred during the remainder of
the current fiscal year.
Without fee waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.25% for each of the Prime, Treasury and
Tax-Exempt Funds. Absent these waivers and other expense reimbursements, the
total operating expenses for the Retail Shares of the Small Capitalization,
Balanced, Short-Term Fixed Income, U.S. Government Securities, Managed Bond,
Florida Tax-Exempt, Prime, Treasury and Tax-Exempt Funds would be 1.82%,
1.45%, 1.92%, 1.14%, 1.33%, 1.13%, .91%, .92%, and .92%, respectively.
The Adviser may waive its fee and/or reimburse expenses of the Funds from
time to time. These waivers and reimbursements are voluntary and may be
terminated at any time with respect to any Fund without the consent of the
Fund. You should note that any fees that are charged by the Adviser, its
affiliates or any other institutions directly to their customer accounts for
services related to an investment in the Funds are in addition to, and not
reflected in, the fees and expenses described above.
7
<PAGE>
EXAMPLE: Let's say, hypothetically, that the annual return on the Retail Shares
of each Fund is 5%, and that their operating expenses are as described above.
For every $1,000 you invested in a particular Fund, after the periods shown
below, you would have paid this much in expenses during such periods:
<TABLE>
<CAPTION>
1 3 5 10
YEAR AFTER YEARS AFTER YEARS AFTER YEARS AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equity Fund...................................................... $14 $42 $ 73 $160
Equity Value Fund................................................ $14 $43 $ 74 $162
International Equity Fund........................................ $19 $60 $103 $222
Small Capitalization Fund........................................ $18 $55 $ 95 $206
Balanced Fund.................................................... $14 $43 $ 74 $162
Short-Term Fixed Income Fund..................................... $ 9 $29 $ 50 $111
U.S. Government Securities Fund.................................. $11 $35 $ 61 $134
Managed Bond Fund................................................ $11 $35 $ 61 $134
Florida Tax-Exempt Fund.......................................... $ 9 $29 $ 50 $111
Prime Fund....................................................... $ 9 $29 $ 50 $111
Treasury Fund.................................................... $ 9 $29 $ 50 $111
Tax-Exempt Fund.................................................. $ 8 $26 $ 46 $101
</TABLE>
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
8
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP, THE
FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENTS OF
ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR. THE EMERALD EQUITY VALUE FUND AND INTERNATIONAL EQUITY FUND WERE
NOT OPERATIONAL DURING THE PERIODS PRESENTED.
EMERALD EQUITY FUND
Financial highlights for a Retail Share of the Equity Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------ Period Ended
November 30, November 30, November November November 30,
1995 1994 30, 1993 30, 1992 1991*
------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 10.86 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------- ------------- ----------- ----------- -------------
Income from investment operations:
Net investment income................... 0.02 0.08 0.15 0.16 0.12
Net realized and unrealized gain (loss)
on securities......................... 3.76 (0.39) (0.08) 1.73 0.24
------------- ------------- ----------- ----------- -------------
Total income (loss) from investment
operations............................ 3.78 (0.31) 0.07 1.89 0.36
------------- ------------- ----------- ----------- -------------
Less dividends and distributions:
Dividends from net investment income.... (0.02) (0.08) (0.15) (0.16) (0.12)
Distributions from net realized gains on
securities............................ (0.00) (0.57) (0.07) (0.00) (0.00)
------------- ------------- ----------- ----------- -------------
Total dividends and distributions....... (0.02) (0.65) (0.22) (0.16) (0.12)
------------- ------------- ----------- ----------- -------------
Net change in net asset value............. 3.76 (0.96) (0.15) 1.73 0.24
------------- ------------- ----------- ----------- -------------
NET ASSET VALUE, END OF PERIOD............ $ 14.62 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------- ------------- ----------- ----------- -------------
------------- ------------- ----------- ----------- -------------
TOTAL RETURN.............................. 34.82% (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........ $ 22,209 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to average net
assets................................ 1.37% 1.07% 0.86% 0.76% (0.00)
Ratio of net investment income to
average net assets.................... 0.15% 0.36% 1.22% 1.41% 2.64%+
Ratio of expenses to average net
assets**.............................. (a) 1.29% 1.21% 1.18% 1.22%+
Ratio of net investment income to
average net assets**.................. (a) 0.13% 0.87% 0.99% 1.42%+
Portfolio turnover...................... 104% 113% 102% 40% 13%
</TABLE>
- ------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
9
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for a Retail Share of the Small Capitalization Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.66 $10.49
------ ------
Income from investment operations:
Net investment loss................... (0.04) (0.04)
Net realized and unrealized gains
(losses) on securities.............. 3.15 (0.79)
------ ------
Net change in net asset value........... 3.11 (0.83)
------ ------
NET ASSET VALUE, END OF PERIOD.......... $12.77 $ 9.66
------ ------
------ ------
Total return............................ 32.19% (7.91%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $2,657 $1,583
Ratio of expenses to average net
assets.............................. 1.54% 1.54%+
Ratio of net investment loss to
average net assets.................. (0.81%) (0.67%)+
Ratio of expenses to average net
assets**............................ 2.43% 2.50%+
Ratio of net investment loss to
average net assets**................ (1.70%) (1.63%)+
Portfolio turnover.................... 229% 118%
</TABLE>
- ------------
* For the period March 1, 1994 (initial offering date of Retail Class Shares)
through November 30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
10
<PAGE>
EMERALD BALANCED FUND
Financial highlights for a Retail Share of the Balanced Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.72 $ 10.00
------ ------
Income from investment operations:
Net investment income................................................... 0.30 0.24
Net realized and unrealized gains (losses) on securities................ 2.30 (0.28)
------ ------
Total income (loss) from investment operations............................ 2.60 (0.04)
------ ------
Less dividends and distributions:
Dividends from net investment income.................................... (0.30) (0.22)
Distributions in excess of net investment income........................ (0.00) (0.02)
------ ------
Total dividends and distributions......................................... (0.30) (0.24)
------ ------
Net change in net asset value............................................. 2.30 (0.28)
------ ------
NET ASSET VALUE, END OF PERIOD............................................ $ 12.02 $ 9.72
------ ------
------ ------
Total return.............................................................. 27.45% (0.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 1,082 $ 543
Ratio of expenses to average net assets................................. 0.72% 0.68%+
Ratio of net investment income to average net assets.................... 3.14% 3.70%+
Ratio of expenses to average net assets**............................... 4.20% 2.50%+
Ratio of net investment income to average net assets**.................. (0.34%) 1.88%+
Portfolio turnover...................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were volunarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
11
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for a Retail Share of the Short-Term Fixed Income Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.74 $ 10.00
------ ------
Income From investment operations:
Net investment income................................................... 0.57 0.32
Net unrealized gains (losses)on securities.............................. 0.40 (0.26)
------ ------
Total income (loss) from investment operations............................ 0.97 0.06
------ ------
Dividends from net investment income...................................... (0.57) (0.32)
------ ------
Net change in net asset value............................................. 0.40 (0.26)
------ ------
NET ASSET VALUE, END OF PERIOD............................................ $ 10.14 $ 9.74
------ ------
------ ------
Total return.............................................................. 10.25% 0.65%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 343 $ 223
Ratio of expenses to average net assets................................. 0.71% 0.67%+
Ratio of net investment loss to average net assets...................... 5.72% 5.20%+
Ratio of expenses to average net assets**............................... 9.10% 2.50%+
Ratio of net investment income to average net assets**.................. (2.67%) 3.36%+
Portfolio turnover...................................................... 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were volunarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
12
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for a Retail Share of the U.S. Government Securities Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
November Period Ended
November 30, November 30, 30, November 30, November 30,
1995 1994 1993 1992 1991*
------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 9.72 $ 10.79 $ 10.52 $ 10.46 $ 10.00
------------- ------------- ----------- ------------- -------------
Income from investment operations:
Net investment income............... 0.64 0.58 0.66 0.77 0.27
Net realized and unrealized gains
(losses) on securities............ 0.67 (0.94) 0.41 0.12 0.46
------------- ------------- ----------- ------------- -------------
Total income (loss) from investment
operations........................ 1.31 (0.36) 1.07 0.89 0.73
------------- ------------- ----------- ------------- -------------
Less dividends and distributions:
Dividends from net investment
income............................ (0.64) (0.58) (0.66) (0.77) (0.27)
Distributions in excess of net
investment income................. (0.00) (0.01) (0.00) (0.00) (0.00)
Distributions from net realized
gains on securities............... (0.00) (0.10) (0.14) (0.06) (0.00)
Distributions in excess of net
realized gains.................... (0.00) (0.02) (0.00) (0.00) (0.00)
------------- ------------- ----------- ------------- -------------
Total dividends and distributions... (0.64) (0.71) (0.80) (0.83) (0.27)
------------- ------------- ----------- ------------- -------------
Net change in net asset value......... 0.67 (1.07) 0.27 0.06 0.46
------------- ------------- ----------- ------------- -------------
NET ASSET VALUE, END OF PERIOD........ $ 10.39 $ 9.72 $ 10.79 $ 10.52 $ 10.46
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
Total return.......................... 13.85% (3.45)% 10.40% 8.79% 7.34%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 26,912 $ 30,855 $ 145,328 $ 94,006 $ 34,693
Ratio of expenses to average net
assets............................ 1.27% 0.98% 0.64% 0.28% 0.00%+
Ratio of net investment income to
average net assets................ 7.02% 5.68% 5.91% 7.18% 7.88%+
Ratio of expenses to average net
assets**.......................... (a) 1.09% 1.06% 0.99% 1.47%+
Ratio of net investment income to
average net assets**.............. (a) 5.57% 5.49% 6.42% 6.41%+
Portfolio turnover.................. 89% 133% 72% 50% 34%
</TABLE>
- ------------
* For the period July 31, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
13
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for a Retail Share of the Managed Bond Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................................ $ 9.54 $ 10.00
------ ------
Income from investment operations:
Net investment income..................................................... 0.66 0.43
Net realized and unrealized gains (losses) on securities.................. 1.05 (0.46)
------ ------
Total income (loss) from investment operations.............................. 1.71 (0.03)
------ ------
Less dividends and distributions:
Dividends from net investment income...................................... (0.66) (0.41)
Distributions in excess of net investment income.......................... (0.00) (0.02)
------ ------
Total dividends and distributions........................................... (0.66) (0.43)
------ ------
Net change in net asset value............................................... 1.05 (0.46)
------ ------
NET ASSET VALUE, END OF PERIOD.............................................. $ 10.59 $ 9.54
------ ------
------ ------
Total return................................................................ 18.47% (0.35)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).......................................... $ 820 $ 609
Ratio of expenses to average net assets................................... 0.71% 0.65%+
Ratio of net investment income to average net assets...................... 6.49% 6.29%+
Ratio of expenses to average net assets**................................. 3.17% 2.50%+
Ratio of net investment income to average net assets**.................... 4.03% 4.44%+
Portfolio turnover........................................................ 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were volunarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
14
<PAGE>
EMERALD FLORIDA TAX-EXEMPT FUND
Financial highlights for a Retail Share of the Florida Tax-Exempt Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------
November November November Period Ended
November 30, 30, 30, 30, November 30,
1995 1994 1993 1992 1991*
------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.87 $ 11.33 $ 10.55 $ 10.14 $ 10.00
------------- ----------- ----------- ----------- -------------
Income from investment operations:
Net investment income................. 0.54 0.53 0.61 0.68 0.21
Net realized and unrealized gains
(losses) on securities.............. 1.22 (1.37) 0.78 0.45 0.14
------------- ----------- ----------- ----------- -------------
Total income (loss) from investment
operations.......................... 1.76 (0.84) 1.39 1.13 0.35
------------- ----------- ----------- ----------- -------------
Less dividends and distributions:
Dividends from net investment
income.............................. (0.54) (0.53) (0.61) (0.68) (0.21)
Distributions from net realized gains
on securities....................... (0.00) (0.09) (0.00) (0.04) (0.00)
------------- ----------- ----------- ----------- -------------
Total dividends and distributions..... (0.54) (0.62) (0.61) (0.72) (0.21)
------------- ----------- ----------- ----------- -------------
Net change in net asset value........... 1.22 (1.46) 0.78 0.41 0.14
------------- ----------- ----------- ----------- -------------
NET ASSET VALUE, END OF PERIOD.......... $ 11.09 $ 9.87 $ 11.33 $ 10.55 $ 10.14
------------- ----------- ----------- ----------- -------------
------------- ----------- ----------- ----------- -------------
Total return............................ 18.17% (7.75%) 13.37% 11.51% 3.49%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 94,017 $ 109,426 $ 207,764 $ 106,946 $ 10,589
Ratio of expenses to average net
assets.............................. 1.07% 0.96% 0.65% 0.25% (0.00)
Ratio of net investment income to
average net assets.................. 5.08% 4.96% 5.32% 6.39% 6.40%+
Ratio of expenses to average net
assets**............................ (a) 1.04% 1.00% 1.21% 3.42%+
Ratio of net investment income to
average net assets**................ (a) 4.88% 4.97% 5.43% 2.98%+
Portfolio turnover.................... 89% 89% 48% 105% 45%
</TABLE>
- ---------------
* For the period August 1, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
15
<PAGE>
EMERALD PRIME FUND
Financial highlights for a Retail Share of the Prime Fund outstanding throughout
each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------- Period Ended
November 30, November 30, November 30, November 30, November 30,
1995 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 1.0000 $ 0.9999 $ 1.0001 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (loss)........... 0.0515 0.0339 0.0266 0.0356 0.0181
Net realized gains (losses) on
securities........................... 0.0002 (0.0028) (0.0001) 0.0001 0.0001
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... 0.0517 0.0311 0.0265 0.0357 0.0181
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income... (0.0515) (0.0339) (0.0266) (0.0356) (0.0181)
Distributions from net realized gains
on securities........................ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions...... (0.0515) (0.0339) (0.0267) (0.0356) (0.0181)
------------ ------------ ------------ ------------ ------------
Voluntary capital contribution........... 0.0000 0.0029 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Net change in net asset value............ 0.0002 0.0001 (0.0002) 0.0001 0.0000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........... $ 1.0002 $ 1.0000 $ 0.9999 $1.0001 $1.0000
------------ ------------ ------------ ------------ ------------
Total return............................. 5.27% 3.44% 2.70% 3.62% 1.82%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $444,928 $208,714 $181,155 $96,730 $16,465
Ratio of expenses to average net
assets............................... 0.90% 0.88% 0.86% 0.87% 0.90%+
Ratio of net investment income to
average net assets................... 5.13% 3.40% 2.63% 3.33% 4.80%+
Ratio of expenses to average net
assets**............................. 0.93% (a) (a) (a) 0.91%+
Ratio of net investment income to
average net assets**................. 5.10% (a) (a) (a) 4.79%+
</TABLE>
- ---------------
* For the period July 29, 1991 (initial offering date of Retail Shares) through
November 30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
16
<PAGE>
EMERALD TREASURY FUND
Financial highlights for a Retail Share of the Treasury Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------- Period Ended
November 30, November 30, November 30, November 30, November 30,
1995 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $0.9999 $1.0000 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0498 0.0316 0.0241 0.0318 0.0162
Net realized gains (losses) on
securities.......................... (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations.......................... 0.0495 0.0315 0.0241 0.0318 0.0162
------------ ------------ ------------ ------------ ------------
Dividends from net investment income.... (0.0498) (0.0316) (0.0241) (0.0318) (0.0162)
------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $0.9996 $0.9999 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return............................ 5.10% 3.21% 2.44% 3.23% 1.63%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $49,047 $32,444 $21,362 $ 3,762 $ 1,099
Ratio of expenses to average net
assets.............................. 0.90% 0.90% 0.90% 0.88% 0.90%+
Ratio of net investment income to
average net assets.................. 4.98% 3.13% 2.42% 3.12% 4.34%+
Ratio of expenses to average net
assets**............................ 1.04% 1.00% (a) (a) 0.91%+
Ratio of net investment income to
average net assets**................ 4.84% 3.03% (a) (a) 4.33%+
</TABLE>
- ---------------
* For the period July 29, 1991 (initial offering date of Retail Shares) through
November 30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
17
<PAGE>
EMERALD TAX-EXEMPT FUND
Financial highlights for a Retail Share of the Tax-Exempt Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------- Period Ended
November 30, November 30, November 30, November 30, November 30,
1995 1994 1993 1992 *** 1991*
------------- ------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9998
------------- ------------- ------------- ------- -------------
Income from investment operations:
Net investment income............ 0.0305 0.0192 0.0164 0.0240 0.0126
Net realized and unrealized gains
(losses) on securities......... (0.0003) 0.0000 0.0001 0.0000 0.0000
------------- ------------- ------------- ------- -------------
Total income (loss) from
investment operations.......... 0.0302 0.0192 0.0165 0.0240 0.0126
------------- ------------- ------------- ------- -------------
Dividends from net investment
income............................ (0.0305) (0.0192) (0.0164) (0.0240) (0.0126)
------------- ------------- ------------- ------- -------------
Net change in net asset value...... (0.0003) 0.0000 0.0001 0.0000 0.0000
------------- ------------- ------------- ------- -------------
NET ASSET VALUE, END OF PERIOD..... $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998
------------- ------------- ------------- ------- -------------
------------- ------------- ------------- ------- -------------
Total return....................... 3.09% 1.94% 1.65% 2.43% 0.96%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $ 38,243 $ 38,123 $ 45,609 $ 16,477 $ 1,155
Ratio of expenses to average net
assets......................... 0.90% 0.90% 0.90% 0.90% 0.87%+
Ratio of net investment income to
average net assets............. 3.04% 1.90% 1.62% 2.21% 3.42%+
Ratio of expenses to average net
assets**....................... 1.15% 1.02% 1.06% 1.07% 0.97%+
Ratio of net investment income to
average net assets**........... 2.79% 1.78% 1.46% 2.04% 3.32%+
</TABLE>
- ---------------
* For the period July 29, 1991 (initial offering date of Retail Shares)
through November 30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
*** Effective April 22, 1992, Wilmington Trust Company's wholly-owned
subsidiary, Rodney Square Management Corporation, became the Fund's
investment sub-adviser.
+ Annualized.
++ Not Annualized.
18
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PRINCIPLES AND POLICIES
- -----------------------
The Funds' investment adviser (the "Adviser") and, with respect to the
Tax-Exempt Fund, that Fund's sub-adviser (the "Sub-Adviser"), use a range of
different investments and investment techniques in seeking to achieve a Fund's
investment objective. All Funds do not use all of the investments and investment
techniques described below, which involve various risks, and which are also
described in the following sections. You should consider which Funds best meet
your investment goals. The Adviser and Sub-Adviser will use their best efforts
to achieve a Fund's investment objective, although its achievement cannot be
assured. An investor should not consider an investment in any Fund to be a
complete investment program.
- -------------------------------
EQUITY FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY FUND IS
TO SEEK LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN COMMON STOCKS. THE FUND
SEEKS AS A SECONDARY OBJECTIVE POTENTIAL INCOME GROWTH THROUGH ITS INVESTMENTS.
The Fund invests primarily in high quality equity securities selected on the
basis of fundamental investment value and growth prospects that the Adviser
believes exceed those of the general economy. The Fund may also invest up to 25%
of its assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
THE EQUITY FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period.
- -------------------------------
EQUITY VALUE FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY VALUE
FUND IS TO SEEK LONG-TERM CAPITAL APPRECIATION.
ANY INCOME IS INCIDENTAL TO THIS OBJECTIVE. THE
FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN COMMON
STOCK, PREFERRED STOCK (INCLUDING CONVERTIBLE PREFERRED STOCK) AND DEBT
OBLIGATIONS CONVERTIBLE INTO COMMON STOCK THAT THE ADVISER BELIEVES TO BE
UNDERVALUED. The Fund seeks to purchase stock with a price-book value ratio
below that of the median stock in the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500"). The Adviser invests less than 25% of the value of the
Fund's total assets at the time of purchase in securities of issuers conducting
their principal business activities in the same industry.
Under normal market and economic conditions, the Fund invests at least 75% of
its total assets in common stock, preferred stock and debt securities
convertible into common stock. Equity investments consist primarily of common
stock of companies having capitalizations that exceed $100 million. Stocks of
these companies generally are listed on a national exchange or are unlisted
securities with an established over-the-counter market. In addition, the Fund
may hold other types of securities in such proportions as, in the opinion of the
Adviser, existing circumstances may warrant, including obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and other
high quality "money market" instruments. The Fund may also hold cash pending
investment, during temporary defensive periods or if, in the opinion of the
Adviser, suitable stock or convertible debt securities are unavailable. The Fund
may also invest up to 25% of its total assets in foreign securities either
directly or indirectly through ADRs and EDRs and may write covered call options.
19
<PAGE>
- -------------------------------
INTERNATIONAL EQUITY FUND
THE INTERNATIONAL EQUITY FUND'S INVESTMENT
OBJECTIVE IS TO SEEK LONG-TERM CAPITAL
APPRECIATION. THE FUND SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES OF FOREIGN ISSUERS. The Fund's assets will be invested at all times
in the securities of issuers located in at least three different foreign
countries. Although the Fund may earn income from dividends, interest and other
sources, income will be incidental to the Fund's investment objective. The Fund
emphasizes established companies, although it may invest in companies of various
sizes as measured by assets, sales and capitalization.
THE FUND MAY INVEST IN SECURITIES OF ISSUERS LOCATED IN A VARIETY OF DIFFERENT
FOREIGN REGIONS AND COUNTRIES, including, but not limited to, Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand and
The United Kingdom. More than 25% of the Fund's total assets may be invested in
the securities of issuers located in the same country. Investment in a
particular country of 25% or more of the Fund's total assets will make the
Fund's performance more dependent upon the political and economic circumstances
of that country than a mutual fund that is more widely diversified among issuers
in different countries. Criteria for determining the appropriate distribution of
investments among various countries and regions may include prospects for
relative economic growth, expected levels of inflation, government policies
influencing business conditions, the outlook for currency relationships, and the
range of investment opportunities available to international investors.
The Fund invests in common stock and may invest in other securities with equity
characteristics, such as trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. The Fund may
invest in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, and may
invest in unlisted securities.
The Fund may invest in securities issued in certain countries that are currently
accessible to the Fund only through investment in other investment companies
that are specifically authorized to invest in such securities. The Fund's
policies regarding investments in other investment companies are described under
"Portfolio Instruments, Practices and Related Risks." In addition, the Fund may
invest in securities of foreign issuers in the form of ADRs or EDRs also as
described under "Portfolio Instruments, Practices and Related Risks." The Fund
expects that during its initial period of investment operations substantially
all of the Fund may be invested in ADRs.
During temporary defensive periods in response to unusual and adverse conditions
affecting the equity markets, the Fund's assets may be invested without
limitation in short-term debt instruments. In addition, when the Fund
experiences large cash inflows from the issuance of new shares or the sale of
portfolio securities, and desirable equity securities that are consistent with
the Fund's investment objective are unavailable in sufficient quantities, the
Fund may hold more than 35% of its assets in short-term debt instruments for a
limited time pending availability of suitable equity securities. During normal
market conditions, no more than 35% of the Fund's total assets will be invested
in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. For temporary
defensive purposes, the Fund may also invest a major portion of its assets in
securities of United States issuers. Less than 25% of the value of the Fund's
total assets at the time of purchase will be invested in securities of issuers
conducting their principal business activities in the same industry.
20
<PAGE>
- -------------------------------
SMALL CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL
CAPITALIZATION FUND IS TO PROVIDE LONG-TERM
CAPITAL APPRECIATION. THE FUND PURSUES ITS
OBJECTIVE BY INVESTING PRIMARILY IN EQUITY SECURITIES SUCH AS COMMON STOCKS AND
INSTRUMENTS CONVERTIBLE OR EXCHANGEABLE INTO COMMON STOCKS.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index.
The market capitalization of the issuers of securities purchased by the Fund
will normally be between $50 million and $2 billion at the time of purchase. In
managing the Fund, the Adviser seeks smaller companies with above-average growth
prospects. Factors considered in selecting such issuers include participation in
a fast growing industry, a strategic niche position in a specialized market,
adequate capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities of small capitalization companies. In addition to
investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRs, and may acquire convertible securities, warrants and
similar rights.
- -------------------------------
BALANCED FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED FUND IS
TO PROVIDE AN ATTRACTIVE INVESTMENT RETURN
THROUGH A COMBINATION OF GROWTH OF CAPITAL AND
CURRENT INCOME. THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY ALLOCATING ASSETS
AMONG THREE MAJOR ASSET GROUPS: EQUITY SECURITIES, FIXED-INCOME SECURITIES AND
CASH EQUIVALENCES. In pursuing its investment objective, the Adviser will
allocate the Fund's assets based upon its evaluation of the relative
attractiveness of the major asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets in
fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be invested in
fixed income securities (including cash equivalents and long-term debt
securities, and convertible debt securities and preferred stocks to the extent
their value is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would
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normally increase the Fund's equity holdings while reducing its holdings of
fixed-income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to 100%
of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are guaranteed or backed by the full
faith and credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the types
that are permissible for the Equity and Small Capitalization Funds.
Non-convertible debt obligations will be limited to the types that are
permissible investments for the Managed Bond Fund. Convertible securities,
foreign securities and other instruments will be acquired in accordance with the
limitations described under "Portfolio Investments, Practices and Related
Risks."
The Fund may also invest, through ADRs and EDRs, up to 25% of the value of its
total assets in securities of foreign issuers, and may invest in warrants and
similar rights.
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SHORT-TERM FIXED INCOME
AND MANAGED BOND FUNDS
The Short-Term Fixed Income and Managed Bond
Funds offer two alternatives for participating
in the fixed income securities markets. The
average weighted maturity of the Short-Term
Fixed Income Fund is shorter than that of the
Managed Bond Fund. Both Funds are subject to the same quality requirements.
THE INVESTMENT OBJECTIVE OF THE SHORT-TERM FIXED INCOME FUND IS TO SEEK
CONSISTENTLY POSITIVE CURRENT INCOME WITH RELATIVE STABILITY OF PRINCIPAL BY
INVESTING IN INVESTMENT GRADE SECURITIES AND HIGH QUALITY MONEY MARKET
INSTRUMENTS. THE INVESTMENT OBJECTIVE OF THE MANAGED BOND FUND IS TO SEEK A HIGH
LEVEL OF CURRENT INCOME AND, SECONDARILY, CAPITAL APPRECIATION. While the
maturity of individual securities will not be restricted, except during
temporary defensive periods or unusual market conditions the average weighted
maturity of the Short-Term Fixed Income Fund will not exceed three years and the
average weighted maturity of the Managed Bond Fund will be ten years or more.
Each Fund invests substantially all of its assets in debt obligations such as
bonds, debentures and cash equivalents, obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, debt obligations of domestic
and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Funds will purchase only those securities which are considered
to be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
each Fund's total assets will be invested in debt obligations rated "A" or
better by at least one NRSRO (or unrated obligations determined to be of
comparable quality). Obligations rated in the lowest of the top four rating
categories ("BBB" or "Baa") have certain speculative characteristics and are
subject to more credit and market risk than securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider, among
other things, historical yield relationships between corporate and government
securities, intermarket yield relationships among various industry sectors,
current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
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Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high-quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage and other
asset-related securities, zero coupon bonds and convertible debentures. The
Managed Bond Fund may, however, invest without limitation in short-term
investments to meet anticipated redemption requests, or as a temporary defensive
measure if the Adviser determines that market conditions warrant.
The Funds may also invest in obligations convertible into common stocks, and may
acquire common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. Common stock received through the
conversion of convertible debt obligations will normally be sold. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other investments see "Portfolio Instruments, Practices
and Related Risks."
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U.S. GOVERNMENT SECURITIES
FUND
THE INVESTMENT OBJECTIVE OF THE U.S. GOVERNMENT
SECURITIES FUND IS TO SEEK CONSISTENTLY POSITIVE
INCOME BY INVESTING PRINCIPALLY IN U.S.
GOVERNMENT SECURITIES AND REPURCHASE AGREEMENTS
COLLATERALIZED BY SUCH SECURITIES. THE FUND WILL ALWAYS INVEST AT LEAST 65% OF
ITS TOTAL ASSETS IN SUCH INSTRUMENTS UNDER NORMAL MARKET CONDITIONS. There is no
minimum or maximum maturity for securities held, although the Fund expects that
(except during temporary defensive periods or unusual market conditions) its
dollar-weighted average portfolio maturity will be between five and ten years.
The Fund may invest in a variety of U.S. Government securities, including U.S.
Treasury bonds, notes and bills, and obligations of a number of U.S. Government
agencies and instrumentalities. The Fund may also invest in interests in the
foregoing securities, including collateralized mortgage obligations issued or
guaranteed by a U.S. Government agency or instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities have historically had a very low risk of loss of principal if
held to maturity. The Fund, however, can give no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
if it were not legally obligated to do so. The value of the Fund's portfolio
(and consequently its shares) is expected to fluctuate inversely to changes in
the direction of interest rates.
- -------------------------------
FLORIDA TAX-EXEMPT FUND
THE PRIMARY INVESTMENT OBJECTIVE OF THE FLORIDA
TAX-EXEMPT FUND IS TO SEEK TO PROVIDE HIGH
TAX-FREE INCOME AND CURRENT LIQUIDITY. THE
POTENTIAL FOR LONG-TERM CAPITAL APPRECIATION IS CONSIDERED TO BE A SECONDARY
OBJECTIVE. IN SEEKING TO ATTAIN ITS OBJECTIVE, THE FUND INVESTS ITS ASSETS
PRIMARILY IN MUNICIPAL OBLIGATIONS THAT ARE RATED INVESTMENT
GRADE OR ABOVE BY ONE OR MORE NRSROS AT THE TIME OF PURCHASE. The Fund may also
acquire tax-exempt commercial paper, municipal notes and tax-exempt variable
rate demand obligations that are rated in the highest rating category by an
NRSRO. Obligations purchased by the Fund that have not been assigned a rating
will be determined by the Adviser to be of comparable quality. Although
obligations rated BBB or Baa (the lowest ratings permitted for the Fund) are
considered to be investment grade, they have speculative characteristics and are
subject to more credit and market risk than securities with higher ratings. If a
portfolio security ceases to be rated investment grade by at least one NRSRO,
the security will be sold in an orderly manner as quickly as possible.
The Adviser hopes to use market opportunities (caused by things such as
temporary differences between the yields on securities) to achieve a better
performance than what might be obtained by investing in an unmanaged portfolio
of municipal securities. The Florida Tax-Exempt Fund will invest at least 80% of
its net assets in securities the interest on which is exempt from regular
federal income tax, except during defensive periods or periods of unusual market
conditions. In addition, under normal conditions the Fund will invest at least
65% of its net assets in securities issued by the state of Florida and its
municipalities, counties and other taxing districts, as well as in other
securities exempt from the Florida intangibles tax. Under normal market
conditions the Fund may invest up to 20% of its net assets in taxable
instruments, including certain so-called private activity bonds which are a type
of obligation that, although exempt from regular federal income tax, may be
subject to the federal alternative minimum tax. From time to time the Fund may
hold cash reserves that do not earn income. Although the Fund has the
flexibility to invest in municipal obligations with short,
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medium or long maturities, the Adviser expects that under normal conditions the
Fund will invest primarily in obligations that have remaining maturities of more
than ten years.
- -------------------------------
PRIME FUND, TREASURY FUND
AND TAX-EXEMPT FUND
THE INVESTMENT OBJECTIVE OF BOTH THE PRIME AND
TREASURY FUNDS IS TO SEEK TO PROVIDE A HIGH
LEVEL OF CURRENT INCOME CONSISTENT WITH
LIQUIDITY, THE PRESERVATION OF CAPITAL AND A
STABLE NET ASSET VALUE. THE PRIME FUND PURSUES
ITS OBJECTIVE BY INVESTING IN A BROAD RANGE OF SHORT-TERM GOVERNMENT, BANK AND
CORPORATE OBLIGATIONS. THE TREASURY FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY
INVESTING IN OBLIGATIONS THAT THE U.S. TREASURY HAS ISSUED OR TO WHICH THE U.S.
TREASURY HAS PLEDGED ITS FULL FAITH AND CREDIT TO GUARANTEE THE PAYMENT OF
PRINCIPAL AND INTEREST. You should note, however, that shares of the Treasury
Fund are not themselves issued or guaranteed by the U.S. Treasury or any of its
agencies. U.S. Treasury obligations include Treasury bills, certain Treasury
strips, certificates of indebtedness, notes and bonds, and obligations of those
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. Treasury. It is the Treasury Fund's policy that under normal conditions
it will invest 65% or more of its total assets in U.S. Treasury obligations and
repurchase agreements for which such obligations serve as collateral.
THE INVESTMENT OBJECTIVE OF THE TAX-EXEMPT FUND IS TO SEEK TO PROVIDE A HIGH
LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAXES, CONSISTENT
WITH LIQUIDITY, THE PRESERVATION OF CAPITAL AND A STABLE NET ASSET VALUE. THE
FUND INVESTS IN HIGH QUALITY DEBT OBLIGATIONS OF STATES, TERRITORIES AND
POSSESSIONS OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA, AND OF THEIR
AGENCIES, AUTHORITIES, INSTRUMENTALITIES AND POLITICAL SUB-DIVISIONS ("MUNICIPAL
OBLIGATIONS"). UNDER NORMAL CIRCUMSTANCES THE FUND INVESTS 80% OR MORE OF ITS
NET ASSETS IN THESE MUNICIPAL OBLIGATIONS. The Fund may also invest up to 20% of
its net assets in municipal obligations subject to the federal alternative
minimum tax. Otherwise, the Fund will not knowingly purchase securities the
interest on which is subject to federal tax. Cash may temporarily be held
uninvested (and thus not earn income) if market or economic conditions are
unfavorable.
Each of these Funds (the "Money Market Funds") invests only in U.S.
dollar-denominated securities that mature in thirteen months or less (with
certain exceptions). The dollar-weighted average portfolio maturity of each Fund
may not exceed ninety days. In accordance with the current rules of the
Securities and Exchange Commission, the Prime Fund intends to limit its
purchases in the securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities) to no
more than 5% of its total assets at the time of purchase, which the exception
that up to 25% of its total assets may be invested in the securities of any
single issuer for up to three business days. Emerald Funds intends to use its
best efforts to maintain the net asset value of the Money Market Funds at $1.00
per share, although there is no assurance that it will be able to do so on a
continuous basis.
Instruments acquired by the Prime Fund will be U.S. Government securities or
other "First Tier Securities," while the Tax Exempt Fund will invest only in
"First Tier Securities." The term "First Tier Securities" has a technical
definition given by the Securities and Exchange Commission, but such term
generally refers to securities that the Adviser (or Sub-Adviser) has determined,
under guidelines established by the Board of Trustees, present minimal credit
risks, and have the highest short-term debt ratings at the time of purchase by
one (if rated by only one) or more NRSROs. Unrated instruments (including
instruments with long-term but no short-term ratings) will be of comparable
quality as determined by the Adviser (or Sub-Adviser) under guidelines approved
by the Board of Trustees and the Adviser. A description of applicable ratings is
attached to the Statement of Additional Information as Appendix A.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
- - FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuer, less market liquidity and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions
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might adversely affect the payment of principal and interest on foreign
obligations. Additionally, foreign banks and foreign branches of domestic banks
may be subject to less stringent reserve requirements, and to different
accounting, auditing and recordkeeping requirements.
Although the International Equity Fund will invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares will fluctuate
with the U.S. dollar exchange rates, as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies. The risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
- - AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY FUND may
invest up to 100% of its total assets and the EQUITY, EQUITY VALUE, SMALL
CAPITALIZATION AND BALANCED FUNDS may invest up to 25% of their total assets in
ADRs and EDRs. ADRs are receipts issued in registered form by a U.S. bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. EDRs are receipts issued in Europe typically by non-U.S. banks or trust
companies and foreign branches of U.S. banks that evidence ownership of the
underlying foreign or U.S. securities. ADRs may be listed on a national
securities exchange or may be traded in the over-the-counter market. EDRs are
designed for use in European exchange and over-the-counter markets. ADRs and
EDRs traded in the over-the-counter market which do not have an active or
substantial secondary market will be considered illiquid and therefore will be
subject to a Fund's limitation with respect to such securities. ADR prices are
denominated in U.S. dollars although the underlying securities are denominated
in a foreign currency. Investments in ADRs and EDRs involve risks similar to
those accompanying direct investments in foreign securities.
- - U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY FUND
may invest in U.S. Treasury obligations as described above. Each of the other
FUNDS, except the TAX-EXEMPT FUND, may also invest in securities issued or
guaranteed by the U.S. Government, as well as in obligations issued or
guaranteed by U.S. Government agencies and instrumentalities or in money market
instruments, including bank obligations and commercial paper. Obligations of
certain agencies and instrumentalities, such as the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, like the Export-Import Bank, are supported by the issuer's right to
borrow from the Treasury; others, including the Federal National Mortgage
Association, are backed by the discretionary ability of the U.S. Government to
purchase the entity's obligations; and still others like the Student Loan
Marketing Association, are backed solely by the issuer's credit. U.S. Government
obligations also include U.S. Government-backed trusts that hold obligations of
foreign governments and are guaranteed or backed by the full faith and credit of
the United States. There is no assurance that the U.S. Government would provide
support to a U.S. Government-sponsored entity were it not required to do so by
law. Some of these securities may have a variable or floating interest rate.
- - ASSET-BACKED SECURITIES. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS may invest in asset-backed securities (I.E., securities backed
by installment sale contracts, credit card receivables or other assets). In
addition, each of these Funds, as well as the U.S. GOVERNMENT SECURITIES FUND,
may invest in U.S. Government securities that are backed by adjustable or fixed
rate mortgage loans. The average life of an asset-backed instrument varies with
the maturities of the underlying instruments. In the case of mortgages,
maturities may be a maximum of forty years. The average life of an asset-backed
instrument is likely to be substantially less than the original maturity of the
asset pools underlying the security as the result of scheduled principal
payments and prepayments. This may be particularly true for mortgage-backed
securities.
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<PAGE>
The rate of such prepayments, and hence the life of the security, will be
primarily a function of current market rates and current conditions in the
relevant market. In calculating the average weighted maturity of a Fund's
portfolio (except the Prime Fund), the maturity of asset-backed instruments will
be based on estimates of average life. The relationship between prepayments and
interest rates may give some high-yielding asset-backed securities less
potential for growth in value than conventional bonds with comparable
maturities. In addition, in periods of falling interest rates, the rate of
prepayment tends to increase. During such periods, the reinvestment of
prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid. Because of these
and other reasons, an asset-backed security's total return may be difficult to
predict precisely. To the extent a Fund purchases asset-backed securities at a
premium, prepayments (which often may be made at any time without penalty) may
result in some loss of a Fund's principal investment to the extent of any
premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, 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. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of
asset-backed obligations.
- - MUNICIPAL OBLIGATIONS. The FLORIDA TAX-EXEMPT and TAX-EXEMPT FUNDS will invest
primarily in municipal obligations. The BALANCED, SHORT-TERM FIXED INCOME,
MANAGED BOND and PRIME FUNDS may also invest in municipal obligations. These
securities may be advantageous for these Funds when, as a result of prevailing
economic, regulatory or other circumstances, the yield of such securities on a
pre-tax basis is comparable to that of other securities the particular Fund can
purchase. Dividends paid by these Funds, other than the two Tax-Exempt Funds,
that come from interest on municipal obligations will be taxable to
shareholders.
The two main types of municipal obligations are "general obligation" securities
(which are secured by the issuer's full faith, credit and taxing power) and
"revenue" securities (which are payable only from revenues received from the
operation of a particular facility or other specific revenue source). A third
type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligations to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser (or the Sub-Adviser for the Tax-Exempt Fund), under the supervision
of the Board of Trustees, will determine the credit quality of any unrated
municipal leases on an on-going basis, including an assessment of the likelihood
that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
of the instruments. Emerald Funds, the Adviser and the Sub-Adviser rely on these
opinions and do not intend to review the basis for them.
Municipal obligations purchased by the Balanced, Short-Term Fixed Income,
Managed Bond, Prime and the two Tax-Exempt Funds may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its
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<PAGE>
credit or a guarantee with respect to a municipal obligation held by a Fund
could have an adverse effect on a Fund's portfolio and the value of its shares.
As described above under "Foreign Securities," foreign letters of credit and
guarantees involve certain risks in addition to those of domestic obligations.
- - CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and
PRIME FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS, may purchase corporate bonds and cash
equivalents that meet a Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of thirteen months or less,
will either have short-term ratings at the time of purchase in the top category
by one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
- - BANK OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and
PRIME FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS, may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. These Funds may also invest in CDs and time deposits of
domestic branches of U.S. banks that have total assets of less than $1 billion
if the CDs and time deposits are insured by the FDIC. Investments in foreign
banks and foreign branches of U.S. banks will not make up more than 25% of a
Fund's total assets when the investment is made. (To the extent permitted by the
SEC, bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing savings deposits in amounts not exceeding 5% of their
total assets.
- - REPURCHASE AGREEMENTS. EACH FUND, EXCEPT THE TWO TAX-EXEMPT FUNDS, may buy
portfolio securities subject to the seller's agreement to repurchase them at an
agreed upon time and price. These transactions are known as repurchase
agreements. A Fund will enter into repurchase agreements only with financial
institutions deemed to be creditworthy by the Adviser, pursuant to guidelines
established by the Board of Trustees. During the term of any repurchase
agreement, the Adviser will monitor the creditworthiness of the seller, and the
seller must maintain the value of the securities subject to the agreement in an
amount that is greater than the repurchase price. Default or bankruptcy of the
seller would, however, expose a Fund to possible loss because of adverse market
action or delays connected with the disposition of the underlying obligations.
Because of the seller's repurchase obligations, the securities subject to
repurchase agreements do not have maturity limitations.
- - VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of each Fund EXCEPT THE U.S. GOVERNMENT
SECURITIES, TREASURY AND THE TWO TAX-EXEMPT FUNDS, these instruments may include
variable amount master demand notes, which are instruments under which the
indebtedness, as well as the interest rate, varies. For the PRIME and TAX-EXEMPT
MONEY MARKET FUNDS only, if rated, variable and floating rate instruments must
be rated in the highest short-term rating category by an NRSRO. If unrated, such
instruments will need to be determined to be of comparable quality. Unless
guaranteed by the U.S. Government or one of its agencies or instrumentalities,
variable or floating rate instruments purchased by the Money Market Funds must
permit a Fund to demand payment of the instrument's principal at least once
every thirteen months. Because of the absence of a market in which to resell a
variable or floating rate instrument, a Fund might have trouble selling an
instrument should the issuer default or during periods when a Fund is not
permitted by agreement to demand payment of the instrument, and for this or
other reasons a loss could occur with respect to the instrument.
- - STRIPPED SECURITIES. EACH FUND, EXCEPT THE TAX-EXEMPT FUND, may invest in
instruments known as "stripped" securities. These instruments include U.S.
Treasury bonds and notes and federal agency obligations on which the unmatured
interest coupons have been separated from the underlying obligation. These
obligations are usually issued at a discount to their "face value," and because
of the manner in which principal and interest are returned may exhibit greater
price volatility than more conventional debt securities.
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The Treasury Fund's investments in these obligations will be limited to
"interest only" stripped securities that have been issued by a federal
instrumentality known as the Resolution Funding Corporation and other stripped
securities issued or guaranteed by the U.S. Treasury, where the principal and
interest components are traded independently under the Separate Trading of
Registered Interest and Principal Securities Program ("STRIPS"). Under STRIPS,
the principal and interest components are individually numbered and separately
issued by the U.S. Treasury at the request of depository financial institutions,
which then trade the component parts independently. Each Fund, except the
Treasury Fund, may also invest in instruments that have been stripped by their
holder, typically a custodian bank or investment brokerage firm, and then resold
in a custodian receipt program under names you may be familiar with such as
Treasury Investors Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS").
In addition, each Fund, except the Florida Tax-Exempt, Tax-Exempt and Treasury
Funds, may purchase stripped mortgage-backed securities ("SMBS") issued by the
U.S. Government (or a U.S. Government agency or instrumentality) or by private
issuers such as banks and other institutions. SMBS, in particular, may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. If the underlying
obligations experience greater than anticipated prepayments, a Fund may fail to
fully recoup its initial investment. The market value of the class consisting
entirely of principal payments can be extremely volatile in response to changes
in interest rates. The yields on a class of SMBS that receives all or most of
the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS issued by the U.S. Government (or a U.S. Government agency or
instrumentality) may be considered liquid under guidelines established by the
Board of Trustees if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a Fund's
per share net asset value.
Although stripped securities may not pay interest to their holders before they
mature, federal income tax rules require a Fund each year to recognize a part of
the discount attributable to a security as interest income. This income must be
distributed along with the other income a Fund earns. To the extent shareholders
request that they receive their dividends in cash rather than reinvesting them,
the money necessary to pay those dividends must come from the assets of a Fund
or from other sources such as proceeds from sales of Fund shares and/or sales of
portfolio securities. The cash so used would not be available to purchase
additional income-producing securities, and a Fund's current income could
ultimately be reduced as a result.
- - BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The BALANCED,
SHORT-TERM FIXED INCOME, MANAGED BOND and PRIME FUNDS may invest in bank
investment contracts ("BICs") issued by banks that meet the asset size
requirements described above under "Bank Obligations" and may also invest in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, a Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, a Fund would receive interest from the issuing entity at either a
negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to a
Fund's limitation on such investments as described below under "Managing
Liquidity."
- - PARTICIPATIONS AND TRUST RECEIPTS. The BALANCED, SHORT-TERM FIXED INCOME,
MANAGED BOND and PRIME FUNDS may purchase from domestic financial institutions
and trusts created by such institutions participation interests and trust
receipts in high quality debt securities. A participation interest or receipt
gives a Fund an undivided interest in the security in the proportion that a
Fund's participation interest or receipt bears to the total principal amount of
the security. Each Fund intends only to purchase participations and trust
receipts from an entity or syndicate, and do not intend to serve as a co-lender
in any such activity. As to certain instruments for which a Fund will be able to
demand payment, a Fund intends to exercise its right to do so only upon a
default under the terms of the security, as needed to provide liquidity, or to
maintain or improve the quality of its investment portfolio. It is possible that
a participation interest or trust receipt may be
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deemed to be an extension of credit by a Fund to the issuing financial
institution rather than to the obligor of the underlying security and may not be
directly entitled to the protection of any collateral security provided by the
obligor. In such event, the ability of a Fund to obtain repayment could depend
on the issuing financial institution.
- - WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objectives.
- - INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which the Funds' investments are traded. A Fund would expect to enter into these
hedging transactions primarily to preserve the return or spread of a particular
investment or portion of its portfolio and to protect against an increase in the
price of securities a Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the extent
a specified index fell below a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party that sold the floor.
The purchase of an interest rate cap by a Fund would entitle it, to the extent
that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
- - STAND-BY COMMITMENTS. The TWO TAX-EXEMPT FUNDS may acquire stand-by
commitments under which a dealer agrees to purchase certain municipal
obligations at the Fund's option at a price equal to amortized cost plus
interest. These commitments will be used only to assist in maintaining the
liquidity of the Funds, and not for trading purposes.
- - OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P. The International Equity Fund may also purchase shares
of investment companies investing primarily in foreign securities, including so-
called "country funds." Country funds have portfolios consisting principally of
securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by the Funds within
the limits prescribed by the Investment Company Act of 1940, as amended (the
"1940 Act"). The Funds currently intend to limit these investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of their total assets will be invested in the securities of any one
investment company; (b) not more
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than 10% of the value of their total assets will be invested in the aggregate in
securities of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by a Fund;
and (d) not more than 10% of the outstanding voting stock of any one closed-end
investment company will be owned in the aggregate by a Fund, other investment
portfolios of Emerald Funds, or any other investment companies advised by the
Adviser.
- - BORROWINGS. EACH FUND is authorized to make limited borrowings for temporary
purposes and each Fund, EXCEPT THE TWO TAX-EXEMPT FUNDS, may enter into reverse
repurchase agreements. Under such an agreement a Fund sells portfolio securities
and then buys them back later at an agreed-upon time and price. When the Fund
enters into a reverse repurchase agreement it will place in a separate custodial
account either liquid assets or high grade debt securities that have a value
equal to or more than the price the Fund must pay when it buys back the
securities, and the account will be continuously monitored to make sure the
appropriate value is maintained. Reverse repurchase agreements may be used to
meet redemption requests without selling portfolio securities. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities a Fund relinquishes may decline below the price a Fund must pay when
the transaction closes. Interest paid by a Fund in a reverse repurchase or other
borrowing transaction will reduce a Fund's income.
- - SECURITIES LENDING. EACH FUND, EXCEPT THE TWO TAX-EXEMPT FUNDS, may lend
securities held in its portfolio to broker-dealers and other institutions as a
means of earning additional income. These loans present 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, securities loans will be made only to parties the Adviser
deems to be of good standing, and will only be made if the Adviser thinks the
possible rewards from such loans justify the possible risks. A loan will not be
made if, as a result, the total amount of a Fund's outstanding loans exceeds 30%
of its total assets. Securities loans will be fully collateralized.
- - MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash-equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash or
U.S. Government securities or other liquid high grade debt instruments in the
amount of the future purchase commitment will be set apart for a Fund involved
in a separate account at the custodian. Mortgage rolls are not a primary
investment technique for any of these Funds, and it is expected that, under
normal market conditions, a Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
- - CONVERTIBLE SECURITIES. The EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY, SMALL
CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS 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. By investing in convertibles, a 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.
None of the assets of the Short-Term Fixed Income and Managed Bond Funds, and
not more than 15% of the total assets of the Equity, Equity Value, International
Equity, Small Capitalization and Balanced Funds, may be invested in convertible
securities rated below investment grade at the time of purchase. Non-investment
grade convertible securities must be rated "B" or higher by at least one NRSRO.
Non-investment grade securities are commonly referred to as "junk" bonds and
present a greater risk as to the timely repayment of the principal, interest and
dividends. Particular risks include (a) the sensitivity of such securities to
interest rate and economic changes, (b) the lower degree of protection of
principal and interest payments, (c) the relatively low trading market liquidity
for the securities, (d) the impact that legislation may have on the market for
these securities (and, in turn, on a Fund's net asset value) and (e) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly
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leveraged issuers may experience financial stress which would negatively affect
their ability to meet their principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. An economic
downturn could also disrupt the market for lower rated convertible securities
and negatively affect the value of outstanding securities and the ability of the
issuers to repay principal and interest. If the issuer of a convertible security
held by a Fund defaulted, that Fund could incur additional expenses to seek
recovery. Adverse publicity and investor perceptions, whether or not they are
based on fundamental analysis, could also decrease the value and liquidity of
lower-rated convertible securities held by a Fund, especially in a thinly-traded
market.
- - OPTIONS. EACH EQUITY AND FIXED INCOME FUND may write covered call options, buy
put options, buy call options and sell, or "write," secured put options on
particular securities or various securities indices. A call option for a
particular security gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security 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 the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a Fund
will not exceed 25%, of its net assets. Options may or may not be listed on a
national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation, which performs the
obligations of its members if they default.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
- - FUTURES AND RELATED OPTIONS. EACH EQUITY AND FIXED INCOME FUND may invest to a
limited extent in futures contracts and options on futures contracts in order to
gain fuller exposure to movements of security prices pending investment, for
hedging purposes or to maintain liquidity. Futures contracts obligate a Fund, at
maturity, to take or make delivery of certain securities or the cash value of a
securities index. A Fund may not purchase or sell a futures contract (or related
option) unless immediately after any such transaction the sum of the aggregate
amount of margin deposits on its existing futures positions and the amount of
premiums paid for related options is 5% or less of its total assets (after
taking into account certain technical adjustments).
Each of these Funds may also purchase and sell call and put options on futures
contracts. When a Fund purchases an option on a futures contract, it has the
right to assume a position as a purchaser or seller of a futures contract at a
specified exercise price at any time during the option period. When a Fund sells
an option on a futures contract, it becomes obligated to purchase or sell a
futures contract if the option is exercised. In anticipation of a market
advance, 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 that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
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More information regarding futures contracts and related options can be found in
Appendix B attached to the Statement of Additional Information, which you can
request by calling 800/637-3759.
- - FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the INTERNATIONAL EQUITY FUND
may buy and sell securities denominated in currencies other than the U.S.
dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Fund from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies. The Fund may either enter into these
transactions on a spot (I.E. cash) basis at the spot rate prevailing in the
foreign currency exchange market, or use forward contracts to purchase or sell
foreign currencies. Forward foreign currency exchange contracts are agreements
to exchange one currency for another -- for example, to exchange a certain
amount of U.S. dollars for a certain amount of Japanese yen -- at a future date
and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, the
forward foreign currency exchange contracts may be rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to the Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by the Board of Trustees.
The International Equity Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that a Fund has contracted to receive in the exchange. In order to
ensure that the short position is not used to achieve leverage with respect to
the Fund's investments, the Fund will establish with its custodian a segregated
account consisting of cash, U.S. Government securities or other liquid
high-grade debt securities equal in value to the fluctuating market value of the
currency as to which the short position is being maintained. The value of the
securities in the segregated account will be adjusted at least daily to reflect
changes in the market value of the short position. See the Statement of
Additional Information for additional information regarding foreign currency
exchange transactions.
- - MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICs, BICs, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser (Sub-Adviser in the case of the Tax-Exempt
Fund) has determined pursuant to guidelines adopted by the Board of Trustees
that a liquid trading market exists (including certain securities that may be
purchased by institutional investors under SEC Rule 144A) are not subject to
this limitation. This investment practice could have the effect of increasing
the level of illiquidity in a Fund during any period that qualified
institutional buyers were no longer interested in purchasing these restricted
securities.
- - PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after it
is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by
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a Fund that constitutes taxable capital gains. To the extent capital gains are
realized, distributions from the gains may be ordinary income for federal tax
purposes (see "Tax Implications"). During the last fiscal year, the annual
portfolio turnover rates of the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds were 104%, 229%, 87%, 33%, 89%, 92% and 89%, respectively. The
annual portfolio turnover rates for the Equity Value and International Equity
Funds are not expected to exceed 150%.
- - OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Florida
Tax-Exempt and Money Market Funds may purchase zero-coupon bonds (I.E., discount
debt obligations that do not make periodic interest payments). Zero-coupon bonds
are subject to greater market fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Changes in the financial strength of
an issuer or changes in the ratings of any particular security may also affect
the value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
In addition, the Florida Tax-Exempt, Balanced, Short-Term Fixed Income, Managed
Bond, Tax-Exempt and Prime Funds may purchase custodial receipts, tender option
bonds and certificates of participation in trusts that hold municipals or other
types of obligations. A certificate of participation gives a Fund an individual,
proportionate interest in the obligation, and may have a variable or fixed rate.
Because certificates of participation are interests in obligations that may be
funded through government appropriations, they are subject to the risk that
sufficient appropriations as to the timely payment of principal and interest on
the obligations may not be made. The NRSRO quality rating of an issue of
certificates of participation is normally based upon the rating of the
obligations held by the trust and the credit rating of the issuer of any letter
of credit and of any other guarantor providing credit support to the issue.
These Funds, with the exception of the Money Market Funds, may also hold other
derivative instruments, which may be in the form of participations, custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment, or both, and bonds that have interest rates that reset
inversely to changing short-term rates and/or have imbedded interest rate floors
and caps. Many of these derivative instruments are proprietary products that
have been recently developed by investment banking firms, and it is uncertain
how these instruments will perform under different economic and interest-rate
scenarios. In addition, to the extent that the market value of these instruments
is leveraged, they may be more volatile than other types of obligations and may
present greater potential for capital gain or loss. In some cases it may be
difficult to determine the fair value of a derivative instrument because of a
lack of reliable objective information, and an established secondary market for
some instruments may not exist.
Although the two Tax-Exempt Funds do not presently intend to do so on a regular
basis, they may invest more than 25% of their total assets in municipal
obligations the interest on which comes solely from revenues of similar
projects. Additionally, the Florida Tax-Exempt Fund will normally invest more
than 25% of its net assets in municipal obligations the issuers of which are
located in Florida, and may invest more than 25% of its net assets in industrial
development bonds issued before August 7, 1986 that are not treated as a
specific tax preference item under the federal alternative minimum tax.
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When a Fund's assets are concentrated in obligations payable from revenues of
similar projects or issued by issuers located in the same state, or in
industrial development bonds, the Fund will be subject to the particular risks
(including legal and economic conditions) relating to such securities to a
greater extent than if its assets were not so concentrated. If Florida or any of
its political subdivisions should suffer serious financial difficulties to the
extent their ability to pay their obligations might be jeopardized, the ability
of such entities to market their securities, and the value of the Florida
Tax-Exempt Fund, could be adversely affected.
Payment on municipal obligations held by a Fund relating to certain projects may
be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure may
be delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligation.
While the other Funds are classified as "diversified," the Florida Tax-Exempt
Fund has been set up as a "non-diversified" portfolio. The investment return of
a non-diversified portfolio is typically dependent on the performance of a
smaller number of securities than a diversified portfolio, and the change in
value of one particular security may have a greater impact on the value of a
non-diversified portfolio. A non-diversified portfolio may therefore be subject
to greater fluctuations in net asset value. Additionally, non-diversified
portfolios may be more susceptible to economic, political and legal developments
than a diversified portfolio with similar objectives.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that cannot be changed for a Fund without the approval of a
majority of that Fund's outstanding shares. Some of these fundamental
limitations are summarized below, and all of the Funds' fundamental limitations
are set out in full in the Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including U.S.
Government securities) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 50% of the Florida
Tax-Exempt Fund's total assets, and up to 25% of the total assets of each other
Fund, can be invested without regard to the 5% limitation. A Fund may not
purchase more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 50% or 25% exception.
3. A Fund may not borrow money except for temporary purposes in amounts up to
one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
4. Under normal market conditions the two Tax-Exempt Funds must invest at least
80% of their respective net assets in securities that provide interest exempt
from regular federal income tax.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of shares)
in some states, Emerald Funds may agree to certain restrictions that may be
stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
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- --------------------------------------------------------------------------------
INVESTING IN EMERALD FUNDS
- ------------------------
YOUR MONEY MANAGER
BARNETT (ALSO REFERRED TO AS THE "ADVISER") SERVES AS INVESTMENT ADVISER FOR
EMERALD FUNDS. Barnett is the largest trust organization headquartered in
Florida and has notable experience in providing professional investment
management services. Organized as a national banking association in 1974, it is
the successor to the business of earlier organizations that had provided
continuous trust services since 1926. Barnett first began providing advisory
services to mutual funds in 1988 and is a subsidiary of Barnett Banks, Inc., a
registered bank holding company that has offered general banking services since
1877.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett is an
industry leader in providing investment management services to individuals and
institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis. For the Tax-Exempt Fund, Barnett has entered into a sub-advisory
agreement with a subsidiary of Wilmington Trust Company to provide daily
portfolio management for that Fund.
GETTING YOUR INVESTMENT STARTED
INVESTING IN EMERALD FUNDS IS QUICK AND CONVENIENT. EMERALD FUNDS MAY BE
PURCHASED EITHER THROUGH THE ACCOUNT YOU MAINTAIN WITH A BROKER-DEALER OR
CERTAIN OTHER INSTITUTIONS OR FROM EMERALD FUNDS DIRECTLY. Fund shares are
distributed by Emerald Asset Management, Inc. (called the "Distributor"). The
Distributor is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Barnett Banks Business Retirement Services clients may purchase Fund shares of
the Equity, Small Capitalization, U.S. Government Securities and Prime Funds
through their SEP-IRA accounts or other Qualified Retirement Plans and should
consult with their employer and/or their Plan Administrator for additional
information and instructions. Investors may establish a Business Retirement
Services account by contacting a Barnett Banks branch office or by calling
800/562-2987 to request a Retirement Plan Kit.
You may choose to invest through Barnett Securities Account where a Financial
Consultant can advise you in selecting among the Emerald Funds. Whether you
currently have a Barnett Securities Account or wish to open one, your Emerald
Funds investment can be executed within a few minutes by telephone or, if you
prefer, during a consultation with a Financial Consultant of Barnett Securities,
Inc. Call the Investment Services Center at 800/535-6579 to speak with an
Investment Officer, to place an Emerald Funds transaction or to arrange a
consultation scheduled at your convenience.
Should you wish to establish an account directly with Emerald Funds, please
refer to the purchase options described under "Opening and Adding to Your
Emerald Fund Account."
Clients of Barnett Securities, Inc. and other institutions (such as
broker-dealers) that have entered into agreements with the Distributor (referred
to as "Service Organizations") may purchase shares through their accounts at
their Service Organization and should contact the Service Organization directly
for appropriate purchase instructions. Share purchases (and redemptions) made
through Barnett Securities, Inc. or another Service Organization are effected
only on days the particular institution and the Fund involved are open for
business.
Payments for Fund shares must be in U.S. dollars and should be drawn on a U.S.
bank. Please remember that Emerald Funds retains the right to reject any
purchase order.
35
<PAGE>
IF YOU HAVE QUESTIONS
An Emerald Funds telephone representative is happy to service your needs. Your
needs are most efficiently addressed by calling the appropriate toll-free number
listed below. (If you are investing in Emerald Funds through an account with
Barnett Securities, Inc. or another Service Organization, you may choose to
speak directly with your assigned Financial Consultant or contact person.)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CALL FOR INFORMATION
- --------------------------- ------------------------------------------------------------------------------------
800/637-3759 For information regarding the Emerald Funds or for assistance with an existing
8:00 am to 5:00 pm Emerald Fund account.
Eastern time
</TABLE>
- --------------------------------------------------------------------------------
You should note that neither Emerald Funds nor its service contractors will be
responsible for any loss or expense for acting upon telephone instructions that
are believed to be genuine. In attempting to confirm that telephone instructions
are genuine, Emerald Funds will use procedures considered reasonable. To the
extent Emerald Funds does not use reasonable procedures to form its belief, it
and/or its service contractors may be responsible for instructions that are
fraudulent or unauthorized.
Emerald Funds wants you to be kept current regarding the status of your
account. To assist you, the following statements and reports will be
sent to you:
<TABLE>
<S> <C>
CONFIRMATION After every transaction (other than an E-Z Matic
STATEMENTS transaction) that affects your account balance or your
account registration.
ACCOUNT STATEMENTS Either monthly, quarterly or annually depending on the
Fund in which you invest or the type of account you own.
FINANCIAL REPORTS Every six months. To eliminate unnecessary duplication,
only one copy of most Fund reports will be sent to
shareholders with the same mailing address even if you
have more than one account in the Fund. Duplicate copies
are available upon request by calling 800/637-3759.
</TABLE>
36
<PAGE>
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald Funds
would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to some of the services these companies provide, as well as more information
regarding investment advisory services, see "Fund Management."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible for
coordinating Emerald Funds' efforts and generally overseeing the operation of
the Funds' business. It has been providing services to mutual funds since 1987.
* * *
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS Group,
Inc. Mutual funds structured like the Funds sell shares on a continuous basis.
The Funds' shares are sold through the Distributor. Certain officers of Emerald
Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers and/or
directors of the Distributor.
* * *
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the Funds
own.
* * *
TRANSFER AGENT
BISYS FUND SERVICES OHIO, INC.
BISYS Fund Services Ohio, Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
37
<PAGE>
HOW TO BUY SHARES
This section provides you with pertinent information on how to buy Fund shares.
Further information can be found under "Transaction Rules."
<TABLE>
<S> <C> <C> <C> <C>
MINIMUM INVESTMENT SPECIAL MINIMUMS
To Open Additional To Open Additional
Account Investments Account Investments
$1,000 $100 $100(1); --
Regular Account $500(2) $50
E-Z Matic Investment Plan $500 $100 -- $50(2)
Periodic Investment Plan $50 $50 -- --
IRAs and IRA Rollovers $1,000 No Minimum -- --
Non-Working Spousal IRA+ $250 No Minimum -- --
401(k) Plans, Qualified No Minimum No Minimum -- --
Retirement Plans and
SEP-IRAs
</TABLE>
(1) If you make your investment through a qualified account at a Service
Organization whose clients have made total investments of at least
$1,000,000, you qualify for this $100 minimum purchase.
(2) Applies to employees of the Adviser and its affiliates.
+ A regular IRA must be opened first.
OPENING AND ADDING TO YOUR
EMERALD FUND ACCOUNT
Direct investments in the Emerald Funds may be made in a number of different
ways, as shown in the following chart. Simply choose the method that is most
convenient for you. Any questions you have can be answered by calling
800/637-3759. As described above under "Getting Your Investment Started," you
may also purchase Fund shares through Barnett Securities, Inc. or another
Service Organization.
38
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY MAIL - Complete an Account Registration Form - Make your check payable to the
and mail it along with a check payable particular Fund in which you are
to the particular Fund you want to investing and mail it to the address
invest in to: Emerald Funds, P.O. Box at left
182697, Columbus, Ohio 43218-2697 - Please include your account number
on your check
- Or use the convenient form attached
to your regular Fund statement
* If shipping using overnight courier
service, send to Emerald Funds c/o
BISYS Fund Services, 3435 Stelzer Road,
Columbus, Ohio 43219.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BY WIRE - Before wiring Funds, please - Before wiring Funds, please
call 800/637-3759 for complete call 800/637-3759 for complete
wiring instructions. wiring instructions.
- The wire should say that the - Ask your bank to wire
purchase is to be in your name immediately available funds
- The wire should say that you as described at left, except
are opening a new Fund account that the wire should note
(if an Account Registration that it is to make a
Form is not received for a new subsequent purchase rather
account within 30 days after than to open a new account
the wire is received, dividends - Include your Fund account
and redemption proceeds from number
the account will be subject to
back-up withholding)
- Include your name, address and
taxpayer identification number,
and the name of the Fund in
which you are purchasing shares
(Equity and Fixed Income Fund
investors should also indicate
share class selection)
- Your bank may impose a charge
for this service
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
TELETRADE (PURCHASES - TeleTrade transactions may not - Call 800/637-3759 to make
BY TELEPHONE be used for initial purchases. If your purchase
TRANSFERRING MONEY you want to make subsequent
FROM YOUR CHECKING, transactions via TeleTrade,
NOW OR BANK MONEY please select this service on
MARKET ACCOUNT) your Account Registration Form
or call 800/637-3759 to set up
the service
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
E-Z MATIC INVESTMENT - You must first complete an Account - You must first complete an Account
(ALLOWS REGULAR Registration Form and select the E-Z Registration Form. Call 800/637-3759
INVESTMENT WITHOUT Matic option to find out how to set up this
ONGOING PAPERWORK) - Call 800/637-3759 for more information service
- Additional purchases will then
automatically be made as directed by
you
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PERIODIC INVESTMENT - You must first complete an - You must first complete an
PLAN (ALLOWS REGULAR authorization letter for Account Registration Form.
INVESTMENT THROUGH Periodic Investment Plan and Call 800/535-6579 to find
YOUR BARNETT select an investment schedule out how to set up this
SECURITIES BROKERAGE and investment amount service
ACCOUNT) - Contact your Barnett Financial - Additional purchases will
Consultant or call 800/535-6579 then automatically be made as
for more information directed by you
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
EXCHANGES AMONG - You must sign up for this - After the privilege is
EMERALD FUNDS privilege on the Account established, you may exchange
Registration Form when you open shares by calling
your account. To add this 800/637-3759
option to an existing account - Exchanges can also be
call 800/637-3759 requested by sending written
- Exchanges can also be requested instruction to Emerald
by sending written instructions Funds, P.O. Box 182697
to Emerald Funds, or by Columbus, Ohio 43218-2697
delivering written instructions - Retail Shares may be
directly to BISYS Ohio, P.O. exchanged for Retail Shares in
Box 182697, Columbus, Ohio other Funds.
43218-2697
- Retail Shares may be exchanged
for Retail Shares in other Funds.
</TABLE>
40
<PAGE>
EXPLANATION OF SALES PRICE
The PUBLIC OFFERING PRICE for each class of shares is based upon net asset value
per share. A class of shares in a Fund will calculate its NET ASSET VALUE PER
SHARE by adding the value of a Fund's investments, cash and other assets
attributable to a class, subtracting the Fund's liabilities attributable to that
class, and then dividing the result by the number of shares in that class that
are outstanding. The assets of the Equity and Fixed Income Funds are valued at
market value or, if market quotes cannot be readily obtained, fair value is used
as determined by the Board of Trustees. Debt securities held by these Funds that
have sixty days or less until they mature are valued at amortized cost, which
generally approximates market value. All securities of the Money Market Funds
are valued at amortized cost.
Foreign securities acquired by the International Equity as well as the other
Funds may be traded on foreign exchanges or over-the-counter markets on days on
which a Fund's net asset value is not calculated. In such cases, the net asset
value of the Fund's shares may be significantly affected on days when investors
can neither purchase nor redeem shares of the Fund.
More information about valuation can be found in the Funds' Statement of
Additional Information, which you may request by calling 800/637-3759.
Net asset value is computed at the times shown in this chart:
<TABLE>
<CAPTION>
Money Market Funds
--------------------------------
Equity and Fixed Prime and Tax-Exempt
Income Funds: Treasury Funds: Fund:
- -------------------- --------------- ---------------
<S> <C> <C>
On all days the New On the days Money Market Funds
York Stock Exchange can be bought and sold (see
(the "Exchange") is chart below)
open
At the close of 2 p.m. 12 noon
regular trading (Eastern time) (Eastern time)
hours on the
Exchange (currently
4 p.m. Eastern time)
</TABLE>
The Funds observe the holidays shown in this chart:
<TABLE>
<CAPTION>
Money
Equity and Fixed Market
Income Funds Observed Holiday Funds
- ------------------- ---------------------- -----------
<S> <C> <C>
Closed New Year's Day Closed
Open for Business Martin Luther Closed
King, Jr. Day
Closed Presidents' Day Closed
Closed Good Friday Closed
Closed Memorial Day Closed
Closed Independence Day Closed
Closed Labor Day Closed
Open for Business Columbus Day Closed
Open for Business Veterans Day Closed
Closed Thanksgiving Day Closed
Closed Christmas Closed
</TABLE>
HOW TO SELL SHARES
YOU CAN ARRANGE TO GET MONEY OUT OF YOUR FUND ACCOUNT BY SELLING SOME OR ALL OF
YOUR SHARES. THIS PROCESS IS KNOWN AS "REDEEMING" YOUR SHARES. If you purchased
your shares through an account at Barnett Securities, Inc. or another Service
Organization, you may redeem shares in accordance with the instructions
pertaining to that account. If you purchased your shares through an account at
Barnett Securities, Inc. or another Service Organization and you, yourself,
appear on Emerald Funds' books as the shareholder of record, you may redeem
shares by mail or phone as described below; however, you must contact Barnett
Securities, Inc. or your other Service Organization if you wish to redeem your
shares by any other method. If you purchased your shares directly from Emerald
Funds, you have the ability to redeem shares by any of the methods described
below. Requests must be signed by you and by each other owner of the account
(for joint accounts).
Emerald Funds imposes no charges when you redeem shares. When shares are
purchased through Barnett Securities, Inc. or another Service Organization,
however, a fee may be charged by those institutions for providing administrative
services in connection with your investment.
41
<PAGE>
HOW TO REDEEEM SHARES ADDITIONAL LIMITATIONS
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
TELETRADE - After you have signed up for - Not available for shares for
(YOUR BANK ACCOUNT TeleTrade privileges you may which you have requested share
MUST BE A CHECKING, sell your shares via phone by certificates
NOW OR BANK MONEY calling 800/637-3759
MARKET ACCOUNT)
BY MAIL - Send a signed request (each - Requests greater than $10,000
owner, including each joint must be signature guaranteed
owner, must sign) to [name of - Any stock certificates for
the particular Fund whose shares being redeemed must be
shares you are selling], P.O. included with your request,
Box 182697, Columbus, Ohio endorsed for transfer and
43218-2697 signature guaranteed
AUTOMATIC - Withdrawals begin after you - Your account must have a total
WITHDRAWAL (PERMITS have signed up for this service net asset value of at least
AUTOMATIC WITHDRAWAL - Call 800-637-3759 for more $5,000
OF PRE-ARRANGED information - The transaction amount must be
AMOUNT) at least a $50 minimum
BY WIRE - After you have signed up for - The Transfer Agent may act
wire redemption privileges on upon such a request from any
the Account Registration Form, person representing him or
you may instruct the Transfer herself to be you and
Agent to wire your redemption reasonably believed by the
proceeds to your bank account Transfer Agent to be genuine
by sending a request in - The transaction amount must be
writing, by phone a $1,000 minimum
(800/637-3759) - This privilege may be subject
to limits regarding frequency
and overall amount
</TABLE>
Redemption requests are processed when received in proper form by Emerald Funds
at the net asset value per share next determined after such receipt.
42
<PAGE>
TRANSACTION RULES
THE PURCHASE PROCEDURES that the Equity and Fixed Income Funds follow in
processing your purchase order are somewhat different than the procedures
followed by the Money Market Funds. The order-taking procedures used by the
Equity and Fixed Income Funds also differ depending on whether you place your
order directly with Emerald Funds or use Barnett Securities, Inc. or another
Service Organization.
Also, the Equity and Fixed Income Funds may have different business days from
those of the Money Market Funds. A "Business Day" for the Equity and Fixed
Income Funds is any day on which the New York Stock Exchange (the "Exchange") is
open for business, while for the Money Market Funds it is any day on which both
the Exchange and the Funds' Custodian are open for business. Additionally, on
days when the Exchange (and/or the Custodian for Money Market Funds) closes
early due to a partial holiday or otherwise, the Funds reserve the right to
advance the times at which purchase and redemption orders must be received in
order to be processed on that Business Day.
IF YOU PLACE AN ORDER FOR AN EQUITY OR FIXED INCOME FUND without using Barnett
Securities, Inc., Barnett's Business Retirement Services or another Service
Organization, your purchase order, if in proper form and accompanied by payment,
will be processed upon receipt by Emerald Funds. An order in proper form will
also be processed upon receipt by Emerald Funds where Barnett or another
creditworthy financial institution undertakes to pay for the order in
immediately available funds wired to Emerald Funds by the close of business the
next Business Day. If Emerald Funds receives your order and, where required,
payment by the close of regular trading (currently 4 p.m. Eastern time) on the
Exchange, your shares will be purchased at the public offering price calculated
at the close of regular trading on that day. Otherwise, your shares will be
purchased at the public offering price determined as of the close of regular
trading on the next Business Day.
IF YOU PLACE AN ORDER FOR AN EQUITY AND FIXED INCOME FUND THROUGH BARNETT
SECURITIES, INC. OR ANOTHER SERVICE ORGANIZATION, and you place your order in
proper form before 4 p.m. (Eastern time) on any Business Day in accordance with
their procedures, your purchase will be processed at the public offering price
calculated at 4 p.m. on that day, if Barnett Securities, Inc. or your other
Service Organization then sends your order to Emerald Funds before the end of
its Business Day (which is usually 5 p.m. Eastern time). Barnett Securities,
Inc. or your other Service Organization must promise to send to the Transfer
Agent immediately available funds in the amount of the purchase price within
three Business Days of the order.
PURCHASE ORDERS FOR THE MONEY MARKET FUNDS that are in proper form are processed
upon receipt by Emerald Funds; however, orders will not be processed until
payments not made in federal funds are converted to federal funds, which
normally occurs within two Business Days of receipt. If Emerald Funds receives
your order and federal funds before 2 p.m. (Eastern time) (or 12 noon Eastern
time for the Tax-Exempt Fund) on a Business Day, your shares will be purchased
at 2 p.m. (Eastern time) (or 12 noon Eastern time for the Tax-Exempt Fund) on
that day. Otherwise, your shares will be purchased at the net asset value
calculated on the next Business Day.
TELETRADE PRIVILEGES. Only bank accounts held at domestic financial institutions
that are Automated Clearing House members can be used for TeleTrade
transactions. Most transfers are completed within three Business Days of your
call. To preserve flexibility, Emerald Funds may revise or remove the ability to
purchase shares by phone, or may charge a fee for such service, although no such
fees are currently expected. You should contact your bank for information about
sending and receiving funds through the Automated Clearing House, including any
charges that your bank may make for these services. Some clients of Barnett
Securities, Inc. or other Service Organizations may not be able to purchase
shares by phone pursuant to the TeleTrade privilege.
WIRE PURCHASES AND REDEMPTIONS. If you purchase shares by wire, you must file an
Account Registration Form before any of those shares can be redeemed. You should
contact your bank (which will need to be a commercial bank that is a member of
the Federal Reserve System) for information about sending and receiving funds by
wire, including any charges by your bank for these services. A Fund may decide
at any time to no longer permit redemption of shares by wire. Clients of Barnett
Banks Business Retirement Services are not able to place wire purchases and
redemption orders directly with Emerald Funds.
43
<PAGE>
BARNETT PROGRAMS. Shareholders who maintain a Barnett Banks checking account and
investments in Emerald Fund shares with a market value of $15,000 may qualify
for Barnett's Premier Account. In addition, Barnett Banks offer a Senior
Partners Program that is available to persons 55 years of age or older who
maintain a Barnett Bank checking account and investments in Emerald Fund shares
with a market value of $5,000. Further information about these programs is
available at Barnett Bank branch offices. Barnett Banks also offers a Periodic
Investment Program that is available through your broker. More information about
this program can be obtained from your broker. Emerald Funds is not responsible
for the operation of these programs.
MISCELLANEOUS PURCHASE INFORMATION. FEDERAL REGULATIONS REQUIRE THAT YOU PROVIDE
A CERTIFIED TAXPAYER IDENTIFICATION NUMBER WHENEVER YOU OPEN OR REOPEN AN
ACCOUNT. If your check does not clear, a fee may be imposed by the Transfer
Agent. Payments for shares of a Fund may, in the discretion of the Adviser, be
made in the form of securities that are permissible investments for that Fund.
For further information see "In-Kind Purchases" in the Statement of Additional
Information.
MISCELLANEOUS REDEMPTION INFORMATION. EMERALD FUNDS usually makes payment for
the shares that you redeem within three business days after it receives your
request in proper form. SHARES PURCHASED BY CHECK OR TELETRADE FOR WHICH A
REDEMPTION REQUEST HAS BEEN RECEIVED WILL NOT BE REDEEMED UNLESS CHECK OR
TELETRADE PAYMENT USED FOR INVESTMENT HAS CLEARED, WHICH MAY TAKE UP TO TEN
BUSINESS DAYS. WHERE REDEMPTION OF SHARES IN THE MONEY MARKET FUNDS IS REQUESTED
OTHER THAN BY MAIL, SHARES PURCHASED BY CHECK OR BY TELETRADE WILL NOT BE
REDEEMED FOR A PERIOD OF TEN BUSINESS DAYS AFTER THEIR PURCHASE. THIS PROCEDURE
DOES NOT APPLY TO SHARES PURCHASED BY WIRE PAYMENT. DURING THE PERIOD PRIOR TO
THE TIME MONEY MARKET FUND SHARES ARE REDEEMED, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF
BENEFICIAL OWNERSHIP.
The Funds may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend the recordation of the transfer of its
shares) for such periods as permitted under the Investment Company Act of 1940.
If your redemption request is more than $10,000, each signature on your request
must include a SIGNATURE GUARANTEE. Signature guarantees are designed to protect
both you and Emerald Funds from fraud. To obtain a signature guarantee you
should visit a bank, trust company, broker-dealer or other member of a national
securities exchange, or other eligible guarantor institution. (Notaries public
cannot provide signature guarantees.) Guarantees must be signed by an authorized
person at one of these institutions, and be accompanied by the words "Signature
Guarantee." You will also need a signature guarantee if you submit an endorsed
share certificate for redemption. Signature guarantees are not required with
respect to Barnett Banks Business Retirement Services accounts.
If you experience difficulty in contacting the Transfer Agent to redeem shares
by phone, for example because of unusual market activity, you are urged to
consider redeeming your shares by mail or in person.
You may request that redemptions be sent to you by check. Checks will only be
sent to the registered owner or owners and only to the address shown on Emerald
Funds' books.
THE VALUE OF SHARES THAT ARE REDEEMED IN THE EQUITY AND FIXED INCOME FUNDS may
be more or less than their original cost, depending on a Fund's current net
asset value. Because the Money Market Funds attempt to maintain their net asset
value at $1.00 a share, the value of a share in those Funds is expected to be
the same as your original cost, although there can be no assurance of this.
EMERALD FUNDS RESERVES THE RIGHT TO INVOLUNTARILY REDEEM AN ACCOUNT (other than
an IRA or Qualified Retirement Plan account) if, after thirty days' written
notice, the account's net asset value falls and remains below a $1,000 minimum
due to share redemptions and not market fluctuations.
In unusual circumstances Emerald Funds may make payment in readily marketable
portfolio securities at their market value equal to the redemption price.
44
<PAGE>
- --------------------------------------------------------------------------------
YOUR EMERALD FUND ACCOUNT
- -----------------------
SHAREHOLDER SERVICES
Emerald Funds provides a variety of ways to make managing your investments more
convenient. Some of these methods require you to request them on your Account
Registration Form or you may request them after opening an account by calling
800/637-3759. The Exchange Privilege, E-Z Matic Investment Plan and Automatic
Withdrawal Plan described below are not available for clients of Barnett Banks
Business Retirement Services.
RETIREMENT PLANS
Retirement plans may provide you with a method of investing for your retirement
by allowing you to defer taxation of your initial investment in your plan and
also allowing your investments to grow without the burden of current income tax
until monies are withdrawn from the retirement plan.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
The individual investor can select Emerald Funds for his IRA, Transfer IRA,
Rollover IRA or non-working spousal IRA. To establish an IRA with Emerald Funds,
you must complete the IRA Account Registration and Agreement Form. If the assets
are being moved from an existing IRA to Emerald Funds, you must also complete
either the Direct Rollover or IRA Request for Transfer Form.
Many investors are eligible to deduct from federal income tax all or a portion
of their IRA investment. All dividends and capital gains in an IRA grow tax
deferred until withdrawals. Investors may make contributions to their IRAs until
the tax year prior to reaching age 70 1/2. Mandatory withdrawals must begin in
the year after an investor reaches 70 1/2. Investors should consult their tax
advisers for details on eligibility and tax implications.
Please read the IRA Disclosure Statement and Custodial Agreement which contains
further information regarding IRAs, including services and fees.
QUALIFIED RETIREMENT PLANS
The Funds are available for many Qualified Retirement Plans with one or more
participants including 401(k), 457, 403(b)(7) and Simplified Employee Pension
Plans (SEP-IRAs). See your Investment Officer or Plan Administrator for details
on eligibility and other information.
EXCHANGE PRIVILEGES AMONG EMERALD FUNDS
(REQUIRES YOUR REQUEST)
You may sell your Fund shares and buy other shares of Emerald Funds by telephone
or written exchange at the telephone number or address under "Opening and Adding
to Your Emerald Fund Account." Specifically, Retail Shares may be exchanged for
Retail Shares of other Funds.
If you have a qualified trust, agency or custodian account with the trust
department of Barnett or another bank, trust company or thrift institution, and
your shares are to be held in that account, you may also exchange your Retail
Shares in a Fund for Institutional Shares (which are described under "The
Emerald Family of Funds" below) in the same Fund. Conversely, Institutional
Shares may be exchanged for Retail Shares of the same Fund in connection with
the distribution of assets held in such a qualified trust, agency or custodian
account. These exchanges are made at the net asset value of the respective share
classes.
Exchange transactions are subject to a $500 minimum current value. Exchanges may
have tax consequences for you. Consult your tax advisor for further information.
If you are opening a new account in a different Fund by exchange, the exchanged
shares must be at least equal in value to the minimum investment for the Fund in
which the account is being opened. The particular class of shares you are
exchanging into must be registered for sale in your state.
Additional information regarding exchanges can be obtained by reading the
Statement of Additional Information. The Exchange Privilege may be modified or
terminated at any time. At least 60 days' notice will be given to shareholders
of any material modification or termination of the Exchange Privilege except
where notice is not required by the Securities and Exchange Commission.
E-Z MATIC INVESTMENT PLAN
(REQUIRES YOUR REQUEST)
One easy way to pursue your financial goals is to invest money regularly.
Emerald Funds offers the E-Z Matic Investment Plan - a convenient service that
lets you transfer money from your bank account into your Fund account
automatically, on a schedule of your choice.
45
<PAGE>
At your option, your bank account will be debited in a particular amount that
you have specified, and Fund shares will be automatically purchased at regular
intervals - once a month on either the fifth or twentieth day, or twice a month
on both days. Your bank account must be a checking, NOW or bank money market
account maintained at a domestic financial institution which is an Automated
Clearing House member. Your institution must also permit automated withdrawals
(which may be subject to a fee by that institution).
The E-Z Matic Investment Plan is one means by which you may use "Dollar Cost
Averaging" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Equity and Fixed Income Funds whose price
per share fluctuates. Instead of trying to time market performance, a fixed
dollar amount is invested in Fund shares at predetermined intervals. This may
help you to reduce your average cost per share because the agreed upon fixed
investment amount allows more shares to be purchased during periods of lower
share prices and fewer shares during periods of higher prices. In order to be
effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. You should be aware, however, that shares bought using Dollar
Cost Averaging are made without regard to their price on the day of investment
or to market trends. While regular investment plans do not guarantee a profit
and will not protect you against loss in a declining market, they can be a good
way to invest for retirement, a home, educational expenses and other long-term
financial goals.
You may cancel your E-Z Matic investments or change the amount of purchase at
any time by mailing written notification to the Transfer Agent at P.O. Box
182697, Columbus, Ohio 43218-2697. You may also implement the Dollar Cost
Averaging method on your own initiative. Emerald Funds may modify or terminate
the E-Z Matic Investment Plan at any time or charge a service fee, although no
such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN
(REQUIRES YOUR REQUEST)
Emerald Funds offers a convenient way of withdrawing funds from your investment
portfolio. You may request regular monthly, quarterly, semi-annual or annual
withdrawals in any amount above $50 provided the particular Fund account you are
withdrawing from has a minimum current balance of at least $5,000. The automatic
withdrawal will be made on the last business day of the period you select.
DIVIDENDS AND DISTRIBUTIONS
WHERE DO YOUR DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the case
of the Money Market Funds, this net investment income flows from the interest
that the Funds earn on the money market and other instruments they hold. In the
case of the Short-Term Fixed Income, U.S. Government Securities, Managed Bond
and Florida Tax-Exempt Funds, net investment income comes from the interest on
the bonds and other investments that they hold in their portfolios. For the
Equity, Equity Value, International Equity, Small Capitalization and Balanced
Funds, net investment income is made up of dividends received from the stocks
they hold, as well as interest accrued on convertible securities, money market
instruments and other debt obligations held in their portfolios.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund may make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
WHAT ARE YOUR DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gain distributions. Dividends and
distributions are automatically reinvested in the same share class of the Fund
for which the dividend or distribution was declared, unless the shareholder
specifically elects to receive payments in cash. Your election and any
subsequent change should be made in writing to:
Emerald Funds
c/o BISYS Ohio
P.O. Box 182697
Columbus, Ohio 43218-2697
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds) or payment dates (with respect to the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Florida
Tax-Exempt and Money Market Funds) after the date the Funds' Transfer Agent
receives the election.
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WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
-----------------------
FUND DECLARED PAID
- ----------------- --------- ------------
<S> <C> <C>
1Equity, Equity Quarterly Quarterly
Value and
Balanced
2International Annually Annually
Equity and Small
Capitalization
3Short-Term Fixed Daily Monthly
Income, U.S. within five
Government business
Securities, days of
Managed Bond and month end
Florida Tax-
Exempt
4Prime, Treasury Daily Monthly
and Tax-Exempt within five
business
days of
month end
</TABLE>
1Dividends for the Equity, Equity Value and Balanced Funds may be declared and
paid at times that do not fall at the end of a calendar quarter.
2Dividends for the International Equity and Small Capitalization Fund may be
declared and paid at times that do not fall at the end of a calendar year.
3Shares of the Short-Term Fixed Income, U.S. Government Securities, Managed Bond
and Florida Tax-Exempt Funds begin earning dividends the first Business Day
after acceptance of the purchase order for which Emerald Funds' custodian has
received payment and stop earning dividends the Business Day such shares are
redeemed.
4Shares of the Prime, Treasury and Tax-Exempt Funds begin earning dividends on
the day a purchase order is processed, and continue to earn dividends through
the day before they are redeemed.
* * *
With respect to Short-Term Fixed Income, U.S. Government Securities, Managed
Bond and Florida Tax-Exempt Funds, if all of an investor's shares in a
particular share class are redeemed, the Fund will pay accrued dividends within
five Business Days after redemption. The Prime, Treasury and Tax-Exempt ("Money
Market") Funds will pay accrued dividends within five Business Days after the
end of each month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are distributed at
least annually after any reductions for capital loss carryforwards.
DISTRIBUTION AND SERVICE ARRANGEMENTS
Emerald Funds has adopted a Combined Distribution and Service Plan and a
Shareholder Processing Plan for its Retail Shares (the "Plans"). Under these
Plans the Distributor and Service Organizations receive payments for
distribution and shareholder services.
The Combined Distribution and Service Plan for Retail Shares authorizes payments
to the Distributor and Service Organizations for distribution and shareholder
liaison services provided to Retail Shareholders. PAYMENTS UNDER THE COMBINED
DISTRIBUTION AND SERVICE PLAN FOR RETAIL SHARES MAY NOT EXCEED .25% (on an
annual basis) of the average daily net asset value of a Fund's outstanding
Retail Shares. Distribution payments under the Plan are subject to the
requirements of a rule under the Investment Company Act of 1940 known as Rule
12b-1. Any distribution payments payable by Retail Shares will not be used to
assist the distribution of any other class.
Under the Shareholder Processing Plan, Service Organizations agree to provide
various shareholder processing services, such as providing necessary personnel
and facilities to establish and maintain shareholder accounts and records for
clients; assisting in aggregating and processing purchase, exchange and
redemption transactions; placing net purchase and redemption orders with the
Distributor; arranging for wiring of funds; transmitting and receiving funds in
connection with client orders to purchase or redeem Shares; processing dividend
payments; providing the information to the Funds necessary for accounting or
subaccounting; and providing such other similar services as may reasonably be
requested. PAYMENTS FOR THESE SERVICES MAY NOT EXCEED .25% (on an annual basis)
of the average daily net asset value of a Fund's outstanding Retail Shares.
BARNETT SECURITIES, INC. OR OTHER SERVICE ORGANIZATIONS may charge their clients
a separate fee for administrative services in connection with investments in
Fund shares and may impose minimum customer account and other requirements These
fees and requirements would be in addition to those imposed by the Funds under
the Plans. If you are investing through Barnett Securities, Inc. or another
Service Organization, please refer to their program materials for any additional
special provisions or conditions that may be different from those described in
this Prospectus (for example, some or all of the services and privileges
described may not be
47
<PAGE>
available to you). Barnett Securities, Inc. and the other Service Organizations
have the responsibility of transmitting purchase orders and required funds, and
of crediting their clients' accounts following redemptions, in a timely manner
in accordance with their customer agreements and this Prospectus.
Investors may note that federal banking laws currently limit the securities
activities of banks. It is possible that a bank might be prohibited from acting
as a Service Organization in the future. If this were to happen, the bank's
shareholder clients would be permitted by the Funds to remain shareholders. The
Funds' method of operations might, however, change and such shareholders might
not be able to avail themselves of the services provided by their banks. No
adverse financial consequences are expected to occur to these shareholders from
any such event.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business trust,
and is a mutual fund of the type known as an "open-end management investment
company." A MUTUAL FUND PERMITS AN INVESTOR TO POOL HIS OR HER ASSETS WITH THOSE
OF OTHERS IN ORDER TO ACHIEVE ECONOMIES OF SCALE, TAKE ADVANTAGE OF PROFESSIONAL
MONEY MANAGERS AND ENJOY OTHER ADVANTAGES TRADITIONALLY RESERVED FOR LARGE
INVESTORS. The Agreement and Declaration of Trust permits the Board of Trustees
of Emerald Funds to classify any unissued shares into one or more classes of
shares. The Board has authorized the issuance of an unlimited number of shares
in each of two share classes of each Equity and Fixed Income Fund, and has also
authorized the issuance of an unlimited number of shares in each of three share
classes in the Money Market Funds. Each Fund, except the Florida Tax-Exempt
Fund, is classified as a diversified company. The Board of Trustees has also
authorized the issuance of additional classes of shares representing interests
in other portfolios of Emerald Funds. Information regarding other portfolios and
share classes may be obtained by contacting the Emerald Funds Center or the
Distributor at the address listed on page 35.
Retail Shares of the Funds are described in this prospectus. The Funds also
offer Institutional Shares and, additionally, the Money Market Funds offer
Institutional and Service Shares solely to banks and other institutions, acting
on behalf of themselves and their customers. Shares of each class bear their pro
rata portion of all operating expenses incurred by the Funds, except certain
miscellaneous "class expenses" (I.E. certain printing and registration
expenses). In addition, Retail Shares bear all payments under the Plans
described above under "Distribution and Service Arrangement," and Service Shares
bear all the payments under the Shareholder Processing and Services Plan (the
"Service Plan") as described in the prospectus for those Shares. Payments under
the Service Plan may not exceed .35% (on an annual basis) of the average daily
net asset value of the outstanding Service Shares. Because of these Plan and
other "class expenses," the performance of a Fund's Institutional Shares is
expected to be higher than the performance of its Retail or Service Shares. The
Funds offer various services and privileges in connection with Retail Shares
that are not generally offered in connection with Institutional and Service
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Institutional and Service Shares,
contact the Distributor at 800-637-3759.
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND PROPORTIONATE
FRACTIONAL VOTES FOR FRACTIONAL SHARES HELD. Shares of all Emerald Fund
portfolios vote together and not by class, unless otherwise required by law or
permitted by the Board of Trustees. All shareholders of a particular Fund will
vote together as a single class on matters pertaining to the Fund's investment
advisory agreement and fundamental investment limitations. Only Retail
shareholders, however, will vote on matters pertaining to the Plans for Retail
Shares. Similarly, only holders of Service Shares will vote on matters
pertaining to the Service Plan.
EMERALD FUNDS IS NOT REQUIRED TO AND DOES NOT CURRENTLY EXPECT TO HOLD ANNUAL
MEETINGS OF SHAREHOLDERS TO ELECT TRUSTEES. The trustees will call a shareholder
meeting upon the written request of shareholders owning at least 10% of the
shares entitled to vote. As of December 31, 1995, the Adviser and its affiliates
possessed, on behalf of their underlying customer accounts, voting or investment
power with respect to a majority of the outstanding shares of Emerald Funds.
More information about shareholder voting rights can be found in the Statement
of Additional Information under "Description of Shares."
48
<PAGE>
- --------------------------------------------------------------------------------
THE BUSINESS OF THE FUNDS
- -------------------------
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL SUPERVISION
OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- - Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- - John G. Grimsley, President of Emerald Funds, is a member of the law firm of
Mahoney, Adams & Criser.
- - Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- - Mary Doyle is the Dean in Residence of the Association of American Law Schools
and Professor of Law, University of Miami Law School.
- - Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide investment
management and other important services to the Funds. BARNETT BANKS TRUST
COMPANY, N.A. serves as the Funds' adviser and has its principal offices at 9000
Southside Boulevard, Building 100, Jacksonville, Florida 32256. Rodney Square
Management Corporation (referred to as the "Sub-Adviser"), a wholly-owned
subsidiary of WILMINGTON TRUST COMPANY, acts as sub-adviser for the Tax-Exempt
Fund and is located at Rodney Square North, Wilmington, Delaware 19890. BISYS, a
wholly-owned subsidiary of The BISYS Group, Inc., is located at 3435 Stelzer
Road, Columbus, Ohio 43219-3035 and serves as the Funds' administrator, and
Emerald Asset Management, Inc., also a wholly-owned subsidiary of The BISYS
Group, Inc., located at the same address, is the registered broker-dealer that
sells the Funds' shares. The Funds also have a custodian, The Bank of New York,
located at 90 Washington Street, New York, New York 10286, and a transfer and
dividend paying agent, BISYS Fund Services Ohio, Inc. located at 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
ADVISER AND SUB-ADVISER. Barnett manages the investment portfolios of the Equity
and Fixed Income Funds and the Prime and Treasury Funds, including selecting
portfolio investments and making purchase and sale orders. The Sub-Adviser
manages the investment portfolio of the Tax-Exempt Fund in accordance with
investment requirements and policies established by Barnett.
As of December 31, 1995 Barnett had approximately $9.8 billion under active
management, with $3.2 billion in equity securities, $713 million in taxable
fixed income securities, $1.4 billion in treasury and government securities,
$1.5 billion in municipals and $2.8 billion in money market instruments. Barnett
is a subsidiary of Barnett Banks, Inc., a registered bank holding company that
has offered general banking services since 1877. Wilmington Trust Company, the
parent organization of the Sub-Adviser and a Delaware banking corporation, is in
turn a wholly-owned subsidiary of Wilmington Trust Corporation, a registered
bank holding company. The Sub-Adviser provides management services to a number
of mutual funds with total assets on December 31, 1995 of $1.5 billion.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of a Fund's investment portfolio. Russell Creighton, C.F.A., a Senior
Vice President of Barnett, has been the portfolio manager of the Equity Fund
since September 1993, and has also managed the Balanced Fund since it commenced
operations on April 11, 1994 and the Equity Value Fund since it commenced
operations on December 26, 1995. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in addition to these Funds currently manages a
diversified common stock fund and assists in preparing ongoing equity investment
strategy. Martin E. LaPrade, C.F.A., and Joseph E. Tannehill, C.F.A., have
co-managed the International Equity Fund since it commenced operations on
December 26, 1995, and along with Mr. Creighton have co-managed the Equity Value
Fund since it commenced operations. Mr. LaPrade is a Senior Vice President with
Barnett and currently has eleven years of investment experience. He serves as a
strategist and an equity portfolio manager, with additional responsibility in
asset allocation research, and directs the asset allocation decisions for
balanced account management. He joined Barnett in 1978. Mr. Tannehill is a Vice
President with Barnett
49
<PAGE>
and currently has nine years of investment experience. He is primarily
responsible for applying quantitative methods to equity security research. In
addition, he oversees the management of an enhanced index equity commingled
fund. He joined Barnett in 1986. Dean McQuiddy, C.F.A., a Vice President with
Barnett, has managed the Small Capitalization Fund since it commenced operations
on January 4, 1994, and also manages the small capitalization portion of the
Equity and Balanced Funds. Since joining Barnett in 1983, Mr. McQuiddy has been
an equity analyst and institutional portfolio manager, and for the last eight
years has managed Barnett's employee benefits small capitalization fund.
Jacqueline Lunsford, C.F.A., a Senior Vice President with Barnett, has managed
the Short-Term Fixed Income Fund since it commenced operations on April 11,
1994. Ms. Lunsford has been with Barnett since 1988, and also manages money
market mutual funds for Emerald Funds and other customers. Andrew Cantor,
C.F.A., a Senior Vice President with Barnett, has managed the U.S. Government
Securities Fund since its inception in 1991, and has also managed the Managed
Bond Fund since it commenced operations on April 11, 1994. For the past eleven
years, Mr. Cantor has served as the senior fixed income manager in Barnett's
Institutional Investments Group, where his responsibilities have included
setting fixed income investment strategy and managing a number of major taxable
fixed income accounts, including several commingled funds. Douglas Byrne, a
Senior Vice President of Barnett, has been the portfolio manager of the Florida
Tax-Exempt Fund since it commenced operations in 1991. Mr. Byrne is the manager
of Barnett's Trading Department and for the last eight years has been its senior
tax-exempt portfolio manager. In addition to managing the Florida Tax-Exempt
Fund, Mr. Byrne has direct responsibility for several tax-exempt common trust
funds and institutional accounts.
Although expected to be infrequent, Barnett (or the Sub-Adviser) may consider
the amount of Fund shares sold by broker-dealers and others (including those who
may be connected with Barnett or the Sub-Adviser) in allocating orders for
purchases and sales of portfolio securities. This allocation may involve the
payment of brokerage commissions or dealer concessions. Barnett (and the
Sub-Adviser) will not engage in this practice unless the execution capability of
and the amount received by such broker-dealer or other company is believed to be
comparable to what another qualified firm could offer.
BISYS. BISYS is an Ohio Limited Partnership and is a wholly-owned subsidiary of
The BISYS Group, Inc.
BISYS provides a wide range of such services to the Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gains distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to
you or deducted from your account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the International Equity and Small
Capitalization Funds' average daily net assets, .60% of each of the Equity,
Equity Value and Balanced Funds' average daily net assets, .40% of each of the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds' average daily net assets, and .25% of each Money Market Funds'
average daily net assets. The advisory fees payable by the International Equity
and Small Capitalization Funds are higher than those paid by most mutual funds,
although the Board of Trustees believes they are comparable to the advisory fees
payable by many similar funds. Barnett has agreed to pay the Sub-Adviser .15% of
the Tax-Exempt Fund's average daily net assets, and is voluntarily waiving the
remainder of its fee for that Fund. The fees paid by Barnett to the Sub-Adviser
for the Tax-Exempt Fund comes out of Barnett's advisory fee for that Fund and is
not an additional charge to the Fund.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00%, .40%, .40%, .23%, .24%
and .13% of the average daily net assets of the Equity, Small Capitalization,
U.S. Government Securities, Florida Tax-Exempt, Prime, Treasury and Tax-Exempt
Funds, respectively. All of the fees that Barnett received for the Tax-Exempt
Fund were
50
<PAGE>
paid to the Sub-Adviser pursuant to the fee arrangement described above. Barnett
voluntarily waived all fees from the Balanced, Short-Term Fixed Income and
Managed Bond Funds.
BISYS is entitled to an administration fee calculated daily and payable monthly
at the effective annual rate of .0775% of the first $5 billion of the aggregate
net assets of all of the Emerald Funds, .07% of the next $2.5 billion, .065% of
the next $2.5 billion and .05% of all assets exceeding $10 billion. In the event
the aggregate average daily net assets for all Funds falls below $3 billion, the
fee will be increased to .08% of the aggregate average daily net assets of all
of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees and
expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings; and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and by the Funds' other service
providers, with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting Funds and their shareholders. You should
consult your tax adviser with specific reference to your own tax situation.
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING THE FEDERAL INCOME TAX TREATMENT
OF DIVIDENDS AND DISTRIBUTIONS MADE TO YOU. FEDERAL INCOME TAXES FOR DIVIDENDS
AND DISTRIBUTIONS MADE TO AN IRA, SEP-IRA, 401(K) PLAN OR OTHER QUALIFIED
RETIREMENT PLAN ARE GENERALLY DEFERRED.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment company"
under the Internal Revenue Code (called the "Code"), meaning that to the extent
a Fund's earnings are passed on to shareholders as required by the Code, the
Fund itself generally will not be required to pay federal income taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund, other than the "exempt
interest dividends" from the Florida Tax-Exempt and Tax-Exempt Funds, will be
taxable to you.
In addition, the Florida Tax-Exempt and the Tax-Exempt Funds (together referred
to as the "Tax-Exempt Funds") will pay at least 90% of their net exempt-interest
income as dividends known as "exempt-interest dividends." These dividends may be
treated by you as excludable from your gross income (unless the exclusion would
be disallowed because of your particular situation). You should note that income
that is not subject to federal income taxes may nonetheless have to be
considered along with other adjusted gross income in determining whether any
Social Security payments received by you are subject to federal income taxes.
If either of the two Tax-Exempt Funds hold certain so-called "private activity
bonds" issued after August 7, 1986, shareholders will need to include as
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an item of tax preference for purposes of the federal alternative minimum tax
that portion of the dividends paid by the Tax-Exempt Funds derived from interest
received on such bonds. The maximum federal alternative minimum tax rate is 28%
for individuals. In addition, corporations will need to take into account all
exempt-interest dividends paid by the Tax-Exempt Funds in determining certain
adjustments for the federal alternative minimum tax and the environmental tax.
Any distribution you receive of net long-term capital gain over net short-term
capital loss will be taxed as a long-term capital gain, no matter how long you
have held Fund shares. If you hold shares for six months or less, and during
that time receive a distribution that is taxable as a long-term capital gain,
any loss you realize on the sale of those shares will be treated as a long-term
loss to the extent of the earlier capital gains distribution.
Additionally, for federal income tax purposes, exchange transactions are treated
as sales on which you will realize a capital gain or loss depending on whether
the value of the shares exchanged is more or less than your basis in the shares
at the time of the transaction.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the Equity
Funds, the record date of dividend and capital gains distributions) should be
aware that the amount of the forthcoming dividend or distribution, although in
effect a return of capital, will be taxable.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders of the Equity and Fixed Income Funds may realize a taxable gain or
loss when redeeming, transferring or exchanging shares of a Fund, depending on
the difference in the prices at which the shareholder purchased and sold the
shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. If more than 50% of the value of this Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of such taxes against their federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in a Fund
should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, except as stated below, dividends
paid by the U.S. Government Securities, Treasury and the two Tax-Exempt Funds
may be taxable under state or local law as dividend income, even though all or
part of those dividends come from interest on obligations that would be free of
such income taxes if held by you directly. Except as stated below, shares of the
Funds are not expected to qualify for total exemption from the Florida
intangibles tax.
FLORIDA TAXES (FLORIDA TAX-EXEMPT AND TREASURY FUNDS). Florida does not
currently have an income tax for individuals, and therefore individual
shareholders of the Florida Tax-Exempt and Treasury Funds will not be subject to
any Florida income tax on amounts received from the Funds. However, Florida does
impose an income tax on certain corporations, so that such amounts may be
taxable to corporate shareholders.
Florida also imposes an "intangibles tax" at the annual rate of 2 mills or 0.20%
on certain securities and other intangible assets owned by Florida residents.
With respect to the first mill, or first .10%, of the intangibles tax, every
natural person is entitled each year to an exemption of the first
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$20,000 of the value of the property subject to the tax. A husband and wife
filing jointly will have an exemption of $40,000. With respect to the last one
mill, or last .10%, of the intangibles tax, every natural person is entitled
each year to an exemption of the first $100,000 of the value of the property
subject to the tax. A husband and wife filing jointly will have an exemption of
$200,000.
Obligations issued by the State of Florida or its municipalities, counties, and
other taxing districts, or by the U.S. Government, certain U.S. Government
agencies and certain U.S. territories and possessions (such as Guam, Puerto Rico
and the Virgin Islands), as well as cash, are exempt from this intangibles tax.
If on December 31 of any year the portfolio of the Florida Tax-Exempt Fund or
Treasury Fund consist solely of such exempt assets, then that Fund's shares will
be entirely exempt from the Florida intangibles tax payable in the following
year.
The Florida Tax-Exempt Fund intends, but cannot guarantee, that its shares will
qualify for total exemption from the Florida intangibles tax. On the other hand,
it is possible that shares of the Treasury Fund may, or may not so qualify. In
order to take advantage of this exemption, a Fund may sell non-exempt assets
held in its portfolio (such as repurchase agreements) during the year and
reinvest the proceeds in exempt assets, or hold cash, prior to December 31.
Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - PERFORMANCE INFORMATION PROVIDES YOU WITH A METHOD OF MEASURING AND MONITORING
YOUR INVESTMENTS. EACH FUND MAY QUOTE ITS PERFORMANCE IN ADVERTISEMENTS OR
SHAREHOLDER COMMUNICATIONS. THE PERFORMANCE FOR A FUND'S RETAIL SHARES IS
CALCULATED SEPARATELY FROM THE PERFORMANCE OF A FUND'S OTHER CLASSES OF
SHARES.
UNDERSTANDING PERFORMANCE MEASURES:
- - TOTAL RETURN for each Equity and Fixed Income Fund may be calculated on an
AVERAGE ANNUAL TOTAL RETURN basis or an AGGREGATE TOTAL RETURN basis. Average
annual total return reflects the average annual percentage change in value of
an investment over the measuring period. Aggregate total return reflects the
total percentage change in value of an investment over the measuring period.
Both measures assume the reinvestment of dividends and distributions.
- - YIELDS for the Funds (except the Money Market Funds) are calculated for a
specified 30-day (or one-month) period by dividing the net income for the
period by the maximum offering price on the last day of the period, and
annualizing the result on a semi-annual basis. Yields for the Money Market
Funds are the income generated over a 7-day period (which period will be
identified in the quotation) and then assumed to be generated over a 52 week
period and shown as a percentage of the investment. Net income used in yield
calculations may be different than net income used for accounting purposes.
- - EFFECTIVE YIELDS for the Money Market Funds are calculated similarly, but the
income quoted over a 7-day period is assumed to be reinvested.
- - TAX-EQUIVALENT YIELDS for the two Tax-Exempt Funds show the amount of taxable
yield needed to produce an after-tax equivalent of a tax-free yield, and are
calculated by increasing the yield (as calculated above) by the amount
necessary to reflect the payment of federal and/or state income taxes at a
stated rate. A Fund's "tax-equivalent yield" will always be higher than its
"yield."
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual funds
with similar investment objectives and to bond, stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Total return and yield data as reported in national financial publications such
as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES, as
well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Equity and Fixed Income Funds may also be compared to
data prepared by Lipper Analytical Services, Inc., Mutual Fund Forecaster,
Wiesenberger Investment Companies Services, Morningstar or CDA Investment
Technologies, Inc., and total returns for these Funds may be compared to indices
such as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index,
the Lehman Brothers Bond Indices,
53
<PAGE>
the Merrill Lynch Bond Indices, the Wilshire 5000 Equity Indexes or the Consumer
Price Indices. In addition, the International Equity Fund's performance may be
compared to either the Morgan Stanley Capital International Index or the FT
World Actuaries Index.
The yields of Prime Fund Retail Shares may be compared to the DONOGHUE'S MONEY
FUND AVERAGE which monitors the performance of money market funds, the yields of
Treasury Fund Retail Shares may be compared to the DONOGHUE'S GOVERNMENT MONEY
FUND AVERAGE; and the yields of Tax-Exempt Fund Retail Shares may be compared to
DONOGHUE'S TAX-FREE MONEY FUND AVERAGE. Additionally, the Money Market Funds'
performance may be compared to data prepared by Lipper Analytical Services, Inc.
OTHER PERFORMANCE INFORMATION - EQUITY, SMALL CAPITALIZATION, MANAGED BOND AND
SHORT-TERM FIXED INCOME FUNDS ONLY:
The Equity, Small Capitalization, Managed Bond and Short-Term Fixed Income Funds
commenced their initial investment operations in connection with the transfer of
assets from common trust funds managed by the Adviser for employee benefit plan
accounts. Set forth below is certain performance information relating to those
common trust funds before the Equity, Small Capitalization, Managed Bond and
Short-Term Fixed Income Funds registered as investment companies with the
Securities and Exchange Commission, together with the performance information of
these Funds since their commencement of operations. The common trust funds were
operated using substantially the same investment objectives, policies,
restrictions and metholodogies as in the corresponding Funds. During that time
the common trust funds were not registered under the 1940 Act and therefore were
not subject to certain investment restrictions that are imposed by the Act. If
the common trust funds had been registered under the 1940 Act, the common trust
funds' performance might have been adversely affected. Because the common trust
funds did not charge any expenses, their performance has been adjusted as stated
below to reflect the Funds' estimated expenses at the time of their inception.
The following performance information is not necessarily indicative of the
future performance of the Funds. Because each Fund is actively managed, its
investments vary from time to time and are not identical to the past portfolio
investments of its predecessor common trust fund. Each Fund's performance
fluctuates so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
<TABLE>
<CAPTION>
Average Annual Total Return
For The Periods Ended November 30, 1995
------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity Fund(1)......... 34.82% 9.60% 13.27% 13.09%
Small Capitalization
Fund(2)............... 32.19% 17.12% 25.27% 12.68%*
Managed Bond Fund(3)... 18.47% 8.24% 9.68% 9.09%**
Short-Term Fixed Income
Fund(4)............... 10.25% 5.25% 6.72% 7.19%
--------- ----- ----- -----
</TABLE>
- ------------
(1) The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of
the predecessor common trust fund, assuming reinvestment of all net
investment income and capital gains and taking into account expenses of
0.49% of average daily net assets, which was the expected expense ratio of
shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Equity Fund also
assume reinvestment of all net investment income and realized capital gains
and take into account actual expenses of Retail Shares of the Fund. The
average annual total return of the Fund (Retail Shares) since its inception
to November 30, 1995 is 11.43%. During this period fee waivers and expense
reimbursements were in effect. Without these waivers and reimbursements the
Fund's performance would have been lower.
(2) The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 1.54% of average daily net assets, which was the
expected expense ratio of shares of the Small Capitalization Fund (Retail
Shares) at the time of its inception. The average annual total returns for
the periods subsequent to the inception of the Small Capitalization Fund
also assume reinvestment of all net investment income and realized capital
gains and take into
54
<PAGE>
account actual expenses of Institutional Shares of the Fund for the period
January 4, 1994 to March 1, 1994 and of Retail Shares of the Fund
thereafter. The average annual total return of the Fund (Retail Shares)
since its inception to November 30, 1995 is 11.87%. During this period fee
waivers and expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(3) The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.67% of
average daily net assets, which was the expected expense ratio of Retail
Shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Managed Bond Fund
also assume reinvestment of all net investment income and realized capital
gains and take into account actual expenses of Retail Shares of the Fund.
The average annual total return of the Fund (Retail Shares) since its
inception to November 30, 1995 is 10.64%. During this period fee waivers and
expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(4) The above information for the periods prior to inception of the Short-Term
Fixed Income Fund (4/11/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 0.68% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Short-Term Fixed Income Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Retail Shares of the Fund. The average annual total return of
the Fund (Retail Shares) since its inception to November 30, 1995 is 6.55%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
* Since inception of common trust fund: 12/31/86.
** Since inception of common trust fund: 4/30/87.
SPECIAL INFORMATION FOR INVESTORS IN THE FLORIDA TAX-EXEMPT FUND:
You may find it particularly useful to compare the tax-free yield of the Florida
Tax-Exempt Fund to the equivalent yield from taxable investments. For an
investor in a low tax bracket, it may not be helpful to invest in a tax-exempt
investment if a higher after-tax yield can be achieved from a taxable
instrument.
The following table illustrates the differences between hypothetical tax-free
yields and tax-equivalent yields for different tax brackets. You should be
aware, however, that tax brackets can change over time and that your tax adviser
should be consulted for specific yield calculations. (The federal tax brackets
and rates below are those currently available for 1996.)
<TABLE>
<CAPTION>
Taxable Income
- ------------------------------------ Tax Exempt Yield
Single Joint Federal -----------------------------------------------------------------
Return Return Bracket 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
4.00% Equivalent Taxable Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Not over $24,000 Not over $40,100 15.000% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
24,001 - 58,150 40,101 - 96,900 28.000% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
58,151 - 121,300 96,901 - 147,700 31.000% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
121,301 - 263,750 147,701 - 263,750 36.000% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
Over 263,750 Over 263,750 39.600% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42% 13.25%
</TABLE>
These yields are for illustrative purposes only. The tax brackets do not take
into account the effect of reductions in the deductibility of itemized
deductions for taxpayers with adjusted gross income over $118,000
55
<PAGE>
or the possible effect of the federal alternative minimum tax. Additionally,
effective brackets and equivalent taxable yields could be higher than those
shown. The brackets do not take into consideration the Florida intangibles tax,
and equivalent taxable yields would actually be greater than those shown when
compared to a taxable security which is also subject to the Florida intangibles
tax.
Performance quotations will fluctuate, and you should not consider
quotations to be representative of future performance. You should also
remember that performance is generally a function of the kind and quality of
investments held in a portfolio, portfolio maturity, operating expenses and
market conditions. Fees that Barnett Securities, Inc. or another Service
Organization may charge directly to its customer accounts in connection with
an investment in a Fund will not be included in the Funds' calculations of
total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the address
stated on page 35.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS 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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
THE DISTRIBUTOR MAY, FROM TIME TO TIME, PROVIDE PROMOTIONAL INCENTIVES TO
CERTAIN DEALERS WHOSE REPRESENTATIVES HAVE SOLD OR ARE EXPECTED TO SELL
SIGNIFICANT AMOUNTS OF THE FUNDS. THE DISTRIBUTOR MAY ALSO PAY, FROM TIME TO
TIME, BARNETT SECURITIES, INC. AND/OR OTHER DEALERS AN AMOUNT THAT DOES NOT
EXCEED 0.40% OF THE AMOUNT INVESTED. AT VARIOUS TIMES THE DISTRIBUTOR MAY
IMPLEMENT PROGRAMS UNDER WHICH A DEALER'S SALES FORCE MAY BE ELIGIBLE TO WIN
CASH OR MATERIAL AWARDS FOR CERTAIN SALES EFFORTS. THE DISTRIBUTOR MAY PROVIDE
MARKETING SERVICES TO DEALERS, CONSISTING OF WRITTEN INFORMATIONAL MATERIAL
RELATING TO SALES INCENTIVE CAMPAIGNS CONDUCTED BY SUCH DEALERS FOR THEIR
REPRESENTATIVES. TO THE EXTENT PERMITTED BY LAW, THE FUNDS' ADVISER MAY
IMPLEMENT OR PARTICIPATE IN SIMILAR PROGRAMS.
BARNETT MAY, AT ITS OWN EXPENSE, PROVIDE COMPENSATION TO CERTAIN DEALERS WHOSE
CUSTOMERS PURCHASE SIGNIFICANT AMOUNTS OF SHARES OF A FUND. THE AMOUNT OF SUCH
COMPENSATION MAY BE MADE ON A ONE-TIME AND/OR PERIODIC BASIS, AND MAY BE UP TO
100% OF THE ANNUAL FEES THAT ARE EARNED BY BARNETT AS INVESTMENT ADVISER TO SUCH
FUND (AFTER ADJUSTMENTS) AND ARE ATTRIBUTABLE TO SHARES HELD BY SUCH CUSTOMERS.
SUCH COMPENSATION WILL NOT REPRESENT AN ADDITIONAL EXPENSE TO THE FUNDS OR THEIR
SHAREHOLDERS, SINCE IT WILL BE PAID FROM THE ASSETS OF BARNETT OR ITS
AFFILIATES.
56
<PAGE>
[LOGO]
E M E R A L D
F U N D S
EMEBMM495P Previous editions are obsolete. 145068 REV 0495
<PAGE>
EMERALD MONEY MARKETS FOR INSTITUTIONS
TREASURY TRUST FUND
PRIME TRUST FUND
INVESTMENT PORTFOLIOS OFFERED
BY EMERALD FUNDS
P R O S P E C T U S
APRIL 1, 1996
EMERALD
FUNDS
<PAGE>
EMERALD FUNDS
Prospectus for Treasury Trust and Prime Trust Funds
This Prospectus relates to the Treasury Trust and Prime Trust Funds (the
"Funds"), two separate short-term money market funds that are designed to meet
the cash management needs of investors. The Prime Trust Fund and Treasury Trust
Fund each seek to provide a high level of current income, consistent with
liquidity, the preservation of capital and a stable net asset value.
Shares of the Funds are sold by Emerald Asset Management, Inc. Barnett Banks
Trust Company, N.A., Jacksonville, Florida ("Barnett") and its affiliated banks
acting in a fiduciary capacity on behalf of persons maintaining accounts at the
banks, as well as to certain accounts maintained at other institutions for which
Barnett provides advisory or other fiduciary services. Shares are sold and
redeemed without any purchase or redemption charge imposed by the Funds,
although Barnett, its affiliated and correspondent banks and other institutions
may charge their customer accounts for services provided in connection with the
purchase or redemption of shares.
This Prospectus describes concisely the information about the Funds that you
should consider before investing. Please read and keep it for future reference.
More information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 1-800-637-3759, and is incorporated by reference
into (considered a part of) 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.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES, AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUPPORTED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. WHILE THE FUNDS WILL ATTEMPT TO MAINTAIN A NET ASSET VALUE
OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO ON A
CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID BY A FUND WILL
GO UP AND DOWN.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS
IN SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
April 1, 1996
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general fund
administration, accounting and other services.
Below is information regarding the Funds' operating expenses for shares of
the Prime Trust and Treasury Trust Funds. Examples based on this information are
also provided.
<TABLE>
<CAPTION>
TREASURY
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS TRUST PRIME TRUST
(as a percentage of average net assets) FUND FUND
------------- -----------
<S> <C> <C>
Advisory Fees............................................ 0.15% 0.15%
12b-1 Fees............................................... 0.00% 0.00%
Shareholder Service Fees................................. 0.00% 0.00%
All Other Expenses....................................... 0.14% 0.14%
------ -----------
Total Fund Operating Expenses............................ 0.29% 0.29%
------ -----------
------ -----------
EXAMPLE: Let's say, hypothetically, that the annual net return on each Fund is 5%,
and that their operating expenses are as described above. For every $1,000 you
invested in a particular Fund after the periods shown below, you would have paid
this much in expenses during such periods:
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
Treasury Trust Fund..................... $ 3 $ 9 $ 16 $ 37
Prime Trust Fund........................ $ 3 $ 9 $ 16 $ 37
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
This expense information is provided to help you understand the expenses you
would bear indirectly as a shareholder of one of the Funds. The operating
expenses for the Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the last
fiscal year.
See "Management of Emerald Funds" in this Prospectus and the financial
statements and related notes in the Statement of Additional Information for a
further description of the Funds' operating expenses. You should note that any
fees that are charged by Barnett, its affiliates or any other institutions
directly to their customer accounts for services related to an investment in the
Funds are in addition to, and not reflected in, the fees and expenses described
above.
2
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
EMERALD FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORT ON THE
FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE
PERIOD ENDED NOVEMBER 30, 1995 IS INCORPORATED BY REFERENCE INTO THE STATEMENT
OF ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THE FUNDS' ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR.
Financial highlights for a Share of the Treasury Trust Fund outstanding
throughout each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $1.0015 $0.9999 $0.9999 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income.................. 0.0551 0.0367 0.0292 0.0367 0.0598 0.0777
Net realized gains (losses) on
securities............................ (0.0006) 0.0016 0.0000 (0.0001) (0.0000) 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations.............................. 0.0545 0.0383 0.0292 0.0366 0.0598 0.0777
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income... (0.0551) (0.0367) (0.0292) (0.0367) (0.0598) (0.0777)
Distributions from net realized gains on
securities.............................. (0.0009) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions........ (0.0560) (0.0367) (0.0292) (0.0367) (0.0598) (0.00)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value............ (0.0015) 0.0016 0.0000 (0.0001) 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........... $1.0000 $1.0015 $0.9999 $0.9999 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................. 5.74% 3.73% 2.96% 3.74% 6.15% 8.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $132,850 $126,771 $166,410 $183,072 $184,420 $215,948
Ratio of expenses to average net
assets................................ 0.40% 0.40% 0.40% 0.40% 0.39% 0.38%
Ratio of net investment income to
average net assets.................... 5.54% 3.61% 2.92% 3.72% 6.00% 7.77%
Ratio of expenses to average net
assets**.............................. 0.45% 0.44% 0.42% (0.00) (0.00) 0.39%
Ratio of net investment income to
average net assets** 5.50% 3.57% 2.90% (0.00) (0.00) 7.76%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $1.0000
------------
Income from investment operations:
Net investment income.................. 0.0849
Net realized gains (losses) on
securities............................ 0.0000
------------
Total income (loss) from investment
operations.............................. 0.0849
------------
Less dividends and distributions:
Dividends from net investment income... (0.0849)
Distributions from net realized gains on
securities.............................. (0.0000)
------------
Total dividends and distributions........ (0.00)
------------
Net change in net asset value............ 0.0000
------------
NET ASSET VALUE, END OF PERIOD........... $1.0000
------------
------------
Total return............................. 8.83%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $236,411
Ratio of expenses to average net
assets................................ 0.39%+
Ratio of net investment income to
average net assets.................... 8.63%+
Ratio of expenses to average net
assets**.............................. (0.00)
Ratio of net investment income to
average net assets** (0.00)
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
*** Net of fee waivers by the sub-adviser and administrator. In addition,
interest expense had the effect of increasing the Fund's expenses as a
percentage of average net assets by 0.03%. If the fee waivers had not been
in place, the annualized ratio of expenses to average net assets would have
been 0.43% for the period ended November 30, 1989.
+ Annualized.
++ Not Annualized.
+++ Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Financial highlights for a Share of Prime Trust Fund outstanding throughout
each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $0.9999 $1.0000 $1.0017 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income.................. 0.0561 0.0377 0.0304 0.0392 0.0637 0.0800
Net realized gains (losses) on
securities............................ 0.0000 (0.0038) 0.0005*** 0.0017 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations.............................. 0.0561 0.0339 0.0309 0.0409 0.0637 0.0800
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income... (0.0561) (0.0377) (0.0304) (0.0392) (0.0637) (0.0800)
Distributions from net realized gains
on securities......................... (0.0000) (0.0000) (0.0022) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions........ (0.0561) (0.0377) (0.0326) (0.0392) (0.0637) (0.0800)
------------ ------------ ------------ ------------ ------------ ------------
Increase due to voluntary capital
contribution from sub-adviser......... 0.0000 0.0037 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value............ 0.0000 (0.0001) (0.0017) 0.0017 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........... $0.9999 $0.9999 $1.0000 $1.0017 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................. 5.76% 3.83% 3.31% 4.00% 6.56% 8.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $131,089 $131,758 $111,769 $ 99,192 $ 89,777 $ 78,363
Ratio of expenses to average net
assets................................ 0.40% 0.40% 0.40% 0.40% 0.40% 0.38%
Ratio of net investment income to
average net assets.................... 5.60% 3.80% 3.03% 3.89% 6.34% 8.00%
Ratio of expenses to average net
assets**.............................. 0.46% 0.44% 0.44% 0.46% 0.46% 0.47%
Ratio of net investment income to
average net assets**.................. 5.54% 3.76% 3.00% 3.83% 6.28% 7.91%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $1.0000
------------
Income from investment operations:
Net investment income.................. 0.0888
Net realized gains (losses) on
securities............................ 0.0000
------------
Total income (loss) from investment
operations.............................. 0.0888
------------
Less dividends and distributions:
Dividends from net investment income... (0.0888)
Distributions from net realized gains
on securities......................... (0.0000)
------------
Total dividends and distributions........ (0.0888)
------------
Increase due to voluntary capital
contribution from sub-adviser......... 0.0000
------------
Net change in net asset value............ 0.0000
------------
NET ASSET VALUE, END OF PERIOD........... $1.0000
------------
------------
Total return............................. 9.25%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $ 70,298
Ratio of expenses to average net
assets................................ 0.36%+
Ratio of net investment income to
average net assets.................... 8.99%+
Ratio of expenses to average net
assets**.............................. 0.54%+
Ratio of net investment income to
average net assets**.................. 8.81%
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
*** Net realized gain per share is the direct result of a decrease in
outstanding shares between 11/30/92 and the date of the gain distribution.
+ Annualized.
++ Not Annualized.
+++ Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
4
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser and Sub-Adviser use a range of different investments and
investment techniques in seeking to achieve a Fund's investment objective. Each
of the Funds does not use all of the investments and investment techniques
described below, which involve various risks, and which are described in the
following sections. The Funds' Adviser and Sub-Adviser will use their best
efforts to achieve a Fund's investment objective, although its achievement
cannot be assured.
Each Fund invests only in U.S. dollar-denominated securities that mature in
thirteen months or less (with certain exceptions). The dollar-weighted average
portfolio maturity of each Fund may not exceed ninety days.
Instruments acquired by the Funds will be U.S. Government securities or
other "First Tier Securities" as described below. The term "First Tier
Securities" has a technical definition given by the Securities and Exchange
Commission, but such term generally refers to securities that the Sub-Adviser
has determined, under guidelines established by the Board of Trustees and the
Adviser, present minimal credit risks, and have the highest short-term debt
ratings at the time of purchase by one (if rated by only one) or more Nationally
Recognized Statistical Rating Organizations ("NRSROs"). A description of
applicable ratings is attached to the Statement of Additional Information as
Appendix A. Unrated instruments (including instruments with long-term but no
short-term ratings) will be of comparable quality as determined by the
Sub-Adviser under guidelines approved by the Board of Trustees and the Adviser.
PRIME TRUST AND TREASURY TRUST FUNDS
The investment objective of both the Prime Trust and the Treasury Trust
Funds is to seek to provide a high level of current income consistent with
liquidity, the preservation of capital and a stable net asset value. The Prime
Trust Fund pursues its objective by investing in a broad range of short-term
government, bank and corporate obligations. The Treasury Trust Fund seeks to
achieve its objective by investing in obligations that the U.S. Treasury has
issued or to which the U.S. Government has pledged its full faith and credit to
guarantee the payment of principal and interest. You should note, however, that
shares of the Treasury Trust Fund are not themselves issued or guaranteed by the
U.S. Treasury or any of its agencies. U.S. Treasury obligations include Treasury
bills, certain Treasury strips, certificates of indebtedness, notes and bonds,
and obligations of those agencies and instrumentalities that are backed by the
full faith and credit of the U.S. Treasury. It is the Treasury Trust Fund's
policy that under normal conditions it will invest 65% or more of its total
assets in U.S Treasury obligations and repurchase agreements for which such
obligations serve as collateral.
In accordance with the current rules of the Securities and Exchange
Commission, the Prime Trust Fund intends to limit its purchases in the
securities of any one issuer (other than securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) to no more than 5% of its
total assets at the time of purchase, with the exception that up to 25% of its
total assets may be invested in the securities of any single issuer for up to
three business days.
5
<PAGE>
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY
TRUST FUND may invest in U.S. Treasury obligations as described above. The PRIME
TRUST FUND may invest in securities issued or guaranteed by the U.S. Government,
as well as in obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The PRIME TRUST FUND may invest in asset-backed
securities (I.E., securities backed by mortgages, installment sale contracts,
credit card receivables or other assets). The average life of an asset-backed
instrument varies with the maturities of the underlying instruments, and is
likely to be substantially less than the original maturity of the asset pools
underlying the security as the result of scheduled principal payments and
prepayments. This may be particularly true for mortgage-backed securities. The
rate of such prepayments, and hence the life of the security, will be primarily
a function of current market rates and current conditions in the relevant
market. The relationship between prepayments and interest rates may give some
high-yielding asset-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
failing interest rates, the rate of prepayment 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. Because of these and other reasons, an asset-backed security's
total return may be difficult to predict precisely. To the extent the Fund
purchases asset-backed securities at a premium, prepayments (which often may be
made at any time without penalty) may result in some loss of the Fund's
principal investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, 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. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
the Fund to more volatility and interest rate risk than other types of
asset-backed obligations.
6
<PAGE>
MUNICIPAL OBLIGATIONS. The PRIME TRUST FUND may also invest in municipal
obligations. These securities may be advantageous for the Fund when, as a result
of prevailing economic, regulatory or other circumstances, the yield of such
securities on a pre-tax basis is comparable to that of other securities the
particular Fund can purchase. Dividends paid by the Fund that come from interest
on municipal obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Sub-Adviser, under the supervision of the Board of Trustees and the Adviser,
will determine the credit quality of any unrated municipal leases on an on-going
basis, including an assessment of the likelihood that the lease will not be
cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds, the Adviser and the Sub-Adviser
rely on these opinions and do not intend to review the basis for them.
Municipal obligations purchased by the PRIME TRUST FUND may be backed by
letters of credit or guarantees issued by domestic or foreign banks and other
financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantees with
respect to a municipal obligation held by the Fund could have an adverse effect
on the Fund's portfolio and the value of its shares. As described below under
"Foreign Securities," foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The PRIME TRUST FUND may purchase corporate bonds
and cash equivalents that meet the Fund's quality and maturity limitations.
These investments may include obligations issued by Canadian corporations and
Canadian counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust receipts.
Cash equivalents, such as commercial paper and other similar obligations
purchased by the Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of
7
<PAGE>
purchase in the top category of one or more NRSROs or be issued by issuers with
such ratings. Unrated instruments of these types purchased by the Fund will be
determined to be of comparable quality.
BANK OBLIGATIONS. The PRIME TRUST FUND may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. The Fund may also invest in CDs and time deposits of domestic
branches of U.S. banks that have total assets of less than $1 billion if the CDs
and time deposits are insured by the FDIC. Investments in foreign banks and
foreign branches of U.S. banks will not make up more than 25% of the Fund's
total assets when the investment is made. (To the extent permitted by the SEC,
bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. domestic banks for purposes of this calculation.) The Fund
may also make interest-bearing savings deposits in amounts not exceeding 5% of
its total assets.
REPURCHASE AGREEMENTS. EACH FUND may buy portfolio securities subject to
the seller's agreement to repurchase them at an agreed upon time and price.
These transactions are known as repurchase agreements. A Fund will enter into
repurchase agreements only with financial institutions deemed to be creditworthy
by the Adviser or the Sub-Adviser, pursuant to guidelines established by the
Board of Trustees and the Adviser. During the term of any repurchase agreement,
the Adviser or the Sub-Adviser will monitor the creditworthiness of the seller,
and the seller must maintain the value of the securities subject to the
agreement in an amount that is greater than the repurchase price. Default or
bankruptcy of the seller would, however, expose a Fund to possible loss because
of adverse market action or delays connected with the disposition of the
underlying obligations. Because of the seller's repurchase obligations, the
securities subject to repurchase agreements do not have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of the Treasury Trust Fund these
instruments must be issued or fully guaranteed by the U.S. Treasury but for the
Prime Trust Fund investments may include variable amount master demand notes
issued by private issuers, which are instruments under which the indebtedness,
as well as the interest rate, varies. If rated, variable and floating rate
instruments must be rated in the highest short-term rating category by an NRSRO.
If unrated, such instruments will need to be determined to be of comparable
quality. Unless guaranteed by the U.S. Government or one of its agencies or
instrumentalities, variable or floating rate instruments purchased by the Prime
Trust Fund must permit the Fund to demand payment of the instrument's principal
at least once every thirteen months. Because of the absence of a market in which
to resell a variable or floating rate instrument, the Fund might have trouble
selling an instrument should the issuer default or during periods when the Fund
is not permitted by agreement to demand payment of the instrument, and for this
or other reasons a loss could occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. The Treasury Trust Fund's investments in
these instruments will be limited to "interest only" stripped securities that
have been issued by a federal instrumentality known as the Resolution
8
<PAGE>
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Treasury, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities Program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently. The Prime Trust Fund may also invest in
instruments that have been stripped by their holder, typically a custodian bank
or investment brokerage firm, and then resold in a custodian receipt program
under names you may be familiar with such as Treasury Investors Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
In addition, the Prime Trust Fund may purchase stripped mortgage-backed
securities ("SMBS") issued by the U.S. Government (or a U.S. Government agency
or instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. If the underlying obligations experience greater than
anticipated prepayments, the Fund may fail to fully recoup its initial
investment. The market value of the class consisting entirely of principal
payments can be extremely volatile in response to changes in interest rates. The
yields on a class of SMBS that receives all or most of the interest are
generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of the Fund's per share net
asset value.
Although stripped securities may pay interest to their holders before they
mature, federal income tax rules require a Fund each year to recognize a part of
the discount attributable to a security as interest income. This income must be
distributed along with the other income a Fund earns. To the extent shareholders
request that they receive their dividends in cash rather than reinvesting them,
the money necessary to pay those dividends must come from the assets of a Fund
or from other sources such as proceeds from sales of Fund shares and/or sales of
portfolio securities. The cash so used would not be available to purchase
additional income-producing securities, and a Fund's current income could
ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The PRIME
TRUST FUND may invest in bank investment contracts ("BICs") issued by banks that
meet the asset size requirements described above under "Bank Obligations" and in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser or the Sub-Adviser pursuant to guidelines
approved by the Board of Trustees and the Adviser. Pursuant to a BIC or GIC, the
Fund would make cash contributions to a deposit account at a bank or insurance
company. These contracts are general obligations of the issuing bank or
insurance company and are paid from the general assets of the issuing entity. In
return for its cash contribution, the Fund would receive interest from the
issuing entity at either a negotiated fixed or floating rate. Because BICs and
GICs are generally not assignable or transferable without the permission of the
bank or insurance company involved, and an active
9
<PAGE>
secondary market does not currently exist for these instruments, they are
considered illiquid securities and are subject to the Fund's limitation on such
investments as described below under "Managing Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The PRIME TRUST FUND may purchase from
domestic financial institutions and trusts created by such institutions
participation interests and trust receipts in high quality debt securities. A
participation interest or receipt gives the Fund an undivided interest in the
security in the proportion that the Fund's participation interest or receipt
bears to the total principal amount of the security. The Fund intends only to
purchase participations and trust receipts from an entity or syndicate, and does
not intend to serve as a co-lender in any such activity. As to certain
instruments for which the Fund will be able to demand payment, the Fund intends
to exercise its right to do so only upon a default under the terms of the
security, as needed to provide liquidity, or to maintain or improve the quality
of its investment portfolio. It is possible that a participation interest or
trust receipt may be deemed to be an extension of credit by the Fund to the
issuing financial institution rather than to the obligor of the underlying
security and may not be directly entitled to the protection of any collateral
security provided by the obligor. In such event, the ability of the Fund to
obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered for speculative purposes but only in
furtherance of a Fund's investment objective.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the
sub-advisory and other expenses of that fund as a shareholder of that fund.
These expenses are in addition to the sub-advisory and other expenses a Fund
pays in connection with its own operations.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of their value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of their value of its total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
10
<PAGE>
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When the Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either liquid
assets or high grade debt securities that have a value equal to or more than the
price the Fund must pay when it buys back the securities, and the account will
be continuously monitored to make sure the appropriate value is maintained.
Reverse repurchase agreements may be used to meet redemption requests without
selling portfolio securities. Reverse repurchase agreements involve the possible
risk that the value of portfolio securities the Fund relinquishes may decline
below the price a Fund must pay when the transaction closes. Interest paid by
the Fund in a reverse repurchase or other borrowing transaction will reduce the
Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present 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, securities
loans will be made only to parties the Adviser or the Sub-Adviser deems to be of
good standing, and will only be made if the Adviser or the Sub-Adviser thinks
the possible rewards from such loans justify the possible risks. A loan will not
be made if, as a result, the total amount of a Fund's outstanding loans exceeds
30% of its total assets. Securities loans will be fully collateralized.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICs, BICs, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper, variable
amount master demand notes with maturities of nine months or less and securities
for which the Sub-Adviser has determined pursuant to guidelines adopted by the
Board of Trustees and the Adviser that a liquid trading market exists (including
certain securities that may be purchased by institutional investors under SEC
Rule 144A), are not subject to this limitation. This investment practice could
have the effect of increasing the level of illiquidity in a Fund during any
period that qualified institutional buyers were no longer interested in
purchasing these restricted securities.
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with less complete financial information about the issuer, less
market liquidity and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or the adoption of other governmental
restrictions might adversely affect the payment of principal and
11
<PAGE>
interest on foreign obligations. Additionally, foreign banks and foreign
branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates, the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Funds may
purchase zero-coupon bonds (I.E., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also affect the value of these investments.
In addition, the PRIME TRUST FUND may purchase custodial receipts, tender
option bonds and certificates of participation in trusts that hold municipals or
other types of obligations. A certificate of participation gives a Fund an
individual, proportionate interest in the obligation, and may have a variable or
fixed rate. Because certificates of participation are interests in obligations
that may be funded through government appropriations, they are subject to the
risk that sufficient appropriations as to the timely payment of principal and
interest on the obligations may not be made. The NRSRO quality rating of an
issue of certificates of participation is normally based upon the rating of the
obligations held by the trust and the credit rating of the issuer of any letter
of credit and of any other guarantor providing credit support to the issue.
Payment on municipal obligations held by the Prime Trust Fund relating to
certain projects may be secured by mortgages or deeds of trust. In the event of
a default, enforcement of a mortgage or deed of trust will be subject to
statutory enforcement procedures and limitations on obtaining deficiency
judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure
may be delayed and the amount of the proceeds received may not be enough to pay
the principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that
12
<PAGE>
cannot be changed for a Fund without the approval of a majority of that Fund's
outstanding shares. Some of these fundamental limitations are summarized below,
and all of the Funds' fundamental limitations are set out in full in the
Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares in some states, Emerald Funds
may agree to certain restrictions that may be stricter than the investment
policies and limitations discussed above. If Emerald Funds decides that any of
these restrictions is no longer in a Fund's best interest, it may revoke its
agreement to abide by such restriction by no longer selling shares in the state
involved.
-------------------
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER AND RODNEY SQUARE MANAGEMENT CORPORATION
(REFERRED TO AS THE "SUB-ADVISER"), A WHOLLY-OWNED SUBSIDIARY OF WILMINGTON
TRUST COMPANY, SERVES AS SUB-ADVISER TO EACH FUND.
PURCHASE OF SHARES
Shares of the Funds are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Shares of each Fund are sold only to Barnett and its affiliated banks (the
"Institutions") acting in a fiduciary capacity on behalf of their customers who
maintain qualified trust, agency or custodial accounts ("Customers"), as well as
to certain accounts maintained at other institutions for which Barnett provides
advisory or other fiduciary services. Fund shares will normally be held of
record by the Institutions or in the name of a nominee of the Institutions.
Beneficial ownership of Fund shares will be recorded by the Institutions and
reflected in the account statements provided to their Customers.
Shares may be purchased through procedures established by the Institutions
in connection with the requirements of their Customer accounts. In many
instances these procedures will include instructions under which a Customer's
account is "swept" automatically on a daily basis, and amounts (federal funds)
in excess of a minimum balance agreed to by an Institution and the customer are
invested in a particular Fund. The Funds expect that the Institutions will
transmit orders on behalf of their Customers for the purchase of Fund shares
arising from automatic investment programs within one business day of the time
the "excess" balances are swept. The procedures applicable to particular
13
<PAGE>
Customer accounts at particular Institutions regarding the purchase of shares
will vary, however, and Customers are asked to consult their account managers in
this regard. This Prospectus should be read in conjunction with any materials
provided by the Institutions regarding such procedures.
Shares are sold at the net asset value per share next determined after
receipt of a purchase order from the Institution by the Funds' transfer agent.
The minimum initial investment in the Funds for an investor is $5,000 and the
minimum subsequent investment is $100. Institutions may establish different
minimum investment requirements for their Customers. For example, there is no
minimum initial investment for transfers of assets from other banks or financial
institutions. Barnett and other Institutions may also charge their Customers
certain account fees for automatic investment and other cash management services
provided by them. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any changes should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
Purchases for shares of the Funds will be effected only on days on which
both the New York Stock Exchange (the "Exchange") and the Funds' Custodian are
open for business a ("Business Day") and only when federal funds or other funds
are immediately available to the Funds' transfer agent to make the purchase on
the day it receives the purchase order. Additionally, on days when the Exchange
and/ or the Funds' Custodian close early due to a partial holiday or otherwise,
the Funds reserve the right to advance the times at which purchase and
redemption orders must be received in order to be processed that Business Day.
Institutions may transmit purchase orders for either Fund by telephoning the
transfer agent c/o the Distributor at 1-800-367-5905 not later than 12:00 noon
(Eastern time) on any Business Day. If federal funds are not available with
respect to any such order by the close of business on the day the order is
received by the transfer agent, the order will be cancelled. In addition, any
purchase order received by the transfer agent after 12:00 noon (Eastern time)
will not be accepted, and notice thereof will be given to the Institution
placing the order. Any funds received in connection with late orders will be
returned promptly. Institutions are responsible for transmitting purchase orders
promptly to the Funds in accordance with their agreements with their Customers.
Each Fund observes the following holidays: New Year's Day (observed), Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day, Veterans Day (observed), Thanksgiving
Day and Christmas Day (observed).
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. Payment for
shares of a Fund may, at the discretion of the Adviser, be made in the form of
securities that are permissible investments for that Fund. For further
information see "In-Kind Purchases" in the Statement of Additional Information.
The issuance of shares is recorded in the shareholder records of the Funds, and
share certificates are not issued unless expressly requested in writing.
Certificates are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting
14
<PAGE>
to confirm that telephone instructions are genuine, Emerald Funds will use
procedures considered reasonable. To the extent Emerald Funds does not use
reasonable procedures to form its belief, it and/ or its service contractors may
be responsible for instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by Emerald Funds' transfer agent. A
Customer may redeem all or part of his shares in accordance with instructions
and limitations pertaining to his account at an Institution. These procedures
will vary according to the type of account and the Institution involved, and
Institution Customers should consult their account managers in this regard. It
is the responsibility of the Institutions to transmit redemption orders to the
Funds' transfer agent and credit their Customers' accounts with the redemption
proceeds on a timely basis.
Institutions may transmit redemption orders by telephoning the transfer
agent c/o the Distributor at 1-800-367-5905. Payment for redemption orders for
either Fund which are received by the transfer agent on a Business Day before
12:00 noon (Eastern Time) will normally be wired in federal funds the same day
to the Customer's account at an Institution. Payment for redemption orders which
are received between 12:00 noon (Eastern Time) and the close of business or on a
non-Business Day will normally be wired in federal funds on the next Business
Day. Emerald Funds 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 Sub-Adviser, an earlier payment could adversely affect
either Fund. No charge for wiring redemption payments is imposed by the Funds,
although Institutions may charge Customer accounts for redemption services.
Information relating to such redemption services and charges, if any, is
available from the Institutions. If all of the shareholder's shares in a
particular Fund are redeemed, any declared and unpaid dividends on the redeemed
shares will be paid within five days of redemption. See "Dividends and
Distributions."
A shareholder of record may be required to redeem shares in a Fund if the
balance in such shareholder's account in that Fund drops below $4,000 due to
share redemptions and not market fluctuations and the shareholder does not
increase its balance to at least $4,000 upon 60 days' written notice. If a
Customer has agreed with an Institution to maintain a minimum balance in his
account with the Institution, and the balance in the account falls below that
minimum, the Customer may be obligated to redeem all or part of his shares in
the Funds to the extent necessary to maintain the minimum balance required.
Each Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as are permitted under the Investment Company Act
of 1940. Each Fund may also redeem shares involuntarily or make payment for
redemption in securities or other property if it appears appropriate to do so in
light of the Fund's responsibilities under the Investment Company Act of 1940.
See the Statement of Additional Information ("Additional Purchase and Redemption
Information") for examples of when such redemptions might be appropriate.
It is the responsibility of the Institutions to provide their Customers with
statements of account with respect to share transactions made for their accounts
at the Institutions.
15
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Fund's shareholders of record are entitled to dividends and net capital
gains distributions arising from net investment income and net realized gains,
if any, earned only on the investments held by the particular Fund. Each Fund's
net investment income is declared daily as a dividend to the persons who are the
record holders of each Fund's shares at the close of business on the day of
declaration. As a result, shares begin earning dividends on the day a purchase
order is executed and continue to earn dividends through and including the day
before shares are redeemed. Dividends and distributions will be paid to the
Funds' shareholders of record in cash. (Normally, the Funds' record shareholders
will be Institutions.) Accrued dividends are paid monthly by wire transfer
within five Business Days after the end of each month or within five Business
Days after the redemption of all of a shareholder's shares of a particular Fund.
Any net short-term or long-term capital gains realized by the Funds will be
distributed to shareholders at least annually, after reduction for capital loss
carryforwards, if any.
EXPLANATION OF SALES PRICE
Net asset value per share is determined on each Business Day (as defined
above) at 12:00 noon (Eastern Time) by adding the value of a Fund's investments,
cash and other assets, subtracting the Fund's liabilities, and then dividing the
result by the number of shares in a Fund that are outstanding. All securities of
each Fund are valued at amortized cost. More information about valuation can be
found in the Funds' Statement of Additional Information, which you may request
by calling 800/637-3759.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to some of the services these companies provide, as well as more information
regarding investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
16
<PAGE>
TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc., a wholly-owned subsidiary of The BISYS Group,
Inc., is the transfer agent for shares of the Funds. This means that its job is
to maintain the account records of all shareholders of record in the Funds, as
well as to administer the distribution of any dividends or distributions
declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized as a Massachusetts business trust on March 15,
1988 and is registered with the Securities and Exchange Commission as an
open-end management investment company. The Agreement and Declaration of Trust
authorizes the Board of Trustees to classify and reclassify any unissued shares
into one or more classes of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of an unlimited number of shares
representing interests in the respective Funds, which are classified as
diversified companies under the Investment Company Act of 1940. The Board of
Trustees has also authorized the issuance of additional classes of shares
representing interests in other investment portfolios of Emerald Funds.
Information regarding these other portfolios offered by Emerald Funds, may be
obtained by contacting the Distributor at the address listed on page 13.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by portfolio, except where otherwise
required by law or permitted by the Board of Trustees. All shareholders of a
particular Fund will vote separately on matters pertaining to the investment
advisory and sub-advisory agreements applicable to that Fund and on any change
in its fundamental investment limitations. Shares of the Emerald Funds have
noncumulative voting rights and, accordingly, the holders of more than 50% of
Emerald Funds' outstanding shares (irrespective of class) may elect all of the
Trustees. Shares have no preemptive rights and only such conversion and exchange
rights as the Board may grant in its discretion. When issued for payment as
described in this Prospectus, shares will be fully paid and nonassessable by
Emerald Funds.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. If such should occur,
the Trustees then in office will call a shareholders meeting for the election of
Trustees. Except as set forth above, the Trustees shall continue to hold office
and may appoint successor Trustees. The Agreement and Declaration of Trust
provides that meetings of the shareholders of Emerald Funds shall be called by
the Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote. As of December 31, 1995, the Adviser and
its affiliates possessed on behalf of their underlying customer accounts, voting
or investment power with respect to a majority of the outstanding shares of
Emerald Funds. More information about shareholder voting rights can be found in
the Statement of Additional Information under "Description of Shares."
17
<PAGE>
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. Barnett Banks
Trust Company, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. Rodney
Square Management Corporation, a wholly-owned subsidiary of Wilmington Trust
Company, serves as the sub-adviser and has its principal offices at Rodney
Square North, Wilmington, Delaware 19890. BISYS Fund Services Limited
Partnership, a wholly-owned subsidiary of The BISYS Group, Inc., located at 3435
Stelzer Road, Columbus, Ohio 43219-3035, serves as the Funds' administrator.
Emerald Asset Management, Inc., also a wholly-owned subsidiary of the BISYS
Group, Inc. located at the same address, is the registered broker-dealer that
sells the Funds' shares. The Funds also have a custodian, The Bank of New York,
located at 90 Washington Street, New York, New York 10286 and a transfer and
dividend paying agent, BISYS Fund Services, Inc., located at 100 First Avenue,
Suite 300, Pittsburgh, PA 15222.
ADVISER AND SUB-ADVISER. As of December 31, 1995, Barnett had approximately
$9.8 billion under active management, with $3.2 billion in equity securities,
$713 million in taxable fixed income securities, $1.4 billion in treasury and
government securities, $1.5 billion in municipals and $2.8 billion in money
market instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered
bank holding company that has offered general banking services since 1877.
Wilmington Trust Company, the Sub-Adviser's parent organization and a Delaware
banking corporation, is in turn a wholly-owned subsidiary of Wilmington Trust
Corporation, a registered bank holding company. The Sub-Adviser provides
management services to a number of mutual funds with total assets on December
31, 1995 of $1.5 billion. The Adviser first began providing advisory services to
mutual funds in 1988; the Sub-Adviser has provided mutual fund advisory services
since 1985.
Subject to the overall authority of the Board of Trustees, the Adviser
oversees and assists in the management of each Fund. These supervisory
responsibilities include, among other things, establishing and monitoring
general investment criteria and policies for the Funds' portfolios, recommending
to the Board of Trustees a sub-adviser to manage the Funds' portfolios and, upon
proper authorization, entering into appropriate contractual arrangements
regarding the provision of sub-advisory
18
<PAGE>
services to the Funds. As sub-adviser to the Funds, the Sub-Adviser makes
decisions with respect to and places orders for all purchases and sales of the
Funds' portfolio securities subject to the Adviser's investment criteria and
policies, and maintains records relating to such purchases and sales.
Because of state and federal requirements applicable to the fiduciary
accounts whose assets are invested in the Funds, the Funds' Advisory Agreement
provides that the Adviser is not entitled to any compensation from the Funds for
its advisory services. For the services provided and expenses assumed pursuant
to its Sub-Advisory Agreement, the Sub-Adviser is entitled to receive a fee from
the Funds, calculated daily and payable monthly, at the annual rate of .15% of
each Fund's average daily net assets. As stated below under "Fee Waivers and
Expenses," the Sub-Adviser has agreed voluntarily to waive all or a portion of
its sub-advisory fee from the Funds under certain circumstances. For the fiscal
year ended November 30, 1995 the Sub-Adviser received fees, after waivers, at
the effective annual rates of .13% and .13% of the average daily net assets of
the Prime Trust and Treasury Trust Funds, respectively.
Although expected to be infrequent, the Sub-Adviser may consider the amount
of Fund shares sold by broker-dealers and others (including those who may be
connected with Barnett or the Sub-Adviser) in allocating orders for purchases
and sales of portfolio securities. This allocation may involve the payment of
brokerage commissions or dealer concessions. The Sub-Adviser will not engage in
this practice unless the execution capability of and the amount received by such
broker-dealer or other company is believed to be comparable to what another
qualified firm could offer.
ADMINISTRATIVE SERVICES. BISYS Fund Services Limited Partnership (the
"Administrator"), located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Funds' administrator. The Administrator is an Ohio limited
partnership and is a wholly-owned subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
FEE WAIVERS AND EXPENSES
Expenses can be reduced by voluntary fee waivers and expense reimbursements
by Barnett and the Funds' other service providers, as well as by certain
mandatory expense limits imposed by some state securities regulators. The amount
of the waivers may be changed at any time at the sole discretion of the
Sub-Adviser, with respect to sub-advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursmenets
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
19
<PAGE>
For the fiscal year ended November 30, 1995, sub-advisory and administrative
fees for the Treasury Trust and Prime Trust Funds were reduced by a total of
.05% and .06%, respectively, of each Fund's average daily net assets pursuant to
these or similar undertakings.
For the same fiscal year, the ratio of ordinary operating expenses to
average net assets for the Treasury Trust Fund and Prime Trust Fund were .40%
and .40%, respectively. Such ratios would have been .45% and .46%, respectively,
without such fee waivers.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund will be taxable to you.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares.
Any dividends declared by a Fund in December of a particular year and
payable to shareholder of record on a date during that month will be deemed to
have been paid by the Fund and received by shareholders on December 31 of that
year, so long as the dividends are actually paid in January of the following
year.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, dividends paid by the Treasury
Trust Fund may be taxable under state or local laws as dividend income, even
though all or part of those dividends come from interest on obligations that
would be free of such taxes if held by you directly.
Except as stated below, shares of the Funds are not expected to qualify for
total exemption from the Florida intangibles tax. Shares of the Treasury Trust
Fund may or may not qualify in any calendar year for exemption from the Florida
intangibles tax. In order to qualify for this exemption, the Treasury Trust Fund
may sell non-exempt assets held in its portfolio (such as repurchase agreements)
20
<PAGE>
during the year and reinvest the proceeds in exempt assets, or hold cash, prior
to December 31. Transaction costs involved in restructuring the portfolio in
this fashion, would likely reduce the Fund's investment return and might exceed
any increased investment return the Fund achieved by investing in non-exempt
assets during the year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and monitoring
your investments. Each Fund may quote its performance in advertisements or
shareholder communications.
UNDERSTANDING PERFORMANCE MEASURES:
- - The yields for the Funds are the income generated over a 7-day period (which
period will be identified in the quotation) and then assumed to be generated
over a 52-week period and shown as a percentage of the investment. In
addition, the Funds may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than net
income used for accounting purposes.
PERFORMANCE COMPARISONS:
The Funds may compare their yields to those of mutual funds with similar
investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Total return and yield as reported in national financial publications such
as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES, as
well as in publications of a local or regional nature, may be used for
comparison.
The yield of the Prime Trust Fund may be compared to the Donoghue's Money
Fund Average, which monitors the performance of money market funds. The yield of
the Treasury Trust Fund may be compared to the Donoghue's Government Money Fund
average. Additionally, each Fund's performance may be compared to data prepared
by Lipper Analytical Service, Inc.
Performance quotations will fluctuate, and you should not consider
quotations to be representative of future performance. You should also remember
that performance is generally a function of the kind and quality of investments
held in a portfolio, portfolio maturity, operating expenses and market
conditions. Fees that Barnett and other Institutions may charge directly to
their Customers in connection with an investment in the Funds will not be
included in the Funds' yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 13.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS 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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
21
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION...................... 2
Expenses......................................................... 2
Financial Highlights............................................. 3
INVESTMENT PRINCIPLES AND POLICIES................................. 5
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................. 6
INVESTING IN EMERALD FUNDS......................................... 13
Your Money Manager............................................... 13
Purchase of Shares............................................... 13
Redemption of Shares............................................. 15
Dividends and Distributions...................................... 16
Explanation of Sales Price....................................... 16
Other Service Providers.......................................... 16
THE EMERALD FAMILY OF FUNDS........................................ 17
THE BUSINESS OF THE FUNDS.......................................... 18
Fund Management.................................................. 18
Fee Waivers and Expenses......................................... 19
Tax Implications................................................. 20
Measuring Performance............................................ 21
</TABLE>
EMPTTR96P
<PAGE>
EMERALD FUNDS FOR BARNETT EMPLOYEE
SAVINGS & THRIFT (BEST) PLAN
EMERALD EQUITY FUND
EMERALD SMALL CAPITALIZATION FUND
EMERALD BALANCED FUND
EMERALD MANAGED BOND FUND
EMERALD PRIME FUND
INSTITUTIONAL SHARES
P R O S P E C T U S
APRIL 1, 1996
[LOGO]
E M E R A L D
F U N D S
EMBSTPLN96P
<PAGE>
For enrollment, contribution and
investment changes within the
BEST Plan call 800/727-BEST (2378).
For voice recorded price information
for the Equity and Fixed Income Funds call 800/548-6546
For yield information for
the Prime Fund call 800/367-5905
<PAGE>
EMERALD FUNDS
<TABLE>
<CAPTION>
April 1, 1996
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- ------------------------------ --------------------------------------------- ---------------------------------------------
EQUITY Long-term capital appreciation through Capital appreciation over the long term and
investments primarily in high quality common are willing to accept the relative risks
stocks and, secondarily, potential dividend associated with equity investments
income growth
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
SMALL Long-term capital appreciation Long-term rewards that may exceed those
CAPITALIZATION provided by a fund investing in larger, more
established companies and are willing to
accept the relative risks of smaller
companies
- ----------------------------------------------------------------------------------------------------------------------------
BALANCED Attractive investment return through a Asset allocation among equity securities,
combination of growth of capital and current fixed income securities and cash equivalents
income in light of prevailing market and economic
conditions
- ----------------------------------------------------------------------------------------------------------------------------
MANAGED BOND High level of current income and, Current income from corporate and government
secondarily, capital appreciation securities and can accept fluctuations in
price and yield
- ----------------------------------------------------------------------------------------------------------------------------
PRIME High current income, liquidity and the A flexible and convenient way to manage cash
preservation of capital through investments while earning money market returns
in short-term money market investments
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. Please read and keep it for future reference. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) in the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THIS 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.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. WHILE THE PRIME FUND WILL ATTEMPT TO MAINTAIN ITS NET
ASSET VALUE AT $1.00 A SHARE, THERE CAN BE NO ASSURANCE THAT IT NOT WILL BE ABLE
TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID
BY A FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST COMPANY, N.A. SERVES AS
INVESTMENT ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH EMERALD ASSET MANAGEMENT, INC., THE FUNDS' DISTRIBUTOR.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
<PAGE>
(This page has been left blank intentionally.)
2
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
and general Fund administration, accounting and other services.
Below is information regarding the Funds' shareholder transaction expenses
and operating expenses for Institutional Shares of the Equity, Small
Capitalization, Balanced, Managed Bond and Prime Funds. Examples based on this
information are also provided.
<TABLE>
<CAPTION>
SMALL
EQUITY CAPITALIZATION BALANCED
FUND FUND FUND
--------- ------------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases....................................... None None None
Sales Charge Imposed on Reinvested Dividends...................................... None None None
Deferred Sales Charge............................................................. None None None
Redemption Fee.................................................................... None None None
Exchange Fee...................................................................... None None None
ANNUAL FUND OPERATING EXPENSES:
Advisory Fees..................................................................... 0.60% 1.00% 0.60%
All Other Expenses................................................................ 0.19% 0.25% 0.24%
--------- ------ -----------
Total Fund Operating Expenses*.................................................... 0.79% 1.25% 0.84%
--------- ------ -----------
--------- ------ -----------
</TABLE>
<TABLE>
<CAPTION>
MANAGED PRIME
BOND FUND FUND
----------- ---------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases.................................................. None None
Sales Charge Imposed on Reinvested Dividends................................................ None None
Deferred Sales Charge....................................................................... None None
Redemption Fee.............................................................................. None None
Exchange Fee................................................................................ None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS:
Advisory Fees (After Fee Waivers)........................................................... 0.40% 0.23%
All Other Expenses.......................................................................... 0.21% 0.14%
----------- ---------
Total Fund Operating Expenses (After Fee Waivers*).......................................... 0.61% 0.37%
----------- ---------
----------- ---------
</TABLE>
- ------------
* This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the
Funds. The operating expenses for the Funds have been restated using the
current fees and operating expenses that would have been applicable had they
been in effect during the last fiscal year.
Without fee waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.25% for the Prime Fund. Absent these
waivers and other expenses reimbursements the total operating expenses for
the Institutional Shares of the Prime Fund would be 0.40%.
3
<PAGE>
The Adviser may waive its fee and/or reimburse expenses of the Funds from
time to time. These waivers and reimbursements are voluntary and may be
terminated at any time with respect to any Fund without the consent of the
Fund. You should note that any fees that are charged by the Adviser, its
affiliates or any other institutions directly to their customer accounts for
services related to an investment in the Funds are in addition to and not
reflected in the fees and expenses described above.
EXAMPLE: Let's say, hypothetically, that the annual return on the Institutional
Shares of each Fund is 5%, and that their operating expenses are as described
above. For every $1,000 you invested in a particular Fund, after the periods
shown below, you would have paid this much in expenses during such periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund...................................................... $ 8 $25 $44 $ 98
Small Capitalization Fund........................................ $13 $40 $68 $151
Balanced Fund.................................................... $ 9 $27 $47 $104
Managed Bond Fund................................................ $ 6 $20 $34 $ 76
Prime Fund....................................................... $ 4 $12 $21 $ 47
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995 ARE INCORPORATED BY REFERENCE INTO THE STATEMENT OF ADDITIONAL
INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING 800/637-3759). THE
FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL STATEMENTS AND
RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE IS CONTAINED IN
THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED NOVEMBER 30,
1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE DISTRIBUTOR.
DURING THE FISCAL YEARS 1993 AND 1992 AND THE PERIOD ENDED NOVEMBER 30,
1991, THE EQUITY FUND DID NOT OFFER INSTITUTIONAL SHARES. RATHER, THE EQUITY
FUND OFFERED A SEPARATE SHARE CLASS, PREVIOUSLY CALLED CLASS A SHARES, NOW
CALLED RETAIL SHARES, TO BOTH INSTITUTIONAL AND RETAIL INVESTORS. THE FOLLOWING
INFORMATION REGARDING RETAIL SHARES IS PROVIDED TO GIVE YOU A LONGER TERM
PERSPECTIVE OF THE FUNDS' FINANCIAL HISTORY. FOR A DESCRIPTION OF THE
CHARACTERISTICS AND EXPENSES OF RETAIL SHARES, SEE "THE EMERALD FAMILY OF
FUNDS."
4
<PAGE>
EMERALD EQUITY FUND
Financial highlights for an Institutional Share and a Retail Share of the
Equity Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
---------------------------------------------------------
INSTITUTIONAL SHARES
--------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 10.89 $ 11.94 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............ 0.08 0.11 0.08 0.15 0.16 0.12
Net realized and unrealized gain
(loss) on securities............ 3.74 (0.90) (0.39) (0.08) 1.73 0.24
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from
investment operations........... 3.82 (0.79) (0.31) 0.07 1.89 0.36
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment
income.......................... (0.08) (0.11) (0.08) (0.15) (0.16) (0.12)
Distributions from net realized
gains on securities............. (0.00) (0.15) (0.57) (0.07) (0.00) (0.00)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions................... (0.08) (0.26) (0.65) (0.22) (0.16) (0.12)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value...... 3.74 (1.05) (0.96) (0.15) 1.73 0.24
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD..... $ 14.63 $ 10.89 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return....................... 35.21% (6.62%)++ (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s).......................... $173,824 $164,015 $19,705 $138,642 $152,939 $98,953
Ratio of expenses to average net
assets.......................... 0.84% 0.79%+ 1.07%** 0.86%** 0.76%** 0.00%+
Ratio of net investment income to
average net assets.............. 0.67% 1.46%+ 0.36%** 1.22%** 1.41%** 2.64%+**
Portfolio turnover............... 104% 113% 113% 102% 40% 13%
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
5
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.66 $ 10.00
-------- --------
Income from investment operations:
Net investment loss.................................................... (0.03) (0.04)
Net realized and unrealized gains (losses) on securities............... 3.15 (0.30)
-------- --------
Net change in net asset value.......................................... 3.12 (0.34)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 12.78 $ 9.66
-------- --------
-------- --------
Total return............................................................. 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 88,561 $ 53,509
Ratio of expenses to average net assets................................ 1.39% 1.29%+
Ratio of net investment loss to average net assets..................... (0.65%) (0.54%)+
Ratio of expenses to average net assets**.............................. 1.42% 1.48%+
Ratio of net investment loss to average net assets**................... (0.68%) (0.73%)+
Portfolio turnover..................................................... 229% 118%
</TABLE>
- ------------
* For the period January 4, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized
++ Not Annualized.
6
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.63 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.33 0.27
Net realized and unrealized gains (losses) on securities............... 2.28 (0.37)
-------- --------
Total income (loss) from investment operations......................... 2.61 (0.10)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.33) (0.25)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions...................................... (0.33) (0.27)
-------- --------
Net change in net asset value............................................ 2.28 (0.37)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 11.91 $ 9.63
-------- --------
-------- --------
Total return............................................................. 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 73,830 $ 51,170
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 3.54% 4.11%+
Ratios of expenses to average net assets**............................. 1.10% 1.25%+
Ratios of net investment income to average net assets**................ 2.76% 3.14%+
Portfolio turnover..................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
7
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.55 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.70 0.45
Net realized and unrealized gains (losses) on securities............... 1.00 (0.45)
-------- --------
Total income (loss) from investment operations......................... 1.70 (0.00)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.70) (0.43)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions...................................... (0.70) (0.45)
-------- --------
Net change in net asset value............................................ 1.00 (0.45)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.55 $ 9.55
-------- --------
-------- --------
Total return............................................................. 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 68,923 $ 66,588
Ratio of expenses to average net assets................................ 0.31% 0.27%+
Ratio of net investment income to average net assets................... 6.95% 6.83%+
Ratio of expenses to average net assets**.............................. 0.83% 0.86%+
Ratio of net investment income to average net assets**................. 6.43% 6.25%+
Portfolio turnover..................................................... 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
8
<PAGE>
EMERALD PRIME FUND
Financial highlights for an Institutional Share of the Prime Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990 1989*
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment of
operations:
Net Investment
income................ 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805 0.0890
Net realized gains
(losses) on
securities............ 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income (loss)
from investment
operations............ 0.0568 0.0362 0.0315 0.0408 0.0638 0.0805 0.0889
------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
Dividends from net
investment income..... (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805) (0.0890)
Distributions from net
realized gains on
securities............ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions........... (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805) (0.0890)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital
contribution............ 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value................... 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............. 5.81% 3.97% 3.21% 4.14% 6.56% 8.36% 9.27%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s)......... $462,726 $413,541 $510,683 $1,947,016 $512,919 $278,419 $192,628
Ratio of expenses to
average net assets.... 0.37% 0.37% 0.35% 0.37% 0.40% 0.39% 0.36%+
Ratio of net investment
income to average net
assets................ 5.66% 3.92% 3.21% 3.84% 6.27% 8.03% 9.00%+
Ratio of expenses to
average net assets**.. 0.39% (a) (a) (a) 0.42% 0.45% 0.44%+
Ratio of net investment
income to average net
assets**.............. 5.64% (a) (a) (a) 6.25% 7.97% 8.92%+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
9
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objective. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks and which are also described in the following sections. You should
consider which funds best meet your investment goals. The Funds' Adviser will
use its best efforts to achieve a Fund's investment objective, although its
achievement cannot be assured.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term capital
appreciation by investing primarily in common stocks. The Fund seeks as a
secondary objective potential income growth through its investments. The Fund
invests primarily in high quality equity securities selected on the basis of
fundamental investment value and growth prospects that the Adviser believes
exceed those of the general economy. The Fund may also invest up to 25% of its
assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
The Equity Fund will normally invest at least 65% of its total assets in
equity securities, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period. For a further description
of the Fund's policies with respect to convertible securities, foreign
securities and other instruments, see "Portfolio Instruments, Practices and
Related Risks" below.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to provide
long-term capital appreciation. The Fund pursues its objective by investing
primarily in equity securities such as common stocks and instruments convertible
or exchangeable into common stocks.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index. The market
capitalization of the issuers of securities purchased by the Fund will normally
be between $50 million and $2 billion at the time of purchase. In managing the
Fund, the Adviser seeks smaller
10
<PAGE>
companies with above-average growth prospects. Factors considered in selecting
such issuers include participation in a fast growing industry, a strategic niche
position in a specialized market, adequate capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities of small capitalization companies. In addition
to investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRs, and may acquire convertible securities, warrants and
similar rights.
BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be invested in
fixed income securities (including cash equivalents, long-term debt securities,
and convertible debt securities and preferred stocks to the extent their value
is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adopted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income
11
<PAGE>
obligations or cash equivalents in the Fund. For example, if the Adviser expects
more rapid economic growth leading to better corporate earnings in the future,
it would normally increase the Fund's equity holdings while reducing its
holdings of fixed income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to
100% of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are backed by the full faith and
credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the
types that are permissible investments for the Equity and Small Capitalization
Funds. Non-convertible debt obligations will be limited to the types that are
permissible investments for the Managed Bond Fund. Convertible securities,
foreign securities and other instruments will be acquired in accordance with the
limitations described under "Portfolio Investments, Practices and Related
Risks."
The Fund may also invest, through ADRs and EDRS, up to 25% of the value of
its total assets in securities of foreign issuers, and may invest in warrants
and similar rights.
MANAGED BOND FUND
The investment objective of the Managed Bond Fund is to seek a high level of
current income and, secondarily, capital appreciation. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions the average weighted maturity of the
Managed Bond Fund will be ten years or more.
The Fund invests substantially all of its assets in debt obligations such as
bonds, debentures and cash equivalents, obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, debt obligations of domestic
and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Fund will purchase only those securities which are considered to
be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
the Fund's total assets will be invested in debt obligations rated "A" or better
by at least one NRSRO (or unrated obligations determined to be of comparable
quality). Obligations rated in the lowest of the top four rating categories
("BBB" or "Baa") have certain speculative characteristics and are subject to
more credit and market risk than securities with higher ratings.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
the Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships
12
<PAGE>
among various industry sectors, current economic cycles and the attractiveness
and creditworthiness of particular issuers. Depending upon the Adviser's
analysis of these and other factors, the Fund's holdings in issuers in
particular industry sectors may be overweighted or underweighted when compared
to the relative industry weightings in recognized indices.
Normally at least 65% of the Fund's total assets will be invested in bonds,
debentures, mortgage and other asset-related securities, zero coupon bonds and
convertible debentures. The Managed Bond Fund may, however, invest without
limitation in short-term investments to meet anticipated redemption requests, or
as a temporary defensive measure if the Adviser determines that market
conditions warrant.
The Fund may also invest in obligations convertible into common stocks, as
well as common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. Common stock received through the
conversion of convertible debt obligations will normally be sold. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other investments see "Portfolio Instruments, Practices
and Related Risks."
PRIME FUND
The investment objective of the Prime Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Prime Fund pursues its objective by investing
in a broad range of short-term, bank and corporate obligations. The Prime Fund
invests only in U.S. dollar-denominated securities that mature in thirteen
months or less (with certain exceptions). The dollar-weighted average portfolio
maturity of the Prime Fund may not exceed ninety days. In accordance with the
current rules of the Securities and Exchange Commission, the Fund intends to
limit its purchases in the securities of any one issuer (other than securities
of the U.S. Government or its agencies or instrumentalities) to no more than 5%
of its total assets at the time of purchase, with the exception that up to 25%
of its total assets may be invested in the securities of any single issuer for
up to three business days.
Instruments acquired by the Prime Fund will be U.S. Government securities or
other "First Tier Securities." The term "First Tier Securities" has a technical
definition given by the Securities and Exchange Commission, but such term
generally refers to securities that the Adviser has determined, under guidelines
established by the Board of Trustees, to present minimal credit risks, and have
the highest short-term debt ratings at the time of purchase by one (if rated by
only one) or more NRSROs. Unrated instruments (including instruments with
long-term but no short-term ratings) will be of comparable quality as determined
by the Adviser under guidelines approved by the Board of Trustees and the
Adviser. A description of the applicable ratings is attached to the Statement of
Additional Information as Appendix A.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. EACH FUND may
invest in securities issued or guaranteed by the U.S. Treasury, as well as in
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the
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Treasury; others, including the Federal National Mortgage Association, are
backed by the discretionary ability of the U.S. Government to purchase the
entity's obligations; and still others like the Student Loan Marketing
Association are backed solely by the issuer's credit. U.S. Government
obligations also include U.S. Government-backed trusts that hold obligations of
foreign governments and are guaranteed or backed by the full faith and credit of
the United States. There is no assurance that the U.S. Government would provide
support to a U.S. Government-sponsored entity were it not required to do so by
law. Some of these securities may have a variable or floating interest rate.
ASSET-BACKED SECURITIES. The BALANCED, MANAGED BOND and PRIME FUNDS may
invest in asset-backed securities (I.E., securities backed by installment sale
contracts, credit card receivables or other assets). In addition, each of these
Funds may invest in U.S. Government securities that are backed by adjustable or
fixed rate mortgage loans. The average life of an asset-backed instrument varies
with the maturities of the underlying instruments. In the case of mortgages,
these maturities may be a maximum of forty years. The average life of an
asset-backed instrument is likely to be substantially less than the original
maturity of the asset pools underlying the security as the result of scheduled
principal payments and prepayments. This may be particularly true for
mortgage-backed securities. The rate of such prepayments, and hence the life of
the security, will be primarily a function of current market rates and current
conditions in the relevant market. In calculating, the average weighted maturity
of a Fund's portfolio (except the Prime Fund), the maturity of asset-backed
instruments will be based on estimates of average life. The relationship between
prepayments and interest rates may give some high-yielding asset-backed
securities less potential for growth in value than conventional bonds with
comparable maturities. In addition, in periods of falling interest rates, the
rate of prepayment tends to increase. During such periods, the reinvestment of
prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid. Because of these
and other reasons, an asset-backed security's total return may be difficult to
predict precisely. To the extent a Fund purchases asset-backed securities at a
premium, prepayments (which often may be made at any time without penalty) may
result in some loss of a Fund's principal investment to the extent of any
premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including Guaranteed mortgage
pass-through certificates, 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. Issuers of CMOs
frequently, elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The BALANCED, MANAGED BOND, and PRIME FUNDS may also
invest in municipal obligations. These securities may be advantageous for these
Funds when, as a result of prevailing economic, regulatory or other
circumstances, the yield of such securities on a pre-tax basis is comparable to
that of other securities the particular Fund can purchase. Dividends paid by
these Funds that come from interest on municipal obligations will be taxable to
shareholders.
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The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by specific purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser, under the supervision of the Board of Trustees, will determine the
credit quality of any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds and the Adviser rely on these
opinions and do not intend to review the basis for them.
Municipal obligations purchased by each Fund may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described below under "Foreign
Securities," foreign letters of credit and guarantees involve certain risks in
addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The BALANCED, MANAGED BOND, and PRIME FUNDS and, to
a limited extent, the EQUITY and SMALL CAPITALIZATION FUNDS, may purchase
corporate bonds and cash equivalents that meet a Fund's quality and maturity
limitations. These investments may include obligations issued by Canadian
corporations and Canadian counterparts of U.S. corporations, Eurodollar bonds,
which are U.S. dollar-denominated obligations of foreign issuers, Yankee bonds,
which are U.S. dollar-denominated bonds issued by foreign issuers in the U.S.,
and equipment trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The BALANCED, MANAGED BOND and PRIME FUNDS, and, to a
limited extent, the EQUITY, and SMALL CAPITALIZATION FUNDS may, purchase
certificates of deposit ("CDs"), bankers'
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acceptances, notes and time deposits issued or supported by U.S. or foreign
banks and savings institutions that have total assets of more than $1 billion.
These Funds may also invest in CDs and time deposits of domestic branches of
U.S. banks that have total assets of less than $1 billion if the CDs and time
deposits are insured by the FDIC. Investments in foreign banks and foreign
branches of U.S. banks will not make up more than 25% of a Fund's total assets
when the investment is made. (To the extent permitted by the SEC, bank
obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing savings deposits in amounts not exceeding 5% of their
total assets.
REPURCHASE AGREEMENTS. EACH FUND may buy portfolio securities subject to
the seller's agreement to repurchase them at an agreed upon time and price.
These transactions are known as repurchase agreements. A Fund will enter into
repurchase agreements only with financial institutions deemed to be creditworthy
by the Adviser, pursuant to guidelines established by the Board of Trustees.
During the term of any repurchase agreement, the Adviser will monitor the
creditworthiness of the seller, and the seller must maintain the value of the
securities subject to the agreement in an amount that is greater than the
repurchase price. Default or bankruptcy of the seller would, however, expose a
Fund to possible loss because of adverse market action or delays connected with
the disposition of the underlying obligations. Because of the seller's
repurchase obligations, the securities subject to repurchase agreements do not
have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. These instruments may include variable amount master
demand notes, which are instruments under which the indebtedness, as well as the
interest rate, varies. For the Prime Fund only, if rated, variable and floating
rate instruments must be rated in the highest short-term rating category by an
NRSRO. If unrated, such instruments will need to be determined to be of
comparable quality. Unless guaranteed by the U.S. Government or one of its
agencies or instrumentalities, variable or floating rate instruments purchased
by the Prime Fund must permit the Fund to demand payment of the instrument's
principal at least once every thirteen months. Because of the absence of a
market in which to resell a variable or floating rate instrument, a Fund might
have trouble selling an instrument should the issuer default or during periods
when a Fund is not permitted by agreement to demand payment of the instrument,
and for this or other reasons a loss could occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. Each Fund may invest in stripped securities
that have been issued by a federal instrumentality known as the Resolution
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Treasury, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities Program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently. Each Fund may also invest in instruments that
have been stripped by their holder,
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typically a custodian bank or investment brokerage firm, and then resold in a
custodian receipt program under names you may be familiar with such as Treasury
Investors Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS").
In addition, each Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. If the underlying obligations experience greater than
anticipated prepayments, a Fund may fail to fully recoup its initial investment.
The market value of the class consisting entirely of principal payments can be
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-backed obligations because their
cash flow patterns are also volatile and there is a greater risk that the
initial investment will not be fully recouped. SMBS issued by the U.S.
Government (or a U.S. Government agency or instrumentality) may be considered
liquid under guidelines established by the Board of Trustees if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of a Fund's per share net asset value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the extent
shareholders request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The
BALANCED, MANAGED BOND and PRIME FUNDS may invest in bank investment contracts
("BICs") issued by banks that meet the asset size requirements described above
under "Bank Obligations" and may also invest in guaranteed investment contracts
("GICs") issued by highly rated U.S. insurance companies that have assets of $1
billion or more and meet the quality and credit standards established by the
Adviser pursuant to guidelines approved by the Board of Trustees. Pursuant to a
BIC or GIC, a Fund would make cash contributions to a deposit account at a bank
or insurance company. These contracts are general obligations of the issuing
bank or insurance company and are paid from the general assets of the issuing
entity. In return for its cash contribution, a Fund would receive interest from
the issuing entity at either a negotiated fixed or floating rate. Because BICs
and GICs are generally not assignable or transferable without the permission of
the bank or insurance company involved, and an active secondary market does not
currently exist for these instruments, they are considered illiquid securities
and are subject to a Fund's limitation on such investments as described below
under "Managing Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The BALANCED, MANAGED BOND and PRIME
FUNDS may purchase from domestic financial institutions and trusts created by
such institutions participation interests and trust receipts in high quality
debt securities. A participation interest or receipt gives a Fund an undivided
interest in the security in the proportion that a Fund's participation interest
or receipt
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bears to the total principal amount of the security. Each Fund intends only to
purchase participations and trust receipts from an entity or syndicate, and do
not intend to serve as a co-lender in any such activity. As to certain
instruments for which a Fund will be able to demand payment, a Fund intends to
exercise its right to do so only upon a default under the terms of the security,
as needed to provide liquidity, or to maintain or improve the quality of its
investment portfolio. It is possible that a participation interest or trust
receipt may be deemed to be an extension of credit by a Fund to the issuing
financial institution rather than to the obligor of the underlying security and
may not be directly entitled to the protection of any collateral security
provided by the obligor. In such event, the ability of a Fund to obtain
repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objectives.
INTEREST RATE SWAPS, FLOORS AND CAPS. The MANAGED BOND and BALANCED FUNDS
may enter into interest rate swaps and purchase interest rate floors or caps in
order to protect their net asset value from interest rate fluctuations and to
hedge against fluctuations in the floating rate market in which a Fund's
investments are traded. A Fund would expect to enter into these hedging
transactions primarily to preserve the return or spread of a particular
investment or portion of its portfolio and to protect against an increase in the
price of securities a Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the
extent a specified index fell below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
floor. The purchase of an interest rate cap by a Fund would entitle it, to the
extent that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
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are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Deposition, Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When the Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either liquid
assets or high grade debt securities that have a value equal to or more than the
price the Fund must pay when it buys back the securities, and the account will
be continuously monitored to make sure the appropriate value is maintained.
Reverse repurchase agreements may be used to meet redemption requests without
selling portfolio securities. Reverse repurchase agreements involve the possible
risk that the value of portfolio securities the Fund relinquishes may decline
below the price the Fund must pay when the transaction closes. Interest paid by
the Fund in a reverse repurchase or other borrowing transaction will reduce the
Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present 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, securities
loans will be made only to parties the Adviser deems to be of good standing, and
will only be made if the Adviser thinks the possible rewards from such loans
justify the possible risks. A loan will not be made if, as a result, the total
amount of a Fund's outstanding loans exceeds 30% of its total assets. Securities
loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED and MANAGED BOND FUNDS may enter into
transactions known as "mortgage dollar rolls" in which a Fund sells
mortgage-backed securities for current delivery and simultaneously contracts to
repurchase substantially similar securities in the future at a specified price
which reflects an interest factor and other adjustments. During the roll period,
a Fund does not receive principal and interest on the mortgage-backed
securities, but it is compensated by the difference between the current sales
price and the lower forward price for the future purchase as well as by the
interest earned on the cash proceeds of the initial sale. Unless a roll has been
structured so that it is "covered," meaning that there exists an offsetting cash
or cash-equivalent security position that will mature at least by the time of
settlement of the roll transaction, cash, U.S Government securities or other
liquid high grade debt instruments in the amount of the future purchase
commitment will be
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set apart for a Fund involved in a separate account at the custodian. Mortgage
rolls are not a primary investment technique for each of these Funds, and it is
expected that, under normal market conditions, a Fund's commitments under
mortgage rolls will not exceed 10% of the value of its total assets.
CONVERTIBLE SECURITIES. The EQUITY, SMALL CAPITALIZATION, BALANCED and
MANAGED BOND FUNDS 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. By investing in convertibles, a 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.
None of the assets of the Managed Bond Fund, and no more than 15% of the
total assets of the Equity, Small Capitalization and Balanced Funds, may be
invested in convertible securities rated below investment grade at the time of
purchase. Non-investment grade convertible securities must be rated "B" or
higher by at least one NRSRO. Non-investment grade securities are commonly
referred to as "junk" bonds and present a greater risk as to the timely
repayment of the principal, interest and dividends. Particular risks include (a)
the sensitivity of such securities to interest rate and economic changes, (b)
the lower degree of protection of principal and interest payments, (c) the
relatively low trading market liquidity for the securities, (d) the impact that
legislation may have on the market for these securities (and, in turn, on a
Fund's net asset value) and (e) the creditworthiness of the issuers of such
securities. During an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
negatively, affect their ability to meet their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. An economic downturn could also disrupt the market for lower rated
convertible securities and negatively affect the value of outstanding securities
and the ability of the issuers to repay principal and interest. If the issuer of
a convertible security held by a Fund defaulted, that Fund could incur
additional expenses to seek recovery. Adverse publicity and investor
perceptions, whether or not they are based on fundamental analysis, could also
decrease the value and liquidity of lower-rated convertible securities held by a
Fund, especially in a thinly traded market.
OPTIONS. EACH FUND (except the Prime Fund) may write covered call options,
buy put options, buy call options and sell, or "write," secured put options on
particular securities or various securities indices. A call option for a
particular security gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security 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 the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. Options may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation, which performs the
obligations of its members if they default.
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Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
FUTURES AND RELATED OPTIONS. EACH FUND (except the Prime Fund) may invest
to a limited extent in futures contracts and options on futures contracts in
order to gain fuller exposure to movements of security prices pending
investment, for hedging purposes or to maintain liquidity. Futures contracts
obligate a Fund, at maturity, to take or make delivery of certain securities or
the cash value of a securities index. A Fund may not purchase or sell a futures
contract (or related option) unless immediately after any such transaction the
sum of the aggregate amount of margin deposits on its existing futures positions
and the amount of premiums paid for related options is 5% or less of its total
assets (after taking into account certain technical adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price at any time during the option period. When a Fund
sells an option on a futures contract, it becomes obligated to purchase or sell
a futures contract if the option is exercised. In anticipation of a market
advance, 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 that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser has determined pursuant to guidelines adopted
by the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this limitation. This investment practice could have
the effect of increasing the level of illiquidity in a Fund during any period
that qualified institutional buyers were no longer interested in purchasing
these restricted securities.
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PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, the annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced and Managed Bond Funds were 104%, 229%, 87%, and
92%, respectively.
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers(including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve further
risks associated with the level of currency exchange rates, less complete
financial information about the issuer, less market liquidity and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Investments in foreign securities may be in the form of ADRs, EDRs and
similar securities. These securities may not be denominated in the same currency
is the securities they represent. ADRs are receipts typically issued by a United
States bank or trust company, and EDRs are receipts issued by a European
financial institution evidencing ownership of the underlying foreign securities.
ADRs, in registered form, are designed for use in the United States securities
markets, while EDRs, in bearer form, are generally designed for use in the
European securities market.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing, market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Managed Bond and Prime Funds may purchase zero-coupon bonds (I.E., discount debt
obligations that do not make periodic interest payments). Zero-coupon bonds are
subject to greater market fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Changes in the financial strength of
an issuer or changes in the ratings of any particular
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security may also affect the value of these investments. Fluctuations in the
market value of fixed income securities subsequent to their acquisition will not
affect cash income from such securities but will be reflected in a Fund's net
asset values.
In addition the Balanced, Managed Bond and Prime Funds may purchase
custodial receipts, tender option bonds and certificates of participation in
trusts that hold municipals or other types of obligations. A certificate of
participation gives a Fund an individual, proportionate interest in the
obligation, and may have a variable or fixed rate. Because certificates of
participation are interests in obligations that may be funded through government
appropriations, they are subject to the risk that sufficient appropriations as
to the timely payment of principal and interest on the obligations may not be
made. The NRSRO quality rating of an issue of certificates of participation is
normally based upon the rating of the obligations held by the trust and the
credit rating of the issuer of any letter of credit and of any other guarantor
providing credit support to the issue.
These Funds, with the exception of the Prime Fund, may also hold other
derivative instruments, which may be in the form of participations and custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment, or both, and bonds that have interest rates that reset
inversely to changing short-term rates and/or have imbedded interest rate floors
and caps. Many of these derivative instruments are proprietary products that
have been recently developed by investment banking firms, and it is uncertain
how these instruments will perform under different economic and interest-rate
scenarios. In addition, to the extent that the market value of these instruments
is leveraged, they may be more volatile than other types of obligations and may
present greater potential for capital gain or loss. In some cases it may be
difficult to determine the fair value of a derivative instrument because of a
lack of reliable objective information, and an established secondary market for
some instruments may not exist.
Payment on municipal obligations held by a Fund relating to certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments. Should
a foreclosure occur, collection of the proceeds from that foreclosure may be
delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment, However, each Fund also has in place certain "fundamental
limitations" that cannot be changed for a Fund without the approval of a
majority of the Fund's outstanding shares. Some of these fundamental limitations
are summarized below, and all of the Funds' fundamental limitations are set out
in full in the Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be invested
in the securities of any one issuer, except
23
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that up to 25% of the total assets of each Fund can be invested without regard
to the 5% limitation. A Fund may not purchase more than 10% of the outstanding
voting securities of any issuer subject, however, to the foregoing 25%
exception.
3. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
-------------------
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS. Barnett is the
largest trust organization headquartered in Florida and has notable experience
in providing professional investment management services. Organized as a
national banking association in 1974, it is the successor to the business of
earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered bank holding company that has
offered general banking services since 1977.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis.
PURCHASE OF SHARES
Institutional Shares are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares are sold to Barnett and its affiliates, as well as to
Barnett's correspondent banks and other institutions ("Institutions") acting on
behalf of themselves or their customers who maintain qualified trust, agency or
custodial accounts ("Customers"). Customers may include individuals, trusts,
partnerships and corporations. All share purchases are effected through a
Customer's account at Barnett or another Institution through procedures
established in connection with the requirements of the account, and
confirmations of share purchases and redemptions will be sent to Barnett or the
other Institution involved. Barnett and other Institutions (or their nominees)
will normally be the holders of record of Institutional Shares acting on behalf
of their Customers, and will reflect their Customers' beneficial ownership of
shares in the account statements provided by them to
24
<PAGE>
their Customers. The exercise of voting rights and the delivery to Customers of
shareholder communications from the Funds will be governed by the Customers'
account agreements with Barnett and other Institutions.
Institutional Shares are sold at the net asset value per share next
determined after receipt of a purchase order from an Institution by the Funds'
transfer agent. The minimum initial investment in a Fund (other than the Prime
Fund) for an Institution is $250,000 with no minimum subsequent investment. The
minimum initial investment in the Prime Fund for an Institution is $5,000 and
the minimum subsequent investment is $100. Barnett and other Institutions may
establish different minimum investment requirements for their Customers. For
examples there is no minimum initial investment for transfers of assets by
Barnett's Customers from other banks or financial institutions. Barnett and
other Institutions may also charge their Customers certain account fees
depending on the type of account a Customer has established with the
Institution. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
The Equity and Fixed Income Funds may have different business days from
those of the Prime Fund. A "Business Day" for the Equity and Fixed Income Funds
is any day on which the New York Stock Exchange (the "Exchange") is open for
business, while for the Prime Fund it is any day on which both the Exchange and
the Fund's Custodian are open for business. Additionally, on days when the
Exchange (and/or the Custodian for the Prime Fund) closes early due to a partial
holiday or otherwise, the Funds reserve the right to advance the times at which
purchase and redemption orders must be received in order to be processed on that
Business Day.
For all Funds except the Prime Fund, purchase orders placed by an
Institution for Institutional Shares must be received by the Funds' transfer
agent before the close of regular trading hours (currently 4:00 p.m. Eastern
time) on the New York Stock Exchange (the "Exchange") on a Business Day. Payment
for Institutional Shares must be made by Institutions in federal funds or other
funds immediately available to the Funds' custodian no later than 4:00 p.m.
(Eastern time) on the Business Day immediately following placement of the
purchase order.
Purchase orders for the Prime Fund must be received by 2:00 p.m. (Eastern
time) on a Business Day to be effective. Purchases for Institutional Shares of
the Prime Fund will be effected only on days on which Emerald Funds and the
purchasing Institutions are open for business and only when federal funds or
other funds are immediately available to the Fund's transfer agent to make the
purchase on the day it receives the purchase order. Institutions may transmit
purchase orders for shares of the Prime Fund by telephoning the transfer agent
c/o the Distributor at 1-800-367-5905 not later than 2:00 p.m. (Eastern time) on
any Business Day. If federal funds are not available with respect to any such
order by the close of business on the day the order is received by the transfer
agent, the order will be cancelled. In addition, any purchase order received by
the transfer agent after 2:00 p.m. (Eastern time) will not be accepted, and
notice thereof will be given to the Institution placing the order. Any funds
received in connection with late orders will be returned promptly.
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<PAGE>
Each Fund observes the following, holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). In addition, the Prime Fund
observes the following additional holidays: Martin Luther King, Jr. Day,
Columbus Day and Veterans Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by the Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares are
redeemed. Barnett and other Institutions may charge fees to their Customers for
their services in connection with investments. Shares held by an Institution on
behalf of its Customers must be redeemed in accordance with the instructions and
limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash. The Funds may also redeem
shares involuntarily if the balance has fallen below the minimum level due to
shareholder redemptions, not due to market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
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Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for all Funds (except the Prime Fund) are normally wired in federal funds to the
redeeming Institution the Business Day following receipt of the order by the
transfer agent. Payment for Prime Fund redemption orders which are received by
the transfer agent before 2:00 p.m. (Eastern time) on a Business Day will
normally be wired in federal funds the same day. Payment for Prime Fund
redemption orders which are received between 2:00 p.m. (Eastern time) and the
close of business or on a non-Business Day will normally be wired in federal
funds on the next Business Day. Emerald Funds 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 a Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the Managed Bond Fund, net investment income comes from the interest on
the bonds and other investments that it holds in its portfolio. For the Equity,
Small Capitalization and Balanced Funds net investment income is made up of
dividends received from the stocks they hold, as well as interest accrued on
convertible securities, money market instruments and other debt obligations held
in their portfolios. For the Prime Fund, net investment income flows from the
interest that the Fund earns on the money market and other investments it holds.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net capital gains, if any, after
any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund for which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
<TABLE>
<S> <C>
Emerald Equity and Fixed Income Funds Emerald Prime Fund
P.O. Box 182697 100 First Avenue, Suite 300
Columbus, OH 43218-2697 Pittsburgh, PA 15222
</TABLE>
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Small Capitalization and Balanced Funds) or payment
dates (with respect to the Managed Bond and Prime Funds) after the date the
Funds' transfer agent receives the election.
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<PAGE>
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUNDS DECLARED PAID
- ----- --------- -------------------
<S> <C> <C> <C>
(1) Equity and Balanced..................... Quarterly Quarterly
(2) Small Capitalization.................... Annually Annually
(3) Managed Bond and Prime.................. Daily Monthly within five
business days after
month end
</TABLE>
- ------------
(1) Dividends for the Equity and Balanced Funds may be declared and paid at
times that do not fall at the end of a calendar quarter.
(2) Dividends for the Small Capitalization Fund may be declared and paid at
times that do not fall at the end of a calendar year.
(3) Shares of the Managed Bond Fund begin earning dividends the first Business
Day after acceptance of the purchase order for which Emerald Funds'
custodian has received payment, and stop earning dividends on the Business
Day such shares are redeemed. Shares of the Prime Fund begin earning
dividends on the day a purchase order is accepted and payment in federal
funds is received by the Fund's Custodian, and continue to earn dividends
through the day before they are redeemed.
With respect to the Managed Bond Fund, if all of the Institutional Shares
held by an Institution in such a Fund are redeemed, the Fund will pay accrued
dividends within five Business Days after redemption. With respect to the Prime
Fund, if all the Institutional Shares held by an Institution in such Funds are
redeemed, the Fund will pay dividends within five Business Days after the end of
each month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund other than the Prime Fund, and at
2:00 p.m. (Eastern time) with respect to the Prime Fund, by adding the value of
a Fund's investments, cash and other assets allocated to its Institutional
Shares, subtracting the Fund's liabilities allocated to those shares, and then
dividing the result by the number of Institutional Shares in the Fund that are
outstanding. The assets of the Funds (except the Prime Fund) are valued at
market value or, if market quotes cannot be readily obtained, fair value is used
as determined by the Board of Trustees. Debt securities held by these Funds that
have sixty days or less until they mature are valued at amortized cost, which
generally approximates market value. All securities of the Prime Fund are valued
at amortized cost. More information about valuation can be found in the Funds'
Statement of Additional Information, which you may request by calling
800/637-3759.
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<PAGE>
EXCHANGE PRIVILEGE
If you wish, Institutional Shares of a Fund may be exchanged for Retail
Shares of the same Fund in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of Barnett or another bank, trust company, or thrift institution.
Similarly, a Customer may exchange Retail Shares for Institutional Shares of the
same Fund if the shares are to be held in such a qualified trust, agency or
custodial account. These exchanges are made at the net asset value of the
respective share classes. The particular class of shares you are exchanging into
must be registered for sale in your state.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to the services these companies provide, as well as more information regarding
investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares, on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
TRANSFER AGENT
BISYS FUND SERVICES INC.
BISYS Fund Services Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business
trust, and is a mutual fund of the type known as an "open-end management
investment company." The Agreement and Declaration of Trust permits the Board of
Trustees of Emerald Funds to classify any unissued
29
<PAGE>
shares into one or more classes of shares. Pursuant to such authority, the Board
of Trustees has authorized the issuance of an unlimited number of shares in each
of three share classes of the Funds. Each Fund is classified as diversified
company. The Board of Trustees has also authorized the issuance of additional
classes of shares representing interests in other portfolios of Emerald Funds.
Information regarding these other portfolios and share classes may be obtained
by contacting the Distributor at the address listed on page 24.
The Institutional Shares of the Funds are described in this prospectus.
These Funds also offer Retail Shares and, additionally, the Prime Fund offers
Service Shares. Shares of each share class of a Fund bear a pro rata portion of
all operating expenses incurred by the Funds, except for certain miscellaneous
"class expenses", (I.E. certain printing and registration expenses). In
addition, Retail Shares bear all payments under the Combined Distribution and
Service Plan and Shareholder Processing Plan for Retail Shares (the "Retail
Plans") and Service Shares bear all payments under the Shareholder Processing
and Service Plan for Service Shares (the "Service Plan") as described in the
prospectuses for those shares. Under the Plans, the Distributor and Service
Organizations receive fees for distribution and shareholder and administrative
support services.
Payments under the Retail Plans may not exceed .50% (on an annual basis) of
the average daily net asset value of outstanding Retail Shares. Payments under
the Service Plan may not exceed .35% (on an annual basis) of the average daily
net asset value of the outstanding Service Shares. Because of the Plan and other
"class expenses," the performance of a Fund's Institutional Shares is expected
to be higher than the performance of its Retail and Service Shares. The Funds
offer various services and privileges in connection with Retail Shares that are
not generally offered in connection with Institutional Shares and Service
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Retail or Service Shares, contact the
Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
Retail shareholders, however, will vote on matters pertaining to the Retail
Plans. Similarly, only holders of Service Shares will vote matters pertaining to
the Service Plan.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders, to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment power with respect to a majority of the outstanding shares of Emerald
Funds. More information about shareholder voting rights can be found in the
Statement of Additional Information under "Description of Shares."
30
<PAGE>
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership, a wholly-owned subsidiary of The BISYS Group,
Inc. located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc. located at the same address, is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286. The transfer and dividend paying agent for the Equity and Fixed
Income Funds is BISYS Fund Services Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035; for the Prime Fund, BISYS Fund Services Inc., located
at 100 First Avenue, Suite 300, Pittsburgh, PA 15222.
ADVISER. As of December 31, 1995 Barnett had approximately $9.8 billion
under active management, with $3.2 billion in equity securities, $713 million in
taxable fixed income securities, $1.4 billion in treasury and government
securities, $1.5 billion in municipals and $2.8 billion in money market
instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered bank
holding company that has offered general banking services since 1877.
Barnett manages the investment portfolios of the Funds, including selecting
portfolio investments and making purchase and sale orders.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., a Senior Vice
President of Barnett, has been the portfolio manager of the Equity Fund since
September of 1993, and has managed the Balanced Fund since it commenced
operations on April 11, 1994. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in addition to these Funds currently manages a
diversified common stock fund and assists in preparing ongoing equity investment
strategy. Dean McQuiddy, C.F.A., a Vice President with Barnett, has managed the
Small Capitalization Fund since its commencement of operations on January 4,
1994, and also manages the small capitalization portion of the Equity and
Balanced Funds. Since joining Barnett in 1983, Mr. McQuiddy has been an equity
analyst and an institutional portfolio manager, and for the last eight years has
managed Barnett's employee benefits small capitalization
31
<PAGE>
fund. Andrew Cantor, C,F.A., a Senior Vice President with Barnett, has managed
the Managed Bond Fund since it commenced operations on April 11, 1994. For the
past eleven years, Mr. Cantor has served as the senior fixed income manager in
Barnett's Institutional Investments Group, where his responsibilities have
included setting fixed income investment strategy and managing a number of major
taxable fixed income accounts, including several commingled funds.
Although expected to be infrequent, Barnett may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Barnett) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions or
dealer concessions. Barnett will not engage in this practice unless the
execution capability of and the amount received by such broker dealer or other
company is believed to be comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio Limited Partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to a
shareholder or deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the Small Capitalization Fund's average
daily net assets, .60% of each of the Equity and Balanced Funds' average daily
net assets, .40% of the Managed Bond Fund's average daily net assets and .25% of
the Prime Fund's average daily net assets. The advisory fee payable by the Small
Capitalization Fund is higher than those paid by most mutual funds, although the
Board of Trustees believes it is comparable to the advisory fees payable by many
similar funds.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00% and .23% of the average
daily net assets of the Equity, Small Capitalization and Prime Funds,
respectively. Barnett voluntarily waived all fees for the Balanced and Managed
Bond Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds,
32
<PAGE>
.07% of the next $2.5 billion, .065% of the next $2.5 billion and .05% of all
assets exceeding $10 billion. In the event the aggregate average daily net
assets for all Funds falls below $3 billion, the fee will be increased to .08%
of the aggregate average daily net assets of all of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees
and expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings; and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to the fiscal year end. Such waivers and
reimbursements would increase the return to investors when made but would
decrease return if a Fund were required to reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund will be taxable to you.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares. If you hold shares for
33
<PAGE>
six months or less, and during that time receive a distribution that is taxable
as a long-term capital gain, any loss you might realize on the sale of those
shares will be treated as a long-term loss to the extent of the earlier capital
gains distribution.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the Equity,
Small Capitalization, or Balanced Funds the record date of dividends and capital
gains distributions) should be aware that the amount of the forthcoming dividend
or distribution, although in effect a return on capital, will be taxable.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders in the Equity and Fixed Income Funds may realize a taxable gain
or loss when redeeming, transferring or exchanging shares of a Fund, depending
on the difference in the prices at which the shareholder purchased and sold the
shares.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. Shares of the Funds are not expected to qualify
for total exemption from the Florida intangibles tax.
MEASURING PERFORMANCE
- Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote its performance in
advertisements or shareholder communications. The performance for each
Fund's Institutional Shares will be calculated separately from the
performance of a Fund's other classes of shares.
UNDERSTANDING PERFORMANCE MEASURES:
- Total return for each Fund (except the Prime Fund) may be calculated on an
average annual total return basis or an aggregate total return basis.
Average annual total return reflects the average annual percentage change
in value of an investment over the measuring period. Aggregate total
return reflects the total percentage change in value of an investment over
the measuring period. Both measures assume the reinvestment of dividends
and distributions.
- Yields for the Funds (except the Prime Fund) are calculated for a
specified 30-day (or one-month) period by dividing the net income for the
period by the maximum offering price on the last day of the period, and
analyzing the result on a semi-annual basis. The yield for the Prime Fund
is the income generated over a 7-day period (which period will be
identified in the quotation) and then assumed to be generated over a
52-week period and shown as a percentage of the investment. In addition,
the Prime Fund may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than
net income used for accounting purposes.
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual
funds with similar investment objectives and to bond, stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor mutual fund performance.
34
<PAGE>
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Equity and Fixed Income Funds may also be compared to
data prepared by Lipper Analytical Services, Inc., Mutual Fund Forecaster,
Wiesenberger Investment Companies Services, Morningstar or CDA Investment
Technologies, Inc. and total returns for the Funds may be compared to indices
such as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index,
the Lehman Brothers Bond Indicies, the Merrill Lynch Bond Indicies, the Wilshire
5000 Equity Indicies or the Consumer Price Index.
The yield of the Prime Fund may be compared to the Donoghue's Money Fund
Average, which monitors the performance of money market funds. Additionally, the
Prime Fund's performance may be compared to data prepared by Lipper Analytical
Services, Inc.
OTHER PERFORMANCE INFORMATION -- EQUITY, SMALL CAPITALIZATION AND MANAGED BOND
FUNDS ONLY:
The Equity, Small Capitalization and Managed Bond Funds commenced their
initial investment operations in connection with the transfer of assets from
common trust funds managed by the Adviser for employee benefit plan accounts.
Set forth below is certain performance information relating to those common
trust funds before the Equity, Small Capitalization and Managed Bond Funds
registered as investment companies with the Securities and Exchange Commission,
together with the performance information of these Funds since their
commencement of operations. These common trust funds were operated using
substantially the same investment objectives, policies, restrictions and
methodologies as in the corresponding Funds. During that time the common trust
funds were not registered under the 1940 Act and therefore were not subject to
certain investment restrictions that are imposed by the Act. If the common trust
funds had been registered under the 1940 Act, the common trust funds'
performance might have been adversely affected. Because the common trust funds
did not charge any expenses, their performance has been adjusted as stated below
to reflect the Funds' estimated expenses at the time of their inception. The
following performance information is not necessarily indicative of the future
performance of the Funds. Because each Fund is actively managed, its investments
vary from time to time and are not identical to the past portfolio investments
of its predecessor common trust fund. Each Fund's performance fluctuates so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED NOVEMBER 30, 1995
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Equity Fund (1).................................................... 35.21% 9.96% 13.49% 13.20%
Small Capitalization Fund (2)...................................... 32.30% 17.46% 25.58% 12.93%*
Managed Bond Fund (3).............................................. 18.36% 8.54% 10.03% 9.48%**
</TABLE>
- ------------------------
(1) The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of
the predecessor common trust fund, assuming reinvestment of all net
investment income and capital gains and taking into account expenses of
0.49% of average daily net assets, which was the expected expense ratio of
shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Equity Fund also
assume reinvestment of all net investment income and realized capital gains
and take into account actual expenses of Retail Shares of the Fund for the
35
<PAGE>
period from June 28, 1991 to March 1, 1994 and of Institutional Shares of
the Fund thereafter. The average annual total return of the Fund
(Institutional Shares) since its inception to November 30, 1995 is 14.22%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
(2) The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 1.35% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Small Capitalization Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Institutional Shares of the Fund. The average annual total
return of the Fund (Institutional Shares) since its inception to November
30, 1995 is 13.73%. During this period fee waivers and expense
reimbursements were in effect. Without these waivers and reimbursements the
Fund's performance would have been lower.
(3) The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.27% of
average daily net assets, which was the expected expense ratio of
Institutional Shares of the Fund at the time of its inception. The average
annual total returns for the periods subsequent to the inception of the
Managed Bond Fund also assume reinvestment of all net investment income and
realized capital gains and take into account actual expenses of
Institutional Shares of the Fund. The average annual total return of the
Fund (Institutional Shares) since its inception to November 30, 1995 is
10.82%. During this period fee waivers and expense reimbursements were in
effect. Without these waivers and reimbursements the Fund's performance
would have been lower.
* Since inception of common trust fund: 12/31/86.
** Since inception of common trust fund: 4/30/87.
Performance quotations will fluctuate and you should not consider quotations
to be representative of future performance. You should also remember that
performance is generally a function of the kind and quality of investments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Fees that Barnett and other Institutions may charge directly to their Customers
in connection with an investment in the Funds will not be included in Funds'
calculations of total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address on page 24.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS 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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
36
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION......................... 3
Expenses............................................................ 3
Financial Highlights................................................ 4
INVESTMENT PRINCIPLES AND POLICIES.................................... 10
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS.................... 13
INVESTING IN EMERALD FUNDS............................................ 24
Your Money Manager.................................................. 24
Purchase of Shares.................................................. 24
Redemption of Shares................................................ 26
Dividends and Distributions......................................... 27
Explanation of Sales Price.......................................... 28
Exchange Privilege.................................................. 29
Other Service Providers............................................. 29
THE EMERALD FAMILY OF FUNDS........................................... 29
THE BUSINESS OF THE FUNDS............................................. 31
Fund Management..................................................... 31
Tax Implications.................................................... 33
Measuring Performance............................................... 34
</TABLE>
EMBSTPLN96P
<PAGE>
EMERALD FUNDS FOR INSTITUTIONS
PRIME FUND
TREASURY FUND
TAX-EXEMPT FUND
INSTITUTIONAL SHARES/SERVICE SHARES
AN INVESTMENT PORTFOLIO OFFERED
BY EMERALD FUNDS
P R O S P E C T U S
APRIL 1, 1996
EMERALD
FUNDS
<PAGE>
EMERALD FUNDS
This Prospectus relates to the Institutional Shares and Service Shares of
the Prime Fund, Treasury Fund and Tax-Exempt Fund (the "Funds"). The Prime and
Treasury Funds each seek to provide a high level of current income, consistent
with liquidity, the preservation of capital and a stable net asset value. The
Tax-Exempt Fund seeks to provide a high level of current income exempt from
Federal income taxes, consistent with liquidity, the preservation of capital and
a stable net asset value.
Institutional Shares and Service Shares are sold by Emerald Asset
Management, Inc. and selected broker-dealers to Barnett Banks Trust Company,
N.A., Jacksonville, Florida ("Barnett"), its affiliated and correspondent banks
and other institutions acting on behalf of themselves and persons maintaining
qualified accounts at such banks and institutions. Shares are sold and redeemed
without any purchase or redemption charge imposed by the Funds, although
Barnett, its affiliated and correspondent banks and other institutions may
charge their customer accounts for services provided in connection with the
purchase or redemption of shares.
This Prospectus describes concisely the information about the Funds that you
should consider before investing. Please read and keep it for future reference.
More information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 1-800-637-3759, and is incorporated by reference
into (considered part of) 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.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES, AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. WHILE THE FUNDS WILL ATTEMPT TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT THEY WILL BE ABLE
TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID
BY A FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST COMPANY, N.A. SERVES AS
INVESTMENT ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH EMERALD ASSET MANAGEMENT, INC., THE FUNDS' DISTRIBUTOR.
MISSOURI INVESTOR NOTICE: EACH FUND MAY RETAIN SECURITIES THAT HAVE BEEN
DOWNGRADED TO BELOW INVESTMENT GRADE AFTER PURCHASE AND EACH FUND MAY ALSO SELL
PORTFOLIO SECURITIES SHORTLY AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN
HIGHER TRANSACTION COSTS AND TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
April 1, 1996
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services.
Below is information regarding the Funds' operating expenses for
Institutional Shares and Service Shares of the Prime, Treasury and Tax-Exempt
Funds. Examples based on this information are also provided.
<TABLE>
<CAPTION>
TAX- TAX-
PRIME PRIME TREASURY TREASURY EXEMPT EXEMPT
FUND FUND FUND FUND FUND FUND
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
SHARES SHARES SHARES SHARES SHARES SHARES
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
AFTER FEE WAIVERS
(as a percent of average net assets)
Advisory Fees (After Fee Waivers).................... 0.23% 0.23% 0.24% 0.24% 0.15% 0.15%
All Other Expenses................................... 0.14% 0.49% 0.14% 0.49% 0.14% 0.49%
--------- --------- --------- --------- --------- ---------
Total Fund Operating Expenses (After Fee Waivers).... 0.37% 0.72% 0.38% 0.73% 0.29% 0.64%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
EXAMPLE:
Let's say, hypothetically, that the annual return of the Institutional Shares of
each Fund is 5%, and that its operating expenses are as described above. For
every $1,000 you invested in the Fund, after the periods shown below, you would
have paid this much in expenses during such periods:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
Prime Fund Institutional Shares.............. $ 4 $ 12 $ 21 $ 47
Prime Fund Service Shares.................... $ 7 $ 23 $ 40 $ 89
Treasury Fund Institutional Shares........... $ 4 $ 12 $ 21 $ 48
Treasury Fund Service Shares................. $ 7 $ 23 $ 41 $ 91
Tax-Exempt Fund Institutional Shares......... $ 3 $ 9 $ 16 $ 37
Tax-Exempt Fund Service Shares............... $ 7 $ 20 $ 36 $ 80
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
This expense information is provided to help you understand the expenses you
would bear indirectly as a shareholder of one of the Funds. The operating
expenses for the Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the last
fiscal year.
2
<PAGE>
Without fee waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.25% for each Fund. Service Shares bear the
expenses incurred under the Funds' Shareholder Processing and Services Plan at a
rate not to exceed .35% (annualized) of the average daily net asset value of the
outstanding Service Shares. These fees are paid to institutions ("Service
Organizations") for support services they provide to the beneficial owners of
such Shares, which may include sub-accounting, processing of dividend payments
and the placing of purchase and redemption orders. These fees are not paid with
respect to a Fund's Institutional Shares. You should note that any fees that are
charged by the Funds' Adviser, its affiliates or any other institutions directly
to their customer accounts for services related to an investment in the Funds
are in addition to, and not reflected in, the fees and expenses described above.
3
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
EMERALD FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE
FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE
PERIOD ENDED NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENT
OF ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUNDS' PERFORMANCE
IS CONTAINED IN THE FUNDS' ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR.
Financial highlights for an Institutional Share of the Prime Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805
Net realized gains (losses) on
securities........................... 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... 0.0568 0.0362 0.0315 0.0408 0.0638 0.0805
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805)
Distributions from net realized gains
on securities........................ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions....... (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805)
------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital contribution.......... 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.81% 3.97% 3.21% 4.14% 6.56% 8.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 462,726 $ 413,541 $ 510,683 $ 1,947,016 $ 512,919 $ 278,419
Ratio of expenses to average net
assets............................... 0.37% 0.37% 0.35% 0.37% 0.40% 0.39%
Ratio of net investment income to
average net assets................... 5.66% 3.92% 3.21% 3.84% 6.27% 8.03%
Ratio of expenses to average net
assets**............................. 0.39% (a) (a) (a) 0.42% 0.45%
Ratio of net investment income to
average net assets**................. 5.64% (a) (a) (a) 6.25% 7.97%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net investment income................. 0.0890
Net realized gains (losses) on
securities........................... (0.0001)
------------
Total income (loss) from investment
operations........................... 0.0889
------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0890)
Distributions from net realized gains
on securities........................ (0.0000)
------------
Total dividends and distributions....... (0.0890)
------------
Voluntary capital contribution.......... 0.0000
------------
Net change in net asset value........... (0.0001)
------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9999
------------
------------
Total return............................ 9.27%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 192,628
Ratio of expenses to average net
assets............................... 0.36%+
Ratio of net investment income to
average net assets................... 9.00%+
Ratio of expenses to average net
assets**............................. 0.44%+
Ratio of net investment income to
average net assets**................. 8.92%+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
4
<PAGE>
Financial highlights for a Service Share of the Prime Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............................... 0.0536 0.0355 0.0281 0.0371 0.0602
Net realized gains (losses) on securities........... 0.0002 (0.0028) (0.0001) 0.0001 0.0001
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations........ 0.0538 0.0327 0.0280 0.0372 0.0603
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income................ (0.0536) (0.0355) (0.0281) (0.0371) (0.0602)
Distributions from net realized gains on
securities......................................... (0.0000) (0.0000) (0.0001) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions..................... (0.0536) (0.0355) (0.0282) (0.0371) (0.0602)
------------ ------------ ------------ ------------ ------------
Voluntary capital contribution........................ 0.0000 0.0029 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Net change in net asset value......................... 0.0002 0.0001 (0.0002) 0.0001 0.0001
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................ $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return.......................................... 5.49% 3.61% 2.85% 3.78% 6.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 902,006 $ 833,667 $ 619,149 $ 548,622 $ 182,928
Ratio of expenses to average net assets............. 0.72% 0.72% 0.71% 0.72% 0.75%
Ratio of net investment income to average net
assets............................................. 5.31% 3.59% 2.80% 3.54% 5.63%
Ratio of expenses to average net assets**........... 0.74% (a) (a) (a) 0.77%
Ratio of net investment income to average net
assets**........................................... 5.29% (a) (a) (a) 5.61%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1990*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000
------------
Income from investment operations:
Net investment income............................... 0.0445
Net realized gains (losses) on securities........... (0.0001)
------------
Total income (loss) from investment operations........ 0.0444
------------
Less dividends and distributions:
Dividends from net investment income................ (0.0445)
Distributions from net realized gains on
securities......................................... (0.0000)
------------
Total dividends and distributions..................... (0.0445)
------------
Voluntary capital contribution........................ 0.0000
------------
Net change in net asset value......................... (0.0001)
------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9999
------------
------------
Total return.......................................... 4.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 7,202
Ratio of expenses to average net assets............. 0.75%+
Ratio of net investment income to average net
assets............................................. 7.51%+
Ratio of expenses to average net assets**........... 0.80%+
Ratio of net investment income to average net
assets**........................................... 7.46%+
</TABLE>
- -----------------
* For the period May 1, 1990 (initial offering date) through November 30,
1990.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
5
<PAGE>
Financial highlights for an Institutional Share of the Treasury Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0548 0.0368 0.0291 0.0368 0.0590 0.0776
Net realized gains (losses) on
securities........................... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations............................. 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.62% 3.74% 2.95% 3.75% 6.07% 8.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 236,392 $ 283,920 $ 501,377 $ 452,170 $ 575,103 $ 416,131
Ratio of expenses to average net
assets............................... 0.40% 0.39% 0.40% 0.38% 0.40% 0.38%
Ratio of net investment income to
average net assets................... 5.49% 3.73% 2.91% 3.74% 5.86% 7.75%
Ratio of expenses to average net
assets**............................. 0.42% (a) (a) (a) 0.41% 0.41%
Ratio of net investment income to
average net assets**................. 5.46% (a) (a) (a) 5.85% 8.13%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net investment income................. 0.0856
Net realized gains (losses) on
securities........................... 0.0000
------------
Total income (loss) from investment
operations............................. 0.0856
------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0856)
------------
Net change in net asset value........... 0.0000
------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0000
------------
------------
Total return............................ 8.90%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 349,183
Ratio of expenses to average net
assets............................... 0.73%+
Ratio of net investment income to
average net assets................... 8.69%+
Ratio of expenses to average net
assets**............................. 0.77%+
Ratio of net investment income to
average net assets**................. 8.65%+
</TABLE>
- -----------------
* For the period December 7, 1989 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
6
<PAGE>
Financial highlights for a Service Share of the Treasury Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............................... 0.0513 0.0331 0.0256 0.0333 0.0555
Net realized gains (losses) on securities............. (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations........ 0.0510 0.0330 0.0256 0.0333 0.0555
------------ ------------ ------------ ------------ ------------
Dividends from net investment income.................. (0.0513) (0.0331) (0.0256) (0.0333) (0.0555)
------------ ------------ ------------ ------------ ------------
Net change in net asset value......................... (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return.......................................... 5.25% 3.36% 2.59% 3.39% 5.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 525,609 $ 591,991 $ 403,809 $ 372,691 $ 219,912
Ratio of expenses to average net assets............... 0.75% 0.74% 0.75% 0.73% 0.75%
Ratio of net investment income to average net assets.. 5.13% 3.38% 2.56% 3.30% 5.09%
Ratio of expenses to average net assets**............. 0.77% (a) (a) (a) 0.76%
Ratio of net investments income to average net
assets**............................................. 5.11% (a) (a) (a) 5.08%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1990*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000
------------
Income from investment operations:
Net investment income............................... 0.0428
Net realized gains (losses) on securities............. 0.0000
------------
Total income (loss) from investment operations........ 0.0428
------------
Dividends from net investment income.................. (0.0428)
------------
Net change in net asset value......................... 0.0000
------------
NET ASSET VALUE, END OF PERIOD........................ $ 1.0000
------------
------------
Total return.......................................... 4.36%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 6,862
Ratio of expenses to average net assets............... 0.75%+
Ratio of net investment income to average net assets.. 7.24%+
Ratio of expenses to average net assets**............. 0.77%+
Ratio of net investments income to average net
assets**............................................. 7.22%+
</TABLE>
- -----------------
* For the period May 1, 1990 (initial offering date) through November 30,
1990.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
7
<PAGE>
Financial highlights for an Institutional Share of the Tax-Exempt Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 0.9998
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0355 0.0242 0.0214 0.0290 0.0446 0.0560
Net realized and unrealized gains
(losses) on securities............... (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations............................. 0.0352 0.0242 0.0215 0.0290 0.0447 0.0559
------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment income.... (0.0355) (0.0242) (0.0214) (0.0290) (0.0446) (0.0560)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 3.61% 2.45% 2.16% 2.94% 4.55% 5.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 156,353 $ 162,856 $ 147,525 $ 158,692 $ 122,151 $ 124,270
Ratio of expenses to average net
assets............................... 0.40% 0.40% 0.40% 0.40% 0.39% 0.38%
Ratio of net investment income to
average assets....................... 3.53% 2.42% 2.13% 2.88% 4.46% 5.60%
Ratio of expenses to average net
assets**............................. 0.52% 0.46% 0.56% 0.57% 0.54% 0.53%
Ratio of net investment income to
average net assets**................. 3.41% 2.36% 1.97% 2.71% 4.31% 5.45%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net investment income................. 0.0605
Net realized and unrealized gains
(losses) on securities............... (0.0002)
------------
Total income (loss) from investment
operations............................. 0.0603
------------
Dividends from net investment income.... (0.0605)
------------
Net change in net asset value........... (0.0002)
------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9998
------------
------------
Total return............................ 6.22%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 143,211
Ratio of expenses to average net
assets............................... 0.36%+
Ratio of net investment income to
average assets....................... 6.14%+
Ratio of expenses to average net
assets**............................. 0.51%+
Ratio of net investment income to
average net assets**................. 5.99%+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ Effective April 2, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
8
<PAGE>
Financial highlights for a Service Share of the Tax-Exempt Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............................... 0.0319 0.0206 0.0179 0.0255 0.0411
Net realized and unrealized gains (losses) on
securities......................................... (0.0003) 0.0000 0.0001 0.0000 0.0001
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations........ 0.0316 0.0206 0.0180 0.0255 0.0412
------------ ------------ ------------ ------------ ------------
Dividends from net investment income.................. (0.0319) (0.0206) (0.0179) (0.0255) (0.0411)
------------ ------------ ------------ ------------ ------------
Net change in net asset value......................... (0.0003) 0.0000 0.0001 0.0000 0.0001
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return.......................................... 3.24% 2.08% 1.80% 2.58% 4.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 2,855 $ 4,028 $ 487 $ 111 $ 11
Ratio of expenses to average net assets............. 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average net
assets............................................. 3.19% 2.17% 1.75% 2.65% 5.08%
Ratio of expenses to average net assets**........... 1.20% 1.59% 0.92% 0.92% 0.91%
Ratio of net investment income to average net
assets**........................................... 2.74% 1.33% 1.58% 2.48% 4.92%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1990*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000
------------
Income from investment operations:
Net investment income............................... 0.0304
Net realized and unrealized gains (losses) on
securities......................................... (0.0003)
------------
Total income (loss) from investment operations........ 0.0301
------------
Dividends from net investment income.................. (0.0304)
------------
Net change in net asset value......................... (0.0003)
------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9997
------------
------------
Total return.......................................... 2.61%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 1,943
Ratio of expenses to average net assets............. 0.75%+
Ratio of net investment income to average net
assets............................................. 5.17%+
Ratio of expenses to average net assets**........... 0.94%+
Ratio of net investment income to average net
assets**........................................... 4.98%+
</TABLE>
- -----------------
* For the period May 1, 1990 (initial offering date) through November
30,1990.
** During the period, certain fees were voluntarily and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
9
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser and, with respect to the Tax-Exempt Fund, the Sub-Adviser use a
range of different investments and investment techniques in seeking to achieve a
Fund's investment objective. All Funds do not use all of the investments and
investment techniques described below, which involve various risks, and which
are described in following sections. The Funds' Adviser, and, with respect to
the Tax-Exempt Fund, the Sub-Adviser, will use their best efforts to achieve a
Fund's investment objective, although its achievement cannot be assured.
Each Fund invests only in U.S. dollar-denominated securities that mature in
thirteen months or less (with certain exceptions). The dollar-weighted average
portfolio maturity of each Fund may not exceed ninety days.
Instruments acquired by the Funds will be U.S. Government securities or
other "First Tier Securities" as described below. The term "First Tier
Securities" has a technical definition given by the Securities and Exchange
Commission, but generally refers to securities that the Adviser or Sub-Adviser
has determined, under guidelines established by the Board of Trustees, to
present minimal credit risks, and have the highest short-term debt ratings at
the time of purchase by one (if rated by only one) or more Nationally Recognized
Statistical Rating Organizations ("NRSROs"). A description of applicable ratings
is attached to the Statement of Additional Information as Appendix A. Unrated
instruments (including instruments with long-term but no short-term ratings)
will be of comparable quality as determined by the Adviser or Sub-Adviser under
guidelines approved by the Board of Trustees.
PRIME FUND
The investment objective of the Prime Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Prime Fund pursues its objective by investing
in a broad range of short-term government, bank and corporate obligations. In
accordance with the current rules of the Securities and Exchange Commission, the
Prime Fund intends to limit its purchases in the securities of any one issuer
(other than securities of the U.S. Government or its agencies or
instrumentalities) to no more than 5% of its total assets at the time of
purchase, with the exception that up to 25% of its total assets may be invested
in the securities of any single issuer for up to three business days.
TREASURY FUND
The investment objective of the Treasury Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Treasury Fund seeks to achieve its objective
by investing in obligations that the U.S. Treasury has issued or to which the
U.S. Treasury has pledged its full faith and credit to guarantee the payment of
principal and interest. You should note, however, that shares of the Treasury
Fund are not themselves issued or guaranteed by the U.S. Treasury or any of its
agencies. U.S. Treasury obligations include Treasury bills, certain Treasury
strips, certificates of indebtedness, notes and bonds, and obligations of those
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. Treasury. It is the Treasury Fund's policy that under normal conditions
it will invest 65% or more of its total assets in U.S. Treasury obligations and
repurchase agreements for which such obligations serve as collateral.
10
<PAGE>
TAX-EXEMPT FUND
The investment objective of the Tax-Exempt Fund is to seek to provide a high
level of current income that is exempt from federal income taxes, consistent
with liquidity, the preservation of capital and a stable net asset value. The
Fund invests in high quality debt obligations of states, territories and
possessions of the United States and the District of Columbia, and of their
agencies, authorities, instrumentalities and political sub-divisions ("municipal
obligations"). Under normal conditions the Fund invests 80% or more of its net
assets in these municipal obligations. The Fund may also invest up to 20% of its
net assets in municipal obligations subject to the federal alternative minimum
tax. Otherwise, the Fund will not knowingly purchase securities the interest on
which is subject to federal tax. Cash may temporarily be held uninvested (and
thus not earn income) if market or economic conditions are unfavorable. In
accordance with the current rules of the Securities and Exchange Commission, the
Tax-Exempt Fund intends to limit its purchases in the securities of any one
issuer (other than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities) to no more than 5% of its total assets at the
time of purchase, with the exception that up to 25% of its total assets be
invested with no limitation.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY FUND
may invest in U.S. Treasury obligations as described above. The PRIME FUND may
invest in securities issued or guaranteed by the U.S. Government, as well as in
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market investments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The PRIME FUND may invest in asset-backed
securities (I.E., securities backed by installment sale contracts, credit card
receivables or other assets). The average life of an asset-backed instrument
varies with the maturities of the underlying instruments, and is likely to be
substantially less than the original maturity of the asset pools underlying the
security as the result of scheduled principal payments and prepayments. This may
be particularly true for mortgage-backed securities. The rate of such
prepayments, and hence the life of the security, will be primarily a function of
current market rates and current conditions in the relevant market. The
relationship between prepayments and interest rates may give some high-yielding
asset-backed securities less potential for growth in value than conventional
bonds with comparable maturities. In addition, in periods of falling interest
rates, the rate of prepayment 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.
Because of these and other reasons, an asset-backed security's
11
<PAGE>
total return may be difficult to predict precisely. To the extent the Fund
purchases asset-backed securities at a premium, prepayments (which often may be
made at any time without penalty) may result in some loss of the Fund's
principal investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, 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. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate, and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The TAX-EXEMPT FUND will invest primarily in
municipal obligations. The PRIME FUND may also invest in municipal obligations.
These securities may be advantageous for the Prime Fund when, as a result of
prevailing economic, regulatory or other circumstances, the yield of such
securities on a pre-tax basis is comparable to that of other securities the
Prime Fund can purchase. Dividends paid by the Prime Fund that come from
interest on municipal obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a local requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser (or Sub-Adviser for the Tax-Exempt Fund), under the supervision of
the Board of Trustees, will determine the credit quality of any unrated
municipal leases on an on-going basis, including an assessment of the likelihood
that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds, the Adviser and the Sub-Adviser
rely on these opinions and do not intend to review the basis for them.
12
<PAGE>
Municipal obligations purchased by the Tax-Exempt and Prime Funds may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a municipal obligation held by the Funds could have an
adverse effect on a Fund's portfolio and the value of its shares. As described
below under "Foreign Securities," foreign letters of credit and guarantees
involve certain risks in addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The PRIME FUND may purchase corporate bonds and cash
equivalents that meet the Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by the Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by the Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The PRIME FUND may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. The Fund may also invest in CDs and time deposits of domestic
branches of U.S. banks that have total assets of less than $1 billion if the CDs
and time deposits are insured by the FDIC. Investments in foreign banks and
foreign branches of U.S. banks will not make up more than 25% of the Fund's
total assets when the investment is made. (To the extent permitted by the SEC,
bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) The Fund may also
make interest-bearing savings deposits in amounts not exceeding 5% of its total
assets.
REPURCHASE AGREEMENTS. The PRIME FUND and TREASURY FUND may buy portfolio
securities subject to the seller's agreement to repurchase them at an agreed
upon time and price. These transactions are known as repurchase agreements. The
Funds will enter into repurchase agreements only with financial institutions
deemed to be creditworthy by the Adviser or the Sub-Adviser, pursuant to
guidelines established by the Board of Trustees. During the term of any
repurchase agreement, the Adviser will monitor the creditworthiness of the
seller, and the seller must maintain the value of the securities subject to the
agreement in an amount that is greater than the repurchase price. Default or
bankruptcy of the seller would, however, expose the Funds to possible loss
because of adverse market action or delays connected with the disposition if the
underlying obligations. Because of the seller's repurchase obligations, the
securities subject to repurchase agreements do not have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of the PRIME FUND these instruments may
include variable amount master demand notes, which are instruments under which
the indebtedness, as well as the interest rate, varies. For the Prime and
Tax-Exempt Funds, if rated, variable and floating rate instruments must be rated
in the highest short-term rating category by an NRSRO. If unrated, such
instruments will need
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to be determined to be of comparable quality. Unless guaranteed by the U.S.
Government or one of its agencies or instrumentalities, variable or floating
rate instruments purchased by each Fund must permit the Funds to demand payment
of the instrument's principal at least once every thirteen months. Because of
the absence of a market in which to resell a variable or floating rate
instrument, a Fund might have trouble selling an instrument should the issuer
default or during periods when a Fund is not permitted by agreement to demand
payment of the instrument, and for this or other reasons a loss could occur with
respect to the instrument.
STRIPPED SECURITIES. The PRIME FUND and TREASURY FUND may invest in
instruments known as "stripped" securities. These instruments include U.S.
Treasury bonds and notes and federal agency obligations on which the unmatured
interest coupons have been separated from the underlying obligation. These
obligations are usually issued at a discount to their "face value," and because
of the manner in which principal and interest are returned may exhibit greater
price volatility than more conventional debt securities. The Treasury Fund's
investments in these obligations will be limited to "interest only" stripped
securities that have been issued by a federal instrumentality known as the
Resolution Funding Corporation and other stripped securities issued or
guaranteed by the U.S. Treasury, where the principal and interest components are
traded independently under the Separate Trading of Registered Interest and
Principal Securities Program ("STRIPS"). Under STRIPS, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. The Prime Fund may also invest in instruments
that have been stripped by their holder, typically a custodian bank or
investment brokerage firm, and then resold in a custodian receipt program under
names you may be familiar with such as Treasury Investors Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
In addition, the Prime Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. If the underlying obligations experience greater than
anticipated prepayments, the Prime Fund may fail to fully recoup its initial
investment. The market value of the class consisting entirely of principal
payments can be extremely volatile in response to changes in interest rates. The
yields on a class of SMBS that receives all or most of the interest are
generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonable close to that used in the calculation of the Prime Fund's per share
net asset value.
Although stripped securities may pay interest to their holders before they
mature, federal income tax rules require a Fund each year to recognize a part of
the discount attributable to a security as interest income. This income must be
distributed along with the other income a Fund earns. To the extent shareholders
request that they receive their dividends in cash rather than reinvesting them,
the money necessary to pay those dividends must come from the assets of a Fund
or from other sources
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such as proceeds from sales of Fund shares and/or sales of portfolio securities.
The cash so used would not be available to purchase additional income-producing
securities, and a Fund's current income could ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The PRIME
FUND may invest in bank investment contracts ("BICs") issued by banks that meet
the asset size requirements described above under "Bank Obligations" and in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, the Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, the Fund would receive interest from the issuing entity at either
a negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to
the Fund's limitation on such investments as described below under "Managing
Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The PRIME FUND may purchase from
domestic financial institutions and trusts created by such institutions
participation interests and trust receipts in high quality debt securities. A
participation interest or receipt gives the Fund an undivided interest in the
security in the proportion that the Fund's participation interest or receipt
bears to the total principal amount of the security. The Fund intends only to
purchase participations and trust receipts from an entity or syndicate, and does
not intend to serve as a co-lender in any such activity. As to certain
instruments for which the Fund will be able to demand payment, the Fund intends
to exercise its right to do so only upon a default under the terms of the
security, as needed to provide liquidity, or to maintain or improve the quality
of its investment portfolio. It is possible that a participation interest or
trust receipt may be deemed to be an extension of credit by the Fund to the
issuing financial institution rather than to the obligor of the underlying
security and may not be directly entitled to the protection of any collateral
security provided by the obligor. In such event, the ability of the Fund to
obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of the Fund's investment objective.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata
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portion of the advisory and other expenses of that fund as a shareholder of that
fund. These expenses are in addition to the advisory and other expenses each
Fund pays in connection with its own operations.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund, except the TAX-EXEMPT FUND, may enter into
reverse repurchase agreements. Under such an agreement the Fund sells portfolio
securities and then buys them back later at an agreed-upon time and price. When
the Fund enters into a reverse repurchase agreement it will place in a separate
custodial account either liquid assets or high grade debt securities that have a
value equal to or more than the price the Fund must pay when it buys back the
securities, and the account will be continuously monitored to make sure the
appropriate value is maintained. Reverse repurchase agreements may be used to
meet redemption requests without selling portfolio securities. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities the Fund relinquishes may decline below the price the Fund must pay
when the transaction closes. Interest paid by the Fund in a reverse repurchase
or other borrowing transaction will reduce the Fund's income.
SECURITIES LENDING. The PRIME FUND and TREASURY FUND may lend securities
held in their portfolios to broker-dealers and other institutions as a means of
earning additional income. These loans present 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, securities loans will be made only to parties the Adviser deems to be
of good standing, and will only be made if the Adviser thinks the possible
rewards from such loans justify the possible risks. A loan will not be made if,
as a result, the total amount of a Fund's outstanding loans exceeds 30% of its
total assets. Securities loans will be fully collateralized.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons the Funds do not knowingly invest more
than 10% of their net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit the
Funds to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper, variable
amount master demand notes with maturities of nine months or less and securities
for which the Adviser (or Sub-Adviser for the Tax-Exempt Fund) has determined
pursuant to guidelines adopted by the Board of Trustees that a liquid trading
market
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<PAGE>
exists (including certain securities that may be purchased by institutional
investors under SEC Rule 144A), are not subject to this limitation. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers were no longer
interested in purchasing these restricted securities.
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with less complete financial information about the issuer, less
market liquidity and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or the adoption of other governmental
restrictions might adversely affect the payment of principal and interest on
foreign obligations. Additionally, foreign banks and foreign branches of
domestic banks may be subject to less stringent reserve requirements, and to
different accounting, auditing and recordkeeping requirements.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates, the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. A Fund may
purchase zero-coupon bonds (I.E., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also affect the value of these investments.
Although the Tax-Exempt Fund does not presently intend to do so on a regular
basis, it may invest more than 25% of its total assets in municipal obligations
the interest on which comes solely from revenues of similar projects or are
issued by issuers located in the same state. When the Tax-Exempt Fund's assets
are concentrated in obligations payable from revenues of similar projects or
issued by issuers located in the same state, or in industrial development bonds,
the Fund will be subject to the particular risks (including legal and economic
conditions) relating to such securities to a greater extent than if its assets
were not so concentrated.
In addition, the Prime Fund and Tax-Exempt Fund may purchase custodial
receipts, tender option bonds and certificates of participation in trusts that
hold municipal or other types of obligations. A certificate of participation
gives the Fund an individual, proportionate interest in the obligation, and may
have a variable or fixed rate. Because certificates of participation are
interests in
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obligations that may be funded through government appropriations, they are
subject to the risk that sufficient appropriations as to the timely payment of
principal and interest on the obligations may not be made. The NRSRO quality
rating of an issue of certificates of participation is normally based upon the
rating of the obligations held by the trust and the credit rating of the issuer
of any letter of credit and of any other guarantor providing credit support to
the issue.
Payment on municipal obligations held by the Prime Fund and Tax-Exempt Fund
relating to certain projects may be secured by mortgages or deeds of trust. In
the event of a default, enforcement of a mortgage or deed of trust will be
subject to statutory enforcement procedures and limitations on obtaining
deficiency judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure
may be delayed and the amount of the proceeds received may not be enough to pay
the principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that cannot be changed without the approval of a majority of the
Fund's outstanding shares. Some of these fundamental limitations are summarized
below, and all of the Funds' fundamental limitations are set out in full in the
Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same industry.
2. A Fund may not borrow money except for temporary purposes in amounts up to
one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, that Fund will not
make any investments.
3. Under normal market conditions, the TAX-EXEMPT FUND must invest at least 80%
of its net assets in securities that provide interest exempt from regular
federal income tax.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
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INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY N.A. (REFERRED TO AS "BARNETT" OR THE "ADVISER")
SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS AND RODNEY SQUARE MANAGEMENT
CORPORATION (REFERRED TO AS THE "SUB-ADVISER"), A WHOLLY-OWNED SUBSIDIARY OF
WILMINGTON TRUST COMPANY, SERVES AS SUB-ADVISER TO THE TAX-EXEMPT FUND. Barnett
is the largest trust organization headquartered in Florida and has notable
experience in providing professional investment management services. Organized
as a national banking association in 1974, it is the successor to the business
of earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered bank holding company that has
offered general banking services since 1877.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis. For the Tax-Exempt Fund, Barnett has entered into a sub-advisory
agreement with a subsidiary of Wilmington Trust Company to provide daily
portfolio management for that Fund.
PURCHASE OF SHARES
Shares of the Funds are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares and Service Shares are sold to Barnett and its
affiliates, as well as to Barnett's correspondent banks and other institutions
("Institutions") acting on behalf of themselves or their customers who maintain
qualified trust, agency or custodial accounts ("Customers"). Customers may
include individuals, trusts, partnerships and corporations. All share purchases
are effected through a Customer's account at Barnett or another Institution
through procedures established in connection with the requirements of the
account, and confirmations of share purchases and redemptions will be sent to
Barnett or the other Institution involved. Barnett and other Institutions (or
their nominees) will normally be the holders of record of Institutional and
Service Shares acting on behalf of their Customers, 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 shareholder communications from the Funds will be governed by the
Customers' account agreements with Barnett and other Institutions.
Shares are sold at the net asset value per share next determined after
receipt of a purchase order from an Institution by the Funds' transfer agent.
The minimum initial investment in a Fund for an Institution is $5,000 and the
minimum subsequent investment is $100. Barnett and other Institutions may
establish different minimum investment requirements for their Customers. For
example, there is no minimum initial investment for transfers of assets by
Barnett's Customers from other banks or financial institutions. Barnett and
other Institutions may also charge their Customers certain account fees
depending on the type of account a Customer has established with the
Institution. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based
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upon account transactions, assets or income. Information concerning these
minimum account requirements, services and any charges should be obtained from
the Institutions before a Customer authorizes the purchase of Fund shares, and
this Prospectus should be read in conjunction with any information so obtained.
Purchases for Shares of the Funds will be effected only on days on which
both the New York Stock Exchange (the "Exchange") and the Funds' Custodian are
open for business (a "Business Day") and only when federal funds or other funds
are immediately available to the Funds' transfer agent to make the purchase on
the day it receives the purchase order. Additionally, on days when the Exchange
and/ or the Fund's Custodian close early due to a partial holiday or otherwise,
the Fund reserves the right to advance the times at which purchase and
redemption orders must be received in order to be processed on that Business
Day. Institutions may transmit purchase orders by telephoning the transfer agent
c/o the Distributor at 1-800-367-5905 not later than 2:00 p.m. (Eastern time) on
any Business Day with respect to the Prime and Treasury Funds (12:00 noon
(Eastern time) with respect to the Tax-Exempt Fund). If federal funds are not
available with respect to any such order by the close of business on the day the
order is received by the transfer agent, the order will be cancelled. In
addition, any purchase order received by the transfer agent after 2:00 p.m.
(Eastern time) with respect to the Prime and Treasury Funds (12:00 noon (Eastern
time) with respect to the Tax-Exempt Fund) will not be accepted, and notice
thereof will be given to the Institution placing the order. Any funds received
in connection with late orders will be returned promptly.
Each Fund observes the following holidays: New Year's Day (observed), Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day, Veterans' Day (observed), Thanksgiving
Day and Christmas Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
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REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares and
Service Shares are redeemed. Barnett and other Institutions may charge fees to
their Customers for their services in connection with investments. Shares held
by an Institution on behalf of its Customers must be redeemed in accordance with
the instructions and limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940. A shareholder of record may be required to redeem shares in the Fund if
the balance in such shareholder's account in the Fund drops below $4,000 due to
share redemptions and not market fluctuations and the shareholder does not
increase its balance to at least $4,000 upon 60 days' written notice. If a
Customer has agreed with an Institution to maintain a minimum balance in his
account with the Institution, and the balance in the account falls below that
minimum, the Customer may be obligated to redeem all or part of his shares in
that Fund to the extent necessary to maintain the minimum balance required. The
Funds may also redeem shares involuntarily if it appears appropriate to do so in
light of the Funds' responsibilities under the Investment Company Act of 1940.
See the Statement of Additional Information ("Additional Purchase and Redemption
Information") for examples of when such redemptions might be appropriate.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. Payment for Prime and
Treasury Fund redemption orders which are received by the transfer agent before
2:00 p.m. (Eastern time) (12:00 noon (Eastern time) with respect to the
Tax-Exempt Fund) on a Business Day will normally be wired in federal funds the
same day. Payment for redemption orders which are received between 2:00 p.m.
(Eastern time) and the close of business with respect to the Prime and Treasury
Funds (12:00 noon (Eastern time) with respect to the Tax-Exempt Fund) or on a
non-Business Day will normally be wired in federal funds on the next Business
Day. Emerald Funds 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.
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DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income, which
flows from the interest that the Funds earn on the money market and other
investments they hold. Dividends on each Emerald Share and Emerald Service Share
are determined in the same manner and are paid in the same amount regardless of
class, except that Emerald Service Shares bear all fees paid to Service
Organizations for their services as described under "The Emerald Family of
Funds" and each class of shares bears certain other miscellaneous "class
expenses" (I.E., certain printing, registration and per account transfer agency
expenses).
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net capital gains, if any, after
any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund for which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
Emerald Funds
100 First Avenue, Suite 300
Pittsburgh, PA 15222
Your election is effective for dividends and distributions with payment
dates after the date the Funds' transfer agent receives the election.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------------
DECLARED PAID
----------- -----------------------
<S> <C> <C>
(1) Prime, Treasury and Tax-Exempt............................................ Daily Monthly within five
business days
after month end
</TABLE>
- ------------
(1) Shares of each Fund begin earning dividends on the day a purchase order is
accepted and payment in federal funds is received by the Funds' Custodian,
and continue to earn dividends through the day before they are redeemed.
If all the Emerald Shares or Emerald Service Shares held by an Institution
in the Funds are redeemed, the Funds will pay accrued dividends within five
Business Days after the end of each month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Net asset value per share is determined on each Business Day (as defined
above) at 2:00 p.m. (Eastern time) with respect to the Prime and Treasury Funds
(12:00 noon (Eastern time) with respect to the Tax-Exempt Fund) by adding the
value of a Fund's investments, cash and other assets allocated
22
<PAGE>
to a class of shares, subtracting the Fund's liabilities allocated to shares of
that class, and then dividing the result by the number of shares of that class
that are outstanding. All securities of the Funds are valued at amortized cost.
More information about valuation can be found in the Funds' Statement of
Additional Information, which you may request by calling 800/637-3759.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to some of the services these companies provide, as well as more information
regarding investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc.. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc. is the transfer agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized as a Massachusetts business trust on March 15,
1988 and is registered with the Securities and Exchange Commission as in
open-end management investment company. The Agreement and Declaration of Trust
authorizes the Board of Trustees to classify and reclassify any unissued shares
into one or more classes of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of an unlimited number of shares in each of
three classes (the Institutional Share Class, Service Share Class and Retail
Share Class) representing
23
<PAGE>
interests in the respective Funds, which are classified as diversified companies
under the Investment Company Act of 1940. The Board of Trustees has also
authorized the issuance of additional classes of shares representing interests
in other investment portfolios of Emerald Funds. Information regarding the
Funds' Retail Share Classes, as well as the other portfolios offered by Emerald
Funds, may be obtained by contacting the Distributor at the address listed on
page 19.
Shares of each Fund's three share classes bear a pro rata portion of all
operating expenses incurred by a Fund except as follows. Holders of a Fund's
Service Shares bear the fees that are paid to Service Organizations under the
Fund's Shareholder Processing and Services Plan described below. Similarly,
holders of a Fund's Retail Shares bear the payments set forth in the prospectus
describing such Shares that are paid under the Funds' Retail Plan. In addition,
shares of each Fund's three share classes bear other miscellaneous "class
expenses" (I.E., certain printing and registration expenses). Standardized yield
quotations are computed separately for each Fund's three classes of shares.
Because of these Plans and other "class expenses", the performance of a Fund's
Institutional Shares is expected to be higher than the performance of the Fund's
Service Shares, and the performance of both the Institutional Shares and Service
Shares of a Fund is expected to be higher than the performance of the Fund's
Retail Shares. The Funds offer various services and privileges in connection
with Retail Shares that are not generally offered in connection with
Institutional Shares and Service Shares, including an automatic investment plan
and automatic withdrawal plan. For further information regarding the Funds'
Retail Shares, contact the Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
holders of Service Shares will vote on matters pertaining to the Funds'
Shareholder Processing and Services Plan described below, and only holders of
Retail Shares will vote on matters pertaining to the Plan for those Shares.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment power with respect to a majority of the outstanding shares of Emerald
Funds. More information about shareholder voting rights can be found in the
Statement of Additional Information under "Description of Shares."
SHAREHOLDER PROCESSING AND SERVICES PLAN
Emerald Funds has adopted a Shareholder Processing and Services Plan (the
"Plan") pursuant to which Service Shares are sold to Institutional investors
("Service Organizations") which enter into service agreements with Emerald
Funds. The service agreements require the Service Organizations, which may
include Barnett, BISYS and their affiliates, to provide support services to
their Customers who are beneficial owners of Service Shares in return for
payment by a Fund which may not exceed .35% (on an annualized basis) of the
average daily net asset value of the Service Shares beneficially
24
<PAGE>
owned by their Customers. Holders of the Funds' Service Shares bear all fees
paid to Service Organizations for their services under the Plan. The Plan does
not cover, and the fees thereunder are not payable to Service Organizations with
respect to, Institutional Shares or Retail Shares.
Services provided by Service Organizations under their agreements may
include aggregating and processing purchase and redemption requests from
Customers for Service Shares and placing net purchase and redemption orders with
the Distributor; processing dividend payments from each Fund on behalf of
Customers; forwarding shareholder communications to Customers; and providing
sub-accounting with respect to Service Shares beneficially owned by Customers or
the information necessary for sub-accounting by the Funds.
Emerald Funds understands that Service Organizations may charge fees to
their Customers who are the beneficial owners of Service Shares in connection
with their Customer accounts. These fees would be in addition to any amounts
which may be received by a Service Organization under its service agreement with
Emerald Funds. The service agreement requires a Service Organization to disclose
to its Customers any compensation payable to the Service Organization by the
Funds and any other compensation payable by the Customers in connection with the
investment of their assets in Service Shares. Customers of Service Organizations
should read this Prospectus in light of the terms governing their accounts with
their Service Organizations.
Conflict of interest restrictions may apply to the receipt of compensation
paid by a Fund in connection with the investment of fiduciary funds in Service
Shares. Institutions, including banks regulated by the Comptroller of the
Currency, the Federal Reserve Board or the Federal Deposit Insurance
Corporation, and investment advisers and other money managers subject to the
jurisdiction of the Securities and Exchange Commission, the Department of Labor
or state securities commissions, are urged to consult their legal advisers
before investing in Service Shares.
Banking laws and regulations presently 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 such banking laws and regulations do not
prohibit such a 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 for and upon the order of
such a customer. Service Organizations that are banks are subject to such
banking laws and regulations. Should future legislative, judicial or
administrative action prohibit or restrict the activities of bank Service
Organizations in connection with the provision of support services to their
Customers, Emerald Funds might be required to alter or discontinue its
arrangements with Service Organizations generally and change its method of
operations. It is not anticipated, however, that any change in the Funds' method
of operations would affect its net asset value per share or result in a
financial loss to any Customer.
25
<PAGE>
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership a wholly-owned subsidiary of The BISYS Group,
Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035 serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc., located at the same address is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286 and a transfer and dividend paying agent, BISYS Fund Services, Inc.,
located at 100 First Avenue, Suite 300, Pittsburgh, PA 15222.
ADVISER AND SUB-ADVISER. As of December 31, 1995 Barnett had approximately
$9.8 billion under active management, with $3.2 billion in equity securities,
$713 million in taxable fixed income securities, $1.4 billion in treasury and
government securities, $1.5 billion in municipals and $2.8 billion in money
market instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered
bank holding company that has offered general banking services since 1877.
Wilmington Trust Company, the Sub-Adviser's parent organization and a Delaware
banking corporation, is in turn a wholly-owned subsidiary of Wilmington Trust
Corporation, a registered bank holding company. The Sub-Adviser provides
management services to a number of mutual funds with total assets on December
31, 1995 of $1.5 billion.
Barnett manages the investment portfolios of the Prime and Treasury Funds,
including selecting portfolio investments and making purchase and sale orders.
The Sub-Adviser manages the investment portfolio of the Tax-Exempt Fund,
including selecting portfolio investments and making purchase and sale orders,
in accordance with investment requirements and policies established by the
Adviser.
26
<PAGE>
Although expected to be infrequent, Barnett (or the Sub-Adviser) may
consider the amount of Fund shares sold by broker-dealers and others (including
those who may be connected with Barnett or the Sub-Adviser) in allocating orders
for purchases and sales of portfolio securities. This allocation may involve the
payment of brokerage commissions or dealer concessions. Barnett (and the Sub-
Adviser) will not engage in this practice unless the execution capability of and
the amount received by such broker-dealer or other company is believed to be
comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio limited partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Fund, the Fund incurs certain
expenses. Expenses are paid out of the Fund's assets, and thus are reflected in
the Fund's dividends, but they are not billed directly to a shareholder or
deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of .25% of each Funds' average daily net assets.
Barnett has agreed to pay the Sub-Adviser .15% of the Tax-Exempt Fund's average
daily net assets, and is also voluntarily waiving the remainder of its fee for
that Fund. The fee paid by Barnett to the Sub-Adviser comes out of Barnett's
advisory fee for the Tax-Exempt Fund and is not an additional charge to that
Fund.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .23%, .24% and .15% of the average
daily net assets of the Prime, Treasury and Tax-Exempt Funds, respectively. All
of the fees that Barnett received for the Tax-Exempt Fund were paid to the
Sub-Adviser pursuant to the fee arrangement described above.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
Under the terms of the advisory agreement for the Prime Fund and Treasury
Fund, the fees payable to the Adviser are not subject to reduction as the value
of the Fund's net assets increases. The Adviser has, however, informed Emerald
Funds of its intention to reduce the annual rate of its
27
<PAGE>
advisory fees with respect to these two Funds to the following rates: .25% of
the first $600 million of the Prime Fund's and Treasury Fund's net assets,
respectively; .23% of each Fund's net assets over $600 million but not exceeding
$1 billion; .21% of the next $1 billion of each Fund's net assets; and .19% of
each Fund's net assets over $2 billion.
Expenses can be reduced by other voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
For the fiscal year ended November 30, 1995, the Prime, Treasury and
Tax-Exempt Funds' ratios of ordinary operating expenses to average net assets
after waivers were .37% and .40%, .40% and .72% and .75% and .75% for
Institutional Shares and Service Shares, respectively.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, the Prime and Treasury Funds will pay as dividends
at least 90% of its investment company taxable income. Investment company
taxable income includes taxable interest, dividends, gains attributable to
market discount on taxable as well as tax-exempt securities, and the excess of
net short-term capital gain over long-term capital loss. To the extent you
receive a dividend based on investment company taxable income you must treat
that dividend as ordinary income in determining your gross income for tax
purposes, whether you received it in the form of cash or additional shares.
Unless you are exempt from federal income taxes, the dividends you receive from
each Fund will be taxable to you.
In addition, the Tax-Exempt Fund will pay at least 90% of its net
exempt-interest income as dividends known as "exempt-interest dividends." These
dividends may be treated by you as excludable from your gross income (unless the
exclusion would be disallowed because of your particular situation). You should
note that income that is not subject to federal income taxes may nonetheless
have to be considered along with other adjusted gross income in determining
whether any Social Security payments received by you are subject to federal
income taxes.
28
<PAGE>
If the Tax-Exempt Fund holds certain so-called "private activity bonds"
issued after August 7, 1986, shareholders will need to include as an item of tax
preference for purposes of the federal alternative minimum tax that portion of
the dividends paid by the Fund derived from interest received on such bonds. The
maximum federal alternative minimum tax rate is 28% for individuals. In
addition, corporations will need to take into account all exempt-interest
dividends paid by the Fund in determining certain adjustments for the federal
alternative minimum tax and the environmental tax.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares.
Any dividends declared by the Funds in December of a particular year and
payable to shareholders of record on a date during that month will be deemed to
have been paid by the Funds and received by shareholders on December 31 of that
year, so long as the dividends are actually paid in January of the following
year.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes.
Except as stated below, shares of the Funds are not expected to qualify for
total exemption from the Florida intangibles tax. Shares of the Treasury Fund
may or may not qualify in any calendar year for this exemption. In order to
qualify for this exemption, the Treasury Fund may sell any non-exempt assets
held in its portfolio (such as repurchase agreements) during the year and
reinvest the proceeds in exempt assets, or hold cash, prior to December 31.
Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and monitoring
your investments. Each Fund may quote its performance in advertisements or
shareholder communications. The performance for each class of shares of a Fund
is calculated separately from the performance of a Fund's other classes of
shares. Because of the service fees borne by Service Shares, the net yield on
such shares can be expected, at any given time, to be lower than the net yield
on Institutional Shares.
UNDERSTANDING PERFORMANCE MEASURES:
- - The yields for the Funds are the income generated over a 7-day period (which
period will be identified in the quotation) and then assumed to be generated
over a 52-week period and shown as a percentage of the investment. In
addition, the Funds may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than net
income used for accounting purposes.
- - Tax-equivalent yield for the Tax-Exempt Fund shows the amount of taxable yield
needed to produce after-tax equivalent of a tax-free yield, and is calculated
by increasing the yield (as calculated above) the amount necessary to reflect
the payment of federal income taxes at a stated rate. The Fund's
"tax-equivalent yield" will always be higher than its "yield."
29
<PAGE>
PERFORMANCE COMPARISONS:
The Funds may compare their yields to those of mutual funds with similar
investment objectives or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
mutual fund performance.
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, be used for
comparison.
The yield of the Prime Fund may be compared to the Donoghue's Money Fund
Average, the yield of the Treasury Fund may be compared to the Donoghue's
Government Money Fund Average and the yield of the Tax-Exempt Fund may be
compared to the Donoghue's Tax-Free Money Fund Average, each of which monitors
performance of money market funds. Additionally, each Fund's performance may be
compared to data prepared by Lipper Analytical Services, Inc.
Performance quotations will fluctuate, and you should not consider quotations to
be representative of future performance. You should also remember that
performance is generally a function of the kind and quality of investments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Fees that Barnett and other Institutions may charge directly to their Customers
in connection with an investment in the Funds will not be included in the Funds'
calculations of yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 19.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS 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 FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
30
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION...................... 2
Expenses......................................................... 2
Financial Highlights............................................. 4
INVESTMENT PRINCIPLES AND POLICIES................................. 10
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................. 11
INVESTING IN EMERALD FUNDS......................................... 19
Your Money Manager............................................... 19
Purchase of Shares............................................... 19
Redemption of Shares............................................. 21
Dividends and Distributions...................................... 22
Explanation of Sales Price....................................... 22
Other Service Providers.......................................... 23
THE EMERALD FAMILY OF FUNDS........................................ 23
THE BUSINESS OF THE FUNDS.......................................... 26
Fund Management.................................................. 26
Tax Implications................................................. 28
Measuring Performance............................................ 29
</TABLE>
EMIMM96P
<PAGE>
EMERALD FUNDS FOR INSTITUTIONS
EMERALD EQUITY FUND
EMERALD EQUITY VALUE FUND
EMERALD INTERNATIONAL EQUITY FUND
EMERALD SMALL CAPITALIZATION FUND
EMERALD BALANCED FUND
EMERALD SHORT-TERM FIXED INCOME FUND
EMERALD U.S. GOVERNMENT SECURITIES FUND
EMERALD MANAGED BOND FUND
EMERALD FLORIDA TAX-EXEMPT FUND
INSTITUTIONAL SHARES
P R O S P E C T U S
APRIL 1, 1996
[LOGO]
E M E R A L D
EMIEB96P F U N D S
<PAGE>
For voice recorded price information
call 800/548-6546
<PAGE>
EMERALD FUNDS
<TABLE>
<CAPTION>
April 1, 1996
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- --------------------- -------------------------------- --------------------------------
EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long term and are willing to
high quality common stocks and, accept the relative risks
secondarily, potential dividend associated with equity
income growth investments
<S> <C> <C>
- -----------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation Long-term capital appreciation
with income as a secondary and are willing to accept the
objective through investments relative risks associated with
primarily in common and investments in undervalued
preferred stock and debt stocks
securities convertible into
common stock
- -----------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long- term and are willing to
equity securities of foreign accept the relative risks
issuers associated with foreign
investments
- -----------------------------------------------------------------------------------------
SMALL CAPITALIZATION Long-term capital appreciation Long-term rewards that may
exceed those provided by a fund
investing in larger, more
established companies and are
willing to accept the relative
risks of small companies
- -----------------------------------------------------------------------------------------
BALANCED Attractive investment return Asset allocation among equity
through a combination of growth securities, fixed income
of capital and current income securities and cash equivalents
in light of prevailing market
and economic conditions
- -----------------------------------------------------------------------------------------
SHORT-TERM FIXED Consistently positive current Current income greater than
INCOME income with relative stability normally available from a money
of principal through investments market fund and less principal
in investment grade securities volatility than normally
and high quality money market associated with a long-term fund
instruments
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income Current income from U.S.
SECURITIES through investments principally Government securities and can
in U.S. Government securities accept fluctuations in price and
and repurchase agreements yield
- -----------------------------------------------------------------------------------------
MANAGED BOND High level of current income Current income from corporate
and, secondarily, capital and government securities and
appreciation can accept fluctuations in price
and yield
- -----------------------------------------------------------------------------------------
FLORIDA TAX-EXEMPT High tax-free income and current Current income from an
liquidity and, secondarily, investment that is both free
long-term capital appreciation from regular federal income tax
and Florida intangibles tax and
has the possibility of some
price appreciation
- -----------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. Please read and keep it for future reference. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) 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.
<PAGE>
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID BY A
FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST COMPANY, N.A. SERVES AS INVESTMENT
ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS SERVICES, AND IS NOT AFFILIATED WITH
EMERALD ASSET MANAGEMENT, INC., THE FUND'S DISTRIBUTOR.
MISSOURI INVESTOR NOTICE: THE EMERALD SMALL CAPITALIZATION FUND, WHICH
CONCENTRATES ITS INVESTMENTS IN COMPANIES WITH SMALLER CAPITALIZATIONS, MAY BE
SUBJECT TO GREATER PRICE VOLATILITY THAN A FUND THAT CONCENTRATES ITS
INVESTMENTS IN LARGER CAPITALIZATION STOCKS. IN ADDITION, UP TO 15% OF THE TOTAL
ASSETS OF THE, SMALL CAPITALIZATION AND BALANCED FUNDS MAY BE INVESTED IN
CONVERTIBLE SECURITIES RATED BELOW INVESTMENT GRADE AT THE TIME OF PURCHASE AND
ALL OF THE FUNDS MAY RETAIN SECURITIES THAT HAVE BEEN DOWNGRADED TO BELOW
INVESTMENT GRADE AFTER PURCHASE. EACH FUND MAY SELL PORTFOLIO SECURITIES SHORTLY
AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN HIGHER TRANSACTION COSTS AND
TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
general Fund administration, accounting and other services.
Below is information regarding the shareholder transaction expenses and
operating expenses for Institutional Shares of the Equity, Equity Value,
International Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
U.S. Government Securities, Managed Bond and Florida Tax-Exempt Funds. Examples
based on this information are also provided.
<TABLE>
<CAPTION>
EQUITY SMALL
EQUITY VALUE INTERNATIONAL CAPITALIZATION BALANCED
FUND FUND EQUITY FUND FUND FUND
--------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases................ None None None None None
Sales Charge Imposed on Reinvested Dividends............... None None None None None
Deferred Sales Charge...................................... None None None None None
Redemption Fee............................................. None None None None None
Exchange Fee............................................... None None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees.............................................. 0.60% 0.60% 1.00% 1.00% 0.60%
All Other Expenses (After Expense Reimbursements).......... 0.19% 0.30% 0.40% 0.25% 0.24%
--------- --------- ------ ------ -----------
Total Fund Operating Expenses (After Expense
Reimbursements)*.......................................... 0.79% 0.90% 1.40% 1.25% 0.84%
--------- --------- ------ ------ -----------
--------- --------- ------ ------ -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
U.S.
SHORT-TERM GOVERNMENT FLORIDA
FIXED INCOME SECURITIES MANAGED TAX-EXEMPT
FUND FUND BOND FUND FUND
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases........................ None None None None
Sales Charge Imposed on Reinvested Dividends....................... None None None None
Redemption Fee..................................................... None None None None
Deferred Sales Charge.............................................. None None None None
Exchange Fee....................................................... None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees...................................................... 0.40% 0.40% 0.40% 0.40%
All Other Expenses (After Expense Reimbursements).................. 0.20% 0.21% 0.21% 0.22%
------ ----------- ----------- -----------
Total Fund Operating Expenses (After Expense Reimbursements)*...... 0.60% 0.61% 0.61% 0.62%
------ ----------- ----------- -----------
------ ----------- ----------- -----------
</TABLE>
- ------------
* This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the Funds.
The operating expenses for the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the
last fiscal year. The operating expenses for the Equity Value and
International Equity Funds are based on estimated expenses expected to be
incurred during the remainder of the current fiscal year.
Absent expense reimbursements, the total operating expenses for the
Institutional Shares of the Short-Term Fixed Income Fund would be 0.84%.
The Adviser may waive its fee and/or reimburse expenses of the Funds from
time to time. These waivers and reimbursements are voluntary and may be
terminated at any time with respect to any Fund without the consent of the
Fund. You should note that any fees that are charged by the Adviser, its
affiliates or any other institutions directly to their customer accounts for
services related to an investment in the Funds are in addition, to and not
reflected in, the fees and expenses described above.
4
<PAGE>
EXAMPLE: Let's say, hypothetically, that the annual return on the
Institutional Shares of each Fund is 5%, and that their operating expenses are
as described above. For every $1,000 you invested in a particular Fund, after
the periods shown below, you would have paid this much in expenses during such
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund....................................... $ 8 $25 $44 $ 98
Equity Value Fund................................. $ 9 $29 N/A N/A
International Equity Fund......................... $14 $44 N/A N/A
Small Capitalization Fund......................... $13 $40 $68 $151
Balanced Fund..................................... $ 9 $27 $47 $104
Short-Term Fixed Income Fund...................... $ 6 $19 $33 $ 75
U.S. Government Securities Fund................... $ 6 $20 $34 $ 76
Managed Bond Fund................................. $ 6 $20 $34 $ 76
Florida Tax-Exempt Fund........................... $ 6 $20 $35 $ 78
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENT OF
ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR. THE EMERALD EQUITY VALUE FUND AND INTERNATIONAL EQUITY FUND WERE
NOT OPERATIONAL DURING THE PERIODS PRESENTED.
DURING THE FISCAL YEARS 1993 AND 1992 AND THE PERIOD ENDED NOVEMBER 30,
1991, THE EQUITY, U.S. GOVERNMENT SECURITIES AND FLORIDA TAX-EXEMPT FUNDS DID
NOT OFFER INSTITUTIONAL SHARES. RATHER, EACH FUND OFFERED A SEPARATE SHARE
CLASS, PREVIOUSLY CALLED CLASS A SHARES, NOW CALLED RETAIL SHARES, TO BOTH
INSTITUTIONAL AND RETAIL INVESTORS. THE FOLLOWING INFORMATION REGARDING RETAIL
SHARES IS PROVIDED TO GIVE YOU A LONGER TERM PERSPECTIVE OF THE FUNDS' FINANCIAL
HISTORY. FOR A DESCRIPTION OF THE CHARACTERISTICS AND EXPENSES OF RETAIL SHARES,
SEE "THE EMERALD FAMILY OF FUNDS."
5
<PAGE>
EMERALD EQUITY FUND
Financial highlights for an Institutional Share and a Retail Share of the
Equity Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
----------------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------ YEAR ENDED
YEAR ENDED PERIOD ENDED ----------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
-------------- -------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $ 10.89 $ 11.94 $ 11.82 $ 11.97 $ 10.24 $ 10.00
-------------- -------------- ------- -------------- -------------- -------
Income from investment
operations:
Net investment income..... 0.08 0.11 0.08 0.15 0.16 0.12
Net realized and
unrealized gains (losses)
on securities............ 3.74 (0.90) (0.39) (0.08) 1.73 0.24
-------------- -------------- ------- -------------- -------------- -------
Total income (loss) from
investment operations.... 3.82 (0.79) (0.31) 0.07 1.89 0.36
-------------- -------------- ------- -------------- -------------- -------
Less dividends and
distributions:
Dividends from net
investment income........ (0.08) (0.11) (0.08) (0.15) (0.16) (0.12)
Distributions from net
realized gains on
securities............... (0.00) (0.15) (0.57) (0.07) -- --
-------------- -------------- ------- -------------- -------------- -------
Total dividends and
distributions............ (0.08) (0.26) (0.65) (0.22) (0.16) (0.12)
-------------- -------------- ------- -------------- -------------- -------
Net change in net asset
value...................... 3.74 (1.05) (0.96) (0.15) 1.73 0.24
-------------- -------------- ------- -------------- -------------- -------
Net asset value, end of
period..................... $ 14.63 $ 10.89 $ 10.86 $ 11.82 $ 11.97 $ 10.24
-------------- -------------- ------- -------------- -------------- -------
-------------- -------------- ------- -------------- -------------- -------
Total return................ 35.21% (6.62%)++ (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)................... $ 173,824 $ 164,015 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to
average net assets....... 0.84% 0.79%+ 1.07%** 0.86%** 0.76%** 0.00%+
Ratio of net investment
income to average net
assets................... 0.67% 1.46%+ 0.36%** 1.22%** 1.41%** 2.64%+**
Portfolio turnover........ 104% 113% 113% 102% 40% 13%
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
6
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.66 $ 10.00
-------- --------
Income from investment operations:
Net investment loss.................................................... (0.03) (0.04)
Net realized and unrealized gains (losses) on securities............... 3.15 (0.30)
-------- --------
Net change in net asset value............................................ 3.12 (0.34)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 12.78 $ 9.66
-------- --------
-------- --------
Total return............................................................. 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 88,561 $ 53,509
Ratio of expenses to average net assets................................ 1.39% 1.29%+
Ratio of net investment loss to average net assets..................... (0.65%) (0.54%)+
Ratio of expenses to average net assets**.............................. 1.42% 1.48%+
Ratio of net investment loss to average net assets (**)................ (0.68%) (0.73%)+
Portfolio turnover..................................................... 229% 118%
</TABLE>
- ------------
* For the period January 4, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
7
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.63 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.33 0.27
Net realized and unrealized gains (losses) on securities............... 2.28 (0.37)
-------- --------
Total income (loss) from investment operations........................... 2.61 (0.10)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.33) (0.25)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions........................................ (0.33) (0.27)
-------- --------
Net change in net asset value............................................ 2.28 (0.37)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 11.91 $ 9.63
-------- --------
-------- --------
Total return............................................................. 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 73,830 $ 51,170
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 3.54% 4.11%+
Ratio of expenses to average net assets**.............................. 1.10% 1.25%+
Ratio of net investment income to average net assets**................. 2.76% 3.14%+
Portfolio turnover..................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
8
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for an Institutional Share of the Short-Term Fixed
Income Fund throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.74 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.61 0.35
Net unrealized gains (losses) on securities............................ 0.41 (0.26)
-------- --------
Total income (loss) from investment operations......................... 1.02 0.09
Dividends from net investment operations................................. (0.61) (0.35)
-------- --------
Net change in net asset value............................................ 0.41 (0.26)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.15 $ 9.74
-------- --------
-------- --------
Total return............................................................. 10.80% (0.90%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 14,037 $ 23,566
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 6.14% 5.55%+
Ratio of expenses to average net assets**.............................. 1.43% 1.60%+
Ratio of net investment income to average net assets**................. 5.03% 4.24%+
Portfolio turnover..................................................... 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
9
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for an Institutional Share and a Retail Share of U.S.
Government Securities Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
----------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------ YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
------------- --------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.71 $ 10.47 $ 10.79 $ 10.52 $ 10.46 $ 10.00
------------- ------- ------------- ------------- ------------- -------------
Income from investment
operations:
Net investment
income............... 0.68 0.46 0.58 0.66 0.77 0.27
Net realized and
unrealized gains
(losses) on
securities........... 0.65 (0.75) (0.94) 0.41 0.12 0.46
------------- ------- ------------- ------------- ------------- -------------
Total income (loss)
from investment
operations........... 1.33 (0.29) (0.36) 1.07 0.89 0.73
------------- ------- ------------- ------------- ------------- -------------
Less dividends and
distributions:
Dividends from net
investment income.... (0.68) (0.46) (0.58) (0.66) (0.77) (0.27)
Distributions from net
realized gains on
securities........... (0.00) (0.01) (0.10) (0.14) (0.06) (0.00)
Distributions in
excess of net
investment income.... (0.00) (0.00) (0.01) (0.00) (0.00) (0.00)
Distributions in
excess of net
realized gains....... (0.00) (0.00) (0.02) (0.00) (0.00) (0.00)
------------- ------- ------------- ------------- ------------- -------------
Total dividends and
distributions........ (0.68) (0.47) (0.71) (0.80) (0.83) (0.27)
------------- ------- ------------- ------------- ------------- -------------
Net change in net asset
value.................. 0.65 (0.76) (1.07) 0.27 0.06 0.46
------------- ------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
PERIOD................. $ 10.36 $ 9.71 $ 9.72 $ 10.79 $ 10.52 $ 10.46
------------- ------- ------------- ------------- ------------- -------------
------------- ------- ------------- ------------- ------------- -------------
Total return............ 14.10% (2.83%)++ (3.45%) 10.40% 8.79% 7.34%++
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s)........ $ 74,753 $ 69,314 $ 30,855 $ 145,328 $ 94,006 $ 34,693
Ratio of expenses to
average net assets... 0.83% 0.68%+ 0.98% 0.64% 0.28% 0.00%
Ratio of net
investment income to
average net assets... 7.46% 5.90%+ 5.68% 5.91% 7.18% 7.88%+
Ratio of expenses to
average net
assets**............. (a) 0.69 %+ 1.09 % 1.06 % 0.99 % 1.47 %+
Ratio of net
investment income to
average net
assets**............. (a ) 5.90 %+ 5.57 % 5.49 % 6.42 % 6.41 %+
Portfolio turnover.... 89 % 133 % 133 % 72 % 50 % 34 %
</TABLE>
- -----------------
* For the period July 31, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
10
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.55 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.70 0.45
Net realized and unrealized gains (losses) on securities............... 1.00 (0.45)
-------- --------
Total income (loss) from investment operations......................... 1.70 (0.00)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.70) (0.43)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions........................................ (0.70) (0.45)
-------- --------
Net change in net asset value............................................ 1.00 (0.45)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.55 $ 9.55
-------- --------
-------- --------
Total return............................................................. 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 68,923 $ 66,588
Ratio of expenses to average net assets................................ 0.31% 0.27%+
Ratio of net investment income to average net assets................... 6.95% 6.83%+
Ratio of expenses to average net assets**.............................. 0.83% 0.86%+
Ratio of net investment income to average net assets**................. 6.43% 6.25%+
Portfolio turnover..................................................... 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
11
<PAGE>
EMERALD FLORIDA TAX-EXEMPT FUND
Financial highlights for an Institutional Share and a Retail Share of the
Florida Tax-Exempt Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
---------------------------------------------------------------
INSTITUTIONAL SHARES
-------------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ---------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
--------------- --------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 9.87 $ 11.07 $ 11.33 $ 10.55 $ 10.14 $ 10.00
------- ------- -------------- -------------- -------------- -------
Income from investment
operations:
Net investment income..... 0.57% 0.42 0.53 0.61 0.68 0.21
Net realized and
unrealized gains (losses)
on securities............ 1.22 (1.19) (1.37) 0.78 0.45 0.14
------- ------- -------------- -------------- -------------- -------
Total income (loss) from
investment operations.... 1.79 (0.77) (0.84) 1.39 1.13 0.35
------- ------- -------------- -------------- -------------- -------
Less dividends and
distributions:
Dividends from net
investment income........ (0.57) (0.42) (0.53) (0.61) (0.68) (0.21)
Distributions from net
realized gains on
securities............... (0.00) (0.01) (0.09) (0.00) (0.04) (0.00)
------- ------- -------------- -------------- -------------- -------
Total dividends and
distributions............ (0.57) (0.43) (0.62) (0.61) (0.72) (0.21)
------- ------- -------------- -------------- -------------- -------
Net change in net asset
value...................... 1.22 (1.20) (1.46) 0.78 0.41 0.14
------- ------- -------------- -------------- -------------- -------
Net asset value, end of
period..................... $ 11.09 $ 9.87 $ 9.87 $ 11.33 $ 10.55 $ 10.14
------- ------- -------------- -------------- -------------- -------
------- ------- -------------- -------------- -------------- -------
Total return................ 18.55% (7.07%)++ (7.75%) 13.37% 11.51% 3.49%++
Ratios/supplemental data:
Net assets, end of period
(000s)................... $ 33,979 $ 29,309 $ 109,426 $ 207,764 $ 106,946 $ 10,589
Ratio of expenses to
average net assets....... 0.74% 0.71%+ 0.96%** 0.65% 0.25%** (0.00)
Ratio of net investment
income to average net
assets................... 5.39% 5.34%+ 4.96% 5.32% 6.39% 6.40%+
Ratio of expenses to
average net assets....... (a) 0.71 %+ 1.04 % 1.00 % 1.21 % 3.42 %+
Ratio of net investment
income to average net
assets................... (a ) 5.33 % 4.88 % 4.97 % 5.43 % 2.98 %+
Portfolio turnover........ 89 % 89 % 89 % 48 % 105 % 45 %
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
12
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objective. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks, and which are also described in the following schedule. You should
consider which Funds best meet your investment goals. The Funds' Adviser will
use its best efforts to achieve a Fund's investment objective, although its
achievement cannot be assured.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term capital
appreciation by investing primarily in common stocks. The Fund seeks as a
secondary objective potential income growth through its investments. The Fund
invests primarily in high quality equity securities selected on the basis of
fundamental investment value and growth prospects that the Adviser believes
exceed those of the general economy. The Fund may also invest up to 25% of its
assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
The Equity Fund will normally invest at least 65% of its total assets in
equity securities, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period.
EQUITY VALUE FUND
The Investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Any income is incidental to this objective. The Fund seeks
to achieve its investment objective by investing primarily in common stock,
preferred stock (including convertible preferred stock) and debt obligations
convertible into common stock that the Adviser believes to be undervalued. The
Fund seeks to purchase stock with a price-book value ratio below that of the
median stock in the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"). The Adviser invests less than 25% of the value of the Fund's total assets
at the time of purchase in securities of issuers conducting their principal
business activities in the same industry.
Under normal market and economic conditions, the Fund will invest at least
75% of its total assets in common stock, preferred stock and debt securities
convertible into common stock. Equity
13
<PAGE>
investments consist primarily of common stock of companies having
capitalizations that exceed $100 million. Stocks of these companies generally
are listed on a national exchange or are unlisted securities with an established
over-the-counter market. In addition, the Fund may hold other types of
securities in such proportions as, in the opinion of the Adviser, existing
circumstances may warrant, including obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and other high quality
"money market" instruments. The Fund may also hold cash pending investment,
during temporary defensive periods or if, in the opinion of the Adviser,
suitable stock or convertible debt securities are unavailable. The Fund may
invest up to 25% of its total assets in foreign securities either directly or
indirectly through ADRs and EDRs and may write covered call options.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing at least 65% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes established
companies, although it may invest in companies of various sizes as measured by
assets, sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and The United Kingdom. More than 25% of the Fund's total assets may be invested
in the securities of issuers located in the same country. Investment in that
country of 25% or more of the Fund's total assets will make the Fund's
performance more dependent upon the political and economic circumstances of a
particular country than a mutual fund that is more widely diversified among
issuers in different countries. Criteria for determining the appropriate
distribution of investments among various countries and regions may include
prospects for relative economic growth, expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors.
The Fund invests in common stock and may invest in other securities with
equity characteristics, such as trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund may invest in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
The Fund may invest in securities issued in certain countries that are
currently accessible to the Fund only through investment in other investment
companies that are specifically authorized to invest in such securities. The
Fund's policies regarding investments in other investment companies are
described under "Portfolio Instruments, Practices and Related Risks." In
addition, the Fund may
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invest in securities of foreign issuers in the form of ADRs or EDRs also as
described under "Portfolio Instruments, Practices and Related Risks." The Fund
expects that during its initial period of investment operations, substantially
all of the Fund may be invested in ADRs.
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, the Fund's assets may be invested
without limitation in short-term debt instruments. In addition, when the Fund
experiences large cash inflows from the issuance of new shares or the sale of
portfolio securities, and desirable equity securities that are consistent with
the Fund's investment objective are unavailable in sufficient quantities, the
Fund may hold more than 35% of its assets in short-term debt investment
investments for a limited time pending availability of suitable equity
securities. During normal market conditions, no more than 35% of the Fund's
total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. For temporary
defensive purposes, the Fund may also invest a major portion of its assets in
securities of United States issuers. Less than 25% of the value of the Fund's
total assets at the time of purchase will be invested in securities of issuers
conducting their principal business activities in the same industry.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to provide
long-term capital appreciation. The Fund pursues its objective by investing
primarily in equity securities such as common stocks and instruments convertible
or exchangeable into common stocks.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index. The market
capitalization of the issuers of securities purchased by the Fund will normally
be between $50 million and $2 billion at the time of purchase. In managing the
Fund, the Adviser seeks smaller companies with above-average growth prospects.
Factors considered in selecting such issuers include participation in a fast
growing industry, a strategic niche position in a specialized market, adequate
capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
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Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities of small capitalization companies. In addition
to investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRS, and may acquire convertible securities, warrants and
similar rights.
BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be in invested
fixed income securities (including cash equivalents, long-term debt securities,
and convertible debt securities and preferred stocks to the extent their value
is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would normally increase the Fund's equity holdings while
reducing its holdings of fixed income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to
100% of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are backed by the full faith and
credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the
types that are permissible investments for the Equity and Small Capitalization
Funds. Non-convertible debt obligations will be
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limited to the types that are permissible investments for the Managed Bond Fund.
Convertible securities, foreign securities and other instruments will be
acquired in accordance with the limitations described under "Portfolio
Investments, Practices and Related Risks."
The Fund may also invest, through ADRs and EDRS, up to 25% of the value of
its total assets in securities of foreign issuers, and may invest in warrants
and similar rights.
SHORT-TERM FIXED INCOME AND MANAGED BOND FUNDS
The Short-Term Fixed Income and Managed Bond Funds offer two alternatives
for participating in the fixed income securities markets. The average weighted
maturity of the Short-Term Fixed Income Fund is shorter than that of the Managed
Bond Fund. Both Funds are subject to the same quality requirements.
The investment objective of the Short-Term Fixed Income Fund is to seek
consistently positive current income with relative stability of principal by
investing in investment grade securities and high quality money market
instruments. The investment objective of the Managed Bond Fund is to seek a high
level of current income and, secondarily, capital appreciation. While the
maturity of individual securities will not be restricted, except during
temporary defensive periods or unusual market conditions the average weighted
maturity of the Short-Term Fixed Income Fund will not exceed three years and the
average weighted maturity of the Managed Bond Fund will be ten years or more.
Each Fund invests substantially all of its assets in debt obligations such
as bonds, debentures and cash equivalents, obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, debt obligations of
domestic and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Funds will purchase only those securities which are considered
to be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
each Fund's total assets will be invested in debt obligations rated "A" or
better by at least one NRSRO (or unrated obligations determined to be of
comparable quality). Obligations rated in the lowest of the top four rating
categories ("BBB" or "Baa") have certain speculative characteristics and are
subject to more credit and market risk than securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage
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and other asset-related securities, zero coupon bonds and convertible
debentures. The Managed Bond Fund may, however, also invest without limitation
in short-term investments to meet anticipated redemption requests, or as a
temporary defensive measure if the Adviser determines that market conditions
warrant.
The Funds may also invest in obligations convertible into common stocks, and
common stocks, warrants or other rights to buy shares if they are attached to a
fixed income obligation. Common stock received through the conversion of
convertible debt obligations will normally be sold. For a further description of
the Funds' policies with respect to convertible securities, foreign securities
and other instruments see "Portfolio Instruments, Practices and Related Risks."
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities Fund is to seek
consistently positive income by investing principally in U.S. Government
securities and repurchase agreements collateralized by such securities. The Fund
will always invest at least 65% of its total assets in such instruments under
normal market conditions. There is no minimum or maximum maturity for securities
held, although the Fund expects that (except during temporary defensive periods
or unusual market conditions) its dollar-weighted average portfolio maturity
will be between five and ten years. The Fund may invest in a variety of U.S.
Government securities, including U.S. Treasury bonds, notes and bills, and
obligations of a number of U.S. Government agencies and instrumentalities. The
Fund may also invest in interests in the foregoing securities, including
collateralized mortgage obligations issued or guaranteed by a U.S. Government
agency or instrumentality.
Securities issued or guaranteed by the U.S Government, its agencies or
instrumentalities have historically had a very low risk of loss of principal if
held to maturity. The Fund, however, can give no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
if it were not legally obligated to do so. The value of the Fund's portfolio
(and consequently its shares) is expected to fluctuate inversely to changes in
the direction of interest rates.
FLORIDA TAX-EXEMPT FUND
The primary investment objective of the Florida Tax-Exempt Fund is to seek
to provide high tax-free income and current liquidity. The potential for
long-term capital appreciation is considered to be a secondary objective. In
seeking to attain its objective, the Fund invests its assets primarily in
municipal obligations that are rated investment grade or above by one or more
NRSROs at the time of purchase. The Fund may also acquire tax-exempt commercial
paper, municipal notes and tax-exempt variable rate demand obligations that are
rated in the highest rating category by an NRSRO. Obligations purchased by the
Fund that have not been assigned a rating will be determined by the Adviser to
be of comparable quality. Although obligations rated BBB or Baa (the lowest
ratings permitted for the Fund) are considered to be investment grade, they have
speculative characteristics and are subject to more credit and market risk than
securities with higher ratings. If a portfolio security ceases to be rated
investment grade by at least one NRSRO, the security will be sold in an orderly
manner as quickly as possible.
The Adviser hopes to use market opportunities (caused by things such as
temporary differences between the yields on securities) to achieve a better
performance than what might be obtained by investing in an unmanaged portfolio
of municipal securities. The Florida Tax-Exempt Fund will invest at least 80% of
its net assets in securities the interest on which is exempt from regular
federal income
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tax, except during defensive periods or periods of unusual market conditions. In
addition, under normal conditions the Fund will invest at least 65% of its net
assets in securities issued by the state of Florida and its municipalities,
counties and other taxing districts, as well as in other securities exempt from
the Florida intangibles tax. Under normal market conditions the Fund may invest
up to 20% of its net assets in taxable instruments, including certain so-called
private activity bonds which are a type of obligation that, although exempt from
regular federal income tax, may be subject to the federal alternative minimum
tax. From time to time the Fund may hold cash reserves that do not earn income.
Although the Fund has the flexibility to invest in municipal obligations with
short, medium or long maturities, the Adviser expects that under normal
conditions the Fund will invest primarily in obligations that have remaining
maturities of more than ten years.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuer, less market liquidity and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Although the International Equity Fund will invest in securities denominated
in foreign currencies, the Fund values its securities and other assets in U.S
dollars. As a result, the net asset value of the Fund's shares will fluctuate
with the U.S. dollar exchange rates, as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies. The risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY FUND
may invest up to 100% of its total assets and the EQUITY, EQUITY VALUE, SMALL
CAPITALIZATION AND BALANCED FUNDS, may invest up to 25% of its total assets in
ADRs and EDRs. ADRs are receipts issued in registered form by a
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U.S. bank or trust company evidencing ownership of underlying securities issued
by a foreign issuer. EDRs are receipts issued in Europe typically by non-U.S.
banks or trust companies and foreign branches of U.S. banks that evidence
ownership of the underlying foreign or U.S. securities. ADRs may be listed on a
national securities exchange or may be traded in the over-the-counter market.
EDRs are designed for use in European exchange and over-the-counter markets.
ADRs and EDRs traded in the over-the-counter market which do not have an active
or substantial secondary market will be considered illiquid and therefore will
be subject to the Fund's limitation with respect to such securities. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs and EDRs involve risks
similar to those accompanying direct investments in foreign securities.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. EACH FUND, may
invest in securities issued or guaranteed by the U.S. Treasury, as well as in
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The BALANCED, SHORT-TERM FIXED INCOME, and MANAGED
BOND FUNDS may invest in asset-backed securities (I.E., securities backed by
installment sale contracts, credit card receivables or other assets). In
addition, each of these Funds, as well as the U.S. GOVERNMENT SECURITIES FUND,
may invest in U.S. Government securities that are backed by adjustable or fixed
rate mortgage loans. The average life of an asset-backed instrument varies with
the maturities of the underlying instruments. In the case of mortgages, these
maturities may be a maximum of forty years. The average life of an asset-backed
instrument is likely to be substantially less than the original maturity of the
asset pools underlying the security as the result of scheduled principal
payments and prepayments. This may be particularly true for mortgage-backed
securities. The rate of such prepayments, and hence the life of the security,
will be primarily a function of current market rates and current conditions in
the relevant market. In calculating the average weighted maturity of a Fund's
portfolio, the maturity of asset-backed instruments will be based on estimates
of average life. The relationship between prepayments and interest rates may
give some high-yielding asset-backed securities less potential for growth in
value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of prepayment tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Fund will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. Because of these and other reasons, an asset-backed
security's total return may be difficult to predict precisely. To the extent a
Fund purchases asset-backed securities at a premium, prepayments (which often
may be made at any time without penalty) may result in some loss of a Fund's
principal investment to the extent of any premiums paid.
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Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage pass-
through certificates, 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. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The FLORIDA TAX-EXEMPT FUND will invest primarily in
municipal obligations. The BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND
FUNDS may also invest in municipal obligations. These securities may be
advantageous for these Funds when, as a result of prevailing economic,
regulatory or other circumstances, the yield of such securities on a pre-tax
basis is comparable to that of other securities the particular Fund can
purchase. Dividends paid by Funds other than the Florida Tax-Exempt Fund that
come from interest on municipal obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser, under the supervision of the Board of Trustees, will determine the
credit quality or any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds and the Adviser rely on these
opinions and do not intend to review the basis for them.
Municipal obligations purchased by each Fund, including the Florida
Tax-Exempt Fund, may be backed by letters of credit or guarantees issued by
domestic or foreign banks and other financial
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institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described above under "Foreign
Securities," foreign letters of credit and guarantees involve certain risks in
addition to those domestic obligations.
CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME and MANAGED
BOND FUNDS and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS may purchase corporate bonds and cash
equivalents that meet a Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U S. and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category of by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND
FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY
and SMALL CAPITALIZATION FUNDS, may purchase certificates of deposit ("CDs"),
bankers' acceptances, notes and time deposits issued or supported by U.S. or
foreign banks and savings institutions that have total assets of more than $1
billion. These Funds may also invest in CDs and time deposits of domestic
branches of U.S. banks that have total assets of less than $1 billion if the CDs
and time deposits are insured by the FDIC. Investments in foreign banks and
foreign branches of U.S. banks will not make up more than 25% of a Fund's total
assets when the investment is made. (To the extent permitted by the SEC, bank
obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing savings deposits in amounts not exceeding 5% of their
total assets.
REPURCHASE AGREEMENTS. EACH FUND, except the FLORIDA TAX-EXEMPT FUND, may
buy portfolio securities subject to the seller's agreement to repurchase them at
an agreed upon time and price. These transactions are known as repurchase
agreements. A Fund will enter into repurchase agreements only with financial
institutions deemed to be creditworthy by the Adviser pursuant to guidelines
established by the Board of Trustees. During the term of any repurchase
agreement, the Adviser will monitor the creditworthiness of the seller, and the
seller must maintain the value of the securities subject to the agreement in an
amount that is greater than the repurchase price. Default or bankruptcy of the
seller would, however, expose a Fund to possible loss because of adverse market
action or delays connected with the disposition of the underlying obligations.
Because of the seller's repurchase obligations, the securities subject to
repurchase agreements do not have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of each Fund, except the U.S. GOVERNMENT
SECURITIES and FLORIDA TAX-EXEMPT FUNDS, these instruments may include variable
amount master demand notes, which are instruments under which the indebtedness,
as well as the interest rate, varies. If rated, variable and floating rate
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instruments must be rated in the highest short-term rating category by an NRSRO.
If unrated, such instruments will need to be determined to be of comparable
quality. Because of the absence of a market in which to resell a variable or
floating rate instrument, a Fund might have trouble selling an instrument should
the issuer default or during periods when a Fund is not permitted by agreement
to demand payment of the instrument, and for this or other reasons a loss could
occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. Each Fund may invest in stripped securities
that have been issued by a federal instrumentality known as the Resolution
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Treasury, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities Program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently. Each Fund may also invest in instruments that
have been stripped by their holder, typically a custodian bank or investment
brokerage firm, and then resold in a custodian receipt program under names you
may be familiar with such as Treasury Investors Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS").
In addition, each Fund, except the Florida Tax-Exempt Fund, may purchase
stripped mortgage-backed securities ("SMBS") issued by the U.S. Government (or a
U.S. Government agency or instrumentality) or by private issuers such as banks
and other institutions. SMBS, in particular, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. If the underlying obligations
experience greater than anticipated prepayments, a Fund may fail to fully recoup
its initial investment. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
are generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net asset
value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the extent
shareholders request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.
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BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The
BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS may invest in bank
investment contracts ("BICs") issued by banks that meet the asset size
requirements described above under "Bank Obligations" and may also invest in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, a Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, a Fund would receive interest from the issuing entity at either a
negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to a
Fund's limitation on such investments as described below under "Managing
Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may purchase from domestic financial institutions and
trusts created by such institutions participation interests and trust receipts
in high quality debt securities. A participation interest or receipt gives a
Fund an undivided interest in the security in the proportion that a Fund's
participation interest or receipt bears to the total principal amount of the
security. Each Fund intends only to purchase participations and trust receipts
from an entity or syndicate, and do not intend to serve as a co-lender in any
such activity. As to certain instruments for which a Fund will be able to demand
payment, a Fund intends to exercise its right to do so only upon a default under
the terms of the security, as needed to provide liquidity, or to maintain or
improve the quality of its investment portfolio. It is possible that a
participation interest or trust receipt may be deemed to be an extension of
credit by a Fund to the issuing financial institution rather than to the obligor
of the underlying security and may not be directly entitled to the protection of
any collateral security provided by the obligor. In such event, the ability of a
Fund to obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into, for speculative purposes but only
in furtherance of a Fund's investment objectives.
INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
AND MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which a Fund's investments are traded. A Fund would expect to enter into these
hedging transactions primarily to preserve the return or spread of a particular
investment or
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portion of its portfolio and to protect against an increase in the price of
securities a Fund anticipates purchasing at a later date. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the
extent a specified index fell below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
floor. The purchase of an interest rate cap by a Fund would entitle it, to the
extent that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
STAND-BY COMMITMENTS. The FLORIDA TAX-EXEMPT FUND may acquire stand-by
commitments under which a dealer agrees to purchase certain municipal
obligations at the Fund's option at a price equal to amortized cost plus
interest. These commitments will be used only to assist in maintaining the
liquidity of the Fund, and not for trading purposes.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P. The INTERNATIONAL EQUITY FUND may also purchase shares
of investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting principally
of securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund, except the FLORIDA TAX-EXEMPT FUND, may enter
into reverse repurchase agreements.
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Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When the Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either liquid
assets or high grade debt securities that have a value equal to or more than the
price the Fund must pay when it buys back the securities, and the account will
be continuously monitored to make sure the appropriate value is maintained.
Reverse repurchase agreements may be used to meet redemption requests without
selling portfolio securities. Reverse repurchase agreements involve the possible
risk that the value of portfolio securities a Fund relinquishes may decline
below the price a Fund must pay when the transaction closes. Interest paid by a
Fund in a reverse repurchase or other borrowing transaction will reduce a Fund's
income.
SECURITIES LENDING. EACH FUND, except the FLORIDA TAX-EXEMPT FUND, may lend
securities held in its portfolio to broker-dealers and other institutions as a
means of earning additional income. These loans present 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, securities loans will be made only to parties the Adviser
deems to be of good standing, and will only be made if the Adviser thinks the
possible rewards from such loans justify the possible risks. A loan will not be
made if, as a result, the total amount of a Fund's outstanding loans exceeds 30%
of its total assets. Securities loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash- equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash,
U.S. Government securities or other liquid high grade debt instruments in the
amount of the future purchase commitment will be set apart for a Fund involved
in a separate account at the custodian. Mortgage rolls are not a primary
investment technique for any of these Funds, and it is expected that, under
normal market conditions, a Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
CONVERTIBLE SECURITIES. The EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY,
SMALL CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS
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. By investing in convertibles, a 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.
None of the assets of the Short-Term Fixed Income and Managed Bond Funds,
and no more than 15% of the total assets of the Equity, Equity Value,
International Equity, Small Capitalization and Balanced Funds, may be invested
in convertible securities rated below investment grade at the time of purchase.
Non-investment grade convertible securities must be rated "B" or higher by at
least one NRSRO. Non-investment grade securities are commonly referred to as
"junk" bonds and present a
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greater risk as to the timely repayment of the principal, interest and
dividends. Particular risks include (a) the sensitivity of such securities to
interest rate and economic changes, (b) the lower degree of protection of
principal and interest payments, (c) the relatively low trading market liquidity
for the securities, (d) the impact that legislation may have on the market for
these securities (and, in turn, on a Fund's net asset value) and (e) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would negatively affect their ability to meet
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower rated convertible securities and negatively affect
the value of outstanding securities and the ability of the issuers to repay
principal and interest. If the issuer of a convertible security held by a Fund
defaulted, that Fund could incur additional expenses to seek recovery. Adverse
publicity and investor perceptions, whether or not they are based on fundamental
analysis, could also decrease the value and liquidity of lower-rated convertible
securities held by a Fund, especially in a thinly-traded market.
OPTIONS. EACH FUND may write covered call options, buy put options, buy
call options and sell, or "write," secured put options on particular securities
or various securities indices. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security 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 the consideration for undertaking the obligations
under the option contract. A put option for a particular security gives the
purchaser the fight to sell the underlying security at the stated exercise price
at any time prior to the expiration date of the option, regardless of the market
price of the security. In contrast to an option on a particular security, an
option on a securities index provides the holder with the fight to make or
receive a cash settlement upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. Options may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation, which performs the
obligations of its members if they default.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
FUTURES AND RELATED OPTIONS. EACH FUND may invest to a limited extent in
futures contracts and options on futures contracts in order to gain fuller
exposure to movements of security prices pending investment, for hedging
purposes or to maintain liquidity. Futures contracts obligate a Fund, at
maturity, to take or make delivery of certain securities or the cash value of a
securities index. A Fund may not purchase or sell a futures contract (or related
option) unless immediately after any such
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transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options is 5% or
less of its total assets (after taking into account certain technical
adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price at any time during the option period. When a Fund
sells an option on a futures contract, it becomes obligated to purchase or sell
a futures contract if the option is exercised. In anticipation of a market
advance, 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 that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the INTERNATIONAL EQUITY
FUND may buy and sell securities denominated in currencies other than the U.S.
dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Fund from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies. The Fund may either enter into these
transactions on a spot (I.E. cash) basis at the spot rate prevailing in the
foreign currency exchange market, or use forward contracts to purchase or sell
foreign currencies. Forward foreign currency exchange contracts are agreements
to exchange one currency for another-- for example, to exchange a certain amount
of U.S. dollars for a certain amount of Japanese yen--at a future date and at a
specified price. Typically, the other party to a currency exchange contract will
be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exch ange
contracts are of short duration, generally between one and twelve months, the
forward foreign currency exchange contracts may be rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to the Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by the Board of Trustees.
The International Equity Fund may maintain "short" positions in forward
foreign currency exchange transactions, which would involve the Fund's agreeing
to exchange currency that it currently does not own for another currency--for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars--at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund
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has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash, U.S. Government securities or other liquid high-grade debt securities
equal in value to the fluctuating market value of the currency as to which the
short position is being maintained. The value of the securities in the
segregated account will be adjusted at least daily to reflect changes in the
market value of the short position. See the Statement of Additional Information
for additional information regarding foreign currency exchange transactions.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser has determined pursuant to guidelines adopted
by the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this limitation. This investment practice could have
the effect of increasing the level of illiquidity in a Fund during any period
that qualified institutional buyers were no longer interested in purchasing
these restricted securities.
PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, the annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, U.S. Government
Securities, Managed Bond and Florida Tax-Exempt Funds were 104%, 229%, 87%, 33%,
89%, 92% and 89%, respectively. The annual portfolio turnover rates for the
Equity Value and International Equity Funds are not expected to exceed 150%.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Short-Term
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Fixed Income, Managed Bond, U.S. Government Securities and Florida Tax-Exempt
Funds may purchase zero-coupon bonds (I.E., discount debt obligations that do
not make periodic interest payments). Zero-coupon bonds are subject to greater
market fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset values.
In addition, the Florida Tax-Exempt, Balanced, Short-Term Fixed Income and
Managed Bond Funds, may purchase custodial receipts, tender option bonds and
certificates of participation in trusts that hold municipals or other types of
obligations. A certificate of participation gives a Fund an individual,
proportionate interest in the obligation and may have a variable or fixed rate.
Because certificates of participation are interests in obligations that may be
funded through government appropriations, they are subject to the risk that
sufficient appropriations as to the timely payment of principal and interest on
the obligations may not be made. The NRSRO quality rating of an issue of
certificates of participation is normally based upon the rating of the
obligations held by the trust and the credit rating of the issuer of any letter
of credit and of any other guarantor providing credit support to the issue.
These Funds may also hold other derivative instruments, which may be in the
form of participations, custodial receipts evidencing rights to receive a
specific future interest payment, principal payment, or both, and bonds that
have interest rates that reset inversely to changing short-term rates and/or
have imbedded interest rate floors and caps. Many of these derivative
instruments are proprietary products that have been recently developed by
investment banking firms, and it is uncertain how these instruments will perform
under different economic and interest-rate scenarios. In addition, to the extent
that the market value of these instruments is leveraged, they may be more
volatile than other types of obligations and may present greater potential for
capital gain or loss. In some cases it may be difficult to determine the fair
value of a derivative instrument because of a lack of reliable objective
information, and an established secondary market for some instruments may not
exist.
Although the Florida Tax-Exempt Fund does not presently intend to do so on a
regular basis, it may invest more than 25% of its total assets in municipal
obligations the interest on which comes solely from revenues of similar
projects. Additionally, the Florida Tax-Exempt Fund will normally invest more
than 25% of its net assets in municipal obligations the issuers of which are
located in Florida, and may invest more than 25% of its net assets in industrial
development bonds issued before August 7, 1986 that are not treated as a
specific tax preference item under the federal alternative minimum tax.
When a Fund's assets are concentrated in obligations payable from revenues
of similar projects or issued by issuers located in the same state, or in
industrial development bonds, the Fund will be subject to the particular risks
(including legal and economic conditions) relating to such securities to a
greater extent than if its assets were not so concentrated. If Florida or any of
its political subdivisions
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should suffer serious financial difficulties to the extent their ability to pay
their obligations might be jeopardized, the ability of such entities to market
their securities, and the value of the Florida Tax-Exempt Fund, could be
adversely affected.
Payment on municipal obligations held by a Fund relating to certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure
may be delayed and the amount of the proceeds received may not be enough to pay
the principal or accrued interest on the defaulted municipal obligation.
While the other Funds are classified as "diversified," the Florida
Tax-Exempt Fund has been set up as a "non-diversified" portfolio. The investment
return of a non-diversified portfolio is typically dependent on the performance
of a smaller number of securities than a diversified portfolio, and the change
in value of one particular security may have a greater impact on the value of a
non-diversified portfolio. A non-diversified portfolio may therefore be subject
to greater fluctuations in net asset value. Additionally, non-diversified
portfolios may be more susceptible to economic, political and legal developments
than a diversified portfolio with similar objectives.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that cannot be changed without the approval of a majority of the
Fund's outstanding shares. Some of these fundamental limitations are summarized
below, and all of the Funds' fundamental limitations are set out in full in the
Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be invested
in the securities of any one issuer, except that up to 50% of the Florida
Tax-Exempt Fund's total assets, and up to 25% of the total assets of each other
Fund, can be invested without regard to the 5% limitation. A Fund may not
purchase more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 50% or 25% exception.
3. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing,
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
4. Under normal market conditions the Florida Tax-Exempt Fund must invest
at least 80% of its net assets in securities that provide interest exempt from
regular federal income tax.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
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In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
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INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS. Barnett is the
largest trust organization headquartered in Florida and has notable experience
in providing professional investment management services. Organized as a
national banking association in 1974, it is the successor to the business of
earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered Bank holding company that has
offered general banking services since 1877,
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis.
PURCHASE OF SHARES
Institutional Shares are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares are sold to Barnett and its affiliates, as well as to
Barnett's correspondent banks and other institutions ("Institutions") acting on
behalf of themselves or their customers who maintain qualified trust, agency or
custodial accounts ("Customers"). Customers may include individuals, trusts,
partnerships and corporations. All share purchases are effected through a
Customer's account at Barnett or another Institution through procedures
established in connection with the requirements of the account, and
confirmations of share purchases and redemptions will be sent to Barnett or the
other Institution involved. Barnett and other Institutions (or their nominees)
will normally be the holders of record of Institutional Shares acting on behalf
of their Customers, 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 shareholder
communications from the Funds will be governed by the Customers' account
agreements with Barnett and other Institutions.
Institutional Shares are sold at the net asset value per share next
determined after receipt of a purchase order from an Institution by the Funds'
transfer agent. The minimum initial investment in a Fund for an Institution is
$250,000 with no minimum subsequent investment. Barnett and other Institutions
may establish different minimum investment requirements for their Customers. For
example, there is no minimum initial investment for transfers of assets by
Barnett's Customers from other banks or financial institutions. Barnett and
other Institutions may also charge their Customers
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certain account fees depending on the type of account a Customer has established
with the Institution. These fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
Purchase orders placed by an Institution for Institutional Shares must be
received by the Funds' transfer agent before the close of regular trading hours
(currently 4:00 p.m. Eastern time) on the New York Stock Exchange (the
"Exchange") on a day on which the Exchange is open for business (a "Business
Day"). Payment for Institutional Shares must be made by Institutions in federal
funds or other funds immediately available to the Funds' custodian no later than
4:00 p.m. (Eastern time) on the Business Day immediately following placement of
the purchase order. On days when the Exchange closes early due to a partial
holiday or otherwise, the Funds reserve the right to advance the times at which
purchase and redemption orders must be received in order to be processed on that
Business Day.
Each Fund observes the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares are
redeemed. Barnett and other Institutions may charge fees to their
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Customers for their services in connection with investments. Shares held by an
Institution on behalf of its Customers must be redeemed in accordance with the
instructions and limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash. The Funds may also redeem
shares involuntarily if the balance has fallen below the minimum level due to
shareholder redemptions, not due to market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for all Funds are normally wired in federal funds to the redeeming Institution
the Business Day following receipt of the order by the transfer agent. Emerald
Funds 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 a Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the Short-Term Fixed Income, U.S. Government Securities, Managed Bond
and Florida Tax-Exempt Funds, net investment income comes from the interest on
the bonds and other investments that they hold in their portfolios. For the
Equity, Equity Value, International Equity, Small Capitalization and Balanced
Funds net investment income is made up of dividends received from the stocks
they hold, as well as interest accrued on convertible securities, money market
instruments and other debt obligations held in their portfolios.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
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WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund on which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
Emerald Funds
P.O. Box 182697
Columbus, OH 43218-2697
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds) or payment dates (with respect to the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds) after the date the Funds' transfer agent receives the
election.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUNDS DECLARED PAID
- ----- --------- -------------------
<S> <C> <C> <C>
(1) Equity, Equity Value and Balanced....... Quarterly Quarterly
(2) International Equity and Small
Capitalization.......................... Annually Annually
(3) Short-Term Fixed Income, U.S. Government
Securities, Managed Bond and Florida
Tax-Exempt.............................. Daily Monthly within five
business days after
month end
</TABLE>
- ------------
(1) Dividends for the Equity, Equity Value and Balanced Funds may be declared
and paid at times that do not fall at the end of a calendar quarter.
(2) Dividends for the International Equity and Small Capitalization Fund may be
declared and paid at times that do not fall at the end of a calendar year.
(3) Shares of the Short-Term Fixed Income, U.S. Government Securities, Managed
Bond and Florida Tax-Exempt Funds begin earning dividends the first Business
Day after acceptance of the purchase order for which Emerald Funds'
custodian has received payment and stop earning dividends on the Business
Day such shares are redeemed.
With respect to the Short-Term Fixed Income, U.S. Government Securities,
Managed Bond and Florida Tax-Exempt Funds, if all the Institutional Shares held
by an Institution in such a Fund are redeemed, the Fund will pay accrued
dividends within five Business Days after redemption.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund by adding the value of a Fund's
investments, cash and other assets allocated to its Institutional Shares,
subtracting the Fund's liabilities allocated to those shares, and then dividing
the result by the
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number of Institutional Shares of the Fund that are outstanding. More
information about valuation can be found in the Funds' Statement of Additional
Information, which you may request by calling (800)/637-3759.
Foreign of the securities acquired by the International Equity as well as
the other Funds may be traded on foreign exchanges or over-the-counter markets
on days on which a Fund's net asset values are not calculated. In such cases,
the net asset values of the Fund's shares may be significantly affected on days
when investors can neither purchase nor redeem shares of the Fund.
EXCHANGE PRIVILEGE
If you wish, Institutional Shares of a Fund may be exchanged for Retail
Shares of the same Fund in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of Barnett or another bank, trust company or thrift institution.
Similarly, a Customer may exchange Retail Shares for Institutional Shares of the
same Fund if the shares are to be held in such a qualified trust, agency or
custodial account. These exchanges are made at the net asset value of the
respective share classes. The particular class of shares you are exchanging into
must be registered for sale in your state.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to the services these companies provide, as well as more information regarding
investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
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TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business
trust, and is a mutual fund of the type known as an "open-end management
investment company." The Agreement and Declaration of Trust permits the Board of
Trustees of Emerald Funds to classify any unissued shares into one or more
classes of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of two share
classes of the Funds. Each Fund, except the Florida Tax-Exempt Fund, is
classified as a diversified company. The Board of Trustees has also authorized
the issuance of additional classes of shares representing interests in other
portfolios of Emerald Funds. Information regarding these other portfolios and
share classes may be obtained by contacting the Distributor at the address
listed on page 33.
The Institutional Shares of the Funds are described in this prospectus.
These Funds also offer Retail Shares. Institutional and Retail Shares bear a pro
rata portion of all operating expenses incurred by the Funds, except for certain
miscellaneous "class expenses" (I.E. certain printing and registration
expenses). In addition, Retail Shares bear all payments under the Combined
Distribution and Service Plan and the Shareholder Processing Plan for Retail
Shares (the "Retail Plans") as described in the prospectuses for those shares.
Under the Retail Plans, the Distributor and Service Organizations receive fees
for distribution and shareholder and administrative support services.
Payments under the Retail Plans for Retail Shares may not exceed .50% (on an
annual basis) of the average daily net asset value of outstanding Retail Shares.
Because of these Plans and other "class expenses," the performance of a Fund's
Institutional Shares is expected to be higher than the performance of its Retail
Shares. The Funds offer various services and privileges in connection with
Retail Shares that are not generally offered in connection with Institutional
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Retail Shares, contact the
Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
Retail shareholders, however, will vote on matters pertaining to the Retail
Plans.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment
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power with respect to a majority of the outstanding shares of Emerald Funds.
More information about shareholder voting rights can be found in the Statement
of Additional Information under "Description of Shares."
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership, a wholly-owned subsidiary of The BISYS Group,
Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3055 serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc. located at the same address, is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286 and a transfer and dividend paying agent, BISYS Fund Services, Inc.,
located at 3435 Stelzer Road, Columbus, Ohio 43219-3055.
ADVISER. As of December 31, 1995 Barnett had approximately $9.8 billion
under active management, with $3.2 billion in equity securities, $713 million in
taxable fixed income securities, $1.4 billion in treasury and government
securities, $1.5 billion in municipals and $2.8 billion in money market
instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered bank
holding company that has offered general banking services since 1877.
Barnett manages the investment portfolios of the Funds, including selecting
portfolio investments and making purchase and sale orders.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., a Senior Vice
President of Barnett, has been the portfolio manager of the Equity Fund since
September of 1993, and has also managed the Balanced Fund since it commenced
operations on April 11, 1994 and the Equity Value Fund since it commenced
operations on December 26, 1995. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in
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<PAGE>
addition to these Funds currently manages a diversified common stock fund and
assists in preparing ongoing equity investment strategy. Martin E. LaPrade, CFA,
and Joseph E. Tannehill, CFA, have co-managed the International Equity Fund
since it commenced operations on December 26, 1995 and, along with Mr.
Creighton, have co-managed the Equity Value Fund since it commenced operations.
Mr. LaPrade is a Senior Vice President with Barnett and currently has 11 years
of investment experience. He serves as a strategist and an equity portfolio
manager with additional responsibility in asset allocation research, and directs
the asset allocation decisions for balanced account management. He joined
Barnett in 1978. Mr. Tannehill is a Vice President with Barnett and currently
has 9 years of investment experience. He is primarily responsible for applying
quantitative methods to equity security research. In addition, he oversees the
management of the enhanced index equity commingled fund. He joined Barnett in
1986. Dean McQuiddy, C.F.A., a Vice President with Barnett, has managed the
Small Capitalization Fund since its commencement of operations on January 4,
1994, and also manages the small capitalization portion of the Equity and
Balanced Funds. Since joining Barnett in 1983, Mr. McQuiddy has been an equity
analyst and an institutional portfolio manager, and for the last seven years has
managed Barnett's employee benefits small capitalization fund. Jacqueline
Lunsford, C.F.A., a Senior Vice President with Barnett, has managed the
Short-Term Fixed Income Fund since it commenced operations April 11, 1994. Ms.
Lunsford has been with Barnett since 1988, and also manages money market mutual
funds for Emerald Funds and other customers. Andrew Cantor, C.F.A., a Senior
Vice President with Barnett, has managed the U.S. Government Securities Fund
since its inception in 1991, and has also managed the Managed Bond Fund since it
commenced operations April 11, 1994. For the past ten years, Mr. Cantor has
served as the senior fixed income manager in Barnett's Institutional Investments
Group, where his responsibilities have included setting fixed income investment
strategy and managing a number of major taxable fixed income accounts, including
several commingled funds. Douglas Byrne, a Senior Vice President of Barnett, has
been the portfolio manager of the Florida Tax-Exempt Fund since it commenced
operations in 1991. Mr. Byrne is the manager of Barnett's Trading Department and
for the last eight years has been its senior tax-exempt portfolio manager. In
addition to managing the Florida Tax-Exempt Fund, Mr. Byrne has direct
responsibility for several tax-exempt common trust funds and institutional
accounts.
Although expected to be infrequent, Barnett may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Barnett) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions or
dealer concessions. Barnett will not engage in this practice unless the
execution capability of and the amount received by such broker-dealer or other
company is believed to be comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio limited partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
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BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to a
shareholder or deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the International Equity and Small
Capitalization Funds' average daily net assets, .60% of each of the Equity,
Equity Value and Balanced Funds' average daily net assets, and .40% of the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds' average daily net assets. The advisory fee payable by the
International Equity and Small Capitalization Funds is higher than those paid by
most mutual funds, although the Board of Trustees believes it is comparable to
the advisory fees payable by many similar funds.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00%, .40% and .40% of the
average daily net assets of the Equity, Small Capitalization, U.S. Government
Securities and Florida Tax-Exempt Funds, respectively. Barnett voluntarily
waived all fees for the Balanced, Short-Term Fixed Income and Managed Bond
Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees
and expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings; and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
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TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund, other than the "exempt
interest dividends" from the Florida Tax-Exempt Fund, will be taxable to you.
In addition, the Florida Tax-Exempt Fund will pay at least 90% of its net
exempt-interest income as dividends known as "exempt-interest dividends." These
dividends may be treated by you as excludable from your gross income (unless the
exclusion would be disallowed because of your particular situation). You should
note that income that is not subject to federal income taxes may nonetheless
have to be considered along with other adjusted gross income in determining
whether any Social Security payments received by you are subject to federal
income taxes.
If the Florida Tax-Exempt Fund holds certain so-called "private activity
bonds," issued after August 7, 1986, shareholders will need to include as an
item of tax preference for purposes of the federal alternative minimum tax that
portion of the dividends paid by the Fund derived from interest received on such
bonds.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares. If you hold shares for six months or less, and
during that time receive a distribution that is taxable as a long-term capital
gain, any loss you might may realize on the sale of those shares will be treated
as a long-term loss to the extent of the earlier capital gains distribution.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the equity
Funds, the record date of dividends and capital gains distributions) should be
aware that the amount of the forthcoming dividend or distribution, although in
effect a return on capital, will be taxable.
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Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders of the Funds may realize a taxable gain or loss when redeeming,
transferring or exchanging shares of a Fund, depending on the difference in the
prices at which the shareholder purchased and sold the shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. If more than 50% of the value of this Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of such taxes against their federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, dividends paid by the Florida
Tax-Exempt and the U.S. Government Securities Funds may be taxable under state
or local law as dividend income, even though all or part of those dividends come
from interest on obligations that would be free of such income taxes if held by
you directly. In addition, except as stated below, shares of the Funds are not
expected to qualify for total exemption from the Florida intangibles tax.
FLORIDA TAXES (FLORIDA TAX-EXEMPT FUND). Florida does not currently have an
income tax for individuals, and therefore individual shareholders of the Florida
Tax-Exempt Fund will not be subject to any Florida income tax on amounts
received from the Fund. However, Florida does impose an income tax on certain
corporations, so that such amounts may be taxable to corporate shareholders.
Florida also imposes an "intangibles tax" at the annual rate of 2 mills or
0.20% on certain securities and other intangible assets owned by Florida
residents. With respect to the first mill, or first .10%, of the intangibles
tax, every natural person is entitled each year to an exemption of the first
$20,000 of the value of the property subject to the tax. A husband and wife
filing jointly will have an exemption of $40,000. With respect to the last one
mill, or last .10%, of the intangibles tax, every natural person is entitled
each year to an exemption of the first $100,000 of the value of the property
subject to the tax. A husband and wife filing jointly will have an exemption of
$200,000.
Obligations issued by the State of Florida or its municipalities, counties,
and other taxing districts, or by the U.S. Government, certain U.S. Government
agencies and certain U.S. territories and possessions (such as Guam, Puerto Rico
and the Virgin Islands), as well as cash, are exempt from this intangibles tax.
If on December 31 of any year the portfolio of the Florida Tax-Exempt Fund
consists solely of such exempt assets, then that Fund's shares will be entirely
exempt from the Florida intangibles tax payable in the following year.
42
<PAGE>
The Florida Tax-Exempt Fund intends, but cannot guarantee, that its shares
will qualify for total exemption from the Florida intangibles tax. In order to
take advantage of this exemption, the Fund may sell non-exempt assets held in
its portfolio (such as repurchase agreements) during the year and reinvest the
proceeds in exempt assets, or hold cash, prior to December 31. Transaction costs
involved in restructuring the portfolio in this fashion would likely reduce the
Fund's investment return and might exceed any increased investment return the
Fund achieved by investing in non-exempt assets during the year.
MEASURING PERFORMANCE
- Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote its performance in
advertisements or shareholder communications. The performance for each
class of shares of a Fund is calculated separately from the performance of
a Fund's other classes of shares.
UNDERSTANDING PERFORMANCE MEASURES:
- Total return for each Fund may be calculated on an average annual total
return basis or an aggregate total return basis. Average annual total
return reflects the average annual percentage change in value of an
investment over the measuring period. Aggregate total return reflects the
total percentage change in value of an investment over the measuring
period. Both measures assume the reinvestment of dividends and
distributions.
- Yields for the Funds are calculated for a specified 30-day (or one-month)
period by dividing the net income for the period by the maximum offering
price on the last day of the period, and analyzing the result on a
semi-annual basis. Net income used in yield calculations may be different
than net income used for accounting purposes.
- Tax-equivalent yield for the Florida Tax-Exempt Fund shows the amount of
taxable yield needed to produce an after-tax equivalent of a tax-free
yield, and is calculated by increasing the yield (as calculated above) by
the amount necessary to reflect the payment of federal income taxes at a
stated rate. The Fund's "tax-equivalent yield" will always be higher than
its "yield".
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual
funds with similar investment objectives and to bond, stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor mutual fund performance.
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Funds may also be compared to data prepared by Lipper
Analytical Services, Inc., Mutual Fund Forecaster, Wiesenberger Investment
Companies Services, Morningstar or CDA Investment Technologies, Inc., and total
returns for the Funds may be compared to indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Lehman Brothers
Bond Indices, the Merrill Lynch Bond Indices, the Wilshire 5000 Equity Indices
or the Consumer Price Index.
43
<PAGE>
The performance of the International Equity Fund may be compared to either
the Morgan Stanley Capital International Index or the FT World Actuaries Index.
OTHER PERFORMANCE INFORMATION -- EQUITY, SMALL CAPITALIZATION, MANAGED BOND AND
SHORT-TERM FIXED INCOME FUNDS ONLY:
The Equity, Small Capitalization, Managed Bond and Short-Term Fixed Income
Funds commenced their initial investment operations in connection with the
transfer of assets from common trust funds managed by the Adviser for employee
benefit plan accounts. Set forth below is certain performance information
relating to those common trust funds before the Equity, Small Capitalization,
Managed Bond and Short-Term Fixed Income Funds registered as investment
companies with the Securities and Exchange Commission, together with the
performance information of these Funds since their commencement of operations.
These common trust funds were operated using substantially the same investment
objectives, policies, restrictions and methodologies as in the corresponding
Funds. During that time the common trust funds were not registered under the
1940 Act and therefore were not subject to certain investment restrictions that
are imposed by the Act. If the common trust funds had been registered under the
1940 Act, the common trust funds' performance might have been adversely
affected. Because the common trust funds did not charge any expenses, their
performance has been adjusted as stated below to reflect the Funds' estimated
expenses at the time of their inception. The following performance information
is not necessarily indicative of the future performance of the Funds. Because
each Fund is actively managed, its investments vary from time to time and are
not identical to the past portfolio investments of its predecessor common trust
fund. Each Fund's performance fluctuates so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED NOVEMBER 30, 1995
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equity Fund(1)........................................................ 35.21% 9.96% 13.49% 13.20%
Small Capitalization Fund(2).......................................... 32.30% 17.46% 25.58% 12.93%*
Managed Bond Fund(3).................................................. 18.36% 8.54% 10.03% 9.48%**
Short-Term Fixed Income Fund(4)....................................... 10.80% 5.71% 7.17% 7.63%
--------- --------- --------- ---------
</TABLE>
- ------------
(1)The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.49% of average
daily net assets, which was the expected expense ratio of shares of the Fund
at the time of its inception. The average annual total returns for the
periods subsequent to the inception of the Equity Fund also assume
reinvestment of all net investment income and realized capital gains and take
into account actual expenses of Retail Shares of the Fund for the period from
June 28, 1991 to March 1, 1994 and of Institutional Shares of the Fund
thereafter. The average annual total return of the Fund (Institutional
Shares) since its inception to November 30, 1995 is 14.22%. During this
period fee waivers and expense reimbursements were in effect. Without these
waivers and reimbursements the Fund's performance would have been lower.
(2)The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund,
44
<PAGE>
assuming reinvestment of all net investment income and capital gains and
taking into account expenses of 1.35% of average daily net assets, which was
the expected expense ratio of shares of the Fund at the time of its
inception. The average annual total returns for the periods subsequent to the
inception of the Small Capitalization Fund also assume reinvestment of all
net investment income and realized capital gains and take into account actual
expenses of Institutional Shares of the Fund. The average annual total return
of the Fund (Institutional Shares) since its inception to November 30, 1995
is 13.73%. During this period fee waivers and expense reimbursements were in
effect. Without these waivers and reimbursements the Fund's performance would
have been lower.
(3)The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.27% of average
daily net assets, which was the expected expense ratio of Institutional
Shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Managed Bond Fund
also assume reinvestment of all net investment income and realized capital
gains and take into account actual expenses of Institutional Shares of the
Fund. The average annual total return of the Fund (Institutional Shares)
since its inception to November 30, 1995 is 10.82%. During this period fee
waivers and expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(4)The above information for the periods prior to inception of the Short-Term
Fixed Income Fund (4/11/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming reinvestment
of all net investment income and capital gains and taking into account
expenses of 0.28% of average daily net assets, which was the expected expense
ratio of shares of the Fund at the time of its inception. The average annual
total returns for the periods subsequent to the inception of the Short-Term
Fixed Income Fund also assume reinvestment of all net investment income and
realized capital gains and take into account actual expenses of Institutional
Shares of the Fund. The average annual total return of the Fund
(Institutional Shares) since its inception to November 30, 1995 is 7.03%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
* Since inception of the common trust: 12/31/86.
** Since inception of the common trust: 4/30/87.
SPECIAL INFORMATION FOR INVESTORS IN THE FLORIDA TAX-EXEMPT FUND:
You may find it particularly useful to compare the tax-free yield of the
Florida Tax-Exempt Fund to the equivalent yield from taxable investments. For an
investor in a low tax bracket, it may not be helpful to invest in a tax-exempt
investment if a higher after-tax yield can be achieved from a taxable
instrument.
45
<PAGE>
The following table illustrates the differences between hypothetical
tax-free yields and tax-equivalent yields for different tax brackets. You should
be aware, however, that tax brackets can change over time and that your tax
adviser should be consulted for specific yield calculations. (The federal tax
brackets and rates below are those currently available for 1996.)
<TABLE>
<CAPTION>
TAXABLE INCOME TAX EXEMPT YIELD
- ---------------------------------------- FEDERAL ---------------------------------------------------------------------------
SINGLE RETURN JOINT RETURN BRACKET 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------------------- ------------------- --------- --------- --------- --------- --------- --------- --------- ---------
EQUIVALENT TAXABLE YIELD
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Not over $24,000 Not over $40,100 15.000% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
24,001-58,150 40,101-96,900 28.000% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
58,151-121,300 96,901-147,700 31.000% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
121,301-263,750 147,701-263,750 36.000% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
Over 263,750 Over 263,750 39.600% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
<CAPTION>
TAXABL
- -------------------
SINGLE RETURN 7.50% 8.00%
- ------------------- --------- ---------
<S> <C> <C>
Not over $24,000 8.82% 9.41%
24,001-58,150 10.42% 11.11%
58,151-121,300 10.87% 11.59%
121,301-263,750 11.72% 12.50%
Over 263,750 12.42% 13.25%
</TABLE>
These yields are for illustrative purposes only. The tax brackets do not
take into account the effect of reductions in the deductibility of itemized
deductions for taxpayers with adjusted gross income over approximately $118,000
or the possible effect of the federal alternative minimum tax. Additionally,
effective brackets and equivalent taxable yields could be higher than those
shown. The brackets do not take into consideration the Florida intangibles tax,
and equivalent taxable yields would actually be greater than those shown when
compared to a taxable security which is also subject to the Florida intangibles
tax.
Performance quotations will fluctuate and you should not consider quotations
to be representative of future performance. you should also remember that
performance is generally a function of the kind and quality of investments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Fees that Barnett and other Institutions may charge directly to their Customers
in connection with an investment in the Funds will not be included in the Funds
calculations of total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 33.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS 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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
46
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C> <C> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION...................... 3
Expenses........................................................... 3
Financial Highlights............................................... 5
INVESTMENT PRINCIPLES AND POLICIES................................. 13
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................. 19
INVESTING IN EMERALD FUNDS......................................... 32
Your Money Manager................................................. 32
Purchase of Shares................................................. 32
Redemption of Shares............................................... 33
Dividends and Distributions........................................ 34
Explanation of Sales Price......................................... 35
Exchange Privilege................................................. 36
Other Service Providers............................................ 36
THE EMERALD FAMILY OF FUNDS........................................ 37
THE BUSINESS OF THE FUNDS.......................................... 38
Fund Management.................................................... 38
Tax Implications................................................... 41
Measuring Performance.............................................. 43
</TABLE>
EMIEB96P
<PAGE>
EMERALD FUNDS FOR INSTITUTIONS
EMERALD EQUITY FUND
EMERALD EQUITY VALUE FUND
EMERALD INTERNATIONAL EQUITY FUND
EMERALD SMALL CAPITALIZATION FUND
EMERALD BALANCED FUND
EMERALD SHORT-TERM FIXED INCOME FUND
EMERALD U.S. GOVERNMENT SECURITIES FUND
EMERALD MANAGED BOND FUND
EMERALD PRIME FUND
EMERALD TREASURY FUND
INSTITUTIONAL SHARES
P R O S P E C T U S
APRIL 1, 1996
[LOGO]
E M E R A L D
F U N D S
EMIEBMM96P
<PAGE>
For voice recorded price information for the
Equity and Fixed Income Funds call 800/548-6546
For yield information for the
Prime and Treasury Funds call 800/367-5905
<PAGE>
EMERALD FUNDS
<TABLE>
<CAPTION>
April 1, 1996
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- --------------------- -------------------------------- --------------------------------
EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long-term and are willing to
high quality common stocks and, accept the relative risks
secondarily, potential dividend associated with equity
income growth investments
<S> <C> <C>
- -----------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation Long-term capital appreciation
with income as a secondary and are willing to accept the
objective through investments relative risks associated with
primarily in common and investments in undervalued
preferred stock and debt stocks
securities convertible into
common stock
- -----------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long-term and are willing to
equity securities of foreign accept the relative risks
issuers associated with foreign
investments.
- -----------------------------------------------------------------------------------------
SMALL CAPITALIZATION Long-term capital appreciation Long-term rewards that may
exceed those provided by a fund
investing in larger, more
established companies and are
willing to accept the relative
risks of smaller companies
- -----------------------------------------------------------------------------------------
BALANCED Attractive investment return Asset allocation among equity
through a combination of growth securities, fixed income
of capital and current income securities and cash equivalents
in light of prevailing market
and economic conditions
- -----------------------------------------------------------------------------------------
SHORT-TERM FIXED Consistently positive current Current income greater than
INCOME income with relative stability normally available from a money
of principal through investments market fund and less principal
in investment grade securities volatility than normally
and high quality money market associated with a long-term fund
instruments
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income Current income from U.S.
SECURITIES through investments principally Government securities and can
in U.S. Government securities accept fluctuations in price and
and repurchase agreements yield
- -----------------------------------------------------------------------------------------
MANAGED BOND High level of current income Current income from corporate
and, secondarily, capital and government securities and
appreciation can accept fluctuations in price
and yield
- -----------------------------------------------------------------------------------------
PRIME High current income, liquidity A flexible and convenient way to
and the preservation of capital manage cash while earning money
through investments in market returns
short-term money market
instruments
- -----------------------------------------------------------------------------------------
TREASURY High current income, liquidity A way to earn money market
and the preservation of capital returns with the extra margin of
through investments in safety associated with U.S.
short-term U.S. Treasury Treasury Obligations
obligations, as well as related
repurchase agreements
- -----------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. Please read and keep it for future reference. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) 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.
<PAGE>
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. WHILE THE PRIME AND TREASURY FUNDS WILL ATTEMPT TO
MAINTAIN THEIR NET ASSET VALUE AT $1.00 A SHARE, THERE CAN BE NO ASSURANCE THAT
THESE FUNDS WILL BE ABLE TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN
ADDITION, THE DIVIDENDS PAID BY A FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST
COMPANY, N.A. SERVES AS INVESTMENT ADVISOR TO THE FUNDS, IS PAID A FEE FOR ITS
SERVICES, AND IS NOT AFFILIATED WITH EMERALD ASSET MANAGEMENT, INC., THE FUNDS'
DISTRIBUTOR.
MISSOURI INVESTOR NOTICE: THE EMERALD SMALL CAPITALIZATION FUND, WHICH
CONCENTRATES ITS INVESTMENTS IN COMPANIES WITH SMALLER CAPITALIZATIONS, MAY BE
SUBJECT TO GREATER PRICE VOLATILITY THAN A FUND THAT CONCENTRATES ITS
INVESTMENTS IN LARGER CAPITALIZATION STOCKS. IN ADDITION, UP TO 15% OF THE TOTAL
ASSETS OF THE EQUITY, SMALL CAPITALIZATION AND BALANCED FUNDS MAY BE INVESTED IN
CONVERTIBLE SECURITIES RATED BELOW INVESTMENT GRADE AT THE TIME OF PURCHASE AND
ALL OF THE FUNDS MAY RETAIN SECURITIES THAT HAVE BEEN DOWNGRADED TO BELOW
INVESTMENT GRADE AFTER PURCHASE. EACH FUND MAY SELL PORTFOLIO SECURITIES SHORTLY
AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN HIGHER TRANSACTION COSTS AND
TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
general Fund administration, accounting and other services.
Below is information regarding the shareholder transaction expenses and
operating expenses for Institutional Shares of the Equity, Equity Value,
International Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
U.S. Government Securities, Managed Bond, Prime and Treasury Funds. Examples
based on this information are also provided.
<TABLE>
<CAPTION>
EQUITY SMALL
EQUITY VALUE INTERNATIONAL CAPITALIZATION BALANCED
FUND FUND EQUITY FUND FUND FUND
--------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases................ None None None None None
Sales Charge Imposed on Reinvested Dividends............... None None None None None
Deferred Sales Charge...................................... None None None None None
Redemption Fee............................................. None None None None None
Exchange Fee............................................... None None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees.............................................. 0.60% 0.60% 1.00% 1.00% 0.60%
All Other Expenses (After Expense Reimbursements).......... 0.19% 0.30% 0.40% 0.25% 0.24%
--------- --------- ------ ------ -----------
Total Fund Operating Expenses (After Expense
Reimbursements)*.......................................... 0.79% 0.90% 1.40% 1.25% 0.84%
--------- --------- ------ ------ -----------
--------- --------- ------ ------ -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
U.S.
SHORT-TERM GOVERNMENT
FIXED INCOME SECURITIES MANAGED PRIME TREASURY
FUND FUND BOND FUND FUND FUND
------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases............. None None None None None
Sales Charge Imposed on Reinvested Dividends............ None None None None None
Deferred Sales Charge................................... None None None None None
Redemption Fee.......................................... None None None None None
Exchange Fee............................................ None None None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS AND
EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees (After Fee Waivers)....................... 0.40% 0.40% 0.40% 0.23% 0.24%
All Other Expenses (After Expense Reimbursements)....... 0.20% 0.21% 0.21% 0.14% 0.14%
------ ----------- ----------- --------- -----------
Total Fund Operating Expenses (After Fee Waivers and
Expense Reimbursements)*............................... 0.60% 0.61% 0.61% 0.37% 0.38%
------ ----------- ----------- --------- -----------
------ ----------- ----------- --------- -----------
</TABLE>
- ------------
* This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the Funds.
The operating expenses for the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Prime and
Treasury Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the
last fiscal year. The operating expenses for the Equity Value and
International Equity Funds are based on estimated expenses expected to be
incurred during the remainder of the current fiscal year.
Without fee waivers by the Adviser, investment management fees as a percentage
of net assets would be 0.25% for each of the Prime and Treasury Funds. Absent
these waivers and other expense reimbursements, the total operating expenses
for the Institutional Shares of the Short-Term Fixed Income, Prime and
Treasury Funds would be 0.84%, 0.40% and 0.40%, respectively.
The Adviser may waive its fee and/or reimburse expenses of the Funds from time
to time. These waivers and reimbursements are voluntary and may be terminated
at any time with respect to any Fund without the consent of the Fund. You
should note that any fees that are charged by the Adviser, its affiliates or
any other institutions directly to their customer accounts for services
related to an investment in the Funds are in addition to, and not reflected
in, the fees and expenses described above.
4
<PAGE>
EXAMPLE: Let's say, hypothetically, that the annual return on the
Institutional Shares of each Fund is 5%, and that their operating expenses are
as described above. For every $1,000 you invested in a particular Fund, after
the periods shown below, you would have paid this much in expenses during such
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund....................................... $ 8 $25 $44 $ 98
Equity Value Fund................................. $ 9 $29 N/A N/A
International Equity Fund......................... $14 $44 N/A N/A
Small Capitalization Fund......................... $13 $40 $68 $151
Balanced Fund..................................... $ 9 $27 $47 $104
Short-Term Fixed Income Fund...................... $ 6 $19 $33 $ 75
U.S. Government Securities Fund................... $ 6 $20 $34 $ 76
Managed Bond Fund................................. $ 6 $20 $34 $ 76
Prime Fund........................................ $ 4 $12 $21 $ 47
Treasury Fund..................................... $ 4 $12 $21 $ 48
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENT OF
ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR. THE EMERALD EQUITY VALUE FUND AND INTERNATIONAL EQUITY FUND WERE
NOT OPERATIONAL DURING THE PERIODS PRESENTED.
DURING THE FISCAL YEARS 1993 AND 1992 AND THE PERIOD ENDED NOVEMBER 30,
1991, THE EQUITY FUND AND U.S. GOVERNMENT SECURITIES FUNDS DID NOT OFFER
INSTITUTIONAL SHARES. RATHER, EACH FUND OFFERED A SEPARATE SHARE CLASS, NOW
CALLED RETAIL SHARES, TO BOTH INSTITUTIONAL AND RETAIL INVESTORS. THE FOLLOWING
INFORMATION REGARDING RETAIL SHARES IS PROVIDED TO GIVE YOU A LONGER TERM
PERSPECTIVE OF THE FUNDS' FINANCIAL HISTORY. FOR A DESCRIPTION OF THE
CHARACTERISTICS AND EXPENSES OF RETAIL SHARES, SEE "THE EMERALD FAMILY OF
FUNDS."
5
<PAGE>
EMERALD EQUITY FUND
Financial highlights for an Institutional Share and a Retail Share of the
Equity Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
--------------------------------------------------------
INSTITUTIONAL SHARES
-------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ----------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 10.89 $ 11.94 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------ ------------ ------------- ------------ ------------ -------------
Income from investment operations:
Net investment income............... 0.08 0.11 0.08 0.15 0.16 0.12
Net realized and unrealized gains
(losses) on securities............. 3.74 (0.90) (0.39) (0.08) 1.73 0.24
------------ ------------ ------------- ------------ ------------ -------------
Total income (loss) from investment
operations......................... 3.82 (0.79) (0.31) 0.07 1.89 0.36
------------ ------------ ------------- ------------ ------------ -------------
Less dividends and distributions:
Dividends from net investment
income............................. (0.08) (0.11) (0.08) (0.15) (0.16) (0.12)
Distributions from net realized
gains on securities................ (0.00) (0.15) (0.57) (0.07) (0.00) (0.00)
------------ ------------ ------------- ------------ ------------ -------------
Total dividends and distributions... (0.08) (0.26) (0.65) (0.22) (0.16) (0.12)
------------ ------------ ------------- ------------ ------------ -------------
Net change in net asset value......... 3.74 (1.05) (0.96) 0.15) 1.73 0.24
------------ ------------ ------------- ------------ ------------ -------------
NET ASSET VALUE, END OF PERIOD........ $ 14.63 $ 10.89 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
Total return.......................... 35.21% (6.62%)++ (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 173,824 $ 164,015 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to average net
assets............................. 0.84% 0.79%+ 1.07%** 0.86%** 0.76%** 0.00%+
Ratio of net investment income to
average net assets................. 0.67% 1.46%+ 0.36%** 1.22%** 1.41%** 2.64%+**
Portfolio turnover.................. 104% 113% 113% 102% 40% 13%
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
6
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.66 $ 10.00
-------- --------
Income from investment operations:
Net investment loss..................................................... (0.03) (0.04)
Net realized and unrealized gains (losses) on securities................ 3.15 (0.30)
-------- --------
Net change in net asset value........................................... 3.12 (0.34)
-------- --------
NET ASSET VALUE, END OF PERIOD............................................ $ 12.78 $ 9.66
-------- --------
-------- --------
Total return.............................................................. 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 88,561 $ 53,509
Ratio of expenses to average net assets................................. 1.39% 1.29%+
Ratio of net investment loss to average net assets...................... (0.65%) (0.54%)+
Ratio of expenses to average net assets**............................... 1.42% 1.48%+
Ratio of net investment loss to average net assets**.................... (0.68%) (0.73%)+
Portfolio turnover...................................................... 229% 118%
</TABLE>
- ------------
* For the period January 4, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
7
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.63 $ 10.00
-------- --------
Income from investment operations:
Net investment income................................................... 0.33 0.27
Net realized and unrealized gains (losses) on securities................ 2.28 (0.37)
-------- --------
Total income (loss) from investment operations............................ 2.61 (0.10)
-------- --------
Less dividends and distributions:
Dividends from net investment income.................................... (0.33) (0.25)
Distributions in excess of net investment income........................ (0.00) (0.02)
-------- --------
Total dividends and distributions....................................... (0.33) (0.27)
-------- --------
Net change in net asset value........................................... 2.28 (0.37)
-------- --------
NET ASSET VALUE, END OF PERIOD............................................ $ 11.91 $ 9.63
-------- --------
-------- --------
Total return.............................................................. 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 73,830 $ 51,170
Ratio of expenses to average net assets................................. 0.32% 0.28%+
Ratio of net investment income to average net assets.................... 3.54% 4.11%+
Ratio of expenses to average net assets**............................... 1.10% 1.25%+
Ratio of net investment income to average net assets**.................. 2.76% 3.14%+
Portfolio turnover...................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
8
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for an Institutional Share of the Short-Term Fixed
Income Fund throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.74 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.61 0.35
Net unrealized gains (losses) on securities............................ 0.41 (0.26)
-------- --------
Total income (loss) from investment operations......................... 1.02 0.09
-------- --------
Dividends from net investment operations................................. (0.61) (0.35)
-------- --------
Net change in net asset value............................................ 0.41 (0.26)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.15 $ 9.74
-------- --------
-------- --------
Total return............................................................. 10.80% (0.90%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 14,037 $ 23,566
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 6.14% 5.55%+
Ratio of expenses to average net assets**.............................. 1.43% 1.60%+
Ratio of net investment income to average net assets**................. 5.03% 4.24%+
Portfolio turnover..................................................... 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
9
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for an Institutional Share and a Retail Share of U.S.
Government Securities Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
---------------------------------------------------------
INSTITUTIONAL SHARES
---------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991+
------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 9.71 $ 10.47 $ 10.79 $ 10.52 $ 10.46 $ 10.00
------------- ------------- ------------- ------------ ------------- -------------
Income from investment operations:
Net investment income............... 0.68 0.46 0.58 0.66 0.77 0.27
Net realized and unrealized gains
(losses) on securities............. 0.65 (0.75) (0.94) 0.41 0.12 0.46
------------- ------------- ------------- ------------ ------------- -------------
Total income (loss) from investment
operations......................... 1.33 (0.29) (0.36) 1.07 0.89 0.73
------------- ------------- ------------- ------------ ------------- -------------
Less dividends and distributions:
Dividends from net investment
income............................. (0.68) (0.46) (0.58) (0.66) (0.77) (0.27)
Distributions from net realized
gains on securities................ (0.00) (0.01) (0.10) (0.14) (0.06) (0.00)
Distributions in excess of net
investment income.................. (0.00) (0.00) (0.01) (0.00) (0.00) (0.00)
Distributions in excess of net
realized gains..................... (0.00) (0.00) (0.02) (0.00) (0.00) (0.00)
------------- ------------- ------------- ------------ ------------- -------------
Total dividends and distributions... (0.68) (0.47) (0.71) (0.80) (0.83) (0.27)
------------- ------------- ------------- ------------ ------------- -------------
Net change in net asset value......... 0.65 (0.76) (1.07) 0.27 0.06 0.46
------------- ------------- ------------- ------------ ------------- -------------
NET ASSET VALUE, END OF PERIOD........ $ 10.36 $ 9.71 $ 9.72 $ 10.79 $ 10.52 $ 10.46
------------- ------------- ------------- ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------- -------------
Total return.......................... 14.10% (2.83%)++ (3.45%) 10.40% 8.79% 7.34%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 74,753 $ 69,314 $ 30,855 $ 145,328 $ 94,006 $ 34,693
Ratio of expenses to average net
assets............................. 0.83% 0.68%+ 0.98% 0.64% 0.28% 0.00%
Ratio of net investment income to
average net assets................. 7.46% 5.90%+ 5.68% 5.91% 7.18% 7.88%+
Ratio of expenses to average net
assets**........................... (a) 0.69 %+ 1.09 % 1.06 % 0.99 % 1.47 %+
Ratio of net investment income to
average net assets**............... (a ) 5.90 %+ 5.57 % 5.49 % 6.42 % 6.41 %+
Portfolio turnover.................. 89 % 133 % 133 % 72 % 50 % 34 %
</TABLE>
- -----------------
* For the period July 31, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had
not occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
10
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.55 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.70 0.45
Net realized and unrealized gains (losses) on securities............... 1.00 (0.45)
-------- --------
Total income (loss) from investment operations......................... 1.70 (0.00)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.70) (0.43)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions...................................... (0.70) (0.45)
-------- --------
Net change in net asset value............................................ 1.00 (0.45)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.55 $ 9.55
-------- --------
-------- --------
Total return............................................................. 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 68,923 $ 66,588
Ratio of expenses to average net assets................................ 0.31% 0.27%+
Ratio of net investment income to average net assets................... 6.95% 6.83%+
Ratio of expenses to average net assets**.............................. 0.83% 0.86%+
Ratio of net investment income to average net assets**................. 6.43% 6.25%+
Portfolio turnover..................................................... 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
11
<PAGE>
EMERALD PRIME FUND
Financial highlights for an Institutional Share of the Prime Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
Income from investment of operations:
Net Investment income................. 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805
Net realized gains (losses) on
securities........................... 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... (0.0568) 0.0362 0.0315 0.0408 0.0638 0.0805
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income.. (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805)
Distributions from net realized gains
on securities........................ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions..... $ (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805)
------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital contribution.......... 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.81% 3.97% 3.21% 4.14% 6.56% 8.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 462,726 $ 413,541 $ 510,683 $1,947,016 $ 512,919 $ 278,419
Ratio of expenses to average net
assets............................... 0.37% 0.37% 0.35% 0.37% 0.40% 0.39%
Ratio of net investment income to
average net assets................... 5.66% 3.92% 3.21% 3.84% 6.27% 8.03%
Ratio of expenses to average net
assets**............................. 0.39% (a) (a ) (a ) 0.42 % 0.45%
Ratio of net investment income to
average net assets**................. 5.64 % (a ) (a ) (a ) 6.25 % 7.97%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment of operations:
Net Investment income................. 0.0890
Net realized gains (losses) on
securities........................... (0.0001)
------------
Total income (loss) from investment
operations........................... 0.0889
------------
Less dividends and distributions:
Dividends from net investment income.. (0.0890)
Distributions from net realized gains
on securities........................ (0.0000)
------------
Total dividends and distributions..... (0.0890)
------------
Voluntary capital contribution.......... 0.0000
------------
Net change in net asset value........... (0.0001)
------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9999
------------
------------
Total return............................ 9.27%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 192,628
Ratio of expenses to average net
assets............................... 0.36%+
Ratio of net investment income to
average net assets................... 9.00%+
Ratio of expenses to average net
assets**............................. 0.44 %+
Ratio of net investment income to
average net assets**................. 8.92 %+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
12
<PAGE>
EMERALD TREASURY FUND
Financial highlights for an Institutional Share of the Treasury Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net Investment income................. 0.0548 0.0368 0.0291 0.0368 0.0590 0.0776
Net realized gains (losses) on
securities........................... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776
------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment income.... (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.62% 3.74% 2.95% 3.75% 6.07% 8.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 236,392 $ 283,920 $ 501,377 $ 452,170 $ 575,103 $ 416,131
Ratio of expenses to average net
assets............................... .40% 0.39% 0.40% 0.38% 0.40% 0.38%
Ratio of net investment income to
average net assets................... 5.49% 3.73% 2.91% 3.74% 5.86% 7.75%
Ratio of expenses to average net
assets**............................. 0.42% (a) (a ) (a ) 0.41 % 0.41%
Ratio of net investment income to
average net assets**................. 5.46 % (a ) (a ) (a ) 5.85 % 8.13%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net Investment income................. 0.0856
Net realized gains (losses) on
securities........................... 0.0000
------------
Total income (loss) from investment
operations........................... 0.0856
------------
Dividends from net investment income.... (0.0856)
------------
Net change in net asset value........... 0.0000
------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0000
------------
------------
Total return............................ 8.90%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 349,183
Ratio of expenses to average net
assets............................... 0.73%+
Ratio of net investment income to
average net assets................... 8.69%+
Ratio of expenses to average net
assets**............................. 0.77 %+
Ratio of net investment income to
average net assets**................. 8.65 %+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
13
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objective. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks, and which are also described in the following sections. You should
consider which Funds best meet your investment goals. The Funds' Adviser will
use its best efforts to achieve a Fund's investment objective, although its
achievement cannot be assured.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term capital
appreciation by investing primarily in common stocks. The Fund seeks as a
secondary objective potential income growth through its investments. The Fund
invests primarily in high quality equity securities selected on the basis of
fundamental investment value and growth prospects that the Adviser believes
exceed those of the general economy. The Fund may also invest up to 25% of its
assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
The Equity Fund will normally invest at least 65% of its total assets in
equity securities, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period. For a further description
of the Fund's policies with respect to convertible securities, foreign
securities and other instruments, see "Portfolio Instruments, Practices and
Related Risks" below.
EQUITY VALUE FUND
The investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Any income is incidental to this objective. The Fund seeks
to achieve its investment objective by investing primarily in common stock,
preferred stock (including convertible preferred stock) and debt obligations
convertible into common stock that the Adviser believes to be undervalued. The
Fund seeks to purchase stock with a price-book value ratio below that of the
median stock in the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"). The Adviser invests less than 25% of the value of the Fund's total assets
at the time of purchase in securities of issuers conducting their principal
business activities in the same industry.
Under normal market and economic conditions, the Fund will invest at least
75% of its total assets in common stock, preferred stock and debt securities
convertible into common stock. Equity investments consist primarily of common
stock of companies having capitalizations that exceed $100 million. Stocks of
such companies generally are listed on a national exchange or are unlisted
securities with an established
14
<PAGE>
over-the-counter market. In addition, the Fund may hold other types of
securities in such proportions as, in the opinion of the Adviser, existing
circumstances may warrant, including obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and other high quality
"money market" instruments as described below under "International Equity Fund."
The Fund may also hold cash pending investment, during temporary defensive
periods or if, in the opinion of the Adviser, suitable stock or convertible debt
securities are unavailable. The Fund may also invest up to 25% of its total
assets in foreign securities either directly or indirectly through ADRs and EDRs
and may write covered call options.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing at least 65% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes established
companies, although it may invest in companies of various sizes as measured by
assets, sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and The United Kingdom. More than 25% of the Fund's total assets may be invested
in the securities of issuers located in the same country. Investment in a
particular country of 25% or more of the Fund's total assets will make the
Fund's performance more dependent upon the political and economic circumstances
of a particular country than a mutual fund that is more widely diversified among
issuers in different countries. Criteria for determining the appropriate
distribution of investments among various countries and regions may include
prospects for relative economic growth, expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors.
The Fund invests in common stock and may invest in other securities with
equity characteristics, such as trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund may invest in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
The Fund may invest in securities issued in certain countries that are
currently accessible to the Fund only through investment in other investment
companies that are specifically authorized to invest in such securities. The
Fund's policies regarding investments in other investment companies are
described under "Portfolio Instruments, Practices and Related Risks." In
addition, the Fund may invest in securities of foreign issuers in the form of
ADRs or EDRs, also as described under "Portfolio Instruments, Practices and
Related Risks." The Fund expects that during its initial period of investment
operations substantially all of the Fund may be invested in ADRs.
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During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, the Fund's assets may be invested
without limitation in short-term debt instruments. In addition, when the Fund
experiences large cash inflows from the issuance of new shares or the sale of
portfolio securities, and desirable equity securities that are consistent with
the Fund's investment objective are unavailable in sufficient quantities, the
Fund may hold more than 35% of its assets in short-term debt instrument
investments for a limited time pending availability of suitable equity
securities. During normal market conditions, no more than 35% of the Fund's
total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. Furthermore, the
Fund may purchase and sell securities on a when-issued basis as described in the
Statement of Additional Information. For temporary defensive purposes, the Fund
may also invest a major portion of its assets in securities of United States
issuers. Less than 25% of the value of the Fund's total assets at the time of
purchase will be invested in securities of issuers conducting their principal
business activities in the same industry.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to provide
long-term capital appreciation. The Fund pursues its objective by investing
primarily in equity securities such as common stocks and instruments convertible
or exchangeable into common stocks.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index. The market
capitalization of the issuers of securities purchased by the Fund will normally
be between $50 million and $2 billion at the time of purchase. In managing the
Fund, the Adviser seeks smaller companies with above-average growth prospects.
Factors considered in selecting such issuers include participation in a fast
growing industry, a strategic niche position in a specialized market, adequate
capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities of small capitalization companies. In addition
to investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
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invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRs, and may acquire convertible securities, warrants and
similar rights. For a further description of the Fund's policies with respect to
convertible securities, foreign securities and other instruments, see "Portfolio
Instruments, Practices and Related Risks" below.
BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be in fixed
income securities (including cash equivalents, long-term debt securities, and
convertible debt securities and preferred stocks to the extent their value is
attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would normally increase the Fund's equity holdings while
reducing its holdings of fixed income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to
100% of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are backed by the full faith and
credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the type
that are permissible investments for the Equity and Small Capitalization Funds.
Non-convertible debt obligations will be
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limited to the types that are permissible investments for the Managed Bond Fund.
Convertible securities, foreign securities and other instruments will be
acquired in accordance with the limitations described under "Portfolio
Investments, Practices and Related Risks."
The Fund may also invest, through ADRs and EDRs, up to 25% of the value of
its total assets in securities of foreign issuers, and may invest in warrants
and similar rights.
SHORT-TERM FIXED INCOME AND MANAGED BOND FUNDS
The Short-Term Fixed Income and Managed Bond Funds offer two alternatives
for participating in the fixed income securities markets. The average weighted
maturity of the Short-Term Fixed Income Fund is shorter than that of the Managed
Bond Fund. Both Funds are subject to the same quality requirements.
The investment objective of the Short-Term Fixed Income Fund is to seek
consistently positive current income with relative stability of principal by
investing in investment grade securities and high quality money market
instruments. The investment objective of the Managed Bond Fund is to seek a high
level of current income and, secondarily, capital appreciation. While the
maturity of individual securities will not be restricted, except during
temporary defensive periods or unusual market conditions the average weighted
maturity of the Short-Term Fixed Income Fund will not exceed three years and the
average weighted maturity of the Managed Bond Fund will be ten years or more.
Each Fund invests substantially all of its assets in debt obligations such
as bonds, debentures and cash equivalents, obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, debt obligations of
domestic and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Funds will purchase only those securities which are considered
to be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
each Fund's total assets will be invested in debt obligations rated "A" or
better by at least one NRSRO (or unrated obligations determined to be of
comparable quality). Obligations rated in the lowest of the top four rating
categories ("BBB" or "Baa") have certain speculative characteristics and are
subject to more credit and market risk than securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage and other
asset-related securities, zero coupon bonds and convertible debentures. The
Managed Bond
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Fund may, however, also invest without limitation in short-term investments to
meet anticipated redemption requests, or as a temporary defensive measure if the
Adviser determines that market conditions warrant.
The Funds may also invest in obligations convertible into common stocks, as
well as common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. Common stock received through the
conversion of convertible debt obligations will normally be sold. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other investments see "Portfolio Instruments, Practices
and Related Risks."
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities Fund is to seek
consistently positive income by investing principally in U.S. Government
securities and repurchase agreements collateralized by such securities. The Fund
will always invest at least 65% of its total assets in such instruments under
normal market conditions. There is no minimum or maximum maturity for securities
held, although the Fund expects that (except during temporary defensive periods
or unusual market conditions) its dollar-weighted average portfolio maturity
will be between five and ten years. The Fund may invest in a variety of U.S.
Government securities, including U.S. Treasury bonds, notes and bills, and
obligations of a number of U.S. Government agencies and instrumentalities. The
Fund may also invest in interests in the foregoing securities, including
collateralized mortgage obligations issued or guaranteed by a U.S. Government
agency or instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities have historically had a very low risk of loss of principal if
held to maturity. The Fund, however, can give no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
if it were not legally obligated to do so. The value of the Fund's portfolio
(and consequently its shares) is expected to fluctuate inversely to changes in
the direction of interest rates.
PRIME FUND AND TREASURY FUND
The investment objective of both the Prime and Treasury Funds is to seek to
provide a high level of current income consistent with liquidity, the
preservation of capital and a stable net asset value. The Prime Fund pursues its
objective by investing, in a broad range of short-term government, bank and
corporate obligations. The Treasury Fund seeks to achieve its objective by
investing in obligations that the U.S. Treasury has issued or to which the U.S.
Treasury has pledged its full faith and credit to guarantee the payment of
principal and interest. You should note, however, that shares of the Treasury
Fund are not themselves issued or guaranteed by the U.S. Treasury or any of its
agencies. U.S. Treasury obligations include Treasury bills, certain Treasury
strips, certificates of indebtedness, notes and bonds, and obligations of those
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. Treasury. It is the Treasury Fund's policy that under normal conditions
it will invest 65% or more of its total assets in U.S. Treasury obligations and
repurchase agreements for which such obligations serve as collateral.
Each of these Funds (the "Money Market Funds") invests only in U.S.
dollar-denominated securities that mature in thirteen months or less (with
certain exceptions). The dollar-weighted average portfolio maturity of each Fund
may not exceed ninety days. In accordance with the current rules of the
Securities and Exchange Commission, the Prime Fund intends to limit its
purchases in the securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government or its
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agencies or instrumentalities) to no more than 5% of its total assets at the
time of purchase, with the exception that up to 25% of its total assets may be
invested in the securities of any single issuer for up to three business days.
Instruments acquired by the Prime and Treasury Funds will be U.S. Government
securities or other "First Tier Securities." The term "First Tier Securities"
has a technical definition given by the Securities and Exchange Commission, but
generally refers to securities that the Adviser has determined, under guidelines
established by the Board of Trustees, present minimal credit risks, and have the
highest short-term debt ratings at the time of purchase by one (if rated by only
one) or more NRSROs. Unrated instruments (including instruments with long-term
but no short-term ratings) will be of comparable quality as determined by the
Adviser under guidelines approved by the Board of Trustees. A description of the
applicable ratings is attached to the Statement of Additional Information as
Appendix A.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuer, less market liquidity and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Although the International Equity Fund may invest in securities denominated
in foreign currencies, the Fund values its securities and other assets in U.S
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with the U.S. dollar exchange rates, as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies. The risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY FUND
may invest up to 100% of its total assets and the EQUITY, EQUITY VALUE, SMALL
CAPITALIZATION AND BALANCED FUNDS may
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invest up to 25% of their total assets in ADRs and EDRs. ADRs are receipts
issued in registered form by a U.S. bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of the underlying foreign or U.S. securities.
ADRs may be listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's limitation with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in ADRs
and EDRs involve risks similar to those accompanying direct investments in
foreign securities.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY FUND
may invest in U.S. Treasury obligations as described above. Each of the other
Funds may also invest in securities issued or guaranteed by the U.S. Government,
as well as in obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED
BOND and PRIME FUNDS may invest in asset-backed securities (I.E., securities
backed by installment sale contracts, credit card receivables or other assets).
In addition, each of these Funds, as well as the U.S. GOVERNMENT SECURITIES
FUND, may invest in U.S. Government securities that are backed by adjustable or
fixed rate mortgage loans. The average life of an asset-backed instrument varies
with the maturities of the underlying instruments. In the case of mortgages,
these maturities may be a maximum of forty years. The average life of an
asset-backed instrument is likely to be substantially less than the original
maturity of the asset pools underlying the security as the result of scheduled
principal payments and prepayments. This may be particularly true for
mortgage-backed securities. The rate of such prepayments, and hence the life of
the security, will be primarily a function of current market rates and current
conditions in the relevant market. In calculating the average weighted maturity
of a Fund's portfolio (except the Prime Fund), the maturity of asset-backed
instruments will be based on estimates of average life. The relationship between
prepayments and interest rates may give some high-yielding asset-backed
securities less potential for growth in value than conventional bonds with
comparable maturities. In addition, in periods of falling interest rates, the
rate of prepayment tends to increase. During such periods, the reinvestment of
prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid. Because of these
and other reasons, an asset-backed security's total return may be difficult to
predict precisely.
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To the extent a Fund purchases asset-backed securities at a premium, prepayments
(which often may be made at any time without penalty) may result in some loss of
a Fund's principal investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, 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. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS may also invest in municipal obligations. These securities may
be advantageous for these Funds when, as a result of prevailing economic,
regulatory or other circumstances, the yield of such securities on a pre-tax
basis is comparable to that of other securities the particular Fund can
purchase. Dividends paid by these Funds that come from interest on municipal
obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser will determine, under the supervision of the Board of Trustees, the
credit quality of any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds and the Adviser rely on these
opinions and do not intend to review the basis for them.
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Municipal obligations purchased by each Fund may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described above under "Foreign
Securities," foreign letters of credit and guarantees involve certain risks in
addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS and, to a limited extent, the EQUITY, EQUITY VALUE,
INTERNATIONAL EQUITY, and SMALL CAPITALIZATION FUNDS, may purchase corporate
bonds and cash equivalents that meet a Fund's quality and maturity limitations.
These investments may include obligations issued by Canadian corporations and
Canadian counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and
PRIME FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS, may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. These Funds may also invest in CDs and time deposits of
domestic branches of U.S. banks that have total assets of less than $1 billion
if the CDs and time deposits are insured by the FDIC. Investments in foreign
banks and foreign branches of U.S. banks will not make up more than 25% of a
Fund's total assets when the investment is made. (To the extent permitted by the
SEC, bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing, savings deposits in amounts not exceeding 5% of
their total assets.
REPURCHASE AGREEMENTS. EACH FUND may buy portfolio securities subject to
the seller's agreement to repurchase them at an agreed upon time and price.
These transactions are known as repurchase agreements. A Fund will enter into
repurchase agreements only with financial institutions deemed to be creditworthy
by the Adviser, pursuant to guidelines established by the Board of Trustees.
During the term of any repurchase agreement, the Adviser will monitor the
creditworthiness of the seller, and the seller must maintain the value of the
securities subject to the agreement in an amount that is greater than the
repurchase price. Default or bankruptcy of the seller would, however, expose a
Fund to possible loss because of adverse market action or delays connected with
the disposition of the underlying obligations. Because of the seller's
repurchase obligations, the securities subject to repurchase agreements do not
have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of each Fund, except the U.S. Government
Securities and Treasury Funds,
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these instruments may include variable amount master demand notes, which are
instruments under which the indebtedness, as well as the interest rate, varies.
If rated, variable and floating rate instruments must be rated in the highest
short-term rating category by an NRSRO. If unrated, such instruments will need
to be determined to be of comparable quality. Unless guaranteed by the U.S.
Government or one of its agencies or instrumentalities, variable or floating
rate instruments purchased by the Prime Fund must permit the Fund to demand
payment of the instrument's principal at least once every thirteen months.
Because of the absence of a market in which to resell a variable or floating
rate instrument, a Fund might have trouble selling an instrument should the
issuer default or during periods when a Fund is not permitted by agreement to
demand payment of the instrument, and for this or other reasons a loss could
occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. The Treasury Fund's investments in these
obligations will be limited to "interest only" stripped securities that have
been issued by a federal instrumentality known as the Resolution Funding
Corporation and other stripped securities issued or guaranteed by the U.S.
Treasury, where the principal and interest components are traded independently
under the Separate Trading of Registered Interest and Principal Securities
Program ("STRIPS"). Under STRIPS, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently. Each Fund, except the Treasury Fund, may also invest in
instruments that have been stripped by their holder, typically a custodian bank
or investment brokerage firm, and then resold in a custodian receipt program
under names you may be familiar with such as Treasury Investors Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
In addition, each Fund, except the Treasury Fund, may purchase stripped
mortgage-backed securities ("SMBS") issued by the U.S. Government (or a U.S.
Government agency or instrumentality) or by private issuers such as banks and
other institutions. SMBS, in particular, may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. If the underlying obligations experience
greater than anticipated prepayments, a Fund may fail to fully recoup its
initial investment. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
are generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net asset
value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the
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extent shareholders request that they receive their dividends in cash rather
than reinvesting them, the money necessary to pay those dividends must come from
the assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The
BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and PRIME FUNDS may invest in
bank investment contracts ("BICs") issued by banks that meet the asset size
requirements described above under "Bank Obligations" and may also invest in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, a Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, a Fund would receive interest from the issuing entity at either a
negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to a
Fund's limitation on such investments as described below under "Managing
Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. THE BALANCED, SHORT-TERM FIXED INCOME,
MANAGED BOND and PRIME FUNDS may purchase from domestic financial institutions
and trusts created by such institutions participation interests and trust
receipts in high quality debt securities. A participation interest or receipt
gives a Fund an undivided interest in the security in the proportion that a
Fund's participation interest or receipt bears to the total principal amount of
the security. Each Fund intends only to purchase participations and trust
receipts from an entity or syndicate, and do not intend to serve as a co-lender
in any such activity. As to certain instruments for which a Fund will be able to
demand payment, a Fund intends to exercise its right to do so only upon a
default under the terms of the security, as needed to provide liquidity, or to
maintain or improve the quality of its investment portfolio. It is possible that
a participation interest or trust receipt may be deemed to be an extension of
credit by a Fund to the issuing financial institution rather than to the obligor
of the underlying security and may not be directly entitled to the protection of
any collateral security provided by the obligor. In such event, the ability of a
Fund to obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objectives.
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INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which a Fund's investments are traded. A Fund would expect to enter into these
hedging transactions primarily to preserve the return or spread of a particular
investment or portion of its portfolio and to protect against an increase in the
price of securities a Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the
extent a specified index fell below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
floor. The purchase of an interest rate cap by a Fund would entitle it, to the
extent that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P. The INTERNATIONAL EQUITY FUND may also purchase shares
of investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting principally
of securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells
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portfolio securities and then buys them back later at an agreed-upon time and
price. When the Fund enters into a reverse repurchase agreement it will place in
a separate custodial account either liquid assets or high grade debt securities
that have a value equal to or more than the price the Fund must pay when it buys
back the securities, and the account will be continuously monitored to make sure
the appropriate value is maintained. Reverse repurchase agreements may be used
to meet redemption requests without selling portfolio securities. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities the Fund relinquishes may decline below the price the Fund must pay
when the transaction closes. Interest paid by a Fund in a reverse repurchase or
other borrowing transaction will reduce the Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present 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, securities
loans will be made only to parties the Adviser deems to be of good standing, and
will only be made if the Adviser thinks the possible rewards from such loans
justify the possible risks. A loan will not be made if, as a result, the total
amount of a Fund's outstanding loans exceeds 30% of its total assets. Securities
loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash-equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash,
U.S. Government securities or other liquid high grade debt instruments in the
amount of the future purchase commitment will be set apart for a Fund involved
in a separate account at the custodian. Mortgage rolls are not a primary
investment technique for any of these Funds, and it is expected that, under
normal market conditions, a Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
CONVERTIBLE SECURITIES. The EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY,
SMALL CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS
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. By investing in convertibles, a 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.
None of the assets of the Short-Term Fixed Income and Managed Bond Funds,
and no more than 15% of the total assets of the Equity, Equity Value,
International Equity, Small Capitalization and Balanced Funds, may be invested
in convertible securities rated below investment grade at the time of purchase.
Non-investment grade convertible securities must be rated "B" or higher by at
least one NRSRO. Non-investment grade securities are commonly referred to as
"junk" bonds and present a
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greater risk as to the timely repayment of the principal, interest and
dividends. Particular risks include (a) the sensitivity of such securities to
interest rate and economic changes, (b) the lower degree of protection of
principal and interest payments, (c) the relatively low trading market liquidity
for the securities, (d) the impact that legislation may have on the market for
these securities (and, in turn, on a Fund's net asset value) and (e) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would negatively affect their ability to meet
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower rated convertible securities and negatively affect
the value of outstanding securities and the ability of the issuers to repay
principal and interest. If the issuer of a convertible security held by a Fund
defaulted, that Fund could incur additional expenses to seek recovery. Adverse
publicity and investor perceptions, whether or not they are based on fundamental
analysis, could also decrease the value and liquidity of lower-rated convertible
securities held by a Fund, especially in a thinly traded market.
OPTIONS. EACH FUND (except the Prime and Treasury Funds), may write covered
call options, buy put options, buy call options and sell, or "write," secured
put options on particular securities or various securities indices. A call
option for a particular security gives the purchaser of the option the right to
buy, and a writer the obligation to sell, the underlying security 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 the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. Options may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation which performs the
obligations of its members if they default.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
FUTURES AND RELATED OPTIONS. EACH FUND (except the Prime and Treasury
Funds) may invest to a limited extent in futures contracts and options on
futures contracts in order to gain fuller exposure to movements of security
prices pending investment, for hedging purposes or to maintain liquidity.
Futures contracts obligate a Fund, at maturity, to take or make delivery of
certain securities or the
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cash value of a securities index. A Fund may not purchase or sell a futures
contract (or related option) unless immediately after any such transaction the
sum of the aggregate amount of margin deposits on its existing futures positions
and the amount of premiums paid for related options is 5% or less of its total
assets (after taking into account certain technical adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price at any time during the option period. When a Fund
sells an option on a futures contract, it becomes obligated to purchase or sell
a futures contract if the option is exercised. In anticipation of a market
advance, 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 that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the INTERNATIONAL EQUITY
FUND may buy and sell securities denominated in currencies other than the U.S.
dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Fund from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies. The Fund may either enter into these
transactions on a spot (I.E. cash) basis at the spot rate prevailing in the
foreign currency exchange market, or use forward contracts to purchase or sell
foreign currencies. Forward foreign currency exchange contracts are agreements
to exchange one currency for another -- for example, to exchange a certain
amount of U.S. dollars for a certain amount of Japanese yen -- at a future date
and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, the
forward foreign currency exchange contracts may be rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to the Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by the Fund's Board of Trustees.
The International Equity Fund may maintain "short" positions in forward
foreign currency exchange transactions, which would involve the Fund's agreeing
to exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
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anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities equal in value to the fluctuating market value
of the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information for additional information regarding foreign currency
exchange transactions.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser has determined pursuant to guidelines adopted
by the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this limitation. This investment practice could have
the effect of increasing the level of illiquidity in a Fund during any period
that qualified institutional buyers were no longer interested in purchasing
these restricted securities.
PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, U.S. Government
Securities and Managed Bond Funds were 104%, 229%, 87%, 33%, 89%, and 92%,
respectively. The annual portfolio turnover rates for the Equity Value and
International Equity Funds are not expected to exceed 150%.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specifics of which you should
be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Short-Term
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Fixed Income, U.S. Government Securities, Managed Bond, Prime and Treasury Funds
may purchase zero-coupon bonds (I.E., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Debt securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect cash income from such securities
but will be reflected in a Fund's net asset values.
In addition, the Balanced, Short-Term Fixed Income, Managed Bond and Prime
Funds may purchase custodial receipts, tender option bonds and certificates of
participation in trusts that hold municipals or other types of obligations. A
certificate of participation gives a Fund an individual, proportionate interest
in the obligation, and may have a variable or fixed rate. Because certificates
of participation are interest obligations that may be funded through government
appropriations, they are subject to the risk that sufficient appropriations as
to the timely payment of principal and interest on the obligations may not be
made. The NRSRO quality rating of an issue of certificates of participation is
normally based upon the rating of obligations held by the trust and the credit
rating of the issuer of any letter of credit and of any other guarantor
providing credit support to the issue.
These Funds, with the exception of the Prime Fund, may also hold other
derivative instruments, which may be in the form of participations and custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment, or both, and bonds that have interest rates that reset
inversely to changing short-term rates and/or have imbedded interest rate floors
and caps. Many of these derivative instruments are proprietary products that
have been recently developed by investment banking firms, and it is uncertain
how these instruments are will perform under different economic and
interest-rate scenarios. In addition, to the extent that the market value of
these instruments is leveraged, they may be more volatile than other types of
obligations and may present greater potential for capital gain or loss. In some
cases it may be difficult to determine the fair value of a derivative instrument
because of a lack of reliable objective information, and an established
secondary market for some instruments may not exist.
Payment on municipal obligations held by a Fund relating to certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments.
Should a foreclosure occur, collection of proceeds from that foreclosure may
be delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that
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cannot be changed without the approval of a majority of the Fund's outstanding
shares. Some of these fundamental limitations are summarized below, and all of
the Funds' fundamental limitations are set out in full in the Statement of
Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be invested
in the securities of any one issuer, except that up to 25% of the total assets
of each Fund can be invested without regard to the 5% limitation. A Fund may not
purchase more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 25% exception.
3. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
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INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS. Barnett is the
largest trust organization headquartered in Florida and has notable experience
in providing professional investment management services. Organized as a
national banking association in 1974, it is the successor to the business of
earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered bank holding company that has
offered general banking services since 1877.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis.
PURCHASE OF SHARES
Institutional Shares are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares are sold to Barnett and its affiliates, as well as to
Barnett's correspondent banks and other institutions ("Institutions") acting on
behalf of themselves or their customers who maintain qualified trust, agency or
custodial accounts ("Customers"). Customers may include individuals, trusts,
partnerships and corporations. All share purchases are effected through a
Customer's account at Barnett or another Institution through procedures
established in connection with the requirements of the account, and
confirmations of share purchases and redemptions will be sent to Barnett or the
other Institution involved. Barnett and other Institutions (or their nominees)
will normally be the holders of record of Institutional Shares acting on behalf
of their Customers, 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 shareholder
communications from the Funds will be governed by the Customers' account
agreements with Barnett and other Institutions.
Institutional Shares are sold at the net asset value per share next
determined after receipt of a purchase order from an Institution by the Funds'
transfer agent. The minimum initial investment in a Fund (other than the Prime
Fund or Treasury Fund) for an Institution is $250,000 with no minimum subsequent
investment. The minimum initial investment in the Prime and Treasury Funds for
an Institution is $5,000 and the minimum subsequent investment is $100. Barnett
and other Institutions may establish different minimum investment requirements
for their Customers. For example, there is no minimum initial investment for
transfers of assets by Barnett's Customers from other banks or financial
institutions. Barnett and other Institutions may also charge their Customers
certain account fees depending on the type of account a Customer has established
with the Institution. These fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
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The Equity and Fixed Income Funds may have different business days from
those of the Money Market Funds. A "Business Day" for the Equity and Fixed
Income Funds is any day on which the New York Stock Exchange (the "Exchange") is
open for business, while for the Money Market Funds it is any day on which both
the Exchange and the Funds' Custodian are open for business. Additionally, on
days when the Exchange (and/or the Custodian for Money Market Funds) closes
early due to a partial holiday or otherwise, the Funds reserve the right to
advance the times at which purchase and redemption orders must be received in
order to be processed on that Business Day.
For all Funds except the Prime and Treasury Funds, purchase orders placed by
an Institution for Institutional Shares must be received by the Funds' transfer
agent before the close of regular trading hours (currently 4:00 p.m. Eastern
time) on the New York Stock Exchange (the "Exchange") on a Business Day. Payment
for Institutional Shares must be made by Institutions in federal funds or other
funds immediately available to the Funds' custodian no later than 4:00 p.m.
(Eastern time) on the Business Day immediately following placement of the
purchase order.
Purchase orders for the Prime and Treasury Funds must be received by 2:00
p.m. (Eastern time) on a Business Day in order to be effective. Purchases for
Institutional Shares of the Prime and Treasury Funds will be effected only on
days on which Emerald Funds and the purchasing Institutions are open for
business and only when federal funds or other funds are immediately available to
the Funds' transfer agent to make the purchase on the day it receives the
purchase order. Institutions may transmit purchase orders for shares of the
Prime and Treasury Funds by telephoning the transfer agent c/o the Distributor
at 800-367-5905 not later than 2:00 p.m. (Eastern time) on any Business Day. If
federal funds are not available with respect to any such order by the close of
business on the day the order is received by the transfer agent, the order will
be cancelled. In addition, any purchase order received by the transfer agent
after 2:00 p.m. (Eastern time) will not be accepted, and notice thereof will be
given to the Institution placing the order. Any funds received in connection
with late orders will be returned promptly.
Each Fund observes the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). In addition, the Prime and
Treasury Funds observe the following additional holidays: Martin Luther King,
Jr. Day, Columbus Day and Veterans Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
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<PAGE>
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares are
redeemed. Barnett and other Institutions may charge fees to their Customers for
their services in connection with investments. Shares held by an Institution on
behalf of its Customers must be redeemed in accordance with the instructions and
limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash. The Funds may also redeem
shares involuntarily if the balance has fallen below the minimum level due to
shareholder redemptions, not due to market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for all Funds (except the Prime and Treasury Funds) are normally wired in
federal funds to the redeeming institution the Business Day following receipt of
the order by the transfer agent. Payment for Prime and Treasury Fund redemption
orders which are received by the transfer agent before 2:00 p.m. (Eastern time)
on a Business Day will normally be wired in federal funds the same day. Payment
for Prime and Treasury Fund redemption orders which are received between 2:00
p.m. (Eastern time) and the close of business or on a non-Business Day will
normally be wired in federal funds on the next Business Day. Emerald Funds
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 a Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
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DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the Short-Term Fixed Income, U.S. Government Securities and Managed Bond
Funds, net investment income comes from the interest on the bonds and other
investments that they hold in their portfolios. For the Equity, Equity Value,
International Equity, Small Capitalization and Balanced Funds net investment
income is made up of dividends received from the stocks they hold, as well as
interest accrued on convertible securities, money market instruments and other
obligations held in their portfolios. For the Prime and Treasury Funds, net
investment income flows from interest that the Funds earn on the money market
and other investments they hold.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions automatically reinvested in the same share class of
the Fund on which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
<TABLE>
<S> <C>
Emerald Equity and Fixed Income Funds Emerald Prime and Treasury Funds
P.O. Box 182697 100 First Avenue, Suite 300
Columbus, OH 43218-2697 Pittsburgh, PA 15222
</TABLE>
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds) or payment dates (with respect to the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Prime and
Treasury Funds) after the date the Funds' transfer agent receives the election.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUNDS DECLARED PAID
- ----- --------- -------------------
<S> <C> <C> <C>
(1) Equity, Equity Value and Balanced....... Quarterly Quarterly
(2) International Equity and Small
Capitalization.......................... Annually Annually
(3) Short-Term Fixed Income, U.S. Government
Securities, Managed Bond, Prime and
Treasury................................ Daily Monthly within five
business days after
month end
</TABLE>
- ------------
(1) Dividends for the Equity, Equity Value and Balanced Funds may be declared
and paid at times that do not fall at the end of a calendar quarter.
(2) Dividends for the International Equity and Small Capitalization Funds may be
declared and paid at times that do not fall at the end of a calendar year.
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<PAGE>
(3) Shares of the Short-Term Fixed Income, U.S. Government Securities and
Managed Bond Funds begin earning dividends the first Business Day after
acceptance of the purchase order for which Emerald Funds' custodian has
received payment and stop earning dividends on the Business Day such shares
are redeemed. Shares of the Prime and Treasury Funds begin earning dividends
on the day a purchase order is accepted and payment in federal funds is
received by the Funds' Custodian, and continue to earn dividends through the
day before they are redeemed.
With respect to the Short-Term Fixed Income, U.S. Government Securities and
Managed Bond Funds, if all of the Institutional Shares held by an Institution in
such a Fund are redeemed, the Fund will pay accrued dividends within five
Business Days after redemption. With respect to the Prime and Treasury Funds, if
all Institutional Shares held by an Institution in such Funds are redeemed, the
Funds will pay accrued dividends within five Business Days after the end of each
month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund other than the Prime and Treasury
Funds, and at 2:00 p.m. (Eastern time) with respect to the Prime and Treasury
Funds, by adding the value of a Fund's investments, cash and other assets
allocated to its Institutional Shares, subtracting the Fund's liabilities
allocated to those shares, and then dividing the result by the number of
Institutional Shares in the Fund that are outstanding. The assets of the Funds
(except the Prime and Treasury Funds) are valued at market value or, if market
quotes cannot be readily obtained, fair value is used as determined by the Board
of Trustees. Debt securities held by these Funds that have sixty days or less
until they mature are valued at amortized cost, which generally approximates
market value. All securities of the Prime and Treasury Funds are valued at
amortized cost. More information about valuation can be found in the Funds'
Statement of Additional Information, which you may request by calling
800/637-3759.
Foreign securities acquired by the International Equity Fund as well as the
other Funds may be traded on foreign exchanges or over-the-counter markets on
days on which a Fund's net asset values are not calculated. In such cases, the
net asset values of the Fund's shares may be significantly affected on days when
investors can neither purchase nor redeem shares of the Fund.
EXCHANGE PRIVILEGE
If you wish, Institutional Shares of a Fund may be exchanged for Retail
Shares of the same Fund in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of Barnett or another bank, trust company or thrift institution.
Similarly, a Customer may exchange Retail Shares for Institutional Shares of the
same Fund if the shares are to be held in such a qualified trust, agency or
custodial account. These exchanges are made at the net asset value of the
respective share classes. The particular class of shares you are exchanging into
must be registered for sale in your state.
37
<PAGE>
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to the services these companies provide, as well as more information regarding
investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business
trust, and is a mutual fund of the type known as an "open-end management
investment company." The Agreement and Declaration of Trust permits the Board of
Trustees of Emerald Funds to classify any unissued shares into one or more
classes of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of two share
classes of the Equity and Fixed Income Funds and three share classes in the
Prime and Treasury Funds. Each Fund is classified as a diversified company. The
Board of Trustees has also authorized the issuance of additional classes of
shares representing interests in other portfolios of Emerald Funds. Information
regarding these other portfolios and share classes may be obtained by contacting
the Distributor at the address listed on page 33.
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<PAGE>
The Institutional Shares of the Funds are described in this prospectus.
These Funds also offer Retail Shares and, additionally, the Money Market Funds
offer Service Shares. Shares of each share class of a Fund bear a pro rata
portion of all operating expenses incurred by the Fund, except for certain
miscellaneous "class expenses" (I.E. certain printing and registration
expenses). In addition, Retail Shares bear all payments under the Combined
Distribution and Service Plan and Shareholder Processing Plan for Retail Shares
(the "Retail Plans") and Service Shares bear all payments under the Shareholder
Processing and Service Plan for Service Shares (the "Service Plan") as described
in the prospectuses for those shares. Under the Plans, the Distributor and
Service Organizations receive fees for distribution and shareholder and
administrative support services.
Payments under the Retail Plans may not exceed .50% (on an annual basis) of
the average daily net asset value of outstanding Retail Shares. Payments under
the Service Plan may not exceed .35% (on an annual basis) of the average daily
net asset value of the outstanding Service Shares. Because of these Plans and
other "class expenses," the performance of a Fund's Institutional Shares is
expected to be higher than the performance of its Retail and Service Shares. The
Funds offer various services and privileges in connection with Retail Shares
that are not generally offered in connection with Institutional and Service
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Retail and Service Shares, contact
the Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
Retail shareholders, however, will vote on matters pertaining to the Retail
Plans. Similarly, only holders of Service Shares will vote on matters pertaining
to the Service Plan.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment power with respect to a majority of the outstanding shares of Emerald
Funds. More information about shareholder voting rights can be found in the
Statement of Additional Information under "Description of Shares."
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a
Senior Partner of the law firm of Holland and Knight.
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<PAGE>
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership, a wholly-owned subsidiary of The BISYS Group,
Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc., located at the same address, is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286. The transfer and dividend paying agent for the Equity and Fixed
Income Funds is BISYS Fund Services, Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035; for the Prime and Treasury Funds, BISYS Fund
Services, Inc., located at 100 First Avenue, Suite 300, Pittsburgh, PA 15222.
ADVISER. As of December 31, 1995 Barnett had approximately $9.8 billion
under active management, with $3.2 billion in equity securities, $713 million in
taxable fixed income securities, $1.4 billion in treasury and government
securities, $1.5 billion in municipals and $2.8 billion in money market
instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered bank
holding company that has offered general banking services since 1877.
Barnett manages the investment portfolios of the Funds, including selecting
portfolio investments and making purchase and sale orders.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., a Senior Vice
President of Barnett, has been the portfolio manager of the Equity Fund since
September of 1993, and has also managed the Balanced Fund since it commenced
operations on April 11, 1994 and the Equity Value Fund since it commenced
operations on December 26, 1995. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in addition to these Funds currently manages a
diversified common stock fund and assists in preparing ongoing equity investment
strategy. Martin E. LaPrade, CFA, and Joseph E. Tannehill, CFA, have co-managed
the International Equity Fund since it commenced operations on December 26, 1995
and, along with Mr. Creighton, have co-managed the Equity Value Fund since it
commenced operations. Mr. LaPrade is a Senior Vice President with Barnett and
currently has 11 years of investment experience. He serves as a strategist and
an equity portfolio manager, with additional responsibility in asset allocation
research, and directs the asset allocation decisions for balanced account
management. He joined Barnett in 1978. Mr. Tannehill is a Vice President with
Barnett and currently has 9 years of investment experience. He is primarily
responsible for applying quantitative methods to equity security research. In
addition, he oversees the management of an enhanced index equity commingled
fund. He joined Barnett in 1986. Dean McQuiddy, C.F.A., a Vice President with
Barnett, has managed the Small Capitalization Fund since its commencement of
operations on January 4, 1994, and also
40
<PAGE>
manages the small capitalization portion of the Equity and Balanced Funds. Since
joining Barnett in 1983, Mr. McQuiddy has been an equity analyst and an
institutional portfolio manager, and for the last eight years has managed
Barnett's employee benefits small capitalization fund. Jacqueline Lunsford,
C.F.A., a Senior Vice President with Barnett, has managed the Short-Term Fixed
Income Fund since it commenced operations on April 11, 1994. Ms. Lunsford has
been with Barnett since 1988, and also manages money market mutual funds for
Emerald Funds and other customers. Andrew Cantor, C.F.A., a Senior Vice
President with Barnett, has managed the U.S. Government Securities Fund since
its inception in 1991, and has also managed the Managed Bond Fund since it
commenced operations on April 11, 1994. For the past eleven years, Mr. Cantor
has served as the senior fixed income manager in Barnett's Institutional
Investments Group, where his responsibilities have included setting fixed income
investment strategy and managing a number of major taxable fixed income
accounts, including several commingled funds.
Although expected to be infrequent, Barnett may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Barnett) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions or
dealer concessions. Barnett will not engage in this practice unless the
execution capability of and the amount received by such broker-dealer or other
company is believed to be comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio Limited Partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gains distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to a
shareholder or deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the International Equity and Small
Capitalization Funds' average daily net assets, .60% of each of the Equity,
Equity Value and Balanced Funds' average daily net assets, .40% of each of the
Short-Term Fixed Income, U.S. Government Securities and Managed Bond Funds'
average daily net assets and .25% of each of the Prime and Treasury Funds'
average daily net assets. The advisory
41
<PAGE>
fee payable by the International Equity and Small Capitalization Funds is higher
than those paid by most mutual funds, although the Board of Trustees believes it
is comparable to the advisory fees payable by many similar funds.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00% and .40% of the average
daily net assets of the Equity, Small Capitalization and U.S. Government
Securities Funds, respectively, and .23% and .24% of the average daily net
assets of the Prime and Treasury Funds, respectively. Barnett voluntarily waived
all fees for the Balanced, Short-Term Fixed Income and Managed Bond Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees
and expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
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In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund will be taxable to you.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares. If you hold shares for six months or less, and
during that time receive a distribution that is taxable as a long-term capital
gain, any loss you might realize on the sale of those shares will be treated as
a long-term loss to the extent of the earlier capital gains distribution.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the Equity,
Equity Value, International Equity, Small Capitalization or Balanced Funds, the
record date of dividends and capital gains distributions) should be aware that
the amount of the forthcoming dividend or distribution, although in effect a
return on capital, will be taxable.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders in the Equity and Fixed Income Funds may realize a taxable gain
or loss when redeeming, transferring or exchanging shares of a Fund, depending
on the difference in the prices at which the shareholder purchased and sold the
shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. If more than 50% of the value of this Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of such taxes against their federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes.
Except as stated below, shares of the Funds are not expected to qualify for
total exemption from the Florida intangibles tax. Shares of the Treasury Fund
may or may not qualify in any calendar year for this exemption from the Florida
intangibles tax. In order to qualify for this exemption, the Treasury Fund may
sell non-exempt assets held in its portfolio (such as repurchase agreements)
during the year and reinvest the proceeds in exempt assets, or hold cash, prior
to December 31.
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Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote its performance in
advertisements or shareholder communications. The performance for each class
of shares of a Fund is calculated separately from the performance of a Fund's
other classes of shares.
UNDERSTANDING PERFORMANCE:
- - Total return for each Fund (except the Prime and Treasury Funds) may be
calculated on an average annual total return basis or an aggregate total
return basis. Average annual total return reflects the average annual
percentage change in value of an investment over the measuring period.
Aggregate total return reflects the total percentage change in value of an
investment over the measuring period. Both measures assume the reinvestment
of dividends and distributions.
- - Yields for the Funds (except the Prime and Treasury Funds) are calculated for
a specified 30-day (or one-month) period by dividing the net income for the
period by the maximum offering price on the last day of the period, and
annualizing the result on a semi-annual basis. Yields for the Prime and
Treasury Funds are the income generated over a 7-day period (which period
will be identified in the quotation) and then assumed to be generated over a
52-week period and shown as a percentage of the investment. In addition, the
Prime and Treasury Funds may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than net
income used for accounting purposes.
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual
funds with similar investment objectives and to bond, stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor mutual fund performance.
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Equity and Fixed Income Funds may also be compared to
data prepared by Lipper Analytical Services, Inc., Mutual Fund Forecaster,
Wiesenberger Investment Companies Services, Morningstar or CDA Investment
Technologies, Inc., and total returns for the Funds may be compared to indices
such as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index,
the Lehman Brothers Bond Indices, the Merrill Lynch Bond Indices, the Wilshire
5000 Equity Indices or the Consumer Price Index.
The performance of the International Equity Fund may be compared to either
the Morgan Stanley Capital International Index or the FT World Actuaries Index.
The yield of the Prime Fund may be compared to the Donoghue's Money Fund
Average, which monitors the performance of money market funds. The yield of the
Treasury Fund may be compared to the Donoghue's Government Money Fund Average.
Additionally, the Prime and Treasury Funds' performance may be compared to data
prepared by Lipper Analytical Services, Inc.
44
<PAGE>
OTHER PERFORMANCE INFORMATION -- EQUITY, SMALL CAPITALIZATION, MANAGED BOND AND
SHORT-TERM FIXED INCOME FUNDS ONLY:
The Equity, Small Capitalization, Managed Bond and Short-Term Fixed Income
Funds commenced their initial investment operations in connection with the
transfer of assets from common trust funds managed by the Adviser for employee
benefit plan accounts. Set forth below is certain performance information
relating to those common trust funds before the Equity, Small Capitalization,
Managed Bond and Short-Term Fixed Income Funds registered as investment
companies with the Securities and Exchange Commission, together with the
performance information of these Funds since their commencement of operations.
These common trust funds were operated using substantially the same investment
objectives, policies, restrictions and methodologies as in the corresponding
Funds. During that time the common trust funds were not registered under the
1940 Act and therefore were not subject to certain investment restrictions that
are imposed by the Act. If the common trust funds had been registered under the
1940 Act, the common trust funds' performance might have been adversely
affected. Because the common trust funds did not charge any expenses, their
performance has been adjusted as stated below to reflect the Funds' estimated
expenses at the time of their inception. The following performance information
is not necessarily indicative of the future performance of the Funds. Because
each Fund is actively managed, its investments vary from time to time and are
not identical to the past portfolio investments of its predecessor common trust
fund. Each Fund's performance fluctuates so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED NOVEMBER 30, 1995
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Equity Fund (1).................................................... 35.21% 9.96% 13.49% 13.20%
Small Capitalization Fund (2)...................................... 32.30% 17.46% 25.58% 12.93%*
Managed Bond Fund (3).............................................. 18.36% 8.54% 10.03% 9.48%**
Short-Term Fixed Income Fund (4)................................... 10.80% 5.71% 7.17% 7.63%
</TABLE>
- ------------------------
(1) The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of
the predecessor common trust fund, assuming reinvestment of all net
investment income and capital gains and taking into account expenses of
0.49% of average daily net assets, which was the expected expense ratio of
shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Equity Fund also
assume reinvestment of all net investment income and realized capital gains
and take into account actual expenses of Retail Shares of the Fund for the
period from June 28, 1991 to March 1, 1994 and of Institutional Shares of
the Fund thereafter. The average annual total return of the Fund
(Institutional Shares) since its inception to November 30, 1995 is 14.22%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
(2) The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 1.35% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Small Capitalization Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Institutional Shares of
45
<PAGE>
the Fund. The average annual total return of the Fund (Institutional Shares)
since its inception to November 30, 1995 is 13.73%. During this period fee
waivers and expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(3) The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.27% of
average daily net assets, which was the expected expense ratio of
Institutional Shares of the Fund at the time of its inception. The average
annual total returns for the periods subsequent to the inception of the
Managed Bond Fund also assume reinvestment of all net investment income and
realized capital gains and take into account actual expenses of
Institutional Shares of the Fund. The average annual total return of the
Fund (Institutional Shares) since its inception to November 30, 1995 is
10.82%. During this period fee waivers and expense reimbursements were in
effect. Without these waivers and reimbursements the Fund's performance
would have been lower.
(4) The above information for the periods prior to inception of the Short-Term
Fixed Income Fund (4/11/94) is the average annual total return for the
periods indicated of the precedessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 0.28% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Short-Term Fixed Income Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Institutional Shares of the Fund. The average annual total
return of the Fund (Institutional Shares) since its inception to November
30, 1995 is 7.03%. During this period fee waivers and expense reimbursements
were in effect. Without these waivers and reimbursements the Fund's
performance would have been lower.
* Since inception of common trust fund: 12/31/86.
** Since inception of common trust fund: 4/30/87.
-------------------
Performance quotations will fluctuate, and you should not consider
quotations to be representative of future performance. You should also remember
that performance is generally a function of the kind and quality of investments
held in a portfolio, portfolio maturity, operating expenses and market
conditions. Fees that Barnett and other Institutions may charge directly to
their Customers in connection with an investment in the Funds will not be
included in the Funds' calculations of total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 33.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED INTO THIS PROSPECTUS
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 FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
46
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION......................... 3
Expenses............................................................ 3
Financial Highlights................................................ 5
INVESTMENT PRINCIPLES AND POLICIES.................................... 14
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS.................... 20
INVESTING IN EMERALD FUNDS............................................ 33
Your Money Manager.................................................. 33
Purchase of Shares.................................................. 33
Redemption of Shares................................................ 35
Dividends and Distributions......................................... 36
Explanation of Sales Price.......................................... 37
Exchange Privilege.................................................. 37
Other Service Providers............................................. 38
THE EMERALD FAMILY OF FUNDS........................................... 38
THE BUSINESS OF THE FUNDS............................................. 39
Fund Management..................................................... 39
Tax Implications.................................................... 42
Measuring Performance............................................... 44
</TABLE>
EMIEBMM96P
