<PAGE>
As filed with the Securities and Exchange Commission
on February 1, 1996
Securities Act File No. 33-20658
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 17 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 18 /X/
(Check appropriate box or boxes)
EMERALD FUNDS
----------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219-3035
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 614-470-8000
Jeffrey A. Dalke, Esquire
DRINKER BIDDLE & REATH
PNB Building
1345 Chestnut Street
Philadelphia, PA 19107
---------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
_________________________
The Registrant has previously filed a declaration of indefinite
registration of its shares of beneficial interest, $.001 par value per
share, of all classes of the Registrant, now existing or hereafter created,
under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice
with respect to the Prime Fund, Treasury Fund, Tax-Exempt Fund, Treasury
Trust Fund, Prime Trust Fund, Equity Fund, Small Capitalization Fund,
Balanced Fund, Short-Term Fixed Income Fund, U.S. Government Securities
Fund, Managed Bond Fund and Florida Tax-Exempt Fund for the fiscal year
ended November 30, 1995 was filed on January 29, 1996.
<PAGE>
EMERALD FUNDS
(Retail Shares of the Equity Fund, Equity Value Fund,
International Equity Fund,
Small Capitalization Fund, Balanced Fund,
Short-Term Fixed Income Fund, U.S. Government Securities Fund, Managed Bond
Fund and Florida Tax-Exempt Fund, and Investor Shares of the Prime Fund,
Treasury Fund and Tax-Exempt Fund)
FORM N-1A
CROSS REFERENCE SHEET
---------------------
Prospectus Heading
------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . Summary of Expenses and
Financial Information -
Expenses
3. Condensed Financial Summary of Expenses and
Information . . . . . . . . Financial Information -
Financial Highlights; The
Business of the Funds -
Measuring Performance
4. General Description of Cover Page; Risk Factors,
Registrant . . . . . . . . . Investment Principles and
Policies; Your Emerald Fund
Account - The Emerald Family
of Funds;
5. Management of the Investing in Emerald Funds -
Fund . . . . . . . . . . . . Your Money Manager; Investing
in Emerald Funds - Other
Service Providers; The
Business of the Funds - Fund
Management
5A. Management's Discussion Summary of Expenses and
of Fund Performance . . . . Financial Information -
Financial Highlights
6. Capital Stock and Other Your Emerald Fund Account -The
Securities . . . . . . . . . Emerald Family of Funds;
Investing in Emerald Funds -If
<PAGE>
You Have Questions; Investing
in Emerald Funds -How to Buy
Shares; Investing in Emerald
Funds - How to Sell Shares;
Investing in Emerald Funds -
Transaction Rules; Investing
in Emerald Funds -Getting Your
Investment Started; Your
Emerald Fund Account -
Dividends and Distributions;
The Business of the Funds -
Tax Implications; Risk
Factors, Investment Principles
and Policies
7. Purchase of Securities Investing in Emerald Funds -
Being Offered . . . . . . . Getting Your Investment
Started; Investing in Emerald
Funds - How to Buy Shares;
Investing in Emerald Funds -
Transaction Rules; Your
Emerald Fund Account -
Distribution and Service
Arrangements; Your Emerald
Fund Account - Shareholder
Services;
8. Redemption or
Repurchase . . . . . . . . . Investing in Emerald Funds -
How to Sell Shares; Investing
in Emerald Funds - Transaction
Rules
9. Pending Legal
Proceedings . . . . . . . . Not applicable (All Portfolios)
-2-
<PAGE>
EMERALD
FUNDS
EMERALD EQUITY FUND
__________
EMERALD EQUITY VALUE FUND
__________
EMERALD INTERNATIONAL EQUITY FUND
__________
EMERALD
SMALL CAPITALIZATION FUND
__________
EMERALD BALANCED FUND
__________
EMERALD SHORT-TERM
FIXED INCOME
__________
EMERALD U.S. GOVERNMENT
SECURITIES FUND
__________
EMERALD MANAGED
BOND FUND
__________
EMERALD
FLORIDA TAX-EXEMPT FUND
__________
EMERALD PRIME FUND
__________
EMERALD TREASURY FUND
__________
EMERALD TAX-EXEMPT FUND
April 1, 1996
__________
1996
<PAGE>
TABLE OF CONTENTS
Page
----
HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 9
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES. . . . . . . . . . . . . . 19
INVESTING IN EMERALD FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 39
Your Money Manager. . . . . . . . . . . . . . . . . . . . . . . . 39
Getting Your Investment Started . . . . . . . . . . . . . . . . . 39
If You Have Questions . . . . . . . . . . . . . . . . . . . . . . 40
Other Service Providers . . . . . . . . . . . . . . . . . . . . . 40
How To Buy Shares . . . . . . . . . . . . . . . . . . . . . . . 42
Opening and Adding to Your Emerald Fund Account . . . . . . . . . 42
Explanation of Sales Price. . . . . . . . . . . . . . . . . . . . 45
How To Sell Shares. . . . . . . . . . . . . . . . . . . . . . . . 46
Transaction Rules . . . . . . . . . . . . . . . . . . . . . . . . 48
YOUR EMERALD FUND ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . 50
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . 50
Dividends And Distributions . . . . . . . . . . . . . . . . . . . 52
Shareholder Service Arrangements. . . . . . . . . . . . . . . . . 53
The Emerald Family Of Funds . . . . . . . . . . . . . . . . . . . 54
THE BUSINESS OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . 56
Fund Management . . . . . . . . . . . . . . . . . . . . . . . . . 56
Tax Implications. . . . . . . . . . . . . . . . . . . . . . . . . 59
Measuring Performance . . . . . . . . . . . . . . . . . . . . . . 61
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
IF YOU HAVE QUESTIONS
<S> <C> <C>
[800/637-6336] [800/637-3759] [800/462-2895]
8:00 am-5:00 pm 8:00 am-5:00 pm 24 hours a day
To open an account or if you have For assistance with an existing For voice recorded
questions regarding investment Emerald Fund account, to price and yield information
objectives and policies obtain your balance, request a
telephone transaction,
or change your account features
If you are investing in the Emerald Funds through an account with Barnett Securities, Inc. or another
Service Organization, you may choose to speak directly with your assigned Investment Officer or contact person.
___________________________________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
E M E R A L D
F U N D S
PROSPECTUS FOR EQUITY,EQUITY VALUE, INTERNATIONAL EQUITY,SMALL CAPITALIZATION, BALANCED,
SHORT-TERM FIXED INCOME, U.S. GOVERNMENT SECURITIES, MANAGED BOND,
FLORIDA TAX-EXEMPT, PRIME, TREASURY AND TAX-EXEMPT FUNDS
March 15, 1996
- ------------------------------------------------------------------------------------------------------------------------------
Emerald Fund Goal For Investors Who Want
------------ ---- ----------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation with income as a Long-term capital appreciation with the risks
secondary objective through investments associated with investments in uncdervalued
primarily in common and preferred stock and debt stocks
securities convertible into common stock
- ------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation through Capital appreciation over the long-term and
investments primarily in equity securities of are willing to accept the relative risks
foreign issuers associated with foreign investments
- ------------------------------------------------------------------------------------------------------------------------------
SMALL Long-term capital appreciation Long-term rewards that may exceed those
CAPITALIZATION provided by a fund investing in larger, more
established companies and can accept the
investment 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
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM Consistently positive current income with Current income greater than normally available
FIXED INCOME relative stability of principal through from a money market fund and less principal
investments in investment grade securities and volatility than normally associated with a
high quality money market instruments long-term fund
- ------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income through investments Current income from U.S. Government securities
SECURITIES principally in U.S. Government securities and and can accept fluctuations in price and yield
repurchase agreements
- ------------------------------------------------------------------------------------------------------------------------------
MANAGED BOND High level of current income and, secondarily, Current income from corporate and government
capital appreciation securities and can accept fluctuations in
price and yield
- ------------------------------------------------------------------------------------------------------------------------------
FLORIDA High tax-free income and current liquidity and, Current income from an investment that is both
TAX-EXEMPT secondarily, long-term capital appreciation free from regular 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 manage cash
preservation of capital through investments in while earning money market returns
short-term money market instruments
- ------------------------------------------------------------------------------------------------------------------------------
TREASURY High current income, liquidity and the A way to earn money market returns with the
preservation of capital through investments in extra margin of safety associated with U.S.
short-term U.S. Treasury and other government Government obligations
obligations, as well as related repurchase
agreements
- ------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT High current income free of federal income tax, A way to earn tax-free money market returns
with liquidity and the preservation of capital
through investment in short-term municipal
obligations
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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.
-2-
<PAGE>
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 that has been filed with the Securities and Exchange Commission.
The Statement of Additional Information can be obtained free upon request by
calling [800/637-6336]. The Statement of Additional Information is dated
April 1, 1996 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.
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.
_______________________________________________________________________________
-3-
<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 billion] under active management.
A subsidiary of Wilmington Trust Company serves as sub-adviser to the Emerald
Tax-Exempt Fund. [Name] serves as sub-adviser to the Emerald International
Equity 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 Equity or Fixed Income Fund. In addition, Retail Shares of
any Equity or Fixed Income Fund may be exchanged for Investor Shares of the
Money Market Funds.
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.
-4-
<PAGE>
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.
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 "Risk Factors, Investment Principles and Policies."
-5-
<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 (as a percentage
of offering price). . . . . . . . . None None None None None
Sales Charge Imposed on Reinvested
Dividends . . . . . . . . . . . . . None None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever
is lower) . . . . . . . . . . . . . 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(1). . . . . . . . . . 0.60% 0.60% 1.00% 1.00% 0.00%
12b-1 Fees. . . . . . . . . . . . . 0.25% 0.25% 0.25% 0.25% 0.25%
Shareholder Servicing Fees. . . . . 0.25% 0.25% 0.25% 0.25% 0.25%
All Other Expenses. . . . . . . . . 0.23% 0.15% 0.15% 0.01% 0.23%
----------- ---------- ------------- -------------- -------------
Total Fund Operating Expenses
After Fee
Waivers and Expense
Reimbursements (1)(2) . . . . . . 1.33% 1.25% 1.65% 1.51% 0.73%
----------- ---------- ------------- -------------- -------------
----------- ---------- ------------- -------------- -------------
__________________________________
(1) See footnote (1) on page [8].
(2) See footnote (2) on page [8].
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
SHORT-TERM FIXED U.S. GOVERNMENT
INCOME FUND SECURITIES FUND MANAGED BOND FUND
----------------- --------------- -----------------
<S> <C> <C> <C>
Shareholder Transaction
Expenses:
Front End Sales Charge Imposed on
Purchases (as a percentage
of offering price) . . . . . . . . . None None None
Sales Charge Imposed on Reinvested
Dividends . . . . . . . . . . . . . None None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) . . . . . . . . None None None
Redemption Fee . . . . . . . . . . . None None None
Exchange Fee . . . . . . . . . . . . None None None
Annual Fund Operating Expenses
After Fee Waivers and Expense
Reimbursements (as a percentage
of average net assets):
Advisory Fees(1) . . . . . . . . . . 0.00% 0.40% 0.00%
12-1 Fees . . . . . . . . . . . . . . 0.25% 0.25% 0.25%
Shareholder Servicing Fees . . . . . 0.25% 0.25% 0.25%
All Other Expenses . . . . . . . . . 0.23% 0.24% 0.22%
----------------- --------------- -----------------
Total Fund Operating Expenses
After Fee
Waivers and Expense
Reimbursements (1)(2) . . . . . . . 0.73% 1.14% 0.72%
----------------- --------------- -----------------
----------------- --------------- -----------------
__________________________________
(1) See footnote (1) on page 8.
(2) See footnote (2) on page 8.
</TABLE>
-7-
<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 (as a percentage
of offering price) . . . . . . . . . None None None None
Sales Charge Imposed on Reinvested
Dividends . . . . . . . . . . . . . None None None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) . . . . . . . . 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(1). . . . . . . . . . . 0.40% 0.23% 0.24% 0.13%
12b-1 Fees. . . . . . . . . . . . . . 0.25% 0.25% 0.25% 0.25%
Shareholder Servicing Fees . . . . . 0.25% 0.25% 0.25% 0.25%
All Other Expenses . . . . . . . . . 0.23% 0.19% 0.19% 0.19%
----------- ----------- ------------ ----------
Total Fund Operating Expenses
After Fee Waivers and
Expense Reimbursements(1)(2) . . . . 1.13% 0.91% 0.92% 0.82%
----------- ----------- ------------ ----------
----------- ----------- ------------ ----------
__________________________________
(1) Without fee waivers by the adviser, investment management fees as a percentage
of net assets would be .60%, .40%, .40%, .25%, .25%, and .25% for the Balanced
Fund, Short-Term Fixed Income Fund, Managed Bond Fund, Prime Fund, Treasury
Fund and Tax-Exempt Fund, respectively. 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.
(2) 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 the Funds. The
operating expenses for the Funds have been restated using current fee rates
that would have been applicable had they been in effect during the previous
fiscal year.
</TABLE>
-8-
<PAGE>
EXAMPLE: Let's say, hypothetically, that the annual return on each of the
Funds 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 . . . . . . . . $13 $40 $69 $151
International Equity Fund . . . . $17 $52 $90 $195
Small Capitalization Fund . . . . $15 $48 $82 $160
Balanced Fund . . . . . . . . . . $ 7 $23 $41 $ 91
Short-Term Fixed Income Fund . . $ 7 $23 $41 $ 91
U.S. Government Securities Fund . $12 $36 $63 $139
Managed Bond Fund . . . . . . . . $ 7 $23 $40 $ 89
Florida Tax-Exempt Fund . . . . . $12 $36 $62 $137
Prime Fund . . . . . . . . . . . $ 9 $29 $50 $112
Treasury Fund . . . . . . . . . . $ 9 $29 $51 $113
Tax-Exempt Fund . . . . . . . . . $ 8 $26 $46 $101
- -------------------------
</TABLE>
The Example shown above should not be considered a representation of future
investment returns or operating expenses. Actual investment returns and
operating expenses may be more or less than those shown.
-9-
<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 for the five years in the period ended November 30, 1995, containing
such information are incorporated by reference into the Statements of
Additional Information (which can be obtained free of charge by calling
[800/637-6336]). 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, 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 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 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)
------ ------- -------- -------- -------
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 (excludes
sales charge). . . . . . . . . . 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 $52,939 $98,953
Ratio of expenses to average
net assets . . . . . . . . . . 1.37% 1.07% 0.86% 0.76% --
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%
______________________
(*) 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.
</TABLE>
-10-
<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 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 (excludes sales charge) . . . . . . 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%
______________________
(*) 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.
</TABLE>
-11-
<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 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 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 (excludes sales charge) . . . . . . . . . 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%
______________________
(*) 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.
</TABLE>
-12-
<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 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 gains 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 (excludes sales charge) . . . . . . . . . 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%
______________________
(*) 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.
</TABLE>
-13-
<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 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 . . . . . . . . . . . . . . . . . $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) --
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% --
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%
______________________
(*) 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.
</TABLE>
-14-
<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 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 gains (losses) 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.
-15-
<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 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 . . . . . . . . . . . . $ 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 (losses) 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) -- (0.04) --
------ ------- --------- ------- -------
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% --
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.
-16-
<PAGE>
EMERALD PRIME FUND
Financial highlights for an 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 . . 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 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) 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 TREASURY FUND
Financial highlights for an 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 (loss)
on securities . . . . . (0.0003) (0.0001) 0.0000 0.0000 0.0000
--------- -------- -------- -------- --------
Total income 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) 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.
-18-
<PAGE>
EMERALD TAX-EXEMPT FUND
Financial highlights for an 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
on securities . . . . . (0.0003) 0.0000 0.0001 0.0000 0.0000
------- -------- -------- -------- --------
Total income 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) 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.
-19-
<PAGE>
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES --
The Funds' investment adviser (the "Adviser") and, with respect to the
International Equity and Tax-Exempt Funds, the Funds' sub-advisers
(respectively, the "International Equity Fund's Sub-Adviser" and the "Tax-
Exempt Fund's Sub-Adviser" and collectively, the "Sub-Advisers") 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-Advisers 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 common stocks 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 15% of
its assets in the types of equity securities permissible for the Small
Capitalization Fund. These include securities of smaller companies with a
market capitalization between $50 million and $2 billion at the time of
purchase. Through these investments, the Fund seeks to provide investors with
potentially greater long-term rewards than those provided by investments in
larger, more established companies. While the smaller capitalization
companies may provide opportunities for greater investment gains, they are
typically subject to a greater degree of change in business prospects.
Additionally, they are traded in lower volume than securities issued by larger
companies and may be more volatile than larger capitalization stocks. In
making investment decisions, the Adviser assesses factors such as trading
liquidity, financial condition, earnings stability, reasonable market
valuation and profitability as measured by return on equity.
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.
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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 also seeks to purchase stock with a projected price-earnings ratio
below that of 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 over 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.
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 75% 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 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, consisting of 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.
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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.
Securities issued in certain countries are currently accessible to the Fund
only through investment in other investment companies that are specifically
authorized to invest in such securities. In addition, the Fund may invest in
securities of foreign issuers in the form of ADRs or EDRs.
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be invested 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 short-term investments
for a limited time pending availability of suitable equity securities. During
normal market conditions, no more than 25% 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 indexes 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
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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. 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, trends
and 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 normally increase the Fund's
equity holdings while reducing its fixed-income and cash equivalent holdings.
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 18 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.
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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.
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
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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."
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 objectives, 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
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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 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.
PRIME FUND, TREASURY FUND AND TAX-EXEMPT FUND
The investment objective of both the Prime and 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 Prime Fund pursues
its objective by investing in a broad range of government, bank and corporate
obligations that can be found in the money markets. The Treasury Fund seeks
to achieve its objective by investing in obligations that the U.S. Government
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 Fund are not themselves issued or
guaranteed by the U.S. Government or any of its agencies. U.S. Government
obligations include Treasury bills, certain Treasury strips, certificates of
indebtedness, notes and bonds, and obligations of other agencies and
instrumentalities that are backed by 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 assets in these municipal obligations. The Fund may also invest
up to 20% of its total 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
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$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
SPECIAL RISK CONSIDERATIONS
- - 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
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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 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. Government 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 other 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
instruments may be variable or floating rate instruments.
- - 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. 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.
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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 conduits, or REMICS. 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
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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, Eurobonds, 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 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 or Sub-Adviser, pursuant
to guidelines established by the Board of Trustees. During the term of any
repurchase agreement, the Adviser or 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. 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
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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. 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. Government, 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 TIGRs
and 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 Emerald Funds' 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
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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.
- - 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
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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 exclusively of securities of
issuers located in one foreign country. Securities of other investment
companies will be acquired by a Fund within the limits prescribed by the
Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund
currently intends to limit these investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the 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.
- - 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 a 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
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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 or Sub-Adviser deems to be of good standing, and will only be made if
the Adviser thinks the possible rewards from such loan justify the possible
risks. A loan will not be made if, as a result, the total amount of a Fund's
outstanding loans exceeds 33% 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. In 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 leveraged issuers may experience financial stress which
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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 values 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. All options will be listed on a
national securities exchange and issued by the Options Clearing Corporation.
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
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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
can request by calling [800/367-5905].
- - 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
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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 15% 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 International Equity and Tax-Exempt Funds) 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 10% 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 100%.
- - 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
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securities subsequent to their acquisition will not affect cash income from
such securities but will be reflected in a Funds' net asset values.
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 Tax-Exempt and Prime 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.
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.
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.
If Florida or any of its political subdivisions should suffer serious
financial difficulties to the extent its 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.
-38-
<PAGE>
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.
For your information, set forth below is the month-end average distribution of
ratings (at value) for the Florida Tax-Exempt Fund for its fiscal year ended
November 30, 1995.
Percentage Percentage
S&P of Value Moody's of Value
- --- -------- ------- --------
AAA 37% Aaa 38%
AA 28% Aa 27%
A 6% A 6%
BBB 29% Baa 10%
Not rated 0% Not rated 19%
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.
-39-
<PAGE>
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 (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 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 only, Barnett has entered into a sub-advisory
agreement with a subsidiary of Wilmington Trust Company to provide daily
portfolio management for that Fund. For the International Equity Fund only,
Barnett has entered into a sub-advisory agreement with [ ? ] 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 125 W. 55th Street, New York, New York 10019.
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 an
Investment Officer 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 an Investment Officer
of Barnett Securities, Inc. Call the Emerald Funds Center at [800/637-6336]
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."
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<PAGE>
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 normally be in U.S. dollars and in order to
avoid fees and delays should be drawn on a U.S. bank. Please remember that
Emerald Funds retains the right to reject any purchase order.
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
numbers 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 Investment Officer or contact
person.)
- --------------------------------------------------------------------------------
CALL FOR INFORMATION
[800/637-6336] Regarding the Funds' investment objectives
8:00 am to 5:00 and policies or for information about opening
pm an account (including information regarding
Eastern time the Equity and Fixed Income Funds'
alternative purchase options).
- --------------------------------------------------------------------------------
[800/637-3759] If you are a direct investor with Emerald
9:00 am to 5:00 Funds and need assistance with your account,
pm to obtain your account balance or to request
Eastern time a telephone transaction. Information on
changing your Emerald Funds' services, and
Statements of Additional Information, are
also available at this number.
- --------------------------------------------------------------------------------
[800/462-2895] For voice recorded price and yield
24 hours a day information.
- --------------------------------------------------------------------------------
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:
Confirmation Statements After every transaction (other than an E-Z Matic
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.
-41-
<PAGE>
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 [800/637-6336].
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 Concord.
Mutual funds structured like the Funds sell shares on a continuous basis. The
Funds' shares are sold through 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.
-42-
<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>
<CAPTION>
-----------------------------------------------
MINIMUM INVESTMENT SPECIAL MINIMUMS
-----------------------------------------------
To Open Additional To Open Additional
Account Investments Account Investments
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Regular Account $1,000 $100 $100(1); --
$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>
(*) 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.
(**) 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-
6336]. As described above under "Getting Your Investment Started," you may
also purchase Fund shares through Barnett Securities, Inc. or another Service
Organization.
-43-
<PAGE>
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- --------------------------------------------------------------------------------
BY MAIL - Complete an Account - Make your check payable to
Registration Form and mail the particular Fund in which
it along with a check you are investing and mail
payable to the particular it to the address at left
Fund you want to invest in
to: Emerald Funds, - Please include your account
number on your check
- Or use the convenient form
attached to your regular
Fund statement
- --------------------------------------------------------------------------------
IN PERSON - Deliver the Account - Deliver your check payable
Registration Form and your to the particular Fund in
check payable to the which you are investing
particular Fund in which you to BISYS Ohio at
are investing directly
to BISYS OHIO at
- Please include your account
number on your check
- ------------------------------------------------------------------------------
BY WIRE - Ask your bank to send - Ask your bank to wire
immediately available funds immediately available funds
by wire to as described at left, except
that the wire should note
that it is to make a
subsequent purchase rather
than to open a new account
- Include your Fund account
number
- The wire should say that the
purchase is to be in your
name
- The wire should say that you
are opening a new Fund
account (if an Account
Registration Form is not
received for a new account
within 30 days after the
wire is received, dividends
and redemption proceeds from
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
- --------------------------------------------------------------------------------
-44-
<PAGE>
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- --------------------------------------------------------------------------------
TELETRADE - TeleTrade transactions may - Call [800/637-3759] to make
(PURCHASES not be used for initial your purchase
BY TELEPHONE purchases. If you want to
TRANSFERRING make subsequent transactions
MONEY FROM via TeleTrade, please select
YOUR this service on your Account
CHECKING, Registration Form or
NOW OR BANK call [800/637-3759] to set up
MONEY MARKET the service
ACCOUNT)
- --------------------------------------------------------------------------------
E-Z MATIC IN- - You must first complete an - You must first complete an
VESTMENT (AL- Account Registration Form Account Registration Form.
LOWS REGULAR and select the E-Z Matic Call [800/637-6336] to find
INVESTMENT option out how to set up this
WITHOUT ON- service
GOING PAPER- - Call [800/637-6336] for
WORK) more information - Additional purchases will
then automatically be made
as directed by you
- --------------------------------------------------------------------------------
PERIODIC - You must first complete an - You must first complete an
INVESTMENT authorization letter for authorization letter for
PLAN (ALLOWS Periodic Investment Plan and Periodic Investment Plan.
REGULAR select an investment Call [800/637-6336] to find
INVESTMENT schedule and investment out more about this service
THROUGH YOUR amount
BROKER) - Additional purchases will
- Call [800/637-6336] for automatically be made as
more information directed by you
- --------------------------------------------------------------------------------
EXCHANGES - You must sign up for this - After the privilege is
AMONG privilege on the Account established, you may
EMERALD Registration Form when you exchange shares by
FUNDS open your account. To add calling [800/637-3759]
this option to an existing
account call [800/637-3759] - Exchanges can also be
requested by sending written
instruction to Emerald
- Exchanges can also be Funds,
requested by sending written
instructions to Emerald
Funds, or by delivering
written instructions - Retail Class shares may
directly to [BISYS OHIO] be exchanged for Retail Class
Shares in other
Funds.
- Retail Class Shares may
be exchanged for Retail Class
Shares in other Funds.
- --------------------------------------------------------------------------------
-45-
<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 the class, subtracting the Fund's liabilities
attributable to that class, and then dividing the result by the number of
shares in the 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 [800/637-6336].
Net asset value is computed at the times shown in this chart:
Money Market Funds
--------------------------------------
Equity and Fixed Prime and Tax-Exempt
Income Funds: Treasury Funds: Fund:
- ----------------------- -------------------- --------------
On all days the New York On the days Money Market
Stock Exchange (the Funds can be bought and sold
"Exchange) is open (see chart below)
At the close of regular 2 p.m. 12 noon
trading hours on the (Eastern time) (Eastern time)
Exchange (currently 4 p.m.
Eastern time)
- --------------------------------------------------------------------------------
The Funds observe the holidays shown in this chart:
Equity and Money
Fixed Income Funds Observed Holiday Market Funds
------------------ ---------------- ------------
Closed New Year's Day Closed
Open for Business Martin Luther King, Closed
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
- --------------------------------------------------------------------------------
-46-
<PAGE>
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, phone or hand delivery 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.
- -------------------------------------------------------------------------------
HOW TO REDEEM SHARES ADDITIONAL LIMITATIONS
- -------------------------------------------------------------------------------
TELETRADE - After you have signed up for - Not available for shares for
(YOUR BANK TeleTrade privileges you may which you have requested
ACCOUNT MUST sell your shares via phone share certificates
BE A by calling [800/637-3759]
CHECKING,
NOW OR BANK
MONEY MARKET
ACCOUNT)
- --------------------------------------------------------------------------------
BY MAIL - Send a signed request (each - Requests greater than
owner, including each joint $10,000 must be signature
owner, must sign) to [name guaranteed
of the particular Fund whose
shares you are - Any stock certificates for
selling], [P.O. shares being redeemed must
BOX____________, COLUMBUS, be included with your
OHIO 43219-3035 request, endorsed for
transfer and signature
guaranteed
- --------------------------------------------------------------------------------
AUTOMATIC - Withdrawals begin after you - Your account must have a
WITHDRAWAL have signed up for this total net asset value of at
(PERMITS service least $5,000
AUTOMATIC
WITHDRAWAL - Call [800-637-6336] for - The transaction amount must
OF PRE- more information be at least a $50 minimum
ARRANGED
AMOUNT)
- --------------------------------------------------------------------------------
IN PERSON - Deliver your written request - Requests must be signed by
directly to BISYS OHIO, 3435 each owner, including each
STELZER ROAD, COLUMBUS, OHIO joint owner
43219-3035
- Requests greater than
$10,000 must be signature
guaranteed
- Any stock certificates for
shares being redeemed must
be submitted along with your
request, endorsed for
transfer and signature
guaranteed
- --------------------------------------------------------------------------------
-47-
<PAGE>
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES ADDITIONAL LIMITATIONS
- --------------------------------------------------------------------------------
BY WIRE - After you have signed up for - The Transfer Agent may act
wire redemption privileges upon such a request from any
on the Account Registration person representing him or
Form, you may instruct the herself to be you and
Transfer Agent to wire your reasonably believed by the
redemption proceeds to your Transfer Agent to be genuine
bank account by sending a
request in writing, by - The transaction amount must
phone [(800/637 be a $1,000 minimum
- This privilege may be
subject to limits regarding
frequency and overall amount
- Not available for shares on
which you have requested
share certificates
- --------------------------------------------------------------------------------
Redemption requests are processed when received in proper form by Emerald
Funds at the net asset value per share next determined after such receipt.
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
-48-
<PAGE>
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.
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. For economy and convenience, share certificates will be issued
only if expressly requested in writing. 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
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TELETRADE PAYMENT USED FOR INVESTMENT HAS CLEARED, WHICH MAY TAKE UP TO SEVEN
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 SEVEN 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.
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
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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 Class
Shares may be exchanged for Retail Class 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 Class shares in an Equity and Fixed Income Fund for Institutional
Class Shares (which are described under "The Emerald Family of Funds" below)
in the same Fund. Conversely, Institutional Class Shares may be exchanged
for Retail Class 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
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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.
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
________, Columbus, Ohio 43219-3035]. 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.
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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 [name of Fund]
c/o BISYS Ohio
[P.O. Box ______
Columbus, Ohio 43219-3035]
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?
- --------------------------------------------------------------------------------
Dividends are
-------------------------------
Fund Declared Paid
- ------------------------ -------- ----
(1)Equity, Equity Value Quarterly Quarterly
and Balanced
(2)International Equity Annually Annually
and Small
Capitalization
(3)Short-Term Fixed Daily Monthly within five
Income, U.S. Government business days of
Securities, Managed month end
Bond and Florida Tax-
Exempt
(4)Prime, Treasury and Daily Monthly within five
Tax-Exempt business days of
month end
- --------------------------------------------------------------------------------
(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 the Business Day such shares
are redeemed.
(4)Shares 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 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 the shares to which such Plan relates. If more money is due the
Distributor than it can collect in any month because of this limitation, the
unpaid amount may be carried forward until it can be paid. Similarly, if in
any month the Distributor does not expend the entire amount to which it would
otherwise be entitled, this amount may be used as a credit and drawn upon to
permit the payment of expenses in the future. Neither of these amounts,
however, is payable beyond the fiscal year in which they accrue. The sales
charge and distribution fee is used to pay and provide compensation for the
distribution of Fund 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. The
distribution fee and any sales charge applicable to a particular class 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 Fund's distributor; arranging for wiring of funds;
transmitting and receiving funds in connection with Client orders to purchase
or redeem Shares; processing dividend payments; verifying and guaranteeing
Client signatures in connection with redemption orders and transfers and
changes in Client-designated accounts, as necessary; providing periodic
statements showing a Client's account balance and, to the extent practicable,
integrating such information with other Client transactions otherwise
effected through or with us; furnishing (either separately or on an
integrated basis with other reports sent to a Client by us) periodic
statements and confirmations of purchases, exchanges and redemptions;
transmitting on behalf of the Funds, proxy statements, annual reports,
updating prospectuses and other communications from the Funds to Clients;
receiving, tabulating and transmitting to the Funds proxies executed by
Clients with respect to shareholder meetings; 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.
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If you are a client of Barnett Securities, Inc. or another Service
Organization, you should note that they may charge you 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 or otherwise. 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 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 customers' 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
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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 (Retail Shares and Institutional Shares) of each Equity and Fixed Income
Funds, and has also authorized the issuance of an unlimited number of shares
in each of three share classes (Investor Shares, Emerald Shares and Emerald
Service Shares) 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 [39].
Persons selling or servicing different classes of shares of the Funds may
receive different compensation with respect to one particular class of shares
as opposed to another in the same Fund. In addition, as noted above, the
differences in the expenses paid by the respective classes will affect their
performance. Institutional Shares, Emerald Shares and Emerald Service Shares
do not currently enjoy share exchange privileges between Funds and certain
other privileges.
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 limits.
Only Retail Class shareholders, however, will vote on matters pertaining to
the Plans for Retail Class Shares. Similarly, only holders of Investor Shares
will vote on matters pertaining to the Plans for those shares and only holders
of Emerald Service shares will vote on matters pertaining to the Shareholder
Services 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 Advisor
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.
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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.
- - Albert 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 "Tax-Exempt
Fund's 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. [____________ (referred to as the
"International Equity Fund's Sub-Adviser") acts as Sub-Adviser for the
International Equity Fund and is located at _________________.] Concord Holding
Corporation (referred to as "Concord"), a wholly-owned subsidiary of The BISYS
Group, Inc., is located at 3435 Steltzer Road, Columbus, Ohio 43219-3035
and serves as the Funds' administrator, and Concord's wholly-owned subsidiary,
Emerald Asset Management, Inc., located at 125 W. 55th Street, New York, New
York 10019 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-ADVISERS. 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
Advisers manage the investment portfolios of the International Equity Fund and
Tax-Exempt Fund in accordance with investment requirements and policies
established by Barnett.
As of December 31, 1995 Barnett had approximately [$___ BILLION UNDER ACTIVE
MANAGEMENT, WITH $___ BILLION IN EQUITY SECURITIES, $___ MILLION IN TAXABLE
FIXED INCOME SECURITIES, $___ BILLION IN TREASURY AND GOVERNMENT SECURITIES,
$___ BILLION IN MUNICIPALS AND $___ BILLION IN MONEY MARKET INSTRUMENTS].
Barnett is a subsidiary of Barnett Banks, Inc., a registered bank holding
company that has offered general banking services since 1877. Wilmington
Trust Company, the parent organization of the Tax-Exempt Fund's Sub-
Adviser and a Delaware banking corporation, is in turn a wholly-owned
subsidiary of Wilmington Trust Corporation, a registered bank holding company.
The Tax-Exempt Fund's Sub-Adviser provides management services to a number of
mutual funds with total assets on December 31, 1995 of [$___ billion].
[_______], the International Equity Fund's Sub-Adviser is a [____________].
The International Equity Fund's Sub-Adviser provides management services to a
number of mutual funds with total assets on December 31, 1995 of
[___________________.]
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 of 1993, and has also managed the Balanced Fund since it
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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 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 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 a Sub-Adviser) may consider the
amount of Fund shares sold by broker-dealers and others (including those who
may be connected with Barnett or a 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-
Advisers) 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 a Delaware corporation 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 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. Certain officers of Emerald Funds, namely
Mr. Blundin, are also officers and/or directors of BISYS and the Distributor.
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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 fee payable by the International
Equity 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
international 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-
Advisers for the International Equity and Tax-Exempt Funds comes out of
Barnett's advisory fee for those respective Funds 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 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.
For the fiscal year ended November 30, 1995 the Funds paid administration
fees, after waivers, to the prior administrator under the administration
agreements then in effect, at the effective rate of .08% of the average
daily net assets of each Fund.
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
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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 portfolios 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. 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 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 receive 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 the Florida Tax-Exempt or the Tax-Exempt Funds hold 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 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 these Funds in
-60-
<PAGE>
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
created 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, Equity Value, International Equity, Small Capitalization or Balanced
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 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.
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. Shareholder 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.
-61-
<PAGE>
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
$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, its 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 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 THE FUNDS' 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 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
-62-
<PAGE>
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.
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 Indexes, the Merrill Lynch Bond Indexes,
the Wilshire 5000 Equity Indexes or the Consumer Price Index. 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 Investor Shares may be compared to the DONOGHUE'S
MONEY FUND AVERAGE which monitors the performance of money market funds, the
yields of Treasury Fund Investor Shares may be compared to the DONOGHUE'S
GOVERNMENT MONEY FUND AVERAGE, and the yields of Tax-Exempt Fund Investor
Shares may be compared to DONOGHUE'S TAX-FREE MONEY FUND AVERAGE.
Additionally, the Money Market Funds' performance may also be compared to
data prepared by Lipper Analytical Services, Inc.
______________________________
SPECIAL INFORMATION FOR INVESTORS IN THE FLORIDA TAX-EXEMPT FUND:
You may find it particularly useful to compare the tax-free yields of the
Florida Tax-Exempt Fund to the equivalent yields 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 1995.)
<TABLE>
<CAPTION>
Taxable Income Tax Exempt Yield
- ---------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
</TABLE>
-63-
<PAGE>
<TABLE>
<CAPTION>
Single Return Joint Return Bracket Equivalent Taxable Yield
----------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Not over $22,750 Not over $38,000 15.000% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
22,751 - 55,100 38,001 - 91,850 28.000% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
55,101 - 115,000 91,851 - 140,000 31.000% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
115,001 - 250,000 140,001 - 250,000 36.000% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
Over 250,000 Over 250,000 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 $108,450 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 [39.]
______________________________
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.
-64-
<PAGE>
EMERALD FUNDS
(Prime Trust Fund and Treasury Trust Fund)
FORM N-1A
CROSS REFERENCE SHEET
---------------------
Prospectus Heading
------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . Summary of Expenses and
Financial Information -
Expenses
3. Condensed Financial Summary of Expenses and
Information . . . . . . . . Financial Information -
Financial Highlights; The
Business of the Funds -
Measuring Performance
4. General Description of Cover Page; Risk Factors,
Registrant . . . . . . . . . Investment Principles and
Policies; Your Emerald Fund
Account - The Emerald Family
of Funds;
5. Management of the Investing in Emerald Funds -
Fund . . . . . . . . . . . . Your Money Manager; Investing
in Emerald Funds - Other
Service Providers; The
Business of the Funds - Fund
Management
5A. Management's Discussion Summary of Expenses and
of Fund Performance . . . . Financial Information -
Financial Highlights
6. Capital Stock and Other Your Emerald Fund Account -The
Securities . . . . . . . . . Emerald Family of Funds;
Investing in Emerald Funds -If
You Have Questions; Investing
in Emerald Funds -How to Buy
Shares; Investing in Emerald
Funds - How to Sell Shares;
Investing in Emerald Funds -
Transaction Rules; Investing
in Emerald Funds -Getting Your
<PAGE>
Investment Started; Your
Emerald Fund Account -
Dividends and Distributions;
The Business of the Funds -
Tax Implications; Risk
Factors, Investment Principles
and Policies
7. Purchase of Securities Investing in Emerald Funds -
Being Offered . . . . . . . Getting Your Investment
Started; Investing in Emerald
Funds - How to Buy Shares;
Investing in Emerald Funds -
Transaction Rules; Your
Emerald Fund Account -
Distribution and Service
Arrangements; Your Emerald
Fund Account - Shareholder
Services;
8. Redemption or Investing in Emerald Funds -
Repurchase . . . . . . . . How to Sell Shares; Investing
in Emerald Funds - Transaction
Rules
9. Pending Legal Proceedings . . Not applicable (All Portfolios)
-2-
<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
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 EACH FUND 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.
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 that has been filed with the Securities and Exchange
Commission. The Statement of Additional Information can be obtained free upon
request by calling 1-800-367-5905. The Statement of Additional Information is
dated April 1, 1996 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.
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.
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS TREASURY TRUST PRIME TRUST
(as a percentage of average net assets) FUND FUND
-------------- -----------
Advisory Fees 0.13% 0.13%
12b-1 Fees 0.00% 0.00%
Shareholder Service Fees 0.00% 0.00%
All Other Expenses 0.15% 0.15%
---- ----
Total Fund Operating Expenses 0.28% 0.28%
---- ----
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:
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
Treasury Trust Fund $3 $9 $16 $36
Prime Trust Fund $3 $9 $16 $36
____________
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN 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 the Funds. The operating
expenses for the Funds have been restated using current fee rates that would
have been applicable had they been in effect during the previous fiscal year.
As stated below under "The Emerald Family of Funds," the Funds agreed to
pay annual investment advisory fees totalling .15% of each Fund's average
daily net assets. However, the sub-adviser voluntarily waived, during the
most recent fiscal year, a portion of its fee payable by each Fund. Absent
the waiver, the total operating expenses for the Prime Trust and Treasury
Trust Funds would have been .15% and .15%, respectively. 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 800/367-5905). 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 PERIOD ENDED
---------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30,NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992(5) 1991 1990 1989(1)
------------ ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.0015 $ 0.9999 $ 0.9999 $ 1.0000 $ 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 0.0849
Net realized gains (losses) on
securities (0.0006) 0.0016 0.0000 (0.0001) (0.0000) 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Total income from investment
operations 0.0545 0.0383 0.0292 0.0366 0.0598 0.0777 0.0849
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income (0.0551) (0.0367) (0.0292) (0.0367) (0.0598) (0.0777) (0.0849)
Distributions from net realized
gains on securities (0.0009) -- -- -- -- -- --
Total dividends and distributions (0.0560) (0.0367) (0.0292) (0.0397) (0.0598) -- --
Net change in net asset value (0.0015) 0.0016 0.0000 (0.0001) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 1.0000 $ 1.0015 $ 0.9999 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total return 5.74% 3.73% 2.96% 3.74% 6.15% 8.05% 8.83%(6)
Ratios/supplemental data:
Net assets, end of period
(000s) $132,850 $126,771 $166,410 $183,072 $184,420 $215,948 $236,411
Ratio of expenses to average
net assets 0.40% 0.40% 0.40% 0.40% 0.39% 0.38% 0.39%(3)(4)
Ratio of net investment income to
average net assets 5.54% 3.61% 2.92% 3.72% 6.00% 7.77% 8.63%(3)(4)
Ratio of expenses to average
net assets(2) 0.45% 0.44% 0.42% -- -- 0.39% --
Ratio of net investment income
to average net assets(2) 5.50% 3.57% 2.90% -- -- 7.76% --
</TABLE>
_______________________
(1) For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
(2) 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.
- 3 -
<PAGE>
(3) 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.
(4) Annualized.
(5) Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment sub-
adviser.
(6) Not Annualized.
- 4 -
<PAGE>
FINANCIAL HIGHLIGHTS
Financial highlights for a Share of Prime Trust 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(5) 1991 1990 1989(1)
------------ ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 0.9999 $ 1.0000 $ 1.0017 $ 1.0000 $ 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 0.0888
Net realized gains (losses)
on securities 0.0000 (0.0038) 0.0005(3) 0.0017 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.0561 0.0339 0.0309 0.0409 0.0637 0.0800 0.0888
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment
income (0.0561) (0.0377) (0.0304) (0.0392) (0.0637) (0.0800) (0.0888)
Distributions from net realized
gains on securities 0.0000 0.0000 (0.0022) 0.0000 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (0.0561) (0.0377) (0.0326) (0.0392) (0.0637) (0.0800) (0.0888)
-------- -------- -------- -------- -------- -------- --------
Increase due to voluntary capital
contribution from sub-adviser 0.0000 0.0037 0.0000 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 0.0000
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $0.9999 $ 0.9999 $ 1.0000 $ 1.0017 $1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total return 5.76% 3.83% 3.31% 4.00% 6.56% 8.31% 9.25%(6)
Ratios/supplemental data:
Net assets, end of
period (000s) $131,089 $131,758 $111,769 $ 99,192 $89,777 $78,363 $ 70,298
Ratio of expenses to average net
assets 0.40% 0.40% 0.40% 0.40% 0.40% 0.38% 0.36%(4)
Ratio of net investment income to
average net assets 5.60% 3.80% 3.03% 3.89% 6.34% 8.00% 8.99%(4)
Ratio of expenses to average
net assets(2) 0.46% 0.44% 0.44% 0.46% 0.46% 0.47% 0.54%(4)
Ratio of net investment income
to average net assets(2) 5.54% 3.76% 3.00% 3.83% 6.28% 7.91% 8.81%
</TABLE>
________________________
(1) For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
(2) 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.
(3) 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.
(4) Annualized.
(5) Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment sub-
adviser.
(6) Not Annualized.
- 5 -
<PAGE>
RISK FACTORS, 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 objectives,
which involve various risks, and which are described in the following
sections. Although the Funds will endeavor to attain their investment
objectives, there can be no assurance they will be successful.
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." 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.
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
government, bank and corporate obligations that can be found in the money
markets. The Treasury Trust Fund seeks to achieve its objective by investing
in obligations that the U.S. Government 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. Government or
any of its agencies. U.S. Government obligations include Treasury bills,
certain Treasury strips, certificates of indebtedness, notes and bonds, and
obligations of other agencies and instrumentalities that are backed by 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.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS. The TREASURY TRUST FUND may invest in U.S.
Government 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. Obligations of some of these agencies and
instrumentalities, such as the Government National Mortgage Association, are
- 6 -
<PAGE>
supported by 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 support a U.S. Government-sponsored
entity were it not required to do so by law.
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 conduits, or REMICS. 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.
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
- 7 -
<PAGE>
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, Eurobonds, 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 thirteen months or
less, will either have short-term ratings at the time of 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 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
- 8 -
<PAGE>
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 Sub-Adviser, pursuant to guidelines established by the
Board of Trustees and the Adviser. During the term of any repurchase
agreement, 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. These instruments must be issued or fully
guaranteed by the U.S. Government in respect to the Treasury Trust Fund, 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 Funding Corporation and other stripped securities issued or
guaranteed by the U.S. Government, where the principal and interest components
are traded independently under the Separate Trading of Registered Interest and
Principal Securities program ("STRIPS"). The Prime Trust Fund may invest in
these as well. 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 TIGRS and 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
- 9 -
<PAGE>
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
Emerald Funds' 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 certain stripped securities do 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 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 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 secondary market does not currently exist for these instruments, they
are considered illiquid securities and are subject to the Fund's policy and
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.
- 10 -
<PAGE>
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.
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 a 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 a 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 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 Sub-Adviser deems to be of
good standing, and will only be made if the Sub-Adviser thinks the possible
rewards from such loan 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
- 11 -
<PAGE>
trading market exists (including certain securities that may be purchased by
institutional investors under SEC Rule 144A), are not subject to this 10%
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. 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
- 12 -
<PAGE>
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 limitations and may be changed by the Board of Trustees without
shareholder approval. You will be notified of any material changes, but as a
result, the Funds may have different investment objectives from those they 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, which you may request by calling 800/367-5905.
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
(with certain exceptions).
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 additional 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
- 13 -
<PAGE>
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 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).
- 14 -
<PAGE>
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 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 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
- 15 -
<PAGE>
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.
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 800/367-5905.
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.
- 16 -
<PAGE>
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of BISYS.
Mutual funds structured like the Funds sell shares on a continuous basis. The
Funds' shares are sold through 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., 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
- 17 -
<PAGE>
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.
- 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, located at 3435 Stelzer Road, Columbus, Ohio
43219-3035, serves as the Funds' administrator, and BISYS' wholly-owned
subsidiary, Emerald Asset Management, 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 43219-3035.
ADVISER AND SUB-ADVISER. As of December 31, 1995, Barnett had
approximately $__ billion under active management, with $___ billion in equity
securities, $___ million in taxable fixed income securities, $___ billion in
treasury and government securities, $___ billion in municipals and $___
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 $___ 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
- 18 -
<PAGE>
contractual arrangements regarding the provision of sub-advisory 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.
Under its administration agreement with Emerald Funds, the Administrator
has agreed to: pay the costs of maintaining the Funds' offices; provide a
facility to receive purchase and redemption orders; provide statistical and
research data, Fund data processing services, and clerical, accounting and
bookkeeping services; prepare or coordinate the preparation of reports to
shareholders of the Funds' tax returns and reports to the Securities and
Exchange Commission; maintain the registration or qualification of the Funds'
shares for sale under state securities laws; provide for the maintenance of
the books and records of the Funds; provide administrative assistance to the
Adviser and Sub-Adviser as required to carry out the business and operations
of the Funds; recommend, implement and monitor all specialized services and
programs that are necessary or appropriate in order for the Funds to serve
properly the investment needs of the fiduciary accounts investing in their
shares; and generally to provide the facilities and personnel to carry out all
administrative services required for the operation of the business of the
Funds other than those specifically delegated by Emerald Funds to other
entities. Concord has entered into an agreement with The Bank of New York to
perform certain services such as the calculation of the net asset value of
Fund shares, and the calculation of dividends and capital gains distributions
to shareholders, and maintaining the Funds' books and records. The Funds bear
all fees and expenses charged by The Bank of New York for these services.
Mr. Blundin (an officer of Emerald Funds) is also an officer and/or director
of the Administrator and/or the Funds' Distributor.
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.
For the fiscal year ended November 30, 1995 the Funds paid administration
fees, after waivers, to the prior administrator under the administration
agreements then in effect, at the effective rate of .08% of the average daily
net assets of each Fund.
- 19 -
<PAGE>
FEE WAIVERS AND EXPENSES
The Sub-Adviser and the Administrator have each voluntarily agreed to
waive their sub-advisory and administrative fees with respect to the Funds to
the extent that the Funds' annualized ratio of ordinary operating expenses to
average net assets, calculated daily, exceeds .40%. 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
- 20 -
<PAGE>
though all or part of those dividends come from interest on obligations
that would be free of such taxes if held by you directly.
Shares of the Prime Trust Fund 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 this exemption. In order
to qualify for this exemption, the Treasury Trust 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 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.
- 21 -
<PAGE>
___________________
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.
- 22 -
<PAGE>
TABLE OF CONTENTS
----------------- PAGE
----
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
Expenses
Financial Highlights
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES
INVESTING IN EMERALD FUNDS
Your Money Manager
Purchase of Shares
Redemption of Shares
Dividends and Distributions
Explanation of Sales Price
Other Service Providers
THE EMERALD FAMILY OF FUNDS
THE BUSINESS OF THE FUNDS
Fund Management
Fee Waivers and Expenses
Tax Implications
Measuring Performance
<PAGE>
EMERALD FUNDS
(Treasury Fund -- Emerald/Emerald Service)
(Prime Fund -- Emerald/Emerald Service)
(Tax-Exempt Fund -- Emerald/Emerald Service)
FORM N-1A
CROSS REFERENCE SHEET
---------------------
Prospectus Heading
------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . Summary of Expenses and
Financial Information -
Expenses
3. Condensed Financial Summary of Expenses and
Information . . . . . . . . Financial Information -
Financial Highlights; The
Business of the Funds -
Measuring Performance
4. General Description of Cover Page; Risk Factors,
Registrant . . . . . . . . . Investment Principles and
Policies; Your Emerald Fund
Account - The Emerald Family
of Funds;
5. Management of the Investing in Emerald Funds -
Fund . . . . . . . . . . . . Your Money Manager; Investing
in Emerald Funds - Other
Service Providers; The
Business of the Funds - Fund
Management
5A. Management's Discussion Summary of Expenses and
of Fund Performance . . . . Financial Information -
Financial Highlights
6. Capital Stock and Other Your Emerald Fund Account -The
Securities . . . . . . . . . Emerald Family of Funds;
Investing in Emerald Funds -If
You Have Questions; Investing
in Emerald Funds -How to Buy
Shares; Investing in Emerald
Funds - How to Sell Shares;
Investing in Emerald Funds -
Transaction Rules; Investing
in Emerald Funds -Getting Your
Investment Started; Your
Emerald Fund Account -
Dividends and Distributions;
The Business of the Funds -
Tax Implications; Risk
Factors, Investment Principles
and Policies
7. Purchase of Securities Investing in Emerald Funds -
Being Offered . . . . . . . Getting Your Investment
Started; Investing in Emerald
Funds - How to Buy Shares;
Investing in Emerald Funds -
<PAGE>
Transaction Rules; Your
Emerald Fund Account -
Distribution and Service
Arrangements; Your Emerald
Fund Account - Shareholder
Services;
8. Redemption or Investing in Emerald Funds -
Repurchase . . . . . . . . How to Sell Shares; Investing
in Emerald Funds - Transaction
Rules
9. Pending Legal Not applicable (All
Proceedings . . . . . . . . Portfolios)
-2-
<PAGE>
EMERALD MONEY MARKETS FOR INSTITUTIONS
PRIME FUND
TREASURY FUND
TAX-EXEMPT FUND
Emerald Shares/Emerald Service Shares
PROSPECTUS
APRIL 1, 1996
E M E R A L D
F U N D S
<PAGE>
EMERALD FUNDS
Prospectus for Prime, Treasury and Tax-Exempt Funds
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.
This Prospectus relates to the Emerald Shares and Emerald Service Shares
of the PRIME FUND, TREASURY FUND AND TAX-EXEMPT FUND (the "Funds"). The
Prime Fund and Treasury Fund 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.
Emerald Shares and Emerald 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
Fund, 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 that has been filed with the Securities and Exchange
Commission. The Statement of Additional Information can be obtained free upon
request by calling 1-800-367-5905. The Statement of Additional Information is
dated April 1, 1996 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.
MISSOURI INVESTOR NOTICE: 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.
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
Emerald Shares and Emerald Service Shares of the Prime, Treasury and Tax-
Exempt Funds. Examples based on this information are also provided.
<TABLE>
<CAPTION>
PRIME TREASURY TAX- TAX-
PRIME FUND TREASURY FUND EXEMPT EXEMPT
FUND EMERALD FUND EMERALD FUND EMERALD
EMERALD SERVICE EMERALD SERVICE EMERALD 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 . . . . . . . . . . 0.23% 0.23% 0.24% 0.24% 0.13% 0.13%
12b-1 Fees . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
---- ---- ---- ---- ---- ----
Shareholder Services Plan . . . . . 0.00% 0.35% 0.00% 0.35% 0.00% 0.35%
All Other Expenses . . . . . . . . 0.14% 0.14% 0.14% 0.14% 0.15% 0.18%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses . . . 0.37% 0.71% 0.38% 0.72% 0.28% 0.65%
---- ---- ---- ---- ---- ----
</TABLE>
Example: Let's say, hypothetically, that the annual return of the
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 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Fund Emerald Shares . . . . $4 $12 $21 $47
Prime Fund Emerald Service Shares. $7 $23 $40 $89
Treasury Fund Emerald Shares . . . $4 $12 $21 $48
Treasury Fund Emerald
Service Shares . . . . . . . . $7 $23 $40 $90
Tax-Exempt Fund Emerald Shares . . $3 $ 9 $16 $35
Tax-Exempt Fund Emerald Service
Shares . . . . . . . . . . . . $7 $21 $36 $81
</TABLE>
- ---------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN 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 the Fund. The operating
expenses for the Funds have been restated using the current fee rates that
would have been applicable had they been in effect during the previous fiscal
year.
-2-
<PAGE>
As stated below under "The Emerald Family of Funds," each Fund
agreed to pay an annual investment advisory fee totalling .25% of the Funds'
average daily net assets to the Fund's investment adviser. However, the
investment adviser and administrator voluntarily waived, during the most
recent fiscal year, a portion of their fees. Emerald Service Shares bear the
expenses incurred under the Fund's Shareholder Processing and Services Plan
at a rate not to exceed .35% (annualized) of the average daily net asset
value of the outstanding Emerald 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 Emerald 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 Fund 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 800/367-5905). 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 Emerald 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(1)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<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 $ 1.0000
------- -------- -------- -------- -------- -------- ------
Income from investment 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 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) (0.0316) (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%(4)
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%(3)
Ratio of net investment income to
average net assets . . . . . . . 5.64% 3.92% 3.21% 3.84% 6.27% 8.03% 9.00%(3)
Ratio of expenses to average
net assets(2) . . . . . . . . . 0.39% (a) (a) (a) 0.42% 0.45% 0.44%(3)
Ratio of net investment income to
average net assets(2). . . . . . 5.66% (a) (a) (a) 6.25% 7.97% 8.92%(3)
- -------------------------
(1) For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
(2) 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.
(3) Annualized.
(4) Not Annualized.
(a) There were no waivers or reimbursements during the period.
</TABLE>
-4-
<PAGE>
Financial highlights for an Emerald Service 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,
1995 1994 1993 1992 1991 1990(1)
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period . . . . . . . . . . . . . . $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income . . . . . . . 0.0536 0.0355 0.0281 0.0371 0.0602 0.0445
Net realized gains (losses) on
securities . . . . . . . . . . . 0.0002 (0.0028) (0.0001) 0.0001 0.0001 (0.0001)
-------- -------- -------- -------- -------- --------
Total from investment
operations . . . . . . . . . . . 0.0538 0.0327 0.0280 0.0372 0.0603 0.0444
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment
income . . . . . . . . . . . . . (0.0536) (0.0355) (0.0281) (0.0371) (0.0602) (0.0445)
Distributions from net realized
gains on securities . . . . . . . (0.0000) 0.0000 (0.0001) 0.0000 0.0000 0.0000
-------- -------- -------- -------- -------- --------
Total dividends and distributions . . (0.0536) (0.0355) (0.0282) (0.0371) (0.0602) (0.0445)
-------- -------- -------- -------- -------- --------
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 (0.0001)
-------- -------- -------- -------- -------- --------
Net asset value, end of period . . . $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total return . . . . . . . . . . . . 5.49% 3.61% 2.85% 3.78% 6.19% 4.54%(4)
Ratios/supplemental data:
Net assets, end of period (000s). . $902,006 $833,667 $619,149 $548,622 $182,928 $ 7,202
Ratio of expenses to average net
assets . . . . . . . . . . . . . 0.72% 0.72% 0.71% 0.72% 0.75 0.75%(3)
Ratio of net investment income to
average net assets . . . . . . . 5.31% 3.59% 2.80% 3.54% 5.63% 7.51%(3)
Ratio of expenses to average
net assets(2) . . . . . . . . . . 0.74% (a) (a) (a) 0.77% 0.80%(3)
Ratio of net investment income to
average net assets(2) . . . . . . 5.29% (a) (a) (a) 5.61% 7.46%(3)
- --------------------
(1) For the period May 1, 1990 (initial offering date) through November 30,
1990.
(2) 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.
(3) Annualized.
(4) Not Annualized.
(a) There were no waivers or reimbursements during the period.
</TABLE>
-5-
<PAGE>
Financial highlights for an Emerald 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, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990 1989(1)
---------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 0.9999 $1.0000 $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 0.0856
Net realized gains (losses) on
securities . . . . . . . . . . (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000 0.0000
---------- ----------- ----------- ----------- ----------- ----------- ------------
Total income from investment
operations . . . . . . . . . . 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776 0.0856
---------- ----------- ----------- ----------- ----------- ----------- ------------
Less dividends and distributions:
Dividends from net investment
income . . . . . . . . . . . . (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776) (0.0856)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Net change in net asset value . . (0.0003) (0.0001) 0.0000 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 $1.0000
---------- ----------- ----------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ----------- ----------- ------------
Total return . . . . . . . . . . 5.62% 3.74% 2.95% 3.75% 6.07% 8.04% 8.90%(5)
Ratios/supplemental data:
Net assets, end of period
(000s) . . . . . . . . . . . . $236,392 $283,920 $501,377 $452,170 $575,103 $416,131 $349,183
Ratio of expenses to average
net assets . . . . . . . . . . 0.40% 0.39% 0.40% 0.38% 0.40% 0.38% 0.73%(4)
Ratio of net investment income
to average net assets . . . . . 5.49% 3.73% 2.91% 3.74% 5.86% 7.75% 8.69%(4)
Ratio of expenses to average
net assets(2) . . . . . . . . 0.42% (a) (a) (a) 0.41% 0.41% 0.77%(4)
Ratio of net investment income
to average net assets(2). . . . 5.46% (a) (a) (a) 5.85% 8.13% 8.65%(4)
_________________________
(1) For the period December 7, 1989 (commencement of operations) through
November 30, 1989.
(2) 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.
(3) Net of fee waivers by the Adviser and Administrator. If the fee waivers
had not been in place, the annualized ratio of expenses to average net
assets, excluding interest expense, would have been 0.40% for the
period ended November 30, 1989.
(4) Annualized.
(5) Not Annualized.
(a) There were no waivers or reimbursements during the period.
</TABLE>
-6-
<PAGE>
Financial highlights for an Emerald Service 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, NOVEMBER 30,
1995 1994 1993 1992 1991 1990(1)
------------ ------------ ----------- ------------ ------------ ------------
<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 . . . 0.0513 0.0331 0.0256 0.0333 0.0555 0.0428
Net realized loss on
securities . . . . . . . . . (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ----------- ------------ ------------ ------------
Total income from investment
operations . . . . . . . . . 0.0510 0.0330 0.0256 0.0333 0.0555 0.0428
------------ ------------ ----------- ------------ ------------ ------------
Dividends from net investment
income . . . . . . . . . . . (0.0513) (0.0331) (0.0256) (0.0333) (0.0555) (0.0428)
------------ ------------ ----------- ------------ ------------ ------------
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 . . . . . . . . . 5.25% 3.36% 2.59% 3.39% 5.70% 4.36%(4)
Ratios/supplemental data:
Net assets, end of period
(000s) . . . . . . . . . . $525,609 $591,991 $403,809 $372,691 $219,912 $6,862
Ratio of expenses to average
net assets . . . . . . . . . 0.75% 0.74% 0.75% 0.73% 0.75% 0.75%(3)
Ratio of net investment income
to average net assets . . . 5.13% 3.38% 2.56% 3.30% 5.09% 7.24%(3)
Ratio of expenses to average
net assets(2). . . . . . . . 0.77% (a) (a) (a) 0.76% 0.77%(3)
Ratio of net investments income
to average net assets(2) . . 5.11% (a) (a) (a) 5.08% 7.22%(3)
_________________________
(1) For the period May 1, 1990 (initial offering date) through November 30, 1990.
(2) 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.
(3) Annualized.
(4) Not Annualized.
(a) There were no waivers or reimbursements during the period.
</TABLE>
-7-
<PAGE>
Financial highlights for an Emerald 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, November 30, November 30,
1995 1994 1993 1992(4) 1991 1990 1989(1)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period . . . . . . . . . . . . $0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 0.9998 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net investment income . . . . 0.0355 0.0242 0.0214 0.0290 0.0446 0.0560 0.0605
Net realized and unrealized
gains (losses) on
securities . . . . . . . . . (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001) (0.0002)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations . . . . . . . . . 0.0352 0.0242 0.0215 0.0290 0.0447 0.0559 0.0603
------------ ------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment
income . . . . . . . . . . (0.0355) (0.0242) (0.0214) (0.0290) (0.0446) (0.0560) (0.0605)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value . (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001) (0.0002)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of period . $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 0.9998
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return . . . . . . . . . . 3.61% 2.45% 2.16% 2.94% 4.55% 5.74% 6.22%(5)
Ratios/supplemental data:
Net assets, end of
period (000s) . . . . . . . $156,353 $162,856 $147,525 $158,692 $122,151 $124,270 $143,211
Ratio of expenses to average
net assets . . . . . . . . . 0.40% 0.40% 0.40% 0.40% 0.39% 0.38% 0.36%(3)
Ratio of net investment income
to average assets . . . . . 3.53% 2.42% 2.13% 2.88% 4.46% 5.60% 6.14%(3)
Ratio of expenses to average
net assets(2). . . . . . . . 0.52% 0.46% 0.56% 0.57% 0.54% 0.53% 0.51%(3)
Ratio of net investment income
to average net assets(2) . . 3.41% 2.36% 1.97% 2.71% 4.31% 5.45% 5.99%(3)
_________________________
(1) For the period December 7, 1988 (commencement of operations) through November 30, 1989.
(2) 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.
(3) Annualized.
(4) Effective April 2, 1992, Rodney Square Management Corporation, a subsidiary of Wilmington Trust Company, became the Fund's
investment sub-adviser.
(5) Not Annualized.
</TABLE>
-8-
<PAGE>
Financial highlights for an Emerald Service 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, NOVEMBER 30,
1995 1994 1993 1992(4) 1991 1990(1)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period . . . . . . . . . . . . . . $0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income . . . . . . 0.0319 0.0206 0.0179 0.0255 0.0411 0.0304
Net realized and unrealized
gains (losses) on securities . . (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0003)
------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations . . . . . . . . . . . 0.0316 0.0206 0.0180 0.0255 0.0412 0.0301
------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment
income . . . . . . . . . . . . . (0.0319) (0.0206) (0.0179) (0.0255) (0.0411) (0.0304)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value . . (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0003)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of period . . . $0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return . . . . . . . . . . . 3.24% 2.08% 1.80% 2.58% 4.19% 2.61%(5)
Ratios/supplemental data:
Net assets, end of period (000s) . $ 2,855 $ 4,028 $ 487 $ 111 $ 11 $ 1,943
Ratio of expenses to average
net assets . . . . . . . . . . 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%(3)
Ratio of net investment income to
average net assets . . . . . . . 3.19% 2.17% 1.75% 2.65% 5.08% 5.17%(3)
Ratio of expenses to average
net assets(2). . . . . . . . . . 1.20% 1.59% 0.92% 0.92% 0.91% 0.94%(3)
Ratio of net investment income
to average net assets(2) . . . . 2.74% 1.33% 1.58% 2.48% 4.92% 4.98%(3)
- -------------------------
(1) For the period May 1, 1990 (initial offering date) through November
30,1990.
(2) 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.
(3) Annualized.
(4) Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment sub-
adviser.
(5) Not Annualized.
</TABLE>
-9-
<PAGE>
RISK FACTORS, 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, which involve various risks, and
which are described in following sections. Although the Funds will endeavor
to attain their investment objectives, there can be no assurance they
will be successful.
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 government, bank and corporate obligations that
can be found in the money markets. 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. Government 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 Fund are not themselves issued or guaranteed by
the U.S. Government or any of its agencies. U.S. Government obligations
include Treasury bills, certain Treasury strips, certificates of indebtedness,
notes and bonds, and obligations of other agencies and instrumentalities that
are backed by 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.
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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 assets in these municipal obligations. The Fund may also
invest up to 20% of its total 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. The TREASURY FUND may invest in U.S.
Government 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. Obligations of some of these agencies and
instrumentalities, such as the Government National Mortgage Association, are
supported by 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 support a U.S. Government-sponsored
entity were it not required to do so by law.
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
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.
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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 conduits, or REMICS. 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, with respect to the Tax-Exempt Fund, Sub-
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, 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 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
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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, Eurobonds, 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 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 the Fund will be determined to
be of comparable quality.
BANK OBLIGATIONS. The PRIME FUND may purchase 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, 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. 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 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
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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. Government, 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 TIGRS
and 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
Emerald Funds' 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 certain stripped securities do 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 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
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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 policy and 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 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.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and 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
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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 loan 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,
with respect to the Tax-Exempt Fund, Sub-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 10% 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 that 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.
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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 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,
which you may request by calling 800/367-5905.
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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 (with certain exceptions).
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.
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 $__ 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
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.
Emerald Shares and Emerald 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
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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 Emerald and Emerald 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 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.
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 Fund 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.
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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 Emerald Shares and
Emerald 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 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)
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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) with respect to the Prime and
Treasury Funds (12:00 noon (Eastern time) with respect to the Tax-Exempt Fund)
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 the Fund.
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 Fund earns on the money market and
other investments it owns. 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 a capital gain when they sell a security for more
than its cost. Each Fund may 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 [name of Fund]
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
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
--------------------------------
FUNDS DECLARED PAID
- ------- ------------- -----------
<S> <C> <C>
(1) Prime, Treasury and Tax-Exempt. . . . Daily Monthly within
five business days
after month end
_________________________
(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.
</TABLE>
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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 the Funds, if any, are made at least
annually after any reductions for capital loss carryforwards.
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 attributable
to a class of shares, subtracting the Fund's liabilities attributable 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 800/367-
5905.
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 Emerald Family of
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 BISYS.
Mutual funds structured like the Funds sell shares on a continuous basis.
The Funds' shares are sold through the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Fund owns.
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
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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 Emerald Share Class, Emerald Service Share Class
and Retail Share Class) 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 the Funds' Investor
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
18.
Shares of each Fund's three share classes bear a pro rata portion of all
operating expenses paid by a Fund except as follows. Holders of a Fund's
Emerald 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, registration and per
account transfer agency 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 Emerald
Shares is expected to be higher than the performance of the Fund's Emerald
Service Shares, and the performance of both the Emerald Shares and Emerald
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 Emerald Shares and Emerald Service Shares, including an automatic
investment plan, automatic withdrawal plan and checkwriting. For further
information regarding the Funds' Retail Shares, contact [name and number].
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 Emerald 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
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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 Emerald 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
Emerald 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
Emerald Service Shares beneficially owned by their Customers. Holders of the
Funds' Emerald 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, Emerald
Shares or Retail Shares.
Services provided by Service Organizations under their agreements may
include aggregating and processing purchase and redemption requests from
Customers for Emerald 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 Emerald 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 Emerald 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 Emerald 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 Emerald 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 Emerald 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
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<PAGE>
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.
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.
- 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 ("BISYS LP"), located at 3435
Stelzer Road, Columbus, Ohio 43219-3035 serves as the Funds' administrator,
and BISYS' wholly-owned subsidiary, Emerald Asset Management, 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. ("BISYS"), located at 3435 Stelzer Road,
Columbus, Ohio 43719-3035.
ADVISER AND SUB-ADVISER. As of December 31, 1995 Barnett had
approximately $__ billion under active management, with $___ billion in
equity securities, $____ million in taxable fixed income securities, $____
billion in treasury and government securities, $____ billion in municipals
and $____ 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 $____ 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.
Although expected to be infrequent, Barnett and the Sub-Adviser may
consider the amount of Fund shares sold by broker-dealers and others in
allocating orders for purchases and sales of portfolio securities. This
allocation may involve the payment of brokerage commissions or dealer
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<PAGE>
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 Emerald Funds,
including maintaining the Funds' offices, providing statistical and research
data, coordinating the preparation of reports to shareholders, calculating
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. Certain officers of Emerald Funds,
namely Mr. Blundin, are also officers and/or directors of BISYS and the
Distributor.
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 .13% 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.
For the fiscal year ended November 30, 1995 the Funds paid administration
fees, after waivers, to the prior administrator under the administration
agreements then in effect, at the effective rate of .08% of the average daily
net assets of each Fund.
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 each Fund's net assets increases. The Adviser has, however,
informed Emerald Funds of its intention to reduce the annual rate of its
advisory fees with respect to these two Funds to the following rates: .25%
and .24%, respectively, 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.
The Adviser and the Administrator have also voluntarily agreed to waive their
advisory and administrative fees with respect to the Prime and Treasury
Funds' Emerald Shares and Emerald Service Shares to the extent that the
Funds' annualized ratio of ordinary operating expenses (excluding
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payments to Service Organizations) to average net assets, calculated daily,
exceeds .40%.
In addition, the Sub-Adviser and BISYS have each voluntarily agreed to
waive their sub-advisory and administrative fees with respect to the Tax-
Exempt Fund's Emerald Shares and Emerald Service Shares to the extent that the
Fund's annualized ratio of ordinary operating expenses (excluding payments to
Service Organizations) to average net assets, calculated daily, exceeds .40%.
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 .32% and .40%, .40% and .74% and .75% and .68% for Emerald
Shares and Emerald 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 order to so qualify, the Tax-Exempt Fund will pay as dividends 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 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.
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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.
Shares of the Prime Fund and Tax-Exempt Fund 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. The Funds may quote performance in
advertisements or shareholder communications. The performance for each
class of a Fund's shares will be calculated separately from the
performance of the Fund's other classes of shares. Because of the
service fees borne by Emerald Service Shares, the net yield on such
shares can be expected, at any given time, to be lower than the net yield
on Emerald 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."
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.
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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.
- -------------------------------------------------------------------------------
-29-
<PAGE>
Inquiries regarding the Funds may be directed to the Distributor at
the address stated on page 18.
__________________
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 OF CONTENTS
Page
----
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION . . . . . . . . . . . . . 2
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES . . . . . . . . . . . 10
INVESTING IN EMERALD FUNDS . . . . . . . . . . . . . . . . . . . . . . 18
Your Money Manager . . . . . . . . . . . . . . . . . . . . . 18
Redemption of Shares . . . . . . . . . . . . . . . . . . . . 20
Dividends and Distributions . . . . . . . . . . . . . . . . . 21
Other Service Providers . . . . . . . . . . . . . . . . . . . 22
THE EMERALD FAMILY OF FUNDS . . . . . . . . . . . . . . . . . . . . . . 23
Shareholder Services Plan . . . . . . . . . . . . . . . . . . 24
THE BUSINESS OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . 25
Fund Management . . . . . . . . . . . . . . . . . . . . . . . 25
Tax Implications . . . . . . . . . . . . . . . . . . . . . . 27
Measuring Performance . . . . . . . . . . . . . . . . . . . . 28
<PAGE>
EMERALD FUNDS
--------------------------
(Institutional Class Shares of the Equity Fund,
Small Capitalization Fund, Balanced Fund,
Managed Bond Fund and Emerald Shares of the Prime Fund)
(Institutional Class Shares of the Equity Fund,
Equity Value Fund, International Equity Fund,
Small Capitalization Fund, Balanced Fund,
Short-Term Fixed Income Fund, U.S. Government Securities
Fund, Managed Bond Fund, and Emerald Shares of the
Prime and Treasury Funds)
(Institutional Class Shares of the Equity Fund,
Equity Value Fund, International Equity Fund,
Small Capitalization Fund, Balanced Fund,
Short-Term Fixed Income Fund, U.S. Government Securities
Fund, Managed Bond Fund, and Florida Tax-Exempt Fund)
FORM N-1A
CROSS REFERENCE SHEET
---------------------
Prospectus Heading
------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . Summary of Expenses and
Financial Information -
Expenses
3. Condensed Financial Summary of Expenses and
Information . . . . . . . . . Financial Information -
Financial Highlights;
The Business of the Funds -
Measuring Performance
4. General Description of Cover Page; Risk Factors,
Registrant . . . . . . . . . Investment Principles and
Policies; The Emerald Family
of Funds
5. Management of the Investing in Emerald Funds -
Fund . . . . . . . . . . . . Your Money Manager;
Investing in Emerald Funds -
Other Service Providers;
The Business of the Funds -
Fund Management
5A. Management's Discussion of Summary of Expenses and
Fund Performance . . . . . . Financial Information -
Financial Highlights
<PAGE>
Prospectus Heading
------------------
6. Capital Stock and Other The Emerald Family of Funds;
Securities . . . . . . . . . Investing in Emerald Funds -
Purchase of Shares;
Investing in Emerald Funds -
Redemption of Shares;
Investing in Emerald Funds -
Dividends and Distributions;
The Business of the Funds -
Tax Implications
7. Purchase of Securities Investing in Emerald Funds -
Being Offered . . . . . . . . Explanation of Sales Price;
Investing in Emerald Funds -
Purchase of Shares;
Investing in Emerald Funds -
Exchange Privilege
8. Redemption or Investing in Emerald Funds -
Repurchase . . . . . . . . . Redemption of Shares;
Investing in Emerald Funds -
Transaction Rules
9. Pending Legal Not applicable (All
Proceedings . . . . . . . . . Portfolios)
-2-
<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
PROSPECTUS
April 1, 1996
EMERALD FUNDS
<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.
------------------------------------------------------------------
EMERALD FUNDS
PROSPECTUS for EQUITY, SMALL CAPITALIZATION, BALANCED,
MANAGED BOND AND PRIME FUNDS
April 1, 1996
_______________________________________________________________________________
EMERALD FUND GOAL FOR INVESTORS WHO WANT
EQUITY Long-term capital Capital
appreciation through appreciation over
investments the long term and
primarily in high are willing to
quality common accept the relative
stocks and, risks associated
secondarily, with equity
potential dividend investments
income growth
_______________________________________________________________________________
SMALL Long-term capital Long-term rewards
CAPITALIZATION appreciation that may exceed
those provided by a
fund investing in
larger, more
established
companies and can
accept the
investment risks of
smaller companies
_______________________________________________________________________________
BALANCED Attractive Asset allocation
investment return among equity
through a securities, fixed
combination of income securities
growth of capital and cash
and current income equivalents in
light of prevailing
market and economic
conditions
_______________________________________________________________________________
MANAGED BOND High level of Current income from
current income and, corporate and
secondarily, capital government
appreciation securities and can
accept fluctuations
in price and yield
_______________________________________________________________________________
PRIME High current income, A flexible and
liquidity and the convenient way to
preservation of manage cash while
capital through earning money
investments in short- market returns
term money market
investments
_______________________________________________________________________________
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
-2-
<PAGE>
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.
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 that has been filed with the Securities and Exchange
Commission. The Statement of Additional Information can be obtained free upon
request by calling 800/367-5905. The Statement of Additional Information is
dated April 1, 1996 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.
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.
_______________________________________________________________________________
-3-
<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 and Managed Bond Funds and Emerald Shares of the
Prime Fund (sometimes called "Institutional Shares" for simplicity). 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
(as a percentage of offering price) None None None
Sales Charge Imposed on
Reinvested Dividends .................... None None None
Deferred Sales Charge ..................... None None None
Exchange Fee .............................. None None None
ANNUAL FUND OPERATING EXPENSES AFTER
FEE WAIVERS AND EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees ............................. 0.60% 1.00% 0.00%
12b-1 Fees ................................ 0.00% 0.00% 0.00%
Shareholder Servicing Fees ................ 0.00% 0.00% 0.00%
All Other Expenses ........................ 0.19% 0.25% 0.18%
Total Fund Operating Expenses After Fee
Waivers and Expense Reimbursements* ..... 0.79% 1.25% 0.18%
____ ____ ____
</TABLE>
<TABLE>
<CAPTION>
MANAGED PRIME
BOND FUND FUND
-------- -----
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases
(as a percentage of offering price) ......... None None
Sales Charge Imposed on Reinvested Dividends .. None None
Deferred Sales Charge ......................... None None
Exchange Fee .................................. None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE
WAIVERS AND EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees ................................. 0.00% 0.23%
12b-1 Fees .................................... 0.00% 0.00%
Shareholder Servicing Fees Payments ........... 0.00% 0.00%
All Other Expenses ............................ 0.15% 0.14%
Total Fund Operating Expenses After Fee Waivers
and Expense Reimbursements* ................. 0.15% 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 current fee rates that would have been applicable had they been in
effect during the previous fiscal year.
-4-
<PAGE>
Without waivers by the adviser, investment management fees as a percentage
of net assets would be .60%, .40%, and .25% of the average daily net assets
of the Balanced, Managed Bond and Prime Funds, respectively. The adviser
and administrator also expect to reimburse a portion of the operating
expenses of Institutional Shares of the Small Capitalization, Balanced and
Managed Bond Funds during the next twelve months. Absent waivers and
expense reimbursements the total operating expenses for Institutional
Shares of these Funds would be .78%, .55% and .39%, respectively. 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 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.
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 $58 $151
Balanced Fund ...................... $ 2 $ 6 $10 $ 23
Managed Bond Fund .................. $ 1 $ 5 $ 6 $ 19
Prime Fund ......................... $ 4 $12 $21 $ 47
</TABLE>
- --------------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF 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 800/367-5905). 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."
-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>
INSTITUTIONAL
SHARES* RETAIL SHARES
-------------------------- ---------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994(5) 1994 1993 1992 1991(1)
------------ ------------ ------------ ------------ ----------- ------------
<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) -- --
------- ------- ------- -------- -------- --------
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) (2.91%) 0.58% 18.49% 3.54%(2)
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%(3) 1.07%(4) 0.86%(4) 0.76%(4) --
Ratio of net investment income
to average net assets ............... 0.67% 1.46%(3) 0.36%(4) 1.22%(4) 1.41%(4) 2.64%(3)(4)
Portfolio turnover .................... 104% 113% 113% 102% 40% 13%
</TABLE>
- --------------------
* Institutional Shares were not sold prior to March 1, 1994.
(1) For the period June 28, 1991 (commencement of operations) through
November 30, 1991.
(2) Not Annualized.
(3) Annualized.
(4) Net of fee waivers and expense reimbursements by the Adviser, Administrator
and Distributor. If the fee waivers and expense reimbursements had not
been in place, the annualized ratios of expenses to average net assets for
the fiscal years or period ended November 30, 1994, 1993, 1992 and 1991
would have been 1.29%, 1.21%, 1.18%, and 1.22%, respectively, and the
annualized ratios of net investment income to average net assets would have
been 0.13%, 0.87%, 0.99% and 1.42%, respectively.
(5) For the period March 1, 1994 (initial offering date) through
November 30, 1994.
NOTE: The total return figures presented do not include the effect of the
maximum 4.50% sales charge on Class A Shares.
-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 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.
-8-
<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 gains (losses) from investment
operations .............................. (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>
- --------------------
(1) 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 PRIME FUND
Financial highlights for an Emerald 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(4) 1991 1990 1989(1)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<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 gains 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) (0.316) (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) (0.039) (0.0316) (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%(4)
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%(3)
Ratio of net investment income
to average net assets ........ 5.66% 3.92% 3.21% 3.84% 6.27% 8.03% 9.00%(3)
Ratio of expenses to average net
assets(2) .................... 0.31% (a) (a) (a) 0.42% 0.45% 0.44%(3)
Ratio of net investment income
to average net assets(2) ..... 5.64% (a) (a) (a) 6.25% 7.97% 8.92%(3)
</TABLE>
- --------------------
(1) For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
(2) 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.
(3) Annualized.
(4) Not Annualized.
(a) There were no waivers or reimbursements during the period.
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RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment
techniques in seeking to achieve a Fund's investment objectives. 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.
Although the Funds will endeavor to attain their investment objectives, there
can be no assurance they will be successful.
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 common stocks 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 15% of
its assets in the types of equity securities permissible for the Small
Capitalization Fund. These include securities of smaller companies with a
market capitalization between $50 million and $2 billion at the time of
purchase. Through these investments, the Fund seeks to provide investors with
potentially greater long-term rewards than those provided by investments in
larger, more established companies. While the smaller capitalization
companies may provide opportunities for greater investment gains they are
typically subject to a greater degree of change in earnings and business
prospects. Additionally, they are traded in lower volume than securities
issued by larger companies and may be more volatile than larger capitalization
stocks. In making investment decisions, the Adviser assesses factors such as
trading liquidity, financial condition, earnings stability, reasonable market
valuation and profitability as measured by return on equity.
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.
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<PAGE>
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. 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. 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, trends and 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,
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<PAGE>
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 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 fixed income
and cash equivalent holdings.
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 19 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
-13-
<PAGE>
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 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 government, bank and corporate obligations that
can be found in the money markets. 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.
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<PAGE>
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS. EACH 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. Obligations of
some of these agencies and instrumentalities, such as the Government National
Mortgage Association, are supported by 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 support a U.S. Government-sponsored entity were it not required to do so
by law.
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 conduits, or REMICs. 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.
-15-
<PAGE>
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.
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, Eurobonds, 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
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<PAGE>
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 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. 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. Government, 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
-17-
<PAGE>
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 TIGRs and 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 Emerald Funds' 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 certain stripped securities do 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 policy and
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 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-
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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 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
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shares of other investment companies that are structured to seek a correlation
to the performance of the S&P 500 Index.
BORROWINGS. EACH FUND is authorized to mike 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 a 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 a 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 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 loan 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 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. In 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. (A description of applicable ratings is
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attached to the Statement of Additional Information as Appendix A.) 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 values 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. All options will be listed on a
national securities exchange and issued by the Options Clearing Corporation.
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
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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 traded on an exchange or board of trade. 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 800/367-5905.
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 10% 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 objectives. 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
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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 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
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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 limitations 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 different investment objectives from the one they
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 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 additional 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
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Fund's (or class'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 $__ 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) 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 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
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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 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 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 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 in order to be effective. Purchases for
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 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.
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 Fund 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
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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.
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
reserve 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.
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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 may 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
BISYS Fund Services Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
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.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
DIVIDENDS ARE
---------------------------------
FUNDS DECLARED PAID
- ----- ---------------------------------
(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
- --------------------
(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
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<PAGE>
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 after any reductions for capital loss carryforwards
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 attributable to its Institutional
Shares, subtracting the Fund's liabilities attributable 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 800/367-5905.
EXCHANGE PRIVILEGE
If you wish, Institutional Shares of the Equity, Small Capitalization,
Balanced or Managed Bond Funds 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 without a sales charge 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. 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.
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.
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<PAGE>
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of BISYS.
Mutual funds structured like the Funds sell shares, on a continuous basis.
The Funds' shares are sold through 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 three
share classes of the Funds. Each Fund is classified as diversified company.
The Board of Trustees has also authorized the issuance of addition classes of
shares representing interests in other portfolios of Emerald Funds.
Information regarding these other portfolios and share classes offered by
Emerald Funds may be obtained by contacting the Distributor at the address
listed on page __.
The Institutional Shares of the Equity, Small Capitalization, Balanced
and Managed Bond Funds are described in this prospectus. These Funds and the
Prime Fund also offer Retail 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,
registration, and per account transfer agency expenses). In addition, Retail
Shares bear all payments under the Funds' Combined Distribution and Service
Plan and Shareholder Processing Plan (the "Plans") as described in the
prospectus for those shares.
Payments under the Combined Distribution and Service Plan for Retail
Shares may be made for payments to broker-dealers and financial institutions
under agreements with those organizations for shareholder services provided
to Retail shareholders and/or the maintenance of Retail shareholder accounts.
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 outstanding Retail Shares. Distribution payments under the Combined
Distribution and Service Plan are subject to the requirements of a rule under
the Investment Company Act of 1940 known as Rule 12b-1.
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 Fund's distributor; arranging for wiring of funds;
transmitting and receiving funds in connection with Client orders to purchase
or redeem Shares; processing dividend payments; verifying and guaranteeing
Client signatures in connection with redemption orders and transfers and
changes in Client-designated accounts, as necessary; providing periodic
statements showing a Client's account balance and, to the extent practicable,
integrating such information with other Client transactions otherwise
effected through or with us; furnishing (either separately or on an
integrated basis with other reports sent to a Client by us) periodic
statements and confirmations of purchases, exchanges and redemptions;
transmitting on behalf of the Funds, proxy statements, annual reports,
updating prospectuses and other communications from the Funds to Clients;
receiving, tabulating and transmitting to the Funds proxies executed by
Clients with respect to shareholder meetings; 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.
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Emerald Funds offers various services and privileges in connection with
its Retail Shares that are not offered in connection with its Institutional
Shares, including an automatic investment plan, an automatic withdrawal plan
and share exchange privileges among Funds. Persons selling or servicing
Retail Shares of the Funds may receive different compensation with respect to
one particular class of shares over another in the same Fund.
The Board of Trustees has also authorized the issuance of an unlimited
number of shares in each of three classes of the Prime Fund (the Emerald (or
"Institutional") Share Class, the Emerald Service Share Class and the Retail
Share Class). Shares of each of these classes bear their pro rata portion of
all operating expenses paid by the Fund, except for the miscellaneous "class
expenses" described above. In addition, Emerald Service Shares bear the
payments described in the prospectus for such shares that are paid under the
Fund's Shareholder Processing and Service Plan (called the "Emerald Service
Plan"). Payments under the Plan cover shareholder services that are related
to Emerald Service Shares, such as aggregating purchase and redemption
requests, placing net purchase and redemption orders and providing
sub-accounting or the information necessary for sub-accounting. The Emerald
Service Plan calls for payments to the institutions involved, which include
Barnett, Service Organizations, and their affiliates at an annual rate not to
exceed .35% of the average daily net asset value of the outstanding Emerald
Service Shares. These payments are not made with respect to the Fund's
Emerald Shares or Retail Shares. Standardized yield quotations are computed
separately for each of the Fund's three classes. Because of these Plans and
other "class expenses," the performance of the Prime Fund's Emerald Shares is
expected to be higher than the performance of the Fund's Emerald Service
Shares, and the performance of both the Emerald Shares and Emerald Services
Shares of the Fund is expected to be higher than the performance of the Funds
Retail Shares. The Prime Fund offers various services and privileges in
connection with Investor Shares that are not generally offered in connection
with Emerald Shares and Emerald Service Shares, including an automatic
investment plan, automatic withdrawal plan and checkwriting. For further
information regarding the Fund's Retail Shares, contact [NAME AND NUMBER].
These payments are not made with respect to the Fund's Emerald Shares or
Emerald Service Shares and, as a result, the net yields on the Fund's Emerald
Shares and the Emerald Service Shares will be higher than the net yield on
the Fund's Retail Shares. Retail Shares have certain exchange privileges
that Emerald Shares and Emerald Service Shares do not have.
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
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<PAGE>
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
Emerald Service Shares will vote matters pertaining to the Fund's Shareholder
Services Plan, and only holders of Investor Shares will vote on matters
pertaining to the Plans 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."
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.
- 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, located at 3435 Stelzer
Road, Columbus, Ohio 43219-3055, serves as the Funds' administrator, and
BISYS' wholly-owned subsidiary, Emerald Asset Management, 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 for the Funds, BISYS Fund Services Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219-3055.
ADVISER. As of December 31, 1995 Barnett had approximately $__
billion under active management, with $___ billion in equity securities,
$___ million in taxable fixed income securities, $___ billion in treasury
and government securities, $___ billion in municipals and $___ 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.
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<PAGE>
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 the Equity Fund 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 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.
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.
Certain officers of Emerald Funds, namely Mr. Blundin, are also officers
and/or directors of BISYS and the Distributor.
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.
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, .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.
For the fiscal year ended November 30, 1995 the Funds paid
administration fees, after waivers, to the prior administrator under the
administration agreements then in effect, at the effective rate of .08% of
the average daily net assets of each Fund.
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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 and) 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. Under the terms of the advisory agreement for the Prime 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 advisory fees with respect
to the Fund to the following rates: .25% of the first $600 million of the
Fund's net assets; .23% of the Fund's net assets over $600 million but not
exceeding $1 billion; .21% of the next $1 billion of the Fund's net assets;
and .19% of the Fund's net assets over $2 billion. The Adviser and the
Administrator, have also voluntarily agreed to waive their advisory and
administrative fees with respect to the Prime Fund's Institutional Shares to
the extent that the Fund's annualized ratio of ordinary operating expenses to
average net assets, calculated daily, exceeds .40%. 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 yield 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
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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 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, Small Capitalization, Balanced and Managed
Bond 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.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote performance in
advertisements or shareholder communications. The performance for the
Funds' Institutional Shares will be calculated separately from the
performance of the Funds' 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.
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<PAGE>
- - Yields for the Funds (except the Prime Fund) are calculated on 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.
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 Indexes, the Merrill Lynch Bond Indexes, the Wilshire
5000 Equity Indexes 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.
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 25.
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.
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TABLE OF CONTENTS
Page
----
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION . . . . . . . . 4
Expenses . . . . . . . . . . . . . . . . . . . . . 4
Financial Highlights . . . . . . . . . . . . . . . 5
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES . . . . . . 11
INVESTING IN EMERALD FUNDS . . . . . . . . . . . . . . . . . 25
YOUR MONEY MANAGER . . . . . . . . . . . . . . . . 25
PURCHASE OF SHARES . . . . . . . . . . . . . . . . 25
REDEMPTION OF SHARES . . . . . . . . . . . . . . . 27
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . 27
EXPLANATION OF SALES PRICE . . . . . . . . . . . . 29
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . 29
OTHER SERVICE PROVIDERS . . . . . . . . . . . . . . 29
THE EMERALD FAMILY OF FUNDS . . . . . . . . . . . . . . . . . 30
THE BUSINESS OF THE FUNDS . . . . . . . . . . . . . . . . . . 32
FUND MANAGEMENT . . . . . . . . . . . . . . . . . . 32
TAX IMPLICATIONS . . . . . . . . . . . . . . . . . 34
MEASURING PERFORMANCE . . . . . . . . . . . . . . . 35
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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
PROSPECTUS
APRIL 1, 1996
EMERALD FUNDS
<PAGE>
For voice recorded price information
call 800/548-6546.
<PAGE>
EMERALD FUNDS
PROSPECTUS FOR EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY,
SMALL CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME,
U.S. GOVERNMENT SECURITIES, MANAGED BOND AND FLORIDA TAX-EXEMPT FUNDS
April 1, 1996
- --------------------------------------------------------------------------------
EMERALD FUND GOAL FOR INVESTORS WHO WANT
------------ ---- ----------------------
EQUITY Long-term capital Capital appreciation over the
appreciation through long term and are willing to
investments primarily in accept the relative risks
high quality common stocks associated with equity
and, secondarily, investments
potential dividend income
growth
- --------------------------------------------------------------------------------
EQUITY VALUE Long-term capital Long-term capital appreciation
appreciation with income and are willing to accept the
as a secondary objective relative risks associated with
through investments investments in undervalued
primarily in common and stocks.
preferred stock and debt
securities convertible
into common stock.
- --------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Capital appreciation over the
EQUITY appreciation through long- term and are willing to
investments primarily in accept the relative risks
equity securities of associated with foreign
foreign issuers. investments.
- --------------------------------------------------------------------------------
SMALL Long-term capital Long-term rewards that may
CAPITALIZATION appreciation exceed those provided by a
fund investing in larger, more
established companies and can
accept the investment risks of
small companies
- --------------------------------------------------------------------------------
BALANCED Attractive investment Asset allocation among equity
return through a securities, fixed income
combination of growth of securities and cash
capital and current income equivalents in light of
prevailing market and economic
conditions
- --------------------------------------------------------------------------------
SHORT-TERM Consistently positive Current income greater than
FIXED INCOME current income with normally available from a
relative stability of money market fund and less
principal through principal volatility than
investments in investment normally associated with a
grade securities and high long-term fund
quality money market
instruments
- --------------------------------------------------------------------------------
U.S. Consistent positive income Current income from U.S.
GOVERNMENT through investments Government securities and can
SECURITIES principally in U.S. accept fluctuations in price
Government securities and and yield
repurchase agreements
- --------------------------------------------------------------------------------
MANAGED BOND High level of current Current income from corporate
income and, secondarily, and government securities and
capital appreciation can accept fluctuations in
price and yield
- --------------------------------------------------------------------------------
FLORIDA TAX- High tax-free income and Current income from an
EXEMPT current liquidity, and, investment that is both free
secondarily, long-term from regular federal income
capital appreciation tax and Florida intangibles
tax and has the possibility of
some price appreciation
- --------------------------------------------------------------------------------
<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.
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 that has been filed with the Securities and Exchange Commission.
The Statement of Additional Information can be obtained free upon request by
calling 800/367-5905. The Statement of Additional Information is dated April 1,
1996 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.
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>
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 the Funds' Institutional Shares. Examples based on
this information are also provided.
<TABLE>
<CAPTION>
EQUITY INTERNATIONAL SMALL
EQUITY VALUE EQUITY CAPITALIZATION BALANCED
FUND FUND FUND FUND FUND
---------- --------- ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . None None None None None
Sales Charge Imposed on Reinvested Dividends. . . . . . . . . . None None None None None
Deferred Sales Charge . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.60% 1.00% 1.00% 0.00%
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
Shareholders Servicing Fees . . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
All Other Expenses. . . . . . . . . . . . . . . . . . . . . . . 0.19% 0.40% 0.40% 0.25% 0.18%
----- ----- ----- ----- -----
Total Fund Operating Expenses After Fee Waivers and
Expense Reimbursements* . . . . . . . . . . . . . . . . 0.79% 1.00% 1.40% 1.25% 0.18%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
<CAPTION>
SHORT-TERM
U.S. GOVERNMENT MANAGED FLORIDA TAX- FIXED
SECURITIES FUND BOND FUND EXEMPT FUND INCOME FUND
--------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . None None None None
Sales Charge Imposed on Reinvested Dividends. . . . . . . . . . . . None None None None
Deferred Sales Charge . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40% 0.00% 0.40% 0.00%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00%
Shareholder Servicing Fees. . . . . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00%
All Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 0.21% 0.15% 0.22% 0.33%
----- ----- ----- -----
Total Fund Operating Expenses After Fee Waivers and
Expense Reimbursements*. . . . . . . . . . . . . . . . . . . 0.61% 0.15% 0.62% 0.33%
----- ----- ----- -----
----- ----- ----- -----
</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 are historical expenses for the fiscal year
ended November 30, 1995. The operating expenses for the Funds have
been restated using current fee rates that would have been applicable
had they been in effect during the previous fiscal year.
-3-
<PAGE>
Without waivers by the adviser, investment management fees as a percentage of
net assets would be .60%, .40%, and .40% of the average daily assets of the
Balanced, Short-Term Fixed Income, and Managed Bond Funds, respectively .
Absent waivers and expense reimbursements the total operating expenses for
Institutional Shares of these Funds would be .78%, .73%, and .55%,
respectively. These waivers and reimbursements are voluntary and may be
terminated at any time. 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.
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 3 5 10
YEAR YEARS YEARS YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund . . . . . . . . . . . . . $ 8 $25 $44 $ 98
Equity Value Fund . . . . . . . . . . $10 $32 N/A N/A
International Equity Fund . . . . . . $14 $44 N/A N/A
Small Capitalization Fund . . . . . . $13 $40 $58 $151
Balanced Fund . . . . . . . . . . . . $ 2 $ 6 $10 $ 23
Short-Term Fixed Income Fund. . . . . $ 3 $11 $19 $ 42
U.S. Government Securities Fund . . . $ 6 $20 $34 $ 76
Managed Bond Fund . . . . . . . . . . $ 1 $ 5 $ 6 $ 19
Florida Tax-Exempt Fund . . . . . . . $ 5 $20 $35 $ 78
</TABLE>
_____________
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
-4-
<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
STATEMENT OF ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY
CALLING 800/367-5905). 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 PERIODS 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."
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>
INSTITUTIONAL
SHARES* RETAIL SHARES
--------------------------- -----------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED
------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994(5) 1994 1993 1992 1991(1)
------------ ------------ ------------ ------------ ------------ ------------
<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 gains (losses) 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 . . . . (0.01) (0.15) (0.57) (0.07) -- --
--------- --------- --------- --------- --------- --------
Total dividends and distribution. . . . (0.09) (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) (2.91%) 0.58% 18.49% 3.54%(2)
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%(3) 1.07%(4) 0.86%(4) 0.76%(4) --
Ratio of net investment income
to average net assets . . . . . . . . 0.67% 1.46%(3) 0.36%(4) 1.22%(4) 1.41%(4) 2.64%(3)(4)
Portfolio turnover. . . . . . . . . . . 104% 113% 113% 102% 40% 13%
</TABLE>
_____________
* Institutional Shares were not sold prior to March 1, 1994.
(1) For the period June 28, 1991 (commencement of operations) through
November 30, 1991.
(2) Not Annualized.
(3) Annualized.
(4) Net of fee waivers and expense reimbursements by the Adviser,
Administrator and Distributor. If the fee waivers and expense
reimbursements had not been in place, the annualized ratios of
expenses to average net assets for the fiscal years or period ended
November 30, 1994, 1993, 1992 and 1991 would have been 1.29%, 1.21%,
1.18% and 1.22%, respectively, and the annualized ratios of net
investment income to average net assets would have been 0.13%, 0.87%,
0.99% and 1.42%, respectively.
(5) 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 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.
-7-
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for an Institutional Share of the Short-Term Fixed
Income Fund throughout 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 from investment operations. . . . 1.02 0.09
Dividends from net investment income . . . . . . (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.
(a) There were no waivers or reimbursements during the period.
-8-
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for an Institutional Share and a Retail Share of the U.S.
Government Securities Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
INSTITUTIONAL RETAIL SHARES
SHARES* -----------------------------------------------------------
--------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994(5) 1994 1993 1992 1991(1)
------------ ------------ ------------ ------------ ------------ ------------
<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 gains (losses) 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 . . . . . . . . . -- (0.01) (0.10) (0.14) (0.06) --
Distributions in excess of net
investment income . . . . . . . . . . (0.00) -- (0.01) -- -- --
Distributions in excess of net
realized gains. . . . . . . . . . . . -- -- (0.02) -- -- --
------- ---------------------------------------------------------------------
Total dividends and distributions. . . 0.63 (0.76) (1.07) 0.27 0.06 0.46
------- --------- -------- -------- -----------------------
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%)(2) (3.45%) 10.40% 8.79% 7.34%(2)
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%(3) 0.98% 0.64% 0.28% --
Ratio of net investment income
to average net assets. . . . . . . 7.43% 5.90%(3) 5.68% 5.91% 7.18% 7.88%(3)
Ratio of expenses to average net
assets(4). . . . . . . . . . . . . (a) 0.69%(3) 1.09% 1.06% 0.99% 1.47%
Ratio of net investment income
to average net assets(4) . . . . . (a) 5.90% 5.57% 5.49% 6.42% 6.41%
Portfolio turnover. . . . . . . . . 89% 133% 133% 72% 50% 34%
</TABLE>
- -------------
* Institutional Shares were not sold prior to March 1, 1994.
(1) For the period July 31, 1991 (commencement of operations) through
November 30, 1991.
(2) Not Annualized.
(3) Annualized.
(4) 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.
(5) For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
-9-
<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 (0.00)
------ -------
Total gains (losses) 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.
-10-
<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>
INSTITUTIONAL RETAIL SHARES
SHARES* -----------------------------------------------------------
--------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994(5) 1994 1993 1992 1991(1)
------------ ------------ ------------ ------------ ------------ ------------
<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 gains (losses) 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) -- (0.04) --
------- -------- -------- -------- -------- --------
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%)(2) (7.75%) 13.37% 11.51% 3.49%(2)
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%(3) 0.96% 0.65% 0.25% --
Ratio of net investment income
to average net assets. . . . . . . . 5.39% 5.34%(3) 4.96% 5.32% 6.39% 6.40%(3)
Ratio of expenses to average net assets (a) 0.71%(3) 1.04% 1.00% 1.21% 3.42%(3)
Ratio of net investment income to
average net assets . . . . . . . . . (a) 5.33% 4.88% 4.97% 5.43% 2.98%(3)
Portfolio turnover . . . . . . . . . . . 89% 89% 48% 105% 45%
</TABLE>
- -------------
* Institutional Shares were not sold prior to March 1, 1994.
(1) For the period August 1, 1991 (commencement of operations) through November
30, 1991.
(2) Not Annualized.
(3) Annualized.
(4) 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.
(5) For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
-11-
<PAGE>
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objectives. 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. Although the
Funds will endeavor to attain their investment objectives, there can be no
assurance they will be successful.
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 common stocks 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 15% of
its assets in the types of equity securities permissible for the Small
Capitalization Fund. These include securities of smaller companies with a
market capitalization between $50 million and $2 billion at the time of
purchase. Through these investments, the Fund seeks to provide investors with
potentially greater long-term rewards than those provided by investments in
larger, more established companies. While the smaller capitalization
companies may provide opportunities for greater investment gains, they are
typically subject to a greater degree of change in business prospects.
Additionally, they are traded in lower volume than securities issued by larger
companies and may be more volatile than larger capitalization stocks. In
making investment decisions, the Adviser assesses factors such as trading
liquidity, financial condition, earnings stability, reasonable market
valuation and profitability as measured by return on equity.
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 also seeks to purchase stock with a projected price-earnings ratio
below that of the Standard & Poor's 500 Composite Stock Price Index ("S&P
-12-
<PAGE>
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
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 over 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 also 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 75% 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 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, consisting of 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.
Securities issued in certain countries 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
-13-
<PAGE>
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.
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be invested 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 short-term investments
for a limited time pending availability of suitable equity securities. During
normal market conditions, no more than 25% 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 indexes 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. See "Portfolio Instruments, Practices and Related Risks" below
regarding additional investment policies of the Fund.
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.
-14-
<PAGE>
Under normal market conditions, at least 65% of the Fund's total assets
will be invested in equity securities. 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, trends
and 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 fixed income
and cash equivalent holdings.
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 18 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
-15-
<PAGE>
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
-16-
<PAGE>
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, 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 fights 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 objectives, 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
-17-
<PAGE>
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, 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
SPECIAL RISK CONSIDERATIONS
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 Fund, may invest up to 25% of its 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
-18-
<PAGE>
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 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. Certain of these risks are described above under
"Special Risk Considerations."
U.S. GOVERNMENT OBLIGATIONS. EACH 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. Obligations of
some of these agencies and instrumentalities, such as the Government National
Mortgage Association, are supported by 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 support, a U.S. Government-sponsored entity were it not required to do
so by law.
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.
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
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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 conduits, or REMICS. 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 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.
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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, Eurobonds, 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 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 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 or Sub-Adviser, pursuant
to guidelines established by the Board of Trustees. During the term of any
repurchase agreement, the Adviser or 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 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 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
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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. Government, 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 TIGRs and 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 Emerald Funds' 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 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
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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-
tender 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 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
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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 500 Index.
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 exclusively of
securities of issuers located in one foreign country. Securities of other
investment companies will be acquired by a Fund within the limits prescribed
by the Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund
currently intends to limit these investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the 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.
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. Under such an agreement a Fund
sells portfolio securities and then buys them back later at an agreed-upon
time and price. When a 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 a 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
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Adviser or Sub-Adviser deems to be of good standing, and will only be made if
the Adviser thinks the possible rewards from such loan 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. In 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. (A description of applicable ratings is
attached to the Statement of Additional Information as Appendix A.) 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
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decrease the values 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. All options will be listed on a
national securities exchange and issued by the Options Clearing Corporation.
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 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 may request by calling 800/367-5905.
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 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
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or less and securities for which the Adviser (Sub-Adviser in the case of the
International Equity 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 10% 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 100%.
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, 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
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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.
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.
If Florida or any of its political subdivisions should suffer serious
financial difficulties to the extent its 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.
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.
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For your information, set forth below is the average month-end
distribution of ratings (at value) for the Florida Tax-Exempt Fund for its
fiscal year ended November 30, 1995:
PERCENTAGE PERCENTAGE
S&P OF VALUE MOODY'S OF VALUE
- --- ---------- ------- --------
AAA. . . . . . . . . . 37 Aaa. . . . . . . . . . . . 38
AA . . . . . . . . . . 28 Aa . . . . . . . . . . . . 27
A. . . . . . . . . . . 6 A. . . . . . . . . . . . . 6
BBB. . . . . . . . . . 29 Baa. . . . . . . . . . . . 10
Not rated. . . . . . . 0 Not rated. . . . . . . . . 19
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 different investment objectives from the one they 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 additional investments.
4. 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.
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 $__ 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 International Equity Fund only, Barnett has
entered into a sub-advisory agreement with [?].
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 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.
For all 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
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York Stock Exchange (the "Exchange") on a day on which the Exchange is open
for business (a "Business Day"). Payment for 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 Fund 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
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
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<PAGE>
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.
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
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
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.
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<PAGE>
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
DIVIDENDS ARE
-------------------
FUND DECLARED PAID
- ---- -------- ----
(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
(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 after any reductions for capital loss carryforwards.
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 attributable to its Institutional Shares,
subtracting the Fund's liabilities attributable to those shares, and then
dividing the result by the 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
__________________________.
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 the Equity, Equity Value,
International Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
U.S. Government Securities, Managed Bond or Florida Tax-Exempt Funds 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 he held in such a
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qualified trust, agency or custodial account. These exchanges are made
without a sales charge 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. 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.
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 "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 BISYS.
Mutual funds structured like the Funds sell shares on a continuous basis. The
Funds' shares are sold through 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 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.
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The Institutional Shares of the Equity, Equity Value, International
Equity, Small Capitalization, Balanced, Short-Term Fixed Income, Managed
Bond, U.S. Government Securities and Florida Tax Exempt 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, registration and per account transfer agency expenses). In
addition, Retail Shares bear all payments under the Funds' Combined
Distribution and Service Plan and the Shareholder Processing Plan (the
"Plans"). Under the Plans the Distributor and Service Organizations receive
fees for distribution services.
Payments under the Combined Distribution and Service Plan for Retail
Shares may be made for payments to broker-dealers and financial institutions
under agreements with those organizations for Shareholder services provided
to Retail shareholders and/or the maintenance of Retail shareholder accounts.
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 outstanding Retail Shares. Distribution payments under the Combined
Distribution and Service Plan are subject to the requirements of a rule under
the Investment Company Act of 1940 known as Rule 12b-1.
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 Fund's distributor; arranging for wiring of funds;
transmitting and receiving funds in connection with Client orders to purchase
or redeem Shares; processing dividend payments; verifying and guaranteeing
Client signatures in connection with redemption orders and transfers and
changes in Client-designated accounts, as necessary; providing periodic
statements showing a Client's account balance and, to the extent practicable,
integrating such information with other Client transactions otherwise
effected through or with us; furnishing (either separately or on an
integrated basis with other reports sent to a Client by us) periodic
statements and confirmations of purchases, exchanges and redemptions;
transmitting on behalf of the Funds, proxy statements, annual reports,
updating prospectuses and other communications from the Funds to Clients;
receiving, tabulating and transmitting to the Funds proxies executed by
Clients with respect to shareholder meetings; 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.
Emerald Funds offers various services and privileges in connection with its
Retail Shares that are not offered in connection with its Institutional
Shares, including an automatic investment plan, an automatic withdrawal plan
and share exchange privileges among Funds. Persons selling or servicing
Retail Shares of the Funds may receive different compensation with respect to
one particular class of shares over another in the same Fund.
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.
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."
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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.
- 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, located at 3435 Stelzer
Road, Columbus, Ohio 43219-3055 serves as the Funds' administrator, and
BISYS' wholly-owned subsidiary, Emerald Asset Management, 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 $__ billion
under active management, with $__ billion in equity securities, $__
million in taxable fixed income securities, $___ billion in treasury and
government securities, $___ billion in municipals and $___ 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. Mr. Creighton has been a portfolio
manager with Barnett since 1983, and in addition to the Equity Fund currently
manages a diversified common stock fund and assists in preparing ongoing
equity investment strategy. Martin E. LaPrade and Joseph E. Tannehill co-
manage the International Equity Fund which commenced operations on December
26, 1995 and along with Mr. Creighton, co-manage the Equity Value Fund.
Martin E. LaPrade, C.F.A., 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. Joe E. Tannehill, C.F.A., is
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a Vice President with Barnett and currently has 9 years of investment
experience. Mr. Tannehill 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 1982.
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 began operations in 1991. Mr. Byrne is
the manager of Barnett's Trading Department and for the last seven 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.
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.
BISYS has entered into an agreement with The Bank of New York to perform
certain services, such as the calculation of net asset value of the Funds'
shares, dividends and capital gains distributions to shareholders, and
maintaining the Funds' books and records. The Funds bear all fees and
expenses charged by The Bank of New York for these services. Certain officers
of Emerald Funds, namely Mr. Blundin, are also an officer and/or director of
BISYS and the Distributor.
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
-38-
<PAGE>
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 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
international 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.
For the fiscal year ended November 30, 1995 the Funds paid
administration fees, after waivers, to the prior administrator under the
administration agreements then in effect, at the effective rate
of .08% of the average daily net assets of each Fund.
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. 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 yield
to investors when made but would decrease return if a Fund were required to
reimburse in 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.
-39-
<PAGE>
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,
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 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. So long as 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
-40-
<PAGE>
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, except as stated below,
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.
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, its 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.
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 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 performance in
advertisements or shareholder communications. The performance for the
Funds' Institutional Shares will be calculated separately from the
performance of the Funds' other classes of shares.
-41-
<PAGE>
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 on 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.
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 Indexes, the Merrill Lynch Bond Indexes, the Wilshire 5000 Equity Indexes
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.
---------------------------
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 1995.)
-42-
<PAGE>
<TABLE>
<CAPTION>
TAXABLE INCOME
- -------------------------------
TAX EXEMPT YIELD
SINGLE JOINT FEDERAL ------------------------------------------------------------------------------
RETURN RETURN BRACKET 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
- ---------------- ---------------- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
EQUIVALENT TAXABLE YIELD
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Not over $22,750 Not over $38,000 15.000% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
22,751-55,100 38,001-91,850 28.000% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
55,101-115,000 91,851-140,000 31.000% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
115,001-250,000 140,001-250,000 36.000% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
Over 250,000 Over 250,000 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 $108,450 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.
-43-
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION. . . . . . . . . . . . . 3
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES . . . . . . . . . . . 12
INVESTING IN EMERALD FUNDS . . . . . . . . . . . . . . . . . . . . . . 31
Your Money Manager . . . . . . . . . . . . . . . . . . . . . . . 31
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . 31
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . 32
Dividends and Distributions. . . . . . . . . . . . . . . . . . . 33
Explanation of Sales Price . . . . . . . . . . . . . . . . . . . 34
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . 34
Other Service Providers. . . . . . . . . . . . . . . . . . . . . 35
THE EMERALD FAMILY OF FUNDS. . . . . . . . . . . . . . . . . . . . . . 35
THE BUSINESS OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . 37
Fund Management. . . . . . . . . . . . . . . . . . . . . . . . . 37
Tax Implications . . . . . . . . . . . . . . . . . . . . . . . . 39
Measuring Performance. . . . . . . . . . . . . . . . . . . . . . 41
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<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
PROSPECTUS
APRIL 1, 1996
EMERALD
<PAGE>
FUNDS
---------------------------------------------------------------------
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
PROSPECTUS FOR EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY, SMALL CAPITALIZATION,
BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT SECURITIES,
MANAGED BOND, PRIME AND TREASURY FUNDS
APRIL 1, 1996
- --------------------------------------------------------------------------------
EMERALD FUND GOAL FOR INVESTORS WHO WANT
------------ ---- ----------------------
EQUITY Long-term capital Capital appreciation
appreciation through over the long-term
investments primarily and are willing to
in high quality accept the relative
common stocks and, risks associated with
secondarily, equity investments
potential dividend
income growth
- --------------------------------------------------------------------------------
EQUITY VALUE Long-term capital Long-term capital
appreciation with appreciation and are
income as a secondary willing to accept the
objective through relative risks
investments primarily associated with
in common and investments in
preferred stock and undervalued stocks.
debt securities
convertible into
common stock
- --------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Capital appreciation
EQUITY appreciation through over the long-term
investments primarily and are willing to
in equity securities accept the relative
of foreign issues risks associated with
issuers foreign investments.
- --------------------------------------------------------------------------------
SMALL Long-term capital Long-term rewards
CAPITALIZATION appreciation that may exceed those
provided by a fund
investing in larger,
more established
companies and can
accept the investment
risks of smaller
companies
- --------------------------------------------------------------------------------
BALANCED Attractive investment Asset allocation
return through a among equity
combination of growth securities, fixed
of capital and income securities and
current income cash equivalents in
light of prevailing
market and economic
conditions
- --------------------------------------------------------------------------------
SHORT-TERM FIXED Consistently Current income
INCOME positive current greater than normally
income with relative available from a
stability of money market fund and
principal through less principal
investments in volatility than
investment grade normally associated
securities and high with a long-term fund
quality money market
instruments
- --------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive Current income from
SECURITIES income through U.S. Government
investments securities and can
principally in U.S. accept fluctuations
Government securities in price and yield
and repurchase
agreements
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MANAGED BOND High level of current Current income from
income and, corporate and
secondarily, capital government securities
appreciation and can accept
fluctuations in price
and yield
- --------------------------------------------------------------------------------
PRIME High current income, A flexible and
liquidity and the convenient way to
preservation of manage cash while
capital through earning money market
investments in short- returns
term money market
instruments
- --------------------------------------------------------------------------------
TREASURY High current income, A way to earn money
liquidity and the market returns with
preservation of the extra margin of
capital through safety associated
investments in short- with U.S. Government
term U.S. Treasury Obligations
and other government
obligations, as well
as related repurchase
agreements
-2-
<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.
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 that has been filed with the Securities and Exchange Commission.
The Statement of Additional Information can be obtained free upon request by
calling 800/367-5905. The Statement of Additional Information is dated April 1,
1996 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.
- --------------------------------------------------------------------------------
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 (EXCEPT THE PRIME AND TREASURY 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.
-3-
<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 and Managed Bond Funds and Emerald Shares of the
Prime and Treasury Funds (sometimes called "Institutional Shares" for
simplicity). Examples based on this information are also provided.
<TABLE>
<CAPTION>
EQUITY INTERNATIONAL SMALL
EQUITY VALUE EQUITY CAPITALIZATION BALANCED
FUND FUND FUND FUND FUND
------ ------------ ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on
Purchases (as a percentage of
offering price) . . . . . . . . . . . . . None None None None None
Sales Charge Imposed on
Reinvested Dividends. . . . . . . . . . . None None None None None
Deferred Sales Charge . . . . . . . . . . . . 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):
Advisors Fees . . . . . . . . . . . . . . . . 0.60% 0.60% 1.00% 1.00% 0.00%
12b-1 Fees . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
Shareholder Servicing Fees. . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
All Other Expenses. . . . . . . . . . . . . . 0.19% 0.40% 0.40% 0.25% 0.18%
----- ----- ----- ----- -----
Total Fund Operating Expenses After
Fee Waivers and Expense
Reimbursements* . . . . . . . . . . . . . 0.79% 1.00% 1.40% 1.25% 0.18%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
U.S.
SHORT-TERM GOVERNMENT
FIXED SECURITIES MANAGED PRIME TREASURY
INCOME FUND FUND BOND FUND FUND FUND
------------- ---------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed
on Purchases (as a percentage of
offering price) . . . . . . . . . . . . . . None None None None None
Sales Charge Imposed on Reinvested
Dividends . . . . . . . . . . . . . . . . . None None None None None
Deferred Sales Charge . . . . . . . . . . . . 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):
Advisors Fees . . . . . . . . . . . . . . . . 0.00% 0.40% 0.00% 0.23% 0.24%
12b-1 Fees . . . . . . . . . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
Shareholder Servicing Fees. . . . . . . . . . 0.00% 0.00% 0.00% 0.00% 0.00%
All Other Expenses. . . . . . . . . . . . . . 0.33% 0.21% 0.15% 0.14% 0.14%
----- ----- ----- ----- -----
Total Fund Operating Expenses
After Fee Waivers and Expense
Reimbursements* . . . . . . . . . . . . . . 0.33% 0.61% 0.15% 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, Managed Bond, Prime and Treasury Funds are historical
expenses for the fiscal year ended November 30, 1995. The operating
expenses for the Equity Value and International Equity Funds have
been restated to reflect the expenses these Funds expect to incur
during the current fiscal year on their Institutional Shares.
Without waivers by the adviser, investment management fees as a
percentage of net assets would be .60%, .40%, .40%, .25% and 25% of the
average daily net assets of the Balanced, Short-Term Fixed Income,
Managed Bond, Prime and Treasury Funds, respectively. Absent waivers
and expense reimbursements the total operating expenses for
Institutional Shares of these Funds would be .78%, .73%, .55%, .39% and
.39%, respectively. 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 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.
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
-5-
<PAGE>
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. . . . . . . . . . . . . . . . . $10 $32 N/A N/A
International Equity Fund. . . . . . . . . . . . . $14 $44 N/A N/A
Small Capitalization Fund. . . . . . . . . . . . . $13 $40 $68 $151
Balanced Fund. . . . . . . . . . . . . . . . . . . $ 2 $ 6 $10 $ 23
Short-Term Fixed Income Fund . . . . . . . . . . . $ 3 $11 $19 $ 42
U.S. Government Securities Fund. . . . . . . . . . $ 6 $20 $34 $ 76
Managed Bond Fund. . . . . . . . . . . . . . . . . $ 1 $ 5 $ 8 $ 19
Prime Fund . . . . . . . . . . . . . . . . . . . . $ 4 $12 $21 $ 47
Treasury Fund. . . . . . . . . . . . . . . . . . . $ 4 $12 $21 $ 48
</TABLE>
- -----------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
-6-
<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 STATEMENT OF
ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/367-5905). 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, 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."
-7-
<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>
INSTITUTIONAL
SHARES* RETAIL SHARES
--------------------------- -----------------------------------------------------------
YEAR ENDED
YEAR ENDED YEAR ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994(5) 1994 1993 1992 1991(1)
------------ ------------ ------------ ------------ ------------ ------------
<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 gains (losses) 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) (2.91%) 0.58% 18.49% 3.54%(2)
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%(3) 1.07%(4) 0.86%(4) 0.76%(4) --
Ratio of net investment income
to average net assets. . . . . . 0.67% 1.46%(3) 0.36%(4) 1.22%(4) 1.41%(4) 2.64%(3)(4)
Portfolio turnover. . . . . . . . . 104% 113% 113% 102% 40% 13%
</TABLE>
- ---------------------
* Institutional Shares were not sold prior to March 1, 1994.
(1) For the period June 28, 1991 (commencement of operations) through
November 30, 1991.
(2) Not Annualized.
(3) Annualized.
(4) Net of fee waivers and expense reimbursements by the Adviser,
Administrator and Distributor. If the fee waivers and expense
reimbursements had not been in place, the annualized ratios of expenses
to average net assets for the fiscal years or period ended November 30,
1994, 1993, 1992, 1991 would have been 1.29%, 1.21%, 1.18%, and 1.22%,
respectively, and the annualized ratios of net investment income to
average net assets would have been 0.13%, 0.87%, 0.99% and 1.42%,
respectively,
(5) For the period March 1, 1994 (initial offering date) through November
30, 1994.
-8-
<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.
-9-
<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 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.
-10-
<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 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.
(a) There were no waivers or reimbursements during the period.
-11-
<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>
INSTITUTIONAL
SHARES* RETAIL SHARES
--------------------------- -----------------------------------------------------------
YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994(5) 1994 1993 1992 1991(1)
------------ ------------ ------------ ------------ ------------ ------------
<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 (losses) 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. . . . . . . -- (0.01) (0.10) (0.14) (0.06) --
Distributions in excess of
net investment income . . . . . . (0.00) -- (0.01) -- -- --
Distributions in excess of
net realized gains. . . . . . . . -- -- -- (0.02) -- --
-------- -------- -------- -------- -------- --------
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%)(2) (3.45%) 10.40% 8.79% 7.34%(2)
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%(3) 0.98% 0.64% 0.28% --
Ratio of net investment income
to average net assets. . . . . . 7.43% 5.90%(3) 5.68% 5.91% 7.18% 7.88%(3)
Ratio of expenses to average
net assets(4). . . . . . . . . . (a) 0.69%(3) 1.09% 1.06% 0.99% 1.47%
Ratio of net investment income
to average net assets(4) . . . . (a) 5.90%(3) 5.57% 5.49% 6.42% 6.41%(3)
Portfolio turnover. . . . . . . . . 89% 133% 133% 72% 50% 34%
</TABLE>
- ---------------------
* Institutional Shares were not sold prior to March 1, 1994.
(1) For the period July 31, 1991 (commencement of operations) through
November 30, 1991.
(2) Not Annualized.
(3) Annualized.
(4) 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.
(5) 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>
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 gains (losses) 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.
-13-
<PAGE>
EMERALD PRIME FUND
Financial highlights for an Emerald 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 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) (0.316) (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) (0.0316) (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 ratio would have been as indicated.
(+) Annualized.
(++) Not Annualized.
(a) There were no waivers or reimbursements during the period.
-14-
<PAGE>
EMERALD TREASURY FUND
Financial highlights for an Emerald 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, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990 1989(1)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period. . . . . . . . . . . . . . $0.9999 $1.0000 $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 0.0856
Net realized gains (losses) on
securities. . . . . . . . . . . . . (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000 0.0000
--------- -------- -------- -------- -------- -------- --------
Total income from investment
operations. . . . . . . . . . . . 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776 0.0856
--------- -------- -------- -------- -------- -------- --------
Dividends from net investment
income. . . . . . . . . . . . . . (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776) (0.0856)
--------- -------- -------- -------- -------- -------- --------
Net change in net asset value. . . . (0.0003) (0.0001) 0.0000 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 $1.0000
--------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- --------
Total return . . . . . . . . . . . . 5.62% 3.74% 2.95% 3.75% 6.07% 8.04% 8.90%(4)
Ratios/supplemental data:
Net assets, end of
period (000s) . . . . . . . . . . $236,392 $283,920 $501,377 $452,170 $575,103 $416,131 $349,183
Ratio of expenses to average net
assets. . . . . . . . . . . . . . .40% 0.39% 0.40% 0.38% 0.40% 0.38% 0.73%(3)
Ratio of net investment income to
average net assets. . . . . . . . 5.49% 3.73% 2.91% 3.74% 5.86% 7.75% 8.69%(3)
Ratio of expenses to average net
assets(2) . . . . . . . . . . . . 0.42% (a) (a) (a) 0.41% 0.41% 0.77%(3)
Ratio of net investment income
to average net assets(2). . . . . 5.46% (a) (a) (a) 5.85% 8.13% 8.65%(3)
</TABLE>
- --------------------
(1) For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
(2) 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.
(3) Annualized.
(4) Not Annualized.
(a) There were no waivers or reimbursements during the period.
-15-
<PAGE>
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objectives. 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. Although the Funds
will endeavor to attain their investment objectives, there can be no assurance
they will be successful.
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 common stocks 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 15% of its
assets in the types of equity securities permissible for the Small
Capitalization Fund. These include securities of smaller companies with a
market capitalization between $50 million and $2 billion at the time of
purchase. Through these investments, the Fund seeks to provide investors with
potentially greater long-term rewards than those provided by investments in
larger, more established companies. While the smaller capitalization companies
may provide opportunities for greater investment gains they are typically
subject to a greater degree of change in earnings and business prospects.
Additionally, they are traded in lower volume than securities issued by larger
companies and may be more volatile than larger capitalization stocks. In making
investment decisions, the Adviser assesses factors such as trading liquidity,
financial condition, earnings stability, reasonable market valuation and
profitability as measured by return on equity.
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.
-16-
<PAGE>
The Fund also seeks to purchase stock with a projected price-earnings ratio
below that of 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 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 also 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 75% 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 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, consisting of 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.
-17-
<PAGE>
Securities issued in certain countries 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 as described under "Portfolio Instruments, Practices and Related
Risks." The Fund expects that during the Fund's 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, or to meet anticipated day-to-day operating
expenses, the Fund's assets may be invested 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 short-term investments for a limited
time pending availability of suitable equity securities. The short-term debt
instruments in which the Fund may invest may be denominated in foreign
currencies or U.S. dollars, and include foreign and domestic: (i) short-term
obligations of national governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated "P-1" by Moody's Investors Service, Inc. ("Moody's") or "A-1" by Standard
& Poor's Ratings Group ("S&P"), or if unrated, determined by the Adviser to be
of comparable quality; (iii) commercial paper, including master notes; (iv) bank
obligations, including negotiable certificates of deposit, time deposits,
bankers' acceptances and Euro-currency instruments and securities; and (v)
repurchase agreements. Time deposits with a maturity longer than seven days or
that do not provide for payment within seven days after notice will be limited
to 10% of the Fund's total assets. Issuers of commercial paper, bank
obligations or repurchase agreements in which the Fund invests must have, at the
time of investment, outstanding debt rated A or higher by Moody's or S&P, or, if
they are not rated, the instrument purchased must be determined to be of
comparable quality. During normal market conditions, no more than 25% 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 indexes 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. See "Portfolio Instruments, Practices
and Related Risks" below regarding additional investment policies of the Fund.
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.
-18-
<PAGE>
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. 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. 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, trends and
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
-19-
<PAGE>
on each asset class, inflation, interest rates and long-term corporate earnings
growth. Investment returns are normally strongly influenced by such variables
and the expected change in such variables 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 fixed income and cash equivalent
holdings.
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 18 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 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
-20-
<PAGE>
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 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
-21-
<PAGE>
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 government, bank and corporate
obligations that can be found in the money markets. The Treasury Fund seeks to
achieve its objective by investing in obligations that the U.S. Government 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 Fund are not themselves issued or guaranteed by the U.S.
Government or any of its agencies. U.S. Government obligations include Treasury
bills, certain Treasury strips, certificates of indebtedness, notes and bonds,
and obligations of other agencies and instrumentalities that are backed by 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 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
Special Risk Considerations
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
-22-
<PAGE>
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 Value Fund may invest
up to 25% of its 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 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. Certain of these risks are described above under "Special Risk
Considerations."
U.S. GOVERNMENT OBLIGATIONS. The TREASURY FUND may invest in U.S.
Government 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. Obligations of some of these agencies and instrumentalities,
such as the Government National Mortgage Association, are supported by 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 support a U.S. Government-sponsored entity were it not required
to do so by law.
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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. 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 conduits, or REMICs. 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
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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.
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, SHORT-TERM FIXED INCOME, 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,
Eurobonds, 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 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
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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 or Sub-Adviser, pursuant to guidelines established by the Board
of Trustees. During the term of any repurchase agreement, the Adviser or 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 each Fund except the U.S.
Government Securities and Treasury 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
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.
Government, 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 TIGRs and 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
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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
Emerald Funds' 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 certain 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 policy and 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.
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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 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 500 Index.
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 exclusively of
securities of issuers located in one foreign country. Securities of other
investment companies will be acquired by a Fund within the limits prescribed by
the Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund
currently intends to limit these investments so that, as determined
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immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the 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.
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 a 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 a 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 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 Sub-Adviser deems to be of
good standing, and will only be made if the Adviser thinks the possible rewards
from such loan 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. In investing in convertibles, a Fund is
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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. (A description of applicable ratings is attached to the
Statement of Additional Information as Appendix A.) 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 values 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. All options will be listed on a
national securities exchange and issued by the Options Clearing Corporation.
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
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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 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 traded on an exchange or board of trade. 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 800/367-5905.
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
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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
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 (Sub-Adviser in the case of the International
Equity 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 10% 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
objectives. 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 100%.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
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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 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.
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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 different investment objectives from the one they 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 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 additional 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 1877. [__________, the Sub-Adviser for
the International Equity Fund, is a __________ and provides management services
to a number of mutual funds with total assets on December 31, 1995 of
_________.]
ENTRUSTED WITH APPROXIMATELY $__ 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,
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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 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 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 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
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Funds must be received by 2:00 p.m. (Eastern time) on a Business Day in order to
be effective. Purchases for 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 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 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 Fund 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 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
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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 reserve 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 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 carryforward.
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
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shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
Emerald Fund
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
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
--------------------------------------
FUND DECLARED PAID
- ---- --------------- --------------------
<S> <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.
(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 after any reductions for capital loss carryforwards.
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
attributable to its Institutional Shares, subtracting the Fund's
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liabilities attributable 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
800/367-5905.
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 the Equity, Equity Value,
International Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
U.S. Government Securities or Managed Bond Funds 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 without a sales charge 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. 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.
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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 "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 BISYS.
Mutual funds structured like the Funds sell shares on a continuous basis. The
Funds' shares are sold through 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 35.
The Institutional Shares of the Equity, Equity Value, International Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, U.S. Government
Securities and Managed Bond Funds are described in this prospectus. These
Funds as well as the money market funds also offer Retail Shares. Shares of
each share class of a Fund bear a pro rata portion of all operating expenses
paid by the Funds, except for certain miscellaneous "class expenses" (I.E.
certain printing,
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registration and per account transfer agency expenses). In addition, Retail
Shares bear all payments under the Funds' Combined Distribution and Service
Plan and Shareholder Processing Plan (the "Plans") as described in the
prospectus for those shares. Under the Plans the Distributor and Service
Organizations receive fees for distribution and shareholder and
administrative support services.
Payments under the Combined Distribution and Service Plan for Retail
Shares may be made for payments to broker-dealers and financial institutions
under agreements with those organizations for shareholder services provided
to Retail shareholders and/or the maintenance of Retail shareholder accounts.
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 outstanding Retail Shares. Distribution payments under the Combined
Distribution and Service Plan are subject to the requirements of a rule under
the Investment Company Act of 1940 known as Rule 12b-1.
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 Fund's distributor; arranging for wiring of funds;
transmitting and receiving funds in connection with Client orders to purchase
or redeem Shares; processing dividend payments; verifying and guaranteeing
Client signatures in connection with redemption orders and transfers and
changes in Client-designated accounts, as necessary; providing periodic
statements showing a Client's account balance and, to the extent practicable,
integrating such information with other Client transactions otherwise effected
through or with us; furnishing (either separately or on an integrated basis
with other reports sent to a Client by us) periodic statements and
confirmations of purchases, exchanges and redemptions; transmitting on behalf
of the Funds, proxy statements, annual reports, updating prospectuses and
other communications from the Funds to Clients; receiving, tabulating and
transmitting to the Funds proxies executed by Clients with respect to
shareholder meetings; 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.
Emerald Funds offers various services and privileges in connection with its
Retail Shares that are not offered in connection with its Institutional Shares,
including an automatic investment plan, an automatic withdrawal plan and share
exchange privileges among Funds. Persons selling or servicing Retail Shares of
the Funds may receive different compensation with respect to one particular
class of shares over another in the same Fund.
The Board of Trustees has also authorized the issuance of an unlimited
number of shares in each of the classes of the Prime and Treasury Funds (the
Emerald (or "Institutional") Share Class, the Emerald Service Share Class and
the Retail Share Class). Shares of each of these classes bear their pro rata
portion of all operating expenses paid by the Fund, except for the miscellaneous
"class expenses" described above. In addition, Emerald Service Shares bear the
payments described in the prospectus for such shares that are paid under the
Fund's Shareholder Processing and Service Plan (called the "Emerald Service
Plan"). Payments under the Plan cover shareholder services that are related
to Emerald Service Shares, such as aggregating purchase and redemption
requests, placing net purchase and redemption orders and providing
sub-accounting or the information necessary for sub-accounting. The Emerald
Service Plan calls for payments to the institution involved, which include
Barnett, Service Organizations, and their affiliates at an annual rate not to
exceed .35% of the average daily net asset value of the outstanding Emerald
Service Shares. These payments are not made with respect to the Fund's
Emerald Shares or Retail Shares. Standardized yield quotations are computed
separately for each of the Fund's three classes. Because of these Plans and
other "class expenses," the performance of the Prime and Treasury Funds'
Emerald Shares is expected to be higher than the performance of such Funds'
Emerald Service Shares , and the performance of both the Emerald Shares and
Emerald Service Shares of a Fund is expected to be higher than the
performance of the Fund's Retail Shares. The Prime and Treasury Funds offer
various services and privileges in connection with Retail Shares that are not
generally offered in connection with Emerald Shares and Emerald Service
Shares, including an automatic investment plan, automatic withdrawal plan and
checkwriting. For further information regarding the Funds' Retail Shares,
contact [name and number].
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<PAGE>
These payments are not made with respect to the Funds' Institutional Shares,
Emerald Shares or Emerald Service Shares and, as a result, the net yields on
those Shares will be higher than the net yield on the Funds' Retail Shares.
Retail Shares have certain exchange privileges that Emerald Shares and
Emerald Service Shares do not have.
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 Emerald Service Shares will vote
on matters pertaining to the Funds' Shareholder Services Plan and only holders
of Investor Shares will vote on matters pertaining to the Plans 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."
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.
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<PAGE>
- 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, located at 3435 Stelzer Road, Columbus, Ohio
43219-3035, serves as the Funds' administrator, and BISYS' wholly-owned
subsidiary, Emerald Asset Management, 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 43219-3035.
ADVISER. As of December 31, 1995 Barnett had approximately $___ billion
under active management, with $___ billion in equity securities, $___ million in
taxable fixed income securities, $___ billion in treasury and government
securities, $___ billion in municipals and $___ 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. Mr. Creighton has been a portfolio
manager with Barnett since 1983, and in addition to the Equity Fund currently
manages a diversified common stock fund and assists in preparing ongoing equity
investment strategy. Martin E. LaPrade and Joseph E. Tannehill co-manage the
International Equity Fund which commenced operations on December 26, 1995 and
along with Mr. Creighton, co-manage the Equity Value Fund. Martin E. LaPrade,
C.F.A., 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. Joe E. Tannehill, C.F.A., is a Vice President with Barnett and
currently has 9 years of investment experience. Mr. Tannehill 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 1982. 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
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.
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<PAGE>
Although expected to be infrequent, Barnett may consider the amount of Fund
shares sold by broker-dealers and others 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.
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.
Certain officers of Emerald Funds, namely Mr. Blundin, are also an officer
and/or director of BISYS and the Distributor.
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
fee payable by the International Equity 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 international 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.
For the fiscal year ended November 30, 1995 the Funds paid administration
fees, after waivers, to the prior administrator under the administration
agreements then in effect, at the effective rates of .08% of the average
daily net assets of each Fund.
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<PAGE>
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, Concord 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.
Under the terms of the advisory agreement for the Prime and Treasury Funds, 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 advisory fees with respect to
these Funds to the following rates: .25% of the first $600 million of each
Fund's net assets; .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 the Fund's net assets over $2 billion. The Adviser and Administrator
have also voluntarily agreed to waive their advisory and administrative fees
with respect to the Prime and Treasury Funds' Institutional Shares to the extent
that each Fund's annualized ratio of ordinary operating expenses to average net
assets, calculated daily, exceeds .40%. 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 yield 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.
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<PAGE>
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,
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, Small Capitalization, Balanced, Short-Term
Fixed Income, U.S. Government Securities and Managed Bond 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. So long as 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.
Shares of the Prime Fund 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 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. The Funds may quote performance in
advertisements or shareholder communications. The
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<PAGE>
performance for the Funds' Institutional Shares will be calculated
separately from the performance of the Funds' other classes of shares.
UNDERSTANDING PERFORMANCE MEASURES:
- 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 on 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 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 Indexes, the Merrill Lynch Bond Indexes, the Wilshire 5000 Equity Indexes
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.
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<PAGE>
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 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 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.
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<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION....................... 4
Expenses....................................................... 4
Financial Highlights........................................... 7
RISK FACTORS, INVESTMENT PRINCIPLES AND POLICIES.................... 16
INVESTING IN EMERALD FUNDS.......................................... 34
Your Money Manager............................................. 34
Purchase of Shares............................................. 35
Redemption of Shares........................................... 36
Dividends and Distributions.................................... 37
Explanation of Sales Price..................................... 38
Exchange Privilege............................................. 39
Other Service Providers........................................ 40
THE EMERALD FAMILY OF FUNDS......................................... 40
THE BUSINESS OF THE FUNDS........................................... 42
Fund Management................................................ 42
Tax Implications............................................... 45
Measuring Performance.......................................... 46
</TABLE>
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<PAGE>
EMERALD FUNDS
Statement of Additional Information
*Equity Fund*
*Equity Value Fund*
International Equity Fund*
*Small Capitalization Fund*
*Balanced Fund*
*Short-Term Fixed Income Fund*
*U.S. Government Securities Fund*
*Managed Bond Fund*
*Florida Tax-Exempt Fund*
*Prime Fund*
*Treasury Fund*
*Tax-Exempt Fund*
April 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 1
EMERALD FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . 3
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . 39
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . . 48
MANAGEMENT OF EMERALD FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 56
INDEPENDENT ACCOUNTANTS/EXPERTS. . . . . . . . . . . . . . . . . . . . . . . 77
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS . . . . . . . . . . . . . 78
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
<PAGE>
This Statement of Additional Information, which applies to Retail
and 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 (the "Equity and Fixed
Income Funds") and to Retail Shares of the Prime, Treasury and Tax-Exempt
Funds (the "Money Market Funds"), is meant to be read in conjunction with the
Prospectuses dated April 1, 1996 with respect to Institutional and Retail
Shares of the Equity and Fixed Income Funds and Retail Shares of the Money
Market Funds, and is incorporated by reference in its entirety into those
Prospectuses. Because this Statement of Additional Information is not itself a
prospectus, no investment in Institutional Class Shares or Retail Shares of the
Equity and Fixed Income Funds or in Retail Shares of the Money Market Funds
should be made solely upon the information contained herein. Copies of the
Prospectuses may be obtained by calling [ ]. Capitalized terms
used but not defined herein have the same meanings as in the Prospectuses.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BARNETT BANK OR ANY OTHER BANK AND ARE NOT ISSUED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET ASSET VALUE
OF $1.00 PER SHARE, ALTHOUGH 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 FLUCTUATE.
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<PAGE>
EMERALD FUNDS
Emerald Funds (the "Trust") is a Massachusetts business trust which
was organized on March 15, 1988 as an open-end investment company. This
Statement of Additional Information pertains to Retail and Institutional
Shares of the Equity and Fixed Income Funds (of which the Equity, Equity Value,
International Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
U.S. Government Securities and Managed Bond Funds are classified as diversified
portfolios and the Florida Tax-Exempt Fund is classified as a non-diversified
portfolio) and to Retail Shares of the Money Market Funds (all of which are
classified as diversified). The Equity and Fixed Income Funds and the Money
Market Funds are sometimes referred to as the "Funds." Emerald Funds also
currently offers other classes of shares in each of the Money Market Funds
(Emerald Shares and Emerald Service Shares), as well as shares in other
investment portfolios. These other share classes and portfolios are described
in separate Prospectuses and Statements of Additional Information. For further
information, contact the Distributor at the telephone number stated on the cover
page of this Statement of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectuses for the Funds describe the Funds' investment
objectives. The following policies supplement the Funds' respective investment
objectives and policies as set forth in their Prospectuses.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, Barnett
Banks Trust Company, N.A. (the "Adviser") makes decisions with respect to and
places orders for all purchases and sales of portfolio securities for the Equity
and Fixed Income Funds (except The International Equity Fund) and for the Prime
and Treasury Funds. _________ (the "International Equity Fund's Sub-Adviser")
and Rodney Square Management Corporation (the "Tax-Exempt Fund's Sub-Adviser"
and collectively, with the International Equity Fund's Sub-Adviser, the "Sub-
Advisers"), a wholly-owned subsidiary of Wilmington Trust Company, have
similar responsibilities for the International Equity and Tax-Exempt Funds,
respectively, subject to the general supervision of both the Board of Trustees
and the Adviser. (The Sub-Advisers do not provide sub-advisory services for
any of the other Funds.)
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<PAGE>
The portfolio turnover rate for the Funds is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities (such as those held
by the Money Market Funds), including options, whose maturities or expiration
dates at the time of acquisition are thirteen months or less. Portfolio
turnover may vary greatly from year to year as well as within a particular year,
and may be affected by cash requirements for redemption of shares and by
requirements which enable the Funds to receive favorable tax treatment. The
portfolio turnover rates for the fiscal years ended November 30, 1994 and
1995 were 113% and 104%, respectively for the Equity Fund; 133% and 89%
respectively for the U.S. Government Securities; and 89% and 89%,
respectively for the Florida Tax-Exempt Fund. The portfolio turnover rates
for the Small Capitalization Fund for the period from January 4, 1994
(commencement of operations) through November 30, 1994 and the fiscal year
ended November 30, 1995 were 118% and 229%. The portfolio turnover rates for
the Balanced, Short-Term Fixed Income and Managed Bond Funds for the period from
April 11, 1994 (commencement of operations) through November 30, 1994 and the
fiscal year ended November 30, 1995 were 33% and 87% for the Balanced Fund;
0% and 33% for the Short-Term Fixed Income Fund; and 83% and 92% for the
Managed Bond Fund. The annual portfolio turnover rates for the Equity Value and
International Equity Funds are not expected to exceed 100%.
Because the Money Market Funds invest only in short-term instruments,
their portfolio turnover rate is expected to be zero for regulatory reporting
purposes. The Money Market Funds do not intend to seek profits from short-term
trading. Because these Funds invest only in short-term debt instruments, their
annual portfolio turnover rates will on an actual basis be relatively high, but
brokerage commissions are normally not paid on money market instruments, and
portfolio turnover is not expected to have a material effect on the net
investment income of the Money Market Funds. Portfolio turnover will not be a
limiting factor in making portfolio decisions for any Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. For the fiscal years
ended November 30, 1995, 1994 and 1993, the Equity Fund paid $579,942,
$499,826 and $496,461 in brokerage commissions, respectively. For the fiscal
year ended November 30, 1995 and the period from commencement of operations
(January 4, 1994 for the Small Capitalization Fund and April 11, 1994 for the
Balanced Fund) through November 30, 1994 the Small Capitalization Fund paid
$706,112 and $241,074 and the Balanced Fund paid $138,534 and $54,784 in
brokerage commissions.
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<PAGE>
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Adviser (or Sub-Advisers for the International Equity and
Tax-Exempt Funds) will normally deal directly with the dealers who make a
market in the instruments involved except in those circumstances where more
favorable prices and execution are available elsewhere.
Securities purchased and sold by the Short-Term Fixed Income Fund,
U.S. Government Securities Fund, Managed Bond Fund, Florida Tax-Exempt Fund and
Money Market Funds are generally traded in the over-the-counter market on a net
basis (I.E., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. The fixed income
securities that the Balanced Fund purchases and sells are also generally traded
in this manner. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. For
the fiscal years ended November 30, 1995, 1994 and 1993, no Funds other than
the Equity Fund, Small Capitalization Fund (for the period from the commencement
of operations January 4, 1994) and Balanced Fund (for the period from the
commencement of operations April 4, 1994) paid any brokerage commissions.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
A Fund will engage in this practice, however, only when the Adviser (or, with
respect to the International Equity and Tax-Exempt Funds, the Sub-Adviser)
believes such practice to be in the Fund's interests.
In its Advisory Agreements the Adviser agrees with respect to the
Equity and Fixed Income Funds and with respect to the Prime and Treasury Funds,
and in its Sub-Advisory Agreements the Sub-Advisers agree with respect to
the International Equity and Tax-Exempt Funds, to seek to obtain the best
overall terms available in executing portfolio transactions and selecting
brokers or dealers. In assessing the best overall terms available for any
transaction, the Adviser and Sub-Advisers will consider factors they deem
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the respective Agreements
authorize the Adviser and Sub-Advisers to cause the Funds to pay a broker-
dealer which furnishes brokerage and research services a higher
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commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Adviser (or Sub-Advisers
with respect to the International Equity and Tax-Exempt Funds) determines in
good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Adviser (or Sub-Advisers) to the Funds. Such brokerage and research services
might consist of reports and statistics of specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond and government securities
markets and the economy. For the fiscal years ended November 30, 1995, 1994
and 1993 approximately $397,588,560, $357,702,702 and $201,771,449,
respectively, in brokerage transactions for the Equity Fund (involving the
payment of $579,942, $227,951 and $365,618, respectively, in brokerage
commissions) were allocated to brokers because of research services provided.
For the fiscal year ended November 30, 1995 and period from the commencement of
operations of the Small Capitalization Fund on January 4, 1994,
approximately $323,757,624 and $148,069,898 in brokerage transactions
(involving payment of $3,974 and $16,307 in brokerage commissions) were
allocated to brokers because of research services provided. For the fiscal
year ended November 30, 1995 and the period from the commencement of
operations of the Balanced Fund on April 11, 1994, approximately $108,669,292
and $36,145,647 in brokerage transactions (involving payment of $54,779 and
$22,137, in brokerage commissions) were allocated to brokers because of
research services provided.
Supplemental research information so received is in addition to, and
not in lieu of, services required to be performed by the Adviser (and Sub-
Advisers) and does not reduce the advisory fees payable to the Adviser by the
Funds. The Trustees will periodically review the commissions paid by the Funds
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Funds. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other accounts
for which investment discretion is exercised. Conversely, a Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
Portfolio securities will not be purchased from or sold to (and
savings deposits will not be made in and repurchase and reverse repurchase
agreements will not be entered into with) the Adviser, the Sub-Advisers, the
Distributor or an affiliated person of any of them (as such term is defined in
the Investment
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Company Act of 1940) acting as principal, except as permitted by the Securities
and Exchange Commission. Further, while such allocation is not expected to
occur frequently, the Adviser (and each Sub-Adviser with respect to the
International Equity and Tax-Exempt Funds) is authorized to allocate purchase
and sale orders for portfolio securities to broker/dealers and financial
institutions, including, in the case of agency transactions, broker/dealers and
financial institutions which are affiliated with the Adviser or the Sub-
Advisers, to take into account the sale of Fund shares if the Adviser (or Sub-
Adviser) believes that the quality of the execution of the transaction and the
amount of the commission are comparable to what they would be with other
qualified brokerage firms. In addition, the Funds will not purchase securities
during the existence of any underwriting or selling group relating thereto of
which the Distributor, the Adviser or Sub-Advisers, or an affiliated person of
any of them, is a member, except as permitted by the Securities and Exchange
Commission. In certain instances, current regulations of the Commission would
impose volume, dollar and price restrictions on purchases by the Funds during
the existence of such a group or prohibit such purchases altogether.
Investment decisions for the Funds are made independently from those
for other investment companies and accounts advised or managed by the Adviser
and Sub-Advisers. Such other investment companies and accounts may also
invest in the same securities as the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and another
investment company or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser
(Sub-Advisers with respect to the International Equity and Tax-Exempt Funds)
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by the
Fund. To the extent permitted by law, the Adviser and Sub-Advisers may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. With respect to a Money Market Fund in such an event, the
Board of Trustees or the Adviser (Sub-Advisers with respect to the
International Equity and Tax-Exempt Fund), pursuant to guidelines established by
the Board, will consider such an event in determining whether the Fund involved
should continue to hold the security in accordance with the interests of the
Fund and applicable regulations of the Securities and Exchange Commission. With
respect to an Equity and Fixed Income Fund, the Adviser
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anticipates selling such a security in an orderly manner as soon as possible.
In addition, it is possible that unregistered securities purchased by a Fund in
reliance upon Rule 144A under the Securities Act of 1933 could have the effect
of increasing the level of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a period, uninterested in purchasing these
securities.
FUNDAMENTAL POLICIES
Each Fund is subject to the fundamental policies enumerated in this
sub-section, which policies may be changed with respect to a particular Fund
only by a vote of the holders of a majority of such Fund's outstanding shares
(as defined under "Miscellaneous" below).
No Fund may:
1. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the Investment Company Act
of 1940.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof in accordance with the Fund's investment
objective(s), policies and limitations may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except for transactions in options on securities,
securities indices, futures contracts, options on futures contracts.
5. Borrow money or issue senior securities, except that each Fund
may borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of the total assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of one-
third of the value of a particular Fund's total assets at the time of such
borrowing. No Fund will purchase securities while its borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding. Securities held in escrow or separate accounts in connection with
a Fund's investment practices described in this Statement of
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<PAGE>
Additional Information or in the Prospectuses are not deemed to be pledged for
purposes of this limitation.
6. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Fund's transactions in futures contracts, currencies and related
options, and (b) a Fund may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
7. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that each Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities and may
enter into futures contracts and related options; each Fund may enter into
foreign currency contracts and related options to the extent permitted by their
respective investment objective and policies.
8. Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective(s) and policies and may lend portfolio securities.
9. Purchase securities of companies for the purpose of exercising
control.
In addition, the Funds, (except the Florida Tax-Exempt and) may not:
10. Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or certificates of deposit for any such securities) if, immediately after such
purchase, (a) with respect to each of these Fund except the Prime Fund more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, or (b) with respect to the Prime Fund, more than 15%
of its total assets would be invested in certificates of deposit or bankers'
acceptances of any one bank, or more than 5% of the value of the Fund's total
assets would be invested in other securities of any one bank or in the
securities of any other issuer, or (c) in the case of any of these Funds, more
than 10% of the issuer's outstanding voting securities would be owned by the
Fund or Emerald Funds; except that up to 25% of the value of a Fund's total
assets may be invested without regard to the foregoing limitations. For
purposes of this limitation with respect to each of these (except the U.S.
Government Securities Fund) a security is considered to be issued by the entity
(or entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantor when the
value of all securities issued
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and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of
the value of the Fund's total assets.
[Note: In accordance with the current regulations of the Securities
and Exchange Commission, the Prime Fund intends to limit its investments in
bankers' acceptances, certificates of deposit and other securities of any one
bank to not more than 5% of the Fund's total assets at the time of purchase
(rather than the 15% limitation set forth above), provided that the Fund may
invest up to 25% of its total assets in the securities of any one issuer for a
period that does not exceed three business days. This practice, which is not a
fundamental policy of the Fund, would be changed only in the event that such
regulations of the Securities and Exchange Commission are amended in the
future.]
The Florida Tax-Exempt Fund may not:
11. Purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Fund or Emerald Funds, except that (a)
up to 50% of the value of the Fund's total assets may be invested without regard
to these limitations so long as no more than 25% of the value of the Fund's
total assets are invested in the securities of any one issuer and (b) these
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or certificates of deposit for
such securities. For purposes of this limitation, a security is considered to
be issued by the entity (or entities) whose assets and revenues back the
security. A guarantee of a security shall not be deemed to be a security issued
by the guarantor when the value of all securities issued and guaranteed by the
guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's
total assets.
In addition, the Prime Fund and the Tax-Exempt Fund may not:
12. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
(i) instruments issued or guaranteed by the United States, any state, territory
or possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, (ii)
instruments issued by domestic branches of U.S. banks and (iii) repurchase
agreements secured by the instruments described in clauses (i) and (ii); (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are
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primarily related to financing the activities of the parents; and (c) utilities
will be divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry.
[Note: In construing Section 12 in accordance with SEC policy, to the extent
permitted, U.S. branches of foreign banks will be considered to be U.S. banks
where they are subject to the same regulation as U.S. banks.]
The Equity and Fixed Income Funds may not:
13. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
(i) instruments issued (as defined with respect to the Equity Fund in
fundamental policy No. 10 above) or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political subdivisions and
(ii) repurchase agreements secured by the instruments described in clause (i);
(b) wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
In addition, the Florida Tax-Exempt Fund and the Tax-Exempt Fund may
not:
14. Invest less than 80% of their net assets in securities the
interest on which is exempt from federal income tax, except during defensive
periods or during periods of unusual market conditions. For purposes of this
fundamental policy, municipal obligations that are subject to federal
alternative minimum tax are considered taxable.
In addition, the International Equity Fund may not:
15. Write or sell put options, call options, straddles, spreads or
any combination thereof, provided that the exceptions listed in fundamental
policy No. 4 above, are expanded to include financial instruments, currencies,
forward currency exchange contracts and swaps, floors and caps;
16. Purchase securities on margin, make short sales of securities or
maintain a short position provided that the exceptions listed in fundamental
policy No. 6 above, are expanded to include currencies; and
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<PAGE>
17. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, provided that the exceptions listed
in fundamental policy No. 7 are expanded to include foreign currency exchange
contracts.
In addition, the Equity Value Fund may not:
18. Write or sell put options, call options, straddles, spreads or
any combination thereof, provided that the exceptions listed in fundamental
policy No. 4 above are expanded to include currencies.
Although the foregoing fundamental policies would permit the Funds to
invest in options, futures contracts and options on futures contracts, the Money
Market Funds do not currently intend to trade in such instruments during the
next 12 months. Prior to making any such investments, the Money Market Funds
would notify their shareholders and add appropriate descriptions concerning the
instruments to their Prospectuses and this Statement of Additional Information.
In order to permit the sale of shares of the Funds in the State of
Texas, the Trust has agreed to the following additional restrictions with
respect to the Funds:
1. The Funds will not invest in oil, gas or other mineral leases, nor
will they invest in real estate limited partnerships.
2. The Equity Fund will limit its investment in warrants to 5% of the
Fund's net assets, provided that up to and including 2% of the value of the
Fund's net assets may be invested in warrants that are not listed on the New
York or American Stock Exchange.
Should the Trust determine that the above commitments to the State of
Texas or any other commitments made to permit the sale of a particular class
of a Fund's shares in any state are no longer in the best interests of such
class or Fund, the Trust may revoke the commitment by terminating sales of
that class in the state involved.
TYPES OF OBLIGATIONS, INVESTMENT RISKS AND OTHER INVESTMENT INFORMATION
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement (an
agreement under which a Fund sells portfolio securities and agrees to repurchase
them at an agreed-upon date and price), it will place in a segregated custodial
account liquid assets such as U.S. Government securities or other liquid
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<PAGE>
high-grade debt securities having a value equal to or greater than the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that such value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price of the securities it is obligated to repurchase.
Reverse repurchase agreements are considered to be borrowings under the
Investment Company Act of 1940. Each Fund intends to limit its borrowings
(including reverse repurchase agreements) during the next 12 months to not more
than 5% of its net assets.
VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that may be
acquired by the Funds as described in the Prospectuses, the Adviser (Sub-
Advisers with respect to the International Equity and Tax-Exempt Funds) will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and, if the instrument is subject to a demand
feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, an instrument will
usually be deemed to have a maturity equal to the longer of the period remaining
until the next regularly scheduled interest rate adjustment or the time the Fund
involved can recover payment of principal as specified in the instrument.
Instruments which are U.S. Government obligations and certain variable rate
instruments having a nominal maturity of 397 days or less when purchased by the
Fund involved, however, will be deemed to have maturities equal to the period
remaining until the next interest rate adjustment.
Variable and floating rate instruments purchased by the Money Market
Funds may carry nominal maturities in excess of those Funds' maturity
limitations if such instruments carry demand features that comply with
conditions established by the Securities and Exchange Commission. In order to
be purchased by a Money Market Fund, these instruments must permit a Fund to
demand payment of the principal of the instrument at least once every 397 days
upon not more than 30 days' notice.
REPURCHASE AGREEMENTS
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements are held by either the Funds' custodian or another
independent third party acting as sub-custodian for the Funds, or in the Federal
Reserve/Treasury Book-
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Entry System. Repurchase agreements are considered to be loans by a Fund under
the Investment Company Act of 1940.
LENDING SECURITIES
When a Fund lends its securities, it continues to receive interest
(and dividends with respect to the Equity, Equity Value, International Equity,
Small Capitalization and Balanced Funds) on the securities loaned and may
simultaneously earn interest on the investment of the cash loan collateral which
will be invested in readily marketable, high-quality, short-term obligations.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans will be called so that the securities may be
voted by a Fund if a material event affecting the investment is to occur.
Portfolio loans will be continuously secured by collateral equal at all times in
value to at least the market value of the securities loaned plus accrued
interest. Collateral for such loans may include cash, U.S. Government
securities, securities of U.S. Government agencies and instrumentalities or an
irrevocable letter of credit issued by a bank that meets the credit standards of
a Fund for short-term instruments, except that collateral for the U.S.
Government Securities Fund is limited to cash and securities of the U.S.
Government and its agencies and instrumentalities and collateral for the
Treasury Fund is limited to cash and U.S. Government securities. There may be
risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may invest
in securities issued by other investment companies within the limits prescribed
by the Investment Company Act of 1940. Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund or by
Emerald Funds as a whole. As a shareholder of another investment company, a
Fund would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that a Fund bears in
connection with its own operations.
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U.S. GOVERNMENT OBLIGATIONS
Examples of the types of U.S. Government obligations that may be held
by the Equity and Fixed Income Funds and the Prime Fund include, in addition to
U.S. Treasury bonds, notes and bills, the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration. 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. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of the
U.S. Treasury; others, such as the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
"STRIPPED SECURITIES"
Although "stripped" securities may not pay interest to holders prior
to maturity, federal income tax regulations require a Fund to recognize as
interest income a portion of the bond's discount each year. This income must
then be distributed to shareholders along with other income earned by the Fund.
To the extent that any shareholders in a Fund elect to receive their dividends
in cash rather than reinvest such dividends in additional Fund shares, cash to
make these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
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ASSET-BACKED SECURITIES
The Balanced, Short-Term Fixed Income, Managed Bond, and Prime Funds
may invest in securities backed by installment contracts, credit card
receivables and other assets. Asset-backed securities represent interests in
pools of assets in which payment of both interest and principal on the
securities are made monthly, thus in effect passing through (net of fees paid to
the issuer or guarantor of the securities) the monthly payments made by the
individual borrowers on the assets that underlie the asset-backed securities.
These Funds, as well as the U.S. Government Securities Fund, may also invest in
U.S. Government securities that are backed by adjustable or fixed rate mortgage
loans.
Non-mortgage asset-backed securities involve certain risks that are
not presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
As stated in the Prospectuses, certain mortgage-backed securities that
are acquired may be CMOs, which are issued in multiple classes. These classes
may include accrual certificates (also known as "Z-Bonds"), which only accrue
interest at a specified rate until other specified classes have been retired and
are converted thereafter to interest-paying securities. They may also include
planned amortization classes ("PAC") which generally require, within certain
limits, that specified amounts of principal be applied on each payment date, and
generally exhibit less yield and market volatility than other classes. The
Funds will not purchase "residual" CMO interests, which normally exhibit the
greatest price volatility.
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RATINGS AND ISSUER'S OBLIGATIONS
The ratings of Nationally Recognized Statistical Rating Organizations
("NRSROs") represent their opinions as to the quality of debt securities. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality, and debt securities with the same maturity, interest rate
and rating may have different yields while debt securities of the same maturity
and interest rate with different ratings may have the same yield.
The payment of principal and interest on most securities purchased by
the Funds will depend upon the ability of the issuers to meet their obligations.
An issuer's obligations under its debt securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its debt
securities may be materially adversely affected by litigation or other
conditions.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
The Funds may purchase securities on a when-issued basis and purchase
or sell securities on a forward commitment basis. The transactions, which
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place beyond the normal settlement date, 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. When-issued and forward
commitment transactions involve the risk, however, that the yield obtained in a
transaction may be less favorable than the yield available in the market when
the securities delivery takes place.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order that the value of the
account remains equal to the amount of the Fund's commitments. It may be
expected that the market value of the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund will set aside cash
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or liquid assets to satisfy its purchase commitments in the manner described,
that Fund's liquidity and ability to manage its portfolio might be affected in
the event its forward commitments to purchase securities ever exceeded 25% of
the value of its total assets. Forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets, absent unusual market
conditions or periods of unusual purchase or redemption activity in shares of a
Fund, such as at calendar year-end or other times; furthermore, a forward
commitment or commitment to purchase when-issued securities for any Fund is not
expected to exceed 45 days.
The Funds do not intend to engage in when-issued purchases or forward
commitments for speculative purposes but only in furtherance of their investment
objectives, and a Fund will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, a Fund may dispose of or renegotiate a commitment
after it is entered into, and may sell securities it has committed to purchase
before those securities are delivered to the Fund on the settlement date. In
these cases the Fund may realize a taxable capital gain or loss.
When a Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value is taken into account when determining the market value of
a Fund involved in such transactions starting on the day the Fund agrees to
purchase the securities. A Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
CERTAIN SHORT-TERM INVESTMENTS
The Funds (other than the U.S. Government Securities Fund, Treasury
Fund and Tax-Exempt Fund) may make the following short-term investments. The
Adviser expects that during the next twelve months the Florida Tax-Exempt Fund
will not invest more than 5% of its net assets at the time of purchase in
instruments within any single category of the instruments described.
BANK OBLIGATIONS. Bank obligations include U.S. dollar-denominated
certificates of deposit, bankers' acceptances and time deposits, issued or
supported by the credit of U.S. or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion. A Fund may also
invest
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in certificates of deposit and time deposits of domestic branches of U.S. banks
having total assets less than $1 billion if such certificates of deposit and
time deposits are fully insured by the Federal Deposit Insurance Corporation.
Investments by the Funds in the obligations of foreign banks and foreign
branches of domestic banks may not exceed 25% of the value of the Fund's total
assets at the time of investment. Certain bank obligations of domestic branches
of foreign banks will be considered to be investments in domestic banks as
described above in the section entitled "Fundamental Policies." Investments by
the Florida Tax-Exempt Fund in the obligations of foreign banks and foreign
branches of domestic banks (excluding bank letters of credit, guarantees and
similar forms of credit or liquidity support) normally may not exceed 20% of the
value of the Fund's total assets at the time of investment. These Funds may
also make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of the total assets of the Fund.
COMMERCIAL PAPER. Investments by such Funds in commercial paper will
consist of issues with remaining maturities of 13 months or less. Commercial
paper purchased by a Fund may include obligations issued by Canadian
corporations and Canadian counterparts of U.S. corporations, Europaper, which is
U.S. dollar-denominated commercial paper of a foreign issuer and Yankee paper,
which is U.S. dollar-denominated commercial paper issued by foreign issuers in
the United States.
FOREIGN MONEY MARKET INSTRUMENTS. A Fund will invest in obligations
of foreign banks and commercial paper issued by foreign issuers as described
above only when the Adviser deems the instrument to present minimal credit risk.
Such investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. Such risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on such instruments, the possible
establishment of exchange controls, the possible seizure or nationalization of
foreign deposits or the adoption of other foreign government restrictions which
might affect adversely the payment of principal and interest of such
instruments. In addition, foreign issuers, including foreign banks and foreign
branches of U.S. banks, may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting and recordkeeping standards
than those applicable to domestic issuers, and securities of foreign issuers may
be less liquid and their prices more volatile than those of comparable domestic
issuers.
MUNICIPAL OBLIGATIONS
Assets of the two Tax-Exempt Funds may be invested in debt instruments
("municipal obligations") issued by or on behalf of states, territories and
possessions of the United States, the
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District of Columbia and their respective authorities, agencies,
instrumentalities and political sub-divisions. The Balanced, Short-Term Fixed
Income, Managed Bond, and Prime Funds may also acquire municipal obligations,
which may be advantageous 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 may purchase.
Municipal obligations include debt obligations issued by governmental entities
to obtain funds for various public purposes, including the construction of a
wide range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities.
The two principal classifications of municipal obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the issuer of the facility being financed.
Private activity bonds (e.g., bonds issued by industrial development
authorities) that are issued by or on behalf of public authorities to finance
various privately-operated facilities are included within the term "municipal
obligations." Private activity bonds are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Additionally, the
principal and interest on these obligations may or may not be payable from the
general revenues of the users of the facilities involved. The credit quality of
such bonds is usually directly related to the credit standing of such corporate
users. Private activity bonds have been or may be issued to obtain funds to
provide privately operated housing facilities, pollution control facilities,
convention or trade show facilities, mass transit, airport, port or parking
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such bonds may also be issued on behalf of
privately held or publicly owned corporations in the financing of commercial or
industrial facilities. State and local governments are authorized in most
states to issue private activity bonds for such purposes in order to encourage
corporations to locate within their communities.
As described in the Prospectuses, these Funds may also invest in
municipal leases, which may be considered liquid under guidelines established by
Emerald Funds' Board of Trustees. The guidelines will provide for determination
of the liquidity and proper valuation of a municipal lease obligation based on
factors including the following: (1) the frequency of trades and quotes
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for the obligation; (2) the number of dealers willing to purchase or sell the
security and the number of other potential buyers; (3) the willingness of
dealers to undertake to make a market in the security; and (4) the nature of
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer. Emerald, under the
supervision of Emerald Funds' Board of Trustees, will also consider the
continued marketability of a municipal lease obligation based upon an analysis
of the general credit quality of the municipality issuing the obligation and the
importance to the municipality of the property covered by the lease.
Municipal obligations may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Municipal obligations may include short-term General Obligation Notes,
Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes,
Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of short-
term tax-exempt loans. Such instruments are issued with a short-term maturity
in anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, these Funds may invest in bonds and other types of
tax-exempt instruments provided they have remaining maturities that meet any
applicable maturity limitations.
As described in their Prospectuses, the Balanced, Managed Bond, Short-
Term Fixed Income, Prime and the two Tax-Exempt Funds may purchase securities in
the form of custodial receipts. These custodial receipts are known by a number
of names, including "Municipal Receipts," "Municipal Certificates of Accrual on
Tax-Exempt Securities" ("M-CATS") and "Municipal Zero-Coupon Receipts."
Certain municipal obligations may be insured at the time of issuance
as to the timely payment of principal and interest. The insurance policies will
usually be obtained by the issuer of the municipal obligation at the time of its
original issuance. In the event that the issuer defaults on interest or
principal payment, the insurer of the obligation is required to make payment to
the bondholders upon proper notification. There is, however, no guarantee that
the insurer will meet its obligations. In addition, such insurance will not
protect against market fluctuations caused by changes in interest rates and
other factors. The two Tax-Exempt Funds may, from time to time, invest more
than 25% of their total assets in municipal obligations covered by insurance
policies.
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From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
the interest on municipal obligations. For example, pursuant to federal tax
legislation passed in 1986, interest on certain private activity bonds must be
included in an investor's federal alternative minimum taxable income, and
corporate investors must take all tax-exempt interest into account in
determining certain adjustments for Federal alternative minimum tax purposes.
Emerald Funds cannot, of course, predict what legislation, if any, may be
proposed in the future as regards the income tax status of interest on municipal
obligations, or which proposals, if any, might be enacted. Such proposals,
while pending or if enacted, might materially and adversely affect the
availability of municipal obligations for investment by the two Tax-Exempt Funds
and the liquidity and value of those Funds' portfolios. In such an event,
Emerald Funds would reevaluate the investment objective and policies of the two
Tax-Exempt Funds and consider possible changes in their structure or possible
dissolution.
STAND-BY COMMITMENTS
The two Tax-Exempt Funds may acquire stand-by commitments with respect
to municipal obligations held in their respective portfolios. The amount
payable to a Fund upon its exercise of a "stand-by commitment" is normally (i)
the Fund's acquisition cost of the municipal obligations (excluding any accrued
interest which the Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period. Stand-by
commitments may be sold, transferred or assigned by a Fund only with the
instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Funds may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Where a Fund has paid any
consideration directly or indirectly for a stand-by commitment, its cost would
be reflected as unrealized depreciation for the period during which the
commitment was held by the Fund.
The Funds intend to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Adviser's or Sub-Adviser's opinion,
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a stand-by commitment, the Adviser or Sub-Adviser will review periodically
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the issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Tax-Exempt Funds would acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. Stand-by commitments acquired by these Funds
would be valued at zero in determining net asset value.
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 and caps for hedging
purposes and not for speculation. A Fund will only enter into interest rate
swaps or interest rate floor or cap transactions on a net basis, I.E., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these transactions
are entered into for good faith hedging purposes, it is believed that such
obligations do not constitute senior securities as defined in the Investment
Company Act of 1940 and, accordingly, these transactions are not treated as
being subject to a Fund's borrowing restrictions. If there is a default by the
other party to an interest rate swap or interest rate floor or cap transaction,
the Fund involved will have contractual remedies pursuant to other agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid in comparison with markets
for other similar instruments which are traded in the Interbank market.
PARTICIPATION INTERESTS AND TRUST RECEIPTS
The Balanced, Short-Term Fixed Income, Managed Bond, and Prime Funds
may purchase participation interests and trust receipts as described in the
Prospectuses. Such participation interests and trust receipts may have fixed,
floating or variable rates of interest, and when purchased for the Prime Fund,
will have remaining maturities of thirteen months or less (as defined by the
Securities and Exchange Commission). If a participation interest or trust
receipt is unrated, the Adviser will have determined that the interest or
receipt is of comparable quality to those instruments in which the Fund involved
may invest pursuant to guidelines approved by the Board of Trustees. For
certain participation interests or trust receipts a Fund will have the right to
demand payment, on not more than 30 days' notice, for all or any part of the
Fund's participation interest or trust receipt in the securities involved, plus
accrued interest.
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GUARANTEED INVESTMENT CONTRACTS
Generally, a GIC allows a purchaser to buy an annuity with the monies
accumulated under the contract; however, the Funds will not purchase any such
annuities. GICs acquired by the Funds are general obligations of the issuing
insurance company and not separate accounts. The purchase price paid for a GIC
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer. The Funds will only purchase GICs from
issuers which, at the time of purchase, are rated "A+" by A.M. Best Company,
have assets of $1 billion or more and meet quality and credit standards
established by the investment adviser pursuant to guidelines approved by the
Board of Trustees. Generally, GICs are not assignable or transferable without
the permission of the issuing insurance companies, and an active secondary
market in GICs does not currently exist. Therefore, GICs are considered by the
Funds to be illiquid investments, and will be acquired by the Funds subject to
its limitation on illiquid investments.
OPTIONS TRADING
As stated in the Prospectuses, each equity and fixed income Fund may
purchase put and call options listed on a national securities exchange and
issued by the Options Clearing Corporation. Such purchases would be in an
amount not exceeding 5% of a Fund's net assets. Such options may relate to
particular securities or to various indices. This is a highly specialized
activity which entails greater than ordinary investment risks. Regardless of
how much the market price of the underlying security or index increases or
decreases, the option buyer's risk is limited to the amount of the original
investment for the purchase of the option. However, options may be more
volatile than the underlying instruments, and therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. Put and call options
purchased by the Funds will be valued at the last sale price or, in the absence
of such a price, at the mean between bid and asked prices.
A listed call option for a particular security gives the purchaser of
the option the right to buy from a clearing corporation, and a writer has the
obligation to sell to the clearing corporation, 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 in consideration for undertaking the obligations under the option contract.
A listed put option gives the purchaser the right to sell to a clearing
corporation 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
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particular security, an option on an index provides the holder with the right to
make or receive a cash settlement upon exercise of the option. The amount of
this settlement will be equal to the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
When a Fund writes a call option on a security, the option is
"covered" if the Fund involved owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount as are held in a segregated account by its custodian)
upon conversion or exchange of other securities held by it. For a call option
on an index, the option is covered if the Fund involved maintains with its
custodian cash or cash equivalents equal to the contract value. A call option
is also covered if the Fund involved holds a call on the same security or index
as the call written where the exercise price of the call held is (i) equal to or
less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in cash or cash equivalents in a segregated account with its custodian. A
secured put option written by a Fund means that the Fund maintains in a
segregated account with the custodian cash or U.S. Government securities in an
amount not less than the exercise price of the option at all times during the
option period.
The principal reason for writing call options on a securities
portfolio is the attempt to realize, through the receipt of premiums, a greater
current return than would be realized on the securities alone. In return for
the premium, the covered option writer gives up the opportunity for profit from
a price increase in the underlying security above the exercise price so long as
his obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
A Fund's obligation to sell a security subject to a covered call
option written by it, or to purchase a security subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding
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option, to prevent an underlying security from being called, to permit the sale
of the underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. A Fund will write
an option on a particular security only if the Adviser believes that a liquid
secondary market will exist on an exchange for options of the same series which
will permit the Fund to make a closing purchase transaction in order to close
out its position.
When a Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently marked-
to-market to reflect the current value of the option written. The current value
of the traded option is the last sale price or, in the absence of a sale, the
average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a
covered call option may be offset by a decline in the market price of the
underlying security during the option period. If a covered call option is
exercised, the Fund involved may deliver the underlying security held by it or
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received
and the Fund will realize a gain or loss. If a secured put option is exercised,
the amount paid by the Fund for the underlying security will be partially offset
by the amount of the premium previously paid to the Fund. Premiums from expired
options written by a Fund and net gains from closing purchase transactions are
treated as short-term capital gains for federal income tax purposes, and losses
on closing purchase transactions are short-term capital losses.
As noted previously, there are several risks associated with
transactions in options on securities and indices. For
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example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. In addition, a
liquid secondary market for particular options, whether traded over-the-counter
or on a national securities exchange ("Exchange") may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an Exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an Exchange; the facilities of an Exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more Exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND
The effectiveness of purchasing or writing foreign stock index options
as a hedging technique will depend upon the extent to which price movements in
the portion of the securities portfolio of the International Equity Fund
correlate with price movements of the stock index selected. Because the value
of an index option depends upon movements in the level of the index rather than
the price of a particular stock, whether the Fund realizes a gain or loss from
the purchase or writing of options on an index is dependent upon movements in
the level of stock prices in the foreign stock market generally or, in the case
of certain indexes, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on foreign stock indexes will be subject to the Adviser's ability to
predict correctly movements in the direction of the stock market generally or of
a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. There can be no assurance
that such judgment will be accurate or that the use of these portfolio
strategies will be successful. The International Equity Fund will engage in
foreign
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stock index options transactions that are determined to be consistent with its
efforts to control risk.
When the Fund writes an option on a foreign stock index, it will
establish a segregated account with its custodian or with a foreign sub-
custodian in which International Equity will deposit cash or cash equivalents or
a combination of both in an amount equal to the market value of the option, and
will maintain the account while the option is open.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS -- INTERNATIONAL EQUITY FUND
Because the International Equity Fund may buy and sell securities
denominated in currencies other than the U.S. dollar, and receive interest,
dividends and sale proceeds in currencies other than the U.S. dollar, the Fund
may enter into foreign currency exchange transactions to convert United States
currency to foreign currency and foreign currency to United States currency as
well as convert foreign currency to other foreign currencies. The Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a specified price and future
date, which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into the Fund's long-term investment
decisions, the Fund will not routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions
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would be in the Fund's best interest. Although these transactions tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of these securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
AMERICAN DEPOSITORY RECEIPTS ("ADRS") AND EUROPEAN DEPOSITORY RECEIPTS ("EDRS")
The Equity, Equity Value, International Equity, Small Capitalization
and Balanced Funds may invest their assets in ADRs, which are receipts issued by
an American bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer, and in EDRs, which are receipts issued by European
financial institutions evidencing ownership of underlying securities issued by a
foreign issuer. ADRs may be listed on a national securities exchange or may
trade in the over-the-counter market. ADR prices are denominated in United
States dollars while EDR prices are generally denominated in foreign currencies.
The securities underlying an ADR or EDR will also normally be denominated in a
foreign currency. The underlying securities may be subject to foreign
government taxes which could reduce the yield on such securities. As discussed
above under "Foreign Money Market Instruments," investments in foreign
securities involve certain inherent risks, such as political or economic
instability of the issuer or the country of issue and the difficulty of
predicting international trade patterns : the possible imposition of foreign
withholding taxes on interest income payable on such instruments; the possible
establishment of exchange controls; the possible seizure or nationalization of
foreign deposits or the adoption of other foreign branches of U.S. banks; may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic issuers, and securities of foreign issuers may be less liquid and their
prices more volatile than those of comparable domestic issuers.
WARRANTS
Warrants are privileges issued by corporations enabling the owner to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. The prices of warrants do
not necessarily
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correlate with the prices of the underlying securities. The purchase of
warrants involves the risk that the purchaser could lose the purchase value of
the warrant if the right to subscribe to additional shares is not exercised
prior to the warrant's expiration. Also, the purchase of warrants involves the
risk that the effective price paid for the warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security.
CONVERTIBLE SECURITIES
Convertible securities entitle the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the securities
mature or are redeemed, converted or exchanged. Prior to conversion,
convertible securities have characteristics similar to ordinary debt securities
in that they normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore generally entail less risk than the corporation's common stock,
although the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
In selecting convertible securities, the Adviser (or the Sub-Advisers)
will consider, among other factors, the creditworthiness of the issuers of the
securities; the interest or dividend income generated by the securities; the
potential for capital appreciation of the securities and the underlying common
stocks; the prices of the securities relative to other comparable securities and
to the underlying common stocks; whether the securities are entitled to the
benefits of sinking funds or other protective conditions; diversification of a
Fund's portfolio as to issuers; and the ratings of the securities. Since credit
rating agencies may fail to timely change the credit ratings of securities to
reflect subsequent events, the (or the Sub-Advisers) will consider whether such
issuers will have sufficient cash flow and profits to meet required principal
and interest payments. A Fund may retain a portfolio security whose rating has
been changed if the (or the Sub-Advisers) deems that retention of such security
is warranted.
As described in the Prospectuses, the Equity, Small Capitalization,
Balanced, Short-Term Fixed Income and Managed Bond Funds may invest a portion of
their assets in convertible securities that are rated below investment grade.
In general, investments in lower-rated securities are subject to a significant
risk of a change in the credit rating or financial condition of the issuing
entity. Investments in such securities are also likely to be subject to greater
market fluctuation and
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to greater risk of loss of income and principal due to default than investments
of higher rated securities.
In particular, a Fund's investments in lower-rated securities present
the following risk factors:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and
interest rates can affect lower-rated securities differently from other
securities. For example, the prices of lower-rated securities are more
sensitive to adverse economic changes or individual corporate developments than
are the prices of higher-rated investments. Also, during an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals and to obtain additional financing. If the issuer of a
convertible security defaulted, a Fund might incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of lower-rated
securities and of a Fund's net asset value. In general, both the price and
yields of lower-rated securities will fluctuate.
LIQUIDITY AND VALUATION. To the extent that an established
secondary market does not exist and a particular convertible security is
thinly traded, the determination of the security's fair value may be
difficult to determine because of the absence of reliable objective data. As
a result, a Fund's valuation of the security and the price it could obtain
upon its disposition could differ. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of lower-rated securities held by a Fund, especially in
a thinly traded market. Illiquid or restricted securities held by a Fund may
involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.
CONGRESSIONAL PROPOSALS. Current laws and legislative proposals
designed to limit the use, or tax and other advantages, of lower-rated
securities, may have a material effect on a Fund's investment in convertible
securities.
CREDIT RATINGS. The credit ratings of S&P, Moody's, D&P and Fitch are
evaluations of the safety of principal and interest payments, not market value
risk, of convertible securities. Also, credit rating agencies may fail to
timely change the credit ratings to reflect subsequent events. Therefore, in
addition to using recognized rating agencies and other sources, the Adviser, (or
the Sub-Advisers), also performs its own analysis of issuers in selecting
convertible securities for a Fund. The Adviser's, (or the Sub-Advisers')
analysis of
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issuers may include, among other things, historic and current financial
condition, current and anticipated cash flow and borrowing requirements, value
of assets in relation to historical costs, strength of management,
responsiveness to business conditions, credit standing, and current and
anticipated results of operations. Among other factors which may also be
considered by the Adviser, (or the Sub-Advisers) are anticipated changes in
interest rates, the availability of new investment opportunities and the outlook
for specific industries. Issues of convertible securities rated by S&P,
Moody's, D&P or Fitch at the time of purchase may subsequently cease to be
rated. This event will not require the elimination of such obligations from a
Fund's portfolio, but the Adviser, (or the Sub-Advisers) will consider such an
event in determining whether the Fund should continue to hold such obligations.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA OBLIGATIONS
Some of the significant financial considerations relating to
investments by the Florida Tax-Exempt Fund in Florida Obligations are summarized
below. This summary information is derived principally from official statements
released prior to the date of this Statement of Additional Information relating
to issues of Florida Obligations and does not purport to be a complete
description of any of the considerations mentioned herein. While the Fund has
not independently verified such information, it has no reason to believe such
information is not correct in all material respects.
The financial condition of the State of Florida may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities but also by entities that are not under the control of the
State. Adverse developments affecting the State's financing activities, its
agencies or its political subdivisions could adversely affect the State's
financial condition.
The State's revenues increased from $28,591,951,000 in 1993 to
$29,115,034,000 in 1994 while its expenditures decreased from $28,124,498,000 in
1993 to $27,878,146,000 in 1994. The Florida Comptroller also projected non-
agricultural jobs to gross 3.2% and 3.1% in fiscal years 1994-95 and 1995-96,
respectively.
The Constitution of the State of Florida limits the right of the State
and its local governments to tax. The Constitution requires the State to have a
balanced budget and to raise revenues to defray its operating expenses. The
State may not borrow for the purpose of maintaining ordinary operating expenses,
but may generally borrow for capital improvements.
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There are a number of methods by which the State of Florida may incur
debt. The State may issue bonds backed by the State's full faith and credit to
finance or refinance certain capital projects authorized by its voters. The
State also may issue certain bonds backed by the State's full faith and credit
to finance or refinance pollution control, solid waste disposal and water
facilities for local governments; county roads; school districts and capital
public education projects without voter authorization. The State may also,
pursuant to specific constitutional authorization, directly guarantee certain
obligations of the State's authorities, agencies and instrumentalities.
Payments of debt service on State bonds backed by the State's full faith and
credit and State-guaranteed bonds and notes are legally enforceable obligations
of the State. Revenue bonds to finance or refinance certain capital projects
also may be issued by the State of Florida without voter authorization.
However, revenue bonds are payable solely from funds derived directly from
sources other than state tax revenues.
The State of Florida currently imposes, among other taxes, an ad
valorem tax on intangible property and a corporate income tax. The Florida
Constitution prohibits the levying of a personal income tax. Certain other
taxes the State of Florida imposes include: an estate or inheritance tax which
is limited by the State's Constitution to an amount not in excess of the amount
allowed to be credited upon or deducted from federal estate taxes or the estate
taxes of another state; and a 6% sales tax on most goods and certain services
with an option for counties to impose up to an additional 1% sales tax on such
goods and services.
The Constitution reserves the right to charge an ad valorem tax on
real estate and tangible personal property to Florida's local governments. All
other forms of taxation are preempted to the State of Florida except as may be
provided by general law. Motor vehicles, boats, airplanes, trailers, trailer
coaches and mobile homes, as defined by law, may be subject to a license tax for
their operation, but may not be subject to an ad valorem tax.
Under the Constitution, ad valorem taxes may not be levied in excess
of the following millage upon the assessed value of real estate and tangible
personal property: for all county purposes, ten mills; for all municipal
purposes, ten mills; for all school purposes, ten mills; for water management
purposes for the northwest portion of the State, .05 mills; for water management
purposes for the remaining portion of the State, one mill; and for all other
special districts a millage authorized by law and approved by referendum. When
authorized by referendum, the above millage caps may be exceeded for up to two
years. Counties, school districts, municipalities, special districts and local
governmental bodies with taxing powers may issue bonds to
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finance or refinance capital projects payable from ad valorem taxes in excess of
the above millage cap when approved by referendum. It should be noted that
several municipalities and counties have charters that further limit either ad
valorem taxes or the millage that may be assessed.
The Florida legislature has passed a number of mandates which limit or
place requirements on local governments without providing the local governments
with compensating changes in their fiscal resources. The Florida legislature
enacted a comprehensive growth management act which forces local governments to
establish and implement comprehensive planning programs to guide and control
future development. This legislation prohibits public or private development
that does not conform with the locality's comprehensive plan. Local governments
may face greater requirements for services and capital expenditures than they
had previously experienced if their locality experiences increased growth or
development. The burden for funding these potential services and capital
expenditures which has been left to the local governments may be quite large.
The State of Florida enacted an amendment to the Florida Constitution
("Amendment 10") which limits ad valorem taxes on homestead real property,
effective as of January 1994. Beginning in 1995, Amendment 10 limits the
assessed value of homestead real property for ad valorem tax purposes to the
lower of (A) three percent (3%) of the assessed value for the prior year; or
(B) the percentage change in the Consumer Price Index for the preceding calendar
year. In addition, no such assessed value shall exceed "just value" and such
just value shall be reassessed (notwithstanding the 3% cap) as of January 1 of
the year following a change of ownership of the assessed real property.
The payment on most Florida Obligations held by the Fund will depend
upon the issuer's ability to meet its obligations. If the State or any of its
political subdivisions were to suffer serious financial difficulties
jeopardizing their ability to pay their obligations, the marketability of
obligations issued by the State or localities within the State, and the value of
the Fund's portfolio, could be adversely affected.
NET ASSET VALUE
The net asset value per share of each class of shares in a particular
Fund is calculated by adding the value of all portfolio securities and other
assets belonging to the Fund that are attributable to the class, subtracting the
Funds' liabilities that are attributable to the class, and dividing the result
by
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the number of outstanding shares in the class. The net asset value per share
for each Fund and for each class of shares within a Fund is calculated
separately. Each Fund is charged with the direct expenses of that Fund, and
with a share of the general expenses of Emerald Funds. Subject to the
provisions of the Agreement and Declaration of Trust, determinations by the
Board of Trustees as to the direct and allocable expenses, and the allocable
portion of any general assets, with respect to a particular Fund or share class
are conclusive. With respect to the Equity and Fixed Income Funds, the
liabilities that are charged to a Fund are borne by each share of the Fund,
except for certain miscellaneous "class expenses" and payments that are borne
solely by Retail Shares pursuant to the Combined Amended and Restated
Distribution and Service Plan for Retail Shares and the Shareholder Processing
Plan for Retail Shares (formerly the respective Distribution and Shareholder and
Administrative Services Plans) applicable to those Shares as described in the
Prospectus for such Shares. Similarly, with respect to the Money Market Funds,
the liabilities that are charged to a Fund are borne by each share of such Fund,
except for certain miscellaneous "class expenses" and payments that are borne
solely by Investor Shares under the Shareholder and Administrative Services
Plans described in the Prospectuses for such Shares and certain "plan" payments
that are borne solely by Emerald Service Shares as described in the Prospectuses
for those Shares.
VALUATION OF THE MONEY MARKET FUNDS
Emerald Funds uses the amortized cost method of valuation to value
each Money Market Fund's portfolio securities, pursuant to which an instrument
is valued at its cost initially and thereafter a constant amortization to
maturity of any discount or premium is assumed, regardless of the impact of
fluctuating interest rates on the market value of the instrument. This method
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Fund would receive if it sold the instrument.
The market value of portfolio securities held by a Money Market Fund can be
expected to vary inversely with changes in prevailing interest rates.
Each Money Market Fund attempts to maintain a dollar-weighted average
portfolio maturity appropriate to its objective of maintaining a stable net
asset value per share. In this regard, except for securities subject to
repurchase agreements, no Money Market Fund will purchase a security deemed to
have a remaining maturity of more than thirteen months within the meaning of the
Investment Company Act of 1940 nor maintain a dollar-weighted average maturity
that exceeds ninety days. The Board of Trustees has also established procedures
that are intended to stabilize the net asset value per share of each Money
Market Fund for purposes of sales and redemptions at $1.00.
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These procedures include the determination, at such intervals as the Trustees
deem appropriate, of the extent, if any, to which the net asset value per share
of each Money Market Fund calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds one-half of
one percent, the Board will promptly consider what action, if any, should be
initiated. If the Board believes that the extent of any deviation from a $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, it has agreed to take such steps as it
considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
Should Emerald Funds incur or anticipate any unusual significant
expense or loss which might affect disproportionately the income of a Money
Market Fund, the Board of Trustees would, at that time, consider whether to
adhere to its present dividend policies with respect to the Money Market Funds,
which are described in the Prospectuses for those Funds, or to revise the
policies in order to mitigate, to the extent possible, the disproportionate
effect the expense or loss might have on the income of a Fund for a particular
period.
VALUATION OF THE EQUITY FUND, EQUITY VALUE, INTERNATIONAL EQUITY, SMALL
CAPITALIZATION FUND, BALANCED FUND, SHORT-TERM FIXED INCOME FUND, U.S.
GOVERNMENT SECURITIES FUND AND MANAGED BOND FUND
Securities of the Equity Fund, Equity Value, International Equity,
Small Capitalization Fund, Balanced Fund, Short-Term Fixed Income Fund, U.S.
Government Securities Fund and Managed Bond Fund (other than debt securities
with remaining maturities of 60 days or less) are valued at the last sales price
on the securities exchange on which such securities are primarily traded or at
the last sales price on the national securities market. Securities not listed
on an exchange or the national securities market, or securities for which there
were no transactions, are valued at the average of the most recent bid and asked
prices. Bid price is used when no asked price is available. Restricted
securities and securities for which market quotations are not readily available
are valued at fair value, using methods determined by the Board of Trustees.
Valuation of options is described above under "Investment Objectives and
Policies -- Options Trading." Valuation of futures contracts and related
options is described in Appendix B.
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Debt securities with remaining maturities of 60 days or less are
valued on an amortized cost basis, which approximates market value and is
described further under "Valuation of the Money Market Funds."
The International Equity Fund's portfolio securities which are
primarily traded on foreign securities exchanges are valued at the preceding
closing values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities will be determined
through consideration of other factors by or under the direction of the Board of
Trustees. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. For valuation purposes, quotations of foreign securities in
foreign currency are converted to U.S. dollars equivalent at the prevailing
market rate on the date of valuation. An option is generally valued at the last
sale price or, in the absence of a last sale price, the last offer price. All
other securities are valued at the last current bid quotation if market
quotations are available, or at fair value as determined in accordance with
policies established in good faith by the Board of Trustees.
Certain of the securities acquired by the International Equity Fund
may be traded on foreign exchanges or over-the-counter markets on days on which
the 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.
A pricing service may be used to value certain portfolio securities
where the prices provided are believed to reflect the fair value of such
securities. In valuing a Fund's securities the pricing service would normally
take into consideration such factors as yield, risk, quality, maturity, type of
issue, trading characteristics, special circumstances and other factors it deems
relevant in determining valuations for normal institutional-sized trading units
of debt securities and would not rely on quoted prices. The methods used by the
pricing service and the valuations so established will be utilized under the
general supervision of the Board of Trustees of Emerald Funds.
VALUATION OF THE FLORIDA TAX-EXEMPT FUND
The assets of the Florida Tax-Exempt Fund are valued for purposes of
pricing sales and redemptions of the shares of the Fund each business day by an
independent pricing service (the "Service") approved by the Board of Trustees of
Emerald Funds. When, in the judgment of the Service, quoted bid prices for
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portfolio securities are readily available and are representative of the bid
side of the market, these investments are valued at the mean between quoted bid
prices (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments are carried at fair value as determined by
the Service, based on methods which include consideration of yields or prices of
municipal bonds of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. The Service may also
employ electronic data processing techniques and matrix systems to determine
value. Securities with maturities of 60 days or less are normally valued at
amortized cost, which approximates market value and is described further under
"Valuation of the Money Market Funds."
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
SUPPLEMENTARY PURCHASE INFORMATION
As described in the Prospectuses for such Shares, Retail Shares may be
purchased directly from the Distributor or by clients of certain financial
institutions such as broker-dealers that have entered into selling and/or
servicing agreements with the Distributor ("Service Organizations").
Institutional Class Shares may be purchased by clients of the Adviser and its
affiliates through qualified accounts and by certain institutions acting on
behalf of themselves and persons maintaining qualified accounts at such
institutions, as described in the Prospectuses for such Shares. Individuals may
not purchase Institutional Class Shares directly. The Adviser, Service
Organizations and other institutions may impose minimum customer account and
other requirements in addition to those imposed by Emerald Funds and described
in the Prospectuses. Depending on the terms of the particular account, these
entities may charge their customers fees for automatic investment, redemption
and other services. Such fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. The Adviser, Service Organizations or other institutions are
responsible for providing information concerning these services and any charges
to any customer who must authorize the purchase of shares prior to such
purchase.
Purchase orders will be effected only on business days. Persons
wishing to purchase shares through their accounts at a Service Organization (for
Retail Shares), or at the Adviser or another institution (for Institutional
Class Shares), should contact such entity directly for appropriate instructions.
Clients of Barnett Banks Trust Company, N.A. interested in purchasing
Institutional Class Shares may call their
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administrative officer. Other interested investors may call
[ ].
An investor desiring to purchase Retail Shares directly from Emerald
Funds by wire should request his or her bank to transmit immediately available
funds by wire to Emerald Funds at [ ], for
purchase of shares in the investor's name. It is important that the wire
include the investor's name, address, and taxpayer identification number,
indicate whether a new account is being established or a subsequent payment is
being made to an established account and indicate the name of the Fund and the
class of shares being purchased. If a subsequent payment is being made, the
investor's Fund account number should be included. An investor in Retail or
Investor Shares must have completed and forwarded to the Transfer Agent an
Account Registration Form, including any required signature guarantees, before
any redemptions of shares purchased by wire may be processed.
The Adviser and/or Distributor may charge certain fees for acting as
Custodian for IRAs or 401k retirement plans, payment of which could require the
liquidation of shares. Consult the appropriate form for a description of these
fees. Purchases for IRA accounts or 401k retirement plans will be effective
only when payments received by the Transfer Agent are converted into federal
funds. Purchases for these plans may not be made in advance of receipt of
funds.
SUPPLEMENTARY REDEMPTION INFORMATION
An investor whose shares are purchased through accounts at the
Adviser, a Service Organization or another institution may redeem all or part of
his or her shares in accordance with instructions pertaining to such accounts.
Shares in the Equity and Fixed Income Funds for which orders placed by the
Adviser, a Service Organization, another institution or individual investor for
wire redemption are received on a business day before the close of regular
trading hours on the New York Stock Exchange (currently 4:00 p.m. Eastern time)
will be redeemed as of the close of regular trading on such Exchange and the
proceeds of redemption will normally be wired in federal funds on the next
business day to the commercial bank specified by the individual investor on the
Account Registration Form (or other bank of record on the investor's file with
the Transfer Agent), or to the Service Organization or other institution through
which the investment was made. Retail Shares in the Money Market Funds for
which orders for wire redemption are received on a business day before 2:00 p.m.
(12:00 noon with respect to the Tax-Exempt Fund) Eastern Time will be redeemed
as of that time and the proceeds of redemption will normally be wired in federal
funds on the same business day to the commercial bank specified by the investor
on the Account Registration Form (or other bank of
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record on the investor's file with the Transfer Agent). To qualify to use the
wire redemption privilege with Emerald Funds, the payment for shares must be
drawn on, and redemption proceeds paid to, the same bank and account as
designated on the Account Registration Form (or other bank of record as
described above). If the proceeds of a particular redemption are to be wired to
another bank, the request must be in writing and signature guaranteed. Shares
in the Equity and Fixed Income Funds for which orders for wire redemption are
received by Emerald Funds after the close of regular trading hours on the New
York Stock Exchange or on a non-business day will be redeemed as of the close of
regular trading on such Exchange on the next day on which shares of the
particular Fund are priced and the proceeds will normally be wired in federal
funds on the next business day thereafter. Retail Shares in each Money Market
Fund for which orders for wire redemption are received by Emerald Funds on a
business day between 2:00 p.m. (12:00 noon with respect to the Tax-Exempt Fund)
Eastern Time and the close of regular trading hours on the New York Stock
Exchange (currently 4:00 p.m. Eastern Time), and shares for which orders for
wire redemption are received by Emerald Funds after the close of regular trading
hours on the New York Stock Exchange or on a non-business day, will be priced as
of 2:00 p.m. (12:00 noon with respect to the Tax-Exempt Fund) Eastern Time on
the next day on which shares of the particular Fund are priced and the proceeds
will normally be wired in federal funds on the day the shares are priced.
Redemption proceeds will be wired to a correspondent member bank if the
investor's designated bank is not a member of the Federal Reserve System.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account. Proceeds of less than $1,000 will be mailed to the investor's address.
To change the commercial bank or account designated to receive
redemption proceeds from Retail Shares, a written request must be sent to
Emerald Funds, c/o BISYS Fund Services, Inc. [ ].
Such request must be signed by each shareholder, with each signature guaranteed
as described in the Funds' Prospectuses. Guarantees must be signed by an
authorized signatory and "signature guaranteed" must appear with the signature.
For processing redemptions or to change wiring instructions with
Emerald Funds, the Transfer Agent may request further documentation from
corporations, executors, administrators, trustees or guardians. The Transfer
Agent will accept other suitable verification arrangements from foreign
investors, such as consular verification.
Investors should be aware that if they have selected the TeleTrade
privilege, any request for a wire redemption will
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be effected as a TeleTrade transaction through the Automated Clearing House
(ACH) system unless more prompt transmittal specifically is requested.
Redemption proceeds (less any applicable contingent deferred sales charge) of a
TeleTrade transaction will be on deposit in the investor's account at the ACH
member bank normally two business days after receipt of the redemption request.
EXCHANGE PRIVILEGE
Emerald Funds offers an exchange privilege whereby investors may
exchange all or part of their Retail Shares for Retail Shares of other
Equity and Fixed Income Funds and Retail Shares of the Money Market Funds.
By use of this exchange privilege, the investor authorizes the Transfer Agent to
act on telephonic or written exchange instructions from any person representing
himself or herself to be the investor and reasonably believed by the Transfer
Agent to be genuine. The Transfer Agent's records of such instructions are
binding. The exchange privilege may be modified or terminated at any time upon
notice to shareholders.
Exchange transactions will be made on the basis of the relative net
asset values per share of the investment portfolios involved in the transaction.
Exchange requests received on a business day prior to the time shares of the
investment portfolios involved in the request are priced will be processed on
the date of receipt. "Processing" a request means that shares in the investment
portfolios from which the shareholder is withdrawing an investment will be
redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined coincident to or after the time of redemption. Exchange requests
received on a business day after the time shares of the investment portfolios
involved in the request are priced will be processed on the next business day in
the manner described above.
MISCELLANEOUS
Certificates for shares will not be issued unless expressly requested
in writing and will not be issued for fractional shares.
Depending on the terms of the customer account at the Adviser, Service
Organization or other institution, certain purchasers of the Equity and Fixed
Income Funds may arrange with
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the Funds' transfer agent for sub-accounting services paid by Emerald Funds
without direct charge to the purchaser.
With respect to the Money Market Funds, a "business day" for purposes
of processing share purchases and redemptions received by the Transfer Agent at
its Kansas City, Missouri office is a day on which the New York Stock Exchange
and the Funds' Custodian are open, except that a "business day" with respect to
the Money Market Funds does not include Martin Luther King, Jr. Day, Columbus
Day or Veterans Day (observed). With respect to the Equity and Fixed Income
Funds, a "business day" is a day on which the New York Stock Exchange is open
for trading, and includes Martin Luther King, Jr. Day, Columbus Day and Veterans
Day (observed). The holidays on which the New York Stock Exchange is closed
are: New Year's Day (observed), President's Day, Good Friday, Memorial Day,
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed).
Emerald Funds may suspend the right of redemption or postpone the date
of payment for shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission; (b) the Exchange is closed for other
than customary weekend and holiday closings; (c) the Securities and Exchange
Commission has by order permitted such suspension; or (d) an emergency exists as
determined by the Securities and Exchange Commission. (Emerald Funds may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
Emerald Funds reserves the right to require a shareholder to redeem
involuntarily shares in an account (other than an IRA or Qualified Retirement
Plan account) if the balance held of record by the shareholder drops below
$1,000 and such shareholder does not increase such balance to $1,000 or more
upon 30 days' notice. Emerald Funds will not require a shareholder to redeem
shares of a Fund if the balance held of record by the shareholder is less than
$1,000 solely because of a decline in the net asset value of the Fund's shares
or because the shareholder has made an initial investment in a lower amount as
provided for in the Funds' Prospectuses. Emerald Funds may also redeem shares
involuntarily if such redemption is appropriate to carry out Emerald Funds'
responsibilities under the Investment Company Act of 1940.
Emerald Funds may redeem shares involuntarily to reimburse a Fund for
any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to
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Fund shares as provided in the Funds' Prospectuses from time to time.
IN-KIND PURCHASES
Payment for shares of a Fund may, in the discretion of the Adviser, be
made in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
a Fund will require, among other things, that the securities be valued on the
day of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form for transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
So long as shares in the Equity, Equity Value, International Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, U.S. Government
Securities, Managed Bond and Florida Tax-Exempt Funds are offered or sold in
Texas, any securities that are accepted as payment for shares in the portfolios
will be limited to securities that are issued in transactions that involve a
bona fide reorganization or statutory merger, or will be limited to other
acquisitions of portfolio securities (except for municipal debt securities
issued by state political sub-divisions or their agencies or instrumentalities)
that: (a) meet the investment objectives and policies of the portfolio; (b) are
acquired for investment and not for resale; (c) are liquid securities that are
not restricted as to transfer either by law or by liquidity of market; and (d)
have a value that is readily ascertainable (and not established only by
evaluation procedures) as evidenced by a listing on the American Stock Exchange,
New York Stock Exchange or NASDAQ, or as evidenced by their status as U.S.
Government securities, bank certificates of deposit, banker's acceptances,
corporate and other debt securities that are actively traded, money market
securities and other like securities with a readily ascertainable value.
REDEMPTIONS IN-KIND
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Emerald
Funds may make payment wholly or partly in securities or other property. Such
redemptions will only be made in "readily marketable" securities. In such an
event, a shareholder would incur transaction costs in selling the securities or
other property. Each Fund may commit that it will pay all redemption requests
by a shareholder of record in cash,
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limited in amount with respect to each shareholder during any ninety-day period
to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of such period.
DESCRIPTION OF SHARES
Emerald Funds is a Massachusetts business trust. Under Emerald Funds'
Agreement and Declaration of Trust, the beneficial interests in Emerald Funds
may be divided into an unlimited number of full and fractional transferable
shares. The Agreement and Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares of Emerald Funds into one or more
classes by setting or changing, in any one or more respects, their respective
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty-three classes of shares. Eighteen of these classes
represent interests in the Equity and Fixed Income Funds and nine other classes
represent interests in the Money Market Funds. The remaining classes represent
interests in other investment portfolios of Emerald Funds. The Trustees may
similarly classify or reclassify any particular class of shares into one or more
series.
The Fund's separate share classes have formal legal designations;
however, to assist the public in more readily identifying and understanding the
nature of the share classes, they are commonly referred to in the Funds'
Prospectuses and this Statement of Additional Information, as well as certain of
the Fund's advertising and other literature, by less technical names. For
example, Classes G-1, H-1, I-1, J-1, K-1, L-1, M-1, N-1 and O-1 of the Equity
and Fixed Income Funds are known as "Retail Shares"; Classes G-3, H-3, I-3,
J-3, K-3, L-3, M-3, N-3 and O-3 of the Equity and Fixed Income Funds are known
as "Institutional Shares"; Classes D-3, E-3 and F-3 of the Money Market Funds
are known as "Retail Shares"; Classes D-2, E-2 and F-2 of the Money Market
Funds are known as "Emerald Service Shares"; and Classes D-1, E-1 and F-1 of the
Money Market Funds are known as "Emerald Shares."
Except as noted in the Prospectuses with respect to certain
miscellaneous "class expenses" and below with respect to the Combined Amended
and Restated Distribution and Service Plan for Retail Shares and the Shareholder
Processing Plan for Retail Shares and the Shareholder Processing Plan for
Retail Shares (formerly the respective Distribution and Shareholder and
Administrative Services Plans for Class A and Class B Shares), shares of the
Equity and Fixed Income Funds bear the same types of ongoing expenses with
respect to the Fund to which they belong. Similarly, except as noted in the
Prospectuses with
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respect to certain miscellaneous "class expenses" and below with respect to the
Combined Amended, the Shareholder Processing Plan for Retail Shares and Restated
Distribution and Service Plan for Retail Shares and the Shareholder Processing
and Services Plan for Emerald Service Shares, Retail, Emerald and Emerald
Service Shares in a Money Market Fund bear the same types of expenses. In the
event of a liquidation or dissolution of Emerald Funds or an individual Fund,
shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative net asset values of Emerald Funds'
respective investment portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution. Shareholders of a
Fund are entitled to participate in the net distributable assets of the
particular Fund involved on liquidation, based on the number of shares of the
Fund that are held by each shareholder, except that Retail Shares of a
particular Equity, Fixed Income and Money Market Fund will be solely
responsible for that Fund's payments pursuant to the Combined Amended and
Restated Distribution and Service Plan and the Shareholder Processing Plan for
those Shares, and each Money Market Fund's Emerald Service Shares will be solely
responsible for such Fund's payments to Service Organizations pursuant to the
Shareholder Processing and Services Plan adopted for such Shares. In addition,
each class of shares will be responsible for the other miscellaneous "class
expenses" attributable to the class as described in the Prospectuses.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by class on all matters, except that only
Retail Shares of an Equity, Fixed Income and Money Market Fund will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
such Fund's Combined Amended and Restated Distribution and Service Plan and
the Shareholder Processing Plan for Retail Shares, and only Emerald Service
Shares of a Money Market Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to such Fund's Shareholder Processing and
Services Plan for Emerald Service Shares. (See "The Emerald Family of Funds" in
the Prospectuses.) Further, shareholders of all of the Funds, as well as those
of any other investment portfolio now or hereafter offered by Emerald Funds,
will vote together in the aggregate and not separately on a Fund-by-Fund basis,
except as otherwise required by law or when permitted by the Board of Trustees.
Rule 18f-2 under the Investment Company Act of 1940 provides that any matter
required to be submitted to the holders of the outstanding voting securities of
an investment company such as Emerald Funds shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A Fund is affected by a
matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not
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<PAGE>
affect any interest of the Fund. Under the Rule, the approval of an investment
advisory agreement or change in a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund. However, the Rule also provides that the
ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of Emerald Funds voting together in the aggregate
without regard to particular investment portfolios. Shares of Emerald Funds
have noncumulative voting rights and, accordingly, the holders of more than 50%
of Emerald Funds' outstanding shares (irrespective of Fund or class) may elect
all of the Trustees.
Shares have no preemptive rights and only such conversion and exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
nonassessable by Emerald Funds. Shares of each Fund have a par value of $.001.
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.
Emerald Funds' Agreement and Declaration of Trust authorizes the Board
of Trustees, without shareholder approval (unless otherwise required by
applicable law), to: (a) sell and convey the assets belonging to a Fund to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of such Fund to be redeemed at a price which is equal to
their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the assets belonging to a Fund into money and, in connection
therewith, to cause all outstanding shares of such Fund to be redeemed at their
net asset value; or (c) combine the assets belonging to a Fund with the assets
belonging to one or more other funds if the Board of Trustees reasonably
determines that such combination will not have a material adverse effect on the
shareholders of any fund participating in such combination and, in connection
therewith, to cause all outstanding shares of any such Fund to be redeemed or
converted into shares of another fund at their net asset value. However, the
exercise of such
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authority may be subject to certain restrictions under the Investment Company
Act of 1940. The Board of Trustees may authorize the termination of any Fund
after the assets belonging to such Fund have been distributed to its
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL -- ALL FUNDS
Each Fund will be treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a "regulated investment company." By following this policy, each Fund
expects to eliminate or reduce to a nominal amount the federal income taxes to
which it may be subject. If for any taxable year a Fund does not qualify for
the special federal tax treatment afforded regulated investment companies, all
of the Fund's taxable income would be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, the Fund's dividend distributions (including amounts derived from
interest on municipal obligations) to shareholders would be taxable as ordinary
income, to the extent of the current and accumulated earnings and profits of the
particular Fund, and would be eligible for the dividends received deduction for
corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund distribute to its shareholders each
taxable year an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt income net of certain
deductions. In general, a Fund's investment company taxable income will be its
taxable income, including dividends, interest, and short-term capital gains (the
excess of net short-term capital gain over net long-term capital loss), subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss for such year. A
Fund will be taxed on its undistributed investment company taxable income. To
the extent such income is distributed by a Fund (whether in cash or additional
shares), it will be taxable to shareholders as ordinary income.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the Investment Company Act of 1940); (2) options,
futures and forward contracts (other than those on foreign currencies); and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly
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related to a Fund's principal business of investing in stock and securities (and
options and futures with respect to stocks and securities) (the "Short-Short
test"). Interest (including original issue discount and accrued market
discount) received by a Fund upon maturity or disposition of a security held for
less than three months will not be treated as gross income derived from the sale
or other disposition of such security within the meaning of this requirement.
However, any other income that is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose. With respect to covered call options, if the call is
exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Fund and net gains from closing purchase
transactions are treated as short-term capital gains for federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses. See Appendix B for a general discussion of the federal tax treatment of
futures contracts and related options thereon, including their treatment under
the 30% test.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Fund's assets
must consist of cash and cash items, U.S. Government securities, securities
of other regulated investment companies, and securities of other issuers (as
to which a Fund has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which a Fund does not hold more
than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of each Fund's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more
issuers such Fund controls and that are engaged in the same or similar trades
or businesses.
Any distribution of the excess of net long-term capital gain over net
short-term capital loss is taxable to shareholders as long-term capital gain,
regardless of how long the shareholder has held the distributing Fund's shares
and whether such gains are received in cash or additional Fund shares. The Fund
will designate such a distribution as a capital gain dividend in a written
notice mailed to shareholders within 60 days after the close of the Fund's
taxable year. It should be noted that, upon the sale or exchange of Fund
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long-term
capital loss to the extent of the capital gain dividends received with respect
to the shares.
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Ordinary income of individuals is taxable at a maximum marginal rate
of 39.6% but, because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions the maximum effective marginal rate of
tax for some taxpayers may be higher. An individual's long-term capital gains
are taxable at a maximum marginal rate of 28%. For corporations, long-term
capital gains and ordinary income are both taxable at a maximum marginal rate of
35% (or at a maximum marginal rate of 39% in the case of corporations having
taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or of gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Fund that they are
not subject to backup withholding when required to do so or that they are
"exempt recipients."
FOREIGN TAXES
Income received by the International Equity Fund from sources within
foreign countries may be subject to withholding and other foreign taxes. The
payment of such taxes will reduce the amount of dividends and distributions paid
to the Fund's shareholders. So long as the Fund qualifies as a regulated
investment company, certain distribution requirements are satisfied, and more
than 50% of the value of the Fund's assets at the close of the taxable year
consists of stock or securities of foreign corporations, the Fund may elect, for
U.S. federal income tax purposes, to treat foreign income taxes paid by the Fund
as income taxes under U.S. income tax principles as paid by its shareholders.
The Fund may qualify for and make this election in some, but not necessarily
all, of its taxable years. If the Fund was to make an election, an amount equal
to the foreign income taxes paid by a Fund would be included in the income of
its shareholders and each shareholder would be entitled either (i) to credit
their portions of this amount against their U.S. tax due, if any, or (ii) to
deduct such portion from their U.S taxable
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income, if any. Shortly after any year for which it makes such an election, the
Fund will report to its shareholders, in writing, the amount per share of such
foreign tax that must be included in each shareholder's gross income and the
amount which will be available for deduction or credit. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Certain limitations are imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's United States tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. The Fund's gains and losses from the sale of securities
generally will be treated as derived from United States sources and certain
foreign currency gains and losses likewise will be treated as derived from
United States sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income," such as the portion of dividends
received from the Fund which qualifies as foreign source income. Additional
limitations apply to using the foreign tax credit to offset the alternative
minimum tax imposed on corporations and individuals. Because of these
limitations, shareholders may be unable to claim a credit for the full amount of
their proportionate shares of the foreign income taxes paid by the Fund.
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Fund. These rules may have a particular
impact on the amount of income or gain that a Fund must distribute to its
shareholders to comply with the 90% distribution requirement, on the income or
gain qualifying under the 90% gross income test and on their ability to comply
with the 30% test described above.
Generally, certain foreign currency contracts entered into by the Fund
(as described above) at the close of its taxable year are treated for federal
income tax purposes as sold for their fair market value on the last business day
of such year, a process known as "mark-to-market." Forty percent of any gain or
loss resulting from such constructive sales will be treated as short-term
capital gain or loss and 60% of such gain or loss will be treated as long-term
capital gain or loss without regard to the period the Fund has held the
contracts ("the 40%-60% rule"). The amount of any capital gain or loss actually
realized by the Fund in a subsequent sale or other disposition of those
contracts is adjusted to reflect any capital gain or loss taken into account by
the Fund in a prior year as a result of the
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constructive sale of the contracts. Losses with respect to certain foreign
currency contracts, which are regarded as parts of a "mixed straddle" because
their values fluctuate inversely to the values of specific securities held by
the Fund, are subject to certain loss deferral rules, which limit the amount of
loss currently deductible on either part of the straddle to the amount thereof
that exceeds the unrecognized gain (if any) with respect to the other part of
the straddle, and to certain wash sales regulations. Under short sales rules,
which also are applicable, the holding period of the securities forming part of
the straddle (if they have not been held for the long-term holding period) will
be deemed not to begin prior to termination of the straddle. With respect to
certain contracts, deductions for interest and carrying charges may not be
allowed. Notwithstanding the rules described above, with respect to certain
foreign currency contracts that are properly identified as such, the Fund may
make an election which will exempt (in whole or in part) those identified
foreign currency contracts from the Rules of Section 1256 of the Code including
"the 40%-60% rule" and "mark-to-market," but gains and losses will be subject to
such short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, the Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, "the 40%-60% rule" will apply to the net gain or loss attributable to
the contracts, but in the case of a mixed straddle account election, not more
than 50% of any net gain may be treated as long-term and no more than 40% of any
net loss may be treated as short-term.
A foreign currency contract must meet the following conditions in
order to be subject to the mark-to-market rules described above: (1) the
contract must require delivery of a foreign currency of a type in which
regulated futures contracts are traded or upon which the settlement value of the
contract depends; (2) the contract must be entered into at arm's length at a
price determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of the date of this Statement of Additional Information,
the Treasury Department has not issued any such regulations. Other foreign
currency contracts entered into by the Fund may result in the creation of one or
more straddles for federal income tax purposes, in which case certain loss
deferral, short sales, and wash sales rules and the requirement to capitalize
interest and carrying charges may apply.
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Some of the non-U.S. dollar denominated investments that the Fund may
make, such as foreign securities, European Depository Receipts and foreign
currency contracts, may be subject to the provisions of Subpart J of the Code,
which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S dollar. The
types of transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury regulations,
certain transactions that are part of a "Section 988 hedging transaction" (as
defined in the Code and Treasury regulations) may be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the mark-to-market or loss
deferral rules under the Code. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Fund, which is not subject
to the special currency rules (such as foreign equity investments other than
certain preferred stocks), is treated as capital gain or loss and is not
segregated from the gain or loss on the underlying transaction.
The Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.
FEDERAL -- TAX-EXEMPT FUNDS
As described above and in the Prospectuses, the Tax-Exempt Funds are
designed to provide investors with current tax-exempt interest income. These
Funds are not intended to
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constitute a balanced investment program and are not designed for investors
seeking capital appreciation or maximum tax-exempt income irrespective of
fluctuations in principal. Shares of the Tax-Exempt Funds may not be suitable
for tax-exempt institutions, or for retirement plans qualified under Section 401
of the Internal Revenue Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Funds' dividends being tax-
exempt, but such dividends would be ultimately taxable to the beneficiaries when
distributed to them. In addition, the Tax-Exempt Funds may not be appropriate
investments for entities that are "substantial users" of facilities financed by
private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who
regularly uses a part of such facilities in his or her trade or business and
whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, or who occupies more than 5% of the usable area of such
facilities, or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders. Each shareholder is advised to
consult his or her tax adviser with respect to whether exempt-interest dividends
would be excludable from his or her gross income under Section 103(a) of the
Internal Revenue Code.
The percentage of total dividends paid by the Tax-Exempt Funds with
respect to any taxable year that qualifies as federal exempt-interest dividends
will be the same for all shareholders of such a Fund receiving dividends for
such year. In order for such a Fund to pay exempt-interest dividends for any
taxable year, at the close of each quarter of its taxable year at least 50% of
the aggregate value of the Fund's portfolio must consist of federal tax-exempt
interest obligations. In addition, the Fund must distribute an amount that is
at least equal to the sum of 90% of the aggregate net tax-exempt interest income
and 90% of the investment company taxable income earned by the Fund for the
taxable year. Not later than 60 days after the close of its taxable year, the
Fund will notify each shareholder of the portion of the dividends paid by the
Fund to the shareholder with respect to such taxable year that constitutes an
exempt-interest dividend. However, the aggregate amount of dividends so
designated cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code received by the Fund during the taxable year over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the
Code.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Tax-Exempt Funds, generally is
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not deductible for federal income tax purposes. If a shareholder holds Tax-
Exempt Fund or Florida Tax-Exempt Fund shares for six months or less, any loss
on the sale or exchange of those shares will be disallowed to the extent of the
amount of exempt-interest dividends earned with respect to the shares. The
Treasury Department, however, is authorized to issue regulations reducing the
six-month holding requirement to a period of not less than the greater of 31
days or the period between regular distributions where the investment company
regularly distributes at least 90% of its net tax-exempt interest. No such
regulations had been issued as of the date of this Statement of Additional
Information.
Income itself exempt from federal income taxation may be considered in
addition to adjusted gross income when determining whether Social Security
payments received by a shareholder are subject to federal income taxation.
FLORIDA TAXES
The State of Florida does not currently impose an income tax on
individuals. Thus individual shareholders of the Florida Tax-Exempt Fund will
not be subject to any Florida income tax on distributions received from the
Fund. However, Florida does currently impose an income tax on certain
corporations. Consequently, distributions may be taxable to corporate
shareholders.
The State of Florida currently 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 1 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. Notes, bonds and other obligations issued by the
State of Florida or its municipalities, counties, and other taxing districts, or
by the United States Government, its 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 the Fund's shares will be exempt from the Florida intangibles tax payable
in the following year.
In order to take advantage of the exemption from the intangibles tax
in any year, the Florida Tax-Exempt Fund must sell any non-exempt assets held in
its portfolio during the year
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and reinvest the proceeds in exempt assets including 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.
OTHER INFORMATION
Depending upon the extent of activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities.
Outside the State of Florida, income distributions may be taxable to
shareholders under state or local law as dividend income even though all or a
portion of such distributions may be derived from interest on tax-exempt
obligations or U.S. Government obligations which, if realized directly, would be
exempt from such income taxes. Shareholders are advised to consult their tax
advisers concerning the application of state and local taxes.
The foregoing discussion is a general and abbreviated summary of
certain provisions of federal and Florida law and is based on tax laws and
regulations which are in effect on the date of this Statement of Additional
Information. Such laws and regulations may be changed by legislative or
administrative action. This discussion is only a summary of some of the
important tax considerations generally affecting purchasers of shares of the
Funds. No attempt is made to present a detailed explanation of the federal
income tax treatment of the Funds or their shareholders, and this discussion is
not intended as a substitute for careful tax planning. Accordingly, potential
purchasers of shares of the Funds should consult their tax advisers with
specific reference to their own tax situation.
MANAGEMENT OF EMERALD FUNDS
TRUSTEES AND OFFICERS
The Trustees and officers of Emerald Funds, their addresses, principal
occupations during the past five years and other affiliations are as follows:
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<TABLE>
<CAPTION>
PRINCIPAL
POSITION WITH OCCUPATIONS DURING PAST 5
NAME AND ADDRESS EMERALD FUNDS YEARS AND OTHER AFFILIATIONS
- ---------------- ------------- ----------------------------
<S> <C> <C>
Chesterfield H. Smith* Chairman of Senior Partner of the law
Suite 3000 the Board firm of Holland and Knight;
701 Brickell Avenue of Trustees Director, Greenwich Air
Miami, FL 33101 Services, Inc. (an aircraft
and engine repair company);
Director, Citrus and Chemical
Bank; Director, Citrus and
Chemical Bancorporation (bank
holding company of Citrus and
Chemical Bank).
Raynor E. Bowditch Trustee President, Bowditch
4811 Beach Blvd. Insurance Corporation (a
Suite 105 general lines independent
Jacksonville, FL 33207 agency); Director, General
Truck Equipment and Trailer
Sales; Director, Greater
Jacksonville Fair Association.
Mary Doyle Trustee Dean in Residence, Association
Association of of American Law Schools, 1994
American Law Schools to date; Dean, University of
Suite 800 Miami School of Law, 1986-
Washington, DC 20036-2065 1994.
Albert D. Ernest Trustee President, Albert Ernest
1560 Lancaster Terrace Enterprises (personal
Suite 1402 investments), 1991 to date;
Jacksonville, FL 32204 President and Chief Operating
Officer, Barnett Banks, Inc.,
1988 to 1991; Director,
Barnett Banks, Inc., 1982 to
1991; Director, Florida Rock
Industries, Inc.; Director,
FRP Properties, Inc.;
Director, Regency Realty,
Inc.; Director, Stein Mart,
Inc.; and Director, Wickes
Lumber Company; Member,
Advisory Board, Coastal Lumber
Company; Member, Advisory
Board, Palmer Cay/Caswell; and
Member, Advisory Board, Deland
Honda.
John G. Grimsley* Trustee and Member of the law firm of
50 N. Laura St. President Mahoney Adams & Criser,
Suite 3300 P.A. since 1966.
Jacksonville, FL 32202
William B. Blundin Executive Vice Chairman of the Board
125 West 55th Street Vice President of the Administrator and
New York, NY 10019 Distributor, July 1993 to
date; Director and President
of Administrator and
Distributor, February 1987
to date.
</TABLE>
-57-
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
POSITION WITH OCCUPATIONS DURING PAST 5
NAME AND ADDRESS EMERALD FUNDS YEARS AND OTHER AFFILIATIONS
- ---------------- ------------- ----------------------------
<S> <C> <C>
Hugh Fanning Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., August 1992
3435 Stelzer Road to present; Director of
Columbus, OH 43219-3035 Marketing, Ketchum
Communications, July 1987 to
August 1992
Martin R. Dean Treasurer Employee of BISYS Fund
BISYS Fund Services Services, Inc., May 1994
3435 Stelzer Road to present; Senior Manager
Columbus, OH 43219-3035 at KPMG Peat Marwick prior
thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
Philadelphia National Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
George Martinez Assistant Senior Vice President and
BISYS Fund Services Secretary Director of Legal and
3435 Stelzer Road Compliance Services, BISYS
Columbus, OH 43218-3035 Fund Services, Inc., March
1995 to present; Vice
President and Associate
General Counsel, Alliance
Capital Management, June 1989
to March 1995.
Robert Tuch Assistant Employee of BISYS Fund
BISYS Fund Services Secretary Services, June 1991 to
3435 Stelzer Road present; Vice President and
Columbus, OH 43219-3035 Associate General Counsel
with National Securities
Research Corp., July 1990 to
June 1991.
Alaina Metz Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services, BISYS
Columbus, OH 43219-3035 Fund Services, Inc., June 1995
to present; Supervisor, Mutual
Fund Legal Department,
Alliance Capital Management,
May 1989 to June 1995.
</TABLE>
- -------------------
* These Trustees may be deemed to be "interested persons" of Emerald Funds as
defined in the Investment Company Act of 1940.
-58-
<PAGE>
-------------------------------
Each Trustee receives an annual fee of $14,000 plus $1,500 for each
meeting attended and reimbursement of expenses incurred as a Trustee.
Additionally the Chairman and President of the Board of Trustees each receive an
additional annual fee of $3,500 for service in such capacities. Furthermore,
each Trustee who serves on a special committee appointed by the Board or the
Chairman or who is assigned a special project by the Board or the Chairman,
receives additional compensation in the amount of $1,000 per day for each
meeting attended or $1,000 for each assignment to a Special Project plus
reimbursement of out of pocket expenses. Remuneration for services rendered
during Emerald Funds' fiscal year ended November 30, 1995 and distributed to
all Trustees and officers as a group was $_______. Drinker Biddle & Reath,
of which Mr. Dalke is a partner, receives legal fees as counsel to Emerald
Funds. As of January 10, 1996, the Trustees and officers of Emerald Funds,
as a group, owned less than 1% of the outstanding shares of each Fund and each
of the other investment portfolios of the Trust.
The following chart provides certain information about the fees
received by the Emerald Funds' trustees for their services as members of the
Board of Trustees and Committees thereof.
-59-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
TOTAL
COMPENSATION
RETIREMENT ESTIMATED FROM
AGGREGATE BENEFITS ANNUAL REGISTRANT
COMPENSATION ACCRUED AS BENEFITS AND FUND
FROM EMERALD PART OF FUND UPON COMPLEX* PAID
NAME OF PERSON POSITION FUNDS EXPENSES RETIREMENT TO DIRECTORS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chesterfield H. Smith $20,750 N/A N/A $20,750
Chairman of the Board
of Trustees
- ------------------------------------------------------------------------------------------------------------------
John G. Grimsley $26,000 N/A N/A $26,000
President and Trustee
- ------------------------------------------------------------------------------------------------------------------
Raynor E. Bowditch $19,000 N/A N/A $19,000
Trustee
- ------------------------------------------------------------------------------------------------------------------
Mary Doyle $20,500 N/A N/A $20,500
Trustee
- ------------------------------------------------------------------------------------------------------------------
Albert D. Ernest** $13,500 N/A N/A $13,500
Trustee
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
______________________________
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Ernest was appointed to the Board of Trustees on May 4, 1995.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Emerald Funds' Agreement and Declaration of Trust
provides that shareholders shall not be subject to any personal liability in
connection with the assets of Emerald Funds for the acts or obligations of
Emerald Funds, and that every note, bond, contract, order or other undertaking
made by Emerald Funds shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Agreement and
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his or her being or
having been a shareholder and not because of his or her acts or omissions or
some other reason. The Agreement and Declaration of Trust also provides that
Emerald Funds shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of Emerald Funds, and shall satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which Emerald
Funds itself would be unable to meet its obligations.
-60-
<PAGE>
The Agreement and Declaration of Trust further provides that all
persons having any claim against the Trustees or Emerald Funds shall look solely
to the trust property for payment; that no Trustee of Emerald Funds shall be
personally liable for or on account of any contract, debt, tort, claim, damage,
judgment or decree arising out of or connected with the administration or
preservation of the trust property or the conduct of any business of Emerald
Funds; and that no Trustee shall be personally liable to any person for any
action or failure to act except by reason of his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties as
Trustee. With the exception stated, the Agreement and Declaration of Trust
provides that a Trustee is entitled to be indemnified against all liabilities
and expenses reasonably incurred by him or her in connection with the defense or
disposition of any proceeding in which he or she may be involved or with which
he or she may be threatened by reason of his or her being or having been a
Trustee, and that the Trustees will indemnify representatives and employees of
Emerald Funds to the same extent that Trustees are entitled to indemnification.
ADVISORY AND SUB-ADVISORY AGREEMENTS
Barnett Banks Trust Company, N.A. (the "Adviser") serves as investment
adviser to each Fund. In addition, ______________, a _____________ serves as
sub-investment adviser to the International Equity Fund and Rodney Square
Management Corporation , a wholly-owned subsidiary of Wilmington Trust Company
("WTC"), serves as sub-investment adviser to the Tax-Exempt Fund. In rendering
sub-advisory services, the Sub-Advisers may occasionally consult, on an
informal basis, with personnel from the investment departments of ___________
and WTC, respectively; however, _________ and WTC will take no part in
determining the investment policies of the International Equity Fund or Tax-
Exempt Fund, respectively, or in deciding which securities are to be purchased
or sold by the respective Funds.
In their Investment Advisory and Sub-Advisory Agreements, the Adviser
and Sub-Advisers have agreed to pay all expenses incurred by them in
connection with their advisory and sub-advisory services other than the cost of
securities and other investments, including brokerage commissions and other
transaction costs, if any, purchased or sold for each Fund. For the services
provided and expenses assumed pursuant to the advisory agreements, Emerald Funds
has agreed to pay the Adviser fees, computed daily and paid monthly, at the
annual rate of 1.00% of the average daily net assets of the International Equity
and Small Capitalization Funds, 0.60% of the respective average daily net
assets of each of the Equity, Equity Value and Balanced Funds; 0.40% of the
respective average daily net assets of each of the Short-Term Fixed Income Fund,
U.S.
-61-
<PAGE>
Government Securities Fund, Managed Bond Fund and Florida Tax-Exempt Fund; and
0.25% of the respective average net assets of each Money Market Fund. Under the
terms of the agreements, the fees payable to the Adviser are not subject to
reduction as the value of each Fund's net assets increases; however, the Adviser
has informed Emerald Funds of its intention to reduce the annual rate of its
advisory fees with respect to the Treasury Fund and the Prime Fund to the
following rates: .25% of the first $600 million of each Fund's net assets; .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. The Adviser has agreed to pay the Tax-Exempt Fund's
Sub-Adviser a sub-advisory fee at the rate of .15% of the Fund's net assets.
The Adviser has also agreed to pay the International Equity Fund's Sub-Adviser
a sub-advisory fee at the rate of .__% of that Fund's net assets. The sub-
advisory fees paid by the Adviser to the Sub-Advisers are borne entirely by
the Adviser and have no effect on the advisory fees payable by the
International Equity or Tax-Exempt Funds.
The Adviser and Sub-Advisers have made certain additional voluntary
and contractual undertakings to waive their fees. See "Management of Emerald
Funds - Administration Services" below for further information regarding the
waiver of fees and reimbursement of expenses by the Adviser and Sub-Adviser with
respect to the Funds. For the fiscal years ended November 30, 1995, 1994 and
1993, the Adviser received (net of waivers) advisory fees totalling
$1,155,425, $1,156,911 and $916,787, respectively, for the Equity Fund;
$400,689, $497,815 and $206,848, respectively, for the U.S. Government
Securities Fund; and $557,888, $740,873 and $409,497, respectively, for the
Florida Tax-Exempt Fund. For the fiscal year ended November 30, 1995 and the
period from January 4, 1994 (commencement of operations) through November 30,
1994, the Adviser received (net of fee waivers) advisory fees totalling
$742,502 and $427,853 for the Small Capitalization Fund. For the fiscal year
ended November 30, 1995 and the period April 11, 1994 (commencement of
operations) through November 30, 1994, the Adviser received (net of fee waivers)
advisory fees totalling $371,499 and $0, $84,074 and $0 and $266,371 and $0,
respectively, for the Balanced, Short-Term Fixed Income and Managed Bond Funds.
The Equity Value and International Equity Funds were not operational during
these periods. For the same time periods, the Adviser waived advisory fees and
reimbursed expenses in the amount of $13,355, $0 and $0, respectively, for
the Equity Fund; $17,957, $0 and $207,103, respectively, for the U.S.
Government Securities Fund; $33,887, $0 and $248,901, respectively, for the
Florida Tax-Exempt Fund; $53,824 and $0 for the Small Capitalization Fund;
$526,354 and $170,207 for the Balanced Fund; $278,214 and $53,025 for the
Short-Term Fixed Income Fund and $380,759 and $177,688 for the Managed Bond
Fund.
-62-
<PAGE>
For the fiscal years ended November 30, 1995, 1994 and 1993, the
Adviser received (net of waivers) advisory fees totalling $3,677,324, $3,243,600
and $4,752,234, respectively, for the Prime Fund; $1,914,250, $2,231,677 and
$2,207,189, respectively, for the Treasury Fund; and $506,689, $222,183 and
$150,753, respectively, for the Tax-Exempt Fund. Of the advisory fee received
by the Adviser with respect to the Tax-Exempt Fund for the fiscal years ended
November 30, 1995, 1994 and 1993, the entire fee was paid to the Sub-Adviser,
Rodney Square Management Corporation. In addition, the Adviser waived an
additional $202,676, $186,758 and $131,253 in advisory fees with respect to
the Tax-Exempt Fund for the fiscal years ended November 30, 1995, 1994 and 1993,
respectively. For the fiscal year ended November 30, 1995, the Adviser
waived fees totalling $358,950 and $134,960 for the Prime Fund and Treasury
Fund, respectively. For the fiscal years ended November 30, 1994 and 1993,
the Adviser did not waive any advisory fees for the Prime Fund and the
Treasury Fund. For the fiscal years ended November 30, 1995, 1994 and 1993,
the Tax-Exempt Fund's Sub-Adviser waived sub-advisory fees totalling
$53,487, $55,868 and $57,955 with respect to the Tax-Exempt Fund .
Under the Investment Advisory and Sub-Advisory Agreements for the
Funds, the Adviser and Sub-Advisers are not liable for any error of judgment
or mistake of law or for any loss suffered by Emerald Funds in connection with
the performance of such agreements, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Adviser or Sub-Advisers in the performance of their duties or from their
reckless disregard of their duties and obligations under the agreements.
The federal Glass-Steagall Act, among other things, prohibits banks
from engaging to any extent in the business of underwriting securities, although
national and state-chartered banks generally are permitted to purchase and sell
securities upon the order and for the account of their customers. In 1971, the
United States Supreme Court held in INVESTMENT COMPANY INSTITUTE v. CAMP that
the Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM v. INVESTMENT
COMPANY INSTITUTE that the Board did not
-63-
<PAGE>
exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their non-
bank affiliates to act as investment advisers to registered closed-end
investment companies.
The Adviser believes, with respect to its activities as required by
the Investment Advisory Agreements and as contemplated by the Prospectuses and
this Statement of Additional Information, and the Sub-Advisers believe, with
respect to their activities as required by the Sub-Advisory Agreements, and
as contemplated by the Prospectuses and this Statement of Additional
Information, that, if the question were properly presented, a court should hold
that the Adviser or Sub-Advisers, as the case may be, may each perform such
activities without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. It should be noted, however, that there have been
no cases deciding whether banks may perform services comparable to those
performed by the Adviser and Sub-Advisers and that future changes in either
federal or state statutes and regulations relating to permissible activities of
banks or trust companies and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent the Adviser and Sub-Advisers
from continuing to perform such services for the Funds. If the Adviser or Sub-
Advisers were prohibited from continuing to perform advisory and sub-advisory
services for the Funds, it is expected that the Board of Trustees would
recommend that the Funds affected enter into a new agreement or would consider
the possible termination of such Funds. Any new advisory or sub-advisory
agreement would be subject to shareholder approval.
On the other hand, as described herein, Emerald Funds are currently
distributed by Emerald Asset Management, Inc., and BISYS Fund Services, LP
("BISYS LP"), provides the Funds with administrative services. If current
restrictions under the Glass-Steagall Act preventing a bank from sponsoring,
organizing, controlling, or distributing shares of an investment company were
relaxed, the Funds expect that the Adviser would consider the possibility of
offering to perform some or all of the services now provided by BISYS LP and
Emerald Asset Management, Inc. From time to time, legislation modifying such
restrictions has been introduced in Congress which, if enacted, would permit a
bank holding company to establish a non-bank subsidiary having the authority to
organize, sponsor and distribute shares of an investment company. The Funds
therefore expect that if that or a similar bill were enacted, the Adviser's
parent bank holding company would consider the possibility of one of its non-
bank subsidiaries offering to perform additional services now provided by
BISYS LP and Emerald Asset Management, Inc. In this regard it may be noted that
the Adviser has entered into an agreement
-64-
<PAGE>
with BISYS LP whereunder the Adviser (or an affiliate) may acquire Emerald
Asset Management, Inc. under specified conditions. It is not possible, of
course, to predict whether or in what form such legislation might be enacted or
the terms upon which the Adviser or such a non-bank affiliate might offer to
provide services for consideration by the Board of Trustees.
ADMINISTRATION AGREEMENTS
BISYS LP (the "Administrator"), a wholly-owned subsidiary of the
BISYS Group, Inc., serves as administrator to each Fund. In its administration
agreement, the Administrator has agreed among other things to provide among
other things the following administrative services: payment of the costs of
maintaining the Funds' offices; statistical and research data, Fund data
processing services, and clerical, accounting and bookkeeping services;
preparation or coordination of such preparation of reports to shareholders of
the Funds, tax returns and reports to the Securities and Exchange Commission;
maintaining the registration or qualification of Fund shares for sale under
state securities laws; maintenance of the books and records of the Funds,
calculation or providing for the calculation of the net asset value of Fund
shares and calculation or providing for the calculation of dividends and capital
gains distributions to shareholders; and generally the provision of the
facilities and personnel to carry out administrative services required for the
operation of the business of the Funds other than those delegated by Emerald
Funds pursuant to other agreements or arrangements. The Administrator has also
agreed to pay all expenses incurred by it in connection with its activities
under these agreements except as described in this Statement of Additional
Information and the Prospectus.
As compensation for its services under the agreements described above
(which became effective April 1, 1996), the Administrator is entitled to
receive a fee, computed daily and payable monthly, at the effective annual
rate of .0775% of the first $5 billion of the aggregate net assets of all of
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.
Under the administration agreement in effect during the period
March 1, 1994 through March 31, 1996, the Administrator was entitled to
receive a fee computed daily and payable monthly at the annual rate of .05% of
each Equity and Fixed Income Fund's average daily net assets. The
administration agreement in effect during fiscal year 1993 and for the period
December 1, 1993 through February 28, 1994 provided for a fee based on the
aggregate average daily net assets of the Equity, U.S. Government Securities and
Florida Tax-Exempt Funds, computed daily and payable monthly, at the annual rate
of .15% of the first $150 million of said aggregate net assets plus .20% of all
net assets in excess of $150 million, with each Fund bearing its pro rata
portion of the fee. Certain of the services provided
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<PAGE>
under that administration agreement, such as preparing and mailing share
transaction confirmations and providing and supervising order-taking facilities
for retail investors, are now provided pursuant to the Combined Amended and
Restated Distribution and Service Plan and the Shareholder Processing and
Service Plan for Retail Shares and the Administrator may compensated for those
services under those Plans.
Under the previous agreement in effect until March 31, 1996, the
Administrator was paid administration fees for its services with respect to the
Treasury Fund and the Prime Fund, Emerald Funds, computed daily and paid
monthly, at the following annual rates: .10% of the first $600 million of each
Fund's net assets, plus .09% of the next $400 million of each Fund's net assets,
plus .08% of the next $1 billion of each Fund's net assets, plus .07% of each
Fund's net assets over $2 billion. For its services as Administrator with
respect to the Tax-Exempt Fund, Emerald Funds paid the Administrator a fee,
computed daily and paid monthly, at the annual rate of .15% of the average net
assets of that Fund. In addition to the fees received pursuant to the
administration agreements described above, the Administrator also received
fees under the Shareholder and Administrative Services Plans discussed below.
From time to time, the Administrator may waive its fees or reimburse
the Funds for expenses under the agreements described above, either voluntarily
or as required by certain state securities laws.
Emerald Funds has been advised that, until further notice, the Adviser
and the Administrator have voluntarily agreed to waive their respective fees
under the advisory and administration agreements with respect to Retail and
Emerald Service Shares of the Prime Fund and Treasury Fund to the extent that
either Fund's annualized ratio of ordinary operating expenses (excluding
payments under the Combined Amended and Restated Distribution and Service Plan
and Shareholder Processing Plan for Retail Shares and under the Shareholder
Processing and Services Plan for Emerald Service Shares) to average net assets,
calculated daily, exceeds .40%. Emerald Funds has also been advised that, until
future notice, the Adviser has voluntarily agreed to waive all advisory fees
with respect to the Tax-Exempt Fund in excess of the sub-advisory fees payable
by it to the Sub-Adviser and that the Sub-Adviser and the Administrator have
voluntarily agreed to waive their respective fees under the sub-advisory
agreement and administration agreement with respect to Retail and Emerald
Service Shares of the Tax-Exempt Fund to the extent that the Fund's annualized
ratio of ordinary operating expenses (excluding payments under the Combined
Amended and Restated Distribution and Service Plan and the Shareholder
Processing Plan for Retail Shares and under
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<PAGE>
the Shareholder Processing and Services Plan for Emerald Service Shares) to
average net assets, calculated daily, exceeds .40%.
For the fiscal years ended November 30, 1995, 1994 and 1993, the
Administrator received administrative fees (net of waivers) under the respective
administration agreements then in effect for those Funds totalling $96,285,
$121,409 and $74,400, respectively, for the Equity Fund; $50,152, $113,986
and $74,400, respectively, for the U.S. Government Securities Fund; and
$69,736, $230,514 and $74,400, respectively, for the Florida Tax-Exempt Fund.
For the fiscal year ended November 30, 1995 and the period from commencement of
operations (January 4, 1994 for the Small Capitalization Fund, and April 11,
1994 for the Balanced, Short-Term Fixed Income and Managed Bond Funds, the
Administrator received administrative fees (net of waivers) totalling $37,116
and $19,776 for the Small Capitalization Fund; $30,958 and $0 for the Balanced
Fund; $10,509 and $0 for the Short-Term Fixed Income Fund and $33,391 and $0 for
the Managed Bond Fund. For the same time periods, the Administrator waived
administrative fees and reimbursed expenses in the amount of $4,451, $48,972
and $204,619, respectively, for the Equity Fund; $9,052, $48,561 and
$142,213, respectively, for the U.S. Government Securities Fund; $16,016,
$92,309 and $226,738, respectively, for the Florida Tax-Exempt Fund; and
$9,992 and $4,179, $0 and $15,246, $0 and $6,747, and $0 and $22,818,
respectively, for the Small Capitalization, Balanced, Short-Term Fixed Income
and Managed Bond Funds.
For the fiscal years ended November 30, 1995, 1994 and 1993, the
Administrator received administrative fees (net of waivers) totalling
$1,451,222, $1,273,698 and $1,820,903, respectively, for the Prime Fund;
$797,128, $885,278 and $876,466, respectively, for the Treasury Fund; and
$304,013, $211,853 and $222,183, respectively, for the Tax-Exempt Fund. For
the same time periods, the Administrator waived administrative fees totalling
$53,487, $55,868 and $57,955 for the Tax-Exempt Fund. During these periods,
the Administrator did not waive any administrative fees for the Prime and
Treasury Funds.
In addition, if the total expenses borne by an Equity and Fixed Income
Fund, the Prime Fund or the Treasury Fund in any fiscal year exceed the expense
limitations imposed by applicable state securities regulations, Emerald Funds
may deduct from the payments to be made with respect to such Fund to the Adviser
and the Administrator, respectively, or the Adviser and the Administrator will
bear, the amount of such excess to the extent required by such regulations in
proportion to the fees otherwise payable to them for such year pursuant to the
Investment Advisory Agreements and administration agreements. If the total
expenses borne by the International Equity and Tax-Exempt Funds in any
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<PAGE>
fiscal year exceed applicable state expense limitations, the Adviser and
respective Sub-Advisers have agreed to make reimbursements, to the extent
required by law, for half of such excess expenses, and the Administrator has
agreed to bear the other half, provided that the Sub-Advisers' obligation with
respect to such reimbursement is limited to the amount of each of their sub-
advisory fees. Such amounts, if any, will be estimated and accrued daily and
paid on a monthly basis. As of the date of this Statement of Additional
Information, the most restrictive expense limitation that may be applicable to
the Funds limits aggregate annual expenses with respect to each Fund, including
management and advisory fees but excluding interest, taxes, brokerage
commissions, and other expenses, to 2-1/2% of the first $30 million of its
average net assets, 2% of the next $70 million, and 1-1/2% of its remaining
average net assets.
The administration agreements provide that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
Emerald Funds in connection with the performance of the agreements, except a
loss resulting from willful misfeasance, bad faith or negligence in the
performance of its duties or from the reckless disregard by it of its
obligations and duties thereunder.
DISTRIBUTION, SHAREHOLDER LIAISON AND PROCESSING SERVICES
Emerald Asset Management, Inc. (the "Distributor"), a wholly-owned
subsidiary of the Administrator, acts as distributor of the Funds' shares. The
Distributor has agreed to use its best efforts to solicit orders for the sale of
Fund shares, although it is not obliged to sell any particular amount of shares.
RETAIL AND CLASS B SHARES OF THE EQUITY AND FIXED INCOME FUNDS
The Distributor pays the cost of printing and distributing
prospectuses to persons who are not shareholders of the Equity and Fixed Income
Funds (excluding preparation and printing expenses necessary for the continued
registration of the Equity and Fixed Income Funds' shares) and of printing and
distributing all sales literature. On (February 1), 1996 the Board of
Trustees voted to eliminate the front-end sales charge on Retail Shares
(formerly called "Class A" Shares) and the contingent deferred sales charge on
Class B Shares and to convert Class B Shares into Retail Shares on March __,
1996.
Through the fiscal year ended November 30, 1995, however, the
Distributor was entitled to payment of a front-end sales charge on the sale of
Class A Shares of the Equity and Fixed Income Funds as described in the
Prospectuses for such Shares. For the fiscal years ended November 30, 1995,
1994 and 1993, the Distributor received front-end sales charges in connection
with Class A Share purchases as follows: Equity Fund
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<PAGE>
- -- $36,840, $257,556 and $100,580, respectively; U.S. Government Securities
Fund -- $14,369, $572,054 and $196,820, respectively; and Florida Tax-Exempt
Fund -- $121,393, $579,867 and $439,220, respectively. For the fiscal year
ended November 30, 1995 and the period from commencement of operations
(January 4, 1994 for the Small Capitalization Fund, and April 11, 1994 for
the Balanced, Short-Term Fixed Income and Managed Bond Funds) to November 30,
1994 the Distributor received front-end sales charges in connection with
Class A Share purchases of $10,759 and $17,401, respectively, for the Small
Capitalization Fund; $14,299 and $10,000, respectively, for the Balanced
Fund; $4,628 and $1,500, respectively, for the Short-Term Fixed Income Fund,
and $9,447 and $8,000, respectively for the Managed Bond Fund. Of these
amounts, the Distributor retained $1,113, $5,750 and $46,935, respectively,
and the Adviser and its affiliates retained $11,904, $10,623 and $46,042,
respectively, with respect to the Equity Fund; the Distributor retained $466,
$15,739 and $134,143, respectively, and the Adviser and its affiliates
retained $3,567, $28,164 and $59,025, respectively, with respect to the U.S.
Government Securities Fund; the Distributor retained $793, $55,688 and
$321,238, respectively, and the Adviser and its affiliates retained $7,261,
$76,543 and $82,580, respectively, with respect to the Florida Tax-Exempt
Fund; the Distributor retained $199 and $2,457 and the Adviser and its
affiliates retained $11,041 and $696 with respect to the Small Capitalization
Fund; the Distributor retained $859 and $361 and the Adviser and its
affiliates retained $21,641 and $400 with respect to the Balanced Fund; the
Distributor retained $426 and $146 and the Adviser and its affiliates
retained $1,571 and $30 with respect to the Short-Term Fixed Income Fund; and
the Distributor retained $165 and $1,491 and the Adviser and its affiliates
retained $7,289 and $520 with respect to the Managed Bond Fund.
During these periods, the Distributor was also entitled to the
payment of a contingent deferred sales charge upon redemption of Class B Shares
of the Equity and Fixed Income Funds as described in the Prospectus for such
Shares. For the fiscal year ended November 30, 1995 and the period from their
initial offering date (March 1, 1994 for the Equity, Small Capitalization, U.S.
Government Securities and Florida Tax-Exempt Funds or commencement of operations
(April 11, 1994 for the Balanced, Short-Term Fixed Income and Managed Bond
Funds) through November 30, 1994, the Distributor received contingent deferred
sales charges in connection with Class B redemptions as follows: Equity Fund --
$15,319 and $62,366 ; U.S. Government Securities Fund -- $14,490 and $61,800;
Florida Tax-Exempt-Fund -- $22,167 and $259,483 ; Small Capitalization Fund
- -- $13,269 and $71,180 ; Balanced Fund -- $10,005 and $51,329 ; Short-Term
Fixed Income Fund -- $2,873 and $0; and Managed Bond Fund --$3,306 and
$19,889. Of these amounts, the Distributor
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retained: Equity Fund -- $15,319 and $2,495; U.S. Government Securities
Fund $14,490 and $2,472; Florida Tax-Exempt Fund -- $22,167 and $10,379;
Small Capitalization Fund -- $13,269 and $2,847; Balanced Fund -- $10,005
and $2,053; Short Term Fixed Income Fund -- $2,873 and $0; and Managed
Bond Fund $3,306 and $796, respectively.
The following table shows all sales charges, commissions and other
compensation received by the Distributor directly or indirectly from the
existing Equity and Fixed Income Funds during the fiscal year ended November 30,
1995:
<TABLE>
<CAPTION>
Brokerage
Net Underwriting Compensation on Commissions in
Discounts and Redemption and Connection with Other
Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
----------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Emerald Asset
Management, Inc. $ 0 $ 0 $ 0 $ 0
0
Equity Fund $ 4,066 $15,319 $579,942 $ 99,146
Small Capitalization
Fund $ 1,195 $13,269 $701,112 $ 30,794
Balanced Fund $ 1,547 $10,005 $138,534 $ 21,460
Short-Term Fixed
Income Fund $ 972 $ 2,873 $ 0 $ 2,131
U.S. Government
Securities Fund $ 1,574 $14,490 $ 0 $127,570
Managed Bond Fund $ 1,027 $ 3,306 $ 0 $ 10,818
Florida Tax-Exempt
Fund $24,001 $22,167 $ 0 $490,374
</TABLE>
____________________
(1) Represents amounts received from front-end sales charges on Class A Shares.
(2) Represents amounts received from contingent deferred sales charges on
Class B Shares. The basis on which such sales charges are paid is described
in the Prospectus relating to Class B Shares. No Class B Shares were offered
during the time period covered by this table.
(3) Represents the total of (i) amounts paid to the Administrator for
administrative services provided to the respective Equity and Fixed Income
Funds (see "Management of Emerald Funds-Administration Agreements" above) and
(ii) payments made under the Distribution and Shareholder and Administrative
Services Plans that have been adopted by the respective Funds (see discussion
in the following paragraphs).
____________________
The Distributor is currently entitled to payment by the Trust for
distribution under the Combined Amended and Restated Distribution and Service
Plan and the Shareholder Processing Plan for Retail Shares both of which became
effective ________________. Under the Combined Amended and Restated
Distribution and Service Plan the Trust pays the Distributor for distribution
assistance and/or the provision of support services to one or more Service
Organizations (which may include the distributor itself). These payments are
based on the average
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daily value of the Trust's Retail Shares beneficially owned by persons
("Clients") for whom the Service Organization is the dealer of record or with
whom the Service Organization has a servicing relationship.
Previously, the Distributor was entitled to payment by the Trust for
distribution under the Distribution Plans for Class A and Class B shares in
addition to the sales charges then in effect as described above. These plans
were terminated on [ ], and replaced with the Combined Amended and
Restated Distribution and Service Plan described above. Under the Trust's
Distribution Plans for Retail Shares, the Trust made payments for the
provision of personal services by Service Organizations (which may include the
Distributor itself) and/or the maintenance of Shareholder accounts. These
payments are based on the average daily value of the Retail Shares and Class
B Shares beneficially owned by Clients for whom the Service Organization is
the dealer of record or holder of record or with whom the Service Organization
has a servicing relationship. Under the Trust's Distribution Plan for Class B
Shares of the Equity and Fixed Income Funds, the Trust paid the Distributor
for (a) services rendered with respect to Class B Shares similar to those
services described above with respect to Retail Shares; (b) reimbursement for
commissions and transaction fees for Class B Shares purchased by clients of the
Distributor, Service Organizations and other broker-dealers; (c) additional
expenses in rendering distribution services for Class B Shares, including but
not limited to, printing of prospectuses and reports for other than existing
shareholders, preparation and distribution of advertising material and sales
literature, expenses of organizing and conducting sales seminars, and other
expenses involved in operating the Plan; and (d) to the extent determined by the
Board of Trustees and not inconsistent with the published positions of the
Securities and Exchange Commission, interest on amounts expended by the
Distributor that are not initially repaid by the Trust at a rate and in an
amount not exceeding the maximum rate and amount permitted under the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
The shareholder liaison services provided by Service Organizations
pursuant to the Combined Amended and Restated Distribution and Service Plan
for Retail Shares include, but are not limited to: (i) answering Client
inquiries regarding account status and history, the manner in which purchases,
exchanges and redemptions of shares may be effected and certain other matters
pertaining to the Clients' investments; (ii) assisting Clients in designating
and changing dividend options, account designations and addresses; and (iii)
providing such other similar services as your Client may reasonably request.
Payments made out of or charged against the assets of a particular
class of Shares of a particular Fund must be in payment for expenses incurred on
behalf of that class. (The Combined Amended and Restated Distribution and
Service Plan permits, however, joint distribution financing by the Funds or
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other investment portfolios or companies that are affiliated persons of the
Funds, affiliated persons of such a person, or affiliated persons of the
Distributor, in accordance with applicable regulations of the Securities and
Exchange Commission.)
The Distribution Plans in effect from March 1, 1994 through
_____________ for Retail Shares provided that the Distributor was entitled to
receive distribution payments on a monthly basis at an annual rate not exceeding
.25% of the average daily net assets during such month of the outstanding Shares
to which a particular Plan relates. If in any month the Distributor expend
or due more monies than could be immediately paid due to this percentage
limitation, the unpaid amount was carried forward from month to month while a
Distribution Plan is in effect until such time, if ever, when it could be
paid in accordance with such percentage limitation. Conversely, if in any month
the Distributor did not expend the entire amount then available under a Plan,
and assuming that no unpaid amounts have been carried forward and remain unpaid,
then the amount not expended would be a credit to be drawn upon by the
Distributor to permit future payment. However, any unpaid amounts or credits
due under a Distribution Plan could not be "carried forward" beyond the end of
the fiscal year in which such amounts or credits due are accrued.
The Distribution Plan in effect for Class B Shares for the period
from March 1, 1994 through _____________ covered provided that the Distributor
was entitled to receive distribution payments on a monthly basis at an annual
rate not exceeding 1.00% of the average daily net assets during such month of
the outstanding Shares to which such Plan relates. Not more than 0.25% of such
net assets were to be used to compensate Service Organizations for personal
services provided to Class B shareholders and/or the maintenance of such
shareholders' accounts and not more than 0.75% of such net assets were to be
used for promotional and other primary distribution activities.
For fiscal year 1993 and for the period December 1, 1993 through
February 28, 1994 a Combined Distribution and Shareholder Plan was in effect.
On March 1, 1994 this Plan was replaced by the Distribution Plans for Retail and
Class B Shares and the Shareholder and the Administrative Services Plans for
Retail and Class B Shares.
For the fiscal years ended November 30, 1995, 1994 and 1993,
pursuant to the respective distribution plans for Retail Shares, the Equity
Fund was charged $49,877, $131,931 and $381,995, of which $0, $0 and $0,
$18,625, $0 and $0, and $18,625, $0 and $0 were paid to the Distributor, the
Adviser and affiliates of the Adviser, respectively; the U.S. Government
Securities Fund was charged $70,145, $174,243 and $296,219, of which $0, $0
and $0, $14,797, $0 and $0, and $0, $0 and $0 were paid to the Distributor,
the Adviser and affiliates of the Adviser, respectively; and the
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Florida Tax-Exempt Fund was charged $251,826, $389,107 and $411,499, of which
$0, $0 and $0, $44,307, $0 and $0 and $0, $0 and $0 were paid to the
Distributor, the Adviser and affiliates of the Adviser, respectively. For
the fiscal year ended November 30, 1995 and the period from commencement of
operations (January 4, 1994 for the Small Capitalization Fund and April 11,
1994 for the Balanced, Short-Term Fixed Income and Managed Bond Funds) to
November 30, 1994, the Small Capitalization Fund was charged $4,747 and
$1,939 of which $0 and $0, $1,074 and $0, and $0 and $404 was paid to the
Distributor, the Adviser and affiliates of the Adviser, respectively; the
Balanced Fund was charged $1,836 and $489 of which $0 and $0, $521 and $0,
and $0 and $96 was paid to the Distributor, the Adviser and affiliates of the
Adviser, respectively; the Short-Term Fixed Income Fund was charged $681 and
$177 of which $0 and $0, $152 and $0, and $0 and $15 was paid to the
Distributor, the Adviser and Affiliates of the Adviser respectively; and the
Managed Bond Fund was charged $2,539 and $550 of which $0 and $0, $976 and
$0, and $0 and $128 was paid to the Distributor, the Adviser and affiliates
of the Adviser, respectively.
Of the aggregate amount so paid during such time periods to the
Distributor, approximately $0, $0 and $0 were attributable to media
advertisements and other promotional activities, $0, $0 and $0 were
attributable to the delivery of prospectuses (to other than current
shareholders) and other investor materials, $0, $0 and $0 were attributable
to payments to broker-dealers and $0, $0 and $0 were attributable to
telemarketing activities, respectively. For the fiscal years ended November
30, 1995, 1994 and 1993, the Distributor and various brokers of record waived
$0, $61,965 and $323,780 for the Equity Fund; $0, $27,775 and $148,971,
respectively for the U.S. Government Securities Fund; and $0, $21,715 and
$107,504, respectively, for the Florida Tax-Exempt Fund. For the fiscal year
ended November 30, 1995 and the period from their respective commencement of
operations through November 30, 1994, the Distributor and various brokers of
record waived $0 and $0 respectively, for the Small Capitalization Fund; $0
and $0, respectively, for the Balanced Fund; $0 and $0, respectively, for the
Short-Term Fixed Income Fund; and $0 and $0, respectively, for the Managed
Bond Fund.
For the fiscal years ended November 30, 1995, 1994 and 1993,
pursuant to the respective distribution plans for Retail Shares then in
effect, the Prime Fund was charged $1,523,956, $902,581 and $837,010, of
which amount $154,828, $89,233 and $2,282, $6,626, $83,701 and $1,321 and
$2,710, $302,417 and $1,084 was earned by the Distributor, the Adviser, and
affiliates of the Adviser, respectively; the Treasury Fund was charged
$200,869, $142,700 and $89,259, of which amount $20,170, $14,261 and $9,425,
$0, $8,926 and $177 and $339, $18,613 and $931 was earned by the Distributor,
the
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Adviser and affiliates of the Adviser, respectively; and the Tax-Exempt Fund
was charged $188,796, $198,481 and $195,143, of which amount $18,722, $19,269
and $1,795, $0, $19,514 and $3,205 and $1,247, $44,430 and $1,566 was earned
by the Distributor, the Adviser and affiliates of the Adviser, respectively.
Class B Shares were initially offered by the Equity, Small
Capitalization, U.S. Government Securities and Florida Tax-Exempt Funds on
March 1, 1994. Additionally, the Balanced, Short-Term Fixed Income and
Managed Bond Funds commenced operations on April 11, 1994. For the fiscal
year ended November 30, 1995 and the period from their respective dates of
initial offering or commencement of operations through November 30, 1994, the
Distributor received distribution payments under the Distribution Plan for
Class B Shares, in the amounts of $16,820 and $8,264; $20,053 and $9,982;
$16,107 and $5,072; $898 and $73; $13,340 and $7,819; $5,219 and $1,832; and
$76,047 and $30,051 from the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds, respectively. Of the aggregate amount so paid to the
Distributor during these time periods, [NONE] was attributable to media
advertisements and other promotional activities, the delivery of prospectuses
(to other than current shareholders) and other investor materials, payments
to broker-dealers, or telemarketing activities. For the same time periods
the Distributor and various broker dealers waived $0 and $3,982; $0 and $0;
$0 and $0; $0 and $0; $0 and $1,308; $0 and $0; and $0 and $1,746
respectively, for the Equity, Small Capitalization, Balanced, Short-Term
Fixed Income, U.S. Government Securities, Managed Bond and Florida Tax-Exempt
Funds.
Under this Plan the Administrator may receive payment of up to .25%
of the average daily net asset value of Retail Shares for providing for
shareholder processing services.
The Shareholder and Administrative Services Plans were
discontinued on _______________ and were replaced by the Shareholder Processing
Plan for Retail Shares. The shareholder and administrative support services
provided by the Administrator pursuant to these Plans were services designed
particularly for retail investors. They included aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with the Distributor; processing dividend payments from a Fund and providing
sub-accounting with respect to shares or the information necessary for sub-
accounting; and providing periodic mailings to shareholders. For these
services, the Administrator received payments in an amount not exceeding (on
an annual basis) a specified percentage (.15% in the case of the Equity and
Fixed Income Funds and .25% in the case of the Money Market Funds) of the
average daily net asset value of the Shares to which a particular Shareholder
and Administrative Services Plan related.
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<PAGE>
For the fiscal year ending November 30, 1995 and the period March 1,
1994 (effective date of the initial Shareholder and Administrative Services
Plans) through November 30, 1994, pursuant to the Shareholder and Administrative
Service Plan For Retail Shares, the Equity Fund was charged $29,926 and
$25,053, of which $29,926 and $22,106 was paid the Administrator; the Small
Capitalization Fund was charged $2,916 and $1,163, of which $2,916 and $1,138
was paid to the Administrator; the U.S. Government Securities Fund was charged
$42,088 and $54,294, of which $42,088 and $46,973 was paid to the
Administrator; the Florida Tax Exempt Fund was charged $151,096 and $156,105
of which $151,896 and $136,763 was paid to the Administrator. For the fiscal
year ended November 30, 1995 and the period April 11, 1994 (commencement of
operations) through November 30, 1994 the Balanced Fund was charged $1064 and
$294 of which $1,064 and $0 was paid to the Administrator; the Short-Term
Fixed Income Fund was charged $408 and $106 of which $408 and $0 was paid
to the Administrator and the Managed Bond Fund was charged $2,021 and $330 of
which $2,021 and $0 was paid to the Administrator, and the Prime, Treasury
and Tax-Exempt Funds were charged $1,523,904 and $902,581; $200,689 and
$142,700; and $188,796 and $198,481, respectively, of which $1,523,904 and
$89,233; $200,689 and $14,261; and $188,791 and $19,269, respectively, was
paid to the Administrator.
For the same fiscal year or period, pursuant to the Shareholder and
Administrative Plan for Class B Shares, the Equity, Small Capitalization, U.S.
Government Securities, Florida Tax-Exempt, Balanced, Short-Term Fixed Income and
Managed Bond Funds were charged $2,523 and $1,272, $3,078 and $1,399; $1,996
and $848; $11,406 and $4,164; $2,453 and $768; $144 and $13; and $1,039 and
$277, respectively, of which $2,523 and $1,122; $3,078 and $1,370; $1,196 and
$734; $11,406 and $3,648; $2,453 and $0; $144 and $0; and $1,039 and $0,
respectively, was paid to the Administrator.
MATTERS PERTAINING TO PLANS FOR RETAIL SHARES, AND EMERALD SERVICE SHARES
Payments for distribution expenses under the Combined Distribution
and Services Plan are subject to Rule 12b -1 (the "Rule") under the Investment
Company Act of 1940. Payments under the Combined Distribution and Service Plan
and the Shareholder Processing Plan are also subject to the conditions of
the Trust's Rule 18f-3 Plan in connection with the creation of multiple classes
of shares in the Equity and Fixed Income Funds and the Money Market Funds (the
"Rule 18f-3 Plan"). The Rule defines distribution expenses to include the cost
of "any activity which is primarily intended to result in the sale of [Trust]
shares." The Rule provides, among other things, that an investment company may
bear such expenses only pursuant to a plan adopted in accordance with the Rule.
In accordance with the Rule (and the Rule 18f-3 Plan), the Plans provide that
a report of the amounts expended under the respective Plans, and the purposes
for which such expenditures were incurred, will be made to the
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Board of Trustees for its review at least quarterly. The Combined
Distribution and Service Plan provides that any type of material amendment must
be approved by a majority of the Board of Trustees, and by a majority of the
Trustees who are neither "interested persons" (as defined in the Investment
Company Act of 1940) of Emerald Funds nor have any direct or indirect financial
interest in the operation of the Plan being amended or in any related
agreements, by vote cast in person at a meeting called for the purpose of
considering such amendments (the "Disinterested Trustees").
Emerald Funds' Board of Trustees has concluded that there is a
reasonable likelihood that the Combined Distribution and Services Plan will
benefit the Equity, Fixed Income and Money Market Funds and Retail
Shareholders, respectively. The Plans are subject to annual re-approval by a
majority of the Disinterested Trustees of the Plan and are terminable at any
time with respect to any Fund by a vote of a majority of such Trustees or, with
respect to the Combined Distribution and Service Plan, by vote of the holders
of a majority of the applicable Shares of the Fund involved. Any agreement
entered into pursuant to the Combined Distribution and Service Plan with a
Service Organization is terminable with respect to any Fund without penalty at
any time by vote of a majority of the Disinterested Trustees, by vote of the
holders of a majority of the applicable Shares of such Fund, by the Distributor
by the Service Organization. An agreement entered into pursuant to the
Shareholder Processing Plan may be terminated with respect to any Fund without
penalty, at any time, by vote of a majority of the Disinterested Trustees or by
the Administrator. An agreement will also terminate automatically in the event
of its assignment.
Banks may act as Service Organizations and receive payments under the
Combined Distribution and Service Plan and the Shareholder Processing Plan as
described. The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of underwriting securities.
If a bank were prohibited from acting as a Service Organization, changes in the
operation of the Funds might occur and a shareholder serviced by such bank might
no longer be able to avail itself of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of these occurrences.
As long as the Combined Distribution and Service Plan and the
Shareholder Processing Plan for the Retail Share classes are in effect, the
nomination of the Trustees who are not interested persons of Emerald Funds (as
defined in the Investment Company Act of 1940) must be committed to the
non-interested Trustees.
Emerald Funds understands that the Adviser and/or some Service
Organizations or other institutions may charge their clients a direct fee for
services in connection with their
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investments in the Funds. These fees would be in addition to any amounts which
might be received under the Combined Plan. Small, inactive long-term accounts
involving such additional charges may not be in the best interest of
shareholders.
EMERALD SERVICE SHARES
As stated in the Prospectuses for these shares, Emerald Service Shares
are sold to institutional investors ("Service
Organizations") which enter into service agreements requiring them to provide
support services to their Customers who beneficially own Emerald Service Shares
in consideration of the Funds' payment of not more than .35% (on an annualized
basis) of the average daily net asset value of the Emerald Service Shares
beneficially owned by the Customers. For the fiscal years ended November 30,
1995, 1994 and 1993, payments to Service Organizations pursuant to the
Shareholder Processing and Services Plan totalled $1,898,193, $1,678,991 and
$1,332,955, respectively, with respect to Emerald Service Shares of the
Treasury Fund, $2,814,354, $2,409,889 and $1,937,188, respectively, with
respect to Emerald Service Shares of the Prime Fund, and $10,478, $9,468 and
$1,420, respectively, with respect to Emerald Service Shares of the Tax-Exempt
Fund. Of such amounts, the Funds' distributor, affiliates of the Funds'
distributor and the Adviser and its affiliates earned $0, $0 and $0, $0, $0
and $0, and $1,898,193, $37 and $0, respectively, for the fiscal years ended
November 30, 1995, 1994 and 1993 with respect to Emerald Service Shares of
the Treasury Fund; $0, $0 and $0, $0, $177 and $0, and $2,814,354, $38 and
$0, respectively, for the fiscal years ended November 30, 1995, 1994 and
1993 with respect to Emerald Service Shares of the Prime Fund; and $0, $0
and $0, $0, $0 and $0, and $10,478, $37 and $0, respectively, for the fiscal
years ended November 30, 1995, 1994 and 1993 with respect to Emerald Service
Shares of the Tax-Exempt Fund.
CUSTODIAN AND TRANSFER AGENT
Emerald Funds has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286 as custodian for the Funds.
BISYS Fund Services, Inc., 3434 Stelzer Road, Columbus, Ohio 43219-
3035 provides transfer agency and dividend disbursing services for the Emerald
Funds.
INDEPENDENT ACCOUNTANTS/EXPERTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as independent accountants for Emerald Funds. The financial
statements dated November 30, 1995 which are incorporated by reference into
this Statement of Additional Information have been included in reliance on the
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report of Price Waterhouse LLP given on the authority of said firm as experts in
auditing and accounting.
COUNSEL
Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, is counsel to Emerald
Funds and will pass upon the legality of the shares offered by the Funds'
Prospectuses.
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS
From time to time, the yields and the total returns of the Funds may
be quoted in advertisements, shareholder reports or other communications to
shareholders. Performance information with respect to these Funds is generally
available by calling [ ]. In addition to the publications listed
in the Funds' Prospectuses, yields and total returns as reported in the
following publications may be used to compare the performance of the Funds or
any one of them to that of other mutual funds with similar investment objectives
and to stock and other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds: BOCA RATON NEWS, BRADENTON HERALD, CHARLOTTE SUN
HERALD, COCOA TODAY, DAYTONA BEACH NEWS-JOURNAL, DELAND SUN NEWS, FORT
LAUDERDALE NEWS AND SUN SENTINEL, FORT MYERS NEWS, FORT PIERCE NEWS TRIBUNE,
GAINESVILLE SUN, JACKSONVILLE TIMES UNION, MIAMI HERALD, ORLANDO SENTINEL,
PENSACOLA NEWS JOURNAL, SANFORD HERALD, SARASOTA HERALD-TRIBUNE, ST. PETERSBURG
TIMES, STUART NEWS, TALLAHASSEE DEMOCRAT, TAMPA TRIBUNE, VERO BEACH PRESS
JOURNAL, and WEST PALM BEACH POST TIMES.
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to shareholders. The Funds may also include calculations,
such as hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of any Fund.
In addition, in such communication, the Adviser may offer opinions on
current economic conditions.
PERFORMANCE CALCULATIONS FOR THE EQUITY AND FIXED INCOME FUNDS
YIELD CALCULATIONS. The yields for the respective share classes of an
Equity and Fixed Income Fund are calculated separately by dividing the net
investment income per share (as described below) earned by a class during a 30-
day (or one month) period by the maximum offering price per share, on the last
day
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of the period and analyzing the result on a semi-annual basis by adding one to
the quotient, raising the sum to the power of six, subtracting one from the
result and then doubling the difference. The Fund's net investment income per
share earned during the period with respect to a particular class is based on
the average daily number of shares outstanding in the class during the period
entitled to receive dividends and includes dividends and interest earned during
the period attributable to that class minus expenses accrued for the period
attributable to the class, net of reimbursements. This calculation can be
expressed as follows:
a-b
Yield = 2 [(----- + 1)6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on debt obligations held by a Fund is calculated by computing
the yield to maturity of each obligation held by the Fund based on the market
value of the obligation (including actual accrued interest) at the close of
business on the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest),
and dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by the Fund. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
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Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have the discounts based on current market value that
are less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Fund may elect either (i) to amortize the discount and premium on the remaining
security, based on the cost of the security, to the weighted average maturity
date, if such information is available, or to the remaining term of the
security, if any, if the weighted average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter.
The Florida Tax-Exempt Fund's "tax-equivalent" yield for a particular
share class is computed by (a) dividing the portion of the Fund's yield for a
particular class (calculated as above) that is exempt from federal income taxes
by one minus a stated federal income tax rate; and (b) adding the quotient to
that portion, if any, of such yield that is not exempt from federal income tax.
Based on the foregoing calculations, the yields for Retail Shares,
and Institutional Class Shares of the Short-Term Fixed Income, U.S. Government
Securities, Managed Bond and Florida Tax-Exempt Funds (after fee waivers and
expense reimbursements) for the 30 day period ended November 30, 1995 were as
follows: 5.18%, 4.61% and 5.72%, respectively, for the Short-Term Fixed
Income Fund; 5.99%, 5.78% and 6.80%, respectively for the U.S. Government
Securities Fund; 5.81%, 5.38% and 6.49%, respectively, for the Managed Bond
Fund and 4.28%, 4.01% and 4.83%, respectively for the Florida Tax-Exempt
Fund.
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The yields for such share classes for the same period before fee
waivers and expense reimbursements were (5.11)%, (29.46)% and (4.19)%,
respectively for the Short-Term Fixed Income Fund; 5.99%, 4.22% and 6.80%,
respectively, for the U.S. Government Securities Fund; 2.93%, (0.60)% and
6.07%, respectively, for the Managed Bond Fund and 4.28%, 3.52% and 4.83%,
respectively for the Florida Tax-Exempt Fund.
The Florida Tax-Exempt Fund's "tax-equivalent" yield for its Retail
Shares, and Institutional Class Shares was 6.69%, 5.50% and 7.55%,
respectively, after fee waivers and expense reimbursements, and 6.69%, 5.97%
and 7.55%, respectively, before fee waivers and expense reimbursements, for the
30-day period ended November 30, 1995, based on a federal tax rate of 36%.
TOTAL RETURN CALCULATIONS. The Equity and Fixed Income Funds compute
their average annual total returns separately for their separate share classes
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested in a particular share class to
the ending redeemable value of such investment in the class. This is done by
dividing the ending redeemable value of a hypothetical $1,000 initial payment by
$1,000 and raising the quotient to a power equal to one divided by the number of
years (or fractional portion thereof) covered by the computation and subtracting
one from the result. This calculation can be expressed as follows:
ERV
T = [(-----) 1/n - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Equity and Fixed Income Funds compute their aggregate total
returns separately for their separate share classes by determining the aggregate
rates of return during specified periods that likewise equate the initial amount
invested in a particular share class to the ending redeemable value of such
investment in the class. The formula for calculating aggregate total return is
as follows:
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ERV
aggregate total return = [(----- - 1)]
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
Based on the foregoing calculations, the average annual total
returns for Class A Shares for the twelve months ended November 30, 1995 and
the period from their respective commencement dates to November 30, 1995 were
as follows: Equity Fund -- 28.77% and 10.28%, respectively; Small
Capitalization Fund --26.19% and 9.00%, respectively; Balanced Fund -- 21.69%
and 12,45%, respectively; U.S. Government Securities Fund -- 8.71% and 7.22%,
respectively; Short-Term Fixed Income Fund -- 7.49% and 4.89%, respectively;
Managed Bond Fund -- 13.14% and 7.59%, respectively; and the Florida
Tax-Exempt Fund -- 12.79% and 7.39%, respectively. The aggregate total
returns for Retail Shares of the Equity, Small Capitalization, Balanced,
Short Term Fixed Income, Managed Bond Funds, U.S. Government Securities, and
Florida Tax-Exempt, for the fiscal year ended November 30, 1995 were 34.82%,
32.19%, 27.45%, 10.25%, 18.47%, 13.85% and 18.17%, respectively.
The average annual total returns for Institutional Class Shares for
the period from their respective commencement of operations (January 4, 1994,
for the Small Capitalization Fund) or initial offering dates (March 1, 1994 for
the Equity, U.S. Government Securities and Florida Tax-Exempt Funds and April
11, 1994 for the Balanced, Short-Term Fixed Income and Managed Bond Funds)
were 14.72%, 13.73%, 15.51%, 6.06%, 7.03%, 10.82% and 5.68%, respectively.
The aggregate total returns for these Funds for the same period were 35.21%,
32.30%, 27.99%, 14.10%, 10.80%, 18.36% and 18.55%, respectively.
YIELD CALCULATIONS FOR THE MONEY MARKET FUNDS
The "yields" and "effective yields" of each Money Market Fund are
calculated according to formulas prescribed by the Securities and Exchange
Commission. The standardized seven-day yields for the respective share classes
of each Money Market Fund are computed separately for each class by determining
the net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account in the particular Fund involved having a balance of one
share at the beginning of the period, dividing the net change in account value
by the value of the
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account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by (365/7). The net change in the value
of an account in a Fund includes the value of additional shares purchased with
dividends from the original share, and dividends declared on both the original
share and any such additional shares, net of all fees, other than nonrecurring
account or front-end sales charges, that are charged to all shareholder accounts
in proportion to the length of the base period and the Fund's average account
size. The capital changes to be excluded from the calculation of the net change
in account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective annualized yields for
each Money Market Fund are computed by compounding a particular Fund's
unannualized base period returns (calculated as above) by adding 1 to the base
period returns, raising the sums to a power equal to 365 divided by 7, and
subtracting 1 from the results. In addition, the Tax-Exempt Fund may quote a
standardized "tax-equivalent yield" of each of its classes of shares, which is
computed by: (a) dividing the portion of the Fund's yield (as calculated above)
for such class that is exempt from federal income tax by one minus a stated
federal income tax rate; and (b) adding the figure resulting from (a) above to
that portion, if any, of the Fund's yield for such class of shares that is not
exempt from federal income tax. The fees that may be imposed by institutional
investors directly on their customers for cash management and other services are
not reflected in Emerald Funds' calculations of yields for the Funds.
For the seven-day period ended November 30, 1995, the annualized
yields (after fee waivers) of Retail Shares in the Treasury Fund, Prime Fund
and Tax-Exempt Fund were 4.91%, 5.05% and 2.98%, respectively, the effective
yields (after fee waivers) of Retail Shares in such Funds were 4.91%, 5.04%
and 2.94%, respectively, and the tax-equivalent yield (after fee waivers) of
Retail Shares in the Tax-Exempt Fund was 4.59% (assuming a Federal income tax
rate of 36%).
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to shareholders. The Funds may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any Fund.
In addition, in such communications, the Adviser may offer opinions on current
economic conditions.
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<PAGE>
MISCELLANEOUS
As used in this Statement of Additional Information and in the
Prospectuses a "majority of the outstanding shares" of a Fund or class means the
lesser of (1) 67% of the shares of the particular Fund or class represented at a
meeting at which the holders of more than 50% of the outstanding shares of such
Fund or class are present in person or by proxy, or (2) more than 50% of the
outstanding shares of such Fund or class.
As of January 8, 1996, the Adviser and its affiliated banks owned of
record substantially all of the outstanding shares of the Treasury Trust Fund
and Prime Trust Fund on behalf of their customer accounts. [The Adviser and
such affiliated banks were also the beneficial owners of the following
percentages of shares that were outstanding on such date because the Adviser
possessed voting or investment discretion with respect to such shares: Treasury
Trust Fund (98.35%), Prime Trust Fund (98.82%), Treasury Fund (15.81%), Prime
Fund (11.74%), Tax-Exempt Fund (88.47%), Equity Fund - Institutional Shares
(99.80%), Small Capitalization Fund - Institutional Shares (99.90%), Balanced
Fund - Institutional Shares (99.80%), Short-Term Fixed Income Fund -
Institutional Shares (91.90%), U.S. Government Securities Fund - Institutional
Shares (95.0%), Managed Bond Fund - Class A Shares (5.43%), Managed Bond Fund -
Institutional Shares (99.40%) Florida Tax Exempt Fund - Class A Shares (0.10%),
and Florida Tax-Exempt Fund - Institutional Shares (94.90%) As of January 8,
1996, the name, address and percentage of the outstanding shares held by other
investors who may have owned of record or beneficially 5% or more of the
outstanding shares of a particular Fund of the Trust were as follows: [Equity
Fund - Class A Shares - National Financial Services Corporation, Attn: Sal
Macca, 200 Liberty Street, One World Financial Center, New York, NY 10281
(54.67%); University of West Florida Foundation, 11000 University Parkway,
Pensacola, FL 32514 (7.95%); Equity Fund - Class B Shares - National Financial
Services Corporation/FMTC IRA FBO Jerry E. Handy, 839 Cape Haze Lane, Naples, FL
33942 (5.22%); Harvey R. Gelman, 2226 N.W. 60th Street, Boca Raton, FL 33496
(5.18%); Small Capitalization Fund - Class A Shares - John G. Grimsley, P.O. Box
4099, Jacksonville, FL 32201 (5.59%); National Financial Services
Corporation/FMTC Custodian FBO Randall W. Hall IRA, 2954 Jeanette Cove, Oviedo,
FL 32765 (11.00%); Small Capitalization Fund - Class B Shares - Spencer C.
Whitehead & Janet A. Whitehead JTWROS, 225 East Maine Avenue, Longwood, FL
32750 (8.58%); Balanced Fund - Class A Shares - Turpin W. Barrett Jr. & Mary D.
Barrett JTWROS, 2926 Forest Brook Drive East, Lakeland, FL 33811 (7.13%); Susan
A. Fairbank Trustee, Fairbank Revocable Trust, 85 N. Pizarro Point, Lecanto, FL
34461 (7.82%); Katie M. Loeding and Mary Ellen Ash and Claudia May Clark JTWROS,
1659 Calvin Circle, Kissinmee, FL 34746 (8.05%); Therese A. Gaudreau, 623 S.W.
Palmetto Cove, Port St. Lucie, FL 34986 (5.38%); Short-Term Fixed Income Fund -
Class A Shares - National Financial Services Company/FMTC Custodian FBO Simon
Brennan IRA, 2858 S.E. Eagle Drive, Port St. Lucie, FL 34984 (24.24%); W. B.
Marks, P.O. Box 963, Lecanto, FL 34460
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<PAGE>
(6.09%); Robert J. Haggstrom Trust U/A, 1222 Oakmont Drive, Niceville, FL 32578
(5.91%); Joan Marie Haggstrom Trust U/A, 1222 Oakmont Drive, Niceville, FL 32578
(6.96%); National Financial Services Corporation for the Exclusive Benefit of
our Customers, Attn: Sal Macca, 200 Liberty Street, One World Financial Center,
New York, NY 10281 (5.18%); Robert D. Blake & Frances S. Blake JTWROS, P.O. Box
772, Pensacola, FL 32501 (18.51%); Short-Term Fixed Income Fund - Class B Shares
- - Ellie R. Lee and Woodrow W. Lee and Barbara Moseley & James W. Lee TEN COMM,
5929 Duchess Road, Pensacola, FL 32503 (17.15%); Josephine H. Johnson, 1700
North L Street, Apt. 102, Pensacola, FL 32501 (23.19%); Mel S. Swauger & Irene
B. Swauger JTWROS, 1570 Monica Joy Circle, Longwood, FL 32779 (58.38%); Short-
Term Fixed Income Fund - Institutional Shares - Harris Trust & Savings Bank,
Custodian CSR America Inc., P/S 401k Plan, Attn: Tony Kwilosz, 111 W. Monroe
Floor 5 East, Chicago, IL 60603 (66.91%); U.S. Government Securities Fund -Class
A Shares - National Financial Services Corporation for the Exclusive Benefit of
our Customers, Attn: Sal Macca, 200 Liberty Street, One World Financial Center,
New York, NY 10281 (55.93%); U. S. Government Securities Fund - Class B Shares -
Raymond M. Jones & Janet J. Bell JTWROS, 7100 Ulmerton Road, Lot 125, Rancho
Village, Largo, FL 34641 (10.14%); National Financial Services Corporation for
the Exclusive Benefit of our Customers, Attn: Mr. Sal Macca, 200 Liberty Street,
One World Financial Center, New York, NY 10281 (13.44%); Susan A. Fairbank
Trustee, Fairbank Revocable Trust, 85 N. Pizarro Point, Lecanto, FL 34461
(11.90%); Anita J. Doyle, 7252 Windy Way, Brookville, FL 34601 (6.34%); National
Financial Services Corporation for the Exclusive Benefit of our Customers, Attn:
Mr. Sal Macca, 200 Liberty Street, One World Financial Center, New York, NY
10281 (6.72%); Managed Bond Fund - Class B Shares - Torben Jensen & Bodil Jensen
JTWROS, 6120 N. Misty Oak Terrace, Beverly Hills, FL 34465 (5.67%); Hazel L.
Lickliter, 327 Dania Street, Lehigh Acres, FL 33936 (6.64%); Ruby B. Henson and
Betty J. Carroll and David Carroll JTWROS, 768 N.E. Maranta Terrado, Jensen
Beach, FL 34958 (13.47%); Charles O. Reid and Carolyn N. Reid JTWROS, 2454
Australia Way East, Unit 28, Clearwater, FL 34623 (5.34%); Ernest P. and Muriel
C. Wood, Trustees, Ernest P. and Muriel C. Wood Revocable Trust, 1675 Algonquin
Drive, Clearwater, FL 34615 (8.75%); Florida Tax-Exempt Fund - Class A Shares -
National Financial Services Corporation for the Exclusive Benefit of our
Customers, Attn: Sal Macca, 200 Liberty Street, One World Financial Center, New
York, NY 10281 (59.37%); Florida Tax-Exempt Fund - Class B Shares, David S.
Miller, Trustee, The David S. Miller Trust, 4687 Oak Leaf Drive, Naples, FL
33999 (5.83%); Emerald Treasury Fund - Emerald Service Shares - Concord
Financial Services, Inc., Attn: Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (96.30%); Emerald Treasury Fund -
Emerald Investor Shares - National Financial Service Corporation for the
Exclusive Benefit of our Customers, Attn: Mike McLaughlin, 9 New York, 200
Liberty Street, New York, NY 10281 (99.74%); Emerald Prime Fund - Emerald
Service Shares - Concord Financial Services, Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222 (15.63%);
Concord Financial Services, Inc.,
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<PAGE>
Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222 (84.10%); Emerald Prime Fund - Emerald Investor Shares -
National Financial Service Corporation for the Exclusive Benefit of our
Customers, Attn: Mike McLaughlin, 9 New York, 200 Liberty Street, New York, NY
10281 (98.92%); Emerald Tax-Exempt Fund - Emerald Service Shares - Concord
Financial Services, Inc., Attn: Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (22.53%); Concord Financial
Services, Inc., Linda Zerbe, First and Market Building, 100 First Avenue, Suite
300, Pittsburgh, PA 15222 (77.46%); Emerald Tax-Exempt Fund -Emerald Investor
Shares - National Financial Service Corporation, Attn: Mike McLaughlin, 9 New
York, 200 Liberty Street, New York, NY 10281 (95.12%). At such date, Hambrecht
& Quist Group, Inc. owned 100% of the outstanding shares of the Tax-Exempt
Trust Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered by the Trust's
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Additional Statement pursuant to the rules and
regulations of the SEC. The Registration Statement including the exhibits filed
therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional
Statement as to the contents of any contract or other documents referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Price
Waterhouse LLP, independent auditors, contained in the annual report to
shareholders for the fiscal year ended November 30, 1995 (the "Annual Report")
are hereby incorporated herein by reference. Copies of the Annual Report may be
obtained by writing to BISYS Fund Services, Inc. at _____________________ or by
calling toll-free at ______________.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more
A-1
<PAGE>
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"Duff 4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
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<PAGE>
"Duff 5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
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<PAGE>
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in
A-4
<PAGE>
circumstances and economic conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - Debt is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
"C" - Debt is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
A-5
<PAGE>
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default and is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S & P believes such payments will be made during
such grace period. "D" rating is also used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents
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obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the
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addition of a plus (+) or minus (-) sign to show relative standing within these
major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
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"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
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"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Corporation for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established
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cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
D&P uses the ratings described under Corporate and Municipal Long-Term
Debt Ratings for tax-exempt notes and other short-term obligations.
Fitch uses the short-term ratings described under Commercial Paper
Ratings for municipal notes.
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APPENDIX B
As stated in the Prospectuses, certain of the Funds may enter into
futures contracts and options in an effort to have fuller exposure to price
movements in equity securities pending investment of purchase orders or while
maintaining liquidity to meet potential shareholder redemptions and for other
hedging purposes. Such transactions are described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS.
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by a Fund, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
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Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Fund's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges - principally, the Chicago Board of Trade and
the Chicago Mercantile Exchange. The Fund would deal only in standardized
contracts on recognized exchanges. Each exchange guarantees performance under
contract provisions through a clearing corporation, a nonprofit organization
managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury bonds and
notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. A Fund may trade in any futures contract for which
there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLES OF FUTURES CONTRACT SALE. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in the Capital
Income Fund tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury bonds"). The adviser wishes to fix the
current market value of this portfolio security until some point in the future.
Assume the portfolio security has a market value of 100, and the adviser
believes that, because of an anticipated rise in interest rates, the value will
decline to 95. The Capital Income Fund might enter into futures contract sales
of Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market price
for the Treasury bonds might also decline from 98 to 93.
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In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an off-setting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
EXAMPLES OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in long-
term bonds but wishes to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter-
term securities whose yields are greater than those available on long-term
bonds. The Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Capital Income Fund may purchase, currently yielding 10%, tends to move in
concert with futures market prices of Treasury bonds. The adviser wishes to fix
the current market price (and thus 10% yield) of the long-term bond until the
time (four months away in this example) when it may purchase the bond. Assume
the long-term bond has a market price of 100, and the adviser believes that,
because of an anticipated fall in interest rates, the price will have risen to
105 (and the yield will have dropped to about 9 1/2%) in four months. The Fund
might enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, the Fund would assign a pool of investments in
short-term securities that are either maturing in four months or earmarked for
sale in four months, for purchase of the long-term bond at an assumed market
price of 100. Assume these short-term securities are yielding 15%. If the
market price of the long-term bond does indeed rise from 100 to 105, the
equivalent futures market price for Treasury bonds might also rise from 98 to
103. In that case, the 5-point increase in the price that the Capital Income
Fund pays for the long-term
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bond would be offset by the 5-point gain realized by closing out the futures
contract purchase.
The adviser could be wrong in its forecast of interest rates; long-
term interest rates might rise to above 10%; and the equivalent futures market
price could fall below 98. If short-term rates at the same time fall to 10% or
below, it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.
II. INDEX FUTURES CONTRACTS.
A stock or bond index assigns relative values to the stocks or bonds
included in the index and the index fluctuates with changes in the market values
of the stocks or bonds included. A stock or bond index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value (which assigns relative values to the common
stocks or bonds included in the index) at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks in the index is made. Some stock
index futures contracts are based on broad market indices, such as the Standard
& Poor's 500 or the New York Stock Exchange Composite Index. In contrast,
certain exchanges offer futures contracts on narrower market indices, such as
the Standard & Poor's 100 or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of their respective portfolio securities that might otherwise
result from a market decline. The Funds may do so either to hedge the value of
its respective portfolio as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to
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be sold. Conversely, a Fund will purchase index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, a Fund will purchase such securities upon termination of the long
futures position, but a long futures position may be terminated without a
corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. A Fund
may also sell futures contracts in connection with this strategy, in order to
protect against the possibility that the value of the securities to be sold as
part of the restructuring of their respective portfolios will decline prior to
the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Equity Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is,
market value decreased and a Fund had entered into an anticipatory purchase
hedge, or market value increased and a Fund had hedged its stock portfolio, the
results of the Fund's transactions in stock index futures would be as set forth
below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss of Futures = $40,000
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES.
A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by the Aggressive Growth
Fund to hedge against exposure to fluctuations in exchange rates between the
U.S. dollar and other currencies arising from multinational transactions.
IV. MARGIN PAYMENTS.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
a Fund will be required to deposit with the broker or in a segregated account
with the Fund's custodian an amount of cash or cash equivalents (generally,
short-term U.S. Government securities), the value of
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which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract assuming
all contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-market. For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract
and the price of the futures contract has declined in response to a decrease in
the underlying instruments, the position would be less valuable and the Fund
would be required to make a variation margin payment to the broker. At any time
prior to expiration of the futures contract, the adviser may elect to close the
position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
V. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.
There are several risks in connection with the use of futures by a
Fund as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price
of the future moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, the Fund will experience either a
loss or gain on the future which will not be completely offset by movements in
the price of the securities which are the subject of the hedge. To compensate
for the imperfect correlation of movements in the price of securities being
hedged and movements in the price of futures contracts, a Fund may buy or sell
futures
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contracts in a greater dollar amount than the dollar amount of securities being
hedged if the volatility over a particular time period of the prices of such
securities has been greater than the volatility over such time period of the
future, or if otherwise deemed to be appropriate by the investment adviser.
Conversely, a Fund may buy or sell fewer futures contracts if the volatility
over a particular time period of the prices of the securities being hedged is
less than the volatility over such time period of the futures contract being
used, or if otherwise deemed to be appropriate by the adviser. It is also
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of securities held
in the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents (e.g., short-term U.S. Government
securities), equal to the market value of the futures contracts, will be
deposited in a segregated account with the Fund's custodian and/or in a margin
account with a broker to collateralize the position and thereby reduce the
leverage effect resulting from the use of such futures.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
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futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although a Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of fluctuation
in a futures contract price during a single trading day. Once the daily limit
has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund is also subject to the adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to
sell securities at a time when it may be disadvantageous to do so.
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VI. OPTIONS ON FUTURES CONTRACTS.
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing, an option of the same series, at which time the
person entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to a Fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs).
VII. OTHER HEDGING TRANSACTIONS
A Fund is authorized to enter into hedging transactions in any other
futures or options contracts which are currently traded or which may
subsequently become available for trading. Such instruments may be employed in
connection with the Funds' hedging strategies if, in the judgment of the
adviser, transactions therein are necessary or advisable.
VIII. ACCOUNTING AND TAX TREATMENT.
Accounting for futures contracts and related options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by
a Fund at the close of the Fund's taxable year will be treated for federal
income tax purposes as sold for their fair market value on the last business day
of such year, a
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process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sale will be treated as short-term capital gain or loss
and 60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time the Fund holds the futures contract or
option ("the 40%-60% rule"). The amount of any capital gain or loss actually
realized by a Fund in a subsequent sale or other disposition of those futures
contracts or options will be adjusted to reflect any capital gain or loss taken
into account by the Fund in a prior year as a result of the constructive sale of
the contracts or options. With respect to futures contracts to sell, which will
be regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Fund, losses as to
such contracts to sell will be subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle (if they have not been held for the
long-term holding period) will be deemed not to begin prior to termination of
the straddle. With respect to certain futures contracts and related options,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Fund may make an election which
will exempt (in whole or in part) those identified futures contracts and options
from being treated for federal income tax purposes as sold on the last business
day of the Fund's taxable year, but gains and losses will be subject to such
short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a Fund
is allowed (in lieu of the foregoing) to elect either (1) to offset gains or
losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts, but in the case of a mixed straddle account election, not
more than 50 percent of any net gain may be treated as long-term and no more
than 40 percent of any net loss may be treated as short-term.
Certain foreign currency contracts entered into by a Fund may be
subject to the marking-to-market process but gain or loss will be treated as
100% ordinary income or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the
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settlement value of the contract depends; (2) the contract must be entered into
at arm's length at a price determined by reference to the price in the interbank
market; and (3) the contract must be traded in the interbank market. The
Treasury Department has broad authority to issue regulations under the
provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information, the Treasury has not issued any such
regulations. Foreign currency contracts entered into by a Fund may result in
the creation of one or more straddles for federal income tax purposes, in which
case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
Some investments of a Fund may be subject to special rules which
govern the federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S. dollar. The types of
transactions covered by the special rules include the following: (i) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(ii) the accruing of certain trade receivables and payables; and (iii) the
entering into or acquisition of any forward contract, futures contract, option
and similar financial instrument. However, regulated futures contracts and non-
equity options are generally not subject to the special currency rules if they
are or would be treated as sold for their fair market value at year-end under
the mark-to-market rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer also is treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated
that some of the non-U.S. dollar denominated investments and foreign currency
contracts that such Funds may make or may enter into will be subject to the
special currency rules described above. Gain or loss attributable to the
foreign currency component of transactions engaged in by a Fund which are not
subject to special currency rules (such as foreign
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<PAGE>
equity investments other than certain preferred stocks) will be treated as
capital gain or loss and will not be segregated from the gain or loss on the
underlying transaction.
Qualification as a regulated investment company under the Code
requires that a Fund satisfy certain requirements with respect to the source of
its income during a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interests, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to a Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains that are not
directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by a Fund from a partnership or trust is treated for this purpose
as derived with respect to a Fund's business of investing in stock, securities
or currencies only to the extent that such income is attributable to items of
income which would have been qualifying income if realized by a Fund in the same
manner as by the partnership or trust.
An additional requirement for qualification as a regulated investment
company under the Code is the Short-Short test described above in "Additional
Information Concerning Taxes." With respect to futures contracts and other
financial instruments subject to the mark-to-market rules, the Internal Revenue
Service (the "Service") has ruled in private letter rulings issued to other
regulated investment companies that a gain realized from such a futures contract
or financial instrument will be treated as being derived from a security held
for three months or more (regardless of the actual period for which the contract
or instrument is held) if the gain arises as a result of a constructive sale
under the mark-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
mark-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. Although private
letter rulings are not binding on the Service, management believes the Service
would take the same position on this issue with respect to the Funds. In
determining whether the 30% test is met for a taxable year, increases and
decreases in the value of a Fund's futures contracts and other investments that
qualify as part of a "designated hedge," as defined in the Code, may be netted.
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EMERALD FUNDS
Statement of Additional Information
for Emerald Shares and Emerald Service Shares
of the
* Prime Fund *
*Treasury Fund*
*Tax-Exempt Fund*
April 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Additional Information 1
Emerald Funds 3
Investment Objectives and Policies 3
Net Asset Value and Dividends 19
Additional Purchase and Redemption Information 21
Description of Shares 21
Additional Information Concerning Taxes 25
Management of Emerald Funds 30
Independent Accountants/Experts 40
Counsel 40
Additional Information on Yield 40
Miscellaneous 42
Financial Statements 45
Appendix A-1
</TABLE>
This Statement of Additional Information, which applies to the
Emerald Share and Emerald Service Share Classes of Emerald Funds' Treasury
Fund, Prime Fund and Tax-Exempt Fund, is meant to be read in conjunction with
the Prospectus dated April 1, 1996 for such Shares, and is incorporated by
reference in its entirety into those Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in Emerald
Shares and Emerald Service Shares of the Treasury Fund, Prime Fund or Tax
Exempt Fund should be made solely upon the information contained herein.
Copies of the Prospectuses may be obtained by calling [______________].
Capitalized terms used but not defined herein have the same meanings as in the
Prospectuses.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BARNETT BANK, OR ANY OTHER BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. EACH FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF
$1.00 PER SHARE,
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<PAGE>
ALTHOUGH 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 FLUCTUATE.
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<PAGE>
EMERALD FUNDS
Emerald Funds is a Massachusetts business trust which was organized
on March 15, 1988 as an open-end investment company. This Statement of
Additional Information pertains to the Emerald Share and Emerald Service Share
Classes of three diversified portfolios of Emerald Funds -- the Treasury Fund,
the Prime Fund and the Tax-Exempt Fund (such portfolios are sometimes called
the "Funds"). Emerald Funds also offers other classes of shares in the
aforementioned Funds and in other investment portfolios which are described in
separate Prospectuses and Statements of Additional Information. For further
information, contact the Distributor at the address or telephone number stated
on the cover page of this Statement of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
As stated in the Prospectuses for the respective Funds, the
investment objective of both the Treasury Fund and the Prime Fund is to seek a
high level of current income, and the investment objective of the Tax-Exempt
Fund is to seek a high level of current income exempt from federal income
taxes, in each case consistent with liquidity, the preservation of capital and
a stable net asset value. The following policies supplement the Funds'
respective investment objectives and policies as set forth in the Prospectuses
for the Funds.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, Barnett
Banks Trust Company, N.A. (the "Adviser") makes decisions with respect to and
places orders for all purchases and sales of portfolio securities for the
Treasury Fund and Prime Fund. Rodney Square Management Corporation (the "Sub-
Adviser"), a wholly-owned subsidiary of Wilmington Trust Company, has similar
responsibilities for the Tax-Exempt Fund, subject to the general supervision
of both the Board of Trustees and the Adviser. (The Sub-Adviser does not
provide sub-advisory services for the Treasury and Prime Funds.)
Securities purchased and sold by each Fund are generally traded in
the over-the-counter market on a net basis (I.E., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter
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<PAGE>
transactions, the Adviser for the Treasury and Prime Funds, and the Sub-Adviser
for the Tax-Exempt Fund, will normally deal directly with dealers who make a
market in the instruments involved except in those circumstances where more
favorable prices and execution are available elsewhere.
The Funds may participate, if and when practicable, in bidding for
the purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
A Fund will engage in this practice, however, only when the Adviser (or, with
respect to the Tax-Exempt Fund, the Sub-Adviser) believes such practice to be
in the Fund's interests.
The Funds do not intend to seek profits from short-term trading.
Because the Funds will invest only in short-term debt instruments, their
annual portfolio turnover rates will be relatively high, but brokerage
commissions are normally not paid on money market instruments, and portfolio
turn-over is not expected to have a material effect on the net investment
income of any Fund.
In its Advisory Agreement the Adviser agrees with respect to the
Treasury and Prime Funds, and in its Sub-Advisory Agreement the Sub-Adviser
agrees with respect to the Tax-Exempt Fund, to seek to obtain the best overall
terms available in executing portfolio transactions and selecting brokers or
dealers. In assessing the best overall terms available for any transaction,
the Adviser and Sub-Adviser shall consider factors they deem relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In addition, the respective
Agreements authorize the Adviser and Sub-Adviser to cause the Funds to pay a
broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Adviser (or Sub-Adviser with
respect to the Tax-Exempt Fund) determines in good faith that such commission
is reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Adviser (or Sub-Adviser) to
the Funds. Such brokerage and research services might consist of reports and
statistics of specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond and government securities markets and the economy.
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<PAGE>
Supplemental research information so received is in addition to, and
not in lieu of, services required to be performed by the Adviser (and Sub-
Adviser) and does not reduce the advisory fees payable to the Adviser by the
Funds. The Trustees will periodically review the commissions paid by the
Funds to consider whether the commissions paid over representative periods of
time appear to be reasonable in relation to the benefits inuring to the Funds.
It is possible that certain of the supplementary research or other services
received will primarily benefit one or more other investment companies or
other accounts for which investment discretion is exercised. Conversely, a
Fund may be the primary beneficiary of the research or services received as a
result of portfolio transactions effected for such other account or investment
company.
Portfolio securities will not be purchased from or sold to (and
savings deposits will not be made in and repurchase and reverse repurchase
agreements will not be entered into with) the Adviser, the Sub-Adviser, the
Distributor or an affiliated person of any of them (as such term is defined in
the Investment Company Act of 1940) acting as principal, except as permitted
by the Securities and Exchange Commission. Further, while such allocation is
not expected to occur frequently, the Adviser (and Sub-Adviser with respect to
the Tax-Exempt Fund) is authorized to allocate purchase and sale orders for
portfolio securities to broker/dealers and financial institutions, including,
in the case of agency transactions, broker/dealers and financial institutions
which are affiliated with the Adviser or the Sub-Adviser, to take into account
the sale of Fund shares if the Adviser (or Sub-Adviser) believes that the
quality of the execution of the transaction and the amount of the commission
are comparable to what they would be with other qualified brokerage firms. In
addition, the Funds will not purchase securities during the existence of any
underwriting or selling group relating thereto of which the Distributor, the
Adviser or Sub-Adviser, or an affiliated person of any of them, is a member,
except as permitted by the Securities and Exchange Commission. In certain
instances, current regulations of the Commission would impose volume, dollar
and price restrictions on purchases by the Funds during the existence of such
a group or prohibit such purchases altogether.
Investment decisions for the Funds are made independently from those
for other investment companies and accounts advised or managed by the Adviser
and Sub-Adviser. Such other investment companies and accounts may also invest
in the same securities as the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and
another investment company or account, the transaction will be averaged as to
price and available investments allocated as to amount, in a manner which the
Adviser (Sub-Adviser with
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<PAGE>
respect to the Tax-Exempt Fund) believes to be equitable to the Fund and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the
size of the position obtained by a Fund. To the extent permitted by law, the
Adviser and Sub-Adviser may aggregate the securities to be sold or purchased
for a Fund with those to be sold or purchased for other investment companies
or accounts in executing transactions.
Subsequent to its purchase by a Fund, a rated security may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or the Adviser (Sub-Adviser with
respect to the Tax-Exempt Fund), pursuant to guidelines established by the
Board, will consider such an event in determining whether the Fund involved
should continue to hold the security in accordance with the interests of the
Fund and applicable regulations of the Securities and Exchange Commission. In
addition, it is possible that unregistered securities purchased by a Fund in
reliance upon Rule 144A under the Securities Act of 1933 could have the effect
of increasing the level of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a period, uninterested in purchasing these
securities.
ADDITIONAL INVESTMENT LIMITATIONS
Each Fund is subject to the investment limitations enumerated in
this sub-section which may be changed with respect to a particular Fund only
by a vote of the holders of a majority of such Fund's outstanding shares (as
defined under "Miscellaneous" below).
No Fund may:
1. Purchase or sell real estate, except that each Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the Investment Company
Act of 1940.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.
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<PAGE>
4. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except for transactions in options on securities,
securities indices, futures contracts and options on futures contracts.
5. Borrow money or issue senior securities, except that each Fund
may borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of the total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in excess
of one-third of the value of a Fund's total assets at the time of such
borrowing. No Fund will purchase securities while its borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding. Securities held in escrow or separate accounts in connection
with a Fund's investment practices described in this Statement of Additional
Information or in the Prospectus for a particular Fund are not deemed to be
pledged for purposes of this limitation.
6. Purchase securities on margin, make short sales of securities
or maintain a short position, except that (a) this investment limitation shall
not apply to a Fund's transactions in futures contracts and related options,
and (b) a Fund may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
7. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that each Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities and
may enter into futures contracts and related options.
8. Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities.
9. Purchase securities of companies for the purpose of exercising
control.
10. Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or certificates of deposit for any such securities) if, immediately after such
purchase, (a) with respect to the Treasury Fund and Tax-Exempt Fund, more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer, or (b) with respect to the Prime Fund, more than 15% of its
total assets would be invested in certificates of deposit or bankers'
acceptances of any one bank,
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<PAGE>
or more than 5% of the value of the Fund's total assets would be invested in
other securities of any one bank or in the securities of any other issuer, or
(c) in the case of any Fund, more than 10% of the issuer's outstanding voting
securities would be owned by the Fund or Emerald Funds; except that up to 25%
of the value of a Fund's total assets may be invested without regard to the
foregoing limitations. For purposes of this limitation, a security is
considered to be issued by the entity (or entities) whose assets and revenues
back the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantor when the value of all securities issued and
guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the
value of the Fund's total assets.
[Note: In accordance with the current regulations of the Securities and
Exchange Commission, the Prime Fund intends to limit its investments in
bankers' acceptances, certificates of deposit and other securities of any one
bank to not more than 5% of the Fund's total assets at the time of purchase
(rather than the 15% limitation set forth above), provided that the Fund may
invest up to 25% of its total assets in the securities of any one issuer for a
period of up to three business days. This practice, which is not a
fundamental policy of the Prime Fund, could be changed only in the event that
such regulations of the Securities and Exchange Commission are amended in the
future.]
In addition, the Prime Fund and Tax-Exempt Fund may not:
11. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to (i) instruments issued or guaranteed by the United States, any
state, territory or possession of the United States, the District of Columbia
or any of their authorities, agencies, instrumentalities or political
subdivisions, (ii) instruments issued by domestic branches of U.S. banks and
(iii) repurchase agreements secured by the instruments described in clauses
(i) and (ii); (b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
[Note: In construing Section 11 in accordance with SEC policy, to the extent
permitted, U.S. branches of foreign banks will be considered to be U.S. banks
where they are subject to the same regulation as U.S. banks.
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<PAGE>
In addition, as summarized in to Prospectus, the Tax-Exempt Fund
must:
12. Invest at least 80% of its net assets in securities the
interest on which is exempt from federal income tax, except during defensive
periods or during periods of unusual market conditions. For the purposes of
this fundamental policy, municipal obligations that are treated as a specific
tax preference item under the federal alternative minimum tax are considered
taxable.
Although the foregoing investment limitations would permit the Funds
to invest in options, futures contracts and options on futures contracts, the
Funds do not currently intend to trade in such instruments during the next 12
months. Prior to making any such investments, the Funds would notify their
shareholders and add appropriate descriptions concerning the instruments to
their Prospectuses and this Statement of Additional Information.
In order to permit the sale of Shares of the Funds in the State of
Texas, the Trust has agreed to the following additional restrictions with
respect to the Funds:
1. The Funds will not invest in oil, gas or
other mineral leases nor will they invest
in real estate limited partnerships.
Should the Trust determine that the above commitment to the state of
Texas or any other commitment made to permit the sale of a particular class of
a Fund's shares in any state are no longer in the best interests of such
class, the Trust will revoke the commitment by terminating sales of that class
in the state involved.
TYPES OF OBLIGATIONS, INVESTMENT RISKS AND OTHER INVESTMENT INFORMATION
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement (an
agreement under which a Fund sells portfolio securities and agrees to
repurchase them at an agreed-upon date and price), it will place in a
segregated custodial account liquid assets such as U.S. Government securities
or other liquid high-grade debt securities having a value equal to or greater
than the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the price of the securities it is obligated
to repurchase.
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Reverse repurchase agreements are considered to be borrowings under the
Investment Company Act of 1940. Each Fund intends to limit its borrowings
(including reverse repurchase agreements), during the next 12 months to not
more than 5% of its net assets.
VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that may
be acquired by the Funds as described in the Prospectus for each Fund, the
Adviser (Sub-Adviser with respect to the Tax-Exempt Fund) will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instrument is subject to a demand
feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, an instrument
will usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can recover payment of principal as specified in the
instrument. Instruments which are U.S. Government obligations and certain
variable rate instruments having a nominal maturity of 397 days or less,
however, will be deemed to have maturities equal to the period remaining until
the next interest rate adjustment.
Variable and floating rate instruments may carry nominal maturities
in excess of a Fund's maturity limitations if those instruments carry demand
features that comply with conditions established by the Securities and
Exchange Commission. In order to be purchased by a Fund, these instruments
must permit a Fund to demand payment of the principal of the instrument at
least once every 397 days upon not more than 30 days' notice.
REPURCHASE AGREEMENTS
The repurchase price under repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements are held by either the Funds'
custodian or another independent third party acting as sub-custodian for the
Fund involved in the transaction, or in the federal Reserve Treasury Book-
Entry System. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940.
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LENDING SECURITIES
When the Treasury Fund or the Prime Fund lends its securities, it
continues to receive interest on the securities loaned and may simultaneously
earn interest on the investment of the cash loan collateral which will be
invested in readily marketable, high-quality, short-term obligations. Although
voting rights, or rights to consent, attendant to securities on loan pass to
the borrower, such loans will be called so that the securities may be voted by
a Fund if a material event affecting the investment is to occur. Portfolio
loans will be continuously secured by collateral equal at all times in value
to at least the market value of the securities loaned plus accrued interest.
Collateral for such loans may include cash or U.S. Government Securities or
additionally, in the case of the Prime Fund, securities of U.S. Government
agencies or instrumentalities or an irrevocable letter of credit issued by a
bank that meets the credit standards of the Prime Fund. Collateral for the
Treasury Fund is limited to cash and U.S. Government Securities. There maybe
risks of delay in recovering 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.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may
invest in securities issued by other investment companies within the limits
prescribed by the Investment Company Act of 1940. Each Fund currently
intends to limit its investments so that, as determined immediately after a
securities purchase is made: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b)
not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund or by Emerald Funds as a whole. As a shareholder of another
investment company, a Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that a Fund bears in connection with its own operations.
U.S. GOVERNMENT OBLIGATIONS
Examples of the types of U.S. Government obligations that may be
held by the Prime Fund include, in addition to U.S. Treasury bonds, notes and
bills, the obligations of federal Home Loan Banks, federal Farm Credit Banks,
federal Land Banks, the federal Housing Administration, Farmers Home
Administration,
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Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, federal National Mortgage
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, federal Home Loan Mortgage
Corporation, federal Intermediate Credit Banks, Tennessee Valley Authority,
Resolution Funding Corporation and Maritime Administration. 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. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association, are supported by the full faith and credit of
the U.S. Treasury; others, such as the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
ASSET-BACKED SECURITIES
The Prime Fund may invest in securities backed by installment
contracts, credit card receivables and other assets. Asset-backed securities
represent interests in pools of assets in which payment of both interest and
principal on the securities are made monthly, thus in effect passing through
(net of fees paid to the issuer or guarantor of the securities) the monthly
payments made by the individual borrowers on the assets that underlie the
asset-backed securities.
Non-mortgage asset-backed securities involve certain risks that are
not presented by mortgage-backed securities. Primarily, these securities do
not have the benefit of the same security interest in the underlying
collateral. Credit card receivables are generally unsecured and the debtors
are entitled to the protection of a number of state and federal consumer
credit laws, many of which have given debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. Most
issuers of automobile receivables permit the servicers to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the
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automobile receivables may not have an effective security interest in all of
the obligations backing such receivables. Therefore, there is a possibility
that recoveries on repossessed collateral may not, in some cases, be able to
support payments on these securities.
RATINGS AND ISSUER'S OBLIGATIONS
The ratings of Nationally Recognized Statistical Rating
Organizations ("NRSROs") represent their opinions as to the quality of debt
securities. It should be emphasized, however, that ratings are general and
are not absolute standards of quality, and debt securities with the same
maturity, interest rate and rating may have different yields while debt
securities of the same maturity and interest rate with different ratings may
have the same yield.
The payment of principal and interest on most securities purchased
by the Funds will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its debt securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or, in the case of governmental entities,
upon the ability of such entities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment of interest on, and principal
of, its debt securities may be materially adversely affected by litigation or
other conditions.
MUNICIPAL OBLIGATIONS
Assets of the Tax-Exempt Fund may be invested in debt instruments
("municipal obligations") issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political sub-
divisions. The Prime Fund may also acquire municipal obligations, which may
be advantageous 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 Fund may purchase. municipal obligations
include debt obligations issued by governmental entities to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses and the extension of loans to public institutions and
facilities.
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The two principal classifications of municipal obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source such as the issuer of the facility being
financed.
Private activity bonds (e.g., bonds issued by industrial development
authorities) that are issued by or on behalf of public authorities to finance
various privately-operated facilities are included within the term "municipal
obligations." Private activity bonds are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Additionally,
the principal and interest on these obligations may or may not be payable from
the general revenues of the users of the facilities involved. The credit
quality of such bonds is usually directly related to the credit standing of
such corporate users. Private activity bonds have been or may be issued to
obtain funds to provide privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Such bonds may
also be issued on behalf of privately held or publicly owned corporations in
the financing of commercial or industrial facilities. State and local
governments are authorized in most states to issue private activity bonds for
such purposes in order to encourage corporations to locate within their
communities.
As described in the Prospectus, the Prime and Tax-Exempt Funds may
also invest in municipal leases, which may be considered liquid under
guidelines established by Emerald Funds Board of Trustees. The guidelines
will provide for determination of the liquidity and proper valuation of a
municipal lease obligation based on factors including the following: (1) the
frequency of trades and quotes for the obligation; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) the willingness of dealers to undertake to make a market in the
security; and (4) the nature of marketplace trades, including the time needed
to dispose of the security, the method of soliciting offers and the mechanics
of transfer. Emerald, under the supervision of Emerald Funds' Board of
Trustees, will also consider the continued marketability of a municipal lease
obligation based upon an analysis of the general credit quality of the
municipality issuing the obligation and the importance to the municipality of
the property covered by the lease.
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Municipal obligations may also include "moral obligation"
securities, which are normally issued by special purpose public authorities.
If the issuer of moral obligation securities is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal obligations may include short-term General Obligation
Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms
of short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Tax-Exempt and Prime Funds may
invest in bonds and other types of tax-exempt instruments provided they have
remaining maturities that meet the Funds' maturity limitations.
As described in the Prospectuses, the Tax-Exempt and the Prime Funds
may purchase securities in the form of custodial receipts. These custodial
receipts are known by a number of names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and
"Municipal Zero-Coupon Receipts."
Certain municipal obligations may be insured at the time of issuance
as to the timely payment of principal and interest. The insurance policies
will usually be obtained by the issuer of the municipal obligation at the time
of its original issuance. In the event that the issuer defaults on interest
or principal payment, the insurer of the obligation is required to make
payment to the bondholders upon proper notification. There is, however, no
guarantee that the insurer will meet its obligations. In addition, such
insurance will not protect against market fluctuations caused by changes in
interest rates and other factors. The Tax-Exempt Fund may, from time to time,
invest more than 25% of its total assets in municipal obligations covered by
insurance policies.
From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income tax exemption
for the interest on municipal obligations. For example, pursuant to federal
tax legislation passed in 1986, interest on certain private activity bonds
must be included in an investor's federal alternative minimum taxable income,
and corporate investors must take all tax-exempt interest into account in
determining certain adjustments for federal alternative minimum tax purposes.
Emerald Funds cannot, of course, predict what legislation, if any, may be
proposed in the future as regards the income tax status of interest on
municipal
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obligations, or which proposals, if any, might be enacted. Such proposals,
while pending or if enacted, might materially and adversely affect the
availability of municipal obligations for investment by the Tax-Exempt Fund
and the liquidity and value of that Fund's portfolio. In such an event,
Emerald Funds would reevaluate the investment objective and policies of the
Tax-Exempt Fund and consider possible changes in its structure or possible
dissolution.
FOREIGN MONEY MARKET INSTRUMENTS
A Fund will invest in obligations of foreign banks and commercial
paper issued by foreign issuers as described above only when the Adviser deems
the instrument to present minimal credit risks. Such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks. Such risks include future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on such instruments, the possible establishment of
exchange controls, the possible seizure or nationalization of foreign deposits
or the adoption of other foreign government restrictions which might affect
adversely the payment of principal and interest of such instruments. In
addition, foreign issuers, including foreign banks and foreign branches of
U.S. banks, may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than
those applicable to domestic issuers, and securities of foreign issuers may be
less liquid and their prices more volatile than those of comparable domestic
issuers.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
The Funds may purchase securities on a when-issued basis and
purchase or sell securities on a forward commitment basis. These
transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place beyond the normal
settlement date, 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.
When-issued and forward commitment transactions involve the risk, however,
that the yield obtained in a transaction may be less favorable than the yield
available in the market when the securities delivery takes place.
When a Fund agrees to purchase securities on a when-issued or
forward commitment basis, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment,
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and in such a case the Fund involved may be required subsequently to place
additional assets in the separate account in order that the value of the
account remains equal to the amount of the Fund's commitments. It may be
expected that the market value of a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund will set aside cash
or liquid assets to satisfy its purchase commitments in the manner described,
that Fund's liquidity and ability to manage its portfolio might be affected in
the event its forward commitments to purchase securities ever exceeded 25% of
the value of its total assets. The respective forward purchase commitments of
the Treasury Fund, Prime Fund and Tax-Exempt Fund are not expected to exceed
25% of the value of their respective total assets, absent unusual market
conditions or periods of unusual purchase or redemption activity in shares of
a Fund such as at calendar yearend or other times; furthermore, a forward
commitment or commitment to purchase when- issued securities for any Fund is
not expected to exceed 45 days.
The Funds do not intend to engage in when-issued purchases and
forward commitments for speculative purposes but only in furtherance of their
investment objectives, and the Funds will purchase securities on a when-issued
or forward commitment basis only with the intention of completing the
transaction and actually purchasing the securities. If deemed advisable as a
matter of investment strategy, however, a Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed
to purchase before those securities are delivered to the Fund on the
settlement date. In these cases the Fund involved may realize a taxable
capital gain or loss.
When the Funds engage in when-issued and forward commitment
transactions, they rely on the other party to consummate the trade. Failure
of such party to do so may result in a Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent
fluctuations in their market value, is taken into account when determining the
market value of a Fund involved in such transactions starting on the day the
Fund agrees to purchase the securities. A Fund does not earn interest on the
securities it has committed to purchase until they are paid for and delivered
on the settlement date.
STAND-BY COMMITMENTS
The Tax-Exempt Fund may acquire stand-by commitments with respect to
municipal obligations held in its portfolio.
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The amount payable to a Fund upon its exercise of a "stand-by commitment" is
normally (i) the Fund's acquisition cost of the municipal obligations
(excluding any accrued interest which the Fund paid on their acquisition),
less any amortized market premium or plus any amortized market or original
issue discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period. Stand-by commitments may be sold, transferred or assigned by a
Fund only with the instruments involved. Stand-by commitments may be sold,
transferred or assigned by the Fund only with the instruments involved.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Tax-Exempt Fund may pay for a stand-by
commitment either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). Where the
Fund has paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.
The Fund intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Sub-Adviser's opinion, present
minimal credit risks. In evaluating the creditworthiness of the issuer of a
stand-by commitment, the Sub-Adviser will review periodically the issuer's
assets, liabilities, contingent claims and other relevant financial
information.
The Tax-Exempt Fund would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by the Fund
would be valued at zero in determining net asset value.
PARTICIPATION INTERESTS AND TRUST RECEIPTS
The Prime Fund may purchase participation interests and trust
receipts as described in its Prospectus. Such participation interests and
trust receipts may have fixed, floating or variable rates of interest, and
will have remaining maturities of thirteen months or less (as defined by the
Securities and Exchange Commission). If a participation interest or trust
receipt is unrated, the Adviser will have determined that the interest or
receipt is of comparable quality to those instruments in which the Prime Fund
may invest pursuant to guidelines approved by the Board of Trustees. For
certain participation interests or trust receipts the Prime Fund will
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have the right to demand payment, on not more than 30 days' notice, for all or
any part of the Fund's participation interest or trust receipt in the
securities involved, plus accrued interest.
GUARANTEED INVESTMENT CONTRACTS
Generally, a GIC allows a purchaser to buy an annuity with the
monies accumulated under the contract; however, the Prime Fund will not
purchase any such annuities. GICs acquired by the Prime Fund are general
obligations of the issuing insurance company and not separate accounts. The
purchase price paid for a GIC becomes part of the general assets of the
issuer, and the contract is paid from the general assets of the issuer. The
Prime Fund will only purchase GICs from issuers which, at the time of
purchase, are rated "A+" by A.M. Best Company, have assets of $1 billion or
more and meet quality and credit standards established by the investment
adviser pursuant to guidelines approved by the Board of Trustees. Generally,
GICs are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Therefore, GICs are considered by the Prime Fund to be illiquid
investments, and will be acquired by the Fund subject to its limitation on
illiquid investments.
NET ASSET VALUE AND DIVIDENDS
Net asset value per share of each class of shares in a particular
Fund is calculated by adding the value of all portfolio securities and other
assets belonging to the Fund that are attributable to a class, subtracting the
Fund's liabilities attributable to the class, and dividing the result by the
number of outstanding shares in the class. The net asset value per share for
each Fund and for each class of shares within a Fund is calculated separately.
Each Fund is charged with the direct expenses of that Fund, and with a share
of the general expenses of Emerald Funds. Subject to the provisions of the
Agreement and Declaration of Trust, determinations by the Board of Trustees as
to the direct and allocable expenses, and the allocable portion of any general
assets, with respect to a particular Fund are conclusive. The expenses that
are charged to a Fund are borne equally by each share of the Fund, except that
payments to Service Organizations are borne solely by Emerald Service Shares
as described in the Prospectuses for such Shares and payments under the
Combined Amended and Restated Distribution and Service Plan and the
Shareholder Processing Plan for Retail Shares are borne solely by Retail
Shares. In addition, each class of Shares bears certain miscellaneous "class
expenses" as described in the prospectuses.
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Emerald Funds uses the amortized cost method of valuation to value
each Fund's portfolio securities, pursuant to which an instrument is valued at
its cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price a Fund would receive if it sold the instrument. The
market value of portfolio securities held by a Fund can be expected to vary
inversely with changes in prevailing interest rates.
Each Fund attempts to maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net asset value
per share. In this regard, except for securities subject to repurchase
agreements, no Fund will purchase a security deemed to have a remaining
maturity of more than thirteen months within the meaning of the Investment
Company Act of 1940 nor maintain a dollar-weighted average maturity which
exceeds ninety days. The Board of Trustees has also established procedures
that are intended to stabilize the net asset value per share of each Fund for
purposes of sales and redemptions at $1.00. These procedures include the
determination, at such intervals as the Trustees deem appropriate, of the
extent, if any, to which the net asset value per share of each Fund calculated
by using available market quotations deviates from $1.00 per share. In the
event such deviation exceeds one-half of one percent, the Board will promptly
consider what action, if any, should be initiated. If the Board believes that
the extent of any deviation from a $1.00 amortized cost price per share may
result in material dilution or other unfair results to new or existing
investors, it has agreed to take such steps as it considers appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. These steps may include selling portfolio instruments prior
to maturity; shortening the average portfolio maturity; withholding or
reducing dividends; redeeming shares in kind; reducing the number of
outstanding shares without monetary consideration; or utilizing a net asset
value per share determined by using available market quotations.
Should Emerald Funds incur or anticipate any unusual significant
expense or loss which might affect disproportionately the income of a Fund,
the Board of Trustees would, at that time, consider whether to adhere to its
present dividend policies with respect to the Funds, which are described in
the Prospectuses for Emerald Shares and Emerald Service Shares, or to revise
the policies in order to mitigate, to the extent possible, the
disproportionate effect the expense or loss might have on the income of a Fund
for a particular period.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in Emerald Funds are sold on a continuous basis by Emerald
Asset Management, Inc. As described in the Prospectus for each Fund, Emerald
Shares and Emerald Service Shares of the Treasury Fund, the Prime Fund and the
Tax-Exempt Fund are sold to the Adviser, its affiliated and correspondent
banks and other institutional investors (collectively "Institutions") acting
on behalf of themselves and persons maintaining accounts at the Institutions.
Under the Investment Company Act of 1940, Emerald Funds may suspend
the right of redemption or postpone the date of payment for shares of the
Funds during any period when (a) trading on the New York Stock Exchange (the
"Exchange") is restricted by applicable rules and regulations of the
Securities and Exchange Commission; (b) the Exchange is closed for other than
customary weekend and holiday closings; (c) the Securities and Exchange
Commission has by order permitted such suspension; or (d) an emergency exists
as determined by the Securities and Exchange Commission. (Emerald Funds may
also suspend or postpone the recordation of the transfer of its shares upon an
occurrence of any of the foregoing conditions.)
In addition to the situations described in the Prospectus for each
Fund under "Redemption of Shares," Emerald Funds may redeem shares
involuntarily to reimburse a Fund for any loss sustained by reason of the
failure of a shareholder to make full payment for shares purchased by the
shareholder or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to Fund shares as provided in
the Funds' Prospectuses from time to time.
Shares of the Funds are not bank deposits, and are neither insured
by, guaranteed by, obligations of, nor otherwise supported by the U.S.
Government, any governmental agency, the Adviser, the Sub-Adviser (with
respect to the Tax-Exempt Fund) or any other bank.
DESCRIPTION OF SHARES
Emerald Funds is a Massachusetts business trust. Under Emerald
Funds' Agreement and Declaration of Trust, the beneficial interest in Emerald
Funds may be divided into an unlimited number of full and fractional
transferable shares. The Agreement and Declaration of Trust authorizes the
Board of Trustees to classify or reclassify any unissued shares of Emerald
Funds into one or more additional classes by setting or changing, in any one
or more respects, their respective designations,
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preferences, conversion or other rights, voting powers, restrictions,
limitations, qualifications and terms and conditions of redemption. Pursuant
to such authority, the Board of Trustees has authorized the issuance of thirty
three classes of shares. Nine of these classes (Emerald Shares, Emerald
Service Shares and Retail Shares) represent interests in the Treasury Fund,
the Prime Fund and the Tax-Exempt Fund, respectively. The remaining classes
represent interests in other investment portfolios of Emerald Funds. The
Trustees may similarly classify or reclassify any particular class of shares
into one or more series. Each Emerald Share, Emerald Service Share and Retail
Share in a Fund has a par value of $.001.
Except as noted below with respect to the Combined Distribution and
Services Plan and the Shareholder Processing (for Retail Shares) and the
Shareholder Processing and Services Plan (for Emerald Service Shares),
Emerald, Emerald Service and Retail Shares bear pro rata the same expenses and
are entitled equally to a Fund's dividends and distributions. In the event of
a liquidation or dissolution of Emerald Funds or an individual Fund,
shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative net asset values of Emerald Funds'
respective investment portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution. Shareholders of a
Fund are entitled to participate in the net distributable assets of the
particular Fund involved in liquidation, based on the number of shares of the
Fund that are held by each shareholder, except that each Fund's Emerald
Service Shares shall be solely responsible for the Fund's payments to Service
Organizations and each Fund's Retail Shares will be solely responsible for the
Fund's payments under the Combined Distribution and Services Plan and the
Shareholder Processing Plan that has been adopted for Retail Shares. In
addition, each class of Shares will be responsible for certain miscellaneous
"class expenses" as described in the Prospectuses.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by class on all matters, except that only
Emerald Service Shares of a Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to the Fund's Shareholder Services Plan
and only Retail Shares of a Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to the Retail Plan. (See "Other
Information Concerning Emerald Funds and Its Shares" in the Prospectuses.)
Further, shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by Emerald Funds, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except
as otherwise required by law or when permitted by
- 22 -
<PAGE>
the Board of Trustees. Rule 18f-2 under the Investment Company Act of 1940
provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as Emerald Funds
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Fund affected by the
matter. A Fund is affected by a matter unless it is clear that the interests
of each Fund in the matter are substantially identical or that the matter does
not affect any interest of the Fund. Under the Rule, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a Fund only if approved by a
majority of the outstanding shares of such Fund. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of Emerald Funds voting together
in the aggregate without regard to particular investment portfolios. Shares
of Emerald Funds have noncumulative voting rights and, accordingly, the
holders of more than 50% of Emerald Funds' outstanding shares (irrespective of
Fund or class) may elect all Trustees.
Shares have no preemptive rights and only such conversion and
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectuses, 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.
Emerald Funds' Agreement and Declaration of Trust authorizes the
Board of Trustees, without shareholder approval (unless otherwise required by
applicable law), to: (a) sell and convey the assets belonging to a Fund to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of such Fund to be redeemed at a price which is equal to
their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the
- 23 -
<PAGE>
assets belonging to a Fund into money and, in connection therewith, to cause
all outstanding shares of such Fund to be redeemed at their net asset value;
or (c) combine the assets belonging to a Fund with the assets belonging to one
or more other funds if the Board of Trustees reasonably determines that such
combination will not have a material adverse effect on the shareholders of any
fund participating in such combination and, in connection therewith, to cause
all outstanding shares of any such Fund to be redeemed or converted into
shares of another fund at their net asset value. However, the exercise of
such authority may be subject to certain restrictions under the Investment
Company Act of 1940. The Board of Trustees may authorize the termination of
any Fund after the assets belonging to such Fund have been distributed to its
shareholders.
EMERALD SERVICE SHARES
As stated in each Fund's Prospectus, Emerald Service Shares are sold to
institutional investors ("Service Organizations") which enter into service
agreements requiring them to provide support services to their customers who
beneficially own Emerald Service Shares in consideration of the Funds' payment
of not more than .35% (on an annualized basis) of the average daily net asset
value of the Emerald Service Shares beneficially owned by the customers. For
the fiscal years ended November 30, 1995, 1994 and 1993, payments to Service
Organizations pursuant to the Shareholder Services Plan (defined below)
totalled $1,898,193, $1,678,991 and $1,332,955, respectively, with respect to
Emerald Service Shares of the Treasury Fund, $2,814,354, $2,409,889 and
$1,937,188, respectively, with respect to Emerald Service Shares of the Prime
Fund, and $10,478, $9,468 and $1,420, respectively, with respect to Emerald
Service Shares of the Tax-Exempt Fund. Of such amounts, the Funds'
distributor, affiliates of the Funds' distributor and the Adviser and its
affiliates earned $0, $0 and $0, $0, $0, and $0, and $1,898,193, $37 and $0,
respectively, for the fiscal years ended November 30, 1995, 1994 and 1993
with respect to Emerald Service Shares of the Treasury Fund; $0, $0, and $0,
$0, $177 and $0 and $2,814,354, $38 and $0, respectively, for the fiscal
years ended November 30, 1995, 1994 and 1993 with respect to Emerald Service
Shares of the Prime Fund; and $0, $0 and $0, $0, $0 and $0, and $10,478, $37
and $0, respectively, for the fiscal years ended November 30, 1995, 1994 and
1993 with respect to Emerald Service Shares of the TaxExempt Fund.
Services provided by Service Organizations under their service
agreements may include: (i) aggregating and processing purchase and redemption
requests for Emerald Service Shares from customers and placing net purchase
and redemption orders with the Distributor; (ii) providing customers with a
service that invests the assets of their accounts in Emerald Service Shares
pursuant
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<PAGE>
to specific or pre-authorized instructions; (iii) processing dividend payments
on behalf of customers; (iv) providing information periodically to customers
showing their positions in Emerald Service Shares; (v) arranging for bank
wires; (vi) providing subaccounting with respect to Emerald Service Shares
beneficially owned by customers or the information necessary for
subaccounting; (vii) if required by law, forwarding shareholder communications
from Emerald Funds (such as proxies, shareholder reports, annual and semi-
annual financial statements and dividend, distribution and tax notices) to
customers; (viii) forwarding to customers proxy statements and proxies
containing any proposals regarding Emerald Funds' arrangements with Service
Organizations; and (ix) providing such other similar services as Emerald Funds
may reasonably request to the extent the Service Organizations are permitted
to do so under applicable statutes, rules and regulations.
Emerald Funds' agreements with Service Organizations are governed by
a Plan (called a "Shareholder Services Plan"), which has been adopted by the
Board of Trustees pursuant to an exemptive order granted by the Securities and
Exchange Commission in connection with the creation of Emerald Service Shares.
Pursuant to the Plan, the Board of Trustees will review, at least quarterly, a
written report of the amounts expended under Emerald Funds' agreements with
Service Organizations and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of the Board of Trustees, including a majority of the
trustees who are not "interested persons" of Emerald Funds as defined in the
Investment Company Act of 1940 and have no direct or indirect financial
interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the arrangements with Service
Organizations based on information provided by Emerald Funds' service
contractors that there is a reasonable likelihood that the arrangements will
benefit the Funds and their shareholders by affording the Funds greater
flexibility in connection with the servicing of the accounts of the beneficial
owners of their shares in an efficient manner.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are
not described in the Prospectuses for Emerald Shares and Emerald Service
Shares. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in
the Prospectuses is not intended as a substitute for careful tax
- 25 -
<PAGE>
planning. Investors are advised to consult their tax advisers with specific
reference to their own tax situations.
TAX-EXEMPT FUND
As described above and in its Prospectus, the Tax-Exempt Fund is
designed to provide investors with current tax-exempt interest income. This
Fund is not intended to constitute a balanced investment program and is not
designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal. Shares of the Tax-Exempt
Fund may not be suitable for tax-exempt institutions, or for retirement plans
qualified under Section 401 of the Internal Revenue Code, H.R. 10 plans and
individual retirement accounts since such plans and accounts are generally tax-
exempt and, therefore, not only would not gain any additional benefit from the
Fund's dividends being tax-exempt, but such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the Tax-
Exempt Fund may not be an appropriate investment for entities which are
"substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a nonexempt person who regularly uses a part of such
facilities in his or her trade or business and whose gross revenues derived
with respect to the facilities financed by the issuance of bonds are more than
5% of the total revenues derived by all users of such facilities or who
occupies more than 5% of the usable area of such facilities, or for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons,
affiliated corporations, a partnership and its partners and an S corporation
and its shareholders. Each shareholder is advised to consult his or her tax
adviser with respect to whether exempt-interest dividends would be excludable
from his or her gross income under Section 103(a) of the Internal Revenue
Code.
The percentage of total dividends paid by the Tax-Exempt Fund with
respect to any taxable year which qualify as federal exempt-interest dividends
will be the same for all shareholders of the Fund receiving dividends for such
year. In order for the Fund to pay exempt-interest dividends for any taxable
year, at the close of each quarter of its taxable year at least 50% of the
aggregate value of the Fund's portfolio must consist of federal tax-exempt
interest obligations. In addition, the Fund must distribute an amount that is
at least equal to the sum of 90% of the aggregate net tax-exempt interest
income and 90% of the investment company taxable income earned by the Fund for
the taxable year. Not later than 60 days after the close of its taxable year,
the Fund will notify each shareholder of the portion of the dividends paid by
the Fund to the shareholder with
- 26 -
<PAGE>
respect to such taxable year which constitutes an exempt-interest dividend.
However, the aggregate amount of dividends so designated cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the Code
received by the Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Tax-Exempt Fund generally is not deductible for federal
income tax purposes. If a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to
the extent of the amount of exempt-interest dividends earned with respect to
the shares. The Treasury Department, however, is authorized to issue
regulations that would reduce the six-month holding requirement to a period of
not less than the greater of 31 days or the period between regular
distributions for shareholders of an investment company that regularly
distributes at least 90% of its net tax-exempt interest. No such regulations
had been issued as of the date of this Statement of Additional Information.
Income itself exempt from federal income taxation may be considered
in addition to adjusted gross income when determining whether Social Security
payments received by a shareholder are subject to federal income taxation.
ALL FUNDS
Investment company taxable income earned by the Treasury Fund, the
Prime Fund or the Tax-Exempt Fund will be distributed by each Fund to its
shareholders and will be taxable to shareholders as ordinary income whether
paid in cash or additional shares. In general, investment company taxable
income will be a Fund's taxable income subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year.
Similarly, while the Funds do not expect to realize long-term capital
gains, any net realized long-term capital gains will be distributed at least
annually, after reduction for capital loss carryforwards, if any. A Fund
generally will have no tax liability with respect to such gains and the
distributions (whether paid in cash or additional shares) will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares. Such distributions will be designated as a capital
gains dividend in a written notice mailed by Emerald Funds to shareholders
after the close of Emerald Funds' taxable year.
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<PAGE>
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of their ordinary taxable income and any capital gain net
income with respect to each calendar year to avoid liability for this excise
tax.
Each Fund is treated as a separate entity for the purpose of
determining the Fund's qualification as a "regulated investment company" under
the Internal Revenue Code. Although each Fund expects to qualify as a
"regulated investment company" and to be relieved of all or substantially all
liability for federal income taxes, depending upon the extent of Emerald
Funds' activities in states and localities in which its offices are
maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, a Fund may be subject
to the tax laws of such states or localities.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Fund's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which a Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of each Fund's total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Fund
controls and which are engaged in the same or similar trades or businesses.
If for any taxable year a Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of
its taxable income will be subject to federal income tax at regular corporate
rates (without any deduction for distributions to its shareholders). In such
event, dividend distributions (including amounts derived from interest on
municipal obligations) would be taxable as ordinary income to shareholders to
the extent of the Fund's current and accumulated earnings and profits and
would be eligible for the dividends received deduction for corporations.
A Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of the taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner
- 28 -
<PAGE>
required, who are subject to withholding by the Internal Revenue Service for
failure properly to include on their return payments of taxable interest or
dividends, or who have failed to certify to the Fund that they are not subject
to backup withholding when required to do so or that they are "exempt
recipients."
- 29 -
<PAGE>
MANAGEMENT OF EMERALD FUNDS
TRUSTEES AND OFFICERS
The Trustees and officers of Emerald Funds, their addresses, principal
occupations during the past five years and other affiliations are as follows:
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ------------------------ ---------------- -----------------------------
Chesterfield H. Smith* Chairman of Senior Partner of the law
701 Brickell Avenue the Board firm of Holland and Knight;
Suite 3000 of Trustees Director, Greenwich Air
Miami, FL 33101 Services Inc. (an
aircraft airframe and
engine repair company);
Director, Citrus and
Chemical Bank; Director,
Citrus and Chemical
Bancorporation (bank holding
company of Citrus and
Chemical Bank).
Raynor E. Bowditch Trustee President, Bowditch
4811 Beach Blvd. Insurance Corporation (a
Suite 105 general lines independent
Jacksonville, FL 33207 agency); Director,
General Truck Equipment and
Trailer Sales; Director,
Greater Jacksonville Fair
Association.
Mary Doyle Trustee Dean in Residence,
Association of American Association of American Law
Law Schools Schools, 1994 to date; Dean,
1201 Connecticut Ave. N.W. University of Miami School
Suite 800 of Law, 1986-1994.
Washington, DC 20036-2065
Albert D. Ernest Trustee President, Albert Ernest
1560 Lancaster Terrace Enterprises (personal
Suite 1402 investments), 1991 to date;
Jacksonville, FL 32204 President and Chief
Operating Officer, Barnett
Banks, Inc., 1988 to 1991;
Director, Barnett Banks,
Inc., 1982 to 1991;
Director, Florida Rock
Industries, Inc.; Director,
FRP Properties, Inc.;
Director, Regency Realty,
Inc.; Director, Stein Mart,
Inc.; and Director, Wickes
Lumber Company; Member,
Advisory Board, Coastal
Lumber Company; Member,
Advisory Board, Palmer
Cay/Caswell; and Member,
Advisory Board, Deland
Honda.
- 30 -
<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ------------------------ ---------------- -----------------------------
John G. Grimsley* Trustee and Member of the law firm of
50 N. Laura St. President Mahoney Adams & Criser,
Suite 3400 P.A. since 1966.
Jacksonville, FL 32201
William B. Blundin Executive Vice Chairman of the
125 West 55th Street Vice President Administrator
New York, NY 10019 and Distributor, July 1993
to date; Director and
President of Administrator
and Distributor, February
1987 to date.
Hugh Fanning Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc.,
3435 Stelzer Road August 1992 to present;
Columbus, OH 43219-3035 Director of Marketing,
Ketchum Communications, July
1987 to August 1992
Martin R. Dean Treasurer Employee of BISYS Fund
BISYS Fund Services Services, Inc., May 1994
3435 Stelzer Road to present; Senior Manager
Columbus, OH 43219-3035 at KPMG Peat Marwick
prior thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
PNB Building Reath.
1345 Chestnut Street
Philadelphia, PA 19107
George Martinez Assistant Senior Vice President and
BISYS Fund Services Secretary Director of Legal and
3435 Stelzer Road Compliance Services, BISYS
Columbus, OH 43218-3035 Fund Services, Inc., March
1995 to present; Vice
President and Associate
General Counsel, Alliance
Capital Management, June
1989 to March 1995.
Robert Tuch Assistant Employee of BISYS Fund
BISYS Fund Services Secretary Services, June 1991 to
3435 Stelzer Road present; Vice President and
Columbus, OH 43219-3035 Associate General Counsel
with National Securities
Research Corp., July 1990 to
June 1991.
- 31 -
<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ------------------------ ---------------- -----------------------------
Alaina Metz Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services, BISYS
Columbus, OH 43219-3035 Fund Services, Inc.,
June 1995 to present;
Supervisor, Mutual Fund
Legal Department, Alliance
Capital Management, May 1989
to June 1995.
- -----------------
* These Trustees may be deemed to be "interested persons" of Emerald Funds
as defined in the Investment Company Act of 1940.
----------------------
Each Trustee receives an annual fee of $14,000 plus $1,500 for each
meeting attended and reimbursement of expenses incurred as a Trustee.
Additionally, the Chairman and President of the Board of Trustees each receive
an additional annual fee of $3,500 for service in such capacities.
Furthermore, each Trustee who serves on a special committee appointed by the
Board or the Chairman receives additional compensation in the amount of $1,000
per day for each meeting attended or $1,000 for each assignment to a special
project plus reimbursement of expenses. Remuneration for services rendered
during Emerald Funds' most recent fiscal year ended November 30, 1995, and
distributed to all Trustees and officers as a group was $_______. Drinker
Biddle & Reath, of which Mr. Dalke is a partner, receives legal fees as
counsel to Emerald Funds. As of January 10, 1996, the Trustees and officers of
Emerald Funds, as a group, owned less than 1% of the outstanding shares of
each Fund and each of the other investment portfolios of the Trust.
The following chart provides certain information about the fees
received by the Emerald Funds' trustees for their services as members of the
Board of Trustees and Committees thereof.
- 32 -
<PAGE>
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
AGGREGATE RETIREMENT ESTIMATED EMERALD
COMPENSATION BENEFITS ANNUAL FUNDS
FROM ACCRUED AS BENEFITS AND FUND
EMERALD PART OF FUND UPON COMPLEX* PAID
NAME OF PERSON POSITION FUNDS EXPENSES RETIREMENT TO DIRECTORS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chesterfield H. Smith $20,750 N/A N/A $20,750
Chairman of the Board
of Trustees
John G. Grimsley $26,000 N/A N/A $26,000
President and Trustee
Raynor E. Bowditch $19,000 N/A N/A $19,000
Trustee
Mary Doyle $20,500 N/A N/A $20,500
Trustee
Albert D. Ernest** $13,500 N/A N/A $13,500
Trustee
</TABLE>
- ----------------------
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Ernest was appointed to the Board of Trustees on May 4, 1995.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the trust. However, Emerald Funds' Agreement and Declaration
of Trust provides that shareholders shall not be subject to any personal
liability in connection with the assets of Emerald Funds for the acts or
obligations of Emerald Funds, and that every note, bond, contract, order or
other undertaking made by Emerald Funds shall contain a provision to the
effect that the shareholders are not personally liable thereunder. The
Agreement and Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely by reason of
his or her being or having been a shareholder and not because of his or her
acts or omissions or some other reason. The Agreement and Declaration of
Trust also provides that Emerald Funds shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligation of Emerald
Funds, and shall satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which Emerald Funds itself would be unable to meet
its obligations.
- 33 -
<PAGE>
The Agreement and Declaration of Trust further provides that all
persons having any claim against the Trustees or Emerald Funds shall look
solely to the trust property for payment; that no Trustee of Emerald Funds
shall be personally liable for or on account of any contract, debt, tort,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust property or the conduct of any
business of Emerald Funds; and that no Trustee be personally liable to any
person for any action or failure to act except by reason of his or her own bad
faith, willful misfeasance, gross negligence or reckless disregard of his or
her duties as Trustee. With the exception stated, the Agreement and
Declaration of Trust provides that a Trustee is entitled to be indemnified
against all liabilities and expenses reasonably incurred by him or her in
connection with the defense or disposition of any proceeding in which he or
she may be involved or with which he or she may be threatened by reason of his
or her being or having been a Trustee, and that the Trustees will indemnify
representatives and employees of Emerald Funds to the same extent that
Trustees are entitled to indemnification.
ADVISORY AND SUB-ADVISORY SERVICES
As stated, Barnett Banks Trust Company, N.A. (the "Adviser") serves
as investment adviser to each Fund. In addition, Rodney Square Management
Corporation (the "Sub-Adviser"), a wholly-owned subsidiary of Wilmington Trust
Company ("WTC"), serves as sub-investment adviser to the Tax-Exempt Fund. In
rendering its sub-advisory services, the Sub-Adviser may occasionally
consult, on an informal basis, with personnel from the investment departments
of WTC; however, WTC will take no part in determining the investment policies
of the Tax-Exempt Fund or in deciding which securities are to be purchased or
sold by such Fund.
In their Investment Advisory and Sub-Advisory Agreements, the
Adviser and Sub-Adviser have agreed to pay all expenses incurred by them in
connection with their advisory and sub-advisory services other than the cost
of securities and other investments, including brokerage commissions and other
transaction costs, if any, purchased or sold for each Fund. For the services
provided and expenses assumed pursuant to the advisory agreements, Emerald
Funds has agreed to pay the Adviser fees, computed daily and paid monthly, at
the annual rate of .25% of the average net assets of each Fund. Under the
terms of the agreements, the fees payable to the Adviser are not subject to
reduction as the value of each Fund's net assets increases; however, the
Adviser has informed Emerald Funds of its intention to reduce the annual rate
of its advisory fees with respect to the Treasury Fund and the Prime Fund to
the following rates: .25% of the first $600 million of each Fund's net assets;
.23% of
- 34 -
<PAGE>
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. The Adviser has also agreed to pay the Sub-Adviser
for the Tax-Exempt Fund a sub-advisory fee at the rate of .15% of that Fund's
average net assets. The sub-advisory fee paid by the Adviser to the Sub-
Adviser is borne entirely by the Adviser and has no effect on the advisory fee
payable by the Tax-Exempt Fund.
The Adviser and Sub-Adviser have made certain additional voluntary
and contractual undertakings to waive their fees. See "Management of Emerald
Funds - Distribution and Administration Services" below for further
information regarding the waiver of fees and reimbursement of expenses by the
Adviser and Sub-Adviser with respect to the Funds. For the fiscal years ended
November 30, 1995, 1994 and 1993, the Adviser received (net of waivers)
advisory fees totalling $1,914,250, $2,231,677 and $2,207,189, respectively,
for the Treasury Fund; $3,677,324, $3,243,600 and $4,752,234, respectively, for
the Prime Fund; and $506,689, $222,183 and $150,753, respectively, for the Tax-
Exempt Fund. In fiscal years ended November 30, 1995, 1994 and 1993 the entire
advisory fee received by the Adviser with respect to the Tax-Exempt Fund was
paid to the Sub-Adviser. In addition, the Adviser waived an additional
$202,676, $186,758 and $131,253 in advisory fees with respect to the Tax-
Exempt Fund for the same fiscal years, respectively. For the fiscal year
ended November 30, 1995 the Adviser waived fees totaling $358,950 and
$134,960 for the Prime and Treasury Fund's respectively. For the fiscal
years ended November 1994 and 1993, the Adviser did not waive any advisory
fees for the Treasury Fund or the Prime Fund. For the fiscal years ended
November 30, 1995, 1994 and 1993, the Sub-Adviser waived sub-advisory
fees totalling $53,487, $55,868 and $57,955 with respect to the
Tax-Exempt Fund.
Under the Investment Advisory and Sub-Advisory Agreements for the
Funds, the Adviser and Sub-Adviser are not liable for any error of judgment or
mistake of law or for any loss suffered by Emerald Funds in connection with
the performance of such agreements, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence on the part
of the Adviser or Sub-Adviser in the performance of their duties or from their
reckless disregard of their duties and obligations under the agreements.
The federal Glass-Steagall Act, among other things, prohibits banks
from engaging to any extent in the business of underwriting securities,
although national and state-chartered banks generally are permitted to
purchase and sell securities upon the order and for the account of their
customers. In 1971,
- 35 -
<PAGE>
the United States Supreme Court held in INVESTMENT COMPANY INSTITUTE V. CAMP
that the Glass-Steagall Act prohibits a national bank from operating a fund
for the collective investment of managing agency accounts. Subsequently, the
Board of Governors of the federal Reserve System (the "Board") issued a
regulation and interpretation to the effect that the Glass-Steagall Act and
such decision forbid a bank holding company registered under the federal Bank
Holding Company Act of 1956 (the "Holding Company Act") or any non-bank
affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its
shares, but do not prohibit such a holding company or affiliate from acting as
investment adviser, transfer agent and custodian to such an investment
company. In 1981, the United States Supreme Court held in BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM V. INVESTMENT COMPANY INSTITUTE that the Board
did not exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their non-
bank affiliates to act as investment advisers to registered closed-end
investment companies.
The Adviser believes, with respect to its activities as required by
the Investment Advisory and Sub-Advisory Agreements and as contemplated by the
Prospectuses and this Statement of Additional Information, and the Sub-Adviser
believes, with respect to its activities as required by the Sub-Advisory
Agreement and as contemplated by the Prospectuses and this Statement of
Additional Information, that, if the question were properly presented, a court
should hold that the Adviser or Sub-Adviser, as the case may be, may each
perform such activities without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. It should be noted, however, that
there have been no cases deciding whether banks may perform services
comparable to those performed by the Adviser and Sub-Adviser and that future
changes in either federal or state statutes and regulations relating to
permissible activities of banks or trust companies and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent
the Adviser and Sub-Adviser from continuing to perform such services for the
Funds. If the Adviser or Sub-Adviser were prohibited from continuing to
perform advisory and sub-advisory services for the Funds, it is expected that
the Board of Trustees would recommend that the Funds enter into a new
agreement or would consider the possible termination of the Funds. Any new
advisory or sub-advisory agreement would be subject to shareholder approval.
On the other hand, as described herein, Emerald Funds are currently
distributed by Emerald Asset Management, Inc., and
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BISYS Fund Services, LP ("BISYS, LP") provides the Funds with administrative
services. If current restrictions under the Glass-Steagall Act preventing a
bank from sponsoring, organizing, controlling, or distributing shares of an
investment company were relaxed, the Funds expect that the Adviser would
consider the possibility of offering to perform some or all of the services
now provided by BISYS, LP and Emerald Asset Management, Inc. From time to
time, legislation modifying such restrictions has been introduced in Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of
an investment company. The Funds therefore expect that if this or similar
legislation were enacted, the Adviser's parent bank holding company would
consider the possibility of one of its non-bank subsidiaries offering to
perform additional services now provided by BISYS, LP and Emerald Asset
Management, Inc. In this regard it may be noted that the Adviser has entered
into an agreement with BISYS, LP whereunder the Adviser (or an affiliate) may
acquire Emerald Asset Management, Inc. under specified conditions. It is not
possible, of course, to predict whether or in what form such legislation might
be enacted or the terms upon which the Adviser or such a non-bank affiliate
might offer to provide services for consideration by the Board of Trustees.
DISTRIBUTION AND ADMINISTRATION AGREEMENTS
Emerald Funds has entered into a distribution agreement with Emerald
Asset Management, Inc. (the "Distributor") under which the Distributor, as
agent, sells shares of each Fund on a continuous basis. The Distributor has
agreed to use its best efforts to solicit orders for the sale of shares,
although it is not obliged to sell any particular amount of shares. The
Distributor pays the cost of printing and distributing prospectuses to persons
who are not holders of the Funds' Emerald Shares and Emerald Service Shares
(excluding preparation and printing expenses necessary for the continued
registration of such shares) and of printing and distributing all sales
literature. No compensation is payable by the Funds' Emerald Shares or
Emerald Service Shares to the Distributor for its distribution services.
BISYS LP (the "Administrator"), a wholly-owned subsidiary of The
BISYS Group, Inc., serves as administrator to each Fund. In the
administration agreements, the Administrator has agreed, to provide
administrative services as described in the Prospectuses for the respective
Funds. The Administrator has also agreed to pay all expenses incurred by it
in connection with its activities under its agreement except as described in
this Statement of Additional Information and the Prospectus.
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<PAGE>
For its services with respect to the Treasury Fund and the Prime
Fund, Emerald Funds has agreed to pay the Administrator fees, computed daily
and paid 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. From time to time the Administrator
may waive its fees or reimburse the Fund for expenses, either voluntarily or
as required by certain state securities laws.
Emerald Funds has been advised that, until further notice, the
Adviser and the Administrator have voluntarily agreed to waive their
respective advisory and administrative fees with respect to the Emerald Shares
and Emerald Service Shares of the Prime Fund and Treasury Fund as described in
the Funds' Prospectuses under "Fund Management - Expenses" to the extent that
either Fund's annualized ratio of ordinary operating expenses (excluding
payments to Service Organizations) to average net assets, calculated daily,
exceeds .40%. Emerald Funds has also been advised that, until further notice,
the Adviser has voluntarily agreed to waive all advisory fees with respect to
the Tax-Exempt Fund in excess of the sub-advisory fees payable by it to the
Sub-Adviser and that the Sub-Adviser and the Administrator have voluntarily
agreed to waive their sub-advisory and administrative fees with respect to the
Emerald Shares and Emerald Service Shares of the Tax-Exempt Fund to the extent
that the Fund's annualized ratio of ordinary operating expenses (excluding
payments to Service Organizations) to average net assets, calculated daily,
exceeds .40%. For the fiscal years ended November 30, 1995, 1994 and 1993,
the Administrator received (net of waivers) administrative fees totalling
$706,100, $885,278 and $876,466, respectively, for the Treasury Fund;
$1,418,076, $1,273,698 and $1,820,903, respectively, for the Prime Fund; and
$304,013, $211,853 and $280,138, respectively, for the Tax-Exempt Fund. For
the fiscal year ended November 30, 1995 the Administrator waived fees in the
amount of $33,145, $11,028 and $0, respectively, for the Prime, Treasury and
Tax-Exempt Funds, respectively. The Administrator did not waive any
administrative fees for the Prime or Treasury Funds,however, the
Administrator waived, $53,487, $55,868 and $57,955, respectively, for the
Tax-Exempt Fund.
In addition, if the total expenses borne by either the Prime Fund or
the Treasury Fund in any fiscal year exceed the expense limitations imposed by
applicable state securities regulations, Emerald Funds may deduct from the
payments to be made with respect to such Fund to the Adviser and the
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Administrator, respectively, or the Adviser and the Administrator will bear,
the amount of such excess to the extent required by such regulations in
proportion to the fees otherwise payable to them for such year. If the total
expenses borne by the Tax-Exempt Fund in any fiscal year exceed applicable
state expense limitations, the Adviser and Sub-Adviser have agreed to make
reimbursements, to the extent required by law, for half of such excess
expenses, and the Administrator has agreed to bear the other half, provided
that the SubAdviser's obligation with respect to such reimbursement is limited
to the amount of its sub-advisory fees. Such amounts, if any, will be
estimated and accrued daily and paid on a monthly basis. As of the date of
this Statement of Additional Information, the most restrictive expense
limitation applicable to the Funds limits aggregate annual expenses with
respect to each Fund, including management and advisory fees but excluding
interest, taxes, brokerage commissions, and certain other expenses, to 2-1/2%
of the first $30 million of its average net assets, 2% of the next $70
million, and 1-1/2% of its remaining average net assets.
The administration agreements provide that the Administrator shall
not be liable for any error of judgment or mistake of law or any loss suffered
by Emerald Funds in connection with the performance of the administration
agreements, except a loss resulting from willful misfeasance, bad faith or
negligence in the performance of its duties or from the reckless disregard by
it of its obligations and duties thereunder.
CUSTODIAN AND TRANSFER AGENT
Emerald Funds has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286 as custodian for the Funds. The Bank of New
York also provides the Funds with certain accounting, bookkeeping, pricing,
dividend and distribution calculation services with respect to the Funds
pursuant to a fund accounting agreement with the Administrator.
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219,
provides transfer agency and dividend disbursing services for the Funds.
OPERATING EXPENSES
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, Sub-Adviser, Administrator or any of their affiliates; Securities and
Exchange Commission fees; state securities registration and qualification
fees; advisory fees; administration fees; charges of the custodian and of the
transfer and dividend disbursing agent;
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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. The Funds also pay any brokerage fees,
commissions and other transaction charges (if any) incurred in connection with
the purchase and sale of its portfolio securities.
INDEPENDENT ACCOUNTANTS/EXPERTS
Price Waterhouse LLP, independent accountants, 1177 Avenue of the
Americas, New York, New York 10036 serve as independent accountants for
Emerald Funds. The financial statements dated November 30, 1995, which are
incorporated by reference into this Statement of Additional Information have
been so incorporated in reliance on the report of Price Waterhouse LLP given
on the authority of said firm as experts in auditing and accounting.
COUNSEL
Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107, are counsel to Emerald
Funds and will pass upon the legality of the shares offered by the Funds'
Prospectuses.
ADDITIONAL INFORMATION ON YIELD
The "yields" and "effective yields" of each Fund are calculated
according to formulas prescribed by the Securities and Exchange Commission.
The standardized seven-day yields for the respective share classes of each
Fund are computed separately for each class by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre- existing
account in the particular Fund involved having a balance of one share at the
beginning of the period, dividing the net change in account value by the value
of the account at the beginning of the base period to obtain the base period
return, and multiplying the base period return by (365/7). The net change in
the value of an account in a Fund includes the value of additional shares
purchased with dividends from the original share, and dividends declared on
both the original share and any such additional shares, net of all fees, other
than nonrecurring account or sales charges, that are charged to all
shareholder accounts in proportion to the length of the base period and the
Fund's
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<PAGE>
average account size. The capital changes to be excluded from the calculation
of the net change in account value are realized gains and losses from the sale
of securities and unrealized appreciation and depreciation. The effective
annualized yields for each Fund are computed by compounding a particular
Fund's unannualized base period returns (calculated as above) by adding 1 to
the base period returns, raising the sums to a power equal to 365 divided by
7, and subtracting 1 from the results. In addition, the Tax-Exempt Fund may
quote a standardized "tax-equivalent yield" of each of its classes of shares,
which is computed by: (a) dividing the portion of the Fund's yield (as
calculated above) for such class that is exempt from federal income tax by one
minus a stated federal income tax rate; and (b) adding the figure resulting
from (a) above to that portion, if any, of the Fund's yield for such class of
shares that is not exempt from federal income tax. The fees which may be
imposed by institutional investors directly on their customers for cash
management services are not reflected in Emerald Funds' calculations of yields
for the Funds.
The current yields for each of the Funds may be obtained by calling
the Distributor at [______________]. For the seven-day period ended November
30, 1995, the annualized yields (after fee waivers) of Emerald Shares in the
Treasury Fund, Prime Fund and Tax-Exempt Fund were 5.40%, 5.57% and 3.48%,
respectively, the effective yields (after fee waivers) of such Shares were
5.41%, 5.56% and 3.44%, respectively, and the tax-equivalent yield (after fee
waivers) of Emerald Shares in the Tax-Exempt Fund was 5.37% (assuming a
federal income tax rate of 36%). For this same seven-day period, the
annualized yields (after fee waivers) of Emerald Service Shares in the
Treasury Fund, Prime Fund and Tax-Exempt Fund were 5.05%, 5.23% and 3.13%,
respectively, the effective yields (after fee waivers) of such Shares were
5.06%, 5.23% and 3.09%, respectively, and the tax-equivalent yield (after fee
waivers) of Emerald Service Shares in the Tax-Exempt Fund was 4.78% (assuming
a federal income tax rate of 36%). For this same seven-day period, the
annualized yields (after fee waivers) of Investor Shares in the Treasury Fund,
Prime Fund and Tax-Exempt Fund were 4.91%, 5.05% and 2.98%, respectively, the
effective yields (after fee waivers) of Investor Shares in such Funds were
4.91%, 5.04% and 2.94%, respectively, and the tax-equivalent yield (after fee
waivers) of Investor Shares in the Tax-Exempt Fund was 4.59% (assuming a
federal income tax rate of 36%). During this seven-day period, fee waivers
amounted to 0.30%, 0.08% and 0.34% of the average daily net assets of the
Treasury Fund, Prime Fund and TaxExempt Fund, respectively.
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices
or the features or performance of
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alternative investments, in advertisements, sales literature and reports to
shareholders. The Funds may also include calculations, such as hypothetical
compounding examples, which describe hypothetical investment results in such
communications. Such performance examples will be based on an express set of
assumptions and are not indicative of the performance of any Fund.
In addition, in such communications, the Adviser may offer opinions
on current economic conditions.
MISCELLANEOUS
As used in this Statement of Additional Information and in the
Prospectuses a "majority of the outstanding shares" of a Fund or class means
the lesser of (1) 67% of the shares of the particular Fund or class
represented at a meeting at which the holders of more than 50% of the
outstanding shares of such Fund or class are present in person or by proxy, or
(2) more than 50% of the outstanding shares of such Fund or class.
As of January 8, 1996, the Adviser and its affiliated banks owned of
record substantially all of the outstanding shares of the Treasury Trust Fund
and Prime Trust Fund on behalf of their customer accounts. The Adviser and
such affiliated banks were also the beneficial owners of certain percentages
of the Treasury Trust Fund (98.35%), Prime Trust Fund (98.82%), Treasury Fund
(15.81%), Prime Fund (11.74%), Tax-Exempt Fund (88.47%), Equity Fund -
Institutional Shares (99.80%), Small Capitalization Fund - Institutional
Shares (99.90%), Balanced Fund -Institutional Shares (99.80%), Short-Term
Fixed Income Fund Institutional Shares (91.90%), U.S. Government Securities
Fund -Institutional Shares (95.00%), Managed Bond Fund - Class A Shares
(5.43%), Managed Bond Fund - Institutional Shares (99.40%) Florida Tax Exempt
Fund - Class A Shares (0.10%), and Florida Tax Exempt Fund - Class B Shares
(2.20%) and Florida Tax-Exempt Fund - Institutional Shares (94.90%) that were
outstanding on such date because the Adviser possessed voting or investment
discretion with respect to such shares. As of January 8, 1996, the name,
address and percentage of the outstanding shares held by those entities who
may have owned of record or beneficially 5% or more of the outstanding shares
of a particular Fund of the Trust (other than as stated above) were as
follows: Equity Fund - Class A Shares - National Financial Services
Corporation, Attn: Sal Macca, 200 Liberty Street, One World Financial Center,
New York, NY 10281 (54.67%); University of West Florida Foundation, 11000
University Parkway, Pensacola, FL 32514 (7.95%); Equity Fund - Class B Shares
- - National Financial Services Corporation/FMTC IRA FBO Jerry E. Handy, 839
Cape Haze Lane, Naples, FL 33942 (5.22%); Harvey R. Gelman, 2226 N.W. 60th
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Street, Boca Raton, FL 33496 (5.18%); Small Capitalization Fund -Class A
Shares - John G. Grimsley, P.O. Box 4099, Jacksonville, FL 32201 (5.59%);
National Financial Services Corporation/FMTC Custodian FBO Randall W. Hall
IRA, 2954 Jeanette Cove, Oviedo, FL 32765 (11.00%); Small Capitalization Fund
- - Class B Shares -Spencer C. Whitehead & Janet A. Whitehead JTWROS, 225 East
Maine Avenue, Longwood, FL 32750 (8.58%); Balanced Fund - Class A Shares -
Turpin W. Barrett Jr. & Mary D. Barrett JTWROS, 2926 Forest Brook Drive East,
Lakeland, FL 33811 (7.13%); Susan A. Fairbank Trustee, Fairbank Revocable
Trust, 85 N. Pizarro Point, Lecanto, FL 34461 (7.82%); Katie M. Loeding and
Mary Ellen Ash and Claudia May Clark JTWROS, 1659 Calvin Circle, Kissinmee, FL
34746 (8.05%); Therese A. Gaudreau, 623 S.W. Palmetto Cove, Port St. Lucie, FL
34986 (5.38%); Short-Term Fixed Income Fund - Class A Shares - National
Financial Services Company/FMTC Custodian FBO Simon Brennan IRA, 2858 S.E.
Eagle Drive, Port St. Lucie, FL 34984 (24.24%); W. B. Marks, P.O. Box 963,
Lecanto, FL 34460 (6.09%); Robert J. Haggstrom Trust U/A, 1222 Oakmont Drive,
Niceville, FL 32578 (5.91%); Joan Marie Haggstrom Trust U/A, 1222 Oakmont
Drive, Niceville, FL 32578 (6.96%); National Financial Services Corporation
for the Exclusive Benefit of our Customers, Attn: Sal Macca, 200 Liberty
Street, One World Financial Center, New York, NY 10281 (5.18%); Robert D.
Blake & Frances S. Blake JTWROS, P.O. Box 772, Pensacola, FL 32501 (18.51%);
Short-Term Fixed Income Fund - Class B Shares - Ellie R. Lee and Woodrow W.
Lee and Barbara Moseley & James W. Lee TEN COMM, 5929 Duchess Road, Pensacola,
FL 32503 (17.15%); Josephine H. Johnson, 1700 North L Street, Apt. 102,
Pensacola, FL 32501 (23.19%); Mel S. Swauger & Irene B. Swauger JTWROS, 1570
Monica Joy Circle, Longwood, FL 32779 (58.38%); Short-Term Fixed Income Fund -
Institutional Shares - Harris Trust & Savings Bank, Custodian CSR America
Inc., P/S 401k Plan, Attn: Tony Kwilosz, 111 W. Monroe Floor 5 East, Chicago,
IL 60603 (66.91%); U.S. Government Securities Fund Class A Shares - National
Financial Services Corporation for the Exclusive Benefit of our Customers,
Attn: Sal Macca, 200 Liberty Street, One World Financial Center, New York, NY
10281 (55.93%); U. S. Government Securities Fund - Class B Shares - Raymond M.
Jones & Janet J. Bell JTWROS, 7100 Ulmerton Road, Lot 125, Rancho Village,
Largo, FL 34641 (10.14%); National Financial Services Corporation for the
Exclusive Benefit of our Customers, Attn: Mr. Sal Macca, 200 Liberty Street,
One World Financial Center, New York, NY 10281 (13.44%); Susan A. Fairbank
Trustee, Fairbank Revocable Trust, 85 N. Pizarro Point, Lecanto, FL 34461
(11.90%); Anita J. Doyle, 7252 Windy Way, Brookville, FL 34601 (6.34%);
National Financial Services Corporation for the Exclusive Benefit of our
Customers, Attn: Mr. Sal Macca, 200 Liberty Street, One World Financial
Center, New York, NY 10281 (6.72%); Managed Bond Fund - Class B Shares -
Torben Jensen & Bodil Jensen JTWROS, 6120 N. Misty Oak Terrace, Beverly Hills,
FL 34465 (5.67%); Hazel L. Lickliter, 327 Dania Street, Lehigh Acres, FL 33936
(6.64%); Ruby B. Henson and Betty J. Carroll and
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David Carroll JTWROS, 768 N.E. Maranta Terrado, Jensen Beach, FL 34958
(13.47%); Charles O. Reid and Carolyn N. Reid JTWROS, 2454 Australia Way East,
Unit 28, Clearwater, FL 34623 (5.34%); Ernest P. and Muriel C. Wood, Trustees,
Ernest P. and Muriel C. Wood Revocable Trust, 1675 Algonquin Drive,
Clearwater, FL 34615 (8.75%); Florida Tax-Exempt Fund - Class A Shares -
National Financial Services Corporation for the Exclusive Benefit of our
Customers, Attn: Sal Macca, 200 Liberty Street, One World Financial Center,
New York, NY 10281 (59.37%); Florida Tax-Exempt Fund - Class B Shares, David
S. Miller, Trustee, The David S. Miller Trust, 4687 Oak Leaf Drive, Naples, FL
33999 (5.83%); Emerald Treasury Fund Emerald Service Shares - Concord
Financial Services, Inc., Attn: Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (96.30%); Emerald Treasury Fund
- - Emerald Investor Shares -National Financial Service Corporation for the
Exclusive Benefit of our Customers, Attn: Mike McLaughlin, 9 New York, 200
Liberty Street, New York, NY 10281 (99.74%); Emerald Prime Fund - Emerald
Service Shares - Concord Financial Services, Inc., Attn: Linda Zerbe, First
and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222
(15.63%); Concord Financial Services, Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222 (84.10%);
Emerald Prime Fund -Emerald Investor Shares - National Financial Service
Corporation for the Exclusive Benefit of our Customers, Attn: Mike McLaughlin,
9 New York, 200 Liberty Street, New York, NY 10281 (98.92%); Emerald Tax-
Exempt Fund - Emerald Service Shares -Concord Financial Services, Inc., Attn:
Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222 (22.53%); Concord Financial Services, Inc., Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222
(77.46%); Emerald Tax-Exempt Fund - Emerald Investor Shares - National
Financial Service Corporation, Attn: Mike McLaughlin, 9 New York, 200 Liberty
Street, New York, NY 10281 (95.12%). At such date, Hambrecht & Quist Group,
Inc., owned 100% of the outstanding shares of the Tax-Exempt Trust Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under
the Securities Act of 1933 with respect to the securities offered by the
Trust's Prospectus. Certain portions of the Registration Statement have been
omitted from the Prospectus and this Additional Statement pursuant to the
rules and regulations of the SEC. The Registration Statement including the
exhibits filed therewith may be examined at the office of the SEC in
Washington, D.C.
Statements contained in the Prospectus or in this Additional
Statement as to the contents of any contract or other documents referred to
are not necessarily complete, and in each
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instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which the Prospectus and
this Additional Statement form a part, each such statement being qualified in
all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Price
Waterhouse LLP, independent auditors, contained in the annual report to
shareholders for the fiscal year ended November 30, 1995 (the "Annual Report")
are hereby incorporated herein by reference. Copies of the Annual Report may
be obtained by writing to BISYS Fund Services, Inc. _________________ or by
calling TOLL-FREE AT _______________.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating
categories used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest
rating category. The following summarizes the rating categories used by Duff
& Phelps for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short- term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"Duff 2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other protection factors
qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
"Duff 4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"Duff 5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or
A-3
<PAGE>
interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher
ratings, capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non- investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
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<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual
or implied "B" or "B-" rating.
"CC" - Debt is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
"C" - Debt is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default and is used when interest payments
or principal payments are not made on the date due, even if the applicable
grace period has not expired, unless S & P believes such payments will be made
during such grace period. "D" rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
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<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing;
"Ca" represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating
category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
A-7
<PAGE>
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
A-8
<PAGE>
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest
is adequate, although adverse changes in
A-9
<PAGE>
business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for long-
term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
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<PAGE>
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Corporation for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
A-11
<PAGE>
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
D&P uses the ratings described under Corporate and Municipal Long
Term Debt Ratings for tax-exempt notes and other short-term obligations.
Fitch uses the short-term ratings described under Commercial Paper
Ratings for municipal notes.
A-12
<PAGE>
EMERALD FUNDS
Statement of Additional Information
for the
*Treasury Trust Fund*
*Prime Trust Fund*
April 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Additional Information 1
Emerald Funds 2
Investment Objectives and Policies 2
Net Asset Value and Dividends 16
Additional Purchase and Redemption Information 17
Description of Shares 18
Additional Information Concerning Taxes 20
Management of Emerald Funds 22
Independent Accountants 32
Counsel 32
Additional Information on Yield 33
Miscellaneous 34
Financial Statements 37
Appendix A-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with Emerald Funds' Prospectus dated April 1, 1996 for the
Treasury Trust Fund and Prime Trust Fund, and is incorporated by reference in
its entirety into that Prospectus. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of the Treasury
Trust Fund or Prime Trust Fund should be made solely upon the information
contained herein. Copies of the Prospectus may be obtained by calling
[_______________]. Capitalized terms used but not defined herein have the same
meanings as in the Prospectus.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BARNETT BANK OR ANY OTHER BANK AND ARE NOT ISSUED
OR GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. EACH FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF
$1.00 PER SHARE, ALTHOUGH 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 FLUCTUATE.
<PAGE>
EMERALD FUNDS
Emerald Funds is a Massachusetts business trust which was organized on
March 15, 1988 as an open-end investment company. This Statement of Additional
Information pertains to two diversified portfolios of the Emerald Funds -- the
Treasury Trust Fund and the Prime Trust Fund (such portfolios are sometimes
called the "Funds"). Emerald Funds also offers other investment portfolios
which are described in separate Prospectuses and Statements of Additional
Information. For information concerning these other portfolios contact the
Distributor at the address or telephone number stated on the cover page of this
Statement of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
As stated in the Prospectus, the investment objective of both the
Treasury Trust Fund and the Prime Trust Fund is to seek a high level of current
income, in each case consistent with liquidity, the preservation of capital and
a stable net asset value. The following policies supplement the Funds'
respective investment objectives and policies as set forth in the Prospectus.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees and the
Adviser, the Sub-Adviser is responsible for, makes decisions with respect to,
and places orders for all purchases and sales of portfolio securities for each
Fund.
Securities purchased and sold by each Fund are generally traded in the
over-the-counter market on a net basis (i.e, without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter transactions, the Sub-Adviser will normally
deal directly with dealers who make a market in the instruments involved except
in those circumstances where more favorable prices and execution are available
elsewhere.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage
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<PAGE>
in this practice, however, only when the Sub-Adviser, in its sole discretion,
believes such practice to be in the Funds' interests.
The Funds do not intend to seek profits from short-term trading.
Because the Funds will invest only in short-term debt instruments, their annual
portfolio turnover rates will be relatively high, but brokerage commissions are
normally not paid on money market instruments, and portfolio turn-over is not
expected to have a material effect on the net investment income of any Fund.
In its Sub-Advisory Agreement with respect to the Funds, the Sub-
Adviser agrees that it will seek to obtain the best overall terms available in
executing portfolio transactions and selecting brokers or dealers. In assessing
the best overall terms available for any transaction, the Sub-Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. In addition,
the Sub-Advisory Agreement authorizes the Sub-Adviser to cause any of the Funds
to pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Sub-Adviser determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the Sub-
Adviser to the Funds. Such brokerage and research services might consist of
reports and statistics of specific companies or industries, general summaries of
groups of stocks or bonds and their comparative earnings and yields, or broad
overviews of the stock, bond and government securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Sub-Adviser and does
not reduce the sub-advisory fees payable to it by the Funds. The Trustees will
periodically review the commissions paid by the Funds to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Funds. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
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<PAGE>
Portfolio securities will not be purchased from or sold to (and
savings deposits will not be made in and repurchase and reverse repurchase
agreements will not be entered into with) the Adviser, the Sub-Adviser, the
Distributor or an affiliated person of any of them (as such term is defined in
the Investment Company Act of 1940) acting as principal, except as permitted by
the Securities and Exchange Commission. Further, while such allocation is not
expected to occur frequently, the Sub-Adviser is authorized to allocate purchase
and sale orders for portfolio securities to broker/dealers and financial
institutions, including, in the case of agency transactions, broker/dealers and
financial institutions which are affiliated with the Adviser or the Sub-Adviser,
to take into account the sale of Fund shares if the Sub-Adviser believes that
the quality of the execution of the transaction and the amount of the commission
are comparable to what they would be with other qualified brokerage firms. In
addition, the Funds will not purchase securities during the existence of any
underwriting or selling group relating thereto of which the Adviser, the Sub-
Adviser or the Distributor, or an affiliated person of any of them, is a member,
except as permitted by the Securities and Exchange Commission. In certain
instances, current regulations of the Commission would impose volume, dollar and
price restrictions on purchases by the Funds during the existence of such a
group or prohibit such purchases altogether.
Investment decisions for the Funds are made independently from those
for other investment companies and accounts advised or managed by the Adviser
and the Sub-Adviser. Such other investment companies and accounts may also
invest in the same securities as the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and another
investment company or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Sub-Adviser
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by the
Fund. To the extent permitted by law, the Sub-Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other investment companies or accounts in executing transactions.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees, or the Sub-Adviser pursuant to
guidelines established by the Board and the Adviser, will promptly consider such
an event in determining whether the Fund involved should continue to hold the
security in accordance with the interests of the Fund and applicable regulations
of the Securities and Exchange
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<PAGE>
Commission. In addition, it is possible that unregistered securities purchased
by a Fund in reliance upon Rule 144A under the Securities Act of 1933 could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a period, uninterested in purchasing
these securities.
ADDITIONAL INVESTMENT LIMITATIONS
Each Fund is subject to the investment limitations enumerated in this
sub-section which may be changed with respect to a particular Fund only by a
vote of the holders of a majority of such Fund's outstanding shares (as defined
under "Miscellaneous" below).
No Fund may:
1. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the Investment Company Act
of 1940.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except to the extent that the purchase of obligations
directly from the issuer thereof in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except for transactions in options on securities,
securities indices, futures contracts and options on futures contracts.
5. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Fund's transactions in futures contracts and related options, and (b)
a Fund may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
6. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that each Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities and may
enter into futures contracts and related options.
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<PAGE>
7. Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities.
8. Purchase securities of companies for the purpose of exercising
control.
9. Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or certificates of deposit for any such securities) if, immediately after such
purchase, more than 15% of its total assets would be invested in certificates of
deposit or bankers' acceptances of any one bank, or more than 5% of the value of
the Fund's total assets would be invested in other securities of any one bank or
in the securities of any other issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Fund or Emerald Funds;
except that up to 25% of the value of a Fund's total assets may be invested
without regard to the foregoing limitations. For purposes of this limitation, a
security is considered to be issued by the entity (or entities) whose assets and
revenues back the security. A guarantee of a security shall not be deemed to be
a security issued by the guarantor when the value of all securities issued and
guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the
value of the Fund's total assets.
[Note: In accordance with the current regulations of the Securities
and Exchange Commission, the Prime Trust Fund intends to limit its investments
in bankers' acceptances, certificates of deposit and other securities of any one
bank to not more than 5% of the Fund's total assets at the time of purchase
(rather than the 15% limitation set forth above), provided that the Fund may
invest up to 25% of its total assets in the securities of any one issuer for a
period of up to three business days. This practice, which is not a fundamental
policy of the Fund, could be changed only in the event that such regulations of
the Securities and Exchange Commission are amended in the future.]
10. In addition, as summarized in the Prospectus no Fund may:
Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to (i)
instruments issued or guarantee by the United States, any state, territory or
possession of the United States, the District
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<PAGE>
of Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions, (ii) instruments issued by domestic branches of U.S.
banks and (iii) repurchase agreements secured by the instruments described in
clauses (i) and (ii); (b) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
[Note: In construing Section 11 in accordance with SEC policy, to the extent
permitted, U.S. branches of foreign banks will be considered to be U.S. banks
where they are subject to the same regulation as U.S. banks.
11. Borrow money or issue senior securities, except that each Fund
may borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of the total assets at the time
of such borrowing or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of one-
third of the value of a Fund's total assets at the time of such borrowing. No
Fund will purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding. Securities
held in escrow or separate accounts in connection with a Fund's investment
practices described in this Statement of Additional Information or in the
Prospectus are not deemed to be pledged for purposes of this limitation.
Although the foregoing investment limitations would permit the Funds
to invest in options, futures contracts and options on futures contracts, the
Funds do not currently intend to trade in such instruments during the next 12
months. Prior to making any such investments, the Funds would notify their
shareholders and add appropriate descriptions concerning the instruments to the
Prospectus and this Statement of Additional Information.
TYPES OF OBLIGATIONS, INVESTMENT RISKS AND OTHER INVESTMENT INFORMATION
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement (an
agreement under which a Fund sells portfolio securities and agrees to repurchase
them at an agreed-upon date and price), it will place in a segregated custodial
account liquid assets, such as U.S. Government securities or other liquid high-
grade debt securities having a value equal to or greater
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than the repurchase price (including accrued interest), and will subsequently
monitor the account to ensure that such value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price of the securities it is obligated to
repurchase. Reverse repurchase agreements are considered to be borrowings under
the Investment Company Act of 1940. Each Fund intends to limit its borrowings
(including reverse repurchase agreements), during the next 12 months to not more
than 5% of its net assets.
VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that may be
acquired by the Funds as described in the Prospectus, the Sub-Adviser will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of those instruments and, if the instrument is subject to a
demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, an instrument will
usually be deemed to have a maturity equal to the longer of the period remaining
until the next regularly scheduled interest rate adjustment or the time the Fund
involved can recover payment of principal as specified in the instrument.
Instruments which are U.S. Government obligations and certain variable rate
instruments having a nominal maturity of 397 days or less, however, will be
deemed to have maturities equal to the period remaining until the next interest
rate adjustment.
Variable and floating rate instruments may carry nominal maturities in
excess of a Fund's maturity limitations if such instruments carry demand
features that comply with conditions established by the Securities and Exchange
Commission. In order to be purchased by a Fund, these instruments must permit a
Fund to demand payment of the principal of the instrument at least once every
397 days upon not more than 30 days' notice.
REPURCHASE AGREEMENTS
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by either the Funds' custodian or another
independent third party acting as sub-custodian for the Fund involved in the
transaction, or in the federal Reserve Treasury Book-Entry System. Repurchase
agreements are considered to be loans by a Fund under the Investment Company Act
of 1940.
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LENDING SECURITIES
When the Treasury Trust Fund or the Prime Trust Fund lends its
securities, it continues to receive interest on the securities loaned and may
simultaneously earn interest on the investment of the cash loan collateral which
will be invested in readily marketable, high-quality, short-term obligations.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans will be called so that the securities may be
voted by a Fund if a material event affecting the investment is to occur.
Portfolio loans will be continuously secured by collateral equal at all times in
value to at least the market value of the securities loaned plus accrued
interest. Collateral for such loans may include cash or U.S. Government
Securities or additionally, in the case of the Prime Trust Fund, securities of
U.S. Government agencies or instrumentalities or an irrevocable letter of credit
issued by a bank that meets the credit standards of the Prime Trust Fund.
Collateral for the Treasury Trust Fund is limited to cash and U.S. Government
securities. There may be risks of delay in recovering 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.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may invest
in securities issued by other investment companies within the limits prescribed
by the Investment Company Act of 1940. Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund or by
Emerald Funds as a whole. As a shareholder of another investment company, a
Fund would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that a Fund bears in
connection with its own operations.
U.S. GOVERNMENT OBLIGATIONS
Examples of the types of U.S. Government obligations that may be held
by the Prime Trust Fund include, in addition to U.S. Treasury bonds, notes and
bills, the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration,
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Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage Association,
General Services Administration, Student Loan Marketing Association, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Tennessee Valley Authority, Resolution Funding
Corporation and Maritime Administration. 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. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the Government National Mortgage Association,
are supported by the full faith and credit of the U.S. Treasury; others, such as
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
ASSET-BACKED SECURITIES
The Prime Trust Fund may invest in securities backed by installment
contracts, credit card receivables and other assets. Asset-backed securities
represent interests in pools of assets in which payment of both interest and
principal on the securities are made monthly, thus in effect passing through
(net of fees paid to the issuer or guarantor of the securities) the monthly
payments made by the individual borrowers on the assets that underlie the asset-
backed securities.
Non-mortgage asset-backed securities involve certain risks that are
not presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the
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automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be able to support
payments on these securities.
MUNICIPAL OBLIGATIONS
Assets of the Prime Trust Fund may be invested in debt instruments
("municipal obligations") issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political sub-divisions. These
investments may be advantageous 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 Fund may purchase.
Municipal obligations include debt obligations issued by governmental entities
to obtain funds for various public purposes, including the construction of a
wide range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities.
The two principal classifications of municipal obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the issuer of the facility being financed.
Private activity bonds (e.g., bonds issued by industrial development
authorities) that are issued by or on behalf of public authorities to finance
various privately-operated facilities are included within the term "Municipal
Obligations". Private activity bonds are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Additionally, the
principal and interest on these obligations may or may not be payable from the
general revenues of the users of the facilities involved. The credit quality of
such bonds is usually directly related to the credit standing of such corporate
users. Private activity bonds have been or may be issued to obtain funds to
provide privately operated housing facilities, pollution control facilities,
convention or trade show facilities, mass transit, airport, port or parking
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such bonds may also be issued on behalf of
privately held or publicly owned corporations in the financing of commercial or
industrial
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facilities. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities.
Municipal obligations may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
As described in the Prospectus, the Prime Trust Fund may also invest
in municipal leases, which may be considered liquid under guidelines established
by Emerald Funds' Board of Trustees. The guidelines will provide for
determination of the liquidity and proper valuation of a municipal lease
obligation based on factors including the following: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer.
Emerald, under the supervision of Emerald Funds' Board of Trustees, will also
consider the continued marketability of a municipal lease obligation based upon
an analysis of the general credit quality of the municipality issuing the
obligation and the importance to the municipality of the property covered by the
lease.
Municipal obligations may include short-term General Obligation
Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms
of short-term tax-exempt loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues. In addition, the Prime Trust Fund may
invest in bonds and other types of tax-exempt instruments provided they have
remaining maturities that meet the Fund's maturity limitations.
As described in the Prospectus, the Prime Trust Fund may purchase
securities in the form of custodial receipts. These custodial receipts are
known by a number of names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts."
Certain municipal obligations may be insured at the time of issuance
as to the timely payment of principal and
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interest. The insurance policies will usually be obtained by the issuer of the
municipal obligation at the time of its original issuance. In the event that
the issuer defaults on interest or principal payment, the insurer of the
obligation is required to make payment to the bondholders upon proper
notification. There is, however, no guarantee that the insurer will meet its
obligations. In addition, such insurance will not protect against market
fluctuations caused by changes in interest rates and other factors.
FOREIGN MONEY MARKET INSTRUMENTS. A Fund will invest in obligations
of foreign banks and commercial paper issued by foreign issuers as described
above only when the Adviser deems the instrument to present minimal credit risk.
Such investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. Such risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on such instruments, the possible
establishment of exchange controls, the possible seizure or nationalization of
foreign deposits or the adoption of other foreign government restrictions which
might affect adversely the payment of principal and interest of such
instruments. In addition, foreign issuers, including foreign banks and foreign
branches of U.S. banks, may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting and recordkeeping standards
than those applicable to domestic issuers, and securities of foreign issuers may
be less liquid and their prices more volatile than those of comparable domestic
issuers.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
The Funds may purchase securities on a when-issued basis and purchase
or sell securities on a forward commitment basis. These transactions, which
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place beyond the normal settlement date, 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. When-issued and forward
commitment transactions involve the risk, however, that the yield obtained in a
transaction may be less favorable than the yield available in the market when
the securities delivery takes place.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund involved may be required
subsequently to place additional assets in the separate account in order that
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the value of the account remains equal to the amount of the Fund's commitments.
It may be expected that the market value of a Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. Because a Fund will set
aside cash or liquid assets to satisfy its purchase commitments in the manner
described, that Fund's liquidity and ability to manage its portfolio might be
affected in the event its forward commitments to purchase securities ever
exceeded 25% of the value of its total assets. The respective forward purchase
commitments of the Treasury Trust Fund and Prime Trust Fund are not expected to
exceed 25% of the value of their respective total assets, absent unusual market
conditions or periods of unusual purchase or redemption activity in shares of a
Fund such as at calendar year-end or other times; furthermore, a forward
commitment or commitment to purchase when-issued securities for any Fund is not
expected to exceed 45 days.
The Funds do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their investment
objectives, and the Funds will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, a Fund may dispose of or renegotiate a commitment
after it is entered into, and may sell securities it has committed to purchase
before those securities are delivered to the Fund on the settlement date. In
these cases the Fund involved may realize a taxable capital gain or loss.
When the Funds engage in when-issued and forward commitment
transactions, they rely on the other party to consummate the trade. Failure of
such party to do so may result in a Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, is taken into account when determining the market value
of a Fund involved in such transactions starting on the day the Fund agrees to
purchase the securities. A Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
FOREIGN MONEY MARKET INSTRUMENTS. A Fund will invest in obligations
of foreign banks and commercial paper issued by foreign issuers as described
above only when the Adviser deems the instrument to present minimal credit risk.
Such investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. Such risks
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include future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on such instruments, the
possible establishment of exchange controls, the possible seizure or
nationalization of foreign deposits or the adoption of other foreign government
restrictions which might affect adversely the payment of principal and interest
of such instruments. In addition, foreign issuers, including foreign banks and
foreign branches of U.S. banks, may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
standards than those applicable to domestic issuers, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
PARTICIPATION INTERESTS AND TRUST RECEIPTS
The Prime Trust Fund may purchase participation interests and trust
receipts as described in its Prospectus. Such participation interests and trust
receipts may have fixed, floating or variable rates of interest, and will have
remaining maturities of thirteen months or less (as defined by the Securities
and Exchange Commission). If a participation interest or trust receipt is
unrated, the Adviser will have determined that the interest or receipt is of
comparable quality to those instruments in which the Prime Trust Fund may invest
pursuant to guidelines approved by the Board of Trustees. For certain
participation interests or trust receipts the Prime Trust Fund will have the
right to demand payment, on not more than 30 days' notice, for all or any part
of the Fund's participation interest or trust receipt in the securities
involved, plus accrued interest.
GUARANTEED INVESTMENT CONTRACTS
Generally, a GIC allows a purchaser to buy an annuity with the monies
accumulated under the contract; however, the Prime Trust Fund will not purchase
any such annuities. GICs acquired by the Prime Trust Fund are general
obligations of the issuing insurance company and not separate accounts. The
purchase price paid for a GIC becomes part of the general assets of the issuer,
and the contract is paid from the general assets of the issuer. The Prime Trust
Fund will only purchase GICs from issuers which, at the time of purchase, are
rated "A+" by A.M. Best Company, have assets of $1 billion or more and meet
quality and credit standards established by the investment adviser pursuant to
guidelines approved by the Board of Trustees. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Therefore, GICs are considered by the Prime Trust Fund to be illiquid
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investments, and will be acquired by the Fund subject to its limitation on
illiquid investments.
RATINGS AND ISSUER'S OBLIGATIONS
The ratings of Nationally Recognized Statistical Rating Organizations
("NRSROs") represent their opinions as to the quality of debt securities. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality, and debt securities with the same maturity, interest rate
and rating may have different yields while debt securities of the same maturity
and interest rate with different ratings may have the same yield.
The payment of principal and interest on most securities purchased by
the Funds will depend upon the ability of the issuers to meet their obligations.
An issuer's obligations under its debt securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its debt
securities may be materially adversely affected by litigation or other
conditions.
NET ASSET VALUE AND DIVIDENDS
Net asset value per share of each Fund is calculated by adding the
value of all portfolio securities and other assets belonging to the particular
Fund, subtracting the Fund's liabilities of the Fund, and dividing the result by
the number of outstanding shares of that Fund. The net asset value per share
for each Fund is calculated separately. Each Fund is charged with the direct
expenses of that Fund, and with a share of the general expenses of Emerald
Funds. Subject to the provisions of the Agreement and Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable expenses,
and the allocable portion of any general assets, with respect to a particular
Fund are conclusive.
Emerald Funds uses the amortized cost method of valuation to value
each Fund's portfolio securities, pursuant to which an instrument is valued at
its cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating
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interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price a Fund would receive if it sold the instrument. The market value
of portfolio securities held by a Fund can be expected to vary inversely with
changes in prevailing interest rates.
Each Fund attempts to maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net asset value
per share. In this regard, except for securities subject to repurchase
agreements, no Fund will purchase a security deemed to have a remaining maturity
of more than thirteen months within the meaning of the Investment Company Act of
1940 nor maintain a dollar-weighted average maturity which exceeds ninety days.
The Board of Trustees has also established procedures that are intended to
stabilize the net asset value per share of each Fund for purposes of sales and
redemptions at $1.00. These procedures include the determination, at such
intervals as the Trustees deem appropriate, of the extent, if any, to which the
net asset value per share of each Fund calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
one-half of one percent, the Board will promptly consider what action, if any,
should be initiated. If the Board believes that the extent of any deviation
from a $1.00 amortized cost price per share may result in material dilution or
other unfair results to new or existing investors, it has agreed to take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
Should Emerald Funds incur or anticipate any unusual significant
expense or loss which might affect disproportionately the income of a Fund, the
Board of Trustees would, at that time, consider whether to adhere to its present
dividend policies with respect to the Funds, which are described in the
Prospectus, or to revise the policies in order to mitigate, to the extent
possible, the disproportionate effect the expense or loss might have on the
income of a Fund for a particular period.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in Emerald Funds are sold on a continuous basis by Emerald
Asset Management, Inc. As described in the
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Prospectus, shares of the Treasury Trust Fund and the Prime Trust Fund are
presently sold only to Barnett Banks Trust Company, N.A. ("Barnett") and its
affiliated banks (collectively, "Banks") acting in a fiduciary capacity on
behalf of persons maintaining accounts at the Banks, as well as certain accounts
maintained at other institutions for which Barnett provides advisory or other
fiduciary services.
Under the Investment Company Act of 1940, Emerald Funds may suspend
the right of redemption or postpone the date of payment for shares of the Funds
during any period when (a) trading on the New York Stock Exchange (the
"Exchange") is restricted by applicable rules and regulations of the Securities
and Exchange Commission; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the Securities and Exchange Commission has by
order permitted such suspension; or (d) an emergency exists as determined by the
Securities and Exchange Commission. (Emerald Funds may also suspend or postpone
the recordation of the transfer of its shares upon an occurrence of any of the
foregoing conditions.)
In addition to the situations described in the Prospectus under
"Redemption of Shares," Emerald Funds may redeem shares involuntarily to
reimburse a Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Fund shares as provided in the Prospectus
from time to time.
Shares of the Funds are not bank deposits, and are neither insured by,
guaranteed by, obligations of, nor otherwise supported by the U.S. Government,
any governmental agency, the Adviser, the Sub-Adviser or any other bank.
DESCRIPTION OF SHARES
Emerald Funds is a Massachusetts business trust. Under Emerald Funds'
Agreement and Declaration of Trust, the beneficial interest in Emerald Funds may
be divided into an unlimited number of full and fractional transferable shares.
The Agreement and Declaration of Trust authorizes the Board of Trustees to
classify or reclassify any unissued shares of Emerald Funds into one or more
additional classes by setting or changing, in any one or more respects, their
respective designations, preferences, conversion or other rights, voting powers,
restrictions, limitations, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty-three classes of shares.
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Two of these classes represent interests in the Treasury Trust Fund and the
Prime Trust Fund. The remaining classes represent interests in other investment
portfolios of Emerald Funds. The Trustees may similarly classify or reclassify
any particular class of shares into one or more series.
Each share in the Treasury Trust Fund and the Prime Trust Fund has a
par value of $.001, represents an equal proportionate interest in the particular
Fund involved and is entitled to such dividends and distributions earned on such
Fund's assets as are declared in the discretion of the Board of Trustees.
In the event of a liquidation or dissolution of Emerald Funds or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative net asset values of Emerald
Funds' respective investment portfolios, of any general assets not belonging to
any particular portfolio which are available for distribution. Shareholders of
a Fund are entitled to participate in the net distributable assets of a
particular Fund involved in liquidation, based on the number of shares of the
Fund that are held by each shareholder.
Shareholders of the Funds, as well as those of any other investment
portfolio now or hereafter offered by Emerald Funds, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Trustees. Rule 18f-2 under
the Investment Company Act of 1940 provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Emerald Funds shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each Fund affected by the matter. A Fund is affected by a matter unless it is
clear that the interests of each Fund in the matter are substantially identical
or that the matter does not affect any interest of the Fund. Under the Rule,
the approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a Fund only if
approved by a majority of the outstanding shares of such Fund. However, the
Rule also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of Emerald Funds
voting together in the aggregate without regard to particular investment
portfolios. Shares of Emerald Funds have non-cumulative voting rights and,
accordingly, the holders of more than 50% of Emerald Funds' outstanding shares
(irrespective of Fund) may elect all Trustees.
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Shares have no preemptive rights and only such conversion and exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, 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.
Emerald Funds' Agreement and Declaration of Trust authorizes the Board
of Trustees, without shareholder approval (unless otherwise required by
applicable law), to: (a) sell and convey the assets belonging to a class of
shares to another management investment company for consideration which may
include securities issued by the purchaser and, in connection therewith, to
cause all outstanding shares of such class to be redeemed at a price which is
equal to their net asset value and which may be paid in cash or by distribution
of the securities or other consideration received from the sale and conveyance;
(b) sell and convert the assets belonging to a class of shares into money and,
in connection therewith, to cause all outstanding shares of such class to be
redeemed at their net asset value; or (c) combine the assets belonging to a
class of shares with the assets belonging to one or more other classes of shares
if the Board of Trustees reasonably determines that such combination will not
have a material adverse effect on the shareholders of any class participating in
such combination and, in connection therewith, to cause all outstanding shares
of any such class to be redeemed or converted into shares of another class of
shares at their net asset value. However, the exercise of such authority may be
subject to certain restrictions under the Investment Company Act of 1940. The
Board of Trustees may authorize the termination of any class of shares after the
assets belonging to such class have been distributed to its shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No
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attempt is made to present a detailed explanation of the tax treatment of the
Funds or their shareholders, and the discussion here and in the Prospectus is
not intended as substitute for careful tax planning. Investors are advised to
consult their tax advisers with specific reference to their own tax situations.
Investment company taxable income earned by the Treasury Trust Fund or
the Prime Trust Fund will be distributed by the Funds to their shareholders, and
will be taxable to shareholders as ordinary income whether paid in cash or
additional shares. In general, investment company taxable income will be a
Fund's taxable income subject to certain adjustments and excluding the excess of
any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year.
Similarly, while the Funds do not expect to realize long-term capital
gains, any net realized long-term capital gains will be distributed at least
annually, after reduction for capital loss carryforwards, if any. The Funds
will have no tax liability with respect to such gains and the distributions will
be taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares. Such distributions will be designated as a
capital gains dividend in a written notice mailed by Emerald Funds to
shareholders after the close of Emerald Funds' taxable year.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Funds intend to make sufficient distributions or
deemed distributions of their ordinary taxable income and any capital gain net
income with respect to each calendar year to avoid liability for this excise
tax.
Each Fund is treated as a separate entity for the purpose of
determining the Fund's qualification as a "regulated investment company" under
the Internal Revenue Code. Although each Fund expects to qualify as a
"regulated investment company" and to be relieved of all or substantially all
liability for federal income taxes, depending upon the extent of Emerald Funds'
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, the Funds may be subject to the tax
laws of such states or localities.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Fund's assets
must consist of cash and cash items, U.S.
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Government securities, securities of other regulated investment companies, and
securities of other issuers (as to which a Fund has not invested more than 5% of
the value of its total assets in securities of such issuer and as to which a
Fund does not hold more than 10% of the outstanding voting securities of such
issue), and no more than 25% of the value of each Fund's total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which such Fund controls and which are engaged in the same or
similar trades or businesses.
If for any taxable year a Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions would be taxable as ordinary income to shareholders to
the extent of the Fund's current and accumulated earnings and profits and would
be eligible for the dividends received deduction for corporations.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of the taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients."
MANAGEMENT OF EMERALD FUNDS
TRUSTEES AND OFFICERS
The Trustees and officers of Emerald Funds, their addresses, principal
occupations during the past five years and other affiliations are as follows:
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Principal Occupations
Position with During Past 5 Years and
Name and Address Emerald Funds Other Affiliations
- ---------------- ------------- ------------------------
Chesterfield H. Smith* Chairman of Senior Partner of the law
701 Brickell Avenue the Board firm of Holland and Knight;
Suite 3000 of Trustees Director, Greenwich Air
Services Inc. (an aircraft
Miami, FL 33101 airframe and engine repair
company); Director, Citrus and
Chemical Bank; Director,
Citrus and Chemical
Bancorporation (bank holding
company of Citrus and Chemical
Bank).
Raynor E. Bowditch Trustee President, Bowditch
4811 Beach Blvd. Insurance Corporation (a
Suite 105 general lines independent
Jacksonville, FL 33207 agency); Director,
General Truck Equipment and
Trailer Sales; Director,
Greater Jacksonville Fair
Association.
Mary Doyle Trustee Dean in Residence, Association
Association of American of American Law Schools, 1994
Law Schools to date; Dean, University of
1201 Connecticut Ave., N.W. Miami School of Law, 1986
Suite 800 to 1994.
Washington, DC 20036-2065
Albert D. Ernest Trustee President, Albert Ernest
1560 Lancaster Terrace Enterprises (personal
Suite 1402 investments), 1991 to date;
Jacksonville, FL 32204 President and Chief
Operating Officer, Barnett
Banks, Inc., 1988 to 1991;
Director, Barnett Banks, Inc.,
1982 to 1991; Director,
Florida Rock Industries, Inc.;
Director, FRP Properties,
Inc.; Director, Regency
Realty, Inc.; Director, Stein
Mart, Inc.; and Director,
Wickes Lumber Company; Member,
Advisory Board, Coastal Lumber
Company; Member, Advisory
Board, Palmer Cay/Caswell; and
Member, Advisory Board, Deland
Honda.
John G. Grimsley* Trustee and Member of the law firm of
50 N. Laura St. President Mahoney Adams & Criser,
Suite 3400 P.A. since 1966.
Jacksonville, FL 32201
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<PAGE>
Principal Occupations
Position with During Past 5 Years and
Name and Address Emerald Funds Other Affiliations
- ---------------- ------------- ------------------------
William B. Blundin Executive Vice Chairman of the Board of
125 West 55th Street Vice President the Administrator and
New York, NY 10019 Distributor, July 1993 to
date. Director and President
of Administrator and
Distributor, February 1987
to date.
Hugh Fanning Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., August 1992
3435 Stelzer Road to present; Director of
Columbus, OH 43219-3035
Marketing, Ketchum
Communications, July 1987
to August 1992
Martin R. Dean Treasurer Employee of BISYS Fund
BISYS Fund Services Services, Inc., May 1994
3435 Stelzer Road to present; Senior Manager
Columbus, OH 43219-3035 at KPMG Peat Marwick
prior thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
PNB Building Reath.
1345 Chestnut Street
Philadelphia, PA 19107
George Martinez Assistant Senior Vice President and
BISYS Fund Services Secretary Director of Legal and
3435 Stelzer Road Compliance Services, BISYS
Columbus, OH 43218-3035 Fund Services, Inc., March
1995 to present; Vice
President and Associate
General Counsel, Alliance
Capital Management, June 1989
to March 1995.
Robert Tuch Assistant Employee of BISYS Fund
BISYS Fund Services Secretary Services, June 1991 to
3435 Stelzer Road present; Vice President and
Columbus, OH 43219-3035 Associate General Counsel
with National Securities
Research Corp., July 1990 to
June 1991.
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<PAGE>
Alaina Metz Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services, BISYS
Columbus, OH 43219-3035 Fund Services, Inc., June
1995 to present; Supervisor,
Mutual Fund Legal Department,
Alliance Capital Management,
May 1989 to June 1995.
* These Trustees may be deemed to be "interested persons" of Emerald
Funds as defined in the Investment Company Act of 1940.
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Each Trustee receives an annual fee of $14,000 plus $1,500 for each
meeting attended and reimbursement of expenses incurred as a Trustee.
Additionally the Chairman and President of the Board of Trustees each receive an
additional annual fee of $3,500 for service in such capacities. Furthermore,
each Trustee who serves on a special committee appointed by the Board or the
Chairman or who is assigned a special project by the Board or the Chairman,
receives additional compensation in the amount of $1,000 per day for each
meeting attended or $1,000 for each assignment to a Special Project plus
reimbursement of out of pocket expenses. Remuneration for services rendered
during Emerald Funds' most recent fiscal year ended November 30, 1995 and
distributed to all Trustees and officers as a group was $_______. Drinker
Biddle & Reath, of which Mr. Dalke is a partner, receives legal fees as counsel
to Emerald Funds. As of January 10, 1996, the Trustees and officers of Emerald
Funds, as a group, owned less than 1% of the outstanding shares of each Fund and
each of the other investment portfolios of the Trust.
The following chart provides certain information about the fees
received by the Emerald Fund's trustees for their services as members of the
Board of Trustees and Committees thereof.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
TOTAL
COMPENSATION
PENSION OR FROM
AGGREGATE RETIREMENT ESTIMATED EMERALD
COMPENSATION BENEFITS ANNUAL FUNDS
FROM ACCURED AS BENEFITS AND FUND
EMERALD PART OF FUND UPON COMPLEX* PAID
NAME OF PERSON POSITION FUNDS EXPENSES RETIREMENT TO DIRECTORS
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chesterfield H. Smith $20,750 N/A N/A $20,750
Chairman of the
Board of Trustees
-------------------------------------------------------------------------------------------------------------
John G. Grimsley $26,000 N/A N/A $26,000
President and Trustee
-------------------------------------------------------------------------------------------------------------
Raynor E. Bowditch $19,000 N/A N/A $19,000
Trustee
-------------------------------------------------------------------------------------------------------------
Mary Doyle $20,500 N/A N/A $20,500
Trustee
-------------------------------------------------------------------------------------------------------------
Albert D. Ernest** $13,500 N/A N/A $13,500
Trustee
</TABLE>
______________________________
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Ernest was appointed to the Board of Trustees on May 4, 1995.
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<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Emerald Funds' Agreement and Declaration of Trust
provides that shareholders shall not be subject to any personal liability in
connection with the assets of Emerald Funds for the acts or obligations of
Emerald Funds, and that every note, bond, contract, order or other undertaking
made by Emerald Funds shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Agreement and
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his or her being or
having been a shareholder and not because of his or her acts or omissions or
some other reason. The Agreement and Declaration of Trust also provides that
Emerald Funds shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of Emerald Funds, and shall satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which Emerald
Funds itself would be unable to meet its obligations.
The Agreement and Declaration of Trust further provides that all
persons having any claim against the Trustees or Emerald Funds shall look solely
to the trust property for payment; that no Trustee of Emerald Funds shall be
personally liable for or on account of any contract, debt, tort, claim, damage,
judgment or decree arising out of or connected with the administration or
preservation of the trust property or the conduct of any business of Emerald
Funds; and that no Trustee shall be personally liable to any person for any
action or failure to act except by reason of his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties as
Trustee. With the exception stated, the Agreement and Declaration of Trust
provides that a Trustee is entitled to be indemnified against all liabilities
and expenses reasonably incurred by him or her in connection with the defense or
disposition of any proceeding in which he or she may be involved or with which
he or she may be threatened by reason of his or her being or having been a
Trustee, and that the Trustees will indemnify representatives and employees of
Emerald Funds to the same extent that Trustees are entitled to indemnification.
ADVISORY AND SUB-ADVISORY SERVICES
Barnett Banks Trust Company, N.A. (the "Adviser") serves as investment
adviser, and Rodney Square Management Corporation (the "Sub-Adviser"), a wholly-
owned subsidiary of
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<PAGE>
Wilmington Trust Company ("WTC"), serves as sub-investment adviser, to each
Fund.
In their Investment Advisory and Sub-Advisory Agreements, the Adviser
and Sub-Adviser have agreed to provide the services described in the Prospectus
and to pay all expenses incurred by them in connection with their advisory and
sub-advisory activities, other than the cost of securities and other
investments, including brokerage commissions and other transaction costs, if
any, purchased or sold for each Fund. In rendering its sub-advisory services,
the Sub-Adviser may occasionally consult, on an informal basis, with personnel
from the investment departments of WTC; however, WTC will take no part in
determining the investment policies of the Funds or in deciding which securities
are to be purchased or sold by the Funds.
Because of state and federal regulations applicable to the fiduciary
accounts whose assets are invested in the Funds, the Funds' Advisory Agreement
provides that the Adviser will not be entitled to any compensation from the
Funds for its advisory services.
For the services provided and expenses assumed pursuant to the sub-
advisory agreement, Emerald Funds has agreed to pay the Sub-Adviser fees,
computed daily and paid monthly, at the annual rate of .15% of the average net
assets of each Fund. The fees payable to the Sub-Adviser are not subject to
reduction as the value of each Fund's net assets increases. From time to time,
however, the Sub-Adviser may waive fees or reimburse the Funds for expenses
either voluntarily or as required by certain state securities laws. See
"Management of Emerald Funds -Distribution and Administration Services" below
for further information regarding the waiver of fees and reimbursement of
expenses by the Sub-Adviser with respect to the Funds. For the fiscal years
ended November 30, 1995, 1994 and 1993 the Sub-Adviser received (net of
waivers) sub-advisory fees totalling $212,078, $194,762 and $244,422,
respectively, for the Treasury Trust Fund and $173,413, $162,403 and
$166,258, respectively, for the Prime Trust Fund. For the fiscal year ended
November 30, 1995, the Sub-Adviser did not waive any advisory fees for the
Prime Trust or Treasury Trust Funds. For the fiscal years ended November 30,
1994 and 1993 the Sub-Adviser waived sub-advisory fees totalling $28,256 and
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<PAGE>
$17,525 for the Treasury Trust Fund and $25,863 and $23,338 for the Prime
Trust Fund.
Under the Investment Advisory and Sub-Advisory Agreements, the Adviser
and Sub-Adviser are not liable for any error of judgment or mistake of law or
for any loss suffered by Emerald Funds in connection with the performance of
such agreements, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or negligence on the part of the Adviser or Sub-
Adviser in the performance of their duties or from their reckless disregard of
their duties and obligations under the Agreements.
The federal Glass-Steagall Act, among other things, prohibits banks
from engaging to any extent in the business of underwriting securities, although
national and state-chartered banks generally are permitted to purchase and sell
securities upon the order and for the account of their customers. In 1971, the
United States Supreme Court held in INVESTMENT COMPANY INSTITUTE V. CAMP that
the Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V. INVESTMENT
COMPANY INSTITUTE that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
The Adviser believes, with respect to its activities as required by
the Investment Advisory and Sub-Advisory Agreements and as contemplated by the
Prospectus and this Statement of Additional Information, and the Sub-Adviser
believes, with respect to its activities as required by the Sub-Advisory
Agreement and as contemplated by the Prospectus and this Statement of Additional
Information, that, if the question were properly presented, a court should hold
that the Adviser or the Sub-Adviser, as the case may be, may each perform such
activities without violation of the Glass-Steagall Act or other applicable
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<PAGE>
banking laws or regulations. It should be noted, however, that there have been
no cases deciding whether banks may perform services comparable to those
performed by the Adviser and Sub-Adviser and that future changes in either
federal or state statutes and regulations relating to permissible activities of
banks or trust companies and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent the Adviser and Sub-Adviser from
continuing to perform such services for the Funds. If the Adviser or Sub-
Adviser were prohibited from continuing to perform advisory and sub-advisory
services for the Funds, it is expected that the Board of Trustees would
recommend that the Funds enter into new agreements or would consider the
possible termination of the Funds. Any new advisory or sub-advisory agreement
would be subject to shareholder approval.
On the other hand, as described herein, Emerald Funds are currently
distributed by Emerald Asset Management, Inc., and Concord Holding Corporation,
its parent, provides the Funds with administrative services. If current
restrictions under the Glass-Steagall Act preventing a bank from sponsoring,
organizing, controlling or distributing shares of an investment company were
relaxed, the Funds expect that the Adviser would consider the possibility of
offering to perform some or all of the services now provided by Concord Holding
Corporation and Emerald Asset Management, Inc. From time to time, legislation
modifying such restrictions has been introduced in Congress which, if enacted,
would permit a bank holding company to establish a non-bank subsidiary having
the authority to organize, sponsor and distribute shares of an investment
company. The Funds therefore expect that if this or similar legislation were
enacted, the Adviser's parent bank holding company would consider the
possibility of one of its non-bank subsidiaries offering to perform additional
services now provided by Concord Holding Corporation and Emerald Asset
Management, Inc. In this regard it may be noted that the Adviser has entered
into an agreement with Concord Holding Corporation whereunder the Adviser (or an
affiliate) may acquire Emerald Asset Management, Inc. under specified
conditions. It is not possible, of course, to predict whether or in what form
such legislation might be enacted or the terms upon which the Adviser or such a
non-bank affiliate might offer to provide services for consideration by the
Board of Trustees.
DISTRIBUTION AND ADMINISTRATION SERVICES
Emerald Funds has entered into a distribution agreement with Emerald
Asset Management, Inc. (the "Distributor") under which the Distributor, as
agent, sells shares of each Fund on a continuous basis. The Distributor has
agreed to use its best
-30-
<PAGE>
efforts to solicit orders for the sale of shares, although it is not obliged to
sell any particular amount of shares. The Distributor pays the cost of printing
and distributing prospectuses to persons who are not shareholders of the Funds
(excluding preparation and printing expenses necessary for the continued
registration of the Funds' shares) and of printing and distributing all sales
literature. No compensation is payable by the Funds to the Distributor for its
distribution services.
BISYS LP (the "Administrator"), a wholly-owned subsidiary of The
BISYS Group, Inc., serves as administrator to each Fund. In the administration
agreement, the Administrator has agreed to provide administrative services as
described in the Prospectus. The Administrator has also agreed to pay all
expenses incurred by it in connection with its activities under its agreement
except as described in this Statement of Additional Information and the
Prospectus.
Emerald Funds has agreed to pay the Administrator fees for its
services as Administrator, computed daily and paid monthly, at the effective
annual rate of .0775% of the first $5 billion of the aggregate net assets of
all of 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. From
time to time, the Administrator may waive fees or reimburse the Fund for
expenses, either voluntarily or as required by certain state securities laws.
Emerald Funds has been advised that, until further notice, the Sub-
Adviser and the Administrator have voluntarily agreed to waive their respective
sub-advisory and administrative fees as described in the Prospectus under "Fund
Management -Expenses" to the extent that any Fund's ratio of ordinary operating
expenses to average net assets, calculated daily, exceeds .40% on an annual
basis. For the fiscal years ended November 30, 1995, 1994 and 1993 , the
Administrator received (net of waivers) administrative fees totalling $212,078,
$194,762 and $244,422, respectively, for the Treasury Trust Fund and
$173,413, $162,403 and $166,258, respectively, for the Prime Trust Fund. For
the fiscal year ended November 30, 1995, the Administrator did not waive
adminstration fees for the Prime Trust or Treasury Trust Funds. For the fiscal
years ended November 30, 1994 and 1993, the Administrator waived administrative
fees totalling $28,256 and $17,525 respectively, for the Treasury Trust Fund
and $25,863 and $23,338 , respectively, for the Prime Trust Fund.
In addition, if the total expenses borne by either Fund in any fiscal
year exceed the expense limitations imposed by applicable state securities
regulations, Emerald Funds may deduct from the payments to be made with respect
to such Fund to the Sub-Adviser and the Administrator, respectively, or the Sub
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<PAGE>
Adviser and the Administrator will bear, a portion of the amount of such excess
to the extent required by such regulations in proportion to the fees otherwise
payable to them for such year. The Sub-Adviser's obligation with respect to any
Fund, however, is limited to the amount of its fees from such Fund. Such
amounts, if any, will be estimated and accrued daily and paid on a monthly
basis. As of the date of this Statement of Additional Information, to the
knowledge of Emerald Funds, there were no state expense limitations applicable
to either Fund.
The administration agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
Emerald Funds in connection with the performance of the administration
agreement, except a loss resulting from willful misfeasance, bad faith or
negligence in the performance of its duties or from the reckless disregard by it
of its obligations and duties thereunder.
CUSTODIAN AND TRANSFER AGENT
Emerald Funds has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286 as custodian for the Funds. The Bank of New
York also provides the Funds with certain accounting, bookkeeping, pricing,
dividend and distribution calculation services with respect to the Funds
pursuant to a fund accounting agreement with the Administrator. BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219, provides transfer
agency and dividend disbursing services for the Funds.
OPERATING EXPENSES
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, Sub-Adviser, Administrator or any of their affiliates; Securities and
Exchange Commission fees; state securities registration and qualification fees;
sub-advisory fees; administration 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. The Funds also pay any
brokerage fees, commissions and other transaction charges (if any) incurred in
connection with the purchase and sale of its portfolio securities.
-32-
<PAGE>
INDEPENDENT ACCOUNTANTS/EXPERTS
Price Waterhouse LLP, independent accountants, 1177 Avenue of the
Americas, New York, New York 10036, serve as independent accountants for Emerald
Funds. The financial statements dated November 30, 1995 which are
incorporated by reference into this Statement of Additional Information have
been included in reliance on the report of Price Waterhouse LLP given on the
authority of said firm as experts in auditing and accounting.
COUNSEL
Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107, are counsel to Emerald Funds
and will pass upon the legality of the shares offered by the Prospectus.
ADDITIONAL INFORMATION ON YIELD
The "yields" and "effective yields" of each Fund are calculated
according to formulas prescribed by the Securities and Exchange Commission.
The standardized seven-day yield for each Fund is computed separately by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in the particular Fund involved having a
balance of one share at the beginning of the period, dividing the net change
in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period
return by (365/7). The net change in the value of an account in a Fund
includes the value of additional shares purchased with dividends from the
original share, and dividends declared on both the original share and any
such additional shares, net of all fees, other than nonrecurring account or
sales charges, that are charged to all shareholder accounts in proportion to
the length of the base period and the Fund's average account size. The
capital changes to be excluded from the calculation of the net change in
account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective annualized yield for
each Fund is computed by compounding a particular Fund's unannualized base
period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. The fees which may be imposed by Banks on their
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<PAGE>
customers for cash management services are not reflected in Emerald Funds'
calculations of yields for the Funds.
The current yield for each of the Funds may be obtained by
calling the Distributor at [_________________]. For the seven-day period
ending November 30, 1995, the annualized yields (after fee waivers) of the
Treasury Trust Fund and Prime Trust Fund were 5.52% and 5.51%, respectively,
and the effective yields (after fee waivers) of such Funds were 5.42% and
5.51%, respectively. During this seven-day period, a portion of the
sub-advisory and administrative fees amounting to 0.05% and 0.03% of the
average daily net assets of the Treasury Trust Fund and Prime Trust Fund,
respectively, were waived.
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to shareholders. The Funds may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any Fund.
In addition, in such communications, the Adviser may offer opinions on
current economic conditions.
MISCELLANEOUS
As used in this Statement of Additional Information and in the
Prospectuses a "majority of the outstanding shares" of a Fund means the lesser
of (1) 67% of the shares of the particular Fund represented at a meeting at
which the holders of more than 50% of the outstanding shares of such Fund are
present in person or by proxy, or (2) more than 50% of the outstanding shares of
such Fund.
As of January 8, 1996, the Adviser and its affiliated banks owned of
record substantially all of the outstanding shares of the Treasury Trust Fund
and Prime Trust Fund on behalf of their customer accounts. The Adviser and such
affiliated banks were also the beneficial owners of certain percentages of the
Treasury Trust Fund (98.35%), Prime Trust Fund (98.82%), Treasury Fund (15.81%),
Prime Fund (11.74%), Tax-Exempt Fund (88.47%), Equity Fund - Institutional
Shares (99.80%), Small Capitalization Fund - Institutional Shares (99.90%),
Balanced Fund -Institutional Shares (99.80%), Short-Term Fixed Income Fund -
Institutional Shares (91.90%), U.S. Government Securities Fund --
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<PAGE>
Institutional Shares (95.00%), Managed Bond Fund - Class A Shares (5.43%),
Managed Bond Fund - Institutional Shares (99.40%) Florida Tax Exempt Fund -
Class A Shares (0.10%), Florida Tax Exempt Fund - Class B Shares (2.20%) and
Florida Tax-Exempt Fund - Institutional Shares (94.90%) that were outstanding on
such date because the Adviser possessed voting or investment discretion with
respect to such shares. As of March 8, 1995, the name, address and percentage
of the outstanding shares held by those entities who may have owned of record or
beneficially 5% or more of the outstanding shares of a particular Fund of the
Trust (other than as stated above) were as follows: Equity Fund -Class A Shares
- - National Financial Services Corporation, Attn: Sal Macca, 200 Liberty Street,
One World Financial Center, New York, NY 10281 (54.67%); University of West
Florida Foundation, 11000 University Parkway, Pensacola, FL 32514 (7.95%);
Equity Fund - Class B Shares - National Financial Services Corporation/FMTC IRA
FBO Jerry E. Handy, 839 Cape Haze Lane, Naples, FL 33942 (5.22%); Harvey R.
Gelman, 2226 N.W. 60th Street, Boca Raton, FL 33496 (5.18%); Small
Capitalization Fund -Class A Shares - John G. Grimsley, P.O. Box 4099,
Jacksonville, FL 32201 (5.59%); National Financial Services Corporation/FMTC
Custodian FBO Randall W. Hall IRA, 2954 Jeanette Cove, Oviedo, FL 32765
(11.00%); Small Capitalization Fund - Class B Shares -Spencer C. Whitehead &
Janet A. Whitehead JTWROS, 225 East Maine Avenue, Longwood, FL 32750 (8.58%);
Balanced Fund - Class A Shares - Turpin W. Barrett Jr. & Mary D. Barrett JTWROS,
2926 Forest Brook Drive East, Lakeland, FL 33811 (7.13%); Susan A. Fairbank
Trustee, Fairbank Revocable Trust, 85 N. Pizarro Point, Lecanto, FL 34461
(7.82%); Katie M. Loeding and Mary Ellen Ash and Claudia May Clark JTWROS, 1659
Calvin Circle, Kissinmee, FL 34746 (8.05%); Therese A. Gaudreau, 623 S.W.
Palmetto Cove, Port St. Lucie, FL 34986 (5.38%); Short-Term Fixed Income Fund -
Class A Shares - National Financial Services Company/FMTC Custodian FBO Simon
Brennan IRA, 2858 S.E. Eagle Drive, Port St. Lucie, FL 34984 (24.24%); W. B.
Marks, P.O. Box 963, Lecanto, FL 34460 (6.09%); Robert J. Haggstrom Trust U/A,
1222 Oakmont Drive, Niceville, FL 32578 (5.91%); Joan Marie Haggstrom Trust U/A,
1222 Oakmont Drive, Niceville, FL 32578 (6.96%); National Financial Services
Corporation for the Exclusive Benefit of our Customers, Attn: Sal Macca, 200
Liberty Street, One World Financial Center, New York, NY 10281 (5.18%); Robert
D. Blake & Frances S. Blake JTWROS, P.O. Box 772, Pensacola, FL 32501 (18.51%);
Short-Term Fixed Income Fund - Class B Shares - Ellie R. Lee and Woodrow W. Lee
and Barbara Moseley & James W. Lee TEN COMM, 5929 Duchess Road, Pensacola, FL
32503 (17.15%); Josephine H. Johnson, 1700 North L Street, Apt. 102, Pensacola,
FL 32501 (23.19%); Mel S. Swauger & Irene B. Swauger JTWROS, 1570 Monica Joy
Circle, Longwood, FL 32779 (58.38%); Short-Term Fixed Income Fund -Institutional
Shares - Harris Trust & Savings Bank, Custodian CSR America Inc., P/S 401k Plan,
Attn: Tony Kwilosz, 111 W. Monroe Floor 5 East, Chicago, IL 60603 (66.91%); U.S.
Government Securities Fund --
-35-
<PAGE>
Class A Shares - National Financial Services Corporation for the Exclusive
Benefit of our Customers, Attn: Sal Macca, 200 Liberty Street, One World
Financial Center, New York, NY 10281 (55.93%); U. S. Government Securities Fund
- - Class B Shares - Raymond M. Jones & Janet J. Bell JTWROS, 7100 Ulmerton Road,
Lot 125, Rancho Village, Largo, FL 34641 (10.14%); National Financial Services
Corporation for the Exclusive Benefit of our Customers, Attn: Mr. Sal Macca, 200
Liberty Street, One World Financial Center, New York, NY 10281 (13.44%); Susan
A. Fairbank Trustee, Fairbank Revocable Trust, 85 N. Pizarro Point, Lecanto, FL
34461 (11.90%); Anita J. Doyle, 7252 Windy Way, Brookville, FL 34601 (6.34%);
National Financial Services Corporation for the Exclusive Benefit of our
Customers, Attn: Mr. Sal Macca, 200 Liberty Street, One World Financial Center,
New York, NY 10281 (6.72%); Managed Bond Fund - Class B Shares - Torben Jensen &
Bodil Jensen JTWROS, 6120 N. Misty Oak Terrace, Beverly Hills, FL 34465 (5.67%);
Hazel L. Lickliter, 327 Dania Street, Lehigh Acres, FL 33936 (6.64%); Ruby B.
Henson and Betty J. Carroll and David Carroll JTWROS, 768 N.E. Maranta Terrado,
Jensen Beach, FL 34958 (13.47%); Charles O. Reid and Carolyn N. Reid JTWROS,
2454 Australia Way East, Unit 28, Clearwater, FL 34623 (5.34%); Ernest P. and
Muriel C. Wood, Trustees, Ernest P. and Muriel C. Wood Revocable Trust, 1675
Algonquin Drive, Clearwater, FL 34615 (8.75%); Florida Tax-Exempt Fund - Class A
Shares - National Financial Services Corporation for the Exclusive Benefit of
our Customers, Attn: Sal Macca, 200 Liberty Street, One World Financial Center,
New York, NY 10281 (59.37%); Florida Tax-Exempt Fund - Class B Shares, David S.
Miller, Trustee, The David S. Miller Trust, 4687 Oak Leaf Drive, Naples, FL
33999 (5.83%); Emerald Treasury Fund - Emerald Service Shares - Concord
Financial Services, Inc., Attn: Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (96.30%); Emerald Treasury Fund -
Emerald Investor Shares -National Financial Service Corporation for the
Exclusive Benefit of our Customers, Attn: Mike McLaughlin, 9 New York, 200
Liberty Street, New York, NY 10281 (99.74%); Emerald Prime Fund - Emerald
Service Shares - Concord Financial Services, Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222 (15.63%);
Concord Financial Services, Inc., Attn: Linda Zerbe, First and Market Building,
100 First Avenue, Suite 300, Pittsburgh, PA 15222 (84.10%); Emerald Prime Fund
- -Emerald Investor Shares - National Financial Service Corporation for the
Exclusive Benefit of our Customers, Attn: Mike McLaughlin, 9 New York, 200
Liberty Street, New York, NY 10281 (98.92%); Emerald Tax-Exempt Fund - Emerald
Service Shares -Concord Financial Services, Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222 (22.53%);
Concord Financial Services, Inc., Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (77.46%); Emerald Tax-Exempt Fund
- - Emerald Investor Shares - National Financial Service Corporation, Attn: Mike
McLaughlin, 9 New York, 200 Liberty Street, New York,
-36-
<PAGE>
NY 10281 (95.12%). At such date, Hambrecht & Quist Group, Inc. , owned 100% of
the outstanding shares of the Tax-Exempt Trust Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered by the Trust's
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Additional Statement pursuant to the rules and
regulations of the SEC. The Registration Statement including the exhibits filed
therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional
Statement as to the contents of any contract or other documents referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Price
Waterhouse LLP, independent auditors, contained in the annual report to
shareholders for the fiscal year ended November 30, 1995 (the "Annual Report")
are hereby incorporated herein by reference. Copies of the Annual Report may be
obtained by writing to BISYS Fund Services, Inc. or by calling _____________.
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<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-
A-1
<PAGE>
term promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"Duff 4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"Duff 5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-
A-3
<PAGE>
dealers. The following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
A-4
<PAGE>
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating
A-5
<PAGE>
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "B" or "B-" rating.
"CC" - Debt is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
"C" - Debt is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default and is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S & P believes such payments will be made during
such grace period. "D" rating is also used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest
A-6
<PAGE>
are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
A-7
<PAGE>
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
A-8
<PAGE>
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
A-9
<PAGE>
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
A-10
<PAGE>
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Corporation for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
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<PAGE>
D&P uses the ratings described under Corporate and Municipal Long-Term
Debt Ratings for tax-exempt notes and other short-term obligations.
Fitch uses the short-term ratings described under Commercial Paper
Ratings for municipal notes.
A-12
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Prospectuses:
(1) Financial Highlights for the fiscal year ended November 30,
1995 - Treasury Trust Fund, Prime Trust Fund, Treasury Fund,
Prime Fund, Tax-Exempt Fund, Equity Fund, U.S. Government
Securities Fund, Florida Tax-Exempt Fund, Small
Capitalization Fund, Balanced Fund, Short-Term Fixed Income
Fund and Managed Bond Fund.
<PAGE>
(2) Included in Statements of Additional Information: The
Registrant's November 30, 1995 Annual Reports to
Shareholders have been filed with the Commission and
the financial statements included therein are
incorporated herein by reference.
(b) Exhibits:
(1) Agreement and Declaration of Trust of the Registrant dated
March 15, 1988 is incorporated by reference to Exhibit (1)
to Registrant's Registration Statement on Form N-1A, filed
on March 21, 1988.
(2) (a) Registrant's Code of Regulations is incorporated by
reference to Exhibit (2) to Registrant's Registration
Statement on Form N-1A, filed on March 21, 1988.
(b) Amendment No. 1 to Registrant's Code of Regulations is
incorporated by reference to Exhibit (2) (b) to
Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, filed on June 7,
1989.
(3) None.
(4) (a) Form of Generic Share Certificate for all portfolios
of Emerald Funds is incorporated by reference to
Exhibit (4) (a) to Registrant's Post-Effective
Amendment No. 13 to Registration Statement on Form N-
1A, filed on September 16, 1994.
C-2
<PAGE>
(5) (a) Investment Advisory Agreement between Registrant and
Barnett Banks Trust Company, N.A. (Treasury Trust Fund
and Prime Trust Fund) is incorporated by reference to
Exhibit (5) (a) to Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form N-1A,
filed on June 7, 1989.
(b) Investment Advisory Agreement between Registrant and
Barnett Banks Trust Company, N.A. (Tax-Exempt Trust
Fund) is incorporated by reference to Exhibit (5) (b)
to Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, filed on June 7,
1989.
(c) Investment Advisory Agreement between Registrant and
Barnett Banks Trust Company, N.A. (Treasury Fund and
Prime Fund) is incorporated by reference to Exhibit (5)
(e) to Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, filed on June 7,
1989.
(d) Investment Advisory Agreement between Registrant and
Barnett Banks Trust Company, N.A. (Equity Fund, Equity
Income Fund, Short-Term Fixed Income Fund, U.S.
Government Securities Fund, Florida Tax-Exempt Fund,
Tax-Exempt Target Fund (Maturity 1995), Tax-Exempt
Target Fund (Maturity 2000), and Tax-Exempt Target Fund
(Maturity 2005)) is incorporated by reference to
Exhibit (5) (h) to Registrant's Post-Effective
Amendment No. 5 to Registration Statement on form N-1A,
filed on December 20, 1991.
(e) Amended Investment Advisory Agreement between
Registrant and Barnett Banks Trust Company, N.A. (Tax-
Exempt Fund) is incorporated by reference to Exhibit
(5) (f) to Registrant's Post-Effective Amendment No. 7
to Registration Statement on Form N-1A, filed on
January 29, 1993.
C-3
<PAGE>
(f) Sub-Investment Advisory Agreement between Barnett Banks
Trust Company, N.A. and Rodney Square Management
Corporation (Treasury Trust Fund and Prime Trust Fund)
is incorporated by reference to Exhibit (5) (g) to
Registrant's Post-Effective Amendment No. 7 to
Registration Statement on Form N-1A, filed on January
29, 1993.
(g) Sub-Investment Advisory Agreement between Barnett Banks
Trust Company, N.A. and Rodney Square Management
Corporation (Tax-Exempt Fund) is incorporated by
reference to Exhibit (5) (h) to Registrant's Post-
Effective Amendment No. 7 to Registration Statement on
Form N-1A, filed on January 29, 1993.
(h) Form of Sub-Investment Advisory Agreement between
Barnett Banks Trust Company, N.A. and ____________
(International Equity Fund) is incorporated by
reference to Exhibit (5)(h) to Registrant's Post-
Effective Amendment No. 16 to Registration Statement on
Form N-1A, filed on October 11, 1995.
(i) Amendment No. 1 to Investment Advisory Agreement
between Registrant and Barnett Banks Trust Company,
N.A. dated January 4, 1994 is incorporated by reference
to Exhibit (5) (i) to Registrant's Post-Effective
Amendment No. 10 to Registration Statement on Form N-1A
filed on January 28, 1994.
(j) Amendment No. 2 to Investment Advisory Agreement
between Registrant and Barnett Banks Trust Company,
N.A.
(6) (a) Distribution Agreement between Registrant and Emerald
Asset Management, Inc. dated as of January 4, 1994 is
incorporated by reference to Exhibit (6) (b) to
Registrant's Post-Effective Amendment No. 10 to
Registration Statement on Form N-1A filed on
January 28, 1994.
C-4
<PAGE>
(b) Amendment No. 1 to Distribution Agreement between
Registrant and Emerald Asset Management, Inc.
(7) None.
(8) (a) Custody Agreement between Registrant and The Bank of
New York is incorporated by reference to Exhibit (8)
(a) to Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, filed on June 7,
1989.
(b) Form of Amendment No. 1 to Custody Agreement with
respect to the addition of global custody with respect
to the International Equity Fund.
(9) (a) Administration Agreement between Registrant and
Concord Holding Corporation (Treasury Trust Fund and
Prime Trust Fund) is incorporated by reference to
Exhibit (9) (a) to Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form
N-1A, filed on June 7, 1989.
(b) Administration Agreement between Registrant and
Concord Holding Corporation (Tax-Exempt Trust Fund)
is incorporated by reference to Exhibit (9) (b) to
Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, filed on June
7, 1989.
(c) Administration Agreement between Registrant and
Concord Holding Corporation (Treasury Fund and Prime
Fund) is incorporated by reference to Exhibit (9)
(c) to Registrant's Post-Effective Amendment No. 2
to Registration Statement on Form N-1A, filed on
March 30, 1990.
(d) Amendment No. 1 Administration Agreement dated
October 1, 1989 between Registration and Concord
Holding Corporation (Treasury Fund and Prime Fund).
(e) Administration Agreement between Registrant and
Concord Holding Corporation (Tax-Exempt Fund) is
incorporated by reference to Exhibit 9 (d) to
Registrant's Post-Effective Amendment No. 2 to
Registration Statement on Form N-1A, filed on March
30, 1990.
(f) Administration Agreement between Registrant and
Concord Holding Corporation (Equity Fund, U.S.
Government Securities Fund, Florida Tax-Exempt Fund,
Small Capitalization Fund, Short-Term Fixed Fund,
Managed Bond Fund and Balanced Fund) dated as of
March 1, 1994 is incorporated by reference to
Exhibit (9) (g) to Registrant's Post-Effective
Amendment No. 11 to Registration Statement on Form
N-1A, filed on March 31, 1994.
(g) Form of Amendment No. 2 to Administration Agreement
between Registrant and Concord Holding Corporation.
(h) Form of Administration Agreement between Registrant and
BISYS Fund Services Limited Partnership.
(i) Shareholder Servicing Agent Agreement between
Registrant and Concord Financial Services, Inc.
dated as of January 3, 1994 is incorporated by
reference to Exhibit (9) (o) to Registrant's
Post-Effective Amendment No. 10 to Registration
Statement on Form N-1A, filed on January 28, 1994.
(j) Revised Shareholder Services Plan for Emerald
Service Shares is incorporated by reference to
Exhibit (9) (f) to Registrant's Post-Effective
Amendment No. 10 to Registration Statement, filed
on January 28, 1994.
(k) Shareholder and Administrative Services Plan with
Shareholder and Administrative Service Agreement for
Investor Shares (Prime Fund, Treasury Fund and
Tax-Exempt Fund) dated as of March 1, 1994 is
incorporated by reference to Exhibit (9) (h) to
Registrant's Post-Effective Amendment No. 11 to
Registration Statement on Form N-1A, filed on March
31, 1994.
(l) Shareholder and Administrative Services Plan with
Shareholder and Administrative Service Agreement for
Class A Shares for the Trust's non-money market
funds dated as of March 1, 1994 is incorporated by
reference to Exhibit (9) (i) to Registrant's
Post-Effective Amendment No. 11 to Registration
Statement on Form N-1A, filed on March 31, 1994.
(m) Shareholder and Administrative Services Plan with
form of Shareholder and Administrative Service
Agreement for Class B Shares for the Trust's
non-money market funds dated as of March 1, 1994 is
incorporated by reference to Exhibit (9) (j) to
Registrant's Post-Effective Amendment No. 11 to
Registration Statement on Form N-1A, filed on March
31, 1994.
(n) Revised form of Servicing Agreement for Emerald
Service Shares is incorporated by reference to
Exhibit (9) (g) to Registrant's Post-Effective
Amendment No. 14 to Registration Statement on Form
N-1A, filed on March 28, 1995.
(o) Shareholder Processing and Services Plan and Form of
Servicing Agreement for Emerald Service Shares.
(p) Shareholder Processing Plan and Form of Servicing
Agreement for Retail Shares.
(q) Transfer Agency Agreement between Registrant and DST
Systems, Inc. (formerly Supervised Services Company,
Inc.) is incorporated by reference to Exhibit (8)
(b) to Registrant's Post-Effective Amendment No. 7
to Registration Statement on Form N-1A, filed on
January 29, 1993.
(r) Sub-Transfer Agency Agreement Among Registrant, DST
Systems, Inc. (formerly Supervised Services Company,
Inc.) and Concord Financial Services, Inc. dated as
of January 3, 1994 is incorporated by reference to
Exhibit (9) (p) to Registrant's Post-Effective
Amendment No. 10 to registration Statement on Form
N-1A, filed on January 28, 1994.
(s) Form of Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc.
(t) Cash Management and Related Services Agreement between
Registrant and the Bank of New York dated as of January
3, 1994 is incorporated by reference to Exhibit (9) (q)
to Registrant's Post-Effective Amendment No. 10 to
registration Statement on Form N-1A, filed on January
28, 1994.
(u) Fund Accounting Agreement between Concord Holding
Corporation and The Bank of New York (all Funds) is
incorporated by reference to Exhibit (9) (e) to
Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, filed on June
7, 1989.
(v) Form of Fund Accounting Agreement between BISYS Fund
Services Limited Partnership and BISYS Fund Services,
Inc.
C-5
<PAGE>
(10) (a)1 Opinion and consent of counsel that shares are
validly issued, fully paid and non-assessable.
(11) (a) Consent of Price Waterhouse LLP.
(b) Consent of Drinker Biddle & Reath.
(12) None.
(13) Purchase Agreement between Registrant and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit (13) to
Registrant's Post-Effective Amendment No. 1 to Registration
Statement on Form N-1A, filed on June 7, 1989.
(14) Individual Retirement Account Custodial Agreement and
accompanying Disclosure Statement is incorporated by
reference to Exhibit (14) to Registrant's Post-Effective
Amendment No. 4 to Registration Statement on Form N-1A,
filed on January 31, 1991.
(15) (a) Form of Broker-Dealer Agreement between Emerald Asset
Management, Inc. and financial intermediaries (Equity
Fund, Equity Income Fund, Short-Term Fixed Income Fund,
U.S. Government Securities Fund, Florida Tax-Exempt
Fund, Tax-Exempt Target Fund (Maturity: 1995), Tax-
Exempt Target Fund (Maturity: 2000) and Tax-Exempt
Target Fund (Maturity: 2005)) is incorporated by
reference to Exhibit (15) (c) to Registrant's Post-
Effective Amendment No. 4 to Registration Statement on
Form N-1A, filed on January 31, 1991.
(b) Distribution Plan with Related Agreements for Class
A Shares (Equity Fund, U.S. Government Securities
Fund, Florida Tax-Exempt Fund, Small Capitalization
Fund, Balanced Fund, Short-Term Fixed Income Fund
and Managed Bond Fund) is incorporated by reference
to Exhibit (15) (b) to Registrant's Post-Effective
Amendment No. 11 to Registration Statement on Form
N-1A, filed March 31, 1994.
(c) Distribution Plan with Related Agreements for Class
B Shares (Equity Fund, U.S. Government Securities
Fund, Florida Tax-Exempt Fund, Small Capitalization
Fund, Balanced Fund, Short-Term Fixed Income Fund
and Managed Bond Fund) is incorporated by reference
to Exhibit (15) (c) to Registrant's Post-Effective
Amendment No. 11 to Registration Statement on Form
N-1A, filed March 31, 1994.
(d) Distribution Plan with Related Agreements for
Investor Class Shares (Prime Fund, Treasury Fund and
Tax-Exempt Fund) is incorporated by reference to
Exhibit (15) (d) to Registrant's Post-Effective
Amendment No. 11 to Registration Statement on Form
N-1A, filed March 31, 1994.
(e) Combined Amended and Restated Distribution and Service
Plan with Related Agreement for Retail Shares (All
Funds).
(16) (a) Schedule for Computation of Performance Quotations -
Treasury Trust Fund is incorporated by reference to
Exhibit (16) (a) to Registrant's Post-Effective
Amendment No. 6 to Registration
- ---------------------
1 Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
C-6
<PAGE>
Statement on Form N-1A, filed on January 31, 1992.
(b) Schedule for Computation of Performance Quotations -
Prime Trust Fund is incorporated by reference to
Exhibit (16) (b) to Registrant's Post-Effective
Amendment No. 6 to Registration Statement on Form N-1A,
filed January 31, 1992.
(c) Schedule for Computation of Performance Quotations -
Emerald Shares of the Treasury Fund, Prime Fund and
Tax-Exempt Fund is incorporated by reference to Exhibit
(16) (c) is Registrant's Post-Effective Amendment No. 6
to Registration Statement on Form N-1A, filed January
31, 1992.
(d) Schedule for Computation of Performance Quotations -
Emerald Service Shares of the Treasury Fund, Prime Fund
and Tax-Exempt Fund is incorporated by reference to
Exhibit (16) (d) to Registrant's Post-Effective
Amendment No. 6 to Registration Statement on Form N-1A,
filed January 31, 1992.
(e) Schedule for Computation of Performance Quotations -
Investor Shares of the Treasury Fund, Prime Fund and
Tax-Exempt Fund is incorporated by reference to Exhibit
(16) (e) to Registrant's Post-Effective Amendment No. 6
to Registration Statement on Form N-1A, filed January
31, 1992.
(f) Schedule for Computation of Performance Quotations -
Equity Fund is incorporated by reference to Exhibit
(16) (f) to Registrant's Post-Effective Amendment No. 6
to Registration Statement on Form N-1A, filed on
January 31, 1992.
(g) Schedule for Computation of Performance Quotation -
U.S. Government Securities Fund is incorporated by
reference to Exhibit (16) (g) to Registrant's Post-
Effective Amendment No. 6 to Registration Statement on
Form N-1A, filed on January 31, 1992.
C-7
<PAGE>
(h) Schedule for Computation of Performance Quotations -
Florida Tax-Exempt Fund is incorporated by reference to
Exhibit (16) (h) to Registrant's Post-Effective
Amendment No. 6 to Registration Statement on Form N-1A,
filed on January 31, 1992.
(i) Schedule for Computation of Performance Quotations -
Small Capitalization Fund is incorporated by reference
to Exhibit (16) (i) to Registrant's Post-Effective
Amendment No. 13 to Registration Statement on Form
N-1A, filed on September 16, 1994.
(j) Schedule for Computation of Performance Quotations -
Balanced Fund is incorporated by reference to Exhibit
(16) (j) to Registrant's Post-Effective Amendment No.
13 to Registration Statement on Form N-1A, filed on
September 16, 1994.
(k) Schedule for Computation of Performance Quotations -
Short-Term Fixed Income Fund is incorporated by
reference to Exhibit (16) (k) to Registrant's Post-
Effective Amendment No. 13 to Registration Statement on
Form N-1A, filed on September 16, 1994.
(l) Schedule for Computation of Performance Quotations -
Managed Bond Fund is incorporated by reference to
Exhibit (16) (l) to Registrant's Post-Effective
Amendment No. 13 to Registration Statement on Form N-1A
filed on September 16, 1994.
(18) (a) Plan pursuant to Rule 18f-3 for operation of a
Multi-Class System is incorporated by reference to
Exhibit (18) to Registrant's Post-Effective
Amendment No. 15 to Registration Statement on Form
N-1A filed on July7 31, 1995.
(b) Revised Plan pursuant to Rule 18f-3 for operation of a
Multi-Class System.
(27) (a) Financial Data Schedule as of November 30, 1995 for
the Equity Fund.
(b) Financial Data Schedule as of November 30, 1995 for
the Small Capitalization Fund.
(c) Financial Data Schedule as of November 30, 1995 for
the Balanced Fund.
(d) Financial Data Schedule as of November 30, 1995 for
the Short-Term Fixed Income Fund.
(e) Financial Data Schedule as of November 30, 1995 for
the U.S. Government Securities Fund.
(f) Financial Data Schedule as of November 30, 1995 for
the Managed Bond Fund.
(g) Financial Data Schedule as of November 30, 1995 for
the Florida Tax-Exempt Fund.
(h) Financial Data Schedule as of November 30, 1995 for
the Prime Fund.
(i) Financial Data Schedule as of November 30, 1995 for
the Treasury Fund.
(j) Financial Data Schedule as of November 30, 1995 for
the Tax-Exempt Fund.
(k) Financial Data Schedule as of November 30, 1995 for
the Treasury Trust Fund.
(l) Financial Data Schedule as of November 30, 1995 for
the Prime Trust Fund.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
C-8
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES
As of January 6, 1996:
<TABLE>
<CAPTION>
TITLE OF CLASS OF HOLDERS NUMBER OF RECORD HOLDERS
------------------------- ------------------------
<S> <C>
Class A-1 Shares 1
Class B-1 Shares 1
Class C-1 Shares 0
Class D-1 Shares 2
Class D-2 Shares 2
Class D-3 Shares 8
Class E-1 Shares 7
Class E-2 Shares 2
Class E-3 Shares 291
Class F-1 Shares 2
Class F-2 Shares 2
Class F-3 Shares 18
Class G-1 Shares 965
Class G-2 Shares 217
Class G-3 Shares 511
Class H-1 Shares 661
Class H-2 Shares 95
Class H-3 Shares 276
Class I-1 Shares 1115
Class I-2 Shares 365
Class I-3 Shares 311
Class J-1 Shares 335
Class J-2 Shares 282
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
TITLE OF CLASS OF HOLDERS NUMBER OF RECORD HOLDERS
------------------------- ------------------------
<S> <C>
Class J-3 Shares 484
Class K-1 Shares 30
Class K-2 Shares 5
Class K-3 Shares 198
Class L-1 Shares 52
Class L-2 Shares 48
Class L-3 Shares 256
Class M-1 Shares 91
Class M-2 Shares 202
Class M-3 Shares 106
Class N-1 Shares 1
Class N-2 Shares 0
Class N-3 Shares 2
Class O-1 Shares 1
Class O-2 Shares 0
Class O-3 Shares 2
</TABLE>
Item 27. INDEMNIFICATION
Indemnification of Registrant's principal underwriter against certain
losses is provided for in Section V.3. of the Distribution Agreement
incorporated herein by reference as Exhibit (6) (a) and in Section V.3. of the
Distribution Agreement included herein as Exhibit (6) (b). Indemnification of
Registrant's Custodian is provided for in Article XV, Section 15, of the Custody
Agreement incorporated herein by reference as Exhibit (8) (a). Indemnification
of Registrant's Transfer Agent and Dividend Disbursing Agent is provided for in
Section 9 of the Form of Transfer Agency Agreement filed herewith as Exhibit
(9)(d). Indemnification of Registrant's Cash Management Service Provider is
provided for in Article 4 VI, Section 3, of the Cash Management and Related
Services Agreement incorporated herein by reference as Exhibit (9)(n).
Registrant has obtained from a major insurance carrier a trustees' and officers'
liability
C-10
<PAGE>
policy covering certain types of errors and omissions. In addition, Section 9.3
of the Registrant's Agreement and Declaration of Trust incorporated herein by
reference as Exhibit (1), provides as follows:
9.3 INDEMNIFICATION OF TRUSTEES, REPRESENTATIVES AND EMPLOYEES. The
Trust shall indemnify each of its Trustees against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while as a Trustee or
thereafter, by reason of his being or having been such a Trustee EXCEPT
with respect to any matter as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties, PROVIDED that as to any matter disposed of by a
compromise payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence
or reckless disregard of duty, or the matter of bad faith had been
adjudicated, it would in the opinion of such counsel have been adjudicated
in favor of such person. The rights accruing to any person under these
provisions shall not exclude any other right to which he may be lawfully
entitled, PROVIDED that no person may satisfy any right of indemnity or
reimbursement hereunder except out of the property of the Trust. The
Trustees may make advance payments in connection with the indemnification
under this Section 9.3, PROVIDED that the indemnified person shall have
given a written undertaking to reimburse the Trust in the event it is
subsequently determined that he is not entitled to such indemnification.
The Trustees shall indemnify representatives and employees of the
Trust to the same extent that Trustees are entitled to indemnification
pursuant to this Section 9.2.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of
C-11
<PAGE>
any action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Section 9.6 of the Registrant's Agreement and Declaration of Trust,
incorporated herein by reference as Exhibit (1), also provides for the
indemnification of shareholders of the Registrant. Section 9.6 states as
follows:
9.6 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason
of his being or having been a Shareholder and not because of his acts or
omissions or for some other reason, the Shareholder or former Shareholder
(or his heirs, executors, administrators or other legal representatives or,
in the case of a corporation or other entity, its corporate or other
general successor) shall be entitled out of the assets belonging to the
classes of Shares with the same alphabetical designation as that of the
Shares owned by such Shareholder to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust shall,
upon request by the Shareholder, assume the defense of any claim made
against any Shareholder for any act or obligations of the Trust and satisfy
any judgment thereon from such assets.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Barnett Banks Trust Company, N.A., a national banking association
with principal offices in Jacksonville, Florida, offers trust services in the
states of Florida and Georgia. Barnett Banks Trust Company, N.A. is a wholly-
owned subsidiary of Barnett Banks, Inc., a registered bank holding company.
To Registrant's knowledge, none of the directors or senior executive
officers of Barnett Banks Trust Company, N.A., except those set forth below, is,
or has been at any time during Registrant's past two fiscal years, engaged in
any other business, profession, vocation or employment of a substantial nature,
except that certain directors and officers of Barnett Banks Trust Company, N.A.
also hold various positions with, and engage in business for, affiliates of
Barnett Banks Trust Company, N.A. Set forth below are the names and principal
businesses of the directors and certain of the senior executive officers of
Barnett Banks Trust Company, N.A. who are or have
C-12
<PAGE>
been engaged in any other business, profession, vocation or employment of a
substantial nature.
Position with Other
Barnett Banks Business Type of
Name Trust Company, N.A. Connections Business
- ---- ------------------- ----------- --------
Rebecca S. Allen Director President and Banking
Chief Executive
Officer, Barnett
Bank of Southwest
Florida, 240 S.
Pineapple Avenue,
Sarasota, FL 34230
Michael C. Baker Director, President N/A Banking
and Chief Executive
Officer
Marshall M. Criser Director Mahoney, Adams law firm
& Criser, Barnett
Bank Building,
50 N. Laura
Street, Suite 3400,
Jacksonville, FL
32202
Carter H. Golembe Director Managing Director Consult-
& Chairman, Golembe ing firm
Associates, 700
New Hampshire Ave.,
N.W., Washington,
DC 20037
Leon J. Hill Director President and Chief Banking
Executive Officer,
Barnett Bank of
Martin County, N.A.
Thomas P. Johnson, Jr. Chairman Chief Retail Banking
Banking Executive,
Barnett Banks, Inc.,
Barnett Bank
Building, 50 N.
Laura Street,
Jacksonville, FL
32202-3628
Eric J. Nickelsen Director Chairman, Banking
President and CEO
of Barnett Bank of
West Florida
Richard A. Visman Secretary of Board N/A Banking
of Directors
C-13
<PAGE>
(b) Rodney Square Management Corporation is a Delaware corporation
organized in 1981 to provide management services to mutual funds and others, and
has been advising mutual funds since 1985.
To the knowledge of Registrant, none of the directors or officers of
Rodney Square Management Corporation, except those set forth below, is or has
been, at any time during the past two calendar years, engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain directors and officers of Rodney Square Management Corporation also
hold various positions with, and engage in business for, Wilmington Trust
Company, or other subsidiaries of Wilmington Trust Company. Set forth below are
the names and principal businesses of the directors and officers of Rodney
Square Management Corporation including those who are engaged in any other
business, profession, vocation or employment of a substantial nature.
<TABLE>
<CAPTION>
Position with
Rodney Square Other
Management Business Type of
Name Corporation Connections Business
- ---- ------------- ----------- --------
<S> <C> <C> <C>
Leah M. Anderson Accounting N/A N/A
Officer
Rebecca J. Booz Accounting Officer N/A N/A
Cornelius G. Curran Vice President Vice President, Mutual
since October, 1993 Fund Plan Ser- Fund/
vices, Inc., from Services
July 1991 through
October 1993
Scott W. Edwards Investment Officer, N/A N/A
since September, 1993
Joseph M. Fahey, Jr. Vice President, N/A N/A
Secretary & Director
from 1992; Assistant
Vice President & Director
from 1988 to 1992
Molly Graham Fund Administration Legal Assistant, Law Firm
Officer, since January Clark, Ladner,
1995; Mutual Fund Fortenbaugh &
Administrator, Young, from 1991
since December, 1994 to December, 1993.
Robert C. Hancock Vice President & N/A N/A
Treasurer
John J. Kelley Vice President, since N/A N/A
February, 1995;
Assistant Vice President
from 1989 to 1995
C-14
<PAGE>
<CAPTION>
Position with
Rodney Square Other
Management Business Type of
Name Corporation Connections Business
- ---- ------------- ----------- --------
<S> <C> <C> <C>
Martin L. Klopping President & Director of Rodney broker/
Director Square Distributors dealer
Inc., Rodney Square
North, 1100 N. Market
Street, Wilmington, DE
19890, wholly owned sub-
sidiary of Wilmington
Trust Company and the
distributor of each of
the Rodney Square Family
of mutual funds, since
1993.
Diane D. Marky Funds Administration N/A N/A
Officer
Peter J. Succoso Director Senior Vice Banking
President,
Wilmington Trust
Company, Rodney
Square North,
1100 N. Market
Street, Wilmington,
DE 19890; the sole
parent of RSMC.
Director of Rodney broker/
Square Distributors, dealer
Inc.
Director, Wilmington financial
Capital Management, services
Inc., One Rodney
Square, Wilmington, DE
19890, wholly owned
subsidiary of Wilmington
Trust Company.
Marilyn Talman* Vice President, since N/A N/A
February, 1995;
Assistant Vice
President, since
February, 1993;
Senior Funds
Administration
Officer, since
March, 1992
Jody I. Thomas Senior Transfer N/A/ N/A
Officer, since
January, 1995
C-15
<PAGE>
<CAPTION>
Position with
Rodney Square Other
Management Business Type of
Name Corporation Connections Business
- ---- ------------ ----------- --------
<S> <C> <C> <C>
Wayne D. Weaver* Vice President, since N/A N/A
February, 1995
Assistant
Vice President,
since August,
1992
Kimberly D. White Accounting Officer, N/A N/A
since April, 1994
</TABLE>
___________________________
* Except as noted in the table, all Rodney Square Management Corporation
Officers and Directors have been employed solely by Wilmington Trust
Company or an affiliate thereof for the past two years.
Item 29. PRINCIPAL UNDERWRITER
(a) None.
(b) To the best of Registrant's knowledge, the directors and
executive officers of Emerald Asset Management, Inc., distributor for
Registrant, are as follows:
Name and Positions and
Principal Offices with Positions and
Business Emerald Asset Offices with
Address Management, Inc. Registrant
- -------- ---------------- -------------
Richard E. Stierwalt Chief Executive Executive Vice
3435 Stelzer Road Officer/Director President
Columbus, OH 43219-
3035
William B. Blundin President/Director Executive Vice
3435 Stelzer Road President
Columbus, OH 43219-
3035
Dennis Sheenan Chief Financial None
3435 Stelzer Road Officer
Columbus, OH 43219-
3035
Paul J. Costagliola Vice President None
3435 Stelzer Road and Secretary
Columbus, OH Broker-Dealer
43219-3035 Compliance
(c) None.
C-16
<PAGE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Barnett Banks Trust Company, N.A., 9000 Southside Blvd.,
Building 100, P.O. Box 40200, Jacksonville, Florida 32203-
0200 (records relating to its functions as investment
adviser - all portfolios).
(2) Security Pacific National Bank, 300 South Grand Avenue, HCP
225, Los Angeles, California 90071 (records relating to its
prior functions as sub-adviser - Treasury Trust Fund, Prime
Trust Fund, Tax-Exempt Trust Fund and Tax-Exempt Fund).
(3) Rodney Square Management Corporation, Rodney Square North,
Wilmington, Delaware 19890 (records relating to its
functions as sub-adviser - Treasury Trust Fund, Prime Trust
Fund and Tax-Exempt Fund).
(4) BISYS Fund Services Limited Partnership, 3435 Stelzer Road,
Columbus, OH 43219-3035 (records relating to its functions
as administrator - all portfolios).
(5) Emerald Asset Management, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219-3035 (records relating to its functions
as distributor - all portfolios).
(6) The Bank of New York, 110 Washington Street, 24th Floor, New
York, New York 10286 (records relating to its functions as
custodian and accounting services agent for the Funds - all
portfolios).
(7) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219-3035 (records relating to its functions as
transfer agent and dividend disbursing agent - all
portfolios).
(8) Drinker Biddle & Reath, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107
(Registrant's Agreement and Declaration of Trust, Code of
Regulations and Minute Books).
C-17
<PAGE>
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
The Registrant undertakes to file a post-effective amendment,
including financial statements which need not be certified, within four to six
months from the effective date of the Registrant's 1933 Act Registration
Statement.
The Registrant undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment No. 17 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Jacksonville and the State of Florida, on February 1, 1996.
EMERALD FUNDS
(Registrant)
By /s/ JOHN G. GRIMSLEY
------------------------------
John G. Grimsley
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement of Emerald Funds has been signed below
by the following persons in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
*Chesterfield H. Smith Chairman of the February 1, 1996
- ------------------------ Board of Trustees
Chesterfield H. Smith
/S/ John G. Grimsley President (Chief February 1, 1996
- ------------------------ Executive Officer)
John G. Grimsley and Trustee
*Martin R. Dean Treasurer February 1, 1996
- ------------------------ (Principal Financial
Martin R. Dean and Accounting Officer)
*Raynor E. Bowditch Trustee February 1, 1996
- ------------------------
Raynor E. Bowditch
*Albert D. Ernest Trustee February 1, 1996
- ------------------------
Albert D. Ernest
*Mary Doyle Trustee February 1, 1996
- ------------------------
Mary Doyle
/S/ John G. Grimsley
- ------------------------
* By John G. Grimsley,
Attorney-in-Fact
<PAGE>
EMERALD FUNDS
CERTIFICATE OF SECRETARY
The following resolution was duly adopted by the Board of Trustees of
Emerald Funds at a meeting held on November 4, 1994 and remains in effect on the
date hereof:
FURTHER RESOLVED, that the trustees and officers of the Trust who may
be required to execute any amendments to the Trust's Registration Statement
be, and each of them hereby is, authorized to execute a power of attorney
appointing John G. Grimsley and William B. Blundin, and either of them,
their true and lawful attorney or attorneys, to execute in their name,
place and stead, in their capacity as trustee or officer, or both, of the
Trust any and all amendments to the Registration Statement, and all
instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and either of said
attorneys shall have the power to act thereunder with or without the other
of said attorneys and shall have full power of substitution and
resubstitution; and either of said attorneys shall have full power and
authority to do in the name and on behalf of said trustees and officers, or
any or all of them, in any and all capacities, every act whatsoever
requisite or necessary to be done on the premises, as fully and to all
intents and purposes as each of said trustees or officers, or any or all of
them, might or could do in person, said acts of said attorneys, or either
of them, being hereby ratified and approved.
EMERALD FUNDS
By: /s/Jeffrey Dalke
----------------
Jeffrey Dalke,
Secretary
Dated: February 1, 1996
<PAGE>
EMERALD FUNDS
POWER OF ATTORNEY
Martin R. Dean, whose signature appears below, does hereby constitute
and appoint John G. Grimsley and William B. Blundin, and either of them, his
true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Emerald Funds, a
Massachusetts business trust (the "Fund"), to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of any and all amendments (including post-effective amendments) to the Fund's
Regulation Statement pursuant to said Acts, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee and/or officer of the Fund
any and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Martin R. Dean
- -------------------------------
Date: October 5, 1995
<PAGE>
EMERALD FUNDS
POWER OF ATTORNEY
Chesterfield H. Smith, whose signature appears below, does hereby
constitute and appoint John G. Grimsley and William B. Blundin, and either of
them, his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Emerald Funds, a
Massachusetts business trust (the "Fund"), to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of any and all amendments (including post-effective amendments) to the Fund's
Regulation Statement pursuant to said Acts, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee and/or officer of the Fund
any and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Chesterfield H. Smith
- -------------------------------
Date: May 10, 1989
<PAGE>
EMERALD FUNDS
POWER OF ATTORNEY
Albert Ernest, whose signature appears below, does hereby constitute
and appoint John G. Grimsley and William B. Blundin, and either of them, his
true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Emerald Funds, a
Massachusetts business trust (the "Fund"), to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of any and all amendments (including post-effective amendments) to the Fund's
Regulation Statement pursuant to said Acts, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee and/or officer of the Fund
any and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Albert Ernest
- -------------------------------
Date: October 5, 1995
<PAGE>
EMERALD FUNDS
POWER OF ATTORNEY
Raynor E. Bowditch, whose signature appears below, does hereby
constitute and appoint John G. Grimsley and William B. Blundin, and either of
them, his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Emerald Funds, a
Massachusetts business trust (the "Fund"), to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of any and all amendments (including post-effective amendments) to the Fund's
Regulation Statement pursuant to said Acts, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee and/or officer of the Fund
any and all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Raynor E. Bowditch
- ---------------------------------
Date: May 10, 1989
<PAGE>
EMERALD FUNDS
POWER OF ATTORNEY
Mary Doyle, whose signature appears below, does hereby constitute and
appoint John G. Grimsley and William B. Blundin, and either of them, his true
and lawful attorneys and agents, with power of substitution and resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorneys and agents, or either of them, may deem necessary or advisable or
which may be required to enable Emerald Funds, a Massachusetts business trust
(the "Fund"), to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of any and all amendments
(including post-effective amendments) to the Fund's Regulation Statement
pursuant to said Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Fund any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Mary Doyle
- --------------------------------
Date: October 31, 1990
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
(5)(a) Investment Advisory Agreement between
Registrant and Barnett Banks Trust
Company, N.A. (Treasury Trust Fund and
Prime Trust Fund) is incorporated by
reference to Exhibit (5) (a) to
Registrant's Post-Effective Amendment No.
1 to Registration Statement on Form N-1A,
filed on June 7, 1989.
(b) Investment Advisory Agreement between
Registrant and Barnett Banks Trust
Company, N.A. (Tax-Exempt Trust Fund) is
incorporated by reference to Exhibit (5)
(b) to Registrant's Post-Effective
Amendment No. 1 to Registration Statement
on Form N-1A, filed on June 7, 1989.
(c) Investment Advisory Agreement between
Registrant and Barnett Banks Trust
Company, N.A. (Treasury Fund and Prime
Fund) is incorporated by reference to
Exhibit (5) (e) to Registrant's Post-
Effective Amendment No. 1 to Registration
Statement on Form N-1A, filed on June 7,
1989.
(d) Investment Advisory Agreement between
Registrant and Barnett Banks Trust
Company, N.A. (Equity Fund, Equity Income
Fund, Short-Term Fixed Income Fund, U.S.
Government Securities Fund, Florida Tax-
Exempt Fund, Tax-Exempt Target Fund
(Maturity 1995), Tax-Exempt Target Fund
(Maturity 2000), and Tax-Exempt Target
Fund (Maturity 2005)) is incorporated by
reference to Exhibit (5) (h) to
Registrant's Post-Effective Amendment No.
5 to Registration Statement on form N-1A,
filed on December 20, 1991.
(e) Amended Investment Advisory Agreement
between Registrant and Barnett Banks Trust
Company, N.A. (Tax-Exempt Fund) is
incorporated by reference to Exhibit (5)
(f) to Registrant's Post-Effective
Amendment No. 7 to Registration Statement
on Form N-1A, filed on January 29, 1993.
(f) Sub-Investment Advisory Agreement between
Barnett Banks Trust Company, N.A. and
Rodney Square Management Corporation
(Treasury Trust Fund and Prime Trust Fund)
is incorporated by reference to Exhibit
(5) (g) to Registrant's Post-Effective
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
Amendment No. 7 to Registration Statement
on Form N-1A, filed on January 29, 1993.
(g) Sub-Investment Advisory Agreement between
Barnett Banks Trust Company, N.A. and
Rodney Square Management Corporation (Tax-
Exempt Fund) is incorporated by reference
to Exhibit (5) (h) to Registrant's Post-
Effective Amendment No. 7 to Registration
Statement on Form N-1A, filed on
January 29, 1993.
(i) Amendment No. 1 to Investment Advisory
Agreement between Registrant and Barnett
Banks Trust Company, N.A. dated January 4,
1994 is incorporated by reference to
Exhibit (5) (i) to Registrant's Post-
Effective Amendment No. 10 to Registration
Statement on Form N-1A filed on
January 28, 1994.
(j) Amendment No. 2 to Investment Advisory
Agreement between Registrant and Barnett
Banks Trust Company, N.A.
(6)(b) Amendment No. 1 to Distribution Agreement
between Registrant and Emerald Asset
Management, Inc.
(8)(b) Form of Amendment No. 1 to Custody
Agreement with respect to the addition
of global custody with respect to the
International Equity Fund.
(9)(a) Form of Administration Agreement between
Registrant and BISYS Fund Services Limited
Partnership.
(b) Shareholder Processing and Services Plan
and Form of Servicing Agreement for
Emerald Service Shares.
(c) Shareholder Processing Plan and Form of
Servicing Agreement for Retail Shares.
(d) Form of Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc.
(f) Form of Fund Accounting Agreement between
BISYS Fund Services Limited Partnership
and BISYS Fund Services, Inc.
(9)(g) Amendment No. 2 to Administration
Agreement between Registrant and Concord
Holding Corporation.
(11)(a) Consent of Price Waterhouse LLP.
(11)(b) Consent of Drinker Biddle & Reath.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
(15)(b) Combined Amended and Restated Distribution
and Service Plan with Related Agreement
for Retail Shares (All Funds).
(18) Revised Plan pursuant to Rule 18f-3 for
operation of a Multi-Class System.
</TABLE>
-3-
<PAGE>
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
(Treasury Trust Fund and Prime Trust Fund)
AGREEMENT made as of December 7th, 1988, between
EMERALD FUNDS, a Massachusetts business trust (herein called the
"Trust"), and BARNETT BANKS TRUST COMPANY, N.A., a national
banking association (herein called the "Investment Adviser"), a
wholly-owned subsidiary of Barnett Banks, Inc.
WHEREAS, the Trust is registered as an open-end,
management investment company under the Investment Company Act of
1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment
Adviser to furnish the investment advisory and other services set
forth herein to the Trust for its Treasury Trust Fund and Prime
Trust Fund portfolios (the "Funds"), and the investment Adviser
is willing to so furnish such services;
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, it is agreed between the parties
hereto as follows:
1. APPOINTMENT.
(a) The Trust hereby appoints the Investment
Adviser to provide the investment advisory and other services set
forth herein to the Trust for its Treasury Trust Fund and Prime
Trust Fund for the period and on the terms set forth in this
Agreement. The Investment Adviser accepts such appointment and
agrees to furnish the services herein set forth.
(b) In the event that the Trust establishes one
or more portfolios other than the Treasury Trust Fund and Prime
Trust Fund with respect to which it desires to retain the
Investment Adviser to act as investment adviser hereunder, it
shall notify the Investment Adviser in writing. If the
investment Adviser is willing to render such services under this
Agreement it shall notify the Trust in writing whereupon such
portfolio shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the same extent as the two
Funds named above in subparagraph (a) except to the extent that
said provisions (including those relating to the compensation
payable by the Funds to the Investment Adviser) are modified with
respect to such Fund in writing by the Trust and the Investment
Adviser at the time.
<PAGE>
2. DELIVERY OF DOCUMENTS.
The Trust has furnished the Investment Adviser
with copies properly certified or authenticated of each of the
following:
(a) The Trust's Agreement and Declaration of
Trust, as filed with the State Secretary of the
Commonwealth of Massachusetts on March 16, 1988, and
any amendments thereto (such Agreement and Declaration
of Trust, as presently in effect and as it shall from
time to time be amended, is herein called the
"Declaration of Trust");
(b) The Trust's Code of Regulations and any
amendments thereto;
(c) Resolutions of the Trust's Board of Trustees
authorizing the appointment of the Investment Adviser
and approving this Agreement;
(d) The Trust's Notification of Registration on
Form N-8A under the 1940 Act as filed with the
Securities and Exchange Commission on March 21, 1988
and any amendments thereto;
(e) The Trust's Registration on Form N-1A under
the Securities Act of 1933 as amended ("1933 Act")
(File No. 33-20658) and under the 1940 Act as filed
with the Securities and Exchange Commission on March
21, 1988 and any amendments thereto; and
(f) The most recent prospectus of the Funds (such
prospectus together with the related statement of
additional information, as presently in effect and all
amendments and supplements thereto, are herein called
"Prospectus").
The Trust will furnish the investment Adviser from time to time
with copies of all amendments of or supplements to the foregoing,
if any.
3. SERVICES.
Subject to the supervision of the Trust's Board of
Trustees, the Investment Adviser will oversee and assist in the
management of the investment portfolio of each Fund. The
Investment Adviser will provide the services rendered by it under
this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Prospectus
and resolutions of the Trust's Board of Trustees. Without
-2-
<PAGE>
limiting the generality of the foregoing, the Investment Adviser
shall:
(a) establish and monitor general investment
criteria and policies for each Fund;
(b) recommend to the Board of Trustees of the
Trust a sub-adviser to manage each Fund's investment
portfolio and, upon proper authorization by the Board
of Trustees and the Funds, shareholders, to enter into
appropriate contractual arrangements regarding the
provision of sub-advisory services to the Funds;
(c) review and analyze on a periodic basis each
Fund's portfolio holdings and transactions in order to
determine their appropriateness in light of the Fund's
shareholder base;
(d) review and analyze on a periodic basis the
policies established by the sub-adviser for each Fund
with respect to the placement of orders for the
purchase or sale of portfolio securities; and
(e) provide, or cause to be provided, to the
Board of Trustees of the Trust such reports,
statistical data and economic information as may be
reasonably requested in connection with the investment
Adviser's services hereunder.
4. OTHER COVENANTS.
The Investment Adviser agrees that it:
(a) will comply with all applicable Rules and
Regulations of the Securities and Exchange Commission and will in
addition conduct its activities under this Agreement in
accordance with other applicable law;
(b) will use the same skill and care in providing
such services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities; and
(c) will maintain a policy and practice of
conducting its investment advisory services hereunder
independently of the commercial banking operations of its
affiliates. If the Investment Adviser makes investment
recommendations for a Fund, its investment advisory personnel
will not inquire or take into consideration whether the issuer of
securities proposed for purchase or sale for the Fund's account
are customers of the commercial department of any of the
Investment Adviser's affiliates. In dealing with commercial
customers, the Investment Adviser's affiliates will not inquire
-3-
<PAGE>
or take into consideration whether securities of those customers
are held by the Funds.
5. SERVICES NOT EXCLUSIVE.
The services furnished by the Investment Adviser
hereunder are deemed not to be exclusive, and the Investment
Adviser shall be free to furnish similar services to others so
long as its services under this Agreement are not impaired
thereby.
6. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for each Fund are the property of the
Trust and further agrees to surrender promptly to the Trust any
of such records upon the Trust's request. The Investment Adviser
further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by
Rule 31a-1 under the 1940 Act.
7. EXPENSES.
During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with
its activities under this Agreement other than the cost of
securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any)
purchased or sold for any of the Funds.
8. NO COMPENSATION.
The Investment Adviser acknowledges that customer
accounts for which it exercises investment discretion and from
which it receives compensation will invest in shares of the
Funds, and agrees that it shall not be entitled to receive any
compensation from the Trust in consideration for the services
provided and the expenses assumed pursuant to this Agreement.
9. LIMITATION OF LIABILITY.
The Investment Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith or negligence on
the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and
duties under this Agreement.
-4-
<PAGE>
10. DURATION AND TERMINATION.
This Agreement shall become effective as of the
date hereof with respect to the Funds listed in Section 1(a)
hereof, and with respect to any additional Fund, on the date of
receipt by the Trust of notice from the Investment Adviser in
accordance with Section 1(b) hereof that the Investment Adviser
is willing to serve as investment adviser with respect to such
Fund, provided that this Agreement (as supplemented by the terms
specified in any notice and agreement pursuant to Section 1(b)
hereof) shall have been approved by the shareholders of the Funds
in accordance with the requirements of the 1940 Act, and unless
sooner terminated as provided herein, shall continue in effect
until November 30, 1990. Thereafter, if not terminated, this
Agreement shall automatically continue in effect as to a
particular Fund for successive annual periods ending on
November 30, PROVIDED such continuance is specifically approved
at least annually (a) by the vote of a majority of those members
of the Trust's Board of Trustees who are not interested persons
of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the
Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to any Fund at any
time, without the payment of any penalty, by the Trust (by vote
of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund), or by the Investment
Adviser, on sixty days, written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in
this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the
same meaning as such terms have in the 1940 Act.)
11. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective as to
a particular Fund until approved by vote of a majority of the
outstanding voting securities of such Fund.
12. MISCELLANEOUS.
The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction
or effect. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of
-5-
<PAGE>
the parties hereto and their respective successors and shall be
governed by New York law.
13. NAMES.
The names "Emerald Funds" and "Trustees of Emerald
Funds" refer respectively to the Trust created and the Trustees,
as trustees but not individually or personally, acting from time
to time under an Agreement and Declaration of Trust dated March
15, 1988, which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not
binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the Trust
Property, and all persons dealing with any class of shares of the
Trust must look solely to the Trust Property belonging to such
class for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year first above written.
EMERALD FUNDS
Attest: (a Massachusetts business trust)
/s/ James Bernaiche By /s/ William Blundin
- --------------------------- --------------------------------
[Seal]
BARNETT BANKS TRUST COMPANY, N.A.
Attest:
By /s/ Thomas P. Johnson, Jr.
- ---------------------------- --------------------------------
[Seal]
-6-
<PAGE>
EXHIBIT 5(c)
INVESTMENT ADVISORY AGREEMENT
(Treasury Fund and Prime Fund)
AGREEMENT made as of December 7th, 1988, between EMERALD FUNDS, a
Massachusetts business trust (herein called the "Trust"), and BARNETT BANKS
TRUST COMPANY, N.A., a national banking association (herein called the
"Investment Adviser"), a wholly-owned subsidiary of Barnett Banks, Inc.
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and other services to the Trust for its Treasury Fund and
Prime Fund portfolios (the "Funds"), and the Investment Adviser is willing to so
furnish such services;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Trust hereby appoints the Investment Adviser to act as
investment adviser to the Trust's Treasury Fund and Prime Fund for the period
and on the terms set forth in this Agreement. The Investment Adviser accepts
such appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
(b) In the event that the Trust establishes one or more
portfolios other than the Treasury Fund and Prime Fund with respect to which it
desires to retain the Investment Adviser to act as investment adviser hereunder,
it shall notify the Investment Adviser in writing. If the Investment Adviser is
willing to render such services under this Agreement it shall notify the Trust
in writing whereupon such portfolio shall become a Fund hereunder and shall be
subject to the provisions of this Agreement to the same extent as the two Funds
named above in subparagraph (a) except to the extent that said provisions
(including those relating to the compensation payable by the Fund to the
Investment Adviser) are modified with respect to such Fund in writing by the
Trust and the Investment Adviser at the time.
<PAGE>
2. DELIVERY OF DOCUMENTS.
The Trust has furnished the Investment Adviser with copies
properly certified or authenticated of each of the following:
(a) The Trust's Agreement and Declaration of Trust, as filed
with the State Secretary of the Commonwealth of Massachusetts on March
16, 1988, and any amendments thereto (such Agreement and Declaration
of Trust, as presently in effect and as it shall from time and time be
amended, is herein called the "Declaration of Trust");
(b) The Trust's Code of Regulations and any amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing
the appointment of the Investment Adviser and approving this
Agreement;
(d) The Trust's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission on
March 21, 1988 and any amendments thereto;
(e) The Trust's Registration on Form N-1A under the
Securities Act of 1933 as amended ("1933 Act") (File No. 33-20658) and
under the 1940 Act as filed with the Securities and Exchange
Commission on March 21, 1988 and any amendments thereto; and
(f) The most recent prospectuses of the Funds (such prospectuses
together with the related statement of additional information, as
presently in effect and all amendments and supplements thereto, are
herein called "Prospectuses").
The Trust will furnish the Investment Adviser from time to time with copies of
all amendments of or supplements to the foregoing, if any.
3. SERVICES.
Subject to the supervision of the Trust's Board of Trustees, the
Investment Adviser will be responsible for the management of, and will provide a
continuous investment program for, the investment portfolio of each Fund,
including investment research and management with respect to all securities,
investments, cash and cash equivalents in the Funds. The Investment Adviser
will determine from time to time what securities and other investments will be
purchased, retained or
-2-
<PAGE>
sold by each of the Funds. The Investment Adviser will provide the services
rendered by it under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Prospectus for each Fund
and resolutions of the Trust's Board of Trustees. Without limiting the
generality of the foregoing, the Investment Adviser is hereby specifically
authorized to invest and reinvest the assets of a Fund, in its discretion as
investment adviser, in (i) variable amount demand notes of corporate borrowers
held by the Investment Adviser for the investment of monies held by the
Investment Adviser in its capacity as fiduciary, agent and custodian
and (ii) securities of other investment companies whether or not the same are
advised or managed by the Investment Adviser or another affiliated person of the
Trust. The Investment Adviser further agrees that it will:
(a) Establish and monitor investment criteria and policies for
each Fund;
(b) Update each Fund's cash availability throughout the day as
required;
(c) Maintain historical tax lots for each portfolio security
held by Funds;
(d) Transmit trades to the Trust's custodian for proper
settlement;
(e) Maintain all books and records with respect to each Fund's
securities transactions;
(f) Supply the Trust and its Board of Trustees with reports,
statistical data and economic information as requested; and
(g) Prepare a quarterly broker security transaction summary and
monthly security transaction listing for each Fund.
4. OTHER COVENANTS.
The Investment Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such services
as it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
-3-
<PAGE>
(c) will place orders pursuant to its investment
determinations for each Fund either directly with the issuer or with
any broker or dealer. In executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will use its
best efforts to seek on behalf of the Funds the best overall terms
available. In assessing the best overall terms available for any
transaction, the Investment Adviser shall consider all factors that
it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness
of the commission, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction,
the Investment Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Funds and other
accounts over which the Investment Adviser or an affiliate of the
Investment Adviser exercises investment discretion. The Investment
Adviser is authorized, subject to the prior approval of the Trust's
Board of Trustees, to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a
portfolio transaction for any of the Funds which is in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction if, but only if, the Investment Adviser
determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer -- viewed in terms of that particular
transaction or in terms of the overall responsibilities of the
Investment Adviser to the Funds. In addition, the Investment
Adviser is authorized to take into account the sale of shares of the
Trust in allocating purchase and sale orders for portfolio securities
to brokers or dealers (including brokers and dealers that are
affiliated with the Investment Adviser or the Trust's principal
underwriter), provided that the Investment Adviser believes that the
quality of the transaction and the commission are comparable to what
they would be with other qualified firms. In no instance, however,
will portfolio securities be purchased from or sold to the Investment
Adviser, the Trust's principal underwriter, or any affiliated person
of either the Trust, the Investment Adviser, or the principal
underwriter acting as principal in the transaction, except to the
extent permitted by the Securities and Exchange Commission; and
(d) will maintain a policy and practice of conducting
its investment advisory services hereunder independently of the
commercial banking operations of its
-4-
<PAGE>
affiliates. When the Investment Adviser makes investment recommendations
for a Fund, its investment advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed for purchase or
sale of the Fund's account are customers of the commercial department of
any of the Investment Adviser's affiliates. In dealing with commercial
customers, the Investment Adviser's affiliates will not inquire or take
into consideration whether securities of those customers are held by the
Funds.
5. SERVICES NOT EXCLUSIVE.
The services furnished by the Investment Adviser hereunder are
deemed not to be exclusive, and the Investment Adviser shall be free to furnish
similar services to others so long as its services under this Agreement are not
impaired thereby. To the extent that the purchase or sale of securities or
other investments of the same issuer may be deemed by the Investment Adviser to
be suitable for two or more accounts managed by the Investment Adviser, the
available securities or investments may be allocated in a manner believed by the
Investment Adviser to be equitable to each account. It is recognized that in
some cases this procedure may adversely affect the price paid or received by
Fund or the size of the position obtainable for or disposed of by a Fund.
6. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Investment Adviser hereby agrees that all records which it maintains
for each Fund are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trust's request. The
Investment Adviser further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under the 1940 Act.
7. EXPENSES.
During the term of this Agreement, the Investment Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased or sold for the Funds. In addition, if in any fiscal year the
aggregate expenses of any Fund (as defined under the securities regulations of
any state having jurisdiction over such Fund) exceed the expense limitations of
any such state, the Trust may deduct from the fees to be paid hereunder, or the
Investment Adviser will bear, to the extent required by state law, that portion
of the excess which bears the same relation to the total
-5-
<PAGE>
of such excess as the Investment Adviser's fee hereunder bears to the total fee
otherwise payable for the fiscal year by the Trust pursuant to this Agreement
and the administration agreement between the Trust and its administrator with
respect to such Fund. The Investment Adviser's obligation is not limited to the
amount of its fees hereunder. Such deduction or payment, if any, will be
estimated and accrued daily and paid on a monthly basis.
8. COMPENSATION.
For the services provided and the expenses assumed pursuant
to this Agreement, the Trust will pay the Investment Adviser, and the Investment
Adviser will accept as full compensation therefor from the Trust, a fee,
computed daily and payable monthly, at the annual rate of .25% of the average
daily net assets of each of the Funds. Such fee as is attributable to each Fund
shall be a separate charge to such Fund and shall be the several (and not joint
or joint and several) obligation of each such Fund.
9. LIMITATION OF LIABILITY.
The Investment Adviser shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Trust in connection
with the performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Investment Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. DURATION AND TERMINATION.
This Agreement shall become effective as of the date hereof
with respect to the Funds listed in Section 1(a) hereof, and with respect to
any additional Fund, on the date of receipt by the Trust of notice from the
Investment Adviser in accordance with Section 1(b) hereof that the Investment
Adviser is willing to serve as investment adviser with respect to such Fund,
provided that this Agreement (as supplemented by the terms specified in any
notice and agreement pursuant to Section 1(b) hereof) shall have been
approved by the shareholders of the Funds in accordance with the requirements
of the 1940 Act, and unless sooner terminated as provided herein shall
continue in effect until November 30, 1990. Thereafter, if not terminated,
this Agreement shall automatically continue in effect as to a particular Fund
for successive annual periods ending on November 30, PROVIDED such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a
meeting called for
-6-
<PAGE>
the purpose of voting on such approval, and (b) by the Trust's Board of Trustees
or by vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Trust (by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of such Fund), or by the Investment Adviser, on sixty days' written
notice. This Agreement will immediately terminated in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning as such terms have in the 1940 Act.)
11. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective as to a particular
Fund until approved by vote of a majority of the outstanding voting securities
of such Fund.
12. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by New York
law.
13. NAMES.
The names "Emerald Funds" and "Trustees of Emerald Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the name or on behalf thereof
by any of the Trustees, representatives or agents are made not individually,
but in such capacities, and are not binding upon any of the Trustees,
shareholders, or representatives of the Trust personally, but bind only the
Trust Property, and all persons dealing with any class of shares of the Trust
must look solely to the Trust Property belonging to such class for the
enforcement of any claims against the Trust.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EMERALD FUNDS
Attest: (a Massachusetts business trust)
/s/ James Bernaiche By /s/ William Blundin
- ----------------------------- ------------------------------
[Seal]
Attest: BARNETT BANKS TRUST COMPANY, N.A.
By /s/ Thomas P. Johnson, Jr.
- ----------------------------- --------------------------------
[SEAL]
-8-
<PAGE>
EXHIBIT 5(d)
INVESTMENT ADVISORY AGREEMENT
(Equity Fund, Equity Income Fund, Short-Term Fixed Income
Fund, U.S. Government Securities Fund, Florida
Tax-Exempt Fund, Tax-Exempt Target Fund (Maturity 1995),
Tax-Exempt Target Fund (Maturity 2000) and Tax-Exempt
Target Fund (Maturity 2005))
AGREEMENT made as of June 28, 1991 between EMERALD FUNDS, a
Massachusetts business trust (herein called the "Trust"), and BARNETT BANKS
TRUST COMPANY, N.A., a national banking association (herein called the
"Investment Adviser"), a wholly-owned subsidiary of Barnett Banks, Inc.
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and other services to the Trust for its Equity Fund, Equity
Income Fund, Short-Term Fixed Income Fund, U.S. Government Securities Fund,
Florida Tax-Exempt Fund, Tax-Exempt Target Fund (Maturity 1995), Tax-Exempt
Target Fund (Maturity 2000) and Tax-Exempt Target Fund (Maturity 2005) (the
"Funds"), and the Investment Adviser is willing to so furnish such services;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Trust hereby appoints the Investment Adviser to act as
investment adviser to the Trust's Equity Fund, Equity Income Fund, Short-Term
Fixed Income Fund, U.S. Government Securities Fund, Florida Tax-Exempt Fund,
Tax-Exempt Target Fund (Maturity 1995), Tax-Exempt Target Fund (Maturity 2000)
and Tax-Exempt Target Fund (Maturity 2005) for the period and on the terms set
forth in this Agreement. The Investment Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
(b) In the event that the Trust establishes one or more
portfolios other than the Funds with respect to which it desires to retain the
Investment Adviser to act as investment adviser hereunder, it shall notify the
Investment Adviser in writing. If the Investment Adviser is willing to render
such services under this Agreement it shall notify the Trust in writing
whereupon such portfolio shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the
<PAGE>
same extent as the Funds named above in subparagraph (a) except to the extent
that said provisions (including those relating to the compensation payable by
the Fund to the Investment Adviser) are modified with respect to such Fund in
writing by the Trust and the Investment Adviser at the time.
2. DELIVERY OF DOCUMENTS.
The Trust has furnished the Investment Adviser with copies properly
certified or authenticated of each of the following:
(a) The Trust's Agreement and Declaration of Trust, as filed
with the State Secretary of the Commonwealth of Massachusetts on March
16, 1988, and any amendments thereto (such Agreement and Declaration
of Trust, as presently in effect and as it shall from time to time be
amended, is herein called the "Declaration of Trust");
(b) The Trust's Code of Regulations and any amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission on
March 21, 1988 and any amendments thereto;
(e) The Trust's Registration on Form N-1A under the Securities
Act of 1933 as amended ("1933 Act") (File No. 33-20658) and under the
1940 Act as filed with the Securities and Exchange Commission on
March 21, 1988 and any amendments thereto; and
(f) The most recent prospectuses of the Funds (such prospectuses
together with the related statement of additional information, as
presently filed with the Securities and Exchange Commission and all
amendments and supplements thereto, are herein called "Prospectuses").
The Trust will furnish the Investment Adviser from time to time with copies of
all amendments of or supplements to the foregoing, if any.
-2-
<PAGE>
3. SERVICES.
Subject to the supervision of the Trust's Board of Trustees, the
Investment Adviser will be responsible for the management of, and will provide a
continuous investment program for, the investment portfolio of each Fund,
including investment research and management with respect to all securities,
investments, cash and cash equivalents in the Funds. The Investment Adviser
will determine from time to time what securities and other investments will be
purchased, retained or sold by each of the Funds. The Investment Adviser will
provide the services rendered by it under this Agreement in accordance with each
Fund's investment objective, policies and restrictions as stated in the
Prospectus for each Fund and resolutions of the Trust's Board of Trustees.
Without limiting the generality of the foregoing, the Investment Adviser is
hereby specifically authorized to invest and reinvest the assets of a Fund, in
its discretion as investment adviser, in (i) variable amount demand notes of
corporate borrowers held by the Investment Adviser for the investment of monies
held by the Investment Adviser in its capacity as fiduciary, agent and custodian
and (ii) securities of other investment companies whether or not the same are
advised or managed by the Investment Adviser or another affiliated person of the
Trust. The Investment Adviser further agrees that it will:
(a) Establish and monitor investment criteria and policies for
each Fund;
(b) Update each Fund's cash availability throughout the day as
required;
(c) Maintain historical tax lots for each portfolio security
held by the Funds;
(d) Transmit trades to the Trust's custodian for proper
settlement;
(e) Maintain all books and records with respect to each Fund's
securities transactions;
(f) Supply the Trust and its Board of Trustees with reports,
statistical data and economic information as requested; and
(g) Prepare a quarterly broker security transaction summary and
monthly security transaction listing for each Fund.
4. OTHER COVENANTS.
The Investment Adviser agrees that it:
-3-
<PAGE>
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission and will in addition conduct its activities
under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such services
as it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(c) will place orders pursuant to its investment determinations
for each Fund either directly with the issuer or with any broker or dealer. In
executing portfolio transactions and selecting brokers or dealers, the
Investment Adviser will use its best efforts to seek on behalf of the Funds the
best overall terms available. In assessing the best overall terms available for
any transaction, the Investment Adviser shall consider all factors that it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall terms
available, and in selecting the broker-dealer to execute a particular
transaction, the Investment Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) provided to the Funds and other accounts over which the Investment
Adviser or an affiliate of the Investment Adviser exercises investment
discretion. The Investment Adviser is authorized, subject to the prior approval
of the Trust's Board of Trustees, to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for any of the Funds which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if,
but only if, the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer -- viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Investment
Adviser to the Funds. In addition, the Investment Adviser is authorized to take
into account the sale of shares of the Trust in allocating purchase and sale
orders for portfolio securities to brokers or dealers (including brokers and
dealers that are affiliated with the Investment Adviser or the Trust's principal
underwriter), provided that the Investment Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will portfolio securities be
purchased from or sold to the Investment Adviser, the Trust's principal
underwriter, or any affiliated person of either the Trust, the Investment
Adviser, or the principal underwriter, acting as principal in the
-4-
<PAGE>
transaction, except to the extent permitted by the Securities and Exchange
Commission; and
(d) will maintain a policy and practice of conducting its
investment advisory services hereunder independently of the commercial banking
operations of its affiliates. When the Investment Adviser makes investment
recommendations for a Fund, its investment advisory personnel will not inquire
or take into consideration whether the issuer of securities proposed for
purchase or sale for the Fund's account are customers of the commercial
department of any of the Investment Adviser's affiliates. In dealing with
commercial customers, the Investment Adviser's affiliates will not inquire or
take into consideration whether securities of those customers are held by the
Funds.
5. SERVICES NOT EXCLUSIVE.
The services furnished by the Investment Adviser hereunder are deemed
not to be exclusive, and the Investment Adviser shall be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby. To the extent that the purchase or sale of securities or other
investments of the same issuer may be deemed by the Investment Adviser to be
suitable for two or more accounts managed by the Investment Adviser, the
available securities or investments may be allocated in a manner believed by the
Investment Adviser to be equitable to each account. It is recognized that in
some cases this procedure may adversely affect the price paid or received by a
Fund or the size of the position obtainable for or disposed of by a Fund.
6. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Investment Adviser hereby agrees that all records which it maintains for
each Fund are the property of the Trust and further agrees to surrender promptly
to the Trust any of such records upon the Trust's request. The Investment
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
7. EXPENSES.
During the term of this Agreement, the Investment Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased or sold
for the Funds. In addition, if in any fiscal year the aggregate expenses of any
Fund (as defined under the
-5-
<PAGE>
securities regulations of any state having jurisdiction over such Fund) exceed
the expense limitations of any such state, the Trust may deduct from the fees to
be paid hereunder, or the Investment Adviser will bear, to the extent required
by state law, that portion of the excess which bears the same relation to the
total of such excess as the Investment Adviser's fee hereunder with respect to
such Fund bears to the total fee otherwise payable for the fiscal year by the
Trust pursuant to this Agreement and the administration agreement between the
Trust and its administrator with respect to such Fund. The Investment Adviser's
obligation is not limited to the amount of its fees hereunder. Such deduction
or payment, if any, will be estimated and accrued daily and paid on a monthly
basis.
8. COMPENSATION.
For the services provided and the expenses assumed pursuant to this
Agreement, the Trust will pay the Investment Adviser, and the Investment Adviser
will accept as full compensation therefor from the Trust, a fee, computed daily
and payable monthly, at the following annual rates of the average daily net
assets of each respective Fund as follows: Equity Fund -- 0.60%; Equity Income
Fund -- 0.60%; Short-Term Fixed Income Fund -- 0.35%; U.S. Government Securities
Fund -- 0.40%; Florida Tax-Exempt Fund -- 0.40%; Tax-Exempt Target Fund
(Maturity 1995) -- O.40%; Tax-Exempt Target Fund (Maturity 2000) -- 0.40%; and
Tax-Exempt Target Fund (Maturity 2005) -- 0.40%. Such respective fee as is
attributable to each Fund shall be a separate charge to such Fund and shall be
the several (and not joint or joint and several) obligation of each such Fund.
9. LIMITATION OF LIABILITY.
The Investment Adviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with the
performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Investment Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. DURATION AND TERMINATION.
This Agreement shall become effective as of the date hereof with
respect to the Funds listed in Section 1(a) hereof, and with respect to any
additional Fund, on the date of receipt by the Trust of notice from the
Investment Adviser in accordance with Section 1(b) hereof that the Investment
Adviser is willing to serve as investment adviser with respect to such Fund,
provided that this Agreement (as supplemented by the terms
-6-
<PAGE>
specified in any notice and agreement pursuant to Section 1(b) hereof) shall
have been approved by the shareholders of the Funds in accordance with the
requirements of the 1940 Act, and unless sooner terminated as provided herein,
shall continue in effect until November 30, 1992. Thereafter, if not
terminated, this Agreement shall automatically continue in effect as to a
particular Fund for successive annual periods ending on November 30, PROVIDED
such continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Trust's Board
of Trustees or by vote of a majority of the outstanding voting securities of
such Fund. Notwithstanding the foregoing, this Agreement may be terminated as
to any Fund at any time, without the payment of any penalty, by the Trust (by
vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund), or by the Investment Adviser, on
sixty days' written notice. This Agreement will immediately terminate in the
event of its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.)
11. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective as to a particular
Fund until approved by vote of a majority of the outstanding voting securities
of such Fund.
12. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by New York law.
13. NAMES.
The names "Emerald Funds" and "Trustees of Emerald Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated
-7-
<PAGE>
March 15, 1988, which is hereby referred to and a copy of which is on file at
the office of the State Secretary of the Commonwealth of Massachusetts and at
the principal office of the Trust. The obligations of "Emerald Funds" entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders, or representatives of the Trust
personally, but bind only the Trust Property, and all persons dealing with any
class of shares of the Trust must look solely to the Trust Property belonging to
such class for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EMERALD FUNDS
Attest: (a Massachusetts business trust)
/s/ Jeffrey A. Dalke By/s/ John G. Grimsley
- ------------------------------ ---------------------------------
[Seal]
BARNETT BANKS TRUST COMPANY, N.A.
Attest:
/s/ David G. Grabe By/s/ McNeill Baker, Jr.
- ------------------------------ ---------------------------------
[Seal]
-8-
<PAGE>
EXHIBIT 5(e)
AMENDED INVESTMENT ADVISORY AGREEMENT
(Tax-Exempt Fund)
AGREEMENT made as of April 22, 1992, between EMERALD
FUNDS, a Massachusetts business trust (herein called the
"Trust"), and BARNETT BANKS TRUST COMPANY, N.A., a national
banking association (herein called the "Investment Adviser"), a
wholly-owned subsidiary of Barnett Banks, Inc.
WHEREAS, the Trust is registered as an open-end,
management investment company under the Investment Company Act of
1940, as amended ("1940 Act"); and
WHEREAS, the Trust and the Investment Adviser have
entered into an Investment Advisory Agreement dated as of
December 7, 1988 under which the Investment Adviser has agreed to
furnish investment advisory and other services to the Trust's
Tax-Exempt Fund; and
WHEREAS, the Trust and the Investment Adviser wish to
amend said Agreement to clarify the provision of sub-advisory
services to the Tax-Exempt Fund pursuant to Section 2 of the
Agreement;
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, it is agreed between the parties
hereto as follows:
1. APPOINTMENT.
The Trust hereby appoints the Investment Adviser
to provide the investment advisory and other services set forth
herein to the Trust for its Tax-Exempt Fund for the period and on
the terms set forth in this Agreement. The Investment Adviser
accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
2. SUBCONTRACTORS.
It is understood that the Investment Adviser will
from time to time employ or associate with such person or persons
as the Investment Adviser may believe to be particularly fitted
to assist it in the performance of this Agreement; provided,
however, that the compensation of such person or persons shall be
paid by the Investment Adviser. In addition, notwithstanding any
such employment or association, the Investment Adviser shall
itself (a) establish and monitor general investment criteria and
policies for the Fund, (b) review and analyze on a periodic basis
the Fund's portfolio holdings and transactions in order to
determine their appropriateness in light of the Fund's
<PAGE>
shareholder base, and (c) review and analyze on a periodic basis
the policies established by any sub-adviser for the Fund with
respect to the placement of orders for the purchase and sale of
portfolio securities. Without limiting the generality of the
foregoing, it is agreed that investment advisory services to the
Fund shall be provided by a sub-investment adviser (the "Sub-
Adviser") pursuant to a sub-advisory agreement agreeable to the
Trust and approved in accordance with the provisions of the 1940
Act (the 'Sub-Advisory Agreement").
3. DELIVERY OF DOCUMENTS.
The Trust has furnished the Investment Adviser with
copies properly certified or authenticated of each of the
following:
(a) The Trust's Agreement and Declaration of
Trust, as filed with the State Secretary of the
Commonwealth of Massachusetts on March 16, 1988, and
any amendments thereto (such Agreement and Declaration
of Trust, as presently in effect and as it shall from
time to time be amended, is herein called the
"Declaration of Trust");
(b) The Trust's Code of Regulations and any
amendments thereto;
(c) Resolutions of the Trust's Board of Trustees
authorizing the appointment of the Investment Adviser
and approving this Agreement;
(d) The Trust's Notification of Registration on
Form N-8A under the 1940 Act as filed with the
Securities and Exchange Commission an March 21, 1988
and any amendments thereto;
(e) The Trust's Registration Statement on Form N-
1A under the Securities Act of 1933 as amended ("1933
Act") (File No. 33-20658) and under the 1940 Act as
filed with the Securities and Exchange Commission on
March 21, 1988 and any amendments thereto; and
(f) The most recent prospectus of the Fund (such
prospectus together with the related statement of
additional information, as presently in effect and all
amendments and supplements thereto, are herein called
"Prospectus").
The Trust will furnish the Investment Adviser from time to time
with copies of all amendments of or supplements to the foregoing,
if any.
-2-
<PAGE>
4. SERVICES.
Subject to the supervision of the Trust's Board of
Trustees, the Investment Adviser will be responsible for the
management of, and will provide a continuous investment program
for, the Fund, including investment research and management with
respect to all securities, investments, cash and cash equivalents
in the Fund. The Investment Adviser will determine from time to
time what securities and other investments will be purchased,
retained or sold by the Fund. The Investment Adviser will
provide the services rendered by it under this Agreement in
accordance with the Fund's investment objective, policies and
restrictions as stated in the Prospectus and resolutions of the
Trust's Board of Trustees. Without limiting the generality of
the foregoing, the Investment Adviser is hereby specifically
authorized to invest and reinvest the assets of the Fund, in its
discretion as investment adviser, in (i) variable amount demand
notes of corporate borrowers held by the Investment Adviser in
its capacity as fiduciary, agent and custodian and (ii)
securities of other investment companies whether or not the same
are advised or managed by the Investment Adviser or another
affiliated person of the Trust. The Investment Adviser further
agrees that it will:
(a) Establish and monitor general investment
criteria and policies for the Fund;
(b) Update the Fund's cash availability
throughout the day as required;
(c) Maintain historical tax lots for each
portfolio security held by the Fund;
(d) Transmit trades to the Trust's custodian for
proper settlement;
(e) Maintain appropriate books and records with
respect to the Fund's securities transactions;
(f) Supply the Trust and its Board of Trustees
with reports, statistical data and economic information
as requested; and
(g) Prepare a quarterly broker security
transaction summary and, if requested in advance,
monthly security transaction listing for the Fund.
5. OTHER COVENANTS.
The Investment Adviser agrees that it:
-3-
<PAGE>
(a) will comply with all applicable Rules and
Regulations of the Securities and Exchange Commission
and will in addition conduct its activities under this
Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing
such services as it uses in providing services to
fiduciary accounts for which it has investment
responsibilities;
(c) will place orders pursuant to its investment
determinations for the Fund either directly with the
issuer or with any broker or dealer. In executing
portfolio transactions and selecting brokers or
dealers, the Investment Adviser will use its best
efforts to seek on behalf of the Fund the best overall
terms available. In assessing the best overall terms
available for any transaction, the Investment Adviser
shall consider all factors that it deems relevant,
including the breadth of the market in the security,
the price of the security, the financial condition and
execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in
selecting the broker-dealer to execute a particular
transaction, the Investment Adviser may also consider
the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act
of 1934) provided to the Fund and other accounts over
which the Investment Adviser or an affiliate of the
Investment Adviser exercises investment discretion.
The Investment Adviser is authorized, subject to the
prior approval of the Trust's Board of Trustees, to pay
to a broker or dealer who provides such brokerage and
research services a commission for executing a
portfolio transaction for the Fund which is in excess
of the amount of commission another broker or dealer
would have charged for effecting that transaction if,
but only if, the investment Adviser determines in good
faith that such commission was reasonable in relation
to the value of the brokerage and research services
provided by such broker or dealer -- viewed in terms of
that particular transaction or in terms of the overall
responsibilities of the Investment Adviser to the Fund.
In addition, the Investment Adviser is authorized to
take into account the sale of shares of the Trust in
allocating purchase and sale orders for portfolio
securities to brokers or dealers (including brokers and
dealers that are affiliated with the Investment
Adviser, Sub-Adviser or the Trust's principal
underwriter), provided that the Investment Adviser
-4-
<PAGE>
believes that the quality of the transaction and the
commission are comparable to what they would be with
other qualified firms. In no instance, however, will
portfolio securities be purchased.from or sold to the
Investment Adviser, Sub-Adviser, the Trust's principal
underwriter, or any affiliated person of either the
Trust, the Investment Adviser, Sub-Adviser or the
principal underwriter, acting as principal in the
transaction, except to the extent permitted by the
Securities and Exchange Commission; and
(d) will maintain a policy and practice of
conducting its investment advisory services hereunder
independently of the commercial banking operations of
its affiliates. When the Investment Adviser makes
investment recommendations for the Fund, its investment
advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed
for purchase or sale for the Fund's account are
customers of the commercial department of any of the
Investment Adviser's affiliates. In dealing with
commercial customers, the Investment Adviser's
affiliates will not inquire or take into consideration
whether securities of those customers are held by the
Fund.
6. SERVICES NOT EXCLUSIVE.
The services furnished by the Investment Adviser
hereunder are deemed not to be exclusive, and the Investment
Adviser shall be free to furnish similar services to others so
long as its services under this Agreement are not impaired
thereby. To the extent that the purchase or sale of securities
or other investments of the same issuer may be deemed by the
Investment Adviser to be suitable for two or more accounts
managed by the Investment Adviser, the available securities or
investments may be allocated in a manner believed by the
Investment Adviser to be equitable to each account. It is
recognized that in some cases this procedure may adversely affect
the price paid or received by the Fund or the size of the
position obtainable for or disposed of by the Fund.
7. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for each Fund are the property of the
Trust and further agrees to surrender promptly to the Trust any
of such records upon the Trust's request. The Investment Adviser
further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by
Rule 3la-1 under the 1940 Act.
-5-
<PAGE>
8. EXPENSES.
During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with
its activities under this Agreement other than the cost of
securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any)
purchased or sold for the Fund. In addition, if in any fiscal
year the aggregate expenses of the Fund (as defined under the
securities regulations of any state having jurisdiction over the
Fund) exceed the expense limitations of any such state, the
Investment Adviser will reimburse the Trust, to the extent
required by state law, for 50% of such excess expenses of the
Fund. The Investment Adviser's obligation is not limited to the
amount of its fees hereunder. Such reimbursement, if any, will
be estimated and accrued daily and paid on a monthly basis.
9. COMPENSATION.
For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Investment
Adviser, and the Investment Adviser will accept as full
compensation therefor from the Trust, a fee, computed daily and
payable monthly, at the annual rate of .25% of the average daily
net assets of the Fund. Such fee shall be a separate charge to
the Fund and shall be the several (and not joint or joint and
several) obligation of the Fund.
10. LIMITATION OF LIABILITY.
The Investment Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith or negligence on
the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and
duties under this Agreement.
11. DURATION AND TERMINATION.
This Agreement shall become effective as of the
date hereof and, unless sooner terminated as provided herein,
shall continue in effect until November 30, 1992. Thereafter, if
not terminated, this Agreement shall automatically continue in
effect for successive annual periods ending on November 30,
PROVIDED such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the
Trust's Board of Trustees who are not interested persons of any
party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Trust's
-6-
<PAGE>
Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund. Notwithstanding the foregoing,
this Agreement may be terminated as to the Fund at any time,
without the payment of any penalty, by the Trust (by vote of the
Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund), or by the Investment
Adviser, on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in
this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the
same meaning as such terms have in the 1940 Act.)
12. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until
approved by vote of a majority of the outstanding voting
securities of the Fund.
13. MISCELLANEOUS.
The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction
or effect. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be
governed by New York law.
14. NAMES.
The names "Emerald Funds" and "Trustees of Emerald
Funds" refer respectively to the Trust created and the Trustees,
as trustees but not individually or personally, acting from time
to time under an Agreement and Declaration of Trust dated March
15, 1988, which is hereby referred to and a copy of which is on
file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not
binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the Trust
Property, and all persons dealing with any class of shares of the
-7-
<PAGE>
Trust must look solely to the Trust Property belonging to such
class for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year first above written.
EMERALD FUNDS
(a Massachusetts
business trust)
Attest:
/s/ Jeffrey A. Dalke By /s/ John G. Grimsley
- ----------------------------- -------------------------
[Seal]
Attest: BARNETT BANKS TRUST
COMPANY, N.A.
By /s/ McNeill Baker, Jr.
- ----------------------------- ------------------------
[Seal]
-8-
<PAGE>
EXHIBIT 5(f)
SUB-INVESTMENT ADVISORY AGREEMENT
(Treasury Trust Fund and Prime Trust Fund)
AGREEMENT made as of April 22, 1992 between BARNETT BANKS TRUST
COMPANY, N.A., a national banking association (herein called the "Adviser"), and
RODNEY SQUARE MANAGEMENT CORPORATION, a Delaware corporation (herein called the
"Sub-Adviser").
WHEREAS, EMERALD FUNDS, a Massachusetts business trust (herein called
the "Trust"), is registered as an open-end, management investment company under
the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, pursuant to an Investment Advisory Agreement by and between
the Trust and the Adviser (herein called the "Investment Advisory Agreement"),
the Adviser has agreed to recommend to the Board of Trustees of the Trust a sub-
adviser to manage the Treasury Trust Fund and Prime Trust Fund (the "Funds") of
the Trust and, upon proper authorization by the Board of Trustees and the Funds'
shareholders, to enter into appropriate contractual arrangements regarding the
provision of sub-advisory services to the Funds; and
WHEREAS, the Board of Trustees of the Trust and the Funds'
shareholders have approved this Agreement, and the Sub-Adviser is willing to
furnish sub-advisory services to the Funds upon the terms and conditions herein
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Adviser hereby appoints the Sub-Adviser to act as sub-
investment adviser to the Trust's Treasury Trust Fund and Prime Trust Fund for
the period and on the terms set forth in this Agreement. The Sub-Adviser
accepts such appointment and agrees to furnish the services herein set forth for
the compensation herein provided.
(b) In the event that the Trust establishes one or more portfolios
other than the Treasury Trust Fund and Prime Trust Fund with respect to which it
and the Adviser desire the Sub-Adviser to act as sub-adviser hereunder, the
Adviser shall notify the Sub-Adviser in writing. If the Sub-Adviser is willing
to render such services under this Agreement it shall notify the Trust and the
Adviser in writing whereupon such portfolio shall become a Fund hereunder and
shall be subject to the provisions of this Agreement to the same extent as the
two Funds named above in
<PAGE>
subparagraph (a) except to the extent that said provisions (including those
relating to the compensation payable by the Funds to the Sub-Adviser) are
modified with respect to such Fund in writing by the Trust, the Adviser and the
Sub-Adviser at the time.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Adviser and the
Trust's Board of Trustees, the Sub-Adviser will provide a continuous investment
program for each Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Funds. The
Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by each of the Funds. The Sub-
Adviser will provide the services rendered by it under this Agreement in
accordance with the investment criteria and policies established from time to
time for each Fund by the Adviser, each Fund's investment objective, policies
and restrictions as stated in the Trust's Prospectus and Statement of Additional
information for the Funds, and resolutions of the Trust's Board of Trustees.
The Sub-Adviser further agrees that it will:
(a) Provide information to the Funds' accountant for the purpose of
updating each Fund's cash availability throughout the day as required;
(b) Maintain historical tax lots for each portfolio security held by
the Funds;
(c) Transmit trades to the Trust's custodian for proper settlement;
(d) Maintain all books and records with respect to the Funds that are
required to be maintained under Rule 31a-1(f) under the 1940 Act;
(e) Supply the Trust and its Board of Trustees with reports,
statistical data and economic information as requested; and
(f) Prepare a quarterly broker security transaction summary and, if
requested in advance, monthly security transaction listing for each Fund.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it:
-2-
<PAGE>
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission and will in addition conduct its activities
under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has investment
responsibilities;
(c) will place orders pursuant to its investment determinations for
each Fund either directly with the issuer or with any broker or dealer. In
executing portfolio transactions and selecting brokers or dealers, the Sub-
Adviser will use its best efforts to seek on behalf of the Funds the best
overall terms available. In assessing the best overall terms available for any
transaction, the Sub-Adviser shall consider all factors that it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, both for the specific transaction
and on a continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction, the Sub-
Adviser may also consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934) provided to
the Funds and other accounts over which the Sub-Adviser or an affiliate of the
Sub-Adviser exercises investment discretion. The Sub-Adviser is authorized,
subject to the prior approval of the Adviser and the Trust's Board of Trustees,
to pay to a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for any of the Funds which is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Sub-Adviser
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer
- -- viewed in terms of that particular transaction or in terms of the overall
responsibilities of the Sub-Adviser to the Funds. In addition, the Sub-Adviser
is authorized to take into account the sale of shares of the Trust in allocating
purchase and sale orders for portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the Adviser, Sub-Adviser
or the Trust's principal underwriter), provided that the Sub-Adviser believes
that the quality of the transaction and the commission are comparable to what
they would be with other qualified firms. In no instance, however, will
portfolio securities be purchased from or sold to the Adviser, Sub-Adviser, the
Trust's principal underwriter or any affiliated person of either the Trust, the
Adviser, Sub-Adviser, or the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the Securities and Exchange
Commission; and
-3-
<PAGE>
(d) will maintain a policy and practice of conducting its sub-
investment advisory services hereunder independently of its, and any of its
affiliates', commercial banking operations. When the Sub-Adviser makes
investment recommendations for a Fund, its investment advisory personnel will
not inquire or take into consideration whether the issuers of securities
proposed for purchase or sale for the Fund's account are customers of its, or
any of its affiliates', commercial department. In dealing with commercial
customers, the commercial department of the Sub-Adviser, or any of its
affiliates, will not inquire or take into consideration whether securities of
those customers are held by the Funds.
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not to
be exclusive, and the Sub-Adviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
To the extent that the purchase or sale of securities or other investments of
the same issuer may be deemed by the Sub-Adviser to be suitable for two or more
accounts managed by the Sub-Adviser, the available securities or investments may
be allocated in a manner believed by the Sub-Adviser to be equitable to each
account. It is recognized that in some cases this procedure may adversely
affect, the price paid or received by a Fund or the size of the position
obtainable for or disposed of by a Fund.
5. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for each Fund
are the property of the Trust and further agrees to surrender promptly to the
Trust any of such records upon the Trust's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by it under this Agreement.
6. EXPENSES.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction costs, if any) purchased or sold for
any of the Funds. In addition, if in any fiscal year the aggregate expenses of
any Fund (as defined under the securities regulations of any state having
jurisdiction over such Fund) exceed the expense limitations of any such state,
the Trust may deduct from the fees to be paid hereunder, or the Sub-Adviser will
bear, to the extent required by state law, that portion of
-4-
<PAGE>
the excess which bears the same relation to the total of such excess as the Sub-
Adviser's fee hereunder bears to the total fee otherwise payable for the fiscal
year by the Trust pursuant to this Agreement and the administration agreement
between the Trust and its administrator with respect to such Fund. The Sub-
Adviser's obligation with respect to any Fund is limited to the amount of its
fees hereunder from that Fund. Such deduction or payment, if any, will be
estimated and accrued daily and paid on a monthly basis.
7. COMPENSATION.
By its joinder to this Agreement, the Trust will agree to pay the Sub-
Adviser a fee, computed daily and payable monthly, at the annual rate of .15% of
the average daily net assets of each of the Funds. Such fee as is attributable
to each Fund shall be a separate charge to such Fund and shall be the several
(and not joint or joint and several) obligation of each Fund. The Sub-Adviser
agrees to accept such fee from the Trust as full compensation for the services
provided and expenses assumed by it pursuant to this Agreement, and acknowledges
that it shall not be entitled to any further compensation from either the
Adviser or the Trust in respect of the same.
8. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Trust for any loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or any loss resulting from willful
misfeasance, bad faith or negligence on the part of the Sub-Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. DURATION AND TERMINATION.
This Agreement will become effective with respect to the Funds
listed in Section (1)(a) as of the date first above written. This Agreement
will be-come effective with respect to any additional Fund on the date of
receipt by the Trust and the Adviser of notice from the Sub-Adviser in
accordance with Section 1(b) hereof that the Sub-Adviser is willing to serve
as sub-adviser with respect to such Fund, provided that this Agreement (as
supplemented by the terms specified in any notice and agreement pursuant to
Section 1(b) hereof) shall have been approved by the shareholder(s) of the
Funds in accordance with the requirements of the 1940 Act. Unless sooner
terminated as provided herein, this Agreement shall continue in effect until
November 30, 1992. Thereafter, if not terminated, this Agreement
-5-
<PAGE>
shall automatically continue in effect as to a particular Fund for successive
annual periods ending on November 30, PROVIDED such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Trust's Board of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Trust's Board of Trustees or by vote of a majority of
the outstanding voting securities of such Fund. Notwithstanding the foregoing,
this Agreement may be terminated as to any Fund at any time, without the payment
of any penalty, by the Adviser or by the Trust (by vote of the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of such
Fund) on sixty days written notice to the Sub-Adviser, or by the Sub-Adviser, on
sixty days' written notice to the Trust, provided that in each such case, notice
shall be given simultaneously to the Adviser. In addition, notwithstanding
anything herein to the contrary, in the event of the termination of the
Investment Advisory Agreement with respect to a particular Fund for any reason
(whether by the Trust, by the Adviser or by operation of law) this Agreement
shall terminate with respect to the same Fund upon the effective date of such
termination of the Investment Advisory Agreement. This Agreement will also
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective as to a particular
Fund until approved by vote of a majority of the outstanding voting securities
of such Fund.
11. MISCELLANEOUS.
The captions in the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by Delaware law.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
BARNETT BANKS TRUST COMPANY, N.A.
BY:/s/ McNeill Baker, Jr.
--------------------------------
TITLE: Senior Vice President
---------------------------
RODNEY SQUARE MANAGEMENT CORPORATION
BY:/s/ Martin L. Klopping
--------------------------------
TITLE: President
---------------------------
-7-
<PAGE>
JOINDER
For good and valuable consideration, receipt of which is hereby
acknowledged, Emerald Funds (the "Trust") agrees to pay the compensation to the
Sub-Adviser provided for in Section 7 of the Sub-Investment Advisory Agreement
set forth above between Barnett Banks Trust Company, N.A. and Rodney Square
Management Corporation with respect to the Treasury Trust Fund of the Prime
Trust Fund of the Trust, subject always to the terms and conditions stated
therein.
The names "Emerald Funds" and "Trustees of Emerald Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the name or on behalf thereof by
any of the Trustees, representatives or agents are made not individually, but in
such capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the Trust Property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust Property belonging to such class for the enforcement of any claims
against the Trust.
EMERALD FUNDS
(a Massachusetts business trust)
By:/s/ John G. Grimsley
--------------------------------
Dated: April 22, 1992 Title: President
---------------------------
-8-
<PAGE>
EXHIBIT 5(g)
SUB-INVESTMENT ADVISORY AGREEMENT
(Tax-Exempt Fund)
AGREEMENT made as of April 22, 1992 between BARNETT BANKS TRUST
COMPANY, N.A., a national banking association (herein called the "Adviser"), and
RODNEY SQUARE MANAGEMENT CORPORATION, a Delaware corporation (herein called the
"Sub-Adviser").
WHEREAS, EMERALD FUNDS, a Massachusetts business trust (herein called
the "Trust"), is registered as an open-end, management investment company under
the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, pursuant to an Amended Investment Advisory Agreement by and
between the Trust and the Adviser (herein called the "Investment Advisory
Agreement"), the Adviser has agreed to furnish investment advisory services to
the Trust with respect to its Tax-Exempt Fund investment portfolio (the "Fund");
and
WHEREAS, the Investment Advisory Agreement authorizes the Adviser to
sub-contract investment advisory services with respect to the Fund to the Sub-
Adviser pursuant to a sub-advisory agreement agreeable to the Trust and approved
in accordance with the provisions of the 1940 Act; and
WHEREAS, the Board of Trustees of the Trust and the Fund's
shareholders have approved this Agreement, and the Sub-Adviser is willing to
furnish sub-advisory services to the Fund upon the terms and conditions herein
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
The Adviser hereby appoints the Sub-Adviser to act as sub-investment
adviser to the Trust's Tax-Exempt Fund for the period and on the terms set forth
in this Agreement. The Sub-Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Adviser and the
Trust's Board of Trustees, the Sub-Adviser will provide a continuous investment
program for the Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Fund. The Sub-
Adviser will determine from time to time what securities and
<PAGE>
other investments will be purchased, retained or sold by the Fund. The Sub-
Adviser will provide the services rendered by it under this Agreement in
accordance with the investment criteria and policies established from time to
time for the Fund by the Adviser, the Fund's investment objective, policies and
restrictions as stated in the Trust's Prospectus and Statement of Additional
Information for the Fund, and resolutions of the Trust's Board of Trustees.
The Sub-Adviser further agrees that it will:
(a) Provide information to the Fund's accountant for the purpose of
updating the Fund's cash availability throughout the day as required;
(b) Maintain historical tax lots for each portfolio security held by
the Fund;
(c) Transmit trades to the Trust's custodian for proper settlement;
(d) Maintain all books and records with respect to the Fund that are
required to be maintained under Rule 31a-1(f) under the 1940 Act;
(e) Supply the Trust and its Board of Trustees with reports,
statistical data and economic information as requested; and
(f) Prepare a quarterly broker security transaction summary and, if
requested in advance, monthly security transaction listing for the Fund.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission and will in addition conduct its activities
under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has investment
responsibilities;
(c) will place orders pursuant to its investment determinations for
the Fund either directly with the issuer or with any broker or dealer. In
executing portfolio transactions and selecting brokers or dealers, the Sub-
Adviser will use its best efforts to seek on behalf of the Fund the best overall
terms available. In assessing the best overall terms available for any
-2-
<PAGE>
transaction, the Sub-Adviser shall consider all factors that it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, both for the specific transaction
and on a continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction, the Sub-
Adviser may also consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934) provided to
the Fund or other accounts over which the Sub-Adviser or an affiliate of the
Sub-Adviser exercises investment discretion. The Sub-Adviser is authorized,
subject to the prior approval of the Adviser and the Trust's Board of Trustees,
to pay to a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Fund which is in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction if, but only if, the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer -- viewed in
terms of that particular transaction or in terms of the overall responsibilities
of the Sub-Adviser to the Fund. In addition, the Sub-Adviser is authorized to
take into account the sale of shares of the Trust in allocating purchase and
sale orders for portfolio securities to brokers or dealers (including brokers
and dealers that are affiliated with the Adviser, Sub-Adviser or the Trust's
principal underwriter), provided that the Sub-Adviser believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will portfolio securities be
purchased from or sold to the Adviser, Sub-Adviser, the Trust's principal
underwriter or any affiliated person of either the Trust, the Adviser, Sub-
Adviser, or the principal underwriter, acting as principal in the transaction,
except to the extent permitted by the Securities and Exchange Commission; and
(d) will maintain a policy and practice of conducting its sub-
investment advisory services hereunder independently of its, and any of its
affiliates', commercial banking operations. When the Sub-Adviser makes
investment recommendations for the Fund, its investment advisory personnel will
not inquire or take into consideration whether the issuers of securities
proposed for purchase or sale for the Fund's account are customers of its, or
any of its affiliates', commercial department. In dealing with commercial
customers, the commercial department of the Sub-Adviser, or any of its
affiliates, will not inquire or take into consideration whether securities of
those customers are held by the Fund.
-3-
<PAGE>
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not to
be exclusive, and the Sub-Adviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
To the extent that the purchase or sale of securities or other investments of
the same issuer may be deemed by the Sub-Adviser to be suitable for two or more
accounts managed by the Sub-Adviser, the available securities or investments may
be allocated in a manner believed by the Sub-Adviser to be equitable to each
account. It is recognized that in some cases this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtainable for or disposed of by the Fund.
5. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the Fund
are the property of the Trust and further agrees to surrender promptly to the
Trust any of such records upon the Trust's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by it under this Agreement.
6. EXPENSES.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction costs, if any) purchased or sold for
the Fund. In addition, if in any fiscal year the aggregate expenses of the Fund
(as defined under the securities regulations of any.state having jurisdiction
over the Fund) exceed the expense limitations of any such state, the Sub-Adviser
will reimburse the Trust, to the extent required by state law, for 50% of such
excess expenses of the Fund; PROVIDED that to the extent the Adviser reimburses
the Trust for such expenses, then the Sub-Adviser will make its reimbursement
hereunder to the Adviser instead; and PROVIDED FURTHER that such reimbursement
will not be required to the extent that the Sub-Adviser's fee has been reduced
pursuant to Section 7 hereof as a result of reimbursements made by the Adviser
to the Trust. The Sub-Adviser's obligation with respect to the Fund is limited
to the amount of its fees hereunder from the Fund. Such reimbursement, if any,
will be estimated and accrued daily and paid on a monthly basis.
-4-
<PAGE>
7. COMPENSATION.
For the services provided and the expenses assumed pursuant to this
Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser will accept
as full compensation therefor, a fee, computed daily and payable monthly, at the
annual rate of .15% of the average daily net assets of the Fund minus such
amount, if any, that the Adviser has reimbursed the Trust in the event the
aggregate expenses of the Fund exceed the expense limitations of any state
having jurisdiction over the Fund. Such fee shall be a separate charge to the
Fund and shall be the several (and not joint or joint and several) obligation of
the Fund. The Sub-Adviser acknowledges that it shall not be entitled to any
further compensation from either the Adviser or the Trust in respect of the
services provided and expenses assumed by it under this Agreement.
8. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Trust for any loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or any loss resulting from willful
misfeasance, bad faith or negligence on the part of the Sub-Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. DURATION AND TERMINATION.
This Agreement will become effective as of the date first above
written. Unless sooner terminated as provided herein, this Agreement shall
continue in effect until November 30, 1992. Thereafter, if not terminated, this
Agreement shall automatically continue in effect for successive annual periods
ending on November 30, PROVIDED such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Trust's
Board of Trustees who are not interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund. Notwithstanding the foregoing, this
Agreement may be terminated as to the Fund at any time, without the payment of
any penalty, by the Adviser or by the Trust (by vote of the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
Fund) on sixty days' written notice to the Sub-Adviser, or by the Sub-Adviser,
on sixty days' written notice to the Trust, provided that in each such case
notice shall be given simultaneously to the Adviser. In addition,
notwithstanding anything herein to
-5-
<PAGE>
the contrary, in the event of the termination of the Investment Advisory
Agreement with respect to the Fund for any reason (whether by the Trust, by the
Adviser or by operation of law) this Agreement shall terminate upon the
effective date of such termination of the Investment Advisory Agreement. This
Agreement will also immediately terminate in the event of its assignment. (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same meaning
as such terms have in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until approved by
vote of a majority of the outstanding voting securities of the Fund.
11. MISCELLANEOUS.
The captions in the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by Delaware law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
BARNETT BANKS TRUST COMPANY, N.A.
BY:/s/ McNeill Baker, Jr.
------------------------------
TITLE: Senior Vice President
-------------------------
RODNEY SQUARE MANAGEMENT CORPORATION
BY:/s/ Martin L. Klopping
--------------------------
TITLE: President
-------------------------
-6-
[cad 179]<PAGE>
EXHIBIT 5(i)
AMENDMENT NO. 1 TO INVESTMENT ADVISORY AGREEMENT
This Amendment, dated as of the 4th day of January, 1994, is entered
into between EMERALD FUNDS (the "Trust"), a Massachusetts business trust, and
BARNETT BANKS TRUST COMPANY, N.A. (the "Investment Adviser"), a national banking
association.
WHEREAS, the Trust and the Investment Adviser have entered into an
Investment Advisory Agreement dated as of June 28, 1991 (the "Advisory
Agreement"), pursuant to which the Trust has appointed the Investment Adviser to
act as investment adviser to the Trust for certain of its portfolios, including
its Equity Fund, Short-Term Fixed Income Fund, U.S. Government Securities Fund
and Florida Tax-Exempt Fund; and
WHEREAS, Section 1(b) of the Advisory Agreement provides that in the
event the Trust establishes one or more additional investment portfolios with
respect to which it desires to retain the Investment Adviser to act as
investment adviser under the Advisory Agreement, the Trust shall so notify the
Investment Adviser in writing and if the Investment Adviser is willing to render
such services it shall notify the Trust in writing, and the compensation to be
paid to the Investment Adviser shall be that which is agreed to in writing by
the Trust and the Investment Adviser; and
WHEREAS, pursuant to section 1(b) of the Advisory Agreement, the Trust
has notified the Investment Adviser that it has established the Small
Capitalization Fund, Balanced Fund and Managed Bond Fund (the "Additional
Funds"), and that it desires to retain the Investment Adviser to act as the
investment adviser therefor, and the Investment Adviser has notified the Trust
that it is willing to serve as investment adviser for the Additional Funds; and
WHEREAS, Section 11 of the Advisory Agreement provides that said
Agreement may be amended as provided therein, and the parties hereto which to
amend the investment advisory fee rate for the Short-Term Fixed Income Fund;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. The Trust hereby appoints the Investment Adviser to
act as investment adviser to the Trust for the Additional Funds for the period
and on the terms set forth in the Advisory Agreement. The Investment Adviser
hereby accepts
<PAGE>
such appointment and agrees to render the services set forth in the Advisory
Agreement for the compensation herein provided.
2. COMPENSATION. For the services provided and the expenses assumed
pursuant to the Advisory Agreement, the Trust will pay the Investment Adviser,
and the Investment Adviser will accept as full compensation therefor from the
Trust, a fee, computed daily and payable monthly, at the following annual rates:
1.00% of the average daily net assets of the Small Capitalization Fund; .60% of
the average daily net assets of the Balanced Fund; and .40% of the average daily
net assets of the Managed Bond Fund.
In addition, Section 8 of the Advisory Agreement is hereby amended to
provide that for the services provided and the expenses assumed pursuant to the
Advisory Agreement with respect to the Short-Term Fixed Income Fund, the Trust
will pay the Investment Adviser, and the Investment Adviser will accept as full
compensation therefor from the Trust, a fee, computed daily and payable monthly,
at the annual rate of .40% of said Fund's average daily net assets.
Such fee as is attributable to each Additional Fund and the Short-Term
Fixed Income Fund shall be a separate charge to such Fund and shall be the
several (and not joint or joint and several) obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Additional Fund or
the Short-Term Fixed Income Fund (as defined under the securities regulations of
any state having jurisdiction over such Fund) exceed the expense limitations of
any such state, the Trust may deduct from the fees to be paid hereunder, or the
Investment Adviser will bear, to the extent required by state law, that portion
of the excess which bears the same relation to the total of such excess as the
Investment Adviser's fee hereunder with respect to such Fund bears to the total
fees otherwise payable with respect to such Fund for the fiscal year by the
Trust hereunder and under the administration agreement between the Trust and its
administrator. The Investment Adviser's obligation is not limited to the amount
of its fees hereunder. Such deduction or payment, if any, will be estimated and
accrued daily and paid or a monthly basis.
3. CAPITALIZED TERMS. From and after the date hereof, the term
"Funds" as used in the Advisory Agreement shall be deemed to include the
Additional Funds. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Advisory Agreement.
4. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full
<PAGE>
force and effect and is hereby ratified and confirmed in all respects as
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the date and year first above written.
EMERALD FUNDS
By: /s/John G. Grimsley
-------------------------------
Title
BARNETT BANKS TRUST COMPANY, N.A.
By: /s/McNeill Baker, Jr.
-------------------------------
Title SVP
<PAGE>
EXHIBIT 5(j)
AMENDMENT NO. 2 TO INVESTMENT ADVISORY AGREEMENT
This Amendment, dated as of the 26th day of December, 1995, is
entered into between EMERALD FUNDS (the "Trust"), a Massachusetts business
trust, and BARNETT BANKS TRUST COMPANY, N.A. (the "Investment Adviser"), a
national banking association.
WHEREAS, the Trust and the Investment Adviser have entered into
an Investment Advisory Agreement dated as of June 28, 1991 (the "Advisory
Agreement"), pursuant to which the Trust has appointed the Investment Adviser
to act as investment adviser to the Trust for certain of its portfolios,
including its Equity Fund, U.S. Government Securities Fund, Florida
Tax-Exempt Fund, Small Capitalization Fund, Balanced Fund, Managed Bond Fund
and Short-Term Fixed Income Fund; and
WHEREAS, Section 1(b) of the Advisory Agreement provides that in
the event the Trust establishes one or more additional investment portfolios
with respect to which it desires to retain the Investment Adviser to act as
investment adviser under the Advisory Agreement, the Trust shall so notify
the Investment Adviser in writing and if the Investment Adviser is willing to
render such services it shall notify the Trust in writing, and the
compensation to be paid to the Investment Adviser shall be that which is
agreed to in writing by the Trust and the Investment Adviser; and
WHEREAS, pursuant to Section 1(b) of the Advisory Agreement, the
Trust has notified the Investment Adviser that it has established the
International Equity Fund and Equity Value Fund (the "Additional Funds"), and
that it desires to retain the Investment Adviser to act as the investment
adviser therefor, and the Investment Adviser has notified the Trust that it
is willing to serve as investment adviser for the Additional Funds; and
WHEREAS, pursuant to Section 1(b) of the Advisory Agreement
provides that said Additional Funds will be subject to the provisions of the
Advisory Agreement to the same extent as the Funds named in subparagraph (a)
thereof except to the extent said provisions are modified with respect to an
Additional Fund in writing by the Trust and the Investment Adviser; and
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. The Trust hereby appoints the Investment
Adviser to act as investment adviser to the Trust for the Additional Funds
for the period and on the terms set forth in the Advisory Agreement. The
Investment Adviser hereby accepts such appointment and agrees to render the
services set forth in the Advisory Agreement for the compensation herein
provided.
<PAGE>
2. SUBCONTRACTORS.
It is understood that the Investment Adviser may from time to
time employ or associate with such person or persons as the Investment
Adviser may believe to be particularly fitted to assist it in the performance
of this Agreement with respect to the Additional Funds; provided, however,
that the compensation of such person or persons shall be paid by the
Investment Adviser. In addition, notwithstanding any such employment or
association, the Investment Adviser shall itself (a) establish and monitor
general investment criteria and policies for the Additional Funds, (b) review
and analyze on a periodic basis the Additional Funds' portfolio holdings and
transactions in order to determine their appropriateness in light of the
Additional Funds' shareholder base, and (c) review and analyze on a periodic
basis the policies established by any sub-adviser for the Additional Funds
with respect to the placement of orders for the purchase and sale of
portfolio securities. Subject to the foregoing, it is agreed that investment
advisory services to an Additional Fund may be provided by a sub-investment
adviser (the "Sub-Adviser") pursuant to a sub-advisory agreement agreeable to
the Trust and approved in accordance with the provisions of the 1940 Act (the
"Sub-Advisory Agreement").
3. COMPENSATION. For the services provided and the expenses
assumed pursuant to the Advisory Agreement, the Trust will pay the Investment
Adviser, and the Investment Adviser will accept as full compensation therefor
from the Trust, a fee, computed daily and payable monthly, at the following
annual rates: 1.00% of the average daily net assets of the International
Equity Fund, and .60% of the average daily net assets of the Equity Value
Fund.
Such fee as is attributable to each Additional Fund shall be the
several (and not joint or joint and several) obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Additional Fund
(as defined under the securities regulations of any state having jurisdiction
over such Fund) exceed the expense limitations of any such state, the Trust
may deduct from the fees to be paid hereunder, or the Investment Adviser will
bear, to the extent required by state law, that portion of the excess which
bears the same relation to the total of such excess as the Investment
Adviser's fee hereunder with respect to such Fund bears to the total fees
otherwise payable with respect to such Fund for the fiscal year by the Trust
hereunder and under the administration agreement between the Trust and its
administrator. The Investment Adviser's obligation is not limited to the
amount of its fees hereunder. Such deduction or payment, if any, will be
estimated and accrued daily and paid on a monthly basis.
-2-
<PAGE>
4. CAPITALIZED TERMS. From and after the date hereof, the term
"Funds" as used in the Advisory Agreement shall be deemed to include the
Additional Funds. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Advisory Agreement.
5. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as
of the date and year first above written.
EMERALD FUNDS
By: /s/ John G. Grimsley
---------------------------------
Title
BARNETT BANKS TRUST COMPANY, N.A.
By: /s/ McNeill Baker, Jr.
---------------------------------
Title Senior Vice President
-3-
<PAGE>
EXHIBIT 6(b)
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
This Amendment, dated as of the 22nd day of December, 1995, is
entered into between EMERALD FUNDS (the "Trust"), a Massachusetts business
trust, and Emerald Asset Management, Inc., a Florida Corporation ("EAM").
WHEREAS, the Trust and EAM have entered into a Distribution
Agreement dated as of January 4, 1994 (the "Distribution Agreement"),
pursuant to which the Trust has appointed EAM to act as Distributor to the
Trust for its portfolios, including its Equity Fund, U.S. Government
Securities Fund, Florida Tax-Exempt Fund, Small Capitalization Fund, Balanced
Fund, Managed Bond Fund, Short-Term Fixed Income Fund, Prime Fund, Treasury
Fund, Tax-Exempt Fund, Prime Trust Fund and Treasury Trust Fund; and
WHEREAS, the Trust has established the International Equity Fund
and Equity Value Fund, (the "Additional Funds") and desires to retain EAM to
act as the distributor therefor, and EAM has notified the Trust that it is
willing to serve as distributor for the Additional Funds; and
WHEREAS, Section VII of the Distribution Agreement provides that
said Agreement may be amended as provided therein;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. The Trust hereby appoints EAM to act as the
distributor to the Trust for the Additional Funds for the period and on the
terms set forth in the Distribution Agreement. EAM hereby accepts such
appointment and agrees to render the services set forth in the Distribution
Agreement.
2. CAPITALIZED TERMS. From and after the date hereof, the term
"Funds" as used in the Distribution Agreement shall be deemed to include the
Additional Funds. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Distribution Agreement.
3. MISCELLANEOUS. Except to the extent supplemented hereby, the
Distribution Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Addendum as
of the date and year first above written.
EMERALD FUNDS
Attest/s/ Jeffrey A. Dalke By:/s/ William Blundin
--------------------------- -----------------------
Secretary Title
EMERALD ASSET MANAGEMENT, INC.
Attest By:/s/ William Blundin
-------------------------- ------------------------
Secretary Title Vice Chairman
-2-
<PAGE>
EXHIBIT 8(b)
AMENDMENT
AMENDMENT made as of this day of , 1996 to that
certain Custody Agreement, dated as of October 31, 1988, between Emerald Funds
(the "Fund") and The Bank of New York (the "Custodian") (such Custody Agreement
herein referred as the "Agreement").
W I T N E S S E T H:
That in consideration of the mutual agreements and covenants herein
contained, the Custodian and the Fund do hereby amend the Agreement as follows:
1. The following Article XVIII is hereby added to the Agreement in
its entirety:
"ARTICLE XVIII
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF ANY SERIES HELD
OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as sub-
custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I
hereto ("Foreign Sub-Custodians") to carry out
<PAGE>
their respective responsibilities in accordance with the terms of the
sub-custodian agreement between each such Foreign Sub-Custodian and the
Custodian, copies of which have been previously delivered to the Fund and
receipt of which is hereby acknowledged (each such agreement, a "Foreign
Sub-Custodian Agreement"). Upon receipt of a Certificate, together with a
certified resolution substantially in the form attached as Exhibit E of the
Fund's Board of Trustees, the Fund may designate any additional foreign
sub-custodian with which the Custodian has an agreement for such entity to
act as the Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of
a Certificate from the Fund, the Custodian shall cease the employment of
any one or more Foreign Sub-Custodians for maintaining custody of the
Fund's assets and such Foreign Sub-Custodian shall be deemed deleted from
Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in
the form previously delivered to the Fund and will not be amended in a way
that materially adversely affects the Fund without the Fund's prior written
consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each
Foreign Sub-Custodian. At the election of the Fund, it shall be entitled
to be subrogated
-2-
<PAGE>
to the rights of the Custodian with respect to any claims by the Fund or
any Series against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Fund
or any Series if and to the extent that the Fund or such Series has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian Agreement, use reasonable
efforts to arrange for the independent accountants of the Fund to be
afforded access to the books and records of any Foreign Sub-Custodian
insofar as such books and records relate to the performance of such Foreign
Sub-Custodian under its agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as
mutually agreed upon, statements in respect of the securities and other
assets of each Series held by Foreign Sub-Custodians, including but not
limited to, an identification of entities having possession of each Series'
Foreign Securities and other assets, and advices or notifications of any
transfers of Foreign Securities to or from each custodial account
maintained by a Foreign Sub-Custodian for the Custodian on behalf of the
Series.
6. The Custodian shall furnish annually to the Fund, as mutually
agreed upon, information concerning the Foreign
-3-
<PAGE>
Sub-Custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
Fund's initial approval of such Foreign Sub-Custodians and, in any event,
shall include information pertaining to (i) the Foreign Custodians'
financial strength, general reputation and standing in the countries in
which they are located and their ability to provide the custodial services
required, and (ii) whether the Foreign Sub-Custodians would provide a level
of safeguards for safekeeping and custody of securities not materially
different form those prevailing in the United States. The Custodian shall
monitor the general operating performance of each Foreign Sub-Custodian.
The Custodian agrees that it will use reasonable care in monitoring
compliance by each Foreign Sub-Custodian with the terms of the relevant
Foreign Sub-Custodian Agreement and that if it learns of any breach of such
Foreign Sub-Custodian Agreement believed by the Custodian to have a
material adverse effect on the Fund or any Series it will promptly notify
the Fund of such breach. The Custodian also agrees to use reasonable and
diligent efforts to enforce its rights under the relevant Foreign
Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's
Foreign Securities, including
-4-
<PAGE>
without limitation, notices of corporate action, proxies and proxy
solicitation materials.
8. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any
Series and delivery of securities maintained for the account of such Series
may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivery of securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with
the expectation of receiving later payment for such securities from such
purchaser or dealer.
9. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating
to any actions or omissions of any Foreign Sub-Custodian the sole
responsibility and liability of the Custodian shall be to take appropriate
action at the Fund's expense to recover such loss or damage from the
Foreign Sub-Custodian. It is expressly understood and agreed that the
Custodian's sole responsibility and liability shall be limited to amounts
so recovered from the Foreign Sub-Custodian."
2. The Agreement and this Amendment thereto shall together
constitute a single agreement, and all provisions of the
-5-
<PAGE>
Agreement not hereby amended shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective corporate officers, thereunto duly authorized,
as of the day and year first above written.
EMERALD FUNDS, INC.
By:___________________________
Name:
Title:
THE BANK OF NEW YORK
By:___________________________
Name:
Title:
-6-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
GLOBAL CUSTODY AGENT BANKS
COUNTRY AGENT RELATIONSHIP
- ------- ----- ------------
<S> <C> <C>
Argentina The Bank of Boston Correspondent
Florida 99
1005 Buenos Aires
Argentina
Australia ANZ Banking Group Limited Correspondent
530 Collins Street (Level 25)
Melbourne, Victoria 3001
Australia
Austria GiroCredit Bank AG Correspondent
Schubertring 5
A-1011 Vienna
Austria
Bangladesh Standard Chartered Bank Correspondent
18-20 Motijheel Commercial Area
P.O. Box 536
Dhaka 1000
Bangladesh
Belgium Banque Bruxelles Lambert Correspondent
Administration Centrale
Cours Saint Michel 60
B-1040 Brussels
Belgium
Botswana *Standard Bank of Correspondent
South Africa Limited
46 Marshall Street
Johannesburg 2001
South Africa
Brazil The Bank Of Boston Correspondent
Rua Libero Badaro 501
01009 Sao Paulo
Brazil
Canada Royal Trust/Global Securities Service Correspondent
200 Bay Street
South Tower, 4th Floor
Toronto, Ontario M5J 2J5
Canada
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY AGENT RELATIONSHIP
- ------- ----- ------------
<S> <C> <C>
Royal Bank of Canada Correspondent
200 Bay Street
Toronto, Ontario M5J 2J5
Canada
Chile The Bank of Boston Correspondent
Moneda 799 - Casilla 1946
Santiago
Chile
China Standard Chartered Bank Correspondent
8/F Edinburgh Tower
The Landmark,
15 Queens Road Central
Hong Kong
Colombia Cititrust, Colombia Correspondent
Avenida, Jimenez N8-89
Bogota, Colombia
Colombia
Czech Republic Ceskoslovenska Obchodni Banka Correspondent
Na Prikope 14
11520 Prague
Czech Republic
Denmark Den Danske Bank Correspondent
2-12 Holmens Kanal
DK-1092 Copenhagen
Denmark
Euromarket Cedel, S.A. Correspondent
67, Blvd. Grande Duchesse Charlotte
L-1010 Luxembourg
Finland Union Bank of Finland Correspondent
Aleksanterinkatu 30
Helsinki
Finland
France Banque Paribas Correspondent
BP 141, 3 rue d'Antin
75078 Paris Cedex 02
France
CCF Correspondent
Avenue Robert Schuman
51100 Reims
Paris, France
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY AGENT RELATIONSHIP
- ------- ----- ------------
<S> <C> <C>
Germany Dresdner Bank AG Correspondent
Jurgen-Ponto-Platz 1
Postfach 11 06 61
6000 Frankfurt 11
Germany
Ghana *Standard Bank of Correspondent
South Africa Limited
46 Marshall Street
Johannesburg 2001
South Africa
Greece Alpha Credit Bank Correspondent
40 Stadiou Street
GR10252 Athens
Greece
Hong Kong HongKong & Shanghai Correspondent
Banking Corp.
Securities Department BL1
1 Queen's Road Central
Hong Kong
Hungary Citibank Hungary Correspondent
Custody Operations
Budapest V.
Deak Ferenc utca 5.1.154
Hungary
India HongKong & Shanghai Correspondent
Banking Corporation
52/60 Mahatma Gandhi Road
Bombay 400 001
India
State Bank of India Correspondent
Main Branch (Securities Division)
Bombay Samachar Marg,
Bombay 400023
India
Indonesia HongKong & Shanghai Correspondent
Banking Corporation
World Trade Centre - 4th Fl.
JL. Jend. Sudirman Kav 29-31
P.O. Box 2307
Jakarta 10023
Indonesia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY AGENT RELATIONSHIP
- ------- ----- ------------
<S> <C> <C>
Ireland Allied Irish Bank Correspondent
Custodial Services
P.O. Box 518
I.F.S.C.
Dublin 1
Ireland
Israel Israel Discount Bank Limited Correspondent
27-31 Yehuda Halevi Street
65-546 Tel Aviv
Israel
Italy Banca Commerciale Italiana Correspondent
Area Regolanento
Piazza Della Scala
20121 Milano
Italy
Japan Yasuda Trust & Banking Co. Correspondent
2-1 Yaesu, 1-Chome
Chuo-ku, Tokyo 103
Japan
Korea Bank of Seoul Correspondent
Investment Trust Division
10-1, Namdaemoon-Ro
20-GA Jung-Gu
Seoul
Korea
Luxembourg Cedel, S.A. Correspondent
67, Blvd. Grande Duchesse Charlotte
L-1010 Luxembourg
Malaysia HongKong Bank Malaysia Berhad Correspondent
Securities Department
2, Leboh Ampang
50100 Kuala Lumpur
Malaysia
Mexico Banco Nacional de Mexico Correspondent
Avenida Juarez 104
Piso 11
Mexico 06040, DF
Mexico
Morocco Banque Commerciale du Marocco Correspondent
21 Boulevard Moulay Youssef
Casablanca, 20000
Morocco
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY AGENT RELATIONSHIP
- ------- ----- ------------
<S> <C> <C>
Netherlands Mees Pierson N.V. Correspondent
Rokin 55
1012 KK
Amsterdam, Netherlands
New Zealand ANZ Banking Group Limited Correspondent
UDC Tower
113-119, The Terrace
Wellington
New Zealand
Norway Den norske Bank Correspondent
Head Office
P.O. Box 1171 Sentrum
0107 Oslo 1
Pakistan Standard Chartered Bank Correspondent
Box 4896
Ismail Ibrahim Chundrigar Road
Karachi 2
Pakistan
Peru Citibank, N.A. Correspondent
Ave Camino Real 456 - Piso 5
Lima 27 Peru
Peru
Philippines HongKong & Shanghai Banking Corp. Correspondent
HongKong Bank- Centre
San Miguel Avenue
Ortigas Centre
Pasig, Metro Manila
Philippines
Poland Bank Handlowy w Warszawie S.A. Corespondent
Custody Department
Capital Markets Center - V Branch
ul. Kasprzaka 18/20
01-211 Warzawa
Poland
Portugal Banco Comercial Portugues Correspondent
Avenida Jose Malhoa
Lote 1686, 7th Floor
1000 Libson
Portugal
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY AGENT RELATIONSHIP
- ------- ----- ------------
<S> <C> <C>
Singapore United Overseas Bank Correspondent
80 Raffles Place
17th Floor
Singapore 0104
South Africa Standard Bank of Correspondent
South Africa Limited
46 Marshall Street
Johannesburg 2001
South Africa
Spain Banco Bilbao Vizcaya Correspondent
Invex Department
Clara Del Rey, 26-3rd Floor
28002 Madrid
Spain
Sri Lanka Standard Chartered Bank Correspondent
P.O. Box 27
17 Janadhipathi Mawatha
Colombo 1
Sri Lanka
Sweden Skandinaviska Enskilda Banken Correspondent
Trust Department
Jakobsgatan 6
Stockholm S-106 40
Sweden
Switzerland Union Bank of Switzerland Correspondent
Bahnofstrasse 45
8021 Zurich
Switzerland
Taiwan HongKong & Shanghai Banking Corp. Correspondent
333 Section 1
Keelung Road
Taipei 10548
Taiwan
Thailand Siam Commercial Bank Correspondent
1060 Phetchburi Road
Building 2, 4th floor
Bankgkok 10400
Thailand
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY AGENT RELATIONSHIP
- ------- ----- ------------
<S> <C> <C>
Turkey Citibank, N.A. Correspondent
Abdi Ipekci Cad. 65
80200 Macka
Istanbul
Turkey
United Kingdom The Bank of New York Correspondent
46 Berkeley Street
London, W1X6AA
England
Uruguay Banco De Boston Correspondent
P.O. Box 90
Zabala 1463
11000 Monterideo
Uruguay
Venezuela Citibank N.A. Correspondent
Camelitas a Altagraeia
Edificio Citibank
Carcas 1010-A
Venezuela
Zimbabwe *Standard Bank of Correspondent
South Africa Limited
46 Marshall Street
Johannesburg 2001
South Africa
</TABLE>
* 17f5 Documentation not yet complete
<PAGE>
EXHIBIT 9(b)
EMERALD FUNDS
SHAREHOLDER PROCESSING AND SERVICES PLAN
FOR EMERALD SERVICE SHARES
Section 1. Upon the recommendation of the Administrator of Emerald
Funds (the "Trust"), any officer of the Trust is authorized to execute and
deliver, in the name and on behalf of the Trust, written agreements based on
the form attached hereto as Appendix A or any other form duly approved by the
Trust's Board of Trustees ("Agreements") with securities dealers, financial
institutions and other industry professionals that are shareholders or
dealers of record or which have a servicing relationship ("Service
Organizations") with the beneficial owners of Emerald Service Shares of the
Trust's Prime Fund, Treasury Fund or Tax-Exempt Fund (the "Funds"). Pursuant
to such Agreements, Service Organizations shall provide shareholder
processing and liaison services as set forth therein to their clients who
beneficially own Emerald Service Shares of the Funds in consideration of a
fee, computed monthly in the manner set forth in the Agreements, at an
aggregate annual rate of up to .35% of the average daily net asset value of
the Emerald Service Shares beneficially owned by such clients. The Trust's
Administrator, Distributor, Investment Adviser and their affiliates are
eligible to become Service Organizations and to receive fees under this Plan.
All expenses incurred by a Fund in connection with the Agreements and the
implementation of this Plan shall be borne entirely by the holders of the
Emerald Service Shares of the particular Fund involved.
Section 2. The Trust's Administrator shall monitor the arrangements
pertaining to the Trust's Agreements with Service Organizations. The
Administrator shall not, however, be obliged by this Plan to recommend, and
the Trust shall not be obliged to execute, any Agreement with any qualifying
Service Organization.
Section 3. So long as this Plan is in effect, the Trust's Administrator
shall provide to the Trust's Board of Trustees, and the Trustees shall
review, at least quarterly, a written report of the amounts expended pursuant
to this Plan and the purposes for which such expenditures were made.
Section 4. Unless sooner terminated, this Plan shall continue until
November 30, 1996 and thereafter shall continue automatically for successive
annual periods provided such continuance is approved at least annually by a
majority of the Board of Trustees, including a majority of the Trustees who
are not "interested persons," as defined in the Investment Company
<PAGE>
Act of 1940, of the Trust and have no direct or indirect financial interest
in the operation of this Plan or in any Agreement related to this Plan (the
"Disinterested Trustees").
Section 5. This Plan may be amended at any time with respect to any
Fund by the Trust's Board of Trustees, provided that any material amendment
of the terms of this Plan shall become effective only upon the approvals set
forth in Section 4.
Section 6. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees.
Section 7. While this Plan is in effect, the selection and nomination
of those Trustees who are not "interested persons" (as defined in the Act) of
the Trust shall be committed to the discretion of such non-interested
Trustees.
Section 8. The Trust originally adopted this Plan as of May 10, 1989
and readopted this Plan with certain revisions as of April 26, 1990, May 7,
1992 and February 1, 1996.
-2-
<PAGE>
SERVICING AGREEMENT
For
EMERALD FUNDS
Ladies and Gentlemen:
We wish to enter into this Agreement ("Agreement") with you concerning
the provision, to the extent provided below, of services to our clients
("Clients") who may from time to time beneficially own Emerald Service Shares
of the Prime, Treasury and Tax-Exempt Funds (collectively the "Funds")
offered by the Emerald Funds (the "Trust"). Emerald Service Shares of the
Funds are hereinafter referred to "Shares."
The terms and conditions of this Agreement are as follows:
Section 1. Except as otherwise designated in Appendix A to this
Agreement, we agree to provide:(1) general shareholder liaison services with
respect to our Clients. "General shareholder liaison services" include, but
are not limited to, (i) answering Client inquiries regarding account status
and history, the manner in which purchases, exchanges and redemptions of
shares may be effected and certain other matters pertaining to the Clients'
investments; (ii) assisting Clients in designating and changing dividend
options, account designations and addresses; and (iii) providing such other
similar services as you or a Client may reasonably request.
Section 2. Except as otherwise designated in Appendix A to this
Agreement, we also agree to provide shareholder processing services with
respect to Clients who may from time to time beneficially own Shares.
"Shareholder processing services" may include some or all of the following:(1)
(i) providing necessary personnel and facilities to establish and maintain
shareholder accounts and records for Clients; (ii) assisting in aggregating
and processing purchase, exchange and redemption transactions; (iii) placing
net purchase and redemption orders with the Fund's distributor; (iv)
arranging for wiring of funds; (v) transmitting and receiving funds in
connection with Client orders to purchase or redeem Shares; (vi) processing
dividend payments; (vii) verifying and guaranteeing Client signatures in
connection with redemption orders and transfers and changes in
Client-
- -----------------------------
1. Services may be modified or omitted in the particular case
and items relettered or renumbered.
<PAGE>
designated accounts, as necessary; (viii) providing periodic
statements showing a Client's account balance and, to the extent practicable,
integrating such information with other Client transactions otherwise
effected through or with us; (ix) furnishing (either separately or on an
integrated basis with other reports sent to a Client by us) periodic
statements and confirmations of purchases, exchanges and redemptions; (x)
transmitting on behalf of the Funds, proxy statements, annual reports,
updating prospectuses and other communications from the Funds to Clients;
(xi) receiving, tabulating and transmitting to the Funds proxies executed by
Clients with respect to shareholder meetings; (xii) providing the information
to the Funds necessary for accounting or subaccounting; and (xiii) providing
such other similar services as you or a Client may reasonably request.
Section 3. You recognize that we may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the
conduct of activities by Federally chartered and supervised banks and other
banking organizations. As such, we may be restricted in the activities we may
undertake and for which we may be paid and, therefore, we will perform only
those activities which are consistent with our statutory and regulatory
obligations. We will act solely as an agent for, upon the order of, and for
the account of, our Clients.
Section 4. We will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in our business, or any personnel employed by us)
as may be reasonably necessary or beneficial in order to provide the
aforementioned services and assistance to Clients.
Section 5. Neither we nor any of our officers, employees or agents are
authorized to make any representations concerning you or the Shares except
those contained in the Funds' applicable prospectuses and statements of
additional information for the Shares, copies of which will be supplied by
you to us, or in such supplemental literature or advertising as may be
authorized by you in writing.
Section 6. For all purposes of this Agreement we will be deemed to be
an independent contractor, and will have no authority to act as agent for you
or the Funds in any matter or in any respect. By our execution of this
Agreement, we agree to and do release, indemnify and hold you harmless from
and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by us or our officers,
employees or agents regarding our responsibilities hereunder for the
purchase, redemption, transfer or registration of Retail Shares by or on
behalf of Clients. We and our employees will, upon request, be available
during normal business
-2-
<PAGE>
hours to consult with you or your designees concerning the performance of our
responsibilities under this Agreement.
Section 7. In consideration of the services and facilities provided by
us hereunder, you will pay to us, and we will accept as full payment
therefor, the fees set forth in Appendix A to this Agreement at annual rates
based on the average daily net asset value of the Shares beneficially owned
by our Clients for whom we are the dealer of record or holder of record or
with whom we have a servicing relationship (the "Clients' Shares"). Said
fees will be computed daily and payable monthly. For purposes of determining
the fee payable under this Section 7, the average daily net asset value of
the Clients' Shares will be computed in the manner specified in the Funds'
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of the particular
Shares involved for purposes of purchases and redemptions. The fee rate(s)
stated above may be prospectively increased or decreased by you, in your sole
discretion, at any time upon notice to us. Further, you may, in your
discretion and without notice, suspend or withdraw the sale of Shares,
including the sale of Shares for the account of any Client or Clients. All
fees payable by you under this Agreement with respect to the Emerald Service
Shares of a particular Fund shall be payable entirely out of the net
investment income allocable to such Emerald Service Shares, and no shares of
the Fund involved, other than the Emerald Service Shares, and no other Class
of beneficial interest of the Trust (or a separate series of shares of any
such Class) shall be responsible for such fees.
Section 8. Any person authorized to direct the disposition of the
monies paid or payable by you pursuant to this Agreement will provide to your
Board of Trustees, and the Board will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made. In connection with such reviews, we will furnish you
or your designees with such information as you or they may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Clients of the services described herein), and will otherwise
cooperate with you and your designees (including, without limitation, any
auditors designated by you), in connection with the preparation of reports to
your Board of Trustees concerning this Agreement and the monies paid or
payable by you pursuant hereto, as well as any other reports or filings that
may be required by law.
Section 9. You may enter into other similar Agreements with any other
person or persons without our consent.
Section 10. We hereby represent, warrant and agree that in no event
will any of the services provided by us hereunder be primarily intended to
result in the sale of any shares issued by
-3-
<PAGE>
you; that the compensation payable to us hereunder, together with any other
compensation payable to us by our Clients in connection with the investment
of their assets in Shares of the Funds, will be disclosed by us to our
Clients, will be authorized by our Clients and will not result in an
excessive or unreasonable fee to us. We will not engage in activities
pursuant to this Agreement which constitute acting as a broker or dealer
under state law unless we have obtained the licenses required by such law.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by you or your designee. Unless
sooner terminated, this Agreement will continue until November 30, 1996, and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by you in the
manner described in Section 14. This Agreement is terminable with respect to
the Shares of any Fund, without penalty, at any time by you (which
termination may be by a vote of a majority of the Disinterested Trustees as
defined in Section 14 or by vote of the holders of a majority of the
outstanding Shares of such Fund) or by us upon notice to the other party
hereto. This Agreement will also terminate automatically in the event of its
assignment (as defined in the Act).
Section 12. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to
such other address as either party shall so provide the other.
Section 13. This Agreement will be construed in accordance with the
internal laws of the State of Massachusetts, without giving effect to
principles of conflict of laws.
Section 14. This Agreement has been approved by vote of a majority of
(i) your Board of Trustees and (ii) those Trustees who are not "interested
persons" (as defined in the Act) of you and have no direct or indirect
financial interest in the operation of the Plans adopted by you regarding the
provision of services hereunder, or in any agreement related to such Plans,
cast in person at a meeting called for the purpose of voting on such approval
("Disinterested Trustees").
Section 15. The names "Emerald Funds" and "Trustees of Emerald Funds"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the
-4-
<PAGE>
name or on behalf thereof by any of its Trustees, representative or agents
are made not individually, but in such capacities, and are not binding upon
any of the Trustees, shareholders, or representatives of the Trust
personally, but bind only the Trust property, and all persons dealing with
any Class of shares of the Trust must look solely to the Trust property
belonging to such Class for the enforcement of any claims against the Trust.
Very truly yours,
----------------------------------------
Service Organization Name
(Please Print or Type)
---------------------------------------
Address
---------------------------------------
City State Zip Code
Date: By:
-------------------------- -------------------------------------
Authorized Signature
Accepted:
EMERALD FUNDS
Date: By:
-------------------------- ------------------------------------
-5-
<PAGE>
Date:
---------------------------
EMERALD FUNDS
Appendix A to
Servicing Agreement for Emerald Service Shares
FEE SCHEDULE
Pursuant to the terms and conditions set forth in the attached Servicing
Agreement (the "Agreement"), Service Organization agrees to provide the
services described in Section 1 and Section 2 of the Agreement as follows:
Yes No
General Shareholder Liaison Services: / / / /
Shareholder Processing Services: / / / /
Pursuant to the terms and conditions set forth in the Agreement
(including Section 7 thereof), Service Organization will accept as full
payment for the services provided by it as specified above, fees (calculated
daily and payable monthly) at the following rates based on the average daily
net asset value of the Shares beneficially owned by Service Organization's
Clients:
Service Fee for General
Shareholder Liaison Services. . . . . . . . . . . . ____%
Shareholder Processing Fee. . . . . . . . . . . . . ____%
-6-
<PAGE>
EXHIBIT 9(c)
EMERALD FUNDS
SHAREHOLDER PROCESSING PLAN FOR RETAIL SHARES
Section 1. Upon the recommendation of the administrator of Emerald
Funds (the "Trust"), any officer of the Trust is authorized to execute and
deliver, in the name and on behalf of the Trust, written agreements based on
the form attached hereto as Appendix A or any other form duly approved by the
Trust's Board of Trustees ("Agreements") with securities dealers, financial
institutions and other industry professionals that are shareholders or
dealers of record or which have a servicing relationship ("Service
Organizations") with the beneficial owners of Retail Shares of the Trust's
equity, bond and money market funds (the "Funds"). Pursuant to such
Agreements, Service Organizations shall provide shareholder processing
services as set forth therein to their clients who beneficially own Retail
Shares of the Funds in consideration of a fee, computed monthly in the manner
set forth in the Agreements, at an annual rate of up to .25% of the average
daily net asset value of the Retail Shares beneficially owned by such
clients. The Trust's Administrator, Distributor, Investment Adviser and
their affiliates are eligible to become Service Organizations and to receive
fees under this Plan. All expenses incurred by a Fund in connection with the
Agreements and the implementation of this Plan shall be borne entirely by the
holders of the Retail Shares of the particular Fund involved.
Section 2. The Trust's Administrator shall monitor the arrangements
pertaining to the Trust's Agreements with Service Organizations. The
Administrator shall not, however, be obliged by this Plan to recommend, and
the Trust shall not be obliged to execute, any Agreement with any qualifying
Service Organization.
Section 3. So long as this Plan is in effect, the Trust's Administrator
shall provide to the Trust's Board of Trustees, and the Trustees shall
review, at least quarterly, a written report of the amounts expended pursuant
to this Plan and the purposes for which such expenditures were made.
Section 4. Unless sooner terminated, this Plan shall continue until
November 30, 1996 and thereafter shall continue automatically for successive
annual periods provided such continuance is approved at least annually by a
majority of the Board of Trustees, including a majority of the Trustees who
are not "interested persons," as defined in the Investment Company Act of
1940, of the Trust and have no direct or indirect
<PAGE>
financial interest in the operation of this Plan or in any Agreement related
to this Plan (the "Disinterested Trustees").
Section 5. This Plan may be amended at any time with respect to any
Fund by the Trust's Board of Trustees, provided that any material amendment
of the terms of this Plan shall become effective only upon the approvals set
forth in Section 4.
Section 6. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees.
Section 7. While this Plan is in effect, the selection and nomination
of those Trustees who are not "interested persons" (as defined in the Act) of
the Trust shall be committed to the discretion of such non-interested
Trustees.
Section 8. The Trust adopted this Plan as of February 1, 1996.
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<PAGE>
DISTRIBUTION AND SERVICE AGREEMENT FOR RETAIL SHARES
OF
EMERALD FUNDS
Ladies and Gentlemen:
We wish to enter into this Agreement ("Agreement") with you concerning
the provision, to the extent provided below, of services to our clients
("Clients") who may from time to time beneficially own Retail Shares of
investment portfolios (collectively the "Funds") now or hereafter offered by
the Emerald Funds (the "Trust"). Retail shares of the Funds are hereinafter
referred to "Shares."
The terms and conditions of this Agreement are as follows:
Section 1. Except as otherwise designated in Appendix A to this
Agreement, we agree to provide:(1) (a) reasonable assistance in connection with
the distribution of Shares to Clients as requested from time to time by you,
which assistance may include forwarding sales literature and advertising
provided by you or your distributor for Clients; and/or (b) general
shareholder liaison services with respect to our Clients. "General
shareholder liaison services" include, but are not limited to, (i) answering
Client inquiries regarding account status and history, the manner in which
purchases, exchanges and redemptions of shares may be effected and certain
other matters pertaining to the Clients' investments; (ii) assisting Clients
in designating and changing dividend options, account designations and
addresses; and (iii) providing such other similar services as you or a Client
may reasonably request.
Section 2. Except as otherwise designated in Appendix A to this
Agreement, we also agree to provide shareholder processing services with
respect to Clients who may from time to time beneficially own Shares.
"Shareholder processing services" may include some or all of the following:(1)
(i) providing necessary personnel and facilities to establish and maintain
shareholder accounts and records for Clients; (ii) assisting in aggregating
and processing purchase, exchange and redemption transactions; (iii) placing
net purchase and redemption orders with the Fund's distributor; (iv)
arranging for wiring of funds; (v) transmitting
- --------------------------
1. Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE>
and receiving funds in connection with Client orders to purchase or redeem
Shares; (vi) processing dividend payments; (vii) verifying and guaranteeing
Client signatures in connection with redemption orders and transfers and
changes in Client-designated accounts, as necessary; (viii) providing
periodic statements showing a Client's account balance and, to the extent
practicable, integrating such information with other Client transactions
otherwise effected through or with us; (ix) furnishing (either separately or
on an integrated basis with other reports sent to a Client by us) periodic
statements and confirmations of purchases, exchanges and redemptions; (x)
transmitting on behalf of the Funds, proxy statements, annual reports,
updating prospectuses and other communications from the Funds to Clients;
(xi) receiving, tabulating and transmitting to the Funds proxies executed by
Clients with respect to shareholder meetings; (xii) providing the information
to the Funds necessary for accounting or subaccounting; and (xiii) providing
such other similar services as you or a Client may reasonably request.
Section 3. You recognize that we may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the
conduct of activities by Federally chartered and supervised banks and other
banking organizations. As such, we may be restricted in the activities we may
undertake and for which we may be paid and, therefore, we will perform only
those activities which are consistent with our statutory and regulatory
obligations. We will act solely as an agent for, upon the order of, and for
the account of, our Clients.
Section 4. We will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in our business, or any personnel employed by us)
as may be reasonably necessary or beneficial in order to provide the
aforementioned services and assistance to Clients.
Section 5. Neither we nor any of our officers, employees or agents are
authorized to make any representations concerning you or the Shares except
those contained in the Funds' applicable prospectuses and statements of
additional information for the Shares, copies of which will be supplied by
you to us, or in such supplemental literature or advertising as may be
authorized by you in writing.
Section 6. For all purposes of this Agreement we will be deemed to be
an independent contractor, and will have no authority to act as agent for you
or the Funds in any matter or in any respect. By our execution of this
Agreement, we agree to and do release, indemnify and hold you harmless from
and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by us or our officers,
employees or agents regarding our responsibilities
- 2 -
<PAGE>
hereunder for the purchase, redemption, transfer or registration of Retail
Shares by or on behalf of Clients. We and our employees will, upon request,
be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement.
Section 7. In consideration of the services and facilities provided by
us hereunder, you will pay to us, and we will accept as full payment
therefor, the fees set forth in Appendix A to this Agreement at annual rates
based on the average daily net asset value of the Shares beneficially owned
by our Clients for whom we are the dealer of record or holder of record or
with whom we have a servicing relationship (the "Clients' Shares"). Said
fees will be computed daily and payable monthly. For purposes of determining
the fee payable under this Section 7, the average daily net asset value of
the Clients' Shares will be computed in the manner specified in the Funds'
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of the particular
Shares involved for purposes of purchases and redemptions. The fee rate(s)
stated above may be prospectively increased or decreased by you, in your sole
discretion, at any time upon notice to us. Further, you may, in your
discretion and without notice, suspend or withdraw the sale of Shares,
including the sale of Shares for the account of any Client or Clients. All
fees payable by you under this Agreement with respect to the Retail Shares of
a particular Fund shall be payable entirely out of the net investment income
allocable to such Retail Shares, and no shares of the Fund involved, other
than the Retail Shares, and no other Class of beneficial interest of the
Trust (or a separate series of shares of any such Class) shall be responsible
for such fees.
Section 8. Any person authorized to direct the disposition of the
monies paid or payable by you pursuant to this Agreement will provide to your
Board of Trustees, and the Board will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made. In connection with such reviews, we will furnish you
or your designees with such information as you or they may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Clients of the services described herein), and will otherwise
cooperate with you and your designees (including, without limitation, any
auditors designated by you), in connection with the preparation of reports to
your Board of Trustees concerning this Agreement and the monies paid or
payable by you pursuant hereto, as well as any other reports or filings that
may be required by law.
Section 9. You may enter into other similar Agreements with any other
person or persons without our consent.
- 3 -
<PAGE>
Section 10. We hereby represent, warrant and agree that the
compensation payable to us hereunder, together with any other compensation
payable to us by our Clients in connection with the investment of their
assets in Shares of the Funds, will be disclosed by us to our Clients, will
be authorized by our Clients and will not result in an excessive or
unreasonable fee to us. We will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law
unless we have obtained the licenses required by such law.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by you or your designee. Unless
sooner terminated, this Agreement will continue until November 30, 1996, and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by you in the
manner described in Section 14. This Agreement is terminable with respect to
the Shares of any Fund, without penalty, at any time by you (which
termination may be by a vote of a majority of the Disinterested Trustees as
defined in Section 14 or by vote of the holders of a majority of the
outstanding Shares of such Fund) or by us upon notice to the other party
hereto. This Agreement will also terminate automatically in the event of its
assignment (as defined in the Act).
Section 12. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to
such other address as either party shall so provide the other.
Section 13. This Agreement will be construed in accordance with the
internal laws of the State of Massachusetts, without giving effect to
principles of conflict of laws.
Section 14. This Agreement has been approved by vote of a majority of
(i) your Board of Trustees and (ii) those Trustees who are not "interested
persons" (as defined in the Act) of you and have no direct or indirect
financial interest in the operation of the Plans adopted by you regarding the
provision of services hereunder, or in any agreement related to such Plans,
cast in person at a meeting called for the purpose of voting on such approval
("Disinterested Trustees").
Section 15. The names "Emerald Funds" and "Trustees of Emerald Funds"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the
-4-
<PAGE>
name or on behalf thereof by any of its Trustees, representative or agents
are made not individually, but in such capacities, and are not binding upon
any of the Trustees, shareholders, or representatives of the Trust
personally, but bind only the Trust property, and all persons dealing with
any Class of shares of the Trust must look solely to the Trust property
belonging to such Class for the enforcement of any claims against the Trust.
Very truly yours,
-------------------------------------------
Service Organization Name
(Please Print or Type)
-------------------------------------------
Address
-------------------------------------------
City State Zip Code
Date: By:
------------------------ ---------------------------------------
Authorized Signature
Accepted:
EMERALD FUNDS
Date: By:
------------------------ ------------------------------------
-5-
<PAGE>
Date:
----------------------
EMERALD FUNDS
Appendix A to
Distribution and Service Agreement for Retail Shares
FEE SCHEDULE
Pursuant to the terms and conditions set forth in the attached
Distribution and Service Agreement (the "Agreement"), Service Organization
agrees to provide the services described in Section 1 and Section 2 of the
Agreement as follows:
Yes No
Distribution and General Shareholder Liaison Services: / / / /
Shareholder Processing Services: / / / /
Pursuant to the terms and conditions set forth in the Agreement
(including Section 7 thereof), Service Organization will accept as full
payment for the services provided by it as specified above, fees (calculated
daily and payable monthly) at the following rates based on the average daily
net asset value of the Shares beneficially owned by Service Organization's
Clients:
Distribution and Service Fee for General
Shareholder Liaison Services. . . . . . . . . . . . 0.25%
Shareholder Processing Fee. . . . . . . . . . . . . 0.25%
-6-
<PAGE>
EXHIBIT 9(g)
EMERALD FUNDS
AMENDMENT NO. 3 TO ADMINISTRATION AGREEMENT
This Amendment, dated as of the 26th of December, 1995 is entered
into between EMERALD FUNDS (the "Trust"), a Massachusetts business trust, and
CONCORD HOLDING CORPORATION ("Holding") a Delaware corporation.
WHEREAS, the Trust and Holding are parties to an Administration
Agreement dated as of March 1, 1994 (the "Agreement") wherein Concord has
agreed to provide administration services to the Trust's Equity and Fixed
Income Funds (the "Funds"); and
WHEREAS, the Trust has established the International Equity Fund
and Equity Value Fund (the "Additional Funds") and the Trust wishes to retain
Holding to act as administrator therefor, and Holding has advised the Trust
that it is willing to serve as administrator for the Additional Funds; and
WHEREAS, Section VI of the Agreement provides that said Agreement
may be amended as provided therein;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. The Trust hereby appoints Holding to act as
administrator to the Trust for the Additional Funds for the period and on the
terms set forth in the Administration Agreement. Holding hereby accepts such
appointment and agrees to render the services set forth in the Administration
Agreement for the compensation therein provided.
2. CAPITALIZED TERMS. From and after the date hereof, the term
"Funds" as used in the Administration Agreement shall be deemed to include
the Additional Funds. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Administration
Agreement.
3. MISCELLANEOUS. Except to the extent supplemented hereby, the
Administration Agreement shall remain unchanged and in full force and effect
is hereby ratified and confirmed in all respects.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 3
as of the 26th of December, 1995.
EMERALD FUNDS CONCORD HOLDING CORPORATION
By:John G. Grimsley By:William Blundin
--------------------- -----------------------
John G. Grimsley, President Title:Vice Chairman
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<PAGE>
EXHIBIT (9)(h)
ADMINISTRATION AGREEMENT
This Administration Agreement is made as of this 1st day of April, 1996
between EMERALD FUNDS, a Massachusetts business trust (herein called the
"Trust"), and BISYS FUND SERVICES LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES,
an Ohio limited partnership (herein called "BISYS").
WHEREAS, the Trust is an open-end, management investment company and is so
registered under the Investment Company Act of 1940;
WHEREAS, the Trust intends to offer one or more classes of shares of
beneficial interest ("Shares") in each series either now or hereafter offered
(individually, a "Fund,"collectively, the "Funds") by the Trust; and
WHEREAS, the Trust desires to retain BISYS as its administrator to provide
it with certain administrative services with respect to each of the Funds set
forth in Schedule A attached hereto, and BISYS is willing to render such
services.
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Trust has delivered to BISYS copies of each of the following documents
and will deliver to it all future amendments and supplements thereto, if any:
(a) The Trust's Agreement and Declaration of Trust and all
amendments thereto (such Agreement and Declaration of Trust, as
presently in effect and as it shall from time to time be amended,
herein called the "Trust's Declaration");
(b) The Code of Regulations of the Trust (such Code of Regulations
as presently in effect and as it shall from time to time be amended,
herein called the "Code of Regulations");
(c) Resolutions of the Board of Trustees of the Trust authorizing
the execution and delivery of this Agreement;
(d) The Trust's Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), and the Investment Company Act of
1940, as amended (the "1940 Act"), on Form N-1A as filed with the
Securities and Exchange Commission (the "Commission") on March 21,
1988 relating to the Shares and any amendments thereto;
<PAGE>
(e) Notification of registration of the Trust under the 1940 Act
on Form N-8A as filed with the Commission;
(f) Prospectuses and statements of additional information of the
Trust with respect to the Funds (such prospectuses and statements of
additional information, as presently in effect and as they shall
from time to time be amended and supplemented, herein called
individually the "Prospectus" and collectively the "Prospectuses");
and
(g) Copies of the Trust's Distribution, Service and Shareholder
Processing Plans (the "Plans") with respect to certain classes of
shares of the Funds.
II. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Trust hereby appoints BISYS as
its Administrator for each of the Funds on the terms and for the period
set forth in this Agreement and BISYS hereby accepts such appointment and
agrees to perform the services and duties set forth in this Section II for
the compensation provided in this Section. The Trust understands that
BISYS now acts and will continue to act as administrator of various
investment companies and fiduciary of other managed accounts, and the
Trust has no objection to BISYS's so acting. In addition, it is
understood that the persons employed by BISYS to assist in the performance
of its duties hereunder will not devote their full time to such services
and nothing herein contained shall be deemed to limit or restrict the
right of BISYS or any affiliate of BISYS to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature.
2. SERVICES AND DUTIES.
(a) BISYS agrees to perform the services enumerated below in
accordance with the service standards set forth in Schedule B
attached hereto and made a part hereof. As Administrator, and
subject to the supervision and control of the Trust's Board of
Trustees, BISYS will provide facilities, equipment, statistical and
research data, clerical, accounting and bookkeeping services,
internal compliance services relating to accounting and legal
matters, and personnel to carry out all administrative services
required for operation of the business and affairs of the Funds,
other than those investment advisory functions which are to be
performed by the Trust's investment adviser (the "Adviser") pursuant
to the Advisory Agreement, the services of Emerald Asset Management,
Inc. ("EAM") as Distributor pursuant to the Distribution Agreement,
those services to be performed by the Trust's custodian and transfer
agent, those services to be provided by BISYS, EAM or others under
the Plans, and those services normally performed by the Trust's
counsel and auditors. BISYS's responsibilities include without
limitation the following services (except to the extent the same are
provided by BISYS, EAM or others under the Plans):
2
<PAGE>
(1) Providing a facility to receive purchase and redemption
orders via toll-free IN-WATTS telephone lines;
(2) Providing for the preparing, supervising and mailing of
confirmations for all purchase and redemption orders;
(3) Providing and supervising the operation of order-taking
facilities, including an automated data processing system to
process purchase and redemption orders received by EAM (BISYS
assumes responsibility for the accuracy of the data
transmitted for processing or storage);
(4) Overseeing the performance of The Bank of New York under
the Custody Agreement and the performance of BISYS Fund
Services, Inc. under the Transfer Agency Agreement with
respect to shareholder accounts;
(5) Except to the extent the same is performed by a Service
Organization under a Plan, making available information
concerning each Fund to its shareholder accounts; distributing
written communications to each Fund's shareholders of record
such as periodic listings of each Fund's securities, annual
and semi-annual reports, and Prospectuses and supplements
thereto; and handling problems relating to shareholders and
calls relating to administrative matters; and
(6) Providing and supervising the services of employees
("relationship coordinators") whose principal responsibility
and function shall be to preserve and strengthen each Fund's
relationships with its shareholders.
(b) BISYS shall assure that persons are available to transmit
redemption requests to the Trust's transfer agent as promptly as
practicable.
(c) BISYS shall assure that persons are available to transmit
orders accepted for the purchase of Shares to the transfer agent of
the Trust as promptly as practicable.
(d) BISYS shall participate in the periodic updating of the
Prospectuses and shall accumulate information for and, subject to
approval by the Trust's Treasurer and legal counsel, coordinate the
preparation, filing, printing and dissemination of reports to the
Funds' shareholders and the Commission, including but not limited to
annual reports and semi-annual reports on Form N-SAR, notices
pursuant to Rule 24f-2 and proxy materials.
3
<PAGE>
(e) BISYS shall compute, or provide for the computation of, the
per share net asset value and public offering price for each class
of each Fund on each business day.
(f) BISYS shall calculate, or provide for the calculation of,
dividends and capital gain distributions to be paid to the
shareholders of each Fund in conformity with Subchapter M of the
Internal Revenue Code.
(g) BISYS shall pay all costs and expenses of maintaining the
offices of the Trust, wherever located, and shall arrange for
payment by the Funds of all expenses payable by the Funds.
(h) BISYS, after consultation with legal counsel for the Trust,
shall determine the jurisdictions in which the Shares shall be
registered or qualified for sale and, in connection therewith, shall
be responsible for the maintenance of the registration or
qualification of the Shares for sale under the securities laws of
any state. Payment of share registration fees and any fees for
qualifying or continuing the qualification of the Funds shall be
made by the Funds.
(i) BISYS shall provide the services of certain persons who may be
appointed as officers of the Trust by the Trust's Board of Trustees.
(j) BISYS shall oversee the maintenance by The Bank of New York
and BISYS Fund Services, Inc. of the books and records required
under the 1940 Act in connection with the performance of the Custody
Agreement and Transfer Agency Agreement, and shall maintain, or
provide for the maintenance of, such other books and records (other
than those required to be maintained by the Adviser) as may be
required by law or may be required for the proper operation of the
business and affairs of the Funds. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, BISYS agrees that all
such books and records which it maintains, or is responsible for
maintaining, for the Funds are the property of the Trust and further
agrees to surrender promptly to the Trust any of such books and
records upon the Trust's request. BISYS further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act said
books and records required to be maintained by Rule 31a-1 under said
Act.
(k) BISYS shall coordinate the preparation of the Funds' federal,
state and local income tax returns.
(l) BISYS shall prepare and, subject to approval of the Trust's
Treasurer, disseminate to the Trust's Trustees the Trust's and each
Fund's quarterly financial statements and schedules of investments,
and shall prepare such other reports relating to the business and
affairs of the Trust and each Fund (not otherwise appropriately
prepared by the Adviser, EAM, the Trust's counsel or auditors, or
4
<PAGE>
by BISYS, EAM or others pursuant to a Plan) as the officers and
Trustees of the Trust may from time to time reasonably request in
connection with the performance of their duties.
(m) In performing its duties as Administrator of the Trust, BISYS
will act in conformity with the Trust's Declaration, Code of
Regulations and Prospectuses and with the instructions and
directions of the Board of Trustees of the Trust and will conform to
and comply with the requirements of the 1940 Act and all other
applicable federal or state laws and regulations.
3. SUBCONTRACTORS. It is understood that BISYS may from time to time
employ or associate with itself such person or persons as BISYS may
believe to be particularly fitted to assist in the performance of this
Agreement; provided, however, that the compensation of such person or
persons shall be paid by BISYS and that BISYS shall be as fully
responsible to the Trust for the acts and omissions of any subcontractor
as it is for its own acts and omissions. Without limiting the generality
of the foregoing, it is understood that BISYS intends to enter into an
agreement ( the "Fund Accounting Agreement") with BISYS Fund Services,
Inc. (the "Fund Accountant") under which said company will provide certain
accounting, bookkeeping, pricing and dividend and distribution calculation
services with respect to the Funds. It is further understood that each
Fund shall reimburse the Fund Accountant for its reasonable out-of-pocket
expenses in providing services under the Fund Accounting Agreement,
including without limitation the following:
(a) All freight and other delivery and bonding charges incurred by
the Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone transmission and telecopy or other
electronic transmission expenses incurred by the Fund Accountant in
communication with the Trust, the Trust's investment adviser or
custodian, dealers or others as required for the Fund Accountant to
perform the services to be provided under the Fund Accounting
Agreement;
(c) The cost of obtaining security market quotes from independent
pricing services;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses the Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly authorized; and
(f) Any additional expenses reasonably incurred by the Fund
Accountant in the performance of its duties and obligations under
the Fund Accounting Agreement.
5
<PAGE>
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in
Section II, subsection 3 and in this subsection 4, BISYS shall pay all
expenses incurred by it in performing its services and duties as
Administrator. Other expenses to be incurred in the operation of the
Funds (other than those borne by the Adviser) including taxes, interest,
brokerage fees and commissions, if any, fees of Trustees who are not
officers, directors, partners, employees or holders of five percent or
more of the outstanding voting securities of the Adviser or BISYS or any
of their affiliates, Securities and Exchange Commission fees and state
blue sky registration or qualification fees, advisory fees, charges of
custodians, transfer and dividend disbursing agents' fees, payments under
the Plans, certain insurance premiums, outside auditing and legal
expenses, costs of maintaining corporate existence, costs attributable to
shareholder services, including without limitation telephone and personnel
expenses, costs of preparing and printing Prospectuses for regulatory
purposes, costs of shareholders' reports and Trust meetings and any
extraordinary expenses will be borne by the Trust.
5. COMPENSATION. For the services provided and the expenses assumed
as Administrator pursuant to Section II of this Agreement (including the
services provided by subcontractors pursuant to Section II, subsection 3
of this Agreement), the Trust will pay BISYS a fee, computed daily and
payable monthly, in accordance with Schedule C attached hereto and made a
part hereof. Such fee as is attributable to each Fund shall be a separate
(and not joint or joint and several) obligation of each such Fund.
Notwithstanding anything to the contrary herein, if in any fiscal year the
aggregate expenses of any Fund (as defined under the securities
regulations of any state having jurisdiction over such Fund) exceed the
expense limitations of any such state, the Trust may deduct from the fees
to be paid hereunder, or BISYS will bear, to the extent required by state
law, that portion of such excess which bears the same relation to the
total of such excess as BISYS' fee hereunder bears to the total fee
otherwise payable for the fiscal year by the Trust pursuant to this
Agreement and the Advisory Agreement between the Trust and the Adviser
with respect to such Fund. BISYS' obligation is not limited to the amount
of its fees hereunder. Such deduction or payment, if any, will be
estimated and accrued daily and paid on a monthly basis.
III. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and the Funds and
their prior or present shareholders or those persons or entities who respond to
EAM's inquiries concerning investment in the Trust, and except as provided
below, will not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder. Any other use by
BISYS of the information and records referred to above may be made only after
prior notification to and approval in writing by the Trust. Such approval shall
not be unreasonably withheld and may not be withheld where (i) BISYS may be
exposed to civil or criminal contempt proceedings for failure to divulge such
information; (ii) BISYS is requested to divulge such information by duly
constituted authorities; or (iii) BISYS is so requested by the Trust.
6
<PAGE>
IV. LIMITATION OF LIABILITY
BISYS shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on its part in the performance of its duties or from its reckless
disregard of its obligations and duties under this Agreement. Any person, even
though also an officer, director, partner, employee or agent of BISYS, who may
be or become an officer, Trustee, employee or agent of the Trust, shall be
deemed, when rendering services to the Trust or to any Fund, or acting on any
business of the Trust or of any Fund (other than services or business in
connection with BISYS's duties hereunder) to be rendering such services to or
acting solely for the Trust or Fund and not as an officer, director, partner,
employee or agent or one under the control or direction of BISYS even though
paid by BISYS.
V. DURATION AND TERMINATION
This Agreement shall continue in effect with respect to each Fund, unless
earlier terminated by either party hereto as provided hereunder, until
, 1999, and thereafter shall continue for successive one-year terms; provided,
however, that either party hereto may terminate this Agreement at any time
during any such renewal term for any or no reason by the provision of 90 days'
written notice to the other party, and provided further that such continuance is
specifically reviewed and approved at least annually (a) by the vote of a
majority of the Trust's Board of Trustees or by the vote of a majority of the
outstanding voting securities of such Fund and (b) by the majority of the
Trust's Trustees who are not parties to the Agreement or interested persons (as
defined in the 1940 Act) of any party to this Agreement. This Agreement is also
terminable at any time during the initial or any renewal term upon mutual
agreement of the parties hereto or for "cause" (as defined below) by the party
alleging "cause," in either case on not less than 30 days notice by the Trust's
Board of Trustees or by BISYS; provided that no notice shall be required with
respect to clauses (b), (c) or (e) of the definition of "cause" below.
If after such termination for so long as BISYS, with the written consent
of the Trust, in fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit hereto, the provisions
of this Agreement, including without limitation, the provisions dealing with
indemnification, shall continue in full force and effect. Compensation due
BISYS and unpaid by the Trust upon such termination shall be immediately due and
payable upon and notwithstanding such termination. BISYS shall be entitled to
collect from the Trust, in addition to the compensation described under Section
II, subsection 5 hereof, the amount of all of BISYS' reasonable cash
disbursements for services in connection with BISYS' activities in effecting
such termination, including without limitation, the delivery to the Trust and/or
its designees of the Trust's property, records, instruments and documents, or
any copies thereof. Subsequent to such termination, for a reasonable fee, BISYS
will provide the Trust with reasonable access to all Trust documents or records,
if any, remaining in its possession.
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<PAGE>
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, negligence or reckless disregard on the part of the
party to be terminated with respect to its obligations and duties set forth
herein; (b) a judicial, regulatory or administrative ruling or order in which
the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) financial difficulties on the part
of the party to be terminated which is evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent, or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; (d) any circumstance which substantially impairs the performance of
the obligations and duties of the party to be terminated, or the ability to
perform those obligations and duties, as contemplated herein; or (e) the
existence of a performance standard deficiency, as such term is defined in
Schedule B hereto.
If, for any reason other than mutual agreement or "cause" as defined
above, during the initial term of this Agreement, BISYS is replaced as fund
administrator, or if a third party is added to perform all or a part of the
services provided by BISYS under this Agreement (excluding any subcontractor
appointed by BISYS as provided in Section II, subsection 3 hereof), then the
Trust shall make a one-time cash payment, as liquidated damages, to BISYS equal
to the balance due BISYS for the remainder of the initial term of this
Agreement, assuming for purposes of calculation of the payment that the asset
level of the Trust on the date BISYS is replaced, or a third party is added,
will remain constant for the balance of the initial term.
VI. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party against whom
an enforcement of the change, waiver, discharge or termination is sought.
VII. NOTICES
Notices of any kind to be given to the Trust hereunder by BISYS shall be
in writing and shall be duly given if mailed or delivered to the Trust at 50
North Laura Street, Suite 3300, Jacksonville, Florida 32202, Attention: John G.
Grimsley, Esq., President, with a copy to Drinker Biddle & Reath, Philadelphia
National Bank Building, Suite 1100, Philadelphia, Pennsylvania 19107, Attention:
Jeffrey A. Dalke, or at such other address or to such individual as shall be so
specified by the Trust to BISYS. Notices of any kind to be given to BISYS
hereunder by the Trust shall be in writing and shall be duly given if mailed or
delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219, Attention:
Stephen G. Mintos, or at such other address or to such individual as BISYS shall
specify to the Trust.
8
<PAGE>
VIII. MISCELLANEOUS
1. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section VIII, subsection 2
hereof, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by Ohio
law; PROVIDED, HOWEVER, that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or regulation of the Commission
thereunder.
2. ASSIGNMENT. This Agreement and the rights and duties hereunder
shall not be assignable by either of the parties hereto except by the specific
written consent of the other party. This subsection 3 shall not limit or in any
way affect BISYS' right to appoint sub-contractors pursuant to Section II,
subsection 3 hereof.
3. NAMES. The names "Emerald Funds" and "Trustees of Emerald Funds"
refer respectively to the Trust created and the Trustees, as Trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988 which is hereby referred to and a copy
of which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and the principal office of the Trust. The obligations of
"Emerald Funds" entered into in the name or on behalf thereof by any of its
Trustees, representative or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the Trust property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust property belonging to such class for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
EMERALD FUNDS
By: _______________________________________
President
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS FUND SERVICES, INC.,
GENERAL PARTNER
By: ________________________________________
Executive Vice President
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<PAGE>
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
BETWEEN EMERALD FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
FUNDS
This Agreement shall apply to all share classes of all Funds of Emerald Funds,
either now or hereafter created. The current share classes and Funds are set
forth below.
Emerald Equity Fund - Retail Shares and Institutional Shares
Emerald Small Capitalization Fund - Retail Shares and Institutional Shares
Emerald Balanced Fund - Retail Shares and Institutional Shares
Emerald Short-Term Fixed Income
Fund - Retail Shares and Institutional Shares
Emerald U.S. Government Securities
Fund - Retail Shares and Institutional Shares
Emerald Managed Bond Fund - Retail Shares and Institutional Shares
Emerald Florida Tax-Exempt Fund - Retail Shares and Institutional Shares
Emerald Prime Fund - Retail Shares, Emerald Shares and Emerald Service Shares
Emerald Treasury Fund - Retail Shares, Emerald Shares and Emerald Service Shares
Emerald Tax-Exempt Fund - Retail Shares, Emerald Shares and Emerald Service
Shares
Emerald Treasury Trust Fund - Emerald Shares
Emerald Prime Trust Fund - Emerald Shares
Emerald International Equity Fund - Retail Shares and Institutional Shares
Emerald Equity Value Fund - Retail Shares and Institutional Shares
<PAGE>
SCHEDULE B
TO THE ADMINISTRATION AGREEMENT
BETWEEN EMERALD FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
ADMINISTRATION
AND
COMPLIANCE SERVICE STANDARDS
Pursuant to Section II, subsection 2(a) of this Agreement, BISYS has agreed to
perform the services described in this Agreement in accordance with the service
standards set forth in this Schedule B. Such standards are contained on the
pages attached hereto. The parties agree that such performance standards may be
revised, from time to time, by mutual agreement. The parties further agree that
BISYS shall provide a report (the "Report") to the Trust's Board of Trustees at
each Regular Meeting of such Board and, if requested, at any Special Meeting of
such Board, which shall describe BISYS' performance and shall indicate whether
the standards attached hereto have been met for the relevant reporting period.
It is further agreed that any failure to meet a performance standard shall
require BISYS to (1) take appropriate corrective action or (2) provide an
explanation satisfactory to the Board which states why such standard cannot be
met. In the former case, except for those instances in which BISYS' failure to
meet a performance standard was due to circumstances beyond its control, BISYS
agrees that (1) any material failure to meet the standards, or provide a
complete remedy for such failure satisfactory to the Board, with respect to the
Compliance and Blue Sky Services listed under Sections B and C attached hereto
or (2) with respect to the Client Services listed under Section A attached
hereto, any failure to raise for a period of at least __ consecutive days within
90 days following the last day of the period covered by the relevant Report, its
performance to the standards levels set forth therein or such lower level that
is deemed satisfactory by the Board shall constitute a performance standard
deficiency for purposes of the "cause" definition contained in Section V of the
Agreement.
<PAGE>
Dated: ___________________
SCHEDULE C
TO THE ADMINISTRATION AGREEMENT
BETWEEN EMERALD FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
FEES
BISYS shall be entitled to receive a fee from the Trust in accordance with the
following schedule:
Average Daily Net Assets of All Funds Fee Amount
- ------------------------------------- ----------
First $5 billion* .0775%
Next $2.5 billion .07%
Next $2.5 billion .065%
All assets exceeding $10 billion .05%
* In the event average daily net assets for all Funds within the Trust fall
below $3 billion, the fee payable to BISYS will be increased to eight
one-hundredths of one percent (.08%) of such average daily net assets.
EMERALD FUNDS
By: _______________________________________
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS FUND SERVICES, INC.,
GENERAL PARTNER
By: ________________________________________
<PAGE>
EXHIBIT (9)(r)
TRANSFER AGENCY AGREEMENT
AGREEMENT made this 22nd day of March, 1996, between EMERALD FUNDS (the
"Trust"), a Massachusetts business trust having its principal place of business
at _______________________, and BISYS FUND SERVICES, INC. ("BISYS"), a Delaware
corporation having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for all
share classes of all series of the Trust either now or hereafter created, as
provided in Schedule A attached hereto (individually referred to herein as a
"Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein set forth, the parties agree as follows:
1. SERVICES.
BISYS shall perform for the Trust the transfer agent services set
forth in Schedule B hereto in accordance with the Prospectuses and Statements of
Additional Information of the Trust. BISYS agrees to perform such services in
accordance with the service standards set forth in Schedule C hereto.
BISYS also agrees to perform for the Trust such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. BISYS shall perform such additional services as
are provided on an amendment to Schedule B hereof, in consideration of such fees
as the parties hereto may agree in writing.
BISYS may, in its discretion and upon thirty (30) days' prior
written notice to the Trust, appoint in writing other parties qualified to
perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
<PAGE>
2. FEES.
The Trust shall pay BISYS for the services to be provided by BISYS
under this Agreement in accordance with, and in the manner set forth in,
Schedule D hereto. BISYS may, subject to the Trust's prior written approval,
increase the fees it charges pursuant to the fee schedule; provided, however,
that BISYS may not increase such fees until the expiration of the Initial Term
of this Agreement (as defined below). Fees for any additional services to be
provided by BISYS pursuant to an amendment to Schedule B hereto shall be subject
to mutual agreement at the time such amendment to Schedule B is proposed.
3. REIMBURSEMENT OF EXPENSES.
In addition to paying BISYS the fees described in Section 2 hereof,
the Trust agrees to reimburse BISYS for BISYS' reasonable out-of-pocket expenses
in providing services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust and in
delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communications with the Trust, the Trust's investment adviser
or custodian, dealers, shareholders or others as required for
BISYS to perform the services to be provided hereunder;
(c) Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms,
proxies, notices or other form of printed material which shall
be required by BISYS for the performance of the services to be
provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized.
4. EFFECTIVE DATE.
This Agreement shall become effective as of the date first written
above (the "Effective Date").
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<PAGE>
5. TERM.
This Agreement shall continue in effect with respect to each Fund, unless
earlier terminated by either party hereto as provided hereunder, until _________
________________, 1999 (the "Initial Term"), and thereafter shall continue for
successive one-year terms; provided, however, that either party hereto may
terminate this Agreement at any time during any such renewal term for any or no
reason by the provision of 120 days' written notice to the other party, and
provided further that such continuance is specifically reviewed and approved at
least annually (a) by the vote of a majority of the Trust's Board of Trustees or
by the vote of a majority of the outstanding voting securities of such Fund and
(b) by the majority of the Trust's Trustees who are not parties to the Agreement
or interested persons (as defined in the 1940 Act) of any party to this
Agreement. This Agreement is also terminable at any time during the Initial
Term or any renewal term upon mutual agreement of the parties hereto or for
"cause" (as defined below) by the party alleging "cause," in either case on not
less than 30 days' notice by the Trust's Board of Trustees or by BISYS; provided
that no notice shall be required with respect to clauses (b), (c), (e) or (f) of
the definition of "cause" below.
If after such termination for so long as BISYS, with the written consent
of the Trust, in fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit hereto, the provisions
of this Agreement, including without limitation, the provisions dealing with
indemnification, shall continue in full force and effect. Compensation due
BISYS and unpaid by the Trust upon such termination shall be immediately due and
payable upon and notwithstanding such termination. BISYS shall be entitled to
collect from the Trust, in addition to the compensation described under Section
2 hereof, the amount of all of BISYS' reasonable cash disbursements for services
in connection with BISYS' activities in effecting such termination, including
without limitation, the delivery to the Trust and/or its designees of the
Trust's property, records, instruments and documents, or any copies thereof.
Subsequent to such termination, for a reasonable fee, BISYS will provide the
Trust with reasonable access to all Trust documents or records, if any,
remaining in its possession.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, negligence or reckless disregard on the part of the
party to be terminated with respect to its obligations and duties set forth
herein; (b) a judicial, regulatory or administrative ruling or order in which
the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) financial difficulties on the part
of the party to be terminated which is evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent, or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; (d) any circumstance which substantially impairs the performance of
the obligations and duties of the party to be terminated, or the ability to
perform those obligations and duties, as contemplated herein; (e) the existence
of a performance standard deficiency, as such term is defined in Schedule C
hereto; or (f) the failure
3
<PAGE>
of BISYS to be registered pursuant to Section 17A of the 1934 Act as a transfer
agent at any time during this Agreement.
If, for any reason other than mutual agreement or "cause" as defined
above, during the Initial Term of this Agreement BISYS is replaced as transfer
agent, or if a third party is added to perform all or a part of the services
provided by BISYS under this Agreement (excluding any Sub-transfer Agent
appointed by BISYS as provided in Section 1 hereof), then the Trust shall make a
one-time cash payment, as liquidated damages, to BISYS equal to the balance due
BISYS for the remainder of the Initial Term of this Agreement, assuming for
purposes of calculation of the payment that the asset level of the Trust on the
date BISYS is replaced, or a third party is added, will remain constant for the
balance of the contract term.
6. UNCONTROLLABLE EVENTS.
BISYS assumes no responsibility hereunder, and shall not be liable
for any damage, loss of data, delay or any other loss whatsoever caused by
events beyond its reasonable control; provided that in the event of equipment
failures beyond BISYS' control, BISYS shall, at no additional expense to the
Trust, take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto. BISYS shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available.
7. LEGAL ADVICE.
BISYS shall notify the Trust at any time BISYS believes that it is
in need of the advice of counsel (other than counsel in the regular employ of
BISYS or any affiliated companies) with regard to any legal question involving
BISYS' responsibilities and duties pursuant to this Agreement; and after so
notifying the Trust, BISYS, at its discretion, shall be entitled to seek,
receive and act upon advice of legal counsel of its choosing, such advice to be
at the expense of the Trust or Funds unless relating to a matter involving
BISYS' willful misfeasance, bad faith, negligence or reckless disregard with
respect to BISYS' responsibilities and duties hereunder and BISYS shall in no
event be liable to the Trust or any Fund or any shareholder or beneficial owner
of the Trust for any action reasonably taken pursuant to such advice.
8. INSTRUCTIONS.
Whenever BISYS is requested or authorized to take action hereunder
pursuant to instructions from a shareholder, or a properly authorized agent of a
shareholder ("shareholder's agent"), concerning an account in a Fund, BISYS
shall be entitled to rely upon any certificate, letter or other instrument or
communication, reasonably believed by BISYS to be genuine and to have been
properly made, signed or authorized by an officer or other authorized agent of
the Trust or by the shareholder or shareholder's agent, as the case may be, and
shall be entitled to receive as conclusive proof of any fact or matter required
to be ascertained by it hereunder a
4
<PAGE>
certificate signed by an officer of the Trust or any other person authorized by
the Trust's Board of Trustees or by the shareholder or shareholder's agent, as
the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statements of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
9. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION.
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties. BISYS shall not settle or make any compromise of any
claim, demand, action or suit to which it may seek indemnity pursuant to this
Section (each, an "Indemnifiable Claim") without the express written consent of
the Trust. BISYS shall notify the Trust within 15 days of receipt of
notification of an Indemnifiable Claim, provided that the failure by BISYS to
furnish such notification shall not impair its right to seek indemnification
from the Trust unless the Trust's ability to adequately defend the Indemnifiable
Claim is impaired as a result of such failure, and further provided, that if as
a result of BISYS' failure to provide the Trust with timely notice of the
institution of litigation a judgment by default is entered, prior to seeking
indemnification from the Trust BISYS, at its own cost and expense, shall open
such judgment. The Trust shall have the right to defend any Indemnifiable Claim
at its own expense, provided that such defense shall be conducted by counsel
selected by the Trust and reasonably acceptable to BISYS. BISYS may join in
such defense at its own expense, but to the extent that it shall so desire the
Trust shall direct such defense. If the Trust shall fail or refuse to defend an
Indemnifiable Claim, BISYS may provide its own defense at the cost and expense
of the Trust. BISYS shall indemnify and exonerate, save and hold the Trust
harmless from and against any and all claims (whether with or without basis in
fact or law), losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to any action or failure or
omission to act by BISYS as a result of BISYS' bad faith, negligence, willful
misfeasance or reckless disregard of its obligations and duties under this
Agreement.
5
<PAGE>
10. RECORD RETENTION AND CONFIDENTIALITY.
BISYS shall keep and maintain on behalf of the Trust all books and
records which the Trust or BISYS is, or may be, required to keep and maintain
pursuant to any applicable statutes, rules and regulations, including without
limitation Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as
amended (the "1940 Act"), relating to the maintenance of books and records in
connection with the services to be provided hereunder. BISYS further agrees
that all such books and records shall be the property of the Trust and to make
such books and records available for inspection by the Trust, the Trust's
authorized representatives and the Securities and Exchange Commission (the
"Commission") at reasonable times.
BISYS agrees to surrender promptly, upon the Trust's demand, all
books, records and files maintained pursuant to this Agreement (or copies of any
such books, records and files needed by BISYS in the performance of its duties
or for its legal protection).
11. REPORTS.
BISYS will furnish to the Trust and to its properly-authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Trust in writing,
such reports at such times as are prescribed in Schedule E attached hereto, or
as subsequently agreed upon by the parties pursuant to an amendment to Schedule
E.
12. RIGHTS OF OWNERSHIP.
All computer programs and procedures developed to perform services
required to be provided by BISYS under this Agreement are the property of BISYS.
All records and other data except such computer programs and procedures are the
exclusive property of the Trust and all such other records and data will be
furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
13. COOPERATION OF AUDITORS.
The Transfer Agent shall cooperate with the Trust's independent
auditors and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion as such
may be required from time to time by the Trust.
14. CONFIDENTIALITY.
BISYS agrees on behalf of itself and its employees to treat
confidentially and as the proprietary information of the Trust all records and
other information relative to the Trust and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder; PROVIDED,
6
<PAGE>
HOWEVER, that upon notification to and written approval from the Trust, which
approval shall not be unreasonably withheld, BISYS may divulge such information
in those instances where BISYS may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust.
15. RETURN OF RECORDS.
If not turned over to the Trust sooner at the Trust's request,
files, records and documents created and maintained by BISYS pursuant to this
Agreement will be retained by BISYS for six years from the year of creation. At
the end of such six-year period, such records and documents will be turned over
to the Trust unless the Trust authorizes in writing the destruction of such
records and documents.
16. BANK ACCOUNTS.
The Trust and the Funds shall establish and maintain such bank
accounts with such bank or banks as are selected by the Trust, as are necessary
in order that BISYS may perform the services required to be performed hereunder.
To the extent that the performance of such services shall require BISYS directly
to disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
17. REPRESENTATIONS OF THE TRUST.
The Trust certifies to BISYS that: (a) as of the close of business
on the Effective Date, each Fund which is in existence as of the Effective Date
has authorized unlimited shares, and (b) by virtue of its Declaration of Trust,
shares of each Fund which are redeemed by the Trust may be sold by the Trust
from its treasury, and (c) this Agreement has been duly authorized by the Trust
and, when executed and delivered by the Trust, will constitute a legal, valid
and binding obligation of the Trust, enforceable against the Trust in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties.
18. REPRESENTATIONS OF BISYS.
BISYS represents and warrants that: (a) all requisite corporate
proceedings have been taken to authorize BISYS to enter into and to perform this
Agreement, (b) BISYS has been in, and shall continue to be in, substantial
compliance with all provisions of law, including Section 17A(c) of the
Securities Exchange Act of 1934, as amended (the Exchange Act"), required in
connection with the performance of its duties under this Agreement, and (c) the
various procedures and systems which BISYS has implemented with regard to
safekeeping from loss or damage attributable to fire, theft or any other cause
of the blank checks, records, and other data of the Trust and BISYS' records,
data, equipment, facilities and other property used
7
<PAGE>
in the performance of its obligations hereunder are adequate and that it will
make such changes therein from time to time as are required for the secure
performance of its obligations hereunder.
19. INSURANCE.
BISYS shall notify the Trust should its insurance coverage with
respect to professional liability or errors and omissions coverage be canceled
or reduced. Such notification shall include the date of change and the reasons
therefor. BISYS shall notify the Trust of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify the Trust from time to time as may be
requested by the Trust of the amount of its insurance coverage and of the total
outstanding claims made by BISYS under such coverage.
20. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS.
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's Code of Regulations and any amendments
thereto;
2. Certified copies of resolutions of the Board of Trustees
covering the following matters:
A. Approval of this Agreement and authorization of a
specified officer of the Trust to execute and
deliver this Agreement and authorization for
specified officers of the Trust to instruct BISYS
hereunder; and
B. Authorization of BISYS to act as Transfer Agent
for the Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the following (if such documents are employed by
the Trust):
1. Prospectuses and Statement of Additional Information;
8
<PAGE>
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date
of BISYS' appointment as Transfer Agent (or as of the date on
which BISYS' services are commenced, whichever is the later
date) and as to receipt of full consideration by the Trust for
all shares outstanding, such statement to be certified by the
Treasurer of the Trust.
21. INFORMATION FURNISHED BY BISYS.
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement;
2. Authorization of BISYS to act as Transfer Agent for the
Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with
the Commission pursuant to Rule 17Ad-13 under the Exchange
Act.
22. AMENDMENTS TO DOCUMENTS.
The Trust shall furnish BISYS written copies of any amendments to,
or changes in, any of the items referred to in Section 18 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Trust agrees
that no amendments will be made to the Prospectuses or Statements of Additional
Information of the Trust which might have the effect of changing the procedures
employed by BISYS in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS hereunder unless the Trust first
obtains BISYS' approval of such amendments or changes.
9
<PAGE>
BISYS shall promptly furnish a copy of each independent accountants'
report relating to internal accounting control systems filed with the Commission
pursuant to Rule 17A-13 under the Exchange Act after the date hereof.
23. RELIANCE ON AMENDMENTS.
BISYS may rely on any amendments to or changes in any of the
documents and other items to be provided by the Trust pursuant to Sections 20
and 22 of this Agreement and the Trust hereby indemnifies and holds harmless
BISYS from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character which may result from actions or omissions on the
part of BISYS in reasonable reliance upon such amendments and/or changes.
24. COMPLIANCE WITH LAW.
Except for the obligations of BISYS set forth in Section 9 hereof,
the Trust assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
25. NOTICES.
Notices of any kind to be given to the Trust hereunder by BISYS
shall be in writing and shall be duly given if mailed or delivered to the Trust
at 50 North Laura Street, Suite 3300, Jacksonville, Florida 323202, Attention:
John G. Grimsley, Esq., President, with a copy to Drinker Biddle & Reath,
Philadelphia National Bank Building, Suite 1100, Philadelphia, Pennsylvania
19107, Attention: Jeffrey A. Dalke, or at such other address or to such
individual as shall be so specified by the Trust to BISYS. Notices of any kind
to be given to BISYS hereunder by the Trust shall be in writing and shall be
duly given if mailed or delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio
43219, Attention: Stephen G. Mintos, or at such other address or to such
individual as BISYS shall specify to the Trust.
26. HEADINGS.
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
10
<PAGE>
27. ASSIGNMENT.
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 27 shall not limit or in any way
affect BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1
hereof.
28. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, discharge or termination is sought.
29. GOVERNING LAW AND MATTERS RELATING TO THE TRUST AS A MASSACHUSETTS
BUSINESS TRUST.
This Agreement shall be governed by and its provisions shall be
continued in accordance with the laws of the State of Ohio. It is understood
that the names "Emerald Funds" and "Trustees of Emerald Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the name or on behalf thereof by
any of the Trustees, representatives or agents are made individually, but in
such capacities, and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the Trust Property, and
all persons dealing with any Class or Series of Shares of the Trust must look
solely to the Trust Property belonging to such Class or Series for the
enforcement of any claims against the Trust.
30. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
31. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
32. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in on way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision,
11
<PAGE>
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding and shall insure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
EMERALD FUNDS
By:________________________________
BISYS FUND SERVICES, INC.
By:________________________________
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<PAGE>
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
EMERALD FUNDS
AND
BISYS FUND SERVICES, INC.
This Agreement shall apply to all share classes of all Funds of Emerald Funds,
either now or hereafter created. The current share classes and Funds are set
forth below.
Emerald Equity Fund - Retail Shares and Institutional Shares
Emerald Small Capitalization Fund - Retail Shares and Institutional Shares
Emerald Balanced Fund - Retail Shares and Institutional Shares
Emerald Short-Term Fixed Income
Fund - Retail Shares and Institutional Shares
Emerald U.S. Government Securities
Fund - Retail Shares and Institutional Shares
Emerald Managed Bond Fund - Retail Shares and Institutional Shares
Emerald Florida Tax-Exempt Fund - Retail Shares and Institutional Shares
Emerald Prime Fund - Retail Shares, Emerald Shares and Emerald Service Shares
Emerald Treasury Fund - Retail Shares, Emerald Shares and Emerald Service Shares
Emerald Tax-Exempt Fund - Retail Shares, Emerald Shares and Emerald Service
Shares
Emerald Treasury Trust Fund - Emerald Shares
Emerald Prime Trust Fund - Emerald Shares
Emerald International Equity Fund - Retail Shares and Institutional Shares
Emerald Equity Value Fund - Retail Shares and Institutional Shares
<PAGE>
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
EMERALD FUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
1. SHAREHOLDER TRANSACTIONS
a. Process shareholder purchase and redemption orders.
b. Set up and maintain account information, including address, dividend
option, taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10 under the Securities
Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend and distribution payments, including the purchase
of new shares, through dividend reimbursement.
g. Provide timely notification of shareholder activity, and such other
information as may be agreed upon from time between BISYS and the
Custodian to the Trust.
h. Issue and cancel stock certificates, and maintain stock certificate
books as requested by the Trust.
2. SHAREHOLDER INFORMATION SERVICES
a. Make information available to shareholder servicing unit and other
remote access units regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
<PAGE>
c. Provide mailing labels for distribution of, or if so requested by
the Trust arrange for the mailing of, financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
d. Tabulate returned proxies and supply related reports. Prepare
certified list of shareholders for shareholder meetings.
3. COMPLIANCE REPORTING
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in which
the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service forms
for corresponding Fund and shareholder income, capital gains and
other distributions.
c. Issue tax withholding reports to the Internal Revenue Service and,
if applicable, to any states.
d. Provide toll-free lines for direct shareholder use, plus customer
liaison staff with on-line inquiry capacity.
e. Provide voice response unit.
4. DEALER/LOAD PROCESSING (IF APPLICABLE)
a. Provide reports for tracking rights of accumulation and purchases
made under a Letter of Intent.
b. Account for separation of shareholder investments from transaction
sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. SHAREHOLDER ACCOUNT MAINTENANCE
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third party copies if required.
c. Record shareholder account information changes.
2
<PAGE>
d. Maintain account documentation files for each shareholder.
3
<PAGE>
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
EMERALD FUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY
SERVICE STANDARDS
Pursuant to Section 1 of this Agreement, BISYS has agreed to perform the
services described in this Agreement in accordance with the service standards
set forth in this Schedule C. Such standards are contained on the pages
attached hereto. The parties agree that such performance standards may be
revised, from time to time, by mutual agreement. The parties further agree that
BISYS shall provide a report (the "Report") to the Trust's Board of Trustees at
each Regular Meeting of such Board and, if requested, at any Special Meeting of
such Board, which shall describe BISYS' performance and shall indicate whether
the standards attached hereto have been met for the relevant reporting period.
It is further agreed that any failure to meet a performance standard shall
require BISYS to (1) take appropriate corrective action or (2) provide an
explanation satisfactory to the Board which states why such standard cannot be
met. In the former case, except for those instances in which BISYS' failure to
meet a performance standard was due to circumstances beyond its control, BISYS
agrees that the failure to raise, for a period of at least ___ consecutive days
within 90 days following the last day of the period covered by the relevant
Report, its performance to the level set forth in the standards attached hereto
or such lower level that is deemed satisfactory by the Board shall constitute a
performance standard deficiency for purposes of the "cause" definition contained
in Section 5 of the Agreement.
<PAGE>
SCHEDULE D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
EMERALD FUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENT FEES
BISYS shall be entitled to receive an annual fee of two one-hundredths of one
percent (.02%) of the average daily net assets of each Fund; provided, however,
that, to the extent the total number of shareholder accounts exceeds 25,000,
BISYS shall be entitled to receive a per account charge of $12 for all accounts
in excess of 25,000. Such per account charge shall be payable by the Trust in
addition to the annual fee set forth above.
ADDITIONAL SERVICES:
Additional services such as IRA processing are subject to additional fees which
will be quoted upon request. Programming costs or database management fees for
special reports or specialized processing will be quoted upon request.
OUT-OF-POCKET EXPENSES:
BISYS shall be entitled to be reimbursed for all reasonable out-of-pocket
expenses including, but not limited to, the expenses set forth in Section 3 of
the Transfer Agency Agreement to which this Schedule C is attached.
<PAGE>
SCHEDULE E
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
EMERALD FUNDS
AND
BISYS FUND SERVICES, INC.
REPORTS
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Monthly Reports Relating to:
a. Number of new accounts by Portfolio
b. Number of closed accounts by Portfolio
c. Number of new customers
<PAGE>
d. Number of lost customers
e. Number of 800 calls
8. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
2
<PAGE>
EXHIBIT (9)(u)
FUND ACCOUNTING AGREEMENT
AGREEMENT made this 1st day of April, 1996, between BISYS FUND SERVICES
LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES (the "Administrator"), an Ohio
limited partnership having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219, and BISYS FUND SERVICES, INC. ("BISYS"), a Delaware
corporation having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Administrator has entered into an agreement (the
"Administration Agreement") with Emerald Funds (the "Trust"), dated as of the
date first written above, pursuant to which the Administrator has agreed to
provide certain administrative services with respect to the investment
portfolios ("Funds") of the Trust identified in such Administration Agreement;
WHEREAS, the Administration Agreement provides that the Administrator may
retain the services of BISYS for purposes of providing certain mutual fund
accounting and related services for the Funds; and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AND DUTIES.
The Administrator hereby appoints BISYS as its agent to perform for
each Fund the services and duties hereinafter set forth.
(a) MAINTENANCE OF BOOKS AND RECORDS. BISYS will keep and
maintain the following books and records of each Fund pursuant
to Rule 31a-1 under the Investment Company Act of 1940 (the
"Rule"):
(i) Journals containing an itemized daily record in detail
of all purchases and sales of securities, all receipts
and disbursements of cash and all other debits and
credits, as required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by subsection (b)(2)(i) of the
Rule;
<PAGE>
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8)
of the Rule.
(b) PERFORMANCE OF DAILY ACCOUNTING SERVICES. In addition to
the maintenance of the books and records specified above,
BISYS shall perform the following accounting services daily
for each Fund:
(i) Calculate the net asset value and public offering
price per share utilizing prices obtained from the
sources described in subsection 1(b)(ii) below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then
obtain such prices from each Fund's investment adviser
or its designee, as approved by the Trust's Board of
Trustees;
(iii) Verify and reconcile with the Funds' custodian all
daily trade activity;
(iv) Compute, as appropriate, each Fund's net income and
capital gains, dividend payables, dividend factors,
7-day yields, 7-day effective yields, total returns,
30-day yields, and weighted average portfolio
maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to
release to shareholders, check and confirm the net
asset values and dividend factors for reasonableness
and deviations, and distribute net asset values and
yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the
comparison to the amortized cost basis;
(vii) Determine unrealized appreciation and depreciation on
securities held in variable net asset value Funds;
(viii) Amortize premiums and accrete discounts on securities
purchased at a price other than face value, if
requested by the Administrator;
2
<PAGE>
(ix) Update fund accounting system to reflect rate changes,
as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to instructions
received from the Administrator;
(xii) Determine the outstanding receivables and payables for
all (1) security trades, (2) Fund share transactions
and (3) income and expense accounts;
(xiii) Provide accounting reports in connection with the
Trust's regular annual audit and other audits and
examinations by regulatory agencies;
(xiv) Prepare daily cash availability reports for portfolio
managers; and
(xv) Provide such periodic reports as the parties shall
agree upon, as set forth in a separate schedule.
(c) SPECIAL REPORTS AND SERVICES.
(i) BISYS may provide additional special reports upon the
request of the Administrator or a Fund's investment
adviser, which may result in an additional charge, the
amount of which shall be agreed upon between the
parties.
(ii) BISYS may provide such other similar services with
respect to a Fund as may be reasonably requested by
the Administrator, which may result in an additional
charge, the amount of which shall be agreed upon
between the parties.
(d) ADDITIONAL ACCOUNTING SERVICES. BISYS shall also perform
the following additional accounting services for each Fund:
(i) Provide monthly a download (and hard copy thereof) of
the financial statements described below, upon request
of the Administrator. The download will include the
following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
3
<PAGE>
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and federal
excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission ("SEC") on
Form N-SAR;
(C) the Trust's annual, semi-annual and quarterly
(if any) shareholder reports;
(D) registration statements on Form N-1A and other
filings relating to the registration of shares;
(E) the Administrator's monitoring of the Trust's
status as a regulated investment company under
Subchapter M of the Internal Revenue Code, as
amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
2. COMPENSATION.
BISYS shall be entitled to receive such portion of the fee that is
payable to the Administrator under the Administration Agreement that the parties
shall mutually agree upon. Such fee shall be computed daily and payable
monthly.
3. REIMBURSEMENT OF EXPENSES.
In accordance with Section 3 of the Administration Agreement, BISYS
shall be entitled to be reimbursed by each Fund for the out-of-pocket expenses
set forth in this Agreement. Accordingly, the Administrator shall cause each
Fund to reimburse BISYS for its out-of-pocket expenses in providing services
hereunder, including without limitation the following:
(a) All freight and other delivery and bonding charges incurred by BISYS
in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS in communication
with the Trust, the Trust's investment advisor or custodian, dealers
or others as required for BISYS
4
<PAGE>
to perform the services to be provided hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section 1(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other materials;
(e) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized; and
(f) Any additional expenses reasonably incurred by BISYS in the
performance of its duties and obligations under this Agreement.
4. EFFECTIVE DATE.
This Agreement shall become effective with respect to a Fund as of
the date first written above (the "Effective Date").
5. TERM.
This Agreement shall continue in effect with respect to each Fund,
unless earlier terminated by either party hereto as provided hereunder, until
____________________, 1999 (the "Initial Term"), and thereafter shall continue
for successive one-year terms; provided, however, that either party hereto may
terminate this Agreement at any time during any such renewal term for any or no
reason by the provision of 90 days' written notice to the other party. This
Agreement is also terminable at any time during the Initial Term or any renewal
term upon mutual agreement of the parties hereto or for "cause" (as defined
below) by the party alleging "cause," in either case on not less than 30 days'
notice by the Trust's Administrator or by BISYS; provided that no notice shall
be required with respect to clauses (b), (c) or (e) of the definition of "cause"
below.
If after such termination for so long as BISYS, with the written consent
of the Administrator, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or exhibit hereto, the
provisions of this Agreement, including without limitation, the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due BISYS and unpaid by the Administrator upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
BISYS shall be entitled to collect from the Administrator, in addition to the
compensation described under Section 2 hereof, the amount of all of BISYS'
reasonable cash disbursements for services in connection with BISYS' activities
in effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, for a
reasonable fee, BISYS will provide the Trust with reasonable access to all Trust
documents or records, if any, remaining in its possession.
5
<PAGE>
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, negligence or reckless disregard on the part of the
party to be terminated with respect to its obligations and duties set forth
herein; (b) a judicial, regulatory or administrative ruling or order in which
the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) financial difficulties on the part
of the party to be terminated which is evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent, or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; (d) any circumstance which substantially impairs the performance of
the obligations and duties of the party to be terminated, or the ability to
perform those obligations and duties, as contemplated herein; or (e) the
existence of a performance standard deficiency, as such term is defined in
Schedule A hereto.
6. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION.
BISYS shall use its best efforts to insure the accuracy of all
services performed under this Agreement, but shall not be liable to the
Administrator for any action taken or omitted by BISYS in the absence of bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties. The Administrator agrees to indemnify and hold harmless
BISYS, its employees, agents, directors, officers and nominees from and against
any and all claims, demands, actions and suits, whether groundless or otherwise,
and from and against any and all judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character arising
out of or in any way relating to BISYS' actions taken or nonactions with respect
to the performance of services under this Agreement with respect to each Fund or
based, if applicable, upon reasonable reliance on information, records,
instructions or requests with respect to such Fund given or made to BISYS by a
duly authorized representative of the Trust; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties, and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Administrator written notice of and reasonable opportunity to defend against
said claim in its own name or in the name of BISYS.
7. RECORD RETENTION AND CONFIDENTIALITY.
BISYS shall keep and maintain on behalf of the Trust all books and
records which the Trust and the Administrator are, or may be, required to keep
and maintain pursuant to any applicable statutes, rules and regulations,
including without limitation Rules 31a-1 and 31a-2 under the Investment Company
Act of 1940, as amended (the "1940 Act"), relating to the maintenance of books
and records in connection with the services to be provided hereunder. BISYS
further agrees that all such books and records shall be the property of the
Trust and to make such books and records available for inspection by the Trust,
the Trust's authorized
6
<PAGE>
representatives, the Administrator or the Securities and Exchange Commission at
reasonable times.
BISYS agrees to surrender promptly, upon the Trust's demand, all
books records and files maintained pursuant to this Agreement (or copies of any
such books, records and files needed by BISYS in the performance of its duties
or for its legal protection).
BISYS agrees on behalf of itself and its employees to treat
confidentially and as the proprietary information of the Trust all records and
other information relative to the Trust and its prior, present or potential
shareholders, and not to use such records and information for information for
any purpose other than performance of its responsibilities and duties hereunder;
provided, however, that upon notification to and written approval from the
Trust, which approval shall not be unreasonably withheld, BISYS may divulge such
information in those instances where BISYS may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
8. UNCONTROLLABLE EVENTS.
BISYS assumes no responsibility hereunder, and shall not be liable,
for any damage, loss of data, delay or any other loss whatsoever caused by
events beyond its reasonable control; provided that in the event of equipment
failures beyond BISYS' control, BISYS shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto. BISYS
shall enter into and shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency use of electronic data
processing equipment to the extent appropriate equipment is available.
9. REPORTS.
BISYS will furnish to the Trust and to its properly authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Trust in writing,
such reports and at such times as are prescribed pursuant to the terms and the
conditions of this Agreement to be provided or completed by BISYS, or as
subsequently agreed upon by the parties pursuant to an amendment hereto.
10. RIGHTS OF OWNERSHIP.
All computer programs and procedures developed to perform services
required to be provided by BISYS under this Agreement are the property of BISYS.
All records and other data except such computer programs and procedures are the
exclusive property of the Trust and all such other records and data will be
furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
7
<PAGE>
11. RETURN OF RECORDS.
BISYS may at its option at any time, and shall promptly upon the
Trust's demand, turn over to the Trust and cease to retain BISYS' files, records
and documents created and maintained by BISYS pursuant to this Agreement which
are no longer needed by BISYS in the performance of its services or for its
legal protection. If not so turned over to the Trust, such documents and
records will be retained by BISYS for six years from the year of creation. At
the end of such six-year period, such records and documents will be turned over
to the Trust unless the Trust authorizes in writing the destruction of such
records and documents.
12. REPRESENTATIONS OF THE ADMINISTRATOR.
The Administrator certifies to BISYS that: (1) as of the close of
business on the Effective Date, each Fund has authorized unlimited shares, and
(2) this Agreement has been duly authorized by the Trust and, when executed and
delivered by the Administrator, will constitute a legal, valid and binding
obligation of the Administrator, enforceable against the Administrator in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
13. REPRESENTATIONS OF BISYS.
BISYS represents and warrants that: (1) the various procedures and
systems which BISYS has implemented with regard to safeguarding from loss or
damage attributable to fire, theft, or any other cause the records, and other
data of the Trust and BISYS' records, data, equipment facilities and other
property used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as are required for the
secure performance of its obligations hereunder, and (2) this Agreement has been
duly authorized by BISYS and, when executed and delivered by BISYS, will
constitute a legal, valid and binding obligation of BISYS, enforceable against
BISYS in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
14. INSURANCE.
BISYS shall notify the Administrator should any of its insurance
coverage be canceled or reduced. Such notification shall include the date of
change and the reasons therefor. BISYS shall notify the Administrator of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Administrator from time to time as may be appropriate of the total outstanding
claims made by BISYS under its insurance coverage.
15. INFORMATION TO BE FURNISHED BY THE ADMINISTRATOR.
8
<PAGE>
The Administrator has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
(i) The Trust's Code of Regulations and any amendments
thereto; and
(ii) Certified copies of resolutions of the Board of
Trustees covering the approval of the Administration
Agreement, authorization of a specified officer of the
general partner of the Administrator to execute and
deliver this Agreement and authorization for specified
officers of the Administrator and the Trust to
instruct BISYS hereunder.
(c) A list of all the officers of the Administrator and the Trust,
together with specimen signatures of those officers who are
authorized to instruct BISYS in all matters.
(d) Two copies of the Prospectuses and Statements of Additional
Information for each Fund.
16. INFORMATION FURNISHED BY BISYS.
(a) BISYS has furnished to the Administrator the following:
(i) BISYS' Articles of Incorporation; and
(ii) BISYS' Bylaws and any amendments thereto.
(b) BISYS shall, upon request, furnish certified copies of
corporate actions covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement; and
(ii) Authorization of BISYS to provide accounting services
for the Trust.
9
<PAGE>
17. AMENDMENTS TO DOCUMENTS.
The Administrator shall furnish BISYS written copies of any
amendments to, or changes in, any of the items referred to in Section 15 hereof
forthwith upon such amendments or changes becoming effective. In addition, the
Administrator agrees that no amendments will be made to the Prospectuses or
Statements of Additional Information of the Trust which might have the effect of
changing the procedures employed by BISYS in providing the services agreed to
hereunder or which amendment might affect the duties of BISYS hereunder unless
the Administrator first obtains BISYS' approval of such amendments or changes.
18. COMPLIANCE WITH LAW.
Except for the obligations of BISYS set forth in Section 7 hereof,
the Administrator assumes responsibility for the preparation, contents and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the 1940 Act and any other laws, rules and regulations of
governmental authorities having jurisdiction. BISYS shall have no obligation to
take cognizance of any laws relating to the sale of the Trust's shares. The
Administrator represents and warrants that no shares of the Trust will be
offered to the public until the Trust's registration statement under the
Securities Act and the 1940 Act has been declared or becomes effective.
19. NOTICES.
Any notice provided hereunder shall be sufficiently given when sent
by registered or certified mail to the party required to be served with such
notice, at the following address: 3435 Stelzer Road, Columbus, Ohio 43219, or at
such other address as such party may from time to time specify in writing to the
other party pursuant to this Section.
20. HEADINGS.
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
21. ASSIGNMENT.
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party.
22. GOVERNING LAW.
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.,
Limited Partner
By:________________________________
BISYS FUND SERVICES, INC.
By:________________________________
11
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement
of Additional Information constituting part of this Post-Effective Amendment No.
17 to the registration statement on Form N-1A (the "Registration Statement") of
our report dated January 24, 1996, relating to the financial statements and
financial highlights appearing in the November 30, 1995 Annual Report to
Shareholders of Emerald Equity Fund, Emerald Small Captialization 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,
Emerald Prime Fund, Emerald Treasury Fund, and Emerald Tax-Exempt Fund (ten of
the portfolios constituting the Emerald Funds), which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants/Experts" and "Financial Statements" in the
Statement of Additional Information.
Price Waterhouse LLP
New York, New York
January 24, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement
of Additional Information constituting part of this Post-Effective Amendment No.
17 to the registration statement on Form N-1A (the "Registration Statement") of
our report dated January 24, 1996, relating to the financial statements and
financial highlights appearing in the November 30, 1995 Annual Report to
Shareholders of Emerald Prime Fund, Emerald Treasury Fund and Emerald Tax-Exempt
Fund (three of the portfolios constituting the Emerald Funds), which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the headings "Independent Accountants/Experts" and "Financial
Statements" in the Statement of Additional Information.
Price Waterhouse LLP
New York, New York
January 24, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement
of Additional Information constituting part of this Post-Effective Amendment No.
17 to the registration statement on Form N-1A (the "Registration Statement") of
our report dated January 24, 1996, relating to the financial statements and
financial highlights appearing in the November 30, 1995 Annual Report to
Shareholders of Emerald Prime Trust Fund and Emerald Treasury Trust Fund (two of
the portfolios constituting the Emerald Funds), which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants/Experts" and "Financial Statements" in the
Statement of Additional Information.
Price Waterhouse LLP
New York, New York
January 24, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement
of Additional Information constituting part of this Post-Effective Amendment No.
17 to the registration statement on Form N-1A (the "Registration Statement") of
our report dated January 24, 1996, relating to the financial statements and
financial highlights appearing in the November 30, 1995 Annual Report to
Shareholders of Emerald 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 and Emerald
Treasury Fund (eight of the portfolios constituting the Emerald Funds), which is
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Financial Highlights" in the
Prospectus and under the headings "Independent Accountants/Experts" and
"Financial Statements" in the Statement of Additional Information.
Price Waterhouse LLP
New York, New York
January 24, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement
of Additional Information constituting part of this Post-Effective Amendment No.
17 to the registration statement on Form N-1A (the "Registration Statement") of
our report dated January 24, 1996, relating to the financial statements and
financial highlights appearing in the November 30, 1995 Annual Report to
Shareholders of Emerald Equity Fund, Emerald Small Capitalization Fund, Emerald
Balanced Fund, Emerald Managed Bond Fund and Emerald Prime Fund (five of the
portfolios constituting the Emerald Funds), which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants/Experts" and "Financial Statements" in the
Statement of Additional Information.
Price Waterhouse LLP
New York, New York
January 24, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement
of Additional Information constituting part of this Post-Effective Amendment No.
17 to the registration statement on Form N-1A (the "Registration Statement") of
our report dated January 24, 1996, relating to the financial statements and
financial highlights appearing in the November 30, 1995 Annual Report to
Shareholders of Emerald 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 and Emerald Florida Tax-Exempt Fund
(seven of the portfolios constituting the Emerald Funds), which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the headings "Independent Accountants/Experts" and "Financial
Statements" in the Statement of Additional Information.
Price Waterhouse LLP
New York, New York
January 24, 1996
<PAGE>
EXHIBIT 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to
our firm under the caption "Counsel" in the Statement of Additional
Information that are included in Post-Effective Amendment No. 17 to the
Registration Statement (File No. 33-20658) on Form N-1A of Emerald Funds
under the Securities Act of 1933 and the Investment Company Act of 1940,
respectively. This consent does not constitute a consent under Section 7 of
the Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of
the Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/Drinker Biddle & Reath
--------------------------
Drinker Biddle & Reath
Philadelphia, Pennsylvania
February 1, 1996
<PAGE>
EXHIBIT 15(b)
EMERALD FUNDS
COMBINED AMENDED AND RESTATED DISTRIBUTION
AND SERVICE PLAN FOR RETAIL SHARES
(ALL FUNDS)
I. INTRODUCTION
It has been proposed that Emerald Funds (the "Trust") make payments
in connection with the distribution of the classes of shares, known as Retail
Shares offered in its several equity, bond and money market funds
(collectively the "Funds" and individually a "Fund"). If this is to be done,
the Investment Company Act of 1940 (the "Act") and Rule 12b-1 promulgated
thereunder require that a written plan describing all material aspects of the
proposed financing must be adopted by the Trust.
In addition, it has been proposed that the Funds make payments in
connection with certain shareholder liaison services with respect to its
Retail Shares as described below.
This Plan provides for the payment by the Funds to securities
dealers, financial institutions or other industry professionals, such as
investment advisers, accountants and estate planning firms (collectively
"Service Organizations"), for assistance in connection with the distribution,
as the Securities and Exchange Commission construes such term under said Rule
12b-1, of Retail Shares and/or the provision of such shareholder liaison
services.
The Board of Trustees, in considering whether the Trust should
implement this Plan, has requested and evaluated such information as it
deemed necessary to an informed determination as to whether a written plan
should be implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Funds for
such purposes. In voting to approve the implementation of this Plan, the
Trustees have concluded, in the exercise of their reasonable business
judgment and in light of their respective fiduciary duties, that there is a
reasonable likelihood that this Plan will benefit the Funds and the holders
of Retail Shares.
Payments made under this Plan by the Trust with respect to a Fund
will be borne entirely by the holders of that Fund's Retail Shares.
<PAGE>
II. DISTRIBUTION AND SERVICE PLAN
The material aspects of the financing by the Trust of distribution
and general shareholder liaison services incurred in connection with Retail
Shares of the Funds are as follows:
The Funds will pay fees for distribution assistance and/or the
provision of shareholder liaison services to one or more Service
Organizations (which may include the Distributor itself) in respect of the
average daily value of the Funds' Retail Shares beneficially owned by persons
("Clients") for whom the Service Organization is the dealer of record or
holder of record or with whom the Service Organization has a servicing
relationship.
While Part II of this Plan is in effect amounts may be paid for
such assistance and services in connection with Retail Shares of the Funds on
a monthly basis, at an annual rate of up to but not more than .25 of 1
percent of the average daily net asset value of each Fund's outstanding
Retail Shares during such month.
Payments to a Service Organization under this Part II shall be
subject to compliance by the Service Organization with the terms of an
agreement executed by the Service Organization. Upon the recommendation of
the Trust's Administrator, any officer of the Trust is authorized to execute
and deliver, in the name and on behalf of the Trust, written agreements with
Service Organizations in substantially the form attached hereto or in any
other form duly approved by the Board of Trustees. The Trust's Administrator
shall monitor the arrangements pertaining to the Trust's agreements with
Service Organizations. The Trust's Administrator shall not, however, be
obliged by this Plan to recommend, and the Trust shall not be obliged to
execute, any agreement with any qualifying Service Organization. If an
investor in a Fund is not, or ceases to be, a client of a Service
Organization that has entered into such an agreement, but holds Retail
Shares, the Distributor will be entitled to receive similar payments in
respect of the distribution assistance and/or shareholder liaison services
provided with respect to such investor.
In addition, monthly payments to the Distributor under this Part II
shall be made in accordance with, and subject to, the additional conditions
set forth in Part III of this Plan.
As used in this Plan, "shareholder liaison services" include, but
are not limited to, (i) answering Client inquiries regarding account status
and history, the manner in which purchases, exchanges and redemptions of
shares may be effected and certain other matters pertaining to the Clients'
investments; (ii) assisting Clients in designating and changing dividend
-2-
<PAGE>
options, account designations and addresses; and (iii) providing such other
similar services as you or a Client may reasonably request.
III. OTHER PROVISIONS
(a) The payments under Part II of this Plan that are made out
of or charged against the assets of a particular Fund must be in payment for
distribution expenses incurred or services rendered on behalf of the Retail
Shares of such Fund.
(b) Joint distribution financing by the Funds on behalf of
Retail Shares (which financing may also involve other investment portfolios
or companies that are affiliated persons of the Funds, affiliated persons of
such a person, or affiliated persons of the Distributor) shall be permitted
in accordance with applicable regulations of the Securities and Exchange
Commission as in effect from time to time, and nothing in subparagraph (a)
above or any other provision herein shall be construed to the contrary.
(c) For the purposes of determining the amounts payable under
this Plan, the net asset value of a Fund's Retail Shares shall be computed in
the manner specified in the Fund's prospectus for such Shares as then in
effect.
(d) The Trust's Distributor or Administrator shall provide
the Board of Trustees, at least quarterly, with a written report of all
amounts expended pursuant to Part II of this Plan. The report shall state
the purpose for which the amounts were expended.
(e) This Combined Amended and Restated Distribution and
Service Plan shall be effective as to the Funds' Retail Shares as of _______,
1996, and shall continue until November 30, 1996, unless earlier terminated
in accordance with the terms hereof. Thereafter, this Plan shall continue
automatically for successive annual periods, provided such continuance is
approved by a majority of the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the Act) of the
Trust and who have no direct or indirect financial interest in the operation
of this Plan or in any agreements entered into in connection herewith (the
"Disinterested Trustees"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the continuance of this Plan.
(f) This Plan may be amended at any time by the Board of
Trustees provided that (i) any amendment to increase materially the costs
which the Retail Shares of any Fund may bear for distribution pursuant to
Part II of this Plan shall be
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<PAGE>
effective only upon approval by a vote of a majority of the outstanding
Retail Shares of the Fund involved, and (ii) any material amendment of the
terms of this Plan shall become effective only upon approval by a majority of
the Board of Trustees, including a majority of the Disinterested Trustees,
pursuant to a vote cast in person at a meeting called for the purpose of
voting on such approval.
(g) This Plan is terminable, as to any Fund, without penalty
at any time by (i) vote of a majority of the Disinterested Trustees, or (ii)
vote of a majority of the outstanding Retail Shares of such Fund. All
amounts payable by a Fund under this Plan shall be completely extinguished
upon the termination of this Plan with respect to such Fund and such Fund
shall have no further liability whatsoever in respect of such amounts.
(h) So long as this Plan remains in effect, the selection and
nomination of persons to serve as Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the discretion of the
Trustees then in office who are not "interested persons" of the Trust.
Adopted: July 27, 1989 (money market portfolios) and
October 31, 1990 (equity and bond portfolios)
Amended and Restated: November 2, 1993, effective as of March
1, 1994; February 1, 1996, effective as
of __________, 1996
-4-
<PAGE>
DISTRIBUTION AND SERVICE AGREEMENT FOR RETAIL SHARES
OF
EMERALD FUNDS
Ladies and Gentlemen:
We wish to enter into this Agreement ("Agreement") with you concerning
the provision, to the extent provided below, of services to our clients
("Clients") who may from time to time beneficially own Retail Shares of
investment portfolios (collectively the "Funds") now or hereafter offered by
the Emerald Funds (the "Trust"). Retail shares of the Funds are hereinafter
referred to "Shares."
The terms and conditions of this Agreement are as follows:
Section 1. Except as otherwise designated in Appendix A to this
Agreement, we agree to provide:(1) (a) reasonable assistance in connection with
the distribution of Shares to Clients as requested from time to time by you,
which assistance may include forwarding sales literature and advertising
provided by you or your distributor for Clients; and/or (b) general
shareholder liaison services with respect to our Clients. "General
shareholder liaison services" include, but are not limited to, (i) answering
Client inquiries regarding account status and history, the manner in which
purchases, exchanges and redemptions of shares may be effected and certain
other matters pertaining to the Clients' investments; (ii) assisting Clients
in designating and changing dividend options, account designations and
addresses; and (iii) providing such other similar services as you or a Client
may reasonably request.
Section 2. Except as otherwise designated in Appendix A to this
Agreement, we also agree to provide shareholder processing services with
respect to Clients who may from time to time beneficially own Shares.
"Shareholder processing services" may include some or all of the following:(1)
(i) providing necessary personnel and facilities to establish and maintain
shareholder accounts and records for Clients; (ii) assisting in aggregating
and processing purchase, exchange and redemption transactions; (iii) placing
net purchase and redemption orders with the Fund's distributor; (iv)
arranging for wiring of funds; (v) transmitting
- --------------------------
1. Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE>
and receiving funds in connection with Client orders to purchase or redeem
Shares; (vi) processing dividend payments; (vii) verifying and guaranteeing
Client signatures in connection with redemption orders and transfers and
changes in Client-designated accounts, as necessary; (viii) providing
periodic statements showing a Client's account balance and, to the extent
practicable, integrating such information with other Client transactions
otherwise effected through or with us; (ix) furnishing (either separately or
on an integrated basis with other reports sent to a Client by us) periodic
statements and confirmations of purchases, exchanges and redemptions; (x)
transmitting on behalf of the Funds, proxy statements, annual reports,
updating prospectuses and other communications from the Funds to Clients;
(xi) receiving, tabulating and transmitting to the Funds proxies executed by
Clients with respect to shareholder meetings; (xii) providing the information
to the Funds necessary for accounting or subaccounting; and (xiii) providing
such other similar services as you or a Client may reasonably request.
Section 3. You recognize that we may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the
conduct of activities by Federally chartered and supervised banks and other
banking organizations. As such, we may be restricted in the activities we may
undertake and for which we may be paid and, therefore, we will perform only
those activities which are consistent with our statutory and regulatory
obligations. We will act solely as an agent for, upon the order of, and for
the account of, our Clients.
Section 4. We will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in our business, or any personnel employed by us)
as may be reasonably necessary or beneficial in order to provide the
aforementioned services and assistance to Clients.
Section 5. Neither we nor any of our officers, employees or agents are
authorized to make any representations concerning you or the Shares except
those contained in the Funds' applicable prospectuses and statements of
additional information for the Shares, copies of which will be supplied by
you to us, or in such supplemental literature or advertising as may be
authorized by you in writing.
Section 6. For all purposes of this Agreement we will be deemed to be
an independent contractor, and will have no authority to act as agent for you
or the Funds in any matter or in any respect. By our execution of this
Agreement, we agree to and do release, indemnify and hold you harmless from
and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by us or our officers,
employees or agents regarding our responsibilities
- 2 -
<PAGE>
hereunder for the purchase, redemption, transfer or registration of Retail
Shares by or on behalf of Clients. We and our employees will, upon request,
be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement.
Section 7. In consideration of the services and facilities provided by
us hereunder, you will pay to us, and we will accept as full payment
therefor, the fees set forth in Appendix A to this Agreement at annual rates
based on the average daily net asset value of the Shares beneficially owned
by our Clients for whom we are the dealer of record or holder of record or
with whom we have a servicing relationship (the "Clients' Shares"). Said
fees will be computed daily and payable monthly. For purposes of determining
the fee payable under this Section 7, the average daily net asset value of
the Clients' Shares will be computed in the manner specified in the Funds'
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of the particular
Shares involved for purposes of purchases and redemptions. The fee rate(s)
stated above may be prospectively increased or decreased by you, in your sole
discretion, at any time upon notice to us. Further, you may, in your
discretion and without notice, suspend or withdraw the sale of Shares,
including the sale of Shares for the account of any Client or Clients. All
fees payable by you under this Agreement with respect to the Retail Shares of
a particular Fund shall be payable entirely out of the net investment income
allocable to such Retail Shares, and no shares of the Fund involved, other
than the Retail Shares, and no other Class of beneficial interest of the
Trust (or a separate series of shares of any such Class) shall be responsible
for such fees.
Section 8. Any person authorized to direct the disposition of the
monies paid or payable by you pursuant to this Agreement will provide to your
Board of Trustees, and the Board will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made. In connection with such reviews, we will furnish you
or your designees with such information as you or they may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Clients of the services described herein), and will otherwise
cooperate with you and your designees (including, without limitation, any
auditors designated by you), in connection with the preparation of reports to
your Board of Trustees concerning this Agreement and the monies paid or
payable by you pursuant hereto, as well as any other reports or filings that
may be required by law.
Section 9. You may enter into other similar Agreements with any other
person or persons without our consent.
- 3 -
<PAGE>
Section 10. We hereby represent, warrant and agree that the
compensation payable to us hereunder, together with any other compensation
payable to us by our Clients in connection with the investment of their
assets in Shares of the Funds, will be disclosed by us to our Clients, will
be authorized by our Clients and will not result in an excessive or
unreasonable fee to us. We will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law
unless we have obtained the licenses required by such law.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by you or your designee. Unless
sooner terminated, this Agreement will continue until November 30, 1996, and
thereafter will continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by you in the
manner described in Section 14. This Agreement is terminable with respect to
the Shares of any Fund, without penalty, at any time by you (which
termination may be by a vote of a majority of the Disinterested Trustees as
defined in Section 14 or by vote of the holders of a majority of the
outstanding Shares of such Fund) or by us upon notice to the other party
hereto. This Agreement will also terminate automatically in the event of its
assignment (as defined in the Act).
Section 12. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to
such other address as either party shall so provide the other.
Section 13. This Agreement will be construed in accordance with the
internal laws of the State of Massachusetts, without giving effect to
principles of conflict of laws.
Section 14. This Agreement has been approved by vote of a majority of
(i) your Board of Trustees and (ii) those Trustees who are not "interested
persons" (as defined in the Act) of you and have no direct or indirect
financial interest in the operation of the Plans adopted by you regarding the
provision of services hereunder, or in any agreement related to such Plans,
cast in person at a meeting called for the purpose of voting on such approval
("Disinterested Trustees").
Section 15. The names "Emerald Funds" and "Trustees of Emerald Funds"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the
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<PAGE>
name or on behalf thereof by any of its Trustees, representative or agents
are made not individually, but in such capacities, and are not binding upon
any of the Trustees, shareholders, or representatives of the Trust
personally, but bind only the Trust property, and all persons dealing with
any Class of shares of the Trust must look solely to the Trust property
belonging to such Class for the enforcement of any claims against the Trust.
Very truly yours,
-------------------------------------------
Service Organization Name
(Please Print or Type)
-------------------------------------------
Address
-------------------------------------------
City State Zip Code
Date: By:
------------------------ ---------------------------------------
Authorized Signature
Accepted:
EMERALD FUNDS
Date: By:
------------------------ ------------------------------------
-5-
<PAGE>
Date:
----------------------
EMERALD FUNDS
Appendix A to
Distribution and Service Agreement for Retail Shares
FEE SCHEDULE
Pursuant to the terms and conditions set forth in the attached
Distribution and Service Agreement (the "Agreement"), Service Organization
agrees to provide the services described in Section 1 and Section 2 of the
Agreement as follows:
Yes No
Distribution and General Shareholder Liaison Services: / / / /
Shareholder Processing Services: / / / /
Pursuant to the terms and conditions set forth in the Agreement
(including Section 7 thereof), Service Organization will accept as full
payment for the services provided by it as specified above, fees (calculated
daily and payable monthly) at the following rates based on the average daily
net asset value of the Shares beneficially owned by Service Organization's
Clients:
Distribution and Service Fee for General
Shareholder Liaison Services. . . . . . . . . . . . 0.25%
Shareholder Processing Fee. . . . . . . . . . . . . 0.25%
-6-
<PAGE>
EXHIBIT 18
EMERALD FUNDS
(the "Company")
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") adopted Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive
order under Section 18 of the 1940 Act. Rule 18f-3, which became effective
on April 3, 1995, requires an investment company to file with the Commission
a written plan specifying all of the differences among classes, including the
various services offered to shareholders, different distribution arrangements
for each class, methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. Previously, the Company
operated a multi-class distribution structure pursuant to an exemptive order
granted by the Commission on November 30, 1993. On May 4, 1995, the Board of
Trustees of the Company authorized the Company to operate its current
multi-class distribution structure in compliance with Rule 18f-3. This Plan
became effective on July 31, 1995 when it was filed with the Securities and
Exchange Commission.
II. ATTRIBUTES OF CLASSES
A. GENERALLY
The Company shall initially offer three classes of shares -- Retail
Shares, Emerald Shares and Emerald Service Shares -- in the Prime, Treasury,
and Tax-Exempt Funds (each a "Fund," collectively, the "Money Market Funds")
and shall initially offer two classes of shares -- Retail Shares, and
Institutional Shares -- in the Equity, Equity Value, International Equity,
Small Capitalization and Balanced Funds (each a "Fund", collectively, the
"Equity Funds) and in the Short-Term Fixed Income, U.S. Government
Securities, Managed Bond and Florida Tax-Exempt Funds (each a "Fund",
collectively, the "Fixed Income Funds"). In general, shares of each class
shall be identical except for different expense variables (which will result
in different returns for each class), certain related rights and certain
shareholder services. More particularly, the Retail Shares, Emerald Shares
and Emerald Service Shares of the Money Market Funds and Retail Shares and
the Institutional Shares of the Equity and Fixed Income Funds shall represent
interests in the same portfolio of investments of the particular Fund, and
shall be identical in all respects, except for: (a) the impact of
<PAGE>
(i) expenses assessed to Emerald Service Shares pursuant to a Shareholder
Processing and Service Plan (the "Emerald Service Plan") and expenses
assessed to Retail Shares pursuant to a Combined Amended and Restated
Distribution and Service Plan ("Combined Plan") and/or Shareholder Processing
Plan ("Shareholder Plan"), and (ii) any other incremental expenses identified
that should be properly allocated to one class so long as any changes in
expense allocations are reviewed and approved by a vote of the Board of
Trustees, including a majority of the independent Trustees; (b) the fact that
(i) the Emerald Service Shares shall vote separately on matters which pertain
to an Emerald Service Plan, and (ii) the Retail Shares shall vote separately
on matters which pertain to a Combined Plan and/or Shareholder Plan, and
(iii) each class shall vote separately on any matter submitted to
shareholders relating to class expenses; (c) the different exchange
privileges of the classes of shares; (d) the designation of each class of
shares of a Fund; and (e) the different shareholder services relating to a
class of shares.
B. DISTRIBUTION ARRANGEMENTS, EXPENSES AND SALES CHARGES
RETAIL SHARES
Retail Shares of the Money Market Funds shall be offered to the
general public and shall be offered without a sales charge. Retail Shares of
the Money Market Funds shall be subject to a fee for distribution and/or
shareholder liaison services payable pursuant to the Combined Plan which
shall not initially exceed 0.25% (on an annualized basis) of the average
daily net asset value of a Fund's outstanding Retail Shares. Retail Shares
shall be further subject to a shareholder processing fee payable pursuant to
the Shareholder Plan which shall not initially exceed 0.25% (on an annualized
basis) of the average daily net asset value of a Fund's outstanding Retail
Shares.
EMERALD SERVICE SHARES
Emerald Service Shares shall be offered to institutional investors
such as Barnett Banks Trust Company, N.A. ("Barnett"), BISYS Fund Services,
LP ("BISYS LP") and their affiliates ("Shareholder Organizations"), who are
compensated by the Funds for providing services pursuant to the Emerald
Service Plan to their customers who are the beneficial owners of the Emerald
Service Shares. Emerald Service Shares shall be offered without a sales
charge. Emerald Service Shares shall be subject to a fee payable pursuant to
the Emerald Service Plan which shall not initially exceed 0.35% (on an
annualized basis) of the average daily net asset value of a Funds's
outstanding Emerald Service Shares.
- 2 -
<PAGE>
EMERALD/INSTITUTIONAL SHARES
Emerald/Institutional Shares shall be offered to Barnett and its
affiliates, as well as to Barnett's correspondent banks and other
institutions acting on behalf of themselves or their customers who maintain
qualified trust, agency or custodial accounts. Emerald/Institutional Shares
shall be offered without a sales charge and shall not initially be subject to
fees payable pursuant to the Combined Plan, the Shareholder Plan or the
Emerald Service Plan.
C. EXCHANGE PRIVILEGES
RETAIL SHARES
Holders of Retail Shares generally shall be permitted to exchange
their shares for Retail Shares of another Fund. Holders of Retail Shares
shall also be permitted to exchange their shares for Institutional Shares of
the same Fund if the shares are to be held in a qualified trust, agency or
custodial account.
EMERALD/INSTITUTIONAL SHARES
The Company shall not initially offer holders of Emerald Shares an
exchange privilege, except that holders of Emerald/Institutional Shares
generally shall be permitted to exchange, at net asset value, their shares
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.
EMERALD SERVICE SHARES
The Company shall not initially offer holders of Emerald Service
Shares an exchange privilege.
D. CONVERSION FEATURES
The Company shall not initially offer a conversion feature to
holders of Retail, Emerald/Institutional or Emerald Service Shares.
E. SHAREHOLDER SERVICES
1. INDIVIDUAL RETIREMENT ACCOUNTS AND QUALIFIED RETIREMENT
PLANS (COLLECTIVELY, "IRAS")
- 3 -
<PAGE>
RETAIL SHARES
The Company shall initially make IRAs available to holders of
Retail Shares.
EMERALD/INSTITUTIONAL SHARES
The Company shall not initially make IRAs available to
holders of Emerald/Institutional Shares.
EMERALD SERVICE SHARES
The Company shall not initially make IRAs available to
holders of Emerald Service Shares.
2. E-Z MATIC INVESTMENT PLAN
RETAIL SHARES
Holders of Retail Shares shall initially be offered an e-z matic
investment plan whereby, in general, a shareholder's bank account will be
debited in an amount specified by the shareholder and shares in a Fund will
automatically be purchased at regular intervals.
EMERALD/INSTITUTIONAL SHARES
The Company shall not initially offer an e-z matic investment plan
to holders of Emerald/Institutional Shares.
EMERALD SERVICE SHARES
The Company shall not initially offer an e-z matic investment plan
to holders of Emerald Service Shares.
3. AUTOMATIC WITHDRAWAL PLAN
RETAIL SHARES
Holders of Retail Shares shall initially be offered an automatic
withdrawal plan which generally allows a shareholder to request regular
account withdrawals of a fixed sum of money.
EMERALD/INSTITUTIONAL SHARES
The Company shall not initially offer an automatic withdrawal plan
to holders of Emerald/Institutional Shares.
- 4 -
<PAGE>
EMERALD SERVICE SHARES
The Company shall not initially offer an automatic withdrawal plan
to holders of Emerald Service Shares.
4. PERIODIC INVESTMENT PLAN
RETAIL SHARES
Holders of Retail Shares shall initially be offered a periodic
investment plan whereby a shareholder generally may automatically make
purchases of shares on a regular, periodic basis.
EMERALD/INSTITUTIONAL SHARES
The Company shall not initially offer a periodic investment plan to
holders of Emerald/Institutional Shares.
EMERALD SERVICE SHARES
The Company shall not initially offer a periodic investment plan to
holders of Emerald Service Shares.
F. METHODS FOR ALLOCATING EXPENSES AMONG CLASSES
Expenses of a Fund are classified as being either joint or
class-specific.
Joint expenses of a Fund are allocated daily to each
class of shares of such Fund in accordance with Rule 18f-3(c).
Class-specific expenses of a Fund are allocated to the specific
class of shares of such Fund.
Adopted: May 5, 1995
Revised: January 31, 1996 (effective as of April __, 1996)
- 5 -
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD TAX-EXEMPT FUND SERVICE SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD TAX-EXEMPT FUND INVESTOR SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD PRIME TRUST FUND
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD TREASURY TRUST FUND
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD EQUITY FUND CLASS A SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD EQUITY FUND CLASS B SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD EQUITY FUND INSTITUTIONAL SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD FLORIDA TAX-EXEMPT FUND CLASS B SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD FLORIDA TAX-EXEMPT FUND INSTITUTIONAL SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD U.S. GOVERNMENT SECURITIES FUND CLASS A SHARES
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<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NUMBER> 19
<NAME> EMERALD U.S. GOVERNMENT SECURITIES FUND CLASS B SHARES
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<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NUMBER> 20
<NAME> EMERALD U.S. GOVERNMENT FUND INSTITUTIONAL SHARES
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<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD SMALL CAPITALIZATION FUND CLASS A SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD SMALL CAPITALIZATION FUND CLASS B SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD SMALL CAPITALIZATION FUND INSTITUTIONAL SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD BALANCED FUND CLASS A SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD BALANCED FUND CLASS B SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME> EMERALD BALANCED FUND INSTITUTIONAL SHARES
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<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NUMBER> 27
<NAME>EMERALD MANAGED BOND FUND CLASS A SHARES
<S> <C>
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<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME>EMERALD MANAGED BOND FUND CLASS B SHARES
<S> <C>
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME>EMERALD MANAGED BOND FUND INSTITUTIONAL SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME>EMERALD SHORT TERM FIXED INCOME FUND CLASS A SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME>EMERALD SHORT TERM FIXED INCOME FUND CLASS B SHARES
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<CIK> 0000831101
<NAME> EMERALD FUNDS
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<NAME>EMERALD SHORT TERM FIXED INCOME FUND INSTITUTIONAL SHARES
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