<PAGE>
As filed with the Securities and Exchange Commission
on June 28, 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. 18 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 19 /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 FUND
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
RETAIL SHARES
SUPPLEMENT DATED AUGUST __, 1996
TO THE PROSPECTUS DATED APRIL 1, 1996
The following information has been added to the section entitled "Summary of
Expenses-Financial Highlights":
The following unaudited information for Retail Shares of the Equity Value
Fund and International Equity Fund has been derived from the financial
statements included in the Statement of Additional Information. This
financial information should be read together with those financial
statements.
FINANCIAL HIGHLIGHTS FOR A RETAIL SHARE OF THE EQUITY VALUE FUND AND
INTERNATIONAL EQUITY FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED:
<PAGE>
Equity Value International
Fund Equity Fund
-------------- --------------
For the Period For the Period
Ended 5/31/96* ended 5/31/96*
(unaudited) (unaudited)
-------------- --------------
Net asset value, beginning of period . . . . . . . . . $ 10.00 $ 10.00
----- -----
Income from investment operations
Net investment income. . . . . . . . . . . . . . . . 0.13 0.08
Net realized and unrealized gains
on securities. . . . . . . . . . . . . . . . . . . . 0.81 0.58
Total income from investment
operations . . . . . . . . . . . . . . . . . . . . . 0.94 0.66
Less dividends and distributions:
Dividends from net investment
income . . . . . . . . . . . . . . . . . . . . . . (0.13) (0.01)
Net change in net asset value. . . . . . . . . . . . . 0.81 0.65
Net asset value, end of period . . . . . . . . . . . . $ 10.81 $ 10.65
----- -----
----- -----
Total return . . . . . . . . . . . . . . . . . . . . . 9.42%++ 6.56%++
Ratios/supplemental data:
Net assets, end of period (000s) . . . . . . . . . . $ 1 $ 1
Ratio of expenses to average net
assets . . . . . . . . . . . . . . . . . . . . . . 0.00%+ 0.00%+
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . . . . 2.85%+ 1.82%+
Ratio of expenses to average net
assets** . . . . . . . . . . . . . . . . . . . . . . 317.36%+ 328.68%+
Ratio of net investment income to
average net assets** . . . . . . . . . . . . . . . . -314.51%+ -326.87%+
Portfolio turnover . . . . . . . . . . . . . . . . . 8% 1%
* For the period December 27, 1995 (commencement of operations) through May
31, 1996.
** During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursement had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
--------------------
INVESTMENT ADVISER - ADDITIONAL INFORMATION. For the period ended May 31,
1996, all investment advisory fees payable by the Equity Value Fund and
International Equity Fund were waived.
<PAGE>
Effective June 29, 1996 Barnett Capital Advisors, Inc., a newly-organized,
wholly-owned subsidiary of Barnett Bank, N.A. which, in turn, is a wholly-owned
subsidiary of Barnett Banks, Inc., assumed the investment advisory
responsibilities of Barnett Banks Trust Company, N.A. for each of the Funds on
the terms and conditions stated in the Prospectus. This change did not involve
a change in control or management of the investment adviser or a change in the
Funds' portfolio managers. Barnett Capital Advisors, Inc. maintains offices at
9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256.
<PAGE>
[LOGO]
E M E R A L D
F U N D S
R E T A I L S H A R E S
----
E M E R A L D E Q U I T Y F U N D
----
E M E R A L D E Q U I T Y V A L U E F U N D
----
E M E R A L D I N T E R N A T I O N A L E Q U I T Y F U N D
----
E M E R A L D
S M A L L C A P I T A L I Z A T I O N F U N D
----
E M E R A L D B A L A N C E D F U N D
----
E M E R A L D S H O R T - T E R M
F I X E D I N C O M E F U N D
----
E M E R A L D U . S . G O V E R N M E N T
S E C U R I T I E S F U N D
----
E M E R A L D M A N A G E D
B O N D F U N D
----
E M E R A L D
F L O R I D A T A X - E X E M P T F U N D
----
E M E R A L D P R I M E F U N D
----
E M E R A L D T R E A S U R Y F U N D
----
E M E R A L D T A X - E X E M P T F U N D
FIRST OF APRIL
----
1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
HIGHLIGHTS........................................................... 3
SUMMARY OF EXPENSES.................................................. 5
Expenses........................................................... 5
Financial Highlights............................................... 9
INVESTMENT PRINCIPLES AND POLICIES................................... 19
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................... 24
INVESTING IN EMERALD FUNDS........................................... 35
Your Money Manager................................................. 35
Getting Your Investment Started.................................... 35
If You Have Questions.............................................. 36
Other Service Providers............................................ 37
How To Buy Shares.................................................. 38
Opening and Adding to Your Emerald Fund Account.................. 38
Explanation of Sales Price....................................... 41
How To Sell Shares................................................. 41
Transaction Rules.................................................. 43
YOUR EMERALD FUND ACCOUNT............................................ 45
Shareholder Services............................................... 45
Dividends And Distributions........................................ 46
Distribution And Service Arrangements.............................. 47
The Emerald Family Of Funds........................................ 48
THE BUSINESS OF THE FUNDS............................................ 49
Fund Management.................................................... 49
Tax Implications................................................... 51
Measuring Performance.............................................. 53
</TABLE>
IF YOU HAVE QUESTIONS
800/637-3759
8:00 AM - 5:00 PM
For information regarding the Emerald Funds or for assistance with an existing
Emerald Fund account.
If you are investing in the Emerald Funds through an account with Barnett
Securities, Inc., please speak
directly with your assigned Financial Consultant, or contact 800/535-6579 for
assistance with your account.
<PAGE>
[LOGO]
E M E R A L D
F U N D S
April 1, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- -------------------- -------------------------------------------- ------------------------------------
<S> <C> <C>
EQUITY Long-term capital appreciation through Capital appreciation over the long
investments primarily in high quality common term and are willing to accept the
stocks and, secondarily, potential dividend relative risks associated with
income growth equity investments
- --------------------------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation with income Long-term capital appreciation and
as a secondary objective through investments are willing to accept the relative
primarily in common and preferred stock and risks associated with investments in
debt securities convertible into common undervalued stocks
stock
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation through Capital appreciation over the
investments primarily in equity securities long-term and are willing to accept
of foreign issuers the relative risks associated with
foreign investments
- --------------------------------------------------------------------------------------------------------
SMALL Long-term capital appreciation Long-term rewards that may exceed
CAPITALIZATION those provided by a fund investing
in larger, more established
companies and are willing to accept
the relative risks of smaller
companies
- --------------------------------------------------------------------------------------------------------
BALANCED Attractive investment return through a Asset allocation among equity
combination of growth of capital and current securities, fixed income securities
income and cash equivalents in light of
prevailing market and economic
conditions
- --------------------------------------------------------------------------------------------------------
SHORT-TERM Consistently positive current income with Current income greater than normally
FIXED INCOME relative stability of principal through available from a money market fund
investments in investment grade securities and less principal volatility than
and high quality money market instruments normally associated with a long-term
fund
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income through Current income from U.S. Government
SECURITIES investments principally in U.S. Government securities and can accept
securities and repurchase agreements fluctuations in price and yield
- --------------------------------------------------------------------------------------------------------
MANAGED BOND High level of current income and, Current income from corporate and
secondarily, capital appreciation government securities and can accept
fluctuations in price and yield
- --------------------------------------------------------------------------------------------------------
FLORIDA High tax-free income and current liquidity Current income from an investment
TAX-EXEMPT and, secondarily, long- term capital that is both free from regular
appreciation federal income tax and Florida
intangibles tax and has the
possibility of some price
appreciation
- --------------------------------------------------------------------------------------------------------
PRIME High current income, liquidity and the A flexible and convenient way to
preservation of capital through investments manage cash while earning money
in short-term money market instruments market returns
- --------------------------------------------------------------------------------------------------------
TREASURY High current income, liquidity and the A way to earn money market returns
preservation of capital through investments with the extra margin of safety
in short-term U.S. Treasury obligations, as associated with U.S. Treasury
well as related repurchase agreements obligations
- --------------------------------------------------------------------------------------------------------
TAX-EXEMPT High current income free of federal income A way to earn tax-free money market
tax, with liquidity and the preservation of returns
capital through investment in short-term
municipal obligations
- --------------------------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. PLEASE READ AND KEEP IT FOR FUTURE REFERENCE. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Fund shares are not bank deposits or obligations of, or guaranteed or endorsed
by, Barnett Banks Trust Company, N.A. or any of its affiliates and are not
federally insured by, guaranteed by or obligations of, or otherwise supported by
the U.S. Government, the FDIC, the Federal Reserve Board or any other
governmental agency. While the Prime, Treasury and Tax-Exempt Funds will attempt
to maintain their net asset value at $1.00 a share, there can be no assurance
that these Funds will be able to do so on a continuous basis. Investment in the
Funds involves investment risks, including the possible loss of principal. In
addition, the dividends paid by a Fund will go up and down. Barnett Banks Trust
Company, N.A. serves as investment adviser to the Funds, is paid a fee for its
services, and is not affiliated with Emerald Asset Management, Inc., the Funds'
distributor.
MISSOURI INVESTOR NOTICE: THE EMERALD SMALL CAPITALIZATION FUND, WHICH
CONCENTRATES ITS INVESTMENTS IN COMPANIES WITH SMALLER CAPITALIZATIONS, MAY BE
SUBJECT TO GREATER PRICE VOLATILITY THAN A FUND THAT CONCENTRATES ITS
INVESTMENTS IN LARGER CAPITALIZATION STOCKS. IN ADDITION, UP TO 15% OF THE TOTAL
ASSETS OF THE EQUITY, SMALL CAPITALIZATION AND BALANCED FUNDS MAY BE INVESTED IN
CONVERTIBLE SECURITIES RATED BELOW INVESTMENT GRADE AT THE TIME OF PURCHASE AND
ALL OF THE FUNDS MAY RETAIN SECURITIES THAT HAVE BEEN DOWNGRADED TO BELOW
INVESTMENT GRADE AFTER PURCHASE. EACH FUND MAY SELL PORTFOLIO SECURITIES SHORTLY
AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN HIGHER TRANSACTION COSTS AND
TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- ------------------------------------------
Q. WHAT KINDS OF FUNDS ARE OFFERED BY EMERALD FUNDS?
A. Emerald Funds offers a choice of 12 different Funds, each with separate
investment objectives and policies: the Equity, Equity Value, International
Equity, Small Capitalization and Balanced Funds (the "Equity Funds"); the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds (the "Fixed Income Funds"); and the Prime, Treasury and
Tax-Exempt Funds (the "Money Market Funds"). These Funds and their investment
goals are outlined on page 1.
Q. WHO ADVISES EMERALD FUNDS?
A. Barnett Banks Trust Company, N.A. ("Barnett") serves as investment adviser to
Emerald Funds. Barnett is the largest trust organization headquartered in
Florida with more than $9.8 billion under active management. A subsidiary of
Wilmington Trust Company serves as sub-adviser to the Emerald Tax-Exempt Fund.
See "The Business of the Funds."
Q. HOW CAN I PURCHASE SHARES?
A. Shares may be purchased through selected broker-dealers and financial
institutions, including Barnett Securities, Inc. They may also be purchased
directly through BISYS Fund Services Ohio, Inc. ("BISYS Ohio" or the "Transfer
Agent"). There is a $1,000 minimum initial investment, subject to lower minimums
for certain investment programs. See "How to Buy Shares."
Q. CAN I EXCHANGE MY SHARES AFTER PURCHASE?
A. Retail Shares of one Emerald Fund may be exchanged for Retail Shares of
another Emerald Fund.
Q. IS THERE A DIVIDEND REINVESTMENT PROGRAM?
A. You may choose to have dividends and capital gains automatically reinvested
in additional shares of the same class of shares that you own, or dividends and
capital gains may be paid in cash.
Q. WHEN ARE DIVIDENDS PAID?
A. Dividends from net investment income are declared daily and paid monthly for
each of the Money Market and Fixed Income Funds. The Equity Fund, Equity Value
Fund and Balanced Fund declare dividends quarterly, and the Small Capitalization
Fund and International Equity Fund declare dividends annually. Capital gains are
distributed at least annually by each Fund. See "Dividends and Distributions."
Q. HOW CAN I SELL MY SHARES?
A. If you buy shares directly through the Transfer Agent you may redeem (sell)
your Emerald Fund shares by mail, phone or hand delivery as described under "How
to Sell Shares." Emerald Funds also offers an automatic withdrawal program. If
you buy shares through an account at Barnett Securities, Inc. or another
financial institution, you may redeem shares in accordance with the instructions
applicable to your account. See "How to Sell Shares."
Q. WHAT POTENTIAL REWARDS AND RISKS DOES MY INVESTMENT PRESENT?
A. Investing in Emerald Funds presents the potential rewards and risks common to
securities investments. The Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds will invest in common stocks. Stocks have
historically presented greater potential for capital appreciation than debt
obligations, but do not provide the same protection of capital or assurance of
income. In addition, each of these five Funds is permitted to invest in the
stocks of smaller companies and in convertible securities rated below investment
grade, which present greater potential price volatility, I.E., the price may go
up or down.
The market value of debt obligations, which are a major part of the investments
of several of the Emerald Funds, will also fluctuate and will normally rise when
interest rates fall and vice versa. The value of some debt obligations (such as
collateralized mortgage obligations, "stripped" securities, municipal leases and
structured notes) may be more volatile than other types of instruments.
3
<PAGE>
Several of the Funds invest in foreign securities that are considered attractive
by Barnett, but may be subject to potential adverse political and governmental
developments and changes in foreign currency exchange rates.
In seeking to achieve its investment objective, the Florida Tax-Exempt Fund
concentrates its investments in Florida municipal obligations, and is classified
as a non-diversified fund, which means its portfolio may be dependent upon the
performance of a smaller number of securities than is the case with the other
Funds, which are diversified.
The Funds may invest in options and futures, may lend their securities and enter
into repurchase agreements and reverse repurchase agreements with banks and
broker/dealers, and may make limited investments in illiquid securities.
Each Fund's adviser or sub-adviser will evaluate the rewards and risks presented
by all securities purchased by the Fund, and will determine, in connection with
the management of the Fund, how these securities will be used in furtherance of
the Fund's investment objectives. It is possible, however, that these
evaluations will prove to be inaccurate or incomplete and, even when accurate
and complete, it is possible that a Fund will incur loss. For further
information, see "Investment Principles and Policies."
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES
- ------------------------------
EXPENSES
Shareholder Transaction Expenses are charges you pay when buying or selling
shares of a Fund. Annual Fund Operating Expenses are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
general Fund administration, accounting and other services.
Below is information regarding the shareholder transaction expenses and
operating expenses for the Funds' Retail Shares. Examples based on this
information are also provided.
<TABLE>
<CAPTION>
Small
Equity International Capitalization
Equity Fund Value Fund Equity Fund Fund Balanced Fund
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Front End Sales Charge Imposed on Purchases...... None None None None None
Sales Charge Imposed on Reinvested Dividends..... None None None None None
Deferred Sales Charge............................ None None None None None
Redemption Fee................................... None None None None None
Exchange Fee..................................... None None None None None
ANNUAL FUND OPERATING EXPENSES
AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees.................................... 0.60% 0.60% 1.00% 1.00% 0.60%
12b-1 Fees....................................... 0.25% 0.25% 0.25% 0.25% 0.25%
All Other Expenses (After Expense
Reimbursements)................................ 0.48% 0.50% 0.65% 0.50% 0.50%
----------- ----------- ----------- ----------- ------
Total Fund Operating Expenses
(After Expense Reimbursements)(1).............. 1.33% 1.35% 1.90% 1.75% 1.35%
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
</TABLE>
- ------------
(1) See footnote (1) on page 7.
5
<PAGE>
<TABLE>
<CAPTION>
Short-Term
Fixed U.S. Government Managed
Income Fund Securities Fund Bond Fund
--------------- --------------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Front End Sales Charge Imposed on Purchases.......................... None None None
Sales Charge Imposed on Reinvested Dividends......................... None None None
Deferred Sales Charge................................................ None None None
Redemption Fee....................................................... None None None
Exchange Fee......................................................... None None None
ANNUAL FUND OPERATING EXPENSES
AFTER EXPENSE REIMBURSEMENTS (as a percentage of average net assets):
Advisory Fees........................................................ 0.40% 0.40% 0.40%
12b-1 Fees........................................................... 0.25% 0.25% 0.25%
All Other Expenses (After Expense Reimbursements).................... 0.25% 0.45% 0.45%
------ ------ -----------
Total Fund Operating Expenses
(After Expense Reimbursements)(1).................................. 0.90% 1.10% 1.10%
------ ------ -----------
------ ------ -----------
</TABLE>
- ------------
(1) See footnote (1) on page 7.
6
<PAGE>
<TABLE>
<CAPTION>
Florida
Tax-Exempt Fund Prime Fund Treasury Fund Tax-Exempt Fund
--------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Front End Sales Charge Imposed on Purchases............ None None None None
Sales Charge Imposed on Reinvested Dividends........... None None None None
Deferred Sales Charge.................................. None None None None
Redemption Fee......................................... None None None None
Exchange Fee........................................... None None None None
ANNUAL FUND OPERATING EXPENSES
AFTER FEE WAIVERS AND EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees (After Fee Waivers)(1)................... 0.40% 0.23% 0.24% 0.15%
12b-1 Fees............................................. 0.25% 0.25% 0.25% 0.25%
All Other Expenses (After Expense Reimbursements)...... 0.25% 0.42% 0.41% 0.44%
------ ----------- ------ ------
Total Fund Operating Expenses
(After Fee Waivers and Expense Reimbursements)(1).... 0.90% 0.90% 0.90% 0.84%
------ ----------- ------ ------
------ ----------- ------ ------
</TABLE>
- ------------
(1) This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the
Funds. The operating expenses for the Equity, Small Capitalization,
Balanced, Short-Term Fixed Income, U.S. Government Securities, Managed Bond,
Florida Tax-Exempt, Prime, Treasury and Tax-Exempt Funds have been restated
using the current fees and operating expenses that would have been
applicable had they been in effect during the last fiscal year. The
operating expenses for the Equity Value and International Equity Funds are
based on estimated expenses expected to be incurred during the remainder of
the current fiscal year.
Without fee waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.25% for each of the Prime, Treasury and
Tax-Exempt Funds. Absent these waivers and other expense reimbursements, the
total operating expenses for the Retail Shares of the Small Capitalization,
Balanced, Short-Term Fixed Income, U.S. Government Securities, Managed Bond,
Florida Tax-Exempt, Prime, Treasury and Tax-Exempt Funds would be 1.82%,
1.45%, 1.92%, 1.14%, 1.33%, 1.13%, .91%, .92%, and .92%, respectively.
The Adviser may waive its fee and/or reimburse expenses of the Funds from
time to time. These waivers and reimbursements are voluntary and may be
terminated at any time with respect to any Fund without the consent of the
Fund. You should note that any fees that are charged by the Adviser, its
affiliates or any other institutions directly to their customer accounts for
services related to an investment in the Funds are in addition to, and not
reflected in, the fees and expenses described above.
7
<PAGE>
EXAMPLE: Let's say, hypothetically, that the annual return on the Retail Shares
of each Fund is 5%, and that their operating expenses are as described above.
For every $1,000 you invested in a particular Fund, after the periods shown
below, you would have paid this much in expenses during such periods:
<TABLE>
<CAPTION>
1 3 5 10
YEAR AFTER YEARS AFTER YEARS AFTER YEARS AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equity Fund...................................................... $14 $42 $ 73 $160
Equity Value Fund................................................ $14 $43 $ 74 $162
International Equity Fund........................................ $19 $60 $103 $222
Small Capitalization Fund........................................ $18 $55 $ 95 $206
Balanced Fund.................................................... $14 $43 $ 74 $162
Short-Term Fixed Income Fund..................................... $ 9 $29 $ 50 $111
U.S. Government Securities Fund.................................. $11 $35 $ 61 $134
Managed Bond Fund................................................ $11 $35 $ 61 $134
Florida Tax-Exempt Fund.......................................... $ 9 $29 $ 50 $111
Prime Fund....................................................... $ 9 $29 $ 50 $111
Treasury Fund.................................................... $ 9 $29 $ 50 $111
Tax-Exempt Fund.................................................. $ 8 $26 $ 46 $101
</TABLE>
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
8
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP, THE
FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENTS OF
ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR. THE EMERALD EQUITY VALUE FUND AND INTERNATIONAL EQUITY FUND WERE
NOT OPERATIONAL DURING THE PERIODS PRESENTED.
EMERALD EQUITY FUND
Financial highlights for a Retail Share of the Equity Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------ Period Ended
November 30, November 30, November November November 30,
1995 1994 30, 1993 30, 1992 1991*
------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 10.86 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------- ------------- ----------- ----------- -------------
Income from investment operations:
Net investment income................... 0.02 0.08 0.15 0.16 0.12
Net realized and unrealized gain (loss)
on securities......................... 3.76 (0.39) (0.08) 1.73 0.24
------------- ------------- ----------- ----------- -------------
Total income (loss) from investment
operations............................ 3.78 (0.31) 0.07 1.89 0.36
------------- ------------- ----------- ----------- -------------
Less dividends and distributions:
Dividends from net investment income.... (0.02) (0.08) (0.15) (0.16) (0.12)
Distributions from net realized gains on
securities............................ (0.00) (0.57) (0.07) (0.00) (0.00)
------------- ------------- ----------- ----------- -------------
Total dividends and distributions....... (0.02) (0.65) (0.22) (0.16) (0.12)
------------- ------------- ----------- ----------- -------------
Net change in net asset value............. 3.76 (0.96) (0.15) 1.73 0.24
------------- ------------- ----------- ----------- -------------
NET ASSET VALUE, END OF PERIOD............ $ 14.62 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------- ------------- ----------- ----------- -------------
------------- ------------- ----------- ----------- -------------
TOTAL RETURN.............................. 34.82% (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........ $ 22,209 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to average net
assets................................ 1.37% 1.07% 0.86% 0.76% (0.00)
Ratio of net investment income to
average net assets.................... 0.15% 0.36% 1.22% 1.41% 2.64%+
Ratio of expenses to average net
assets**.............................. (a) 1.29% 1.21% 1.18% 1.22%+
Ratio of net investment income to
average net assets**.................. (a) 0.13% 0.87% 0.99% 1.42%+
Portfolio turnover...................... 104% 113% 102% 40% 13%
</TABLE>
- ------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
9
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for a Retail Share of the Small Capitalization Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.66 $10.49
------ ------
Income from investment operations:
Net investment loss................... (0.04) (0.04)
Net realized and unrealized gains
(losses) on securities.............. 3.15 (0.79)
------ ------
Net change in net asset value........... 3.11 (0.83)
------ ------
NET ASSET VALUE, END OF PERIOD.......... $12.77 $ 9.66
------ ------
------ ------
Total return............................ 32.19% (7.91%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $2,657 $1,583
Ratio of expenses to average net
assets.............................. 1.54% 1.54%+
Ratio of net investment loss to
average net assets.................. (0.81%) (0.67%)+
Ratio of expenses to average net
assets**............................ 2.43% 2.50%+
Ratio of net investment loss to
average net assets**................ (1.70%) (1.63%)+
Portfolio turnover.................... 229% 118%
</TABLE>
- ------------
* For the period March 1, 1994 (initial offering date of Retail Class Shares)
through November 30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
10
<PAGE>
EMERALD BALANCED FUND
Financial highlights for a Retail Share of the Balanced Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.72 $ 10.00
------ ------
Income from investment operations:
Net investment income................................................... 0.30 0.24
Net realized and unrealized gains (losses) on securities................ 2.30 (0.28)
------ ------
Total income (loss) from investment operations............................ 2.60 (0.04)
------ ------
Less dividends and distributions:
Dividends from net investment income.................................... (0.30) (0.22)
Distributions in excess of net investment income........................ (0.00) (0.02)
------ ------
Total dividends and distributions......................................... (0.30) (0.24)
------ ------
Net change in net asset value............................................. 2.30 (0.28)
------ ------
NET ASSET VALUE, END OF PERIOD............................................ $ 12.02 $ 9.72
------ ------
------ ------
Total return.............................................................. 27.45% (0.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 1,082 $ 543
Ratio of expenses to average net assets................................. 0.72% 0.68%+
Ratio of net investment income to average net assets.................... 3.14% 3.70%+
Ratio of expenses to average net assets**............................... 4.20% 2.50%+
Ratio of net investment income to average net assets**.................. (0.34%) 1.88%+
Portfolio turnover...................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were volunarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
11
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for a Retail Share of the Short-Term Fixed Income Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.74 $ 10.00
------ ------
Income From investment operations:
Net investment income................................................... 0.57 0.32
Net unrealized gains (losses)on securities.............................. 0.40 (0.26)
------ ------
Total income (loss) from investment operations............................ 0.97 0.06
------ ------
Dividends from net investment income...................................... (0.57) (0.32)
------ ------
Net change in net asset value............................................. 0.40 (0.26)
------ ------
NET ASSET VALUE, END OF PERIOD............................................ $ 10.14 $ 9.74
------ ------
------ ------
Total return.............................................................. 10.25% 0.65%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 343 $ 223
Ratio of expenses to average net assets................................. 0.71% 0.67%+
Ratio of net investment loss to average net assets...................... 5.72% 5.20%+
Ratio of expenses to average net assets**............................... 9.10% 2.50%+
Ratio of net investment income to average net assets**.................. (2.67%) 3.36%+
Portfolio turnover...................................................... 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were volunarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
12
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for a Retail Share of the U.S. Government Securities Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
November Period Ended
November 30, November 30, 30, November 30, November 30,
1995 1994 1993 1992 1991*
------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 9.72 $ 10.79 $ 10.52 $ 10.46 $ 10.00
------------- ------------- ----------- ------------- -------------
Income from investment operations:
Net investment income............... 0.64 0.58 0.66 0.77 0.27
Net realized and unrealized gains
(losses) on securities............ 0.67 (0.94) 0.41 0.12 0.46
------------- ------------- ----------- ------------- -------------
Total income (loss) from investment
operations........................ 1.31 (0.36) 1.07 0.89 0.73
------------- ------------- ----------- ------------- -------------
Less dividends and distributions:
Dividends from net investment
income............................ (0.64) (0.58) (0.66) (0.77) (0.27)
Distributions in excess of net
investment income................. (0.00) (0.01) (0.00) (0.00) (0.00)
Distributions from net realized
gains on securities............... (0.00) (0.10) (0.14) (0.06) (0.00)
Distributions in excess of net
realized gains.................... (0.00) (0.02) (0.00) (0.00) (0.00)
------------- ------------- ----------- ------------- -------------
Total dividends and distributions... (0.64) (0.71) (0.80) (0.83) (0.27)
------------- ------------- ----------- ------------- -------------
Net change in net asset value......... 0.67 (1.07) 0.27 0.06 0.46
------------- ------------- ----------- ------------- -------------
NET ASSET VALUE, END OF PERIOD........ $ 10.39 $ 9.72 $ 10.79 $ 10.52 $ 10.46
------------- ------------- ----------- ------------- -------------
------------- ------------- ----------- ------------- -------------
Total return.......................... 13.85% (3.45)% 10.40% 8.79% 7.34%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 26,912 $ 30,855 $ 145,328 $ 94,006 $ 34,693
Ratio of expenses to average net
assets............................ 1.27% 0.98% 0.64% 0.28% 0.00%+
Ratio of net investment income to
average net assets................ 7.02% 5.68% 5.91% 7.18% 7.88%+
Ratio of expenses to average net
assets**.......................... (a) 1.09% 1.06% 0.99% 1.47%+
Ratio of net investment income to
average net assets**.............. (a) 5.57% 5.49% 6.42% 6.41%+
Portfolio turnover.................. 89% 133% 72% 50% 34%
</TABLE>
- ------------
* For the period July 31, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
13
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for a Retail Share of the Managed Bond Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended Period Ended
November 30, November 30,
1995 1994*
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................................ $ 9.54 $ 10.00
------ ------
Income from investment operations:
Net investment income..................................................... 0.66 0.43
Net realized and unrealized gains (losses) on securities.................. 1.05 (0.46)
------ ------
Total income (loss) from investment operations.............................. 1.71 (0.03)
------ ------
Less dividends and distributions:
Dividends from net investment income...................................... (0.66) (0.41)
Distributions in excess of net investment income.......................... (0.00) (0.02)
------ ------
Total dividends and distributions........................................... (0.66) (0.43)
------ ------
Net change in net asset value............................................... 1.05 (0.46)
------ ------
NET ASSET VALUE, END OF PERIOD.............................................. $ 10.59 $ 9.54
------ ------
------ ------
Total return................................................................ 18.47% (0.35)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).......................................... $ 820 $ 609
Ratio of expenses to average net assets................................... 0.71% 0.65%+
Ratio of net investment income to average net assets...................... 6.49% 6.29%+
Ratio of expenses to average net assets**................................. 3.17% 2.50%+
Ratio of net investment income to average net assets**.................... 4.03% 4.44%+
Portfolio turnover........................................................ 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were volunarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
14
<PAGE>
EMERALD FLORIDA TAX-EXEMPT FUND
Financial highlights for a Retail Share of the Florida Tax-Exempt Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------
November November November Period Ended
November 30, 30, 30, 30, November 30,
1995 1994 1993 1992 1991*
------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.87 $ 11.33 $ 10.55 $ 10.14 $ 10.00
------------- ----------- ----------- ----------- -------------
Income from investment operations:
Net investment income................. 0.54 0.53 0.61 0.68 0.21
Net realized and unrealized gains
(losses) on securities.............. 1.22 (1.37) 0.78 0.45 0.14
------------- ----------- ----------- ----------- -------------
Total income (loss) from investment
operations.......................... 1.76 (0.84) 1.39 1.13 0.35
------------- ----------- ----------- ----------- -------------
Less dividends and distributions:
Dividends from net investment
income.............................. (0.54) (0.53) (0.61) (0.68) (0.21)
Distributions from net realized gains
on securities....................... (0.00) (0.09) (0.00) (0.04) (0.00)
------------- ----------- ----------- ----------- -------------
Total dividends and distributions..... (0.54) (0.62) (0.61) (0.72) (0.21)
------------- ----------- ----------- ----------- -------------
Net change in net asset value........... 1.22 (1.46) 0.78 0.41 0.14
------------- ----------- ----------- ----------- -------------
NET ASSET VALUE, END OF PERIOD.......... $ 11.09 $ 9.87 $ 11.33 $ 10.55 $ 10.14
------------- ----------- ----------- ----------- -------------
------------- ----------- ----------- ----------- -------------
Total return............................ 18.17% (7.75%) 13.37% 11.51% 3.49%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 94,017 $ 109,426 $ 207,764 $ 106,946 $ 10,589
Ratio of expenses to average net
assets.............................. 1.07% 0.96% 0.65% 0.25% (0.00)
Ratio of net investment income to
average net assets.................. 5.08% 4.96% 5.32% 6.39% 6.40%+
Ratio of expenses to average net
assets**............................ (a) 1.04% 1.00% 1.21% 3.42%+
Ratio of net investment income to
average net assets**................ (a) 4.88% 4.97% 5.43% 2.98%+
Portfolio turnover.................... 89% 89% 48% 105% 45%
</TABLE>
- ---------------
* For the period August 1, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
15
<PAGE>
EMERALD PRIME FUND
Financial highlights for a Retail Share of the Prime Fund outstanding throughout
each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------- Period Ended
November 30, November 30, November 30, November 30, November 30,
1995 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 1.0000 $ 0.9999 $ 1.0001 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (loss)........... 0.0515 0.0339 0.0266 0.0356 0.0181
Net realized gains (losses) on
securities........................... 0.0002 (0.0028) (0.0001) 0.0001 0.0001
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... 0.0517 0.0311 0.0265 0.0357 0.0181
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income... (0.0515) (0.0339) (0.0266) (0.0356) (0.0181)
Distributions from net realized gains
on securities........................ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions...... (0.0515) (0.0339) (0.0267) (0.0356) (0.0181)
------------ ------------ ------------ ------------ ------------
Voluntary capital contribution........... 0.0000 0.0029 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Net change in net asset value............ 0.0002 0.0001 (0.0002) 0.0001 0.0000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........... $ 1.0002 $ 1.0000 $ 0.9999 $1.0001 $1.0000
------------ ------------ ------------ ------------ ------------
Total return............................. 5.27% 3.44% 2.70% 3.62% 1.82%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $444,928 $208,714 $181,155 $96,730 $16,465
Ratio of expenses to average net
assets............................... 0.90% 0.88% 0.86% 0.87% 0.90%+
Ratio of net investment income to
average net assets................... 5.13% 3.40% 2.63% 3.33% 4.80%+
Ratio of expenses to average net
assets**............................. 0.93% (a) (a) (a) 0.91%+
Ratio of net investment income to
average net assets**................. 5.10% (a) (a) (a) 4.79%+
</TABLE>
- ---------------
* For the period July 29, 1991 (initial offering date of Retail Shares) through
November 30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
16
<PAGE>
EMERALD TREASURY FUND
Financial highlights for a Retail Share of the Treasury Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------- Period Ended
November 30, November 30, November 30, November 30, November 30,
1995 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $0.9999 $1.0000 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0498 0.0316 0.0241 0.0318 0.0162
Net realized gains (losses) on
securities.......................... (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations.......................... 0.0495 0.0315 0.0241 0.0318 0.0162
------------ ------------ ------------ ------------ ------------
Dividends from net investment income.... (0.0498) (0.0316) (0.0241) (0.0318) (0.0162)
------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $0.9996 $0.9999 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return............................ 5.10% 3.21% 2.44% 3.23% 1.63%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $49,047 $32,444 $21,362 $ 3,762 $ 1,099
Ratio of expenses to average net
assets.............................. 0.90% 0.90% 0.90% 0.88% 0.90%+
Ratio of net investment income to
average net assets.................. 4.98% 3.13% 2.42% 3.12% 4.34%+
Ratio of expenses to average net
assets**............................ 1.04% 1.00% (a) (a) 0.91%+
Ratio of net investment income to
average net assets**................ 4.84% 3.03% (a) (a) 4.33%+
</TABLE>
- ---------------
* For the period July 29, 1991 (initial offering date of Retail Shares) through
November 30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
17
<PAGE>
EMERALD TAX-EXEMPT FUND
Financial highlights for a Retail Share of the Tax-Exempt Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------- Period Ended
November 30, November 30, November 30, November 30, November 30,
1995 1994 1993 1992 *** 1991*
------------- ------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9998
------------- ------------- ------------- ------- -------------
Income from investment operations:
Net investment income............ 0.0305 0.0192 0.0164 0.0240 0.0126
Net realized and unrealized gains
(losses) on securities......... (0.0003) 0.0000 0.0001 0.0000 0.0000
------------- ------------- ------------- ------- -------------
Total income (loss) from
investment operations.......... 0.0302 0.0192 0.0165 0.0240 0.0126
------------- ------------- ------------- ------- -------------
Dividends from net investment
income............................ (0.0305) (0.0192) (0.0164) (0.0240) (0.0126)
------------- ------------- ------------- ------- -------------
Net change in net asset value...... (0.0003) 0.0000 0.0001 0.0000 0.0000
------------- ------------- ------------- ------- -------------
NET ASSET VALUE, END OF PERIOD..... $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998
------------- ------------- ------------- ------- -------------
------------- ------------- ------------- ------- -------------
Total return....................... 3.09% 1.94% 1.65% 2.43% 0.96%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $ 38,243 $ 38,123 $ 45,609 $ 16,477 $ 1,155
Ratio of expenses to average net
assets......................... 0.90% 0.90% 0.90% 0.90% 0.87%+
Ratio of net investment income to
average net assets............. 3.04% 1.90% 1.62% 2.21% 3.42%+
Ratio of expenses to average net
assets**....................... 1.15% 1.02% 1.06% 1.07% 0.97%+
Ratio of net investment income to
average net assets**........... 2.79% 1.78% 1.46% 2.04% 3.32%+
</TABLE>
- ---------------
* For the period July 29, 1991 (initial offering date of Retail Shares)
through November 30, 1991.
** During the period, certain fees were volunarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
*** Effective April 22, 1992, Wilmington Trust Company's wholly-owned
subsidiary, Rodney Square Management Corporation, became the Fund's
investment sub-adviser.
+ Annualized.
++ Not Annualized.
18
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PRINCIPLES AND POLICIES
- -----------------------
The Funds' investment adviser (the "Adviser") and, with respect to the
Tax-Exempt Fund, that Fund's sub-adviser (the "Sub-Adviser"), use a range of
different investments and investment techniques in seeking to achieve a Fund's
investment objective. All Funds do not use all of the investments and investment
techniques described below, which involve various risks, and which are also
described in the following sections. You should consider which Funds best meet
your investment goals. The Adviser and Sub-Adviser will use their best efforts
to achieve a Fund's investment objective, although its achievement cannot be
assured. An investor should not consider an investment in any Fund to be a
complete investment program.
- -------------------------------
EQUITY FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY FUND IS
TO SEEK LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN COMMON STOCKS. THE FUND
SEEKS AS A SECONDARY OBJECTIVE POTENTIAL INCOME GROWTH THROUGH ITS INVESTMENTS.
The Fund invests primarily in high quality equity securities selected on the
basis of fundamental investment value and growth prospects that the Adviser
believes exceed those of the general economy. The Fund may also invest up to 25%
of its assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
THE EQUITY FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period.
- -------------------------------
EQUITY VALUE FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY VALUE
FUND IS TO SEEK LONG-TERM CAPITAL APPRECIATION.
ANY INCOME IS INCIDENTAL TO THIS OBJECTIVE. THE
FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN COMMON
STOCK, PREFERRED STOCK (INCLUDING CONVERTIBLE PREFERRED STOCK) AND DEBT
OBLIGATIONS CONVERTIBLE INTO COMMON STOCK THAT THE ADVISER BELIEVES TO BE
UNDERVALUED. The Fund seeks to purchase stock with a price-book value ratio
below that of the median stock in the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500"). The Adviser invests less than 25% of the value of the
Fund's total assets at the time of purchase in securities of issuers conducting
their principal business activities in the same industry.
Under normal market and economic conditions, the Fund invests at least 75% of
its total assets in common stock, preferred stock and debt securities
convertible into common stock. Equity investments consist primarily of common
stock of companies having capitalizations that exceed $100 million. Stocks of
these companies generally are listed on a national exchange or are unlisted
securities with an established over-the-counter market. In addition, the Fund
may hold other types of securities in such proportions as, in the opinion of the
Adviser, existing circumstances may warrant, including obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and other
high quality "money market" instruments. The Fund may also hold cash pending
investment, during temporary defensive periods or if, in the opinion of the
Adviser, suitable stock or convertible debt securities are unavailable. The Fund
may also invest up to 25% of its total assets in foreign securities either
directly or indirectly through ADRs and EDRs and may write covered call options.
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INTERNATIONAL EQUITY FUND
THE INTERNATIONAL EQUITY FUND'S INVESTMENT
OBJECTIVE IS TO SEEK LONG-TERM CAPITAL
APPRECIATION. THE FUND SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES OF FOREIGN ISSUERS. The Fund's assets will be invested at all times
in the securities of issuers located in at least three different foreign
countries. Although the Fund may earn income from dividends, interest and other
sources, income will be incidental to the Fund's investment objective. The Fund
emphasizes established companies, although it may invest in companies of various
sizes as measured by assets, sales and capitalization.
THE FUND MAY INVEST IN SECURITIES OF ISSUERS LOCATED IN A VARIETY OF DIFFERENT
FOREIGN REGIONS AND COUNTRIES, including, but not limited to, Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand and
The United Kingdom. More than 25% of the Fund's total assets may be invested in
the securities of issuers located in the same country. Investment in a
particular country of 25% or more of the Fund's total assets will make the
Fund's performance more dependent upon the political and economic circumstances
of that country than a mutual fund that is more widely diversified among issuers
in different countries. Criteria for determining the appropriate distribution of
investments among various countries and regions may include prospects for
relative economic growth, expected levels of inflation, government policies
influencing business conditions, the outlook for currency relationships, and the
range of investment opportunities available to international investors.
The Fund invests in common stock and may invest in other securities with equity
characteristics, such as trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. The Fund may
invest in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, and may
invest in unlisted securities.
The Fund may invest in securities issued in certain countries that are currently
accessible to the Fund only through investment in other investment companies
that are specifically authorized to invest in such securities. The Fund's
policies regarding investments in other investment companies are described under
"Portfolio Instruments, Practices and Related Risks." In addition, the Fund may
invest in securities of foreign issuers in the form of ADRs or EDRs also as
described under "Portfolio Instruments, Practices and Related Risks." The Fund
expects that during its initial period of investment operations substantially
all of the Fund may be invested in ADRs.
During temporary defensive periods in response to unusual and adverse conditions
affecting the equity markets, the Fund's assets may be invested without
limitation in short-term debt instruments. In addition, when the Fund
experiences large cash inflows from the issuance of new shares or the sale of
portfolio securities, and desirable equity securities that are consistent with
the Fund's investment objective are unavailable in sufficient quantities, the
Fund may hold more than 35% of its assets in short-term debt instruments for a
limited time pending availability of suitable equity securities. During normal
market conditions, no more than 35% of the Fund's total assets will be invested
in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. For temporary
defensive purposes, the Fund may also invest a major portion of its assets in
securities of United States issuers. Less than 25% of the value of the Fund's
total assets at the time of purchase will be invested in securities of issuers
conducting their principal business activities in the same industry.
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- -------------------------------
SMALL CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL
CAPITALIZATION FUND IS TO PROVIDE LONG-TERM
CAPITAL APPRECIATION. THE FUND PURSUES ITS
OBJECTIVE BY INVESTING PRIMARILY IN EQUITY SECURITIES SUCH AS COMMON STOCKS AND
INSTRUMENTS CONVERTIBLE OR EXCHANGEABLE INTO COMMON STOCKS.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index.
The market capitalization of the issuers of securities purchased by the Fund
will normally be between $50 million and $2 billion at the time of purchase. In
managing the Fund, the Adviser seeks smaller companies with above-average growth
prospects. Factors considered in selecting such issuers include participation in
a fast growing industry, a strategic niche position in a specialized market,
adequate capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in equity securities of small capitalization companies. In addition to
investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRs, and may acquire convertible securities, warrants and
similar rights.
- -------------------------------
BALANCED FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED FUND IS
TO PROVIDE AN ATTRACTIVE INVESTMENT RETURN
THROUGH A COMBINATION OF GROWTH OF CAPITAL AND
CURRENT INCOME. THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY ALLOCATING ASSETS
AMONG THREE MAJOR ASSET GROUPS: EQUITY SECURITIES, FIXED-INCOME SECURITIES AND
CASH EQUIVALENCES. In pursuing its investment objective, the Adviser will
allocate the Fund's assets based upon its evaluation of the relative
attractiveness of the major asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets in
fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be invested in
fixed income securities (including cash equivalents and long-term debt
securities, and convertible debt securities and preferred stocks to the extent
their value is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would
21
<PAGE>
normally increase the Fund's equity holdings while reducing its holdings of
fixed-income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to 100%
of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are guaranteed or backed by the full
faith and credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the types
that are permissible for the Equity and Small Capitalization Funds.
Non-convertible debt obligations will be limited to the types that are
permissible investments for the Managed Bond Fund. Convertible securities,
foreign securities and other instruments will be acquired in accordance with the
limitations described under "Portfolio Investments, Practices and Related
Risks."
The Fund may also invest, through ADRs and EDRs, up to 25% of the value of its
total assets in securities of foreign issuers, and may invest in warrants and
similar rights.
- -------------------------------
SHORT-TERM FIXED INCOME
AND MANAGED BOND FUNDS
The Short-Term Fixed Income and Managed Bond
Funds offer two alternatives for participating
in the fixed income securities markets. The
average weighted maturity of the Short-Term
Fixed Income Fund is shorter than that of the
Managed Bond Fund. Both Funds are subject to the same quality requirements.
THE INVESTMENT OBJECTIVE OF THE SHORT-TERM FIXED INCOME FUND IS TO SEEK
CONSISTENTLY POSITIVE CURRENT INCOME WITH RELATIVE STABILITY OF PRINCIPAL BY
INVESTING IN INVESTMENT GRADE SECURITIES AND HIGH QUALITY MONEY MARKET
INSTRUMENTS. THE INVESTMENT OBJECTIVE OF THE MANAGED BOND FUND IS TO SEEK A HIGH
LEVEL OF CURRENT INCOME AND, SECONDARILY, CAPITAL APPRECIATION. While the
maturity of individual securities will not be restricted, except during
temporary defensive periods or unusual market conditions the average weighted
maturity of the Short-Term Fixed Income Fund will not exceed three years and the
average weighted maturity of the Managed Bond Fund will be ten years or more.
Each Fund invests substantially all of its assets in debt obligations such as
bonds, debentures and cash equivalents, obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, debt obligations of domestic
and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Funds will purchase only those securities which are considered
to be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
each Fund's total assets will be invested in debt obligations rated "A" or
better by at least one NRSRO (or unrated obligations determined to be of
comparable quality). Obligations rated in the lowest of the top four rating
categories ("BBB" or "Baa") have certain speculative characteristics and are
subject to more credit and market risk than securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider, among
other things, historical yield relationships between corporate and government
securities, intermarket yield relationships among various industry sectors,
current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
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Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high-quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage and other
asset-related securities, zero coupon bonds and convertible debentures. The
Managed Bond Fund may, however, invest without limitation in short-term
investments to meet anticipated redemption requests, or as a temporary defensive
measure if the Adviser determines that market conditions warrant.
The Funds may also invest in obligations convertible into common stocks, and may
acquire common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. Common stock received through the
conversion of convertible debt obligations will normally be sold. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other investments see "Portfolio Instruments, Practices
and Related Risks."
- -------------------------------
U.S. GOVERNMENT SECURITIES
FUND
THE INVESTMENT OBJECTIVE OF THE U.S. GOVERNMENT
SECURITIES FUND IS TO SEEK CONSISTENTLY POSITIVE
INCOME BY INVESTING PRINCIPALLY IN U.S.
GOVERNMENT SECURITIES AND REPURCHASE AGREEMENTS
COLLATERALIZED BY SUCH SECURITIES. THE FUND WILL ALWAYS INVEST AT LEAST 65% OF
ITS TOTAL ASSETS IN SUCH INSTRUMENTS UNDER NORMAL MARKET CONDITIONS. There is no
minimum or maximum maturity for securities held, although the Fund expects that
(except during temporary defensive periods or unusual market conditions) its
dollar-weighted average portfolio maturity will be between five and ten years.
The Fund may invest in a variety of U.S. Government securities, including U.S.
Treasury bonds, notes and bills, and obligations of a number of U.S. Government
agencies and instrumentalities. The Fund may also invest in interests in the
foregoing securities, including collateralized mortgage obligations issued or
guaranteed by a U.S. Government agency or instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities have historically had a very low risk of loss of principal if
held to maturity. The Fund, however, can give no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
if it were not legally obligated to do so. The value of the Fund's portfolio
(and consequently its shares) is expected to fluctuate inversely to changes in
the direction of interest rates.
- -------------------------------
FLORIDA TAX-EXEMPT FUND
THE PRIMARY INVESTMENT OBJECTIVE OF THE FLORIDA
TAX-EXEMPT FUND IS TO SEEK TO PROVIDE HIGH
TAX-FREE INCOME AND CURRENT LIQUIDITY. THE
POTENTIAL FOR LONG-TERM CAPITAL APPRECIATION IS CONSIDERED TO BE A SECONDARY
OBJECTIVE. IN SEEKING TO ATTAIN ITS OBJECTIVE, THE FUND INVESTS ITS ASSETS
PRIMARILY IN MUNICIPAL OBLIGATIONS THAT ARE RATED INVESTMENT
GRADE OR ABOVE BY ONE OR MORE NRSROS AT THE TIME OF PURCHASE. The Fund may also
acquire tax-exempt commercial paper, municipal notes and tax-exempt variable
rate demand obligations that are rated in the highest rating category by an
NRSRO. Obligations purchased by the Fund that have not been assigned a rating
will be determined by the Adviser to be of comparable quality. Although
obligations rated BBB or Baa (the lowest ratings permitted for the Fund) are
considered to be investment grade, they have speculative characteristics and are
subject to more credit and market risk than securities with higher ratings. If a
portfolio security ceases to be rated investment grade by at least one NRSRO,
the security will be sold in an orderly manner as quickly as possible.
The Adviser hopes to use market opportunities (caused by things such as
temporary differences between the yields on securities) to achieve a better
performance than what might be obtained by investing in an unmanaged portfolio
of municipal securities. The Florida Tax-Exempt Fund will invest at least 80% of
its net assets in securities the interest on which is exempt from regular
federal income tax, except during defensive periods or periods of unusual market
conditions. In addition, under normal conditions the Fund will invest at least
65% of its net assets in securities issued by the state of Florida and its
municipalities, counties and other taxing districts, as well as in other
securities exempt from the Florida intangibles tax. Under normal market
conditions the Fund may invest up to 20% of its net assets in taxable
instruments, including certain so-called private activity bonds which are a type
of obligation that, although exempt from regular federal income tax, may be
subject to the federal alternative minimum tax. From time to time the Fund may
hold cash reserves that do not earn income. Although the Fund has the
flexibility to invest in municipal obligations with short,
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<PAGE>
medium or long maturities, the Adviser expects that under normal conditions the
Fund will invest primarily in obligations that have remaining maturities of more
than ten years.
- -------------------------------
PRIME FUND, TREASURY FUND
AND TAX-EXEMPT FUND
THE INVESTMENT OBJECTIVE OF BOTH THE PRIME AND
TREASURY FUNDS IS TO SEEK TO PROVIDE A HIGH
LEVEL OF CURRENT INCOME CONSISTENT WITH
LIQUIDITY, THE PRESERVATION OF CAPITAL AND A
STABLE NET ASSET VALUE. THE PRIME FUND PURSUES
ITS OBJECTIVE BY INVESTING IN A BROAD RANGE OF SHORT-TERM GOVERNMENT, BANK AND
CORPORATE OBLIGATIONS. THE TREASURY FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY
INVESTING IN OBLIGATIONS THAT THE U.S. TREASURY HAS ISSUED OR TO WHICH THE U.S.
TREASURY HAS PLEDGED ITS FULL FAITH AND CREDIT TO GUARANTEE THE PAYMENT OF
PRINCIPAL AND INTEREST. You should note, however, that shares of the Treasury
Fund are not themselves issued or guaranteed by the U.S. Treasury or any of its
agencies. U.S. Treasury obligations include Treasury bills, certain Treasury
strips, certificates of indebtedness, notes and bonds, and obligations of those
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. Treasury. It is the Treasury Fund's policy that under normal conditions
it will invest 65% or more of its total assets in U.S. Treasury obligations and
repurchase agreements for which such obligations serve as collateral.
THE INVESTMENT OBJECTIVE OF THE TAX-EXEMPT FUND IS TO SEEK TO PROVIDE A HIGH
LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAXES, CONSISTENT
WITH LIQUIDITY, THE PRESERVATION OF CAPITAL AND A STABLE NET ASSET VALUE. THE
FUND INVESTS IN HIGH QUALITY DEBT OBLIGATIONS OF STATES, TERRITORIES AND
POSSESSIONS OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA, AND OF THEIR
AGENCIES, AUTHORITIES, INSTRUMENTALITIES AND POLITICAL SUB-DIVISIONS ("MUNICIPAL
OBLIGATIONS"). UNDER NORMAL CIRCUMSTANCES THE FUND INVESTS 80% OR MORE OF ITS
NET ASSETS IN THESE MUNICIPAL OBLIGATIONS. The Fund may also invest up to 20% of
its net assets in municipal obligations subject to the federal alternative
minimum tax. Otherwise, the Fund will not knowingly purchase securities the
interest on which is subject to federal tax. Cash may temporarily be held
uninvested (and thus not earn income) if market or economic conditions are
unfavorable.
Each of these Funds (the "Money Market Funds") invests only in U.S.
dollar-denominated securities that mature in thirteen months or less (with
certain exceptions). The dollar-weighted average portfolio maturity of each Fund
may not exceed ninety days. In accordance with the current rules of the
Securities and Exchange Commission, the Prime Fund intends to limit its
purchases in the securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities) to no
more than 5% of its total assets at the time of purchase, which the exception
that up to 25% of its total assets may be invested in the securities of any
single issuer for up to three business days. Emerald Funds intends to use its
best efforts to maintain the net asset value of the Money Market Funds at $1.00
per share, although there is no assurance that it will be able to do so on a
continuous basis.
Instruments acquired by the Prime Fund will be U.S. Government securities or
other "First Tier Securities," while the Tax Exempt Fund will invest only in
"First Tier Securities." The term "First Tier Securities" has a technical
definition given by the Securities and Exchange Commission, but such term
generally refers to securities that the Adviser (or Sub-Adviser) has determined,
under guidelines established by the Board of Trustees, present minimal credit
risks, and have the highest short-term debt ratings at the time of purchase by
one (if rated by only one) or more NRSROs. Unrated instruments (including
instruments with long-term but no short-term ratings) will be of comparable
quality as determined by the Adviser (or Sub-Adviser) under guidelines approved
by the Board of Trustees and the Adviser. A description of applicable ratings is
attached to the Statement of Additional Information as Appendix A.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
- - FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuer, less market liquidity and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions
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<PAGE>
might adversely affect the payment of principal and interest on foreign
obligations. Additionally, foreign banks and foreign branches of domestic banks
may be subject to less stringent reserve requirements, and to different
accounting, auditing and recordkeeping requirements.
Although the International Equity Fund will invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares will fluctuate
with the U.S. dollar exchange rates, as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies. The risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
- - AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY FUND may
invest up to 100% of its total assets and the EQUITY, EQUITY VALUE, SMALL
CAPITALIZATION AND BALANCED FUNDS may invest up to 25% of their total assets in
ADRs and EDRs. ADRs are receipts issued in registered form by a U.S. bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. EDRs are receipts issued in Europe typically by non-U.S. banks or trust
companies and foreign branches of U.S. banks that evidence ownership of the
underlying foreign or U.S. securities. ADRs may be listed on a national
securities exchange or may be traded in the over-the-counter market. EDRs are
designed for use in European exchange and over-the-counter markets. ADRs and
EDRs traded in the over-the-counter market which do not have an active or
substantial secondary market will be considered illiquid and therefore will be
subject to a Fund's limitation with respect to such securities. ADR prices are
denominated in U.S. dollars although the underlying securities are denominated
in a foreign currency. Investments in ADRs and EDRs involve risks similar to
those accompanying direct investments in foreign securities.
- - U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY FUND
may invest in U.S. Treasury obligations as described above. Each of the other
FUNDS, except the TAX-EXEMPT FUND, may also invest in securities issued or
guaranteed by the U.S. Government, as well as in obligations issued or
guaranteed by U.S. Government agencies and instrumentalities or in money market
instruments, including bank obligations and commercial paper. Obligations of
certain agencies and instrumentalities, such as the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, like the Export-Import Bank, are supported by the issuer's right to
borrow from the Treasury; others, including the Federal National Mortgage
Association, are backed by the discretionary ability of the U.S. Government to
purchase the entity's obligations; and still others like the Student Loan
Marketing Association, are backed solely by the issuer's credit. U.S. Government
obligations also include U.S. Government-backed trusts that hold obligations of
foreign governments and are guaranteed or backed by the full faith and credit of
the United States. There is no assurance that the U.S. Government would provide
support to a U.S. Government-sponsored entity were it not required to do so by
law. Some of these securities may have a variable or floating interest rate.
- - ASSET-BACKED SECURITIES. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS may invest in asset-backed securities (I.E., securities backed
by installment sale contracts, credit card receivables or other assets). In
addition, each of these Funds, as well as the U.S. GOVERNMENT SECURITIES FUND,
may invest in U.S. Government securities that are backed by adjustable or fixed
rate mortgage loans. The average life of an asset-backed instrument varies with
the maturities of the underlying instruments. In the case of mortgages,
maturities may be a maximum of forty years. The average life of an asset-backed
instrument is likely to be substantially less than the original maturity of the
asset pools underlying the security as the result of scheduled principal
payments and prepayments. This may be particularly true for mortgage-backed
securities.
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The rate of such prepayments, and hence the life of the security, will be
primarily a function of current market rates and current conditions in the
relevant market. In calculating the average weighted maturity of a Fund's
portfolio (except the Prime Fund), the maturity of asset-backed instruments will
be based on estimates of average life. The relationship between prepayments and
interest rates may give some high-yielding asset-backed securities less
potential for growth in value than conventional bonds with comparable
maturities. In addition, in periods of falling interest rates, the rate of
prepayment tends to increase. During such periods, the reinvestment of
prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid. Because of these
and other reasons, an asset-backed security's total return may be difficult to
predict precisely. To the extent a Fund purchases asset-backed securities at a
premium, prepayments (which often may be made at any time without penalty) may
result in some loss of a Fund's principal investment to the extent of any
premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of
asset-backed obligations.
- - MUNICIPAL OBLIGATIONS. The FLORIDA TAX-EXEMPT and TAX-EXEMPT FUNDS will invest
primarily in municipal obligations. The BALANCED, SHORT-TERM FIXED INCOME,
MANAGED BOND and PRIME FUNDS may also invest in municipal obligations. These
securities may be advantageous for these Funds when, as a result of prevailing
economic, regulatory or other circumstances, the yield of such securities on a
pre-tax basis is comparable to that of other securities the particular Fund can
purchase. Dividends paid by these Funds, other than the two Tax-Exempt Funds,
that come from interest on municipal obligations will be taxable to
shareholders.
The two main types of municipal obligations are "general obligation" securities
(which are secured by the issuer's full faith, credit and taxing power) and
"revenue" securities (which are payable only from revenues received from the
operation of a particular facility or other specific revenue source). A third
type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligations to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser (or the Sub-Adviser for the Tax-Exempt Fund), under the supervision
of the Board of Trustees, will determine the credit quality of any unrated
municipal leases on an on-going basis, including an assessment of the likelihood
that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
of the instruments. Emerald Funds, the Adviser and the Sub-Adviser rely on these
opinions and do not intend to review the basis for them.
Municipal obligations purchased by the Balanced, Short-Term Fixed Income,
Managed Bond, Prime and the two Tax-Exempt Funds may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its
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credit or a guarantee with respect to a municipal obligation held by a Fund
could have an adverse effect on a Fund's portfolio and the value of its shares.
As described above under "Foreign Securities," foreign letters of credit and
guarantees involve certain risks in addition to those of domestic obligations.
- - CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and
PRIME FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS, may purchase corporate bonds and cash
equivalents that meet a Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of thirteen months or less,
will either have short-term ratings at the time of purchase in the top category
by one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
- - BANK OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and
PRIME FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS, may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. These Funds may also invest in CDs and time deposits of
domestic branches of U.S. banks that have total assets of less than $1 billion
if the CDs and time deposits are insured by the FDIC. Investments in foreign
banks and foreign branches of U.S. banks will not make up more than 25% of a
Fund's total assets when the investment is made. (To the extent permitted by the
SEC, bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing savings deposits in amounts not exceeding 5% of their
total assets.
- - REPURCHASE AGREEMENTS. EACH FUND, EXCEPT THE TWO TAX-EXEMPT FUNDS, may buy
portfolio securities subject to the seller's agreement to repurchase them at an
agreed upon time and price. These transactions are known as repurchase
agreements. A Fund will enter into repurchase agreements only with financial
institutions deemed to be creditworthy by the Adviser, pursuant to guidelines
established by the Board of Trustees. During the term of any repurchase
agreement, the Adviser will monitor the creditworthiness of the seller, and the
seller must maintain the value of the securities subject to the agreement in an
amount that is greater than the repurchase price. Default or bankruptcy of the
seller would, however, expose a Fund to possible loss because of adverse market
action or delays connected with the disposition of the underlying obligations.
Because of the seller's repurchase obligations, the securities subject to
repurchase agreements do not have maturity limitations.
- - VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of each Fund EXCEPT THE U.S. GOVERNMENT
SECURITIES, TREASURY AND THE TWO TAX-EXEMPT FUNDS, these instruments may include
variable amount master demand notes, which are instruments under which the
indebtedness, as well as the interest rate, varies. For the PRIME and TAX-EXEMPT
MONEY MARKET FUNDS only, if rated, variable and floating rate instruments must
be rated in the highest short-term rating category by an NRSRO. If unrated, such
instruments will need to be determined to be of comparable quality. Unless
guaranteed by the U.S. Government or one of its agencies or instrumentalities,
variable or floating rate instruments purchased by the Money Market Funds must
permit a Fund to demand payment of the instrument's principal at least once
every thirteen months. Because of the absence of a market in which to resell a
variable or floating rate instrument, a Fund might have trouble selling an
instrument should the issuer default or during periods when a Fund is not
permitted by agreement to demand payment of the instrument, and for this or
other reasons a loss could occur with respect to the instrument.
- - STRIPPED SECURITIES. EACH FUND, EXCEPT THE TAX-EXEMPT FUND, may invest in
instruments known as "stripped" securities. These instruments include U.S.
Treasury bonds and notes and federal agency obligations on which the unmatured
interest coupons have been separated from the underlying obligation. These
obligations are usually issued at a discount to their "face value," and because
of the manner in which principal and interest are returned may exhibit greater
price volatility than more conventional debt securities.
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The Treasury Fund's investments in these obligations will be limited to
"interest only" stripped securities that have been issued by a federal
instrumentality known as the Resolution Funding Corporation and other stripped
securities issued or guaranteed by the U.S. Treasury, where the principal and
interest components are traded independently under the Separate Trading of
Registered Interest and Principal Securities Program ("STRIPS"). Under STRIPS,
the principal and interest components are individually numbered and separately
issued by the U.S. Treasury at the request of depository financial institutions,
which then trade the component parts independently. Each Fund, except the
Treasury Fund, may also invest in instruments that have been stripped by their
holder, typically a custodian bank or investment brokerage firm, and then resold
in a custodian receipt program under names you may be familiar with such as
Treasury Investors Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS").
In addition, each Fund, except the Florida Tax-Exempt, Tax-Exempt and Treasury
Funds, may purchase stripped mortgage-backed securities ("SMBS") issued by the
U.S. Government (or a U.S. Government agency or instrumentality) or by private
issuers such as banks and other institutions. SMBS, in particular, may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. If the underlying
obligations experience greater than anticipated prepayments, a Fund may fail to
fully recoup its initial investment. The market value of the class consisting
entirely of principal payments can be extremely volatile in response to changes
in interest rates. The yields on a class of SMBS that receives all or most of
the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS issued by the U.S. Government (or a U.S. Government agency or
instrumentality) may be considered liquid under guidelines established by the
Board of Trustees if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a Fund's
per share net asset value.
Although stripped securities may not pay interest to their holders before they
mature, federal income tax rules require a Fund each year to recognize a part of
the discount attributable to a security as interest income. This income must be
distributed along with the other income a Fund earns. To the extent shareholders
request that they receive their dividends in cash rather than reinvesting them,
the money necessary to pay those dividends must come from the assets of a Fund
or from other sources such as proceeds from sales of Fund shares and/or sales of
portfolio securities. The cash so used would not be available to purchase
additional income-producing securities, and a Fund's current income could
ultimately be reduced as a result.
- - BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The BALANCED,
SHORT-TERM FIXED INCOME, MANAGED BOND and PRIME FUNDS may invest in bank
investment contracts ("BICs") issued by banks that meet the asset size
requirements described above under "Bank Obligations" and may also invest in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, a Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, a Fund would receive interest from the issuing entity at either a
negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to a
Fund's limitation on such investments as described below under "Managing
Liquidity."
- - PARTICIPATIONS AND TRUST RECEIPTS. The BALANCED, SHORT-TERM FIXED INCOME,
MANAGED BOND and PRIME FUNDS may purchase from domestic financial institutions
and trusts created by such institutions participation interests and trust
receipts in high quality debt securities. A participation interest or receipt
gives a Fund an undivided interest in the security in the proportion that a
Fund's participation interest or receipt bears to the total principal amount of
the security. Each Fund intends only to purchase participations and trust
receipts from an entity or syndicate, and do not intend to serve as a co-lender
in any such activity. As to certain instruments for which a Fund will be able to
demand payment, a Fund intends to exercise its right to do so only upon a
default under the terms of the security, as needed to provide liquidity, or to
maintain or improve the quality of its investment portfolio. It is possible that
a participation interest or trust receipt may be
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deemed to be an extension of credit by a Fund to the issuing financial
institution rather than to the obligor of the underlying security and may not be
directly entitled to the protection of any collateral security provided by the
obligor. In such event, the ability of a Fund to obtain repayment could depend
on the issuing financial institution.
- - WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objectives.
- - INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which the Funds' investments are traded. A Fund would expect to enter into these
hedging transactions primarily to preserve the return or spread of a particular
investment or portion of its portfolio and to protect against an increase in the
price of securities a Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the extent
a specified index fell below a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party that sold the floor.
The purchase of an interest rate cap by a Fund would entitle it, to the extent
that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
- - STAND-BY COMMITMENTS. The TWO TAX-EXEMPT FUNDS may acquire stand-by
commitments under which a dealer agrees to purchase certain municipal
obligations at the Fund's option at a price equal to amortized cost plus
interest. These commitments will be used only to assist in maintaining the
liquidity of the Funds, and not for trading purposes.
- - OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P. The International Equity Fund may also purchase shares
of investment companies investing primarily in foreign securities, including so-
called "country funds." Country funds have portfolios consisting principally of
securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by the Funds within
the limits prescribed by the Investment Company Act of 1940, as amended (the
"1940 Act"). The Funds currently intend to limit these investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of their total assets will be invested in the securities of any one
investment company; (b) not more
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than 10% of the value of their total assets will be invested in the aggregate in
securities of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by a Fund;
and (d) not more than 10% of the outstanding voting stock of any one closed-end
investment company will be owned in the aggregate by a Fund, other investment
portfolios of Emerald Funds, or any other investment companies advised by the
Adviser.
- - BORROWINGS. EACH FUND is authorized to make limited borrowings for temporary
purposes and each Fund, EXCEPT THE TWO TAX-EXEMPT FUNDS, may enter into reverse
repurchase agreements. Under such an agreement a Fund sells portfolio securities
and then buys them back later at an agreed-upon time and price. When the Fund
enters into a reverse repurchase agreement it will place in a separate custodial
account either liquid assets or high grade debt securities that have a value
equal to or more than the price the Fund must pay when it buys back the
securities, and the account will be continuously monitored to make sure the
appropriate value is maintained. Reverse repurchase agreements may be used to
meet redemption requests without selling portfolio securities. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities a Fund relinquishes may decline below the price a Fund must pay when
the transaction closes. Interest paid by a Fund in a reverse repurchase or other
borrowing transaction will reduce a Fund's income.
- - SECURITIES LENDING. EACH FUND, EXCEPT THE TWO TAX-EXEMPT FUNDS, may lend
securities held in its portfolio to broker-dealers and other institutions as a
means of earning additional income. These loans present risks of delay in
receiving additional collateral or in recovering the securities loaned or even a
loss of rights in the collateral should the borrower of the securities fail
financially. However, securities loans will be made only to parties the Adviser
deems to be of good standing, and will only be made if the Adviser thinks the
possible rewards from such loans justify the possible risks. A loan will not be
made if, as a result, the total amount of a Fund's outstanding loans exceeds 30%
of its total assets. Securities loans will be fully collateralized.
- - MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash-equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash or
U.S. Government securities or other liquid high grade debt instruments in the
amount of the future purchase commitment will be set apart for a Fund involved
in a separate account at the custodian. Mortgage rolls are not a primary
investment technique for any of these Funds, and it is expected that, under
normal market conditions, a Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
- - CONVERTIBLE SECURITIES. The EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY, SMALL
CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS may
invest in convertible securities, including bonds, notes and preferred stock,
that may be converted into common stock either at a stated price or within a
specified period of time. By investing in convertibles, a Fund is looking for
the opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible,
while earning higher current income than is available from the common stock.
None of the assets of the Short-Term Fixed Income and Managed Bond Funds, and
not more than 15% of the total assets of the Equity, Equity Value, International
Equity, Small Capitalization and Balanced Funds, may be invested in convertible
securities rated below investment grade at the time of purchase. Non-investment
grade convertible securities must be rated "B" or higher by at least one NRSRO.
Non-investment grade securities are commonly referred to as "junk" bonds and
present a greater risk as to the timely repayment of the principal, interest and
dividends. Particular risks include (a) the sensitivity of such securities to
interest rate and economic changes, (b) the lower degree of protection of
principal and interest payments, (c) the relatively low trading market liquidity
for the securities, (d) the impact that legislation may have on the market for
these securities (and, in turn, on a Fund's net asset value) and (e) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly
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leveraged issuers may experience financial stress which would negatively affect
their ability to meet their principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. An economic
downturn could also disrupt the market for lower rated convertible securities
and negatively affect the value of outstanding securities and the ability of the
issuers to repay principal and interest. If the issuer of a convertible security
held by a Fund defaulted, that Fund could incur additional expenses to seek
recovery. Adverse publicity and investor perceptions, whether or not they are
based on fundamental analysis, could also decrease the value and liquidity of
lower-rated convertible securities held by a Fund, especially in a thinly-traded
market.
- - OPTIONS. EACH EQUITY AND FIXED INCOME FUND may write covered call options, buy
put options, buy call options and sell, or "write," secured put options on
particular securities or various securities indices. A call option for a
particular security gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a Fund
will not exceed 25%, of its net assets. Options may or may not be listed on a
national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation, which performs the
obligations of its members if they default.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
- - FUTURES AND RELATED OPTIONS. EACH EQUITY AND FIXED INCOME FUND may invest to a
limited extent in futures contracts and options on futures contracts in order to
gain fuller exposure to movements of security prices pending investment, for
hedging purposes or to maintain liquidity. Futures contracts obligate a Fund, at
maturity, to take or make delivery of certain securities or the cash value of a
securities index. A Fund may not purchase or sell a futures contract (or related
option) unless immediately after any such transaction the sum of the aggregate
amount of margin deposits on its existing futures positions and the amount of
premiums paid for related options is 5% or less of its total assets (after
taking into account certain technical adjustments).
Each of these Funds may also purchase and sell call and put options on futures
contracts. When a Fund purchases an option on a futures contract, it has the
right to assume a position as a purchaser or seller of a futures contract at a
specified exercise price at any time during the option period. When a Fund sells
an option on a futures contract, it becomes obligated to purchase or sell a
futures contract if the option is exercised. In anticipation of a market
advance, a Fund may purchase call options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
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More information regarding futures contracts and related options can be found in
Appendix B attached to the Statement of Additional Information, which you can
request by calling 800/637-3759.
- - FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the INTERNATIONAL EQUITY FUND
may buy and sell securities denominated in currencies other than the U.S.
dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Fund from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies. The Fund may either enter into these
transactions on a spot (I.E. cash) basis at the spot rate prevailing in the
foreign currency exchange market, or use forward contracts to purchase or sell
foreign currencies. Forward foreign currency exchange contracts are agreements
to exchange one currency for another -- for example, to exchange a certain
amount of U.S. dollars for a certain amount of Japanese yen -- at a future date
and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, the
forward foreign currency exchange contracts may be rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to the Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by the Board of Trustees.
The International Equity Fund may maintain "short" positions in forward foreign
currency exchange transactions, which would involve the Fund's agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that a Fund has contracted to receive in the exchange. In order to
ensure that the short position is not used to achieve leverage with respect to
the Fund's investments, the Fund will establish with its custodian a segregated
account consisting of cash, U.S. Government securities or other liquid
high-grade debt securities equal in value to the fluctuating market value of the
currency as to which the short position is being maintained. The value of the
securities in the segregated account will be adjusted at least daily to reflect
changes in the market value of the short position. See the Statement of
Additional Information for additional information regarding foreign currency
exchange transactions.
- - MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICs, BICs, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser (Sub-Adviser in the case of the Tax-Exempt
Fund) has determined pursuant to guidelines adopted by the Board of Trustees
that a liquid trading market exists (including certain securities that may be
purchased by institutional investors under SEC Rule 144A) are not subject to
this limitation. This investment practice could have the effect of increasing
the level of illiquidity in a Fund during any period that qualified
institutional buyers were no longer interested in purchasing these restricted
securities.
- - PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after it
is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by
32
<PAGE>
a Fund that constitutes taxable capital gains. To the extent capital gains are
realized, distributions from the gains may be ordinary income for federal tax
purposes (see "Tax Implications"). During the last fiscal year, the annual
portfolio turnover rates of the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds were 104%, 229%, 87%, 33%, 89%, 92% and 89%, respectively. The
annual portfolio turnover rates for the Equity Value and International Equity
Funds are not expected to exceed 150%.
- - OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Florida
Tax-Exempt and Money Market Funds may purchase zero-coupon bonds (I.E., discount
debt obligations that do not make periodic interest payments). Zero-coupon bonds
are subject to greater market fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Changes in the financial strength of
an issuer or changes in the ratings of any particular security may also affect
the value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
In addition, the Florida Tax-Exempt, Balanced, Short-Term Fixed Income, Managed
Bond, Tax-Exempt and Prime Funds may purchase custodial receipts, tender option
bonds and certificates of participation in trusts that hold municipals or other
types of obligations. A certificate of participation gives a Fund an individual,
proportionate interest in the obligation, and may have a variable or fixed rate.
Because certificates of participation are interests in obligations that may be
funded through government appropriations, they are subject to the risk that
sufficient appropriations as to the timely payment of principal and interest on
the obligations may not be made. The NRSRO quality rating of an issue of
certificates of participation is normally based upon the rating of the
obligations held by the trust and the credit rating of the issuer of any letter
of credit and of any other guarantor providing credit support to the issue.
These Funds, with the exception of the Money Market Funds, may also hold other
derivative instruments, which may be in the form of participations, custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment, or both, and bonds that have interest rates that reset
inversely to changing short-term rates and/or have imbedded interest rate floors
and caps. Many of these derivative instruments are proprietary products that
have been recently developed by investment banking firms, and it is uncertain
how these instruments will perform under different economic and interest-rate
scenarios. In addition, to the extent that the market value of these instruments
is leveraged, they may be more volatile than other types of obligations and may
present greater potential for capital gain or loss. In some cases it may be
difficult to determine the fair value of a derivative instrument because of a
lack of reliable objective information, and an established secondary market for
some instruments may not exist.
Although the two Tax-Exempt Funds do not presently intend to do so on a regular
basis, they may invest more than 25% of their total assets in municipal
obligations the interest on which comes solely from revenues of similar
projects. Additionally, the Florida Tax-Exempt Fund will normally invest more
than 25% of its net assets in municipal obligations the issuers of which are
located in Florida, and may invest more than 25% of its net assets in industrial
development bonds issued before August 7, 1986 that are not treated as a
specific tax preference item under the federal alternative minimum tax.
33
<PAGE>
When a Fund's assets are concentrated in obligations payable from revenues of
similar projects or issued by issuers located in the same state, or in
industrial development bonds, the Fund will be subject to the particular risks
(including legal and economic conditions) relating to such securities to a
greater extent than if its assets were not so concentrated. If Florida or any of
its political subdivisions should suffer serious financial difficulties to the
extent their ability to pay their obligations might be jeopardized, the ability
of such entities to market their securities, and the value of the Florida
Tax-Exempt Fund, could be adversely affected.
Payment on municipal obligations held by a Fund relating to certain projects may
be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure may
be delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligation.
While the other Funds are classified as "diversified," the Florida Tax-Exempt
Fund has been set up as a "non-diversified" portfolio. The investment return of
a non-diversified portfolio is typically dependent on the performance of a
smaller number of securities than a diversified portfolio, and the change in
value of one particular security may have a greater impact on the value of a
non-diversified portfolio. A non-diversified portfolio may therefore be subject
to greater fluctuations in net asset value. Additionally, non-diversified
portfolios may be more susceptible to economic, political and legal developments
than a diversified portfolio with similar objectives.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that cannot be changed for a Fund without the approval of a
majority of that Fund's outstanding shares. Some of these fundamental
limitations are summarized below, and all of the Funds' fundamental limitations
are set out in full in the Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including U.S.
Government securities) if more than 5% of its total assets will be invested in
the securities of any one issuer, except that up to 50% of the Florida
Tax-Exempt Fund's total assets, and up to 25% of the total assets of each other
Fund, can be invested without regard to the 5% limitation. A Fund may not
purchase more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 50% or 25% exception.
3. A Fund may not borrow money except for temporary purposes in amounts up to
one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
4. Under normal market conditions the two Tax-Exempt Funds must invest at least
80% of their respective net assets in securities that provide interest exempt
from regular federal income tax.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of shares)
in some states, Emerald Funds may agree to certain restrictions that may be
stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
INVESTING IN EMERALD FUNDS
- ------------------------
YOUR MONEY MANAGER
BARNETT (ALSO REFERRED TO AS THE "ADVISER") SERVES AS INVESTMENT ADVISER FOR
EMERALD FUNDS. Barnett is the largest trust organization headquartered in
Florida and has notable experience in providing professional investment
management services. Organized as a national banking association in 1974, it is
the successor to the business of earlier organizations that had provided
continuous trust services since 1926. Barnett first began providing advisory
services to mutual funds in 1988 and is a subsidiary of Barnett Banks, Inc., a
registered bank holding company that has offered general banking services since
1877.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett is an
industry leader in providing investment management services to individuals and
institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis. For the Tax-Exempt Fund, Barnett has entered into a sub-advisory
agreement with a subsidiary of Wilmington Trust Company to provide daily
portfolio management for that Fund.
GETTING YOUR INVESTMENT STARTED
INVESTING IN EMERALD FUNDS IS QUICK AND CONVENIENT. EMERALD FUNDS MAY BE
PURCHASED EITHER THROUGH THE ACCOUNT YOU MAINTAIN WITH A BROKER-DEALER OR
CERTAIN OTHER INSTITUTIONS OR FROM EMERALD FUNDS DIRECTLY. Fund shares are
distributed by Emerald Asset Management, Inc. (called the "Distributor"). The
Distributor is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Barnett Banks Business Retirement Services clients may purchase Fund shares of
the Equity, Small Capitalization, U.S. Government Securities and Prime Funds
through their SEP-IRA accounts or other Qualified Retirement Plans and should
consult with their employer and/or their Plan Administrator for additional
information and instructions. Investors may establish a Business Retirement
Services account by contacting a Barnett Banks branch office or by calling
800/562-2987 to request a Retirement Plan Kit.
You may choose to invest through Barnett Securities Account where a Financial
Consultant can advise you in selecting among the Emerald Funds. Whether you
currently have a Barnett Securities Account or wish to open one, your Emerald
Funds investment can be executed within a few minutes by telephone or, if you
prefer, during a consultation with a Financial Consultant of Barnett Securities,
Inc. Call the Investment Services Center at 800/535-6579 to speak with an
Investment Officer, to place an Emerald Funds transaction or to arrange a
consultation scheduled at your convenience.
Should you wish to establish an account directly with Emerald Funds, please
refer to the purchase options described under "Opening and Adding to Your
Emerald Fund Account."
Clients of Barnett Securities, Inc. and other institutions (such as
broker-dealers) that have entered into agreements with the Distributor (referred
to as "Service Organizations") may purchase shares through their accounts at
their Service Organization and should contact the Service Organization directly
for appropriate purchase instructions. Share purchases (and redemptions) made
through Barnett Securities, Inc. or another Service Organization are effected
only on days the particular institution and the Fund involved are open for
business.
Payments for Fund shares must be in U.S. dollars and should be drawn on a U.S.
bank. Please remember that Emerald Funds retains the right to reject any
purchase order.
35
<PAGE>
IF YOU HAVE QUESTIONS
An Emerald Funds telephone representative is happy to service your needs. Your
needs are most efficiently addressed by calling the appropriate toll-free number
listed below. (If you are investing in Emerald Funds through an account with
Barnett Securities, Inc. or another Service Organization, you may choose to
speak directly with your assigned Financial Consultant or contact person.)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CALL FOR INFORMATION
- --------------------------- ------------------------------------------------------------------------------------
800/637-3759 For information regarding the Emerald Funds or for assistance with an existing
8:00 am to 5:00 pm Emerald Fund account.
Eastern time
</TABLE>
- --------------------------------------------------------------------------------
You should note that neither Emerald Funds nor its service contractors will be
responsible for any loss or expense for acting upon telephone instructions that
are believed to be genuine. In attempting to confirm that telephone instructions
are genuine, Emerald Funds will use procedures considered reasonable. To the
extent Emerald Funds does not use reasonable procedures to form its belief, it
and/or its service contractors may be responsible for instructions that are
fraudulent or unauthorized.
Emerald Funds wants you to be kept current regarding the status of your
account. To assist you, the following statements and reports will be
sent to you:
<TABLE>
<S> <C>
CONFIRMATION After every transaction (other than an E-Z Matic
STATEMENTS transaction) that affects your account balance or your
account registration.
ACCOUNT STATEMENTS Either monthly, quarterly or annually depending on the
Fund in which you invest or the type of account you own.
FINANCIAL REPORTS Every six months. To eliminate unnecessary duplication,
only one copy of most Fund reports will be sent to
shareholders with the same mailing address even if you
have more than one account in the Fund. Duplicate copies
are available upon request by calling 800/637-3759.
</TABLE>
36
<PAGE>
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald Funds
would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to some of the services these companies provide, as well as more information
regarding investment advisory services, see "Fund Management."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible for
coordinating Emerald Funds' efforts and generally overseeing the operation of
the Funds' business. It has been providing services to mutual funds since 1987.
* * *
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS Group,
Inc. Mutual funds structured like the Funds sell shares on a continuous basis.
The Funds' shares are sold through the Distributor. Certain officers of Emerald
Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers and/or
directors of the Distributor.
* * *
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the Funds
own.
* * *
TRANSFER AGENT
BISYS FUND SERVICES OHIO, INC.
BISYS Fund Services Ohio, Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
37
<PAGE>
HOW TO BUY SHARES
This section provides you with pertinent information on how to buy Fund shares.
Further information can be found under "Transaction Rules."
<TABLE>
<S> <C> <C> <C> <C>
MINIMUM INVESTMENT SPECIAL MINIMUMS
To Open Additional To Open Additional
Account Investments Account Investments
$1,000 $100 $100(1); --
Regular Account $500(2) $50
E-Z Matic Investment Plan $500 $100 -- $50(2)
Periodic Investment Plan $50 $50 -- --
IRAs and IRA Rollovers $1,000 No Minimum -- --
Non-Working Spousal IRA+ $250 No Minimum -- --
401(k) Plans, Qualified No Minimum No Minimum -- --
Retirement Plans and
SEP-IRAs
</TABLE>
(1) If you make your investment through a qualified account at a Service
Organization whose clients have made total investments of at least
$1,000,000, you qualify for this $100 minimum purchase.
(2) Applies to employees of the Adviser and its affiliates.
+ A regular IRA must be opened first.
OPENING AND ADDING TO YOUR
EMERALD FUND ACCOUNT
Direct investments in the Emerald Funds may be made in a number of different
ways, as shown in the following chart. Simply choose the method that is most
convenient for you. Any questions you have can be answered by calling
800/637-3759. As described above under "Getting Your Investment Started," you
may also purchase Fund shares through Barnett Securities, Inc. or another
Service Organization.
38
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY MAIL - Complete an Account Registration Form - Make your check payable to the
and mail it along with a check payable particular Fund in which you are
to the particular Fund you want to investing and mail it to the address
invest in to: Emerald Funds, P.O. Box at left
182697, Columbus, Ohio 43218-2697 - Please include your account number
on your check
- Or use the convenient form attached
to your regular Fund statement
* If shipping using overnight courier
service, send to Emerald Funds c/o
BISYS Fund Services, 3435 Stelzer Road,
Columbus, Ohio 43219.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BY WIRE - Before wiring Funds, please - Before wiring Funds, please
call 800/637-3759 for complete call 800/637-3759 for complete
wiring instructions. wiring instructions.
- The wire should say that the - Ask your bank to wire
purchase is to be in your name immediately available funds
- The wire should say that you as described at left, except
are opening a new Fund account that the wire should note
(if an Account Registration that it is to make a
Form is not received for a new subsequent purchase rather
account within 30 days after than to open a new account
the wire is received, dividends - Include your Fund account
and redemption proceeds from number
the account will be subject to
back-up withholding)
- Include your name, address and
taxpayer identification number,
and the name of the Fund in
which you are purchasing shares
(Equity and Fixed Income Fund
investors should also indicate
share class selection)
- Your bank may impose a charge
for this service
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
TELETRADE (PURCHASES - TeleTrade transactions may not - Call 800/637-3759 to make
BY TELEPHONE be used for initial purchases. If your purchase
TRANSFERRING MONEY you want to make subsequent
FROM YOUR CHECKING, transactions via TeleTrade,
NOW OR BANK MONEY please select this service on
MARKET ACCOUNT) your Account Registration Form
or call 800/637-3759 to set up
the service
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
E-Z MATIC INVESTMENT - You must first complete an Account - You must first complete an Account
(ALLOWS REGULAR Registration Form and select the E-Z Registration Form. Call 800/637-3759
INVESTMENT WITHOUT Matic option to find out how to set up this
ONGOING PAPERWORK) - Call 800/637-3759 for more information service
- Additional purchases will then
automatically be made as directed by
you
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PERIODIC INVESTMENT - You must first complete an - You must first complete an
PLAN (ALLOWS REGULAR authorization letter for Account Registration Form.
INVESTMENT THROUGH Periodic Investment Plan and Call 800/535-6579 to find
YOUR BARNETT select an investment schedule out how to set up this
SECURITIES BROKERAGE and investment amount service
ACCOUNT) - Contact your Barnett Financial - Additional purchases will
Consultant or call 800/535-6579 then automatically be made as
for more information directed by you
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
EXCHANGES AMONG - You must sign up for this - After the privilege is
EMERALD FUNDS privilege on the Account established, you may exchange
Registration Form when you open shares by calling
your account. To add this 800/637-3759
option to an existing account - Exchanges can also be
call 800/637-3759 requested by sending written
- Exchanges can also be requested instruction to Emerald
by sending written instructions Funds, P.O. Box 182697
to Emerald Funds, or by Columbus, Ohio 43218-2697
delivering written instructions - Retail Shares may be
directly to BISYS Ohio, P.O. exchanged for Retail Shares in
Box 182697, Columbus, Ohio other Funds.
43218-2697
- Retail Shares may be exchanged
for Retail Shares in other Funds.
</TABLE>
40
<PAGE>
EXPLANATION OF SALES PRICE
The PUBLIC OFFERING PRICE for each class of shares is based upon net asset value
per share. A class of shares in a Fund will calculate its NET ASSET VALUE PER
SHARE by adding the value of a Fund's investments, cash and other assets
attributable to a class, subtracting the Fund's liabilities attributable to that
class, and then dividing the result by the number of shares in that class that
are outstanding. The assets of the Equity and Fixed Income Funds are valued at
market value or, if market quotes cannot be readily obtained, fair value is used
as determined by the Board of Trustees. Debt securities held by these Funds that
have sixty days or less until they mature are valued at amortized cost, which
generally approximates market value. All securities of the Money Market Funds
are valued at amortized cost.
Foreign securities acquired by the International Equity as well as the other
Funds may be traded on foreign exchanges or over-the-counter markets on days on
which a Fund's net asset value is not calculated. In such cases, the net asset
value of the Fund's shares may be significantly affected on days when investors
can neither purchase nor redeem shares of the Fund.
More information about valuation can be found in the Funds' Statement of
Additional Information, which you may request by calling 800/637-3759.
Net asset value is computed at the times shown in this chart:
<TABLE>
<CAPTION>
Money Market Funds
--------------------------------
Equity and Fixed Prime and Tax-Exempt
Income Funds: Treasury Funds: Fund:
- -------------------- --------------- ---------------
<S> <C> <C>
On all days the New On the days Money Market Funds
York Stock Exchange can be bought and sold (see
(the "Exchange") is chart below)
open
At the close of 2 p.m. 12 noon
regular trading (Eastern time) (Eastern time)
hours on the
Exchange (currently
4 p.m. Eastern time)
</TABLE>
The Funds observe the holidays shown in this chart:
<TABLE>
<CAPTION>
Money
Equity and Fixed Market
Income Funds Observed Holiday Funds
- ------------------- ---------------------- -----------
<S> <C> <C>
Closed New Year's Day Closed
Open for Business Martin Luther Closed
King, Jr. Day
Closed Presidents' Day Closed
Closed Good Friday Closed
Closed Memorial Day Closed
Closed Independence Day Closed
Closed Labor Day Closed
Open for Business Columbus Day Closed
Open for Business Veterans Day Closed
Closed Thanksgiving Day Closed
Closed Christmas Closed
</TABLE>
HOW TO SELL SHARES
YOU CAN ARRANGE TO GET MONEY OUT OF YOUR FUND ACCOUNT BY SELLING SOME OR ALL OF
YOUR SHARES. THIS PROCESS IS KNOWN AS "REDEEMING" YOUR SHARES. If you purchased
your shares through an account at Barnett Securities, Inc. or another Service
Organization, you may redeem shares in accordance with the instructions
pertaining to that account. If you purchased your shares through an account at
Barnett Securities, Inc. or another Service Organization and you, yourself,
appear on Emerald Funds' books as the shareholder of record, you may redeem
shares by mail or phone as described below; however, you must contact Barnett
Securities, Inc. or your other Service Organization if you wish to redeem your
shares by any other method. If you purchased your shares directly from Emerald
Funds, you have the ability to redeem shares by any of the methods described
below. Requests must be signed by you and by each other owner of the account
(for joint accounts).
Emerald Funds imposes no charges when you redeem shares. When shares are
purchased through Barnett Securities, Inc. or another Service Organization,
however, a fee may be charged by those institutions for providing administrative
services in connection with your investment.
41
<PAGE>
HOW TO REDEEEM SHARES ADDITIONAL LIMITATIONS
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
TELETRADE - After you have signed up for - Not available for shares for
(YOUR BANK ACCOUNT TeleTrade privileges you may which you have requested share
MUST BE A CHECKING, sell your shares via phone by certificates
NOW OR BANK MONEY calling 800/637-3759
MARKET ACCOUNT)
BY MAIL - Send a signed request (each - Requests greater than $10,000
owner, including each joint must be signature guaranteed
owner, must sign) to [name of - Any stock certificates for
the particular Fund whose shares being redeemed must be
shares you are selling], P.O. included with your request,
Box 182697, Columbus, Ohio endorsed for transfer and
43218-2697 signature guaranteed
AUTOMATIC - Withdrawals begin after you - Your account must have a total
WITHDRAWAL (PERMITS have signed up for this service net asset value of at least
AUTOMATIC WITHDRAWAL - Call 800-637-3759 for more $5,000
OF PRE-ARRANGED information - The transaction amount must be
AMOUNT) at least a $50 minimum
BY WIRE - After you have signed up for - The Transfer Agent may act
wire redemption privileges on upon such a request from any
the Account Registration Form, person representing him or
you may instruct the Transfer herself to be you and
Agent to wire your redemption reasonably believed by the
proceeds to your bank account Transfer Agent to be genuine
by sending a request in - The transaction amount must be
writing, by phone a $1,000 minimum
(800/637-3759) - This privilege may be subject
to limits regarding frequency
and overall amount
</TABLE>
Redemption requests are processed when received in proper form by Emerald Funds
at the net asset value per share next determined after such receipt.
42
<PAGE>
TRANSACTION RULES
THE PURCHASE PROCEDURES that the Equity and Fixed Income Funds follow in
processing your purchase order are somewhat different than the procedures
followed by the Money Market Funds. The order-taking procedures used by the
Equity and Fixed Income Funds also differ depending on whether you place your
order directly with Emerald Funds or use Barnett Securities, Inc. or another
Service Organization.
Also, the Equity and Fixed Income Funds may have different business days from
those of the Money Market Funds. A "Business Day" for the Equity and Fixed
Income Funds is any day on which the New York Stock Exchange (the "Exchange") is
open for business, while for the Money Market Funds it is any day on which both
the Exchange and the Funds' Custodian are open for business. Additionally, on
days when the Exchange (and/or the Custodian for Money Market Funds) closes
early due to a partial holiday or otherwise, the Funds reserve the right to
advance the times at which purchase and redemption orders must be received in
order to be processed on that Business Day.
IF YOU PLACE AN ORDER FOR AN EQUITY OR FIXED INCOME FUND without using Barnett
Securities, Inc., Barnett's Business Retirement Services or another Service
Organization, your purchase order, if in proper form and accompanied by payment,
will be processed upon receipt by Emerald Funds. An order in proper form will
also be processed upon receipt by Emerald Funds where Barnett or another
creditworthy financial institution undertakes to pay for the order in
immediately available funds wired to Emerald Funds by the close of business the
next Business Day. If Emerald Funds receives your order and, where required,
payment by the close of regular trading (currently 4 p.m. Eastern time) on the
Exchange, your shares will be purchased at the public offering price calculated
at the close of regular trading on that day. Otherwise, your shares will be
purchased at the public offering price determined as of the close of regular
trading on the next Business Day.
IF YOU PLACE AN ORDER FOR AN EQUITY AND FIXED INCOME FUND THROUGH BARNETT
SECURITIES, INC. OR ANOTHER SERVICE ORGANIZATION, and you place your order in
proper form before 4 p.m. (Eastern time) on any Business Day in accordance with
their procedures, your purchase will be processed at the public offering price
calculated at 4 p.m. on that day, if Barnett Securities, Inc. or your other
Service Organization then sends your order to Emerald Funds before the end of
its Business Day (which is usually 5 p.m. Eastern time). Barnett Securities,
Inc. or your other Service Organization must promise to send to the Transfer
Agent immediately available funds in the amount of the purchase price within
three Business Days of the order.
PURCHASE ORDERS FOR THE MONEY MARKET FUNDS that are in proper form are processed
upon receipt by Emerald Funds; however, orders will not be processed until
payments not made in federal funds are converted to federal funds, which
normally occurs within two Business Days of receipt. If Emerald Funds receives
your order and federal funds before 2 p.m. (Eastern time) (or 12 noon Eastern
time for the Tax-Exempt Fund) on a Business Day, your shares will be purchased
at 2 p.m. (Eastern time) (or 12 noon Eastern time for the Tax-Exempt Fund) on
that day. Otherwise, your shares will be purchased at the net asset value
calculated on the next Business Day.
TELETRADE PRIVILEGES. Only bank accounts held at domestic financial institutions
that are Automated Clearing House members can be used for TeleTrade
transactions. Most transfers are completed within three Business Days of your
call. To preserve flexibility, Emerald Funds may revise or remove the ability to
purchase shares by phone, or may charge a fee for such service, although no such
fees are currently expected. You should contact your bank for information about
sending and receiving funds through the Automated Clearing House, including any
charges that your bank may make for these services. Some clients of Barnett
Securities, Inc. or other Service Organizations may not be able to purchase
shares by phone pursuant to the TeleTrade privilege.
WIRE PURCHASES AND REDEMPTIONS. If you purchase shares by wire, you must file an
Account Registration Form before any of those shares can be redeemed. You should
contact your bank (which will need to be a commercial bank that is a member of
the Federal Reserve System) for information about sending and receiving funds by
wire, including any charges by your bank for these services. A Fund may decide
at any time to no longer permit redemption of shares by wire. Clients of Barnett
Banks Business Retirement Services are not able to place wire purchases and
redemption orders directly with Emerald Funds.
43
<PAGE>
BARNETT PROGRAMS. Shareholders who maintain a Barnett Banks checking account and
investments in Emerald Fund shares with a market value of $15,000 may qualify
for Barnett's Premier Account. In addition, Barnett Banks offer a Senior
Partners Program that is available to persons 55 years of age or older who
maintain a Barnett Bank checking account and investments in Emerald Fund shares
with a market value of $5,000. Further information about these programs is
available at Barnett Bank branch offices. Barnett Banks also offers a Periodic
Investment Program that is available through your broker. More information about
this program can be obtained from your broker. Emerald Funds is not responsible
for the operation of these programs.
MISCELLANEOUS PURCHASE INFORMATION. FEDERAL REGULATIONS REQUIRE THAT YOU PROVIDE
A CERTIFIED TAXPAYER IDENTIFICATION NUMBER WHENEVER YOU OPEN OR REOPEN AN
ACCOUNT. If your check does not clear, a fee may be imposed by the Transfer
Agent. Payments for shares of a Fund may, in the discretion of the Adviser, be
made in the form of securities that are permissible investments for that Fund.
For further information see "In-Kind Purchases" in the Statement of Additional
Information.
MISCELLANEOUS REDEMPTION INFORMATION. EMERALD FUNDS usually makes payment for
the shares that you redeem within three business days after it receives your
request in proper form. SHARES PURCHASED BY CHECK OR TELETRADE FOR WHICH A
REDEMPTION REQUEST HAS BEEN RECEIVED WILL NOT BE REDEEMED UNLESS CHECK OR
TELETRADE PAYMENT USED FOR INVESTMENT HAS CLEARED, WHICH MAY TAKE UP TO TEN
BUSINESS DAYS. WHERE REDEMPTION OF SHARES IN THE MONEY MARKET FUNDS IS REQUESTED
OTHER THAN BY MAIL, SHARES PURCHASED BY CHECK OR BY TELETRADE WILL NOT BE
REDEEMED FOR A PERIOD OF TEN BUSINESS DAYS AFTER THEIR PURCHASE. THIS PROCEDURE
DOES NOT APPLY TO SHARES PURCHASED BY WIRE PAYMENT. DURING THE PERIOD PRIOR TO
THE TIME MONEY MARKET FUND SHARES ARE REDEEMED, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF
BENEFICIAL OWNERSHIP.
The Funds may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend the recordation of the transfer of its
shares) for such periods as permitted under the Investment Company Act of 1940.
If your redemption request is more than $10,000, each signature on your request
must include a SIGNATURE GUARANTEE. Signature guarantees are designed to protect
both you and Emerald Funds from fraud. To obtain a signature guarantee you
should visit a bank, trust company, broker-dealer or other member of a national
securities exchange, or other eligible guarantor institution. (Notaries public
cannot provide signature guarantees.) Guarantees must be signed by an authorized
person at one of these institutions, and be accompanied by the words "Signature
Guarantee." You will also need a signature guarantee if you submit an endorsed
share certificate for redemption. Signature guarantees are not required with
respect to Barnett Banks Business Retirement Services accounts.
If you experience difficulty in contacting the Transfer Agent to redeem shares
by phone, for example because of unusual market activity, you are urged to
consider redeeming your shares by mail or in person.
You may request that redemptions be sent to you by check. Checks will only be
sent to the registered owner or owners and only to the address shown on Emerald
Funds' books.
THE VALUE OF SHARES THAT ARE REDEEMED IN THE EQUITY AND FIXED INCOME FUNDS may
be more or less than their original cost, depending on a Fund's current net
asset value. Because the Money Market Funds attempt to maintain their net asset
value at $1.00 a share, the value of a share in those Funds is expected to be
the same as your original cost, although there can be no assurance of this.
EMERALD FUNDS RESERVES THE RIGHT TO INVOLUNTARILY REDEEM AN ACCOUNT (other than
an IRA or Qualified Retirement Plan account) if, after thirty days' written
notice, the account's net asset value falls and remains below a $1,000 minimum
due to share redemptions and not market fluctuations.
In unusual circumstances Emerald Funds may make payment in readily marketable
portfolio securities at their market value equal to the redemption price.
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- --------------------------------------------------------------------------------
YOUR EMERALD FUND ACCOUNT
- -----------------------
SHAREHOLDER SERVICES
Emerald Funds provides a variety of ways to make managing your investments more
convenient. Some of these methods require you to request them on your Account
Registration Form or you may request them after opening an account by calling
800/637-3759. The Exchange Privilege, E-Z Matic Investment Plan and Automatic
Withdrawal Plan described below are not available for clients of Barnett Banks
Business Retirement Services.
RETIREMENT PLANS
Retirement plans may provide you with a method of investing for your retirement
by allowing you to defer taxation of your initial investment in your plan and
also allowing your investments to grow without the burden of current income tax
until monies are withdrawn from the retirement plan.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
The individual investor can select Emerald Funds for his IRA, Transfer IRA,
Rollover IRA or non-working spousal IRA. To establish an IRA with Emerald Funds,
you must complete the IRA Account Registration and Agreement Form. If the assets
are being moved from an existing IRA to Emerald Funds, you must also complete
either the Direct Rollover or IRA Request for Transfer Form.
Many investors are eligible to deduct from federal income tax all or a portion
of their IRA investment. All dividends and capital gains in an IRA grow tax
deferred until withdrawals. Investors may make contributions to their IRAs until
the tax year prior to reaching age 70 1/2. Mandatory withdrawals must begin in
the year after an investor reaches 70 1/2. Investors should consult their tax
advisers for details on eligibility and tax implications.
Please read the IRA Disclosure Statement and Custodial Agreement which contains
further information regarding IRAs, including services and fees.
QUALIFIED RETIREMENT PLANS
The Funds are available for many Qualified Retirement Plans with one or more
participants including 401(k), 457, 403(b)(7) and Simplified Employee Pension
Plans (SEP-IRAs). See your Investment Officer or Plan Administrator for details
on eligibility and other information.
EXCHANGE PRIVILEGES AMONG EMERALD FUNDS
(REQUIRES YOUR REQUEST)
You may sell your Fund shares and buy other shares of Emerald Funds by telephone
or written exchange at the telephone number or address under "Opening and Adding
to Your Emerald Fund Account." Specifically, Retail Shares may be exchanged for
Retail Shares of other Funds.
If you have a qualified trust, agency or custodian account with the trust
department of Barnett or another bank, trust company or thrift institution, and
your shares are to be held in that account, you may also exchange your Retail
Shares in a Fund for Institutional Shares (which are described under "The
Emerald Family of Funds" below) in the same Fund. Conversely, Institutional
Shares may be exchanged for Retail Shares of the same Fund in connection with
the distribution of assets held in such a qualified trust, agency or custodian
account. These exchanges are made at the net asset value of the respective share
classes.
Exchange transactions are subject to a $500 minimum current value. Exchanges may
have tax consequences for you. Consult your tax advisor for further information.
If you are opening a new account in a different Fund by exchange, the exchanged
shares must be at least equal in value to the minimum investment for the Fund in
which the account is being opened. The particular class of shares you are
exchanging into must be registered for sale in your state.
Additional information regarding exchanges can be obtained by reading the
Statement of Additional Information. The Exchange Privilege may be modified or
terminated at any time. At least 60 days' notice will be given to shareholders
of any material modification or termination of the Exchange Privilege except
where notice is not required by the Securities and Exchange Commission.
E-Z MATIC INVESTMENT PLAN
(REQUIRES YOUR REQUEST)
One easy way to pursue your financial goals is to invest money regularly.
Emerald Funds offers the E-Z Matic Investment Plan - a convenient service that
lets you transfer money from your bank account into your Fund account
automatically, on a schedule of your choice.
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<PAGE>
At your option, your bank account will be debited in a particular amount that
you have specified, and Fund shares will be automatically purchased at regular
intervals - once a month on either the fifth or twentieth day, or twice a month
on both days. Your bank account must be a checking, NOW or bank money market
account maintained at a domestic financial institution which is an Automated
Clearing House member. Your institution must also permit automated withdrawals
(which may be subject to a fee by that institution).
The E-Z Matic Investment Plan is one means by which you may use "Dollar Cost
Averaging" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Equity and Fixed Income Funds whose price
per share fluctuates. Instead of trying to time market performance, a fixed
dollar amount is invested in Fund shares at predetermined intervals. This may
help you to reduce your average cost per share because the agreed upon fixed
investment amount allows more shares to be purchased during periods of lower
share prices and fewer shares during periods of higher prices. In order to be
effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. You should be aware, however, that shares bought using Dollar
Cost Averaging are made without regard to their price on the day of investment
or to market trends. While regular investment plans do not guarantee a profit
and will not protect you against loss in a declining market, they can be a good
way to invest for retirement, a home, educational expenses and other long-term
financial goals.
You may cancel your E-Z Matic investments or change the amount of purchase at
any time by mailing written notification to the Transfer Agent at P.O. Box
182697, Columbus, Ohio 43218-2697. You may also implement the Dollar Cost
Averaging method on your own initiative. Emerald Funds may modify or terminate
the E-Z Matic Investment Plan at any time or charge a service fee, although no
such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN
(REQUIRES YOUR REQUEST)
Emerald Funds offers a convenient way of withdrawing funds from your investment
portfolio. You may request regular monthly, quarterly, semi-annual or annual
withdrawals in any amount above $50 provided the particular Fund account you are
withdrawing from has a minimum current balance of at least $5,000. The automatic
withdrawal will be made on the last business day of the period you select.
DIVIDENDS AND DISTRIBUTIONS
WHERE DO YOUR DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the case
of the Money Market Funds, this net investment income flows from the interest
that the Funds earn on the money market and other instruments they hold. In the
case of the Short-Term Fixed Income, U.S. Government Securities, Managed Bond
and Florida Tax-Exempt Funds, net investment income comes from the interest on
the bonds and other investments that they hold in their portfolios. For the
Equity, Equity Value, International Equity, Small Capitalization and Balanced
Funds, net investment income is made up of dividends received from the stocks
they hold, as well as interest accrued on convertible securities, money market
instruments and other debt obligations held in their portfolios.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund may make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
WHAT ARE YOUR DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gain distributions. Dividends and
distributions are automatically reinvested in the same share class of the Fund
for which the dividend or distribution was declared, unless the shareholder
specifically elects to receive payments in cash. Your election and any
subsequent change should be made in writing to:
Emerald Funds
c/o BISYS Ohio
P.O. Box 182697
Columbus, Ohio 43218-2697
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds) or payment dates (with respect to the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Florida
Tax-Exempt and Money Market Funds) after the date the Funds' Transfer Agent
receives the election.
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<PAGE>
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
-----------------------
FUND DECLARED PAID
- ----------------- --------- ------------
<S> <C> <C>
1Equity, Equity Quarterly Quarterly
Value and
Balanced
2International Annually Annually
Equity and Small
Capitalization
3Short-Term Fixed Daily Monthly
Income, U.S. within five
Government business
Securities, days of
Managed Bond and month end
Florida Tax-
Exempt
4Prime, Treasury Daily Monthly
and Tax-Exempt within five
business
days of
month end
</TABLE>
1Dividends for the Equity, Equity Value and Balanced Funds may be declared and
paid at times that do not fall at the end of a calendar quarter.
2Dividends for the International Equity and Small Capitalization Fund may be
declared and paid at times that do not fall at the end of a calendar year.
3Shares of the Short-Term Fixed Income, U.S. Government Securities, Managed Bond
and Florida Tax-Exempt Funds begin earning dividends the first Business Day
after acceptance of the purchase order for which Emerald Funds' custodian has
received payment and stop earning dividends the Business Day such shares are
redeemed.
4Shares of the Prime, Treasury and Tax-Exempt Funds begin earning dividends on
the day a purchase order is processed, and continue to earn dividends through
the day before they are redeemed.
* * *
With respect to Short-Term Fixed Income, U.S. Government Securities, Managed
Bond and Florida Tax-Exempt Funds, if all of an investor's shares in a
particular share class are redeemed, the Fund will pay accrued dividends within
five Business Days after redemption. The Prime, Treasury and Tax-Exempt ("Money
Market") Funds will pay accrued dividends within five Business Days after the
end of each month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are distributed at
least annually after any reductions for capital loss carryforwards.
DISTRIBUTION AND SERVICE ARRANGEMENTS
Emerald Funds has adopted a Combined Distribution and Service Plan and a
Shareholder Processing Plan for its Retail Shares (the "Plans"). Under these
Plans the Distributor and Service Organizations receive payments for
distribution and shareholder services.
The Combined Distribution and Service Plan for Retail Shares authorizes payments
to the Distributor and Service Organizations for distribution and shareholder
liaison services provided to Retail Shareholders. PAYMENTS UNDER THE COMBINED
DISTRIBUTION AND SERVICE PLAN FOR RETAIL SHARES MAY NOT EXCEED .25% (on an
annual basis) of the average daily net asset value of a Fund's outstanding
Retail Shares. Distribution payments under the Plan are subject to the
requirements of a rule under the Investment Company Act of 1940 known as Rule
12b-1. Any distribution payments payable by Retail Shares will not be used to
assist the distribution of any other class.
Under the Shareholder Processing Plan, Service Organizations agree to provide
various shareholder processing services, such as providing necessary personnel
and facilities to establish and maintain shareholder accounts and records for
clients; assisting in aggregating and processing purchase, exchange and
redemption transactions; placing net purchase and redemption orders with the
Distributor; arranging for wiring of funds; transmitting and receiving funds in
connection with client orders to purchase or redeem Shares; processing dividend
payments; providing the information to the Funds necessary for accounting or
subaccounting; and providing such other similar services as may reasonably be
requested. PAYMENTS FOR THESE SERVICES MAY NOT EXCEED .25% (on an annual basis)
of the average daily net asset value of a Fund's outstanding Retail Shares.
BARNETT SECURITIES, INC. OR OTHER SERVICE ORGANIZATIONS may charge their clients
a separate fee for administrative services in connection with investments in
Fund shares and may impose minimum customer account and other requirements These
fees and requirements would be in addition to those imposed by the Funds under
the Plans. If you are investing through Barnett Securities, Inc. or another
Service Organization, please refer to their program materials for any additional
special provisions or conditions that may be different from those described in
this Prospectus (for example, some or all of the services and privileges
described may not be
47
<PAGE>
available to you). Barnett Securities, Inc. and the other Service Organizations
have the responsibility of transmitting purchase orders and required funds, and
of crediting their clients' accounts following redemptions, in a timely manner
in accordance with their customer agreements and this Prospectus.
Investors may note that federal banking laws currently limit the securities
activities of banks. It is possible that a bank might be prohibited from acting
as a Service Organization in the future. If this were to happen, the bank's
shareholder clients would be permitted by the Funds to remain shareholders. The
Funds' method of operations might, however, change and such shareholders might
not be able to avail themselves of the services provided by their banks. No
adverse financial consequences are expected to occur to these shareholders from
any such event.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business trust,
and is a mutual fund of the type known as an "open-end management investment
company." A MUTUAL FUND PERMITS AN INVESTOR TO POOL HIS OR HER ASSETS WITH THOSE
OF OTHERS IN ORDER TO ACHIEVE ECONOMIES OF SCALE, TAKE ADVANTAGE OF PROFESSIONAL
MONEY MANAGERS AND ENJOY OTHER ADVANTAGES TRADITIONALLY RESERVED FOR LARGE
INVESTORS. The Agreement and Declaration of Trust permits the Board of Trustees
of Emerald Funds to classify any unissued shares into one or more classes of
shares. The Board has authorized the issuance of an unlimited number of shares
in each of two share classes of each Equity and Fixed Income Fund, and has also
authorized the issuance of an unlimited number of shares in each of three share
classes in the Money Market Funds. Each Fund, except the Florida Tax-Exempt
Fund, is classified as a diversified company. The Board of Trustees has also
authorized the issuance of additional classes of shares representing interests
in other portfolios of Emerald Funds. Information regarding other portfolios and
share classes may be obtained by contacting the Emerald Funds Center or the
Distributor at the address listed on page 35.
Retail Shares of the Funds are described in this prospectus. The Funds also
offer Institutional Shares and, additionally, the Money Market Funds offer
Institutional and Service Shares solely to banks and other institutions, acting
on behalf of themselves and their customers. Shares of each class bear their pro
rata portion of all operating expenses incurred by the Funds, except certain
miscellaneous "class expenses" (I.E. certain printing and registration
expenses). In addition, Retail Shares bear all payments under the Plans
described above under "Distribution and Service Arrangement," and Service Shares
bear all the payments under the Shareholder Processing and Services Plan (the
"Service Plan") as described in the prospectus for those Shares. Payments under
the Service Plan may not exceed .35% (on an annual basis) of the average daily
net asset value of the outstanding Service Shares. Because of these Plan and
other "class expenses," the performance of a Fund's Institutional Shares is
expected to be higher than the performance of its Retail or Service Shares. The
Funds offer various services and privileges in connection with Retail Shares
that are not generally offered in connection with Institutional and Service
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Institutional and Service Shares,
contact the Distributor at 800-637-3759.
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND PROPORTIONATE
FRACTIONAL VOTES FOR FRACTIONAL SHARES HELD. Shares of all Emerald Fund
portfolios vote together and not by class, unless otherwise required by law or
permitted by the Board of Trustees. All shareholders of a particular Fund will
vote together as a single class on matters pertaining to the Fund's investment
advisory agreement and fundamental investment limitations. Only Retail
shareholders, however, will vote on matters pertaining to the Plans for Retail
Shares. Similarly, only holders of Service Shares will vote on matters
pertaining to the Service Plan.
EMERALD FUNDS IS NOT REQUIRED TO AND DOES NOT CURRENTLY EXPECT TO HOLD ANNUAL
MEETINGS OF SHAREHOLDERS TO ELECT TRUSTEES. The trustees will call a shareholder
meeting upon the written request of shareholders owning at least 10% of the
shares entitled to vote. As of December 31, 1995, the Adviser and its affiliates
possessed, on behalf of their underlying customer accounts, voting or investment
power with respect to a majority of the outstanding shares of Emerald Funds.
More information about shareholder voting rights can be found in the Statement
of Additional Information under "Description of Shares."
48
<PAGE>
- --------------------------------------------------------------------------------
THE BUSINESS OF THE FUNDS
- -------------------------
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL SUPERVISION
OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- - Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- - John G. Grimsley, President of Emerald Funds, is a member of the law firm of
Mahoney, Adams & Criser.
- - Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- - Mary Doyle is the Dean in Residence of the Association of American Law Schools
and Professor of Law, University of Miami Law School.
- - Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide investment
management and other important services to the Funds. BARNETT BANKS TRUST
COMPANY, N.A. serves as the Funds' adviser and has its principal offices at 9000
Southside Boulevard, Building 100, Jacksonville, Florida 32256. Rodney Square
Management Corporation (referred to as the "Sub-Adviser"), a wholly-owned
subsidiary of WILMINGTON TRUST COMPANY, acts as sub-adviser for the Tax-Exempt
Fund and is located at Rodney Square North, Wilmington, Delaware 19890. BISYS, a
wholly-owned subsidiary of The BISYS Group, Inc., is located at 3435 Stelzer
Road, Columbus, Ohio 43219-3035 and serves as the Funds' administrator, and
Emerald Asset Management, Inc., also a wholly-owned subsidiary of The BISYS
Group, Inc., located at the same address, is the registered broker-dealer that
sells the Funds' shares. The Funds also have a custodian, The Bank of New York,
located at 90 Washington Street, New York, New York 10286, and a transfer and
dividend paying agent, BISYS Fund Services Ohio, Inc. located at 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
ADVISER AND SUB-ADVISER. Barnett manages the investment portfolios of the Equity
and Fixed Income Funds and the Prime and Treasury Funds, including selecting
portfolio investments and making purchase and sale orders. The Sub-Adviser
manages the investment portfolio of the Tax-Exempt Fund in accordance with
investment requirements and policies established by Barnett.
As of December 31, 1995 Barnett had approximately $9.8 billion under active
management, with $3.2 billion in equity securities, $713 million in taxable
fixed income securities, $1.4 billion in treasury and government securities,
$1.5 billion in municipals and $2.8 billion in money market instruments. Barnett
is a subsidiary of Barnett Banks, Inc., a registered bank holding company that
has offered general banking services since 1877. Wilmington Trust Company, the
parent organization of the Sub-Adviser and a Delaware banking corporation, is in
turn a wholly-owned subsidiary of Wilmington Trust Corporation, a registered
bank holding company. The Sub-Adviser provides management services to a number
of mutual funds with total assets on December 31, 1995 of $1.5 billion.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of a Fund's investment portfolio. Russell Creighton, C.F.A., a Senior
Vice President of Barnett, has been the portfolio manager of the Equity Fund
since September 1993, and has also managed the Balanced Fund since it commenced
operations on April 11, 1994 and the Equity Value Fund since it commenced
operations on December 26, 1995. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in addition to these Funds currently manages a
diversified common stock fund and assists in preparing ongoing equity investment
strategy. Martin E. LaPrade, C.F.A., and Joseph E. Tannehill, C.F.A., have
co-managed the International Equity Fund since it commenced operations on
December 26, 1995, and along with Mr. Creighton have co-managed the Equity Value
Fund since it commenced operations. Mr. LaPrade is a Senior Vice President with
Barnett and currently has eleven years of investment experience. He serves as a
strategist and an equity portfolio manager, with additional responsibility in
asset allocation research, and directs the asset allocation decisions for
balanced account management. He joined Barnett in 1978. Mr. Tannehill is a Vice
President with Barnett
49
<PAGE>
and currently has nine years of investment experience. He is primarily
responsible for applying quantitative methods to equity security research. In
addition, he oversees the management of an enhanced index equity commingled
fund. He joined Barnett in 1986. Dean McQuiddy, C.F.A., a Vice President with
Barnett, has managed the Small Capitalization Fund since it commenced operations
on January 4, 1994, and also manages the small capitalization portion of the
Equity and Balanced Funds. Since joining Barnett in 1983, Mr. McQuiddy has been
an equity analyst and institutional portfolio manager, and for the last eight
years has managed Barnett's employee benefits small capitalization fund.
Jacqueline Lunsford, C.F.A., a Senior Vice President with Barnett, has managed
the Short-Term Fixed Income Fund since it commenced operations on April 11,
1994. Ms. Lunsford has been with Barnett since 1988, and also manages money
market mutual funds for Emerald Funds and other customers. Andrew Cantor,
C.F.A., a Senior Vice President with Barnett, has managed the U.S. Government
Securities Fund since its inception in 1991, and has also managed the Managed
Bond Fund since it commenced operations on April 11, 1994. For the past eleven
years, Mr. Cantor has served as the senior fixed income manager in Barnett's
Institutional Investments Group, where his responsibilities have included
setting fixed income investment strategy and managing a number of major taxable
fixed income accounts, including several commingled funds. Douglas Byrne, a
Senior Vice President of Barnett, has been the portfolio manager of the Florida
Tax-Exempt Fund since it commenced operations in 1991. Mr. Byrne is the manager
of Barnett's Trading Department and for the last eight years has been its senior
tax-exempt portfolio manager. In addition to managing the Florida Tax-Exempt
Fund, Mr. Byrne has direct responsibility for several tax-exempt common trust
funds and institutional accounts.
Although expected to be infrequent, Barnett (or the Sub-Adviser) may consider
the amount of Fund shares sold by broker-dealers and others (including those who
may be connected with Barnett or the Sub-Adviser) in allocating orders for
purchases and sales of portfolio securities. This allocation may involve the
payment of brokerage commissions or dealer concessions. Barnett (and the
Sub-Adviser) will not engage in this practice unless the execution capability of
and the amount received by such broker-dealer or other company is believed to be
comparable to what another qualified firm could offer.
BISYS. BISYS is an Ohio Limited Partnership and is a wholly-owned subsidiary of
The BISYS Group, Inc.
BISYS provides a wide range of such services to the Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gains distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as other
matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to
you or deducted from your account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the International Equity and Small
Capitalization Funds' average daily net assets, .60% of each of the Equity,
Equity Value and Balanced Funds' average daily net assets, .40% of each of the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds' average daily net assets, and .25% of each Money Market Funds'
average daily net assets. The advisory fees payable by the International Equity
and Small Capitalization Funds are higher than those paid by most mutual funds,
although the Board of Trustees believes they are comparable to the advisory fees
payable by many similar funds. Barnett has agreed to pay the Sub-Adviser .15% of
the Tax-Exempt Fund's average daily net assets, and is voluntarily waiving the
remainder of its fee for that Fund. The fees paid by Barnett to the Sub-Adviser
for the Tax-Exempt Fund comes out of Barnett's advisory fee for that Fund and is
not an additional charge to the Fund.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00%, .40%, .40%, .23%, .24%
and .13% of the average daily net assets of the Equity, Small Capitalization,
U.S. Government Securities, Florida Tax-Exempt, Prime, Treasury and Tax-Exempt
Funds, respectively. All of the fees that Barnett received for the Tax-Exempt
Fund were
50
<PAGE>
paid to the Sub-Adviser pursuant to the fee arrangement described above. Barnett
voluntarily waived all fees from the Balanced, Short-Term Fixed Income and
Managed Bond Funds.
BISYS is entitled to an administration fee calculated daily and payable monthly
at the effective annual rate of .0775% of the first $5 billion of the aggregate
net assets of all of the Emerald Funds, .07% of the next $2.5 billion, .065% of
the next $2.5 billion and .05% of all assets exceeding $10 billion. In the event
the aggregate average daily net assets for all Funds falls below $3 billion, the
fee will be increased to .08% of the aggregate average daily net assets of all
of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees and
expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings; and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and by the Funds' other service
providers, with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting Funds and their shareholders. You should
consult your tax adviser with specific reference to your own tax situation.
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING THE FEDERAL INCOME TAX TREATMENT
OF DIVIDENDS AND DISTRIBUTIONS MADE TO YOU. FEDERAL INCOME TAXES FOR DIVIDENDS
AND DISTRIBUTIONS MADE TO AN IRA, SEP-IRA, 401(K) PLAN OR OTHER QUALIFIED
RETIREMENT PLAN ARE GENERALLY DEFERRED.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment company"
under the Internal Revenue Code (called the "Code"), meaning that to the extent
a Fund's earnings are passed on to shareholders as required by the Code, the
Fund itself generally will not be required to pay federal income taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund, other than the "exempt
interest dividends" from the Florida Tax-Exempt and Tax-Exempt Funds, will be
taxable to you.
In addition, the Florida Tax-Exempt and the Tax-Exempt Funds (together referred
to as the "Tax-Exempt Funds") will pay at least 90% of their net exempt-interest
income as dividends known as "exempt-interest dividends." These dividends may be
treated by you as excludable from your gross income (unless the exclusion would
be disallowed because of your particular situation). You should note that income
that is not subject to federal income taxes may nonetheless have to be
considered along with other adjusted gross income in determining whether any
Social Security payments received by you are subject to federal income taxes.
If either of the two Tax-Exempt Funds hold certain so-called "private activity
bonds" issued after August 7, 1986, shareholders will need to include as
51
<PAGE>
an item of tax preference for purposes of the federal alternative minimum tax
that portion of the dividends paid by the Tax-Exempt Funds derived from interest
received on such bonds. The maximum federal alternative minimum tax rate is 28%
for individuals. In addition, corporations will need to take into account all
exempt-interest dividends paid by the Tax-Exempt Funds in determining certain
adjustments for the federal alternative minimum tax and the environmental tax.
Any distribution you receive of net long-term capital gain over net short-term
capital loss will be taxed as a long-term capital gain, no matter how long you
have held Fund shares. If you hold shares for six months or less, and during
that time receive a distribution that is taxable as a long-term capital gain,
any loss you realize on the sale of those shares will be treated as a long-term
loss to the extent of the earlier capital gains distribution.
Additionally, for federal income tax purposes, exchange transactions are treated
as sales on which you will realize a capital gain or loss depending on whether
the value of the shares exchanged is more or less than your basis in the shares
at the time of the transaction.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the Equity
Funds, the record date of dividend and capital gains distributions) should be
aware that the amount of the forthcoming dividend or distribution, although in
effect a return of capital, will be taxable.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders of the Equity and Fixed Income Funds may realize a taxable gain or
loss when redeeming, transferring or exchanging shares of a Fund, depending on
the difference in the prices at which the shareholder purchased and sold the
shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. If more than 50% of the value of this Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of such taxes against their federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in a Fund
should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, except as stated below, dividends
paid by the U.S. Government Securities, Treasury and the two Tax-Exempt Funds
may be taxable under state or local law as dividend income, even though all or
part of those dividends come from interest on obligations that would be free of
such income taxes if held by you directly. Except as stated below, shares of the
Funds are not expected to qualify for total exemption from the Florida
intangibles tax.
FLORIDA TAXES (FLORIDA TAX-EXEMPT AND TREASURY FUNDS). Florida does not
currently have an income tax for individuals, and therefore individual
shareholders of the Florida Tax-Exempt and Treasury Funds will not be subject to
any Florida income tax on amounts received from the Funds. However, Florida does
impose an income tax on certain corporations, so that such amounts may be
taxable to corporate shareholders.
Florida also imposes an "intangibles tax" at the annual rate of 2 mills or 0.20%
on certain securities and other intangible assets owned by Florida residents.
With respect to the first mill, or first .10%, of the intangibles tax, every
natural person is entitled each year to an exemption of the first
52
<PAGE>
$20,000 of the value of the property subject to the tax. A husband and wife
filing jointly will have an exemption of $40,000. With respect to the last one
mill, or last .10%, of the intangibles tax, every natural person is entitled
each year to an exemption of the first $100,000 of the value of the property
subject to the tax. A husband and wife filing jointly will have an exemption of
$200,000.
Obligations issued by the State of Florida or its municipalities, counties, and
other taxing districts, or by the U.S. Government, certain U.S. Government
agencies and certain U.S. territories and possessions (such as Guam, Puerto Rico
and the Virgin Islands), as well as cash, are exempt from this intangibles tax.
If on December 31 of any year the portfolio of the Florida Tax-Exempt Fund or
Treasury Fund consist solely of such exempt assets, then that Fund's shares will
be entirely exempt from the Florida intangibles tax payable in the following
year.
The Florida Tax-Exempt Fund intends, but cannot guarantee, that its shares will
qualify for total exemption from the Florida intangibles tax. On the other hand,
it is possible that shares of the Treasury Fund may, or may not so qualify. In
order to take advantage of this exemption, a Fund may sell non-exempt assets
held in its portfolio (such as repurchase agreements) during the year and
reinvest the proceeds in exempt assets, or hold cash, prior to December 31.
Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - PERFORMANCE INFORMATION PROVIDES YOU WITH A METHOD OF MEASURING AND MONITORING
YOUR INVESTMENTS. EACH FUND MAY QUOTE ITS PERFORMANCE IN ADVERTISEMENTS OR
SHAREHOLDER COMMUNICATIONS. THE PERFORMANCE FOR A FUND'S RETAIL SHARES IS
CALCULATED SEPARATELY FROM THE PERFORMANCE OF A FUND'S OTHER CLASSES OF
SHARES.
UNDERSTANDING PERFORMANCE MEASURES:
- - TOTAL RETURN for each Equity and Fixed Income Fund may be calculated on an
AVERAGE ANNUAL TOTAL RETURN basis or an AGGREGATE TOTAL RETURN basis. Average
annual total return reflects the average annual percentage change in value of
an investment over the measuring period. Aggregate total return reflects the
total percentage change in value of an investment over the measuring period.
Both measures assume the reinvestment of dividends and distributions.
- - YIELDS for the Funds (except the Money Market Funds) are calculated for a
specified 30-day (or one-month) period by dividing the net income for the
period by the maximum offering price on the last day of the period, and
annualizing the result on a semi-annual basis. Yields for the Money Market
Funds are the income generated over a 7-day period (which period will be
identified in the quotation) and then assumed to be generated over a 52 week
period and shown as a percentage of the investment. Net income used in yield
calculations may be different than net income used for accounting purposes.
- - EFFECTIVE YIELDS for the Money Market Funds are calculated similarly, but the
income quoted over a 7-day period is assumed to be reinvested.
- - TAX-EQUIVALENT YIELDS for the two Tax-Exempt Funds show the amount of taxable
yield needed to produce an after-tax equivalent of a tax-free yield, and are
calculated by increasing the yield (as calculated above) by the amount
necessary to reflect the payment of federal and/or state income taxes at a
stated rate. A Fund's "tax-equivalent yield" will always be higher than its
"yield."
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual funds
with similar investment objectives and to bond, stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Total return and yield data as reported in national financial publications such
as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES, as
well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Equity and Fixed Income Funds may also be compared to
data prepared by Lipper Analytical Services, Inc., Mutual Fund Forecaster,
Wiesenberger Investment Companies Services, Morningstar or CDA Investment
Technologies, Inc., and total returns for these Funds may be compared to indices
such as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index,
the Lehman Brothers Bond Indices,
53
<PAGE>
the Merrill Lynch Bond Indices, the Wilshire 5000 Equity Indexes or the Consumer
Price Indices. In addition, the International Equity Fund's performance may be
compared to either the Morgan Stanley Capital International Index or the FT
World Actuaries Index.
The yields of Prime Fund Retail Shares may be compared to the DONOGHUE'S MONEY
FUND AVERAGE which monitors the performance of money market funds, the yields of
Treasury Fund Retail Shares may be compared to the DONOGHUE'S GOVERNMENT MONEY
FUND AVERAGE; and the yields of Tax-Exempt Fund Retail Shares may be compared to
DONOGHUE'S TAX-FREE MONEY FUND AVERAGE. Additionally, the Money Market Funds'
performance may be compared to data prepared by Lipper Analytical Services, Inc.
OTHER PERFORMANCE INFORMATION - EQUITY, SMALL CAPITALIZATION, MANAGED BOND AND
SHORT-TERM FIXED INCOME FUNDS ONLY:
The Equity, Small Capitalization, Managed Bond and Short-Term Fixed Income Funds
commenced their initial investment operations in connection with the transfer of
assets from common trust funds managed by the Adviser for employee benefit plan
accounts. Set forth below is certain performance information relating to those
common trust funds before the Equity, Small Capitalization, Managed Bond and
Short-Term Fixed Income Funds registered as investment companies with the
Securities and Exchange Commission, together with the performance information of
these Funds since their commencement of operations. The common trust funds were
operated using substantially the same investment objectives, policies,
restrictions and metholodogies as in the corresponding Funds. During that time
the common trust funds were not registered under the 1940 Act and therefore were
not subject to certain investment restrictions that are imposed by the Act. If
the common trust funds had been registered under the 1940 Act, the common trust
funds' performance might have been adversely affected. Because the common trust
funds did not charge any expenses, their performance has been adjusted as stated
below to reflect the Funds' estimated expenses at the time of their inception.
The following performance information is not necessarily indicative of the
future performance of the Funds. Because each Fund is actively managed, its
investments vary from time to time and are not identical to the past portfolio
investments of its predecessor common trust fund. Each Fund's performance
fluctuates so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
<TABLE>
<CAPTION>
Average Annual Total Return
For The Periods Ended November 30, 1995
------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity Fund(1)......... 34.82% 9.60% 13.27% 13.09%
Small Capitalization
Fund(2)............... 32.19% 17.12% 25.27% 12.68%*
Managed Bond Fund(3)... 18.47% 8.24% 9.68% 9.09%**
Short-Term Fixed Income
Fund(4)............... 10.25% 5.25% 6.72% 7.19%
--------- ----- ----- -----
</TABLE>
- ------------
(1) The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of
the predecessor common trust fund, assuming reinvestment of all net
investment income and capital gains and taking into account expenses of
0.49% of average daily net assets, which was the expected expense ratio of
shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Equity Fund also
assume reinvestment of all net investment income and realized capital gains
and take into account actual expenses of Retail Shares of the Fund. The
average annual total return of the Fund (Retail Shares) since its inception
to November 30, 1995 is 11.43%. During this period fee waivers and expense
reimbursements were in effect. Without these waivers and reimbursements the
Fund's performance would have been lower.
(2) The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 1.54% of average daily net assets, which was the
expected expense ratio of shares of the Small Capitalization Fund (Retail
Shares) at the time of its inception. The average annual total returns for
the periods subsequent to the inception of the Small Capitalization Fund
also assume reinvestment of all net investment income and realized capital
gains and take into
54
<PAGE>
account actual expenses of Institutional Shares of the Fund for the period
January 4, 1994 to March 1, 1994 and of Retail Shares of the Fund
thereafter. The average annual total return of the Fund (Retail Shares)
since its inception to November 30, 1995 is 11.87%. During this period fee
waivers and expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(3) The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.67% of
average daily net assets, which was the expected expense ratio of Retail
Shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Managed Bond Fund
also assume reinvestment of all net investment income and realized capital
gains and take into account actual expenses of Retail Shares of the Fund.
The average annual total return of the Fund (Retail Shares) since its
inception to November 30, 1995 is 10.64%. During this period fee waivers and
expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(4) The above information for the periods prior to inception of the Short-Term
Fixed Income Fund (4/11/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 0.68% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Short-Term Fixed Income Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Retail Shares of the Fund. The average annual total return of
the Fund (Retail Shares) since its inception to November 30, 1995 is 6.55%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
* Since inception of common trust fund: 12/31/86.
** Since inception of common trust fund: 4/30/87.
SPECIAL INFORMATION FOR INVESTORS IN THE FLORIDA TAX-EXEMPT FUND:
You may find it particularly useful to compare the tax-free yield of the Florida
Tax-Exempt Fund to the equivalent yield from taxable investments. For an
investor in a low tax bracket, it may not be helpful to invest in a tax-exempt
investment if a higher after-tax yield can be achieved from a taxable
instrument.
The following table illustrates the differences between hypothetical tax-free
yields and tax-equivalent yields for different tax brackets. You should be
aware, however, that tax brackets can change over time and that your tax adviser
should be consulted for specific yield calculations. (The federal tax brackets
and rates below are those currently available for 1996.)
<TABLE>
<CAPTION>
Taxable Income
- ------------------------------------ Tax Exempt Yield
Single Joint Federal -----------------------------------------------------------------
Return Return Bracket 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
4.00% Equivalent Taxable Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Not over $24,000 Not over $40,100 15.000% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
24,001 - 58,150 40,101 - 96,900 28.000% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
58,151 - 121,300 96,901 - 147,700 31.000% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
121,301 - 263,750 147,701 - 263,750 36.000% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
Over 263,750 Over 263,750 39.600% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42% 13.25%
</TABLE>
These yields are for illustrative purposes only. The tax brackets do not take
into account the effect of reductions in the deductibility of itemized
deductions for taxpayers with adjusted gross income over $118,000
55
<PAGE>
or the possible effect of the federal alternative minimum tax. Additionally,
effective brackets and equivalent taxable yields could be higher than those
shown. The brackets do not take into consideration the Florida intangibles tax,
and equivalent taxable yields would actually be greater than those shown when
compared to a taxable security which is also subject to the Florida intangibles
tax.
Performance quotations will fluctuate, and you should not consider
quotations to be representative of future performance. You should also
remember that performance is generally a function of the kind and quality of
investments held in a portfolio, portfolio maturity, operating expenses and
market conditions. Fees that Barnett Securities, Inc. or another Service
Organization may charge directly to its customer accounts in connection with
an investment in a Fund will not be included in the Funds' calculations of
total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the address
stated on page 35.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
THE DISTRIBUTOR MAY, FROM TIME TO TIME, PROVIDE PROMOTIONAL INCENTIVES TO
CERTAIN DEALERS WHOSE REPRESENTATIVES HAVE SOLD OR ARE EXPECTED TO SELL
SIGNIFICANT AMOUNTS OF THE FUNDS. THE DISTRIBUTOR MAY ALSO PAY, FROM TIME TO
TIME, BARNETT SECURITIES, INC. AND/OR OTHER DEALERS AN AMOUNT THAT DOES NOT
EXCEED 0.40% OF THE AMOUNT INVESTED. AT VARIOUS TIMES THE DISTRIBUTOR MAY
IMPLEMENT PROGRAMS UNDER WHICH A DEALER'S SALES FORCE MAY BE ELIGIBLE TO WIN
CASH OR MATERIAL AWARDS FOR CERTAIN SALES EFFORTS. THE DISTRIBUTOR MAY PROVIDE
MARKETING SERVICES TO DEALERS, CONSISTING OF WRITTEN INFORMATIONAL MATERIAL
RELATING TO SALES INCENTIVE CAMPAIGNS CONDUCTED BY SUCH DEALERS FOR THEIR
REPRESENTATIVES. TO THE EXTENT PERMITTED BY LAW, THE FUNDS' ADVISER MAY
IMPLEMENT OR PARTICIPATE IN SIMILAR PROGRAMS.
BARNETT MAY, AT ITS OWN EXPENSE, PROVIDE COMPENSATION TO CERTAIN DEALERS WHOSE
CUSTOMERS PURCHASE SIGNIFICANT AMOUNTS OF SHARES OF A FUND. THE AMOUNT OF SUCH
COMPENSATION MAY BE MADE ON A ONE-TIME AND/OR PERIODIC BASIS, AND MAY BE UP TO
100% OF THE ANNUAL FEES THAT ARE EARNED BY BARNETT AS INVESTMENT ADVISER TO SUCH
FUND (AFTER ADJUSTMENTS) AND ARE ATTRIBUTABLE TO SHARES HELD BY SUCH CUSTOMERS.
SUCH COMPENSATION WILL NOT REPRESENT AN ADDITIONAL EXPENSE TO THE FUNDS OR THEIR
SHAREHOLDERS, SINCE IT WILL BE PAID FROM THE ASSETS OF BARNETT OR ITS
AFFILIATES.
56
<PAGE>
[LOGO]
E M E R A L D
F U N D S
EMEBMM495P Previous editions are obsolete. 145068 REV 0495
<PAGE>
EMERALD 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 FUNDS
EMERALD PRIME TRUST FUND
EMERALD TREASURY TRUST FUND
SUPPLEMENT DATED AUGUST __, 1996
TO THE PROSPECTUS DATED APRIL 1, 1996
INVESTMENT ADVISER - ADDITIONAL INFORMATION. Effective June 29, 1996
Barnett Capital Advisors, Inc., a newly-organized, wholly-owned subsidiary of
Barnett Bank, N.A. which, in turn, is a wholly-owned subsidiary of Barnett
Banks, Inc., assumed the investment advisory responsibilities of Barnett Banks
Trust Company, N.A. for each of the Funds on the terms and conditions stated in
the Prospectus. This change did not involve a change in control or management
of the investment adviser or a change in the Funds' portfolio managers. Barnett
Capital Advisors, Inc. maintains offices at 9000 Southside Boulevard, Building
100, Jacksonville, Florida 32256.
<PAGE>
EMERALD MONEY MARKETS FOR INSTITUTIONS
TREASURY TRUST FUND
PRIME TRUST FUND
INVESTMENT PORTFOLIOS OFFERED
BY EMERALD FUNDS
P R O S P E C T U S
APRIL 1, 1996
EMERALD
FUNDS
<PAGE>
EMERALD FUNDS
Prospectus for Treasury Trust and Prime Trust Funds
This Prospectus relates to the Treasury Trust and Prime Trust Funds (the
"Funds"), two separate short-term money market funds that are designed to meet
the cash management needs of investors. The Prime Trust Fund and Treasury Trust
Fund each seek to provide a high level of current income, consistent with
liquidity, the preservation of capital and a stable net asset value.
Shares of the Funds are sold by Emerald Asset Management, Inc. Barnett Banks
Trust Company, N.A., Jacksonville, Florida ("Barnett") and its affiliated banks
acting in a fiduciary capacity on behalf of persons maintaining accounts at the
banks, as well as to certain accounts maintained at other institutions for which
Barnett provides advisory or other fiduciary services. Shares are sold and
redeemed without any purchase or redemption charge imposed by the Funds,
although Barnett, its affiliated and correspondent banks and other institutions
may charge their customer accounts for services provided in connection with the
purchase or redemption of shares.
This Prospectus describes concisely the information about the Funds that you
should consider before investing. Please read and keep it for future reference.
More information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 1-800-637-3759, and is incorporated by reference
into (considered a part of) the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES, AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUPPORTED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. WHILE THE FUNDS WILL ATTEMPT TO MAINTAIN A NET ASSET VALUE
OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO ON A
CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID BY A FUND WILL
GO UP AND DOWN.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS
IN SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
April 1, 1996
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general fund
administration, accounting and other services.
Below is information regarding the Funds' operating expenses for shares of
the Prime Trust and Treasury Trust Funds. Examples based on this information are
also provided.
<TABLE>
<CAPTION>
TREASURY
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS TRUST PRIME TRUST
(as a percentage of average net assets) FUND FUND
------------- -----------
<S> <C> <C>
Advisory Fees............................................ 0.15% 0.15%
12b-1 Fees............................................... 0.00% 0.00%
Shareholder Service Fees................................. 0.00% 0.00%
All Other Expenses....................................... 0.14% 0.14%
------ -----------
Total Fund Operating Expenses............................ 0.29% 0.29%
------ -----------
------ -----------
EXAMPLE: Let's say, hypothetically, that the annual net return on each Fund is 5%,
and that their operating expenses are as described above. For every $1,000 you
invested in a particular Fund after the periods shown below, you would have paid
this much in expenses during such periods:
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
Treasury Trust Fund..................... $ 3 $ 9 $ 16 $ 37
Prime Trust Fund........................ $ 3 $ 9 $ 16 $ 37
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
This expense information is provided to help you understand the expenses you
would bear indirectly as a shareholder of one of the Funds. The operating
expenses for the Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the last
fiscal year.
See "Management of Emerald Funds" in this Prospectus and the financial
statements and related notes in the Statement of Additional Information for a
further description of the Funds' operating expenses. You should note that any
fees that are charged by Barnett, its affiliates or any other institutions
directly to their customer accounts for services related to an investment in the
Funds are in addition to, and not reflected in, the fees and expenses described
above.
2
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
EMERALD FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORT ON THE
FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE
PERIOD ENDED NOVEMBER 30, 1995 IS INCORPORATED BY REFERENCE INTO THE STATEMENT
OF ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THE FUNDS' ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR.
Financial highlights for a Share of the Treasury Trust Fund outstanding
throughout each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $1.0015 $0.9999 $0.9999 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income.................. 0.0551 0.0367 0.0292 0.0367 0.0598 0.0777
Net realized gains (losses) on
securities............................ (0.0006) 0.0016 0.0000 (0.0001) (0.0000) 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations.............................. 0.0545 0.0383 0.0292 0.0366 0.0598 0.0777
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income... (0.0551) (0.0367) (0.0292) (0.0367) (0.0598) (0.0777)
Distributions from net realized gains on
securities.............................. (0.0009) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions........ (0.0560) (0.0367) (0.0292) (0.0367) (0.0598) (0.00)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value............ (0.0015) 0.0016 0.0000 (0.0001) 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........... $1.0000 $1.0015 $0.9999 $0.9999 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................. 5.74% 3.73% 2.96% 3.74% 6.15% 8.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $132,850 $126,771 $166,410 $183,072 $184,420 $215,948
Ratio of expenses to average net
assets................................ 0.40% 0.40% 0.40% 0.40% 0.39% 0.38%
Ratio of net investment income to
average net assets.................... 5.54% 3.61% 2.92% 3.72% 6.00% 7.77%
Ratio of expenses to average net
assets**.............................. 0.45% 0.44% 0.42% (0.00) (0.00) 0.39%
Ratio of net investment income to
average net assets** 5.50% 3.57% 2.90% (0.00) (0.00) 7.76%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $1.0000
------------
Income from investment operations:
Net investment income.................. 0.0849
Net realized gains (losses) on
securities............................ 0.0000
------------
Total income (loss) from investment
operations.............................. 0.0849
------------
Less dividends and distributions:
Dividends from net investment income... (0.0849)
Distributions from net realized gains on
securities.............................. (0.0000)
------------
Total dividends and distributions........ (0.00)
------------
Net change in net asset value............ 0.0000
------------
NET ASSET VALUE, END OF PERIOD........... $1.0000
------------
------------
Total return............................. 8.83%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $236,411
Ratio of expenses to average net
assets................................ 0.39%+
Ratio of net investment income to
average net assets.................... 8.63%+
Ratio of expenses to average net
assets**.............................. (0.00)
Ratio of net investment income to
average net assets** (0.00)
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
*** Net of fee waivers by the sub-adviser and administrator. In addition,
interest expense had the effect of increasing the Fund's expenses as a
percentage of average net assets by 0.03%. If the fee waivers had not been
in place, the annualized ratio of expenses to average net assets would have
been 0.43% for the period ended November 30, 1989.
+ Annualized.
++ Not Annualized.
+++ Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Financial highlights for a Share of Prime Trust Fund outstanding throughout
each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $0.9999 $1.0000 $1.0017 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income.................. 0.0561 0.0377 0.0304 0.0392 0.0637 0.0800
Net realized gains (losses) on
securities............................ 0.0000 (0.0038) 0.0005*** 0.0017 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations.............................. 0.0561 0.0339 0.0309 0.0409 0.0637 0.0800
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income... (0.0561) (0.0377) (0.0304) (0.0392) (0.0637) (0.0800)
Distributions from net realized gains
on securities......................... (0.0000) (0.0000) (0.0022) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions........ (0.0561) (0.0377) (0.0326) (0.0392) (0.0637) (0.0800)
------------ ------------ ------------ ------------ ------------ ------------
Increase due to voluntary capital
contribution from sub-adviser......... 0.0000 0.0037 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value............ 0.0000 (0.0001) (0.0017) 0.0017 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........... $0.9999 $0.9999 $1.0000 $1.0017 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................. 5.76% 3.83% 3.31% 4.00% 6.56% 8.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $131,089 $131,758 $111,769 $ 99,192 $ 89,777 $ 78,363
Ratio of expenses to average net
assets................................ 0.40% 0.40% 0.40% 0.40% 0.40% 0.38%
Ratio of net investment income to
average net assets.................... 5.60% 3.80% 3.03% 3.89% 6.34% 8.00%
Ratio of expenses to average net
assets**.............................. 0.46% 0.44% 0.44% 0.46% 0.46% 0.47%
Ratio of net investment income to
average net assets**.................. 5.54% 3.76% 3.00% 3.83% 6.28% 7.91%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $1.0000
------------
Income from investment operations:
Net investment income.................. 0.0888
Net realized gains (losses) on
securities............................ 0.0000
------------
Total income (loss) from investment
operations.............................. 0.0888
------------
Less dividends and distributions:
Dividends from net investment income... (0.0888)
Distributions from net realized gains
on securities......................... (0.0000)
------------
Total dividends and distributions........ (0.0888)
------------
Increase due to voluntary capital
contribution from sub-adviser......... 0.0000
------------
Net change in net asset value............ 0.0000
------------
NET ASSET VALUE, END OF PERIOD........... $1.0000
------------
------------
Total return............................. 9.25%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $ 70,298
Ratio of expenses to average net
assets................................ 0.36%+
Ratio of net investment income to
average net assets.................... 8.99%+
Ratio of expenses to average net
assets**.............................. 0.54%+
Ratio of net investment income to
average net assets**.................. 8.81%
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
*** Net realized gain per share is the direct result of a decrease in
outstanding shares between 11/30/92 and the date of the gain distribution.
+ Annualized.
++ Not Annualized.
+++ Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
4
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser and Sub-Adviser use a range of different investments and
investment techniques in seeking to achieve a Fund's investment objective. Each
of the Funds does not use all of the investments and investment techniques
described below, which involve various risks, and which are described in the
following sections. The Funds' Adviser and Sub-Adviser will use their best
efforts to achieve a Fund's investment objective, although its achievement
cannot be assured.
Each Fund invests only in U.S. dollar-denominated securities that mature in
thirteen months or less (with certain exceptions). The dollar-weighted average
portfolio maturity of each Fund may not exceed ninety days.
Instruments acquired by the Funds will be U.S. Government securities or
other "First Tier Securities" as described below. The term "First Tier
Securities" has a technical definition given by the Securities and Exchange
Commission, but such term generally refers to securities that the Sub-Adviser
has determined, under guidelines established by the Board of Trustees and the
Adviser, present minimal credit risks, and have the highest short-term debt
ratings at the time of purchase by one (if rated by only one) or more Nationally
Recognized Statistical Rating Organizations ("NRSROs"). A description of
applicable ratings is attached to the Statement of Additional Information as
Appendix A. Unrated instruments (including instruments with long-term but no
short-term ratings) will be of comparable quality as determined by the
Sub-Adviser under guidelines approved by the Board of Trustees and the Adviser.
PRIME TRUST AND TREASURY TRUST FUNDS
The investment objective of both the Prime Trust and the Treasury Trust
Funds is to seek to provide a high level of current income consistent with
liquidity, the preservation of capital and a stable net asset value. The Prime
Trust Fund pursues its objective by investing in a broad range of short-term
government, bank and corporate obligations. The Treasury Trust Fund seeks to
achieve its objective by investing in obligations that the U.S. Treasury has
issued or to which the U.S. Government has pledged its full faith and credit to
guarantee the payment of principal and interest. You should note, however, that
shares of the Treasury Trust Fund are not themselves issued or guaranteed by the
U.S. Treasury or any of its agencies. U.S. Treasury obligations include Treasury
bills, certain Treasury strips, certificates of indebtedness, notes and bonds,
and obligations of those agencies and instrumentalities that are backed by the
full faith and credit of the U.S. Treasury. It is the Treasury Trust Fund's
policy that under normal conditions it will invest 65% or more of its total
assets in U.S Treasury obligations and repurchase agreements for which such
obligations serve as collateral.
In accordance with the current rules of the Securities and Exchange
Commission, the Prime Trust Fund intends to limit its purchases in the
securities of any one issuer (other than securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) to no more than 5% of its
total assets at the time of purchase, with the exception that up to 25% of its
total assets may be invested in the securities of any single issuer for up to
three business days.
5
<PAGE>
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY
TRUST FUND may invest in U.S. Treasury obligations as described above. The PRIME
TRUST FUND may invest in securities issued or guaranteed by the U.S. Government,
as well as in obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The PRIME TRUST FUND may invest in asset-backed
securities (I.E., securities backed by mortgages, installment sale contracts,
credit card receivables or other assets). The average life of an asset-backed
instrument varies with the maturities of the underlying instruments, and is
likely to be substantially less than the original maturity of the asset pools
underlying the security as the result of scheduled principal payments and
prepayments. This may be particularly true for mortgage-backed securities. The
rate of such prepayments, and hence the life of the security, will be primarily
a function of current market rates and current conditions in the relevant
market. The relationship between prepayments and interest rates may give some
high-yielding asset-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
failing interest rates, the rate of prepayment tends to increase. During such
periods, the reinvestment of prepayment proceeds by the Fund will generally be
at lower rates than the rates that were carried by the obligations that have
been prepaid. Because of these and other reasons, an asset-backed security's
total return may be difficult to predict precisely. To the extent the Fund
purchases asset-backed securities at a premium, prepayments (which often may be
made at any time without penalty) may result in some loss of the Fund's
principal investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
the Fund to more volatility and interest rate risk than other types of
asset-backed obligations.
6
<PAGE>
MUNICIPAL OBLIGATIONS. The PRIME TRUST FUND may also invest in municipal
obligations. These securities may be advantageous for the Fund when, as a result
of prevailing economic, regulatory or other circumstances, the yield of such
securities on a pre-tax basis is comparable to that of other securities the
particular Fund can purchase. Dividends paid by the Fund that come from interest
on municipal obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Sub-Adviser, under the supervision of the Board of Trustees and the Adviser,
will determine the credit quality of any unrated municipal leases on an on-going
basis, including an assessment of the likelihood that the lease will not be
cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds, the Adviser and the Sub-Adviser
rely on these opinions and do not intend to review the basis for them.
Municipal obligations purchased by the PRIME TRUST FUND may be backed by
letters of credit or guarantees issued by domestic or foreign banks and other
financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantees with
respect to a municipal obligation held by the Fund could have an adverse effect
on the Fund's portfolio and the value of its shares. As described below under
"Foreign Securities," foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The PRIME TRUST FUND may purchase corporate bonds
and cash equivalents that meet the Fund's quality and maturity limitations.
These investments may include obligations issued by Canadian corporations and
Canadian counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust receipts.
Cash equivalents, such as commercial paper and other similar obligations
purchased by the Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of
7
<PAGE>
purchase in the top category of one or more NRSROs or be issued by issuers with
such ratings. Unrated instruments of these types purchased by the Fund will be
determined to be of comparable quality.
BANK OBLIGATIONS. The PRIME TRUST FUND may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. The Fund may also invest in CDs and time deposits of domestic
branches of U.S. banks that have total assets of less than $1 billion if the CDs
and time deposits are insured by the FDIC. Investments in foreign banks and
foreign branches of U.S. banks will not make up more than 25% of the Fund's
total assets when the investment is made. (To the extent permitted by the SEC,
bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. domestic banks for purposes of this calculation.) The Fund
may also make interest-bearing savings deposits in amounts not exceeding 5% of
its total assets.
REPURCHASE AGREEMENTS. EACH FUND may buy portfolio securities subject to
the seller's agreement to repurchase them at an agreed upon time and price.
These transactions are known as repurchase agreements. A Fund will enter into
repurchase agreements only with financial institutions deemed to be creditworthy
by the Adviser or the Sub-Adviser, pursuant to guidelines established by the
Board of Trustees and the Adviser. During the term of any repurchase agreement,
the Adviser or the Sub-Adviser will monitor the creditworthiness of the seller,
and the seller must maintain the value of the securities subject to the
agreement in an amount that is greater than the repurchase price. Default or
bankruptcy of the seller would, however, expose a Fund to possible loss because
of adverse market action or delays connected with the disposition of the
underlying obligations. Because of the seller's repurchase obligations, the
securities subject to repurchase agreements do not have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of the Treasury Trust Fund these
instruments must be issued or fully guaranteed by the U.S. Treasury but for the
Prime Trust Fund investments may include variable amount master demand notes
issued by private issuers, which are instruments under which the indebtedness,
as well as the interest rate, varies. If rated, variable and floating rate
instruments must be rated in the highest short-term rating category by an NRSRO.
If unrated, such instruments will need to be determined to be of comparable
quality. Unless guaranteed by the U.S. Government or one of its agencies or
instrumentalities, variable or floating rate instruments purchased by the Prime
Trust Fund must permit the Fund to demand payment of the instrument's principal
at least once every thirteen months. Because of the absence of a market in which
to resell a variable or floating rate instrument, the Fund might have trouble
selling an instrument should the issuer default or during periods when the Fund
is not permitted by agreement to demand payment of the instrument, and for this
or other reasons a loss could occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. The Treasury Trust Fund's investments in
these instruments will be limited to "interest only" stripped securities that
have been issued by a federal instrumentality known as the Resolution
8
<PAGE>
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Treasury, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities Program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently. The Prime Trust Fund may also invest in
instruments that have been stripped by their holder, typically a custodian bank
or investment brokerage firm, and then resold in a custodian receipt program
under names you may be familiar with such as Treasury Investors Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
In addition, the Prime Trust Fund may purchase stripped mortgage-backed
securities ("SMBS") issued by the U.S. Government (or a U.S. Government agency
or instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. If the underlying obligations experience greater than
anticipated prepayments, the Fund may fail to fully recoup its initial
investment. The market value of the class consisting entirely of principal
payments can be extremely volatile in response to changes in interest rates. The
yields on a class of SMBS that receives all or most of the interest are
generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of the Fund's per share net
asset value.
Although stripped securities may pay interest to their holders before they
mature, federal income tax rules require a Fund each year to recognize a part of
the discount attributable to a security as interest income. This income must be
distributed along with the other income a Fund earns. To the extent shareholders
request that they receive their dividends in cash rather than reinvesting them,
the money necessary to pay those dividends must come from the assets of a Fund
or from other sources such as proceeds from sales of Fund shares and/or sales of
portfolio securities. The cash so used would not be available to purchase
additional income-producing securities, and a Fund's current income could
ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The PRIME
TRUST FUND may invest in bank investment contracts ("BICs") issued by banks that
meet the asset size requirements described above under "Bank Obligations" and in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser or the Sub-Adviser pursuant to guidelines
approved by the Board of Trustees and the Adviser. Pursuant to a BIC or GIC, the
Fund would make cash contributions to a deposit account at a bank or insurance
company. These contracts are general obligations of the issuing bank or
insurance company and are paid from the general assets of the issuing entity. In
return for its cash contribution, the Fund would receive interest from the
issuing entity at either a negotiated fixed or floating rate. Because BICs and
GICs are generally not assignable or transferable without the permission of the
bank or insurance company involved, and an active
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secondary market does not currently exist for these instruments, they are
considered illiquid securities and are subject to the Fund's limitation on such
investments as described below under "Managing Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The PRIME TRUST FUND may purchase from
domestic financial institutions and trusts created by such institutions
participation interests and trust receipts in high quality debt securities. A
participation interest or receipt gives the Fund an undivided interest in the
security in the proportion that the Fund's participation interest or receipt
bears to the total principal amount of the security. The Fund intends only to
purchase participations and trust receipts from an entity or syndicate, and does
not intend to serve as a co-lender in any such activity. As to certain
instruments for which the Fund will be able to demand payment, the Fund intends
to exercise its right to do so only upon a default under the terms of the
security, as needed to provide liquidity, or to maintain or improve the quality
of its investment portfolio. It is possible that a participation interest or
trust receipt may be deemed to be an extension of credit by the Fund to the
issuing financial institution rather than to the obligor of the underlying
security and may not be directly entitled to the protection of any collateral
security provided by the obligor. In such event, the ability of the Fund to
obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered for speculative purposes but only in
furtherance of a Fund's investment objective.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the
sub-advisory and other expenses of that fund as a shareholder of that fund.
These expenses are in addition to the sub-advisory and other expenses a Fund
pays in connection with its own operations.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of their value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of their value of its total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
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BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When the Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either liquid
assets or high grade debt securities that have a value equal to or more than the
price the Fund must pay when it buys back the securities, and the account will
be continuously monitored to make sure the appropriate value is maintained.
Reverse repurchase agreements may be used to meet redemption requests without
selling portfolio securities. Reverse repurchase agreements involve the possible
risk that the value of portfolio securities the Fund relinquishes may decline
below the price a Fund must pay when the transaction closes. Interest paid by
the Fund in a reverse repurchase or other borrowing transaction will reduce the
Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, securities
loans will be made only to parties the Adviser or the Sub-Adviser deems to be of
good standing, and will only be made if the Adviser or the Sub-Adviser thinks
the possible rewards from such loans justify the possible risks. A loan will not
be made if, as a result, the total amount of a Fund's outstanding loans exceeds
30% of its total assets. Securities loans will be fully collateralized.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICs, BICs, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper, variable
amount master demand notes with maturities of nine months or less and securities
for which the Sub-Adviser has determined pursuant to guidelines adopted by the
Board of Trustees and the Adviser that a liquid trading market exists (including
certain securities that may be purchased by institutional investors under SEC
Rule 144A), are not subject to this limitation. This investment practice could
have the effect of increasing the level of illiquidity in a Fund during any
period that qualified institutional buyers were no longer interested in
purchasing these restricted securities.
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with less complete financial information about the issuer, less
market liquidity and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or the adoption of other governmental
restrictions might adversely affect the payment of principal and
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interest on foreign obligations. Additionally, foreign banks and foreign
branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates, the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Funds may
purchase zero-coupon bonds (I.E., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also affect the value of these investments.
In addition, the PRIME TRUST FUND may purchase custodial receipts, tender
option bonds and certificates of participation in trusts that hold municipals or
other types of obligations. A certificate of participation gives a Fund an
individual, proportionate interest in the obligation, and may have a variable or
fixed rate. Because certificates of participation are interests in obligations
that may be funded through government appropriations, they are subject to the
risk that sufficient appropriations as to the timely payment of principal and
interest on the obligations may not be made. The NRSRO quality rating of an
issue of certificates of participation is normally based upon the rating of the
obligations held by the trust and the credit rating of the issuer of any letter
of credit and of any other guarantor providing credit support to the issue.
Payment on municipal obligations held by the Prime Trust Fund relating to
certain projects may be secured by mortgages or deeds of trust. In the event of
a default, enforcement of a mortgage or deed of trust will be subject to
statutory enforcement procedures and limitations on obtaining deficiency
judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure
may be delayed and the amount of the proceeds received may not be enough to pay
the principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that
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cannot be changed for a Fund without the approval of a majority of that Fund's
outstanding shares. Some of these fundamental limitations are summarized below,
and all of the Funds' fundamental limitations are set out in full in the
Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares in some states, Emerald Funds
may agree to certain restrictions that may be stricter than the investment
policies and limitations discussed above. If Emerald Funds decides that any of
these restrictions is no longer in a Fund's best interest, it may revoke its
agreement to abide by such restriction by no longer selling shares in the state
involved.
-------------------
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER AND RODNEY SQUARE MANAGEMENT CORPORATION
(REFERRED TO AS THE "SUB-ADVISER"), A WHOLLY-OWNED SUBSIDIARY OF WILMINGTON
TRUST COMPANY, SERVES AS SUB-ADVISER TO EACH FUND.
PURCHASE OF SHARES
Shares of the Funds are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Shares of each Fund are sold only to Barnett and its affiliated banks (the
"Institutions") acting in a fiduciary capacity on behalf of their customers who
maintain qualified trust, agency or custodial accounts ("Customers"), as well as
to certain accounts maintained at other institutions for which Barnett provides
advisory or other fiduciary services. Fund shares will normally be held of
record by the Institutions or in the name of a nominee of the Institutions.
Beneficial ownership of Fund shares will be recorded by the Institutions and
reflected in the account statements provided to their Customers.
Shares may be purchased through procedures established by the Institutions
in connection with the requirements of their Customer accounts. In many
instances these procedures will include instructions under which a Customer's
account is "swept" automatically on a daily basis, and amounts (federal funds)
in excess of a minimum balance agreed to by an Institution and the customer are
invested in a particular Fund. The Funds expect that the Institutions will
transmit orders on behalf of their Customers for the purchase of Fund shares
arising from automatic investment programs within one business day of the time
the "excess" balances are swept. The procedures applicable to particular
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Customer accounts at particular Institutions regarding the purchase of shares
will vary, however, and Customers are asked to consult their account managers in
this regard. This Prospectus should be read in conjunction with any materials
provided by the Institutions regarding such procedures.
Shares are sold at the net asset value per share next determined after
receipt of a purchase order from the Institution by the Funds' transfer agent.
The minimum initial investment in the Funds for an investor is $5,000 and the
minimum subsequent investment is $100. Institutions may establish different
minimum investment requirements for their Customers. For example, there is no
minimum initial investment for transfers of assets from other banks or financial
institutions. Barnett and other Institutions may also charge their Customers
certain account fees for automatic investment and other cash management services
provided by them. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any changes should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
Purchases for shares of the Funds will be effected only on days on which
both the New York Stock Exchange (the "Exchange") and the Funds' Custodian are
open for business a ("Business Day") and only when federal funds or other funds
are immediately available to the Funds' transfer agent to make the purchase on
the day it receives the purchase order. Additionally, on days when the Exchange
and/ or the Funds' Custodian close early due to a partial holiday or otherwise,
the Funds reserve the right to advance the times at which purchase and
redemption orders must be received in order to be processed that Business Day.
Institutions may transmit purchase orders for either Fund by telephoning the
transfer agent c/o the Distributor at 1-800-367-5905 not later than 12:00 noon
(Eastern time) on any Business Day. If federal funds are not available with
respect to any such order by the close of business on the day the order is
received by the transfer agent, the order will be cancelled. In addition, any
purchase order received by the transfer agent after 12:00 noon (Eastern time)
will not be accepted, and notice thereof will be given to the Institution
placing the order. Any funds received in connection with late orders will be
returned promptly. Institutions are responsible for transmitting purchase orders
promptly to the Funds in accordance with their agreements with their Customers.
Each Fund observes the following holidays: New Year's Day (observed), Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day, Veterans Day (observed), Thanksgiving
Day and Christmas Day (observed).
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. Payment for
shares of a Fund may, at the discretion of the Adviser, be made in the form of
securities that are permissible investments for that Fund. For further
information see "In-Kind Purchases" in the Statement of Additional Information.
The issuance of shares is recorded in the shareholder records of the Funds, and
share certificates are not issued unless expressly requested in writing.
Certificates are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting
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to confirm that telephone instructions are genuine, Emerald Funds will use
procedures considered reasonable. To the extent Emerald Funds does not use
reasonable procedures to form its belief, it and/ or its service contractors may
be responsible for instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by Emerald Funds' transfer agent. A
Customer may redeem all or part of his shares in accordance with instructions
and limitations pertaining to his account at an Institution. These procedures
will vary according to the type of account and the Institution involved, and
Institution Customers should consult their account managers in this regard. It
is the responsibility of the Institutions to transmit redemption orders to the
Funds' transfer agent and credit their Customers' accounts with the redemption
proceeds on a timely basis.
Institutions may transmit redemption orders by telephoning the transfer
agent c/o the Distributor at 1-800-367-5905. Payment for redemption orders for
either Fund which are received by the transfer agent on a Business Day before
12:00 noon (Eastern Time) will normally be wired in federal funds the same day
to the Customer's account at an Institution. Payment for redemption orders which
are received between 12:00 noon (Eastern Time) and the close of business or on a
non-Business Day will normally be wired in federal funds on the next Business
Day. Emerald Funds reserves the right, however, to delay the wiring of
redemption proceeds for up to seven days after receipt of a redemption order if,
in the judgment of the Sub-Adviser, an earlier payment could adversely affect
either Fund. No charge for wiring redemption payments is imposed by the Funds,
although Institutions may charge Customer accounts for redemption services.
Information relating to such redemption services and charges, if any, is
available from the Institutions. If all of the shareholder's shares in a
particular Fund are redeemed, any declared and unpaid dividends on the redeemed
shares will be paid within five days of redemption. See "Dividends and
Distributions."
A shareholder of record may be required to redeem shares in a Fund if the
balance in such shareholder's account in that Fund drops below $4,000 due to
share redemptions and not market fluctuations and the shareholder does not
increase its balance to at least $4,000 upon 60 days' written notice. If a
Customer has agreed with an Institution to maintain a minimum balance in his
account with the Institution, and the balance in the account falls below that
minimum, the Customer may be obligated to redeem all or part of his shares in
the Funds to the extent necessary to maintain the minimum balance required.
Each Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as are permitted under the Investment Company Act
of 1940. Each Fund may also redeem shares involuntarily or make payment for
redemption in securities or other property if it appears appropriate to do so in
light of the Fund's responsibilities under the Investment Company Act of 1940.
See the Statement of Additional Information ("Additional Purchase and Redemption
Information") for examples of when such redemptions might be appropriate.
It is the responsibility of the Institutions to provide their Customers with
statements of account with respect to share transactions made for their accounts
at the Institutions.
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DIVIDENDS AND DISTRIBUTIONS
Each Fund's shareholders of record are entitled to dividends and net capital
gains distributions arising from net investment income and net realized gains,
if any, earned only on the investments held by the particular Fund. Each Fund's
net investment income is declared daily as a dividend to the persons who are the
record holders of each Fund's shares at the close of business on the day of
declaration. As a result, shares begin earning dividends on the day a purchase
order is executed and continue to earn dividends through and including the day
before shares are redeemed. Dividends and distributions will be paid to the
Funds' shareholders of record in cash. (Normally, the Funds' record shareholders
will be Institutions.) Accrued dividends are paid monthly by wire transfer
within five Business Days after the end of each month or within five Business
Days after the redemption of all of a shareholder's shares of a particular Fund.
Any net short-term or long-term capital gains realized by the Funds will be
distributed to shareholders at least annually, after reduction for capital loss
carryforwards, if any.
EXPLANATION OF SALES PRICE
Net asset value per share is determined on each Business Day (as defined
above) at 12:00 noon (Eastern Time) by adding the value of a Fund's investments,
cash and other assets, subtracting the Fund's liabilities, and then dividing the
result by the number of shares in a Fund that are outstanding. All securities of
each Fund are valued at amortized cost. More information about valuation can be
found in the Funds' Statement of Additional Information, which you may request
by calling 800/637-3759.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to some of the services these companies provide, as well as more information
regarding investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
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TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc., a wholly-owned subsidiary of The BISYS Group,
Inc., is the transfer agent for shares of the Funds. This means that its job is
to maintain the account records of all shareholders of record in the Funds, as
well as to administer the distribution of any dividends or distributions
declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized as a Massachusetts business trust on March 15,
1988 and is registered with the Securities and Exchange Commission as an
open-end management investment company. The Agreement and Declaration of Trust
authorizes the Board of Trustees to classify and reclassify any unissued shares
into one or more classes of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of an unlimited number of shares
representing interests in the respective Funds, which are classified as
diversified companies under the Investment Company Act of 1940. The Board of
Trustees has also authorized the issuance of additional classes of shares
representing interests in other investment portfolios of Emerald Funds.
Information regarding these other portfolios offered by Emerald Funds, may be
obtained by contacting the Distributor at the address listed on page 13.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by portfolio, except where otherwise
required by law or permitted by the Board of Trustees. All shareholders of a
particular Fund will vote separately on matters pertaining to the investment
advisory and sub-advisory agreements applicable to that Fund and on any change
in its fundamental investment limitations. Shares of the Emerald Funds have
noncumulative voting rights and, accordingly, the holders of more than 50% of
Emerald Funds' outstanding shares (irrespective of class) may elect all of the
Trustees. Shares have no preemptive rights and only such conversion and exchange
rights as the Board may grant in its discretion. When issued for payment as
described in this Prospectus, shares will be fully paid and nonassessable by
Emerald Funds.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. If such should occur,
the Trustees then in office will call a shareholders meeting for the election of
Trustees. Except as set forth above, the Trustees shall continue to hold office
and may appoint successor Trustees. The Agreement and Declaration of Trust
provides that meetings of the shareholders of Emerald Funds shall be called by
the Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote. As of December 31, 1995, the Adviser and
its affiliates possessed on behalf of their underlying customer accounts, voting
or investment power with respect to a majority of the outstanding shares of
Emerald Funds. More information about shareholder voting rights can be found in
the Statement of Additional Information under "Description of Shares."
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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 and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. Barnett Banks
Trust Company, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. Rodney
Square Management Corporation, a wholly-owned subsidiary of Wilmington Trust
Company, serves as the sub-adviser and has its principal offices at Rodney
Square North, Wilmington, Delaware 19890. BISYS Fund Services Limited
Partnership, a wholly-owned subsidiary of The BISYS Group, Inc., located at 3435
Stelzer Road, Columbus, Ohio 43219-3035, serves as the Funds' administrator.
Emerald Asset Management, Inc., also a wholly-owned subsidiary of the BISYS
Group, Inc. located at the same address, is the registered broker-dealer that
sells the Funds' shares. The Funds also have a custodian, The Bank of New York,
located at 90 Washington Street, New York, New York 10286 and a transfer and
dividend paying agent, BISYS Fund Services, Inc., located at 100 First Avenue,
Suite 300, Pittsburgh, PA 15222.
ADVISER AND SUB-ADVISER. As of December 31, 1995, Barnett had approximately
$9.8 billion under active management, with $3.2 billion in equity securities,
$713 million in taxable fixed income securities, $1.4 billion in treasury and
government securities, $1.5 billion in municipals and $2.8 billion in money
market instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered
bank holding company that has offered general banking services since 1877.
Wilmington Trust Company, the Sub-Adviser's parent organization and a Delaware
banking corporation, is in turn a wholly-owned subsidiary of Wilmington Trust
Corporation, a registered bank holding company. The Sub-Adviser provides
management services to a number of mutual funds with total assets on December
31, 1995 of $1.5 billion. The Adviser first began providing advisory services to
mutual funds in 1988; the Sub-Adviser has provided mutual fund advisory services
since 1985.
Subject to the overall authority of the Board of Trustees, the Adviser
oversees and assists in the management of each Fund. These supervisory
responsibilities include, among other things, establishing and monitoring
general investment criteria and policies for the Funds' portfolios, recommending
to the Board of Trustees a sub-adviser to manage the Funds' portfolios and, upon
proper authorization, entering into appropriate contractual arrangements
regarding the provision of sub-advisory
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services to the Funds. As sub-adviser to the Funds, the Sub-Adviser makes
decisions with respect to and places orders for all purchases and sales of the
Funds' portfolio securities subject to the Adviser's investment criteria and
policies, and maintains records relating to such purchases and sales.
Because of state and federal requirements applicable to the fiduciary
accounts whose assets are invested in the Funds, the Funds' Advisory Agreement
provides that the Adviser is not entitled to any compensation from the Funds for
its advisory services. For the services provided and expenses assumed pursuant
to its Sub-Advisory Agreement, the Sub-Adviser is entitled to receive a fee from
the Funds, calculated daily and payable monthly, at the annual rate of .15% of
each Fund's average daily net assets. As stated below under "Fee Waivers and
Expenses," the Sub-Adviser has agreed voluntarily to waive all or a portion of
its sub-advisory fee from the Funds under certain circumstances. For the fiscal
year ended November 30, 1995 the Sub-Adviser received fees, after waivers, at
the effective annual rates of .13% and .13% of the average daily net assets of
the Prime Trust and Treasury Trust Funds, respectively.
Although expected to be infrequent, the Sub-Adviser may consider the amount
of Fund shares sold by broker-dealers and others (including those who may be
connected with Barnett or the Sub-Adviser) in allocating orders for purchases
and sales of portfolio securities. This allocation may involve the payment of
brokerage commissions or dealer concessions. The Sub-Adviser will not engage in
this practice unless the execution capability of and the amount received by such
broker-dealer or other company is believed to be comparable to what another
qualified firm could offer.
ADMINISTRATIVE SERVICES. BISYS Fund Services Limited Partnership (the
"Administrator"), located at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Funds' administrator. The Administrator is an Ohio limited
partnership and is a wholly-owned subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
FEE WAIVERS AND EXPENSES
Expenses can be reduced by voluntary fee waivers and expense reimbursements
by Barnett and the Funds' other service providers, as well as by certain
mandatory expense limits imposed by some state securities regulators. The amount
of the waivers may be changed at any time at the sole discretion of the
Sub-Adviser, with respect to sub-advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursmenets
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
19
<PAGE>
For the fiscal year ended November 30, 1995, sub-advisory and administrative
fees for the Treasury Trust and Prime Trust Funds were reduced by a total of
.05% and .06%, respectively, of each Fund's average daily net assets pursuant to
these or similar undertakings.
For the same fiscal year, the ratio of ordinary operating expenses to
average net assets for the Treasury Trust Fund and Prime Trust Fund were .40%
and .40%, respectively. Such ratios would have been .45% and .46%, respectively,
without such fee waivers.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund will be taxable to you.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares.
Any dividends declared by a Fund in December of a particular year and
payable to shareholder of record on a date during that month will be deemed to
have been paid by the Fund and received by shareholders on December 31 of that
year, so long as the dividends are actually paid in January of the following
year.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, dividends paid by the Treasury
Trust Fund may be taxable under state or local laws as dividend income, even
though all or part of those dividends come from interest on obligations that
would be free of such taxes if held by you directly.
Except as stated below, shares of the Funds are not expected to qualify for
total exemption from the Florida intangibles tax. Shares of the Treasury Trust
Fund may or may not qualify in any calendar year for exemption from the Florida
intangibles tax. In order to qualify for this exemption, the Treasury Trust Fund
may sell non-exempt assets held in its portfolio (such as repurchase agreements)
20
<PAGE>
during the year and reinvest the proceeds in exempt assets, or hold cash, prior
to December 31. Transaction costs involved in restructuring the portfolio in
this fashion, would likely reduce the Fund's investment return and might exceed
any increased investment return the Fund achieved by investing in non-exempt
assets during the year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and monitoring
your investments. Each Fund may quote its performance in advertisements or
shareholder communications.
UNDERSTANDING PERFORMANCE MEASURES:
- - The yields for the Funds are the income generated over a 7-day period (which
period will be identified in the quotation) and then assumed to be generated
over a 52-week period and shown as a percentage of the investment. In
addition, the Funds may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than net
income used for accounting purposes.
PERFORMANCE COMPARISONS:
The Funds may compare their yields to those of mutual funds with similar
investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
Total return and yield as reported in national financial publications such
as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES, as
well as in publications of a local or regional nature, may be used for
comparison.
The yield of the Prime Trust Fund may be compared to the Donoghue's Money
Fund Average, which monitors the performance of money market funds. The yield of
the Treasury Trust Fund may be compared to the Donoghue's Government Money Fund
average. Additionally, each Fund's performance may be compared to data prepared
by Lipper Analytical Service, Inc.
Performance quotations will fluctuate, and you should not consider
quotations to be representative of future performance. You should also remember
that performance is generally a function of the kind and quality of investments
held in a portfolio, portfolio maturity, operating expenses and market
conditions. Fees that Barnett and other Institutions may charge directly to
their Customers in connection with an investment in the Funds will not be
included in the Funds' yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 13.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
21
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION...................... 2
Expenses......................................................... 2
Financial Highlights............................................. 3
INVESTMENT PRINCIPLES AND POLICIES................................. 5
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................. 6
INVESTING IN EMERALD FUNDS......................................... 13
Your Money Manager............................................... 13
Purchase of Shares............................................... 13
Redemption of Shares............................................. 15
Dividends and Distributions...................................... 16
Explanation of Sales Price....................................... 16
Other Service Providers.......................................... 16
THE EMERALD FAMILY OF FUNDS........................................ 17
THE BUSINESS OF THE FUNDS.......................................... 18
Fund Management.................................................. 18
Fee Waivers and Expenses......................................... 19
Tax Implications................................................. 20
Measuring Performance............................................ 21
</TABLE>
EMPTTR96P
<PAGE>
EMERALD FUNDS
(Treasury Fund -- Institutional/Service)
(Prime Fund -- Institutional/Service)
(Tax-Exempt Fund -- Institutional/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 FUNDS
EMERALD PRIME FUND
EMERALD TREASURY FUND
EMERALD TAX-EXEMPT FUND
INSTITUTIONAL SHARES/SERVICE SHARES
SUPPLEMENT DATED AUGUST __, 1996
TO THE PROSPECTUS DATED APRIL 1, 1996
INVESTMENT ADVISER - ADDITIONAL INFORMATION. Effective June 29, 1996
Barnett Capital Advisors, Inc., a newly-organized, wholly-owned subsidiary of
Barnett Bank, N.A. which, in turn, is a wholly-owned subsidiary of Barnett
Banks, Inc., assumed the investment advisory responsibilities of Barnett Banks
Trust Company, N.A. for each of the Funds on the terms and conditions stated in
the Prospectus. This change did not involve a change in control or management
of the investment adviser or a change in the Funds' portfolio managers. Barnett
Capital Advisors, Inc. maintains offices at 9000 Southside Boulevard, Building
100, Jacksonville, Florida 32256.
<PAGE>
EMERALD FUNDS FOR INSTITUTIONS
PRIME FUND
TREASURY FUND
TAX-EXEMPT FUND
INSTITUTIONAL SHARES/SERVICE SHARES
AN INVESTMENT PORTFOLIO OFFERED
BY EMERALD FUNDS
P R O S P E C T U S
APRIL 1, 1996
EMERALD
FUNDS
<PAGE>
EMERALD FUNDS
This Prospectus relates to the Institutional Shares and Service Shares of
the Prime Fund, Treasury Fund and Tax-Exempt Fund (the "Funds"). The Prime and
Treasury Funds each seek to provide a high level of current income, consistent
with liquidity, the preservation of capital and a stable net asset value. The
Tax-Exempt Fund seeks to provide a high level of current income exempt from
Federal income taxes, consistent with liquidity, the preservation of capital and
a stable net asset value.
Institutional Shares and Service Shares are sold by Emerald Asset
Management, Inc. and selected broker-dealers to Barnett Banks Trust Company,
N.A., Jacksonville, Florida ("Barnett"), its affiliated and correspondent banks
and other institutions acting on behalf of themselves and persons maintaining
qualified accounts at such banks and institutions. Shares are sold and redeemed
without any purchase or redemption charge imposed by the Funds, although
Barnett, its affiliated and correspondent banks and other institutions may
charge their customer accounts for services provided in connection with the
purchase or redemption of shares.
This Prospectus describes concisely the information about the Funds that you
should consider before investing. Please read and keep it for future reference.
More information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 1-800-637-3759, and is incorporated by reference
into (considered part of) the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES, AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. WHILE THE FUNDS WILL ATTEMPT TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT THEY WILL BE ABLE
TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID
BY A FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST COMPANY, N.A. SERVES AS
INVESTMENT ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH EMERALD ASSET MANAGEMENT, INC., THE FUNDS' DISTRIBUTOR.
MISSOURI INVESTOR NOTICE: EACH FUND MAY RETAIN SECURITIES THAT HAVE BEEN
DOWNGRADED TO BELOW INVESTMENT GRADE AFTER PURCHASE AND EACH FUND MAY ALSO SELL
PORTFOLIO SECURITIES SHORTLY AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN
HIGHER TRANSACTION COSTS AND TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
April 1, 1996
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services.
Below is information regarding the Funds' operating expenses for
Institutional Shares and Service Shares of the Prime, Treasury and Tax-Exempt
Funds. Examples based on this information are also provided.
<TABLE>
<CAPTION>
TAX- TAX-
PRIME PRIME TREASURY TREASURY EXEMPT EXEMPT
FUND FUND FUND FUND FUND FUND
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
SHARES SHARES SHARES SHARES SHARES SHARES
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
AFTER FEE WAIVERS
(as a percent of average net assets)
Advisory Fees (After Fee Waivers).................... 0.23% 0.23% 0.24% 0.24% 0.15% 0.15%
All Other Expenses................................... 0.14% 0.49% 0.14% 0.49% 0.14% 0.49%
--------- --------- --------- --------- --------- ---------
Total Fund Operating Expenses (After Fee Waivers).... 0.37% 0.72% 0.38% 0.73% 0.29% 0.64%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
EXAMPLE:
Let's say, hypothetically, that the annual return of the Institutional Shares of
each Fund is 5%, and that its operating expenses are as described above. For
every $1,000 you invested in the Fund, after the periods shown below, you would
have paid this much in expenses during such periods:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
Prime Fund Institutional Shares.............. $ 4 $ 12 $ 21 $ 47
Prime Fund Service Shares.................... $ 7 $ 23 $ 40 $ 89
Treasury Fund Institutional Shares........... $ 4 $ 12 $ 21 $ 48
Treasury Fund Service Shares................. $ 7 $ 23 $ 41 $ 91
Tax-Exempt Fund Institutional Shares......... $ 3 $ 9 $ 16 $ 37
Tax-Exempt Fund Service Shares............... $ 7 $ 20 $ 36 $ 80
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
This expense information is provided to help you understand the expenses you
would bear indirectly as a shareholder of one of the Funds. The operating
expenses for the Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the last
fiscal year.
2
<PAGE>
Without fee waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.25% for each Fund. Service Shares bear the
expenses incurred under the Funds' Shareholder Processing and Services Plan at a
rate not to exceed .35% (annualized) of the average daily net asset value of the
outstanding Service Shares. These fees are paid to institutions ("Service
Organizations") for support services they provide to the beneficial owners of
such Shares, which may include sub-accounting, processing of dividend payments
and the placing of purchase and redemption orders. These fees are not paid with
respect to a Fund's Institutional Shares. You should note that any fees that are
charged by the Funds' Adviser, its affiliates or any other institutions directly
to their customer accounts for services related to an investment in the Funds
are in addition to, and not reflected in, the fees and expenses described above.
3
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
EMERALD FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE
FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE
PERIOD ENDED NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENT
OF ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUNDS' PERFORMANCE
IS CONTAINED IN THE FUNDS' ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR.
Financial highlights for an Institutional Share of the Prime Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805
Net realized gains (losses) on
securities........................... 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... 0.0568 0.0362 0.0315 0.0408 0.0638 0.0805
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805)
Distributions from net realized gains
on securities........................ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions....... (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805)
------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital contribution.......... 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.81% 3.97% 3.21% 4.14% 6.56% 8.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 462,726 $ 413,541 $ 510,683 $ 1,947,016 $ 512,919 $ 278,419
Ratio of expenses to average net
assets............................... 0.37% 0.37% 0.35% 0.37% 0.40% 0.39%
Ratio of net investment income to
average net assets................... 5.66% 3.92% 3.21% 3.84% 6.27% 8.03%
Ratio of expenses to average net
assets**............................. 0.39% (a) (a) (a) 0.42% 0.45%
Ratio of net investment income to
average net assets**................. 5.64% (a) (a) (a) 6.25% 7.97%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net investment income................. 0.0890
Net realized gains (losses) on
securities........................... (0.0001)
------------
Total income (loss) from investment
operations........................... 0.0889
------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0890)
Distributions from net realized gains
on securities........................ (0.0000)
------------
Total dividends and distributions....... (0.0890)
------------
Voluntary capital contribution.......... 0.0000
------------
Net change in net asset value........... (0.0001)
------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9999
------------
------------
Total return............................ 9.27%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 192,628
Ratio of expenses to average net
assets............................... 0.36%+
Ratio of net investment income to
average net assets................... 9.00%+
Ratio of expenses to average net
assets**............................. 0.44%+
Ratio of net investment income to
average net assets**................. 8.92%+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
4
<PAGE>
Financial highlights for a Service Share of the Prime Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............................... 0.0536 0.0355 0.0281 0.0371 0.0602
Net realized gains (losses) on securities........... 0.0002 (0.0028) (0.0001) 0.0001 0.0001
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations........ 0.0538 0.0327 0.0280 0.0372 0.0603
------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income................ (0.0536) (0.0355) (0.0281) (0.0371) (0.0602)
Distributions from net realized gains on
securities......................................... (0.0000) (0.0000) (0.0001) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions..................... (0.0536) (0.0355) (0.0282) (0.0371) (0.0602)
------------ ------------ ------------ ------------ ------------
Voluntary capital contribution........................ 0.0000 0.0029 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Net change in net asset value......................... 0.0002 0.0001 (0.0002) 0.0001 0.0001
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................ $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return.......................................... 5.49% 3.61% 2.85% 3.78% 6.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 902,006 $ 833,667 $ 619,149 $ 548,622 $ 182,928
Ratio of expenses to average net assets............. 0.72% 0.72% 0.71% 0.72% 0.75%
Ratio of net investment income to average net
assets............................................. 5.31% 3.59% 2.80% 3.54% 5.63%
Ratio of expenses to average net assets**........... 0.74% (a) (a) (a) 0.77%
Ratio of net investment income to average net
assets**........................................... 5.29% (a) (a) (a) 5.61%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1990*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000
------------
Income from investment operations:
Net investment income............................... 0.0445
Net realized gains (losses) on securities........... (0.0001)
------------
Total income (loss) from investment operations........ 0.0444
------------
Less dividends and distributions:
Dividends from net investment income................ (0.0445)
Distributions from net realized gains on
securities......................................... (0.0000)
------------
Total dividends and distributions..................... (0.0445)
------------
Voluntary capital contribution........................ 0.0000
------------
Net change in net asset value......................... (0.0001)
------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9999
------------
------------
Total return.......................................... 4.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 7,202
Ratio of expenses to average net assets............. 0.75%+
Ratio of net investment income to average net
assets............................................. 7.51%+
Ratio of expenses to average net assets**........... 0.80%+
Ratio of net investment income to average net
assets**........................................... 7.46%+
</TABLE>
- -----------------
* For the period May 1, 1990 (initial offering date) through November 30,
1990.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
5
<PAGE>
Financial highlights for an Institutional Share of the Treasury Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0548 0.0368 0.0291 0.0368 0.0590 0.0776
Net realized gains (losses) on
securities........................... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations............................. 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.62% 3.74% 2.95% 3.75% 6.07% 8.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 236,392 $ 283,920 $ 501,377 $ 452,170 $ 575,103 $ 416,131
Ratio of expenses to average net
assets............................... 0.40% 0.39% 0.40% 0.38% 0.40% 0.38%
Ratio of net investment income to
average net assets................... 5.49% 3.73% 2.91% 3.74% 5.86% 7.75%
Ratio of expenses to average net
assets**............................. 0.42% (a) (a) (a) 0.41% 0.41%
Ratio of net investment income to
average net assets**................. 5.46% (a) (a) (a) 5.85% 8.13%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net investment income................. 0.0856
Net realized gains (losses) on
securities........................... 0.0000
------------
Total income (loss) from investment
operations............................. 0.0856
------------
Less dividends and distributions:
Dividends from net investment
income............................... (0.0856)
------------
Net change in net asset value........... 0.0000
------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0000
------------
------------
Total return............................ 8.90%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 349,183
Ratio of expenses to average net
assets............................... 0.73%+
Ratio of net investment income to
average net assets................... 8.69%+
Ratio of expenses to average net
assets**............................. 0.77%+
Ratio of net investment income to
average net assets**................. 8.65%+
</TABLE>
- -----------------
* For the period December 7, 1989 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
6
<PAGE>
Financial highlights for a Service Share of the Treasury Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............................... 0.0513 0.0331 0.0256 0.0333 0.0555
Net realized gains (losses) on securities............. (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations........ 0.0510 0.0330 0.0256 0.0333 0.0555
------------ ------------ ------------ ------------ ------------
Dividends from net investment income.................. (0.0513) (0.0331) (0.0256) (0.0333) (0.0555)
------------ ------------ ------------ ------------ ------------
Net change in net asset value......................... (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return.......................................... 5.25% 3.36% 2.59% 3.39% 5.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 525,609 $ 591,991 $ 403,809 $ 372,691 $ 219,912
Ratio of expenses to average net assets............... 0.75% 0.74% 0.75% 0.73% 0.75%
Ratio of net investment income to average net assets.. 5.13% 3.38% 2.56% 3.30% 5.09%
Ratio of expenses to average net assets**............. 0.77% (a) (a) (a) 0.76%
Ratio of net investments income to average net
assets**............................................. 5.11% (a) (a) (a) 5.08%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1990*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000
------------
Income from investment operations:
Net investment income............................... 0.0428
Net realized gains (losses) on securities............. 0.0000
------------
Total income (loss) from investment operations........ 0.0428
------------
Dividends from net investment income.................. (0.0428)
------------
Net change in net asset value......................... 0.0000
------------
NET ASSET VALUE, END OF PERIOD........................ $ 1.0000
------------
------------
Total return.......................................... 4.36%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 6,862
Ratio of expenses to average net assets............... 0.75%+
Ratio of net investment income to average net assets.. 7.24%+
Ratio of expenses to average net assets**............. 0.77%+
Ratio of net investments income to average net
assets**............................................. 7.22%+
</TABLE>
- -----------------
* For the period May 1, 1990 (initial offering date) through November 30,
1990.
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
7
<PAGE>
Financial highlights for an Institutional Share of the Tax-Exempt Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 0.9998
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0355 0.0242 0.0214 0.0290 0.0446 0.0560
Net realized and unrealized gains
(losses) on securities............... (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations............................. 0.0352 0.0242 0.0215 0.0290 0.0447 0.0559
------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment income.... (0.0355) (0.0242) (0.0214) (0.0290) (0.0446) (0.0560)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 3.61% 2.45% 2.16% 2.94% 4.55% 5.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 156,353 $ 162,856 $ 147,525 $ 158,692 $ 122,151 $ 124,270
Ratio of expenses to average net
assets............................... 0.40% 0.40% 0.40% 0.40% 0.39% 0.38%
Ratio of net investment income to
average assets....................... 3.53% 2.42% 2.13% 2.88% 4.46% 5.60%
Ratio of expenses to average net
assets**............................. 0.52% 0.46% 0.56% 0.57% 0.54% 0.53%
Ratio of net investment income to
average net assets**................. 3.41% 2.36% 1.97% 2.71% 4.31% 5.45%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net investment income................. 0.0605
Net realized and unrealized gains
(losses) on securities............... (0.0002)
------------
Total income (loss) from investment
operations............................. 0.0603
------------
Dividends from net investment income.... (0.0605)
------------
Net change in net asset value........... (0.0002)
------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9998
------------
------------
Total return............................ 6.22%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 143,211
Ratio of expenses to average net
assets............................... 0.36%+
Ratio of net investment income to
average assets....................... 6.14%+
Ratio of expenses to average net
assets**............................. 0.51%+
Ratio of net investment income to
average net assets**................. 5.99%+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ Effective April 2, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
8
<PAGE>
Financial highlights for a Service Share of the Tax-Exempt Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992+++ 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............................... 0.0319 0.0206 0.0179 0.0255 0.0411
Net realized and unrealized gains (losses) on
securities......................................... (0.0003) 0.0000 0.0001 0.0000 0.0001
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment operations........ 0.0316 0.0206 0.0180 0.0255 0.0412
------------ ------------ ------------ ------------ ------------
Dividends from net investment income.................. (0.0319) (0.0206) (0.0179) (0.0255) (0.0411)
------------ ------------ ------------ ------------ ------------
Net change in net asset value......................... (0.0003) 0.0000 0.0001 0.0000 0.0001
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return.......................................... 3.24% 2.08% 1.80% 2.58% 4.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 2,855 $ 4,028 $ 487 $ 111 $ 11
Ratio of expenses to average net assets............. 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average net
assets............................................. 3.19% 2.17% 1.75% 2.65% 5.08%
Ratio of expenses to average net assets**........... 1.20% 1.59% 0.92% 0.92% 0.91%
Ratio of net investment income to average net
assets**........................................... 2.74% 1.33% 1.58% 2.48% 4.92%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1990*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 1.0000
------------
Income from investment operations:
Net investment income............................... 0.0304
Net realized and unrealized gains (losses) on
securities......................................... (0.0003)
------------
Total income (loss) from investment operations........ 0.0301
------------
Dividends from net investment income.................. (0.0304)
------------
Net change in net asset value......................... (0.0003)
------------
NET ASSET VALUE, END OF PERIOD........................ $ 0.9997
------------
------------
Total return.......................................... 2.61%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................... $ 1,943
Ratio of expenses to average net assets............. 0.75%+
Ratio of net investment income to average net
assets............................................. 5.17%+
Ratio of expenses to average net assets**........... 0.94%+
Ratio of net investment income to average net
assets**........................................... 4.98%+
</TABLE>
- -----------------
* For the period May 1, 1990 (initial offering date) through November
30,1990.
** During the period, certain fees were voluntarily and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ Effective April 22, 1992, Rodney Square Management Corporation, a
subsidiary of Wilmington Trust Company, became the Fund's investment
sub-adviser.
9
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser and, with respect to the Tax-Exempt Fund, the Sub-Adviser use a
range of different investments and investment techniques in seeking to achieve a
Fund's investment objective. All Funds do not use all of the investments and
investment techniques described below, which involve various risks, and which
are described in following sections. The Funds' Adviser, and, with respect to
the Tax-Exempt Fund, the Sub-Adviser, will use their best efforts to achieve a
Fund's investment objective, although its achievement cannot be assured.
Each Fund invests only in U.S. dollar-denominated securities that mature in
thirteen months or less (with certain exceptions). The dollar-weighted average
portfolio maturity of each Fund may not exceed ninety days.
Instruments acquired by the Funds will be U.S. Government securities or
other "First Tier Securities" as described below. The term "First Tier
Securities" has a technical definition given by the Securities and Exchange
Commission, but generally refers to securities that the Adviser or Sub-Adviser
has determined, under guidelines established by the Board of Trustees, to
present minimal credit risks, and have the highest short-term debt ratings at
the time of purchase by one (if rated by only one) or more Nationally Recognized
Statistical Rating Organizations ("NRSROs"). A description of applicable ratings
is attached to the Statement of Additional Information as Appendix A. Unrated
instruments (including instruments with long-term but no short-term ratings)
will be of comparable quality as determined by the Adviser or Sub-Adviser under
guidelines approved by the Board of Trustees.
PRIME FUND
The investment objective of the Prime Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Prime Fund pursues its objective by investing
in a broad range of short-term government, bank and corporate obligations. In
accordance with the current rules of the Securities and Exchange Commission, the
Prime Fund intends to limit its purchases in the securities of any one issuer
(other than securities of the U.S. Government or its agencies or
instrumentalities) to no more than 5% of its total assets at the time of
purchase, with the exception that up to 25% of its total assets may be invested
in the securities of any single issuer for up to three business days.
TREASURY FUND
The investment objective of the Treasury Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Treasury Fund seeks to achieve its objective
by investing in obligations that the U.S. Treasury has issued or to which the
U.S. Treasury has pledged its full faith and credit to guarantee the payment of
principal and interest. You should note, however, that shares of the Treasury
Fund are not themselves issued or guaranteed by the U.S. Treasury or any of its
agencies. U.S. Treasury obligations include Treasury bills, certain Treasury
strips, certificates of indebtedness, notes and bonds, and obligations of those
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. Treasury. It is the Treasury Fund's policy that under normal conditions
it will invest 65% or more of its total assets in U.S. Treasury obligations and
repurchase agreements for which such obligations serve as collateral.
10
<PAGE>
TAX-EXEMPT FUND
The investment objective of the Tax-Exempt Fund is to seek to provide a high
level of current income that is exempt from federal income taxes, consistent
with liquidity, the preservation of capital and a stable net asset value. The
Fund invests in high quality debt obligations of states, territories and
possessions of the United States and the District of Columbia, and of their
agencies, authorities, instrumentalities and political sub-divisions ("municipal
obligations"). Under normal conditions the Fund invests 80% or more of its net
assets in these municipal obligations. The Fund may also invest up to 20% of its
net assets in municipal obligations subject to the federal alternative minimum
tax. Otherwise, the Fund will not knowingly purchase securities the interest on
which is subject to federal tax. Cash may temporarily be held uninvested (and
thus not earn income) if market or economic conditions are unfavorable. In
accordance with the current rules of the Securities and Exchange Commission, the
Tax-Exempt Fund intends to limit its purchases in the securities of any one
issuer (other than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities) to no more than 5% of its total assets at the
time of purchase, with the exception that up to 25% of its total assets be
invested with no limitation.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY FUND
may invest in U.S. Treasury obligations as described above. The PRIME FUND may
invest in securities issued or guaranteed by the U.S. Government, as well as in
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market investments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The PRIME FUND may invest in asset-backed
securities (I.E., securities backed by installment sale contracts, credit card
receivables or other assets). The average life of an asset-backed instrument
varies with the maturities of the underlying instruments, and is likely to be
substantially less than the original maturity of the asset pools underlying the
security as the result of scheduled principal payments and prepayments. This may
be particularly true for mortgage-backed securities. The rate of such
prepayments, and hence the life of the security, will be primarily a function of
current market rates and current conditions in the relevant market. The
relationship between prepayments and interest rates may give some high-yielding
asset-backed securities less potential for growth in value than conventional
bonds with comparable maturities. In addition, in periods of falling interest
rates, the rate of prepayment tends to increase. During such periods, the
reinvestment of prepayment proceeds by the Fund will generally be at lower rates
than the rates that were carried by the obligations that have been prepaid.
Because of these and other reasons, an asset-backed security's
11
<PAGE>
total return may be difficult to predict precisely. To the extent the Fund
purchases asset-backed securities at a premium, prepayments (which often may be
made at any time without penalty) may result in some loss of the Fund's
principal investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate, and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The TAX-EXEMPT FUND will invest primarily in
municipal obligations. The PRIME FUND may also invest in municipal obligations.
These securities may be advantageous for the Prime Fund when, as a result of
prevailing economic, regulatory or other circumstances, the yield of such
securities on a pre-tax basis is comparable to that of other securities the
Prime Fund can purchase. Dividends paid by the Prime Fund that come from
interest on municipal obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a local requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser (or Sub-Adviser for the Tax-Exempt Fund), under the supervision of
the Board of Trustees, will determine the credit quality of any unrated
municipal leases on an on-going basis, including an assessment of the likelihood
that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds, the Adviser and the Sub-Adviser
rely on these opinions and do not intend to review the basis for them.
12
<PAGE>
Municipal obligations purchased by the Tax-Exempt and Prime Funds may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a municipal obligation held by the Funds could have an
adverse effect on a Fund's portfolio and the value of its shares. As described
below under "Foreign Securities," foreign letters of credit and guarantees
involve certain risks in addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The PRIME FUND may purchase corporate bonds and cash
equivalents that meet the Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by the Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by the Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The PRIME FUND may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. The Fund may also invest in CDs and time deposits of domestic
branches of U.S. banks that have total assets of less than $1 billion if the CDs
and time deposits are insured by the FDIC. Investments in foreign banks and
foreign branches of U.S. banks will not make up more than 25% of the Fund's
total assets when the investment is made. (To the extent permitted by the SEC,
bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) The Fund may also
make interest-bearing savings deposits in amounts not exceeding 5% of its total
assets.
REPURCHASE AGREEMENTS. The PRIME FUND and TREASURY FUND may buy portfolio
securities subject to the seller's agreement to repurchase them at an agreed
upon time and price. These transactions are known as repurchase agreements. The
Funds will enter into repurchase agreements only with financial institutions
deemed to be creditworthy by the Adviser or the Sub-Adviser, pursuant to
guidelines established by the Board of Trustees. During the term of any
repurchase agreement, the Adviser will monitor the creditworthiness of the
seller, and the seller must maintain the value of the securities subject to the
agreement in an amount that is greater than the repurchase price. Default or
bankruptcy of the seller would, however, expose the Funds to possible loss
because of adverse market action or delays connected with the disposition if the
underlying obligations. Because of the seller's repurchase obligations, the
securities subject to repurchase agreements do not have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of the PRIME FUND these instruments may
include variable amount master demand notes, which are instruments under which
the indebtedness, as well as the interest rate, varies. For the Prime and
Tax-Exempt Funds, if rated, variable and floating rate instruments must be rated
in the highest short-term rating category by an NRSRO. If unrated, such
instruments will need
13
<PAGE>
to be determined to be of comparable quality. Unless guaranteed by the U.S.
Government or one of its agencies or instrumentalities, variable or floating
rate instruments purchased by each Fund must permit the Funds to demand payment
of the instrument's principal at least once every thirteen months. Because of
the absence of a market in which to resell a variable or floating rate
instrument, a Fund might have trouble selling an instrument should the issuer
default or during periods when a Fund is not permitted by agreement to demand
payment of the instrument, and for this or other reasons a loss could occur with
respect to the instrument.
STRIPPED SECURITIES. The PRIME FUND and TREASURY FUND may invest in
instruments known as "stripped" securities. These instruments include U.S.
Treasury bonds and notes and federal agency obligations on which the unmatured
interest coupons have been separated from the underlying obligation. These
obligations are usually issued at a discount to their "face value," and because
of the manner in which principal and interest are returned may exhibit greater
price volatility than more conventional debt securities. The Treasury Fund's
investments in these obligations will be limited to "interest only" stripped
securities that have been issued by a federal instrumentality known as the
Resolution Funding Corporation and other stripped securities issued or
guaranteed by the U.S. Treasury, where the principal and interest components are
traded independently under the Separate Trading of Registered Interest and
Principal Securities Program ("STRIPS"). Under STRIPS, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently. The Prime Fund may also invest in instruments
that have been stripped by their holder, typically a custodian bank or
investment brokerage firm, and then resold in a custodian receipt program under
names you may be familiar with such as Treasury Investors Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
In addition, the Prime Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. If the underlying obligations experience greater than
anticipated prepayments, the Prime Fund may fail to fully recoup its initial
investment. The market value of the class consisting entirely of principal
payments can be extremely volatile in response to changes in interest rates. The
yields on a class of SMBS that receives all or most of the interest are
generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonable close to that used in the calculation of the Prime Fund's per share
net asset value.
Although stripped securities may pay interest to their holders before they
mature, federal income tax rules require a Fund each year to recognize a part of
the discount attributable to a security as interest income. This income must be
distributed along with the other income a Fund earns. To the extent shareholders
request that they receive their dividends in cash rather than reinvesting them,
the money necessary to pay those dividends must come from the assets of a Fund
or from other sources
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such as proceeds from sales of Fund shares and/or sales of portfolio securities.
The cash so used would not be available to purchase additional income-producing
securities, and a Fund's current income could ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The PRIME
FUND may invest in bank investment contracts ("BICs") issued by banks that meet
the asset size requirements described above under "Bank Obligations" and in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, the Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, the Fund would receive interest from the issuing entity at either
a negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to
the Fund's limitation on such investments as described below under "Managing
Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The PRIME FUND may purchase from
domestic financial institutions and trusts created by such institutions
participation interests and trust receipts in high quality debt securities. A
participation interest or receipt gives the Fund an undivided interest in the
security in the proportion that the Fund's participation interest or receipt
bears to the total principal amount of the security. The Fund intends only to
purchase participations and trust receipts from an entity or syndicate, and does
not intend to serve as a co-lender in any such activity. As to certain
instruments for which the Fund will be able to demand payment, the Fund intends
to exercise its right to do so only upon a default under the terms of the
security, as needed to provide liquidity, or to maintain or improve the quality
of its investment portfolio. It is possible that a participation interest or
trust receipt may be deemed to be an extension of credit by the Fund to the
issuing financial institution rather than to the obligor of the underlying
security and may not be directly entitled to the protection of any collateral
security provided by the obligor. In such event, the ability of the Fund to
obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of the Fund's investment objective.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata
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portion of the advisory and other expenses of that fund as a shareholder of that
fund. These expenses are in addition to the advisory and other expenses each
Fund pays in connection with its own operations.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund, except the TAX-EXEMPT FUND, may enter into
reverse repurchase agreements. Under such an agreement the Fund sells portfolio
securities and then buys them back later at an agreed-upon time and price. When
the Fund enters into a reverse repurchase agreement it will place in a separate
custodial account either liquid assets or high grade debt securities that have a
value equal to or more than the price the Fund must pay when it buys back the
securities, and the account will be continuously monitored to make sure the
appropriate value is maintained. Reverse repurchase agreements may be used to
meet redemption requests without selling portfolio securities. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities the Fund relinquishes may decline below the price the Fund must pay
when the transaction closes. Interest paid by the Fund in a reverse repurchase
or other borrowing transaction will reduce the Fund's income.
SECURITIES LENDING. The PRIME FUND and TREASURY FUND may lend securities
held in their portfolios to broker-dealers and other institutions as a means of
earning additional income. These loans present risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, securities loans will be made only to parties the Adviser deems to be
of good standing, and will only be made if the Adviser thinks the possible
rewards from such loans justify the possible risks. A loan will not be made if,
as a result, the total amount of a Fund's outstanding loans exceeds 30% of its
total assets. Securities loans will be fully collateralized.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons the Funds do not knowingly invest more
than 10% of their net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit the
Funds to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper, variable
amount master demand notes with maturities of nine months or less and securities
for which the Adviser (or Sub-Adviser for the Tax-Exempt Fund) has determined
pursuant to guidelines adopted by the Board of Trustees that a liquid trading
market
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<PAGE>
exists (including certain securities that may be purchased by institutional
investors under SEC Rule 144A), are not subject to this limitation. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers were no longer
interested in purchasing these restricted securities.
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with less complete financial information about the issuer, less
market liquidity and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or the adoption of other governmental
restrictions might adversely affect the payment of principal and interest on
foreign obligations. Additionally, foreign banks and foreign branches of
domestic banks may be subject to less stringent reserve requirements, and to
different accounting, auditing and recordkeeping requirements.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates, the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. A Fund may
purchase zero-coupon bonds (I.E., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also affect the value of these investments.
Although the Tax-Exempt Fund does not presently intend to do so on a regular
basis, it may invest more than 25% of its total assets in municipal obligations
the interest on which comes solely from revenues of similar projects or are
issued by issuers located in the same state. When the Tax-Exempt Fund's assets
are concentrated in obligations payable from revenues of similar projects or
issued by issuers located in the same state, or in industrial development bonds,
the Fund will be subject to the particular risks (including legal and economic
conditions) relating to such securities to a greater extent than if its assets
were not so concentrated.
In addition, the Prime Fund and Tax-Exempt Fund may purchase custodial
receipts, tender option bonds and certificates of participation in trusts that
hold municipal or other types of obligations. A certificate of participation
gives the Fund an individual, proportionate interest in the obligation, and may
have a variable or fixed rate. Because certificates of participation are
interests in
17
<PAGE>
obligations that may be funded through government appropriations, they are
subject to the risk that sufficient appropriations as to the timely payment of
principal and interest on the obligations may not be made. The NRSRO quality
rating of an issue of certificates of participation is normally based upon the
rating of the obligations held by the trust and the credit rating of the issuer
of any letter of credit and of any other guarantor providing credit support to
the issue.
Payment on municipal obligations held by the Prime Fund and Tax-Exempt Fund
relating to certain projects may be secured by mortgages or deeds of trust. In
the event of a default, enforcement of a mortgage or deed of trust will be
subject to statutory enforcement procedures and limitations on obtaining
deficiency judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure
may be delayed and the amount of the proceeds received may not be enough to pay
the principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that cannot be changed without the approval of a majority of the
Fund's outstanding shares. Some of these fundamental limitations are summarized
below, and all of the Funds' fundamental limitations are set out in full in the
Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same industry.
2. A Fund may not borrow money except for temporary purposes in amounts up to
one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, that Fund will not
make any investments.
3. Under normal market conditions, the TAX-EXEMPT FUND must invest at least 80%
of its net assets in securities that provide interest exempt from regular
federal income tax.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
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<PAGE>
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY N.A. (REFERRED TO AS "BARNETT" OR THE "ADVISER")
SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS AND RODNEY SQUARE MANAGEMENT
CORPORATION (REFERRED TO AS THE "SUB-ADVISER"), A WHOLLY-OWNED SUBSIDIARY OF
WILMINGTON TRUST COMPANY, SERVES AS SUB-ADVISER TO THE TAX-EXEMPT FUND. Barnett
is the largest trust organization headquartered in Florida and has notable
experience in providing professional investment management services. Organized
as a national banking association in 1974, it is the successor to the business
of earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered bank holding company that has
offered general banking services since 1877.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis. For the Tax-Exempt Fund, Barnett has entered into a sub-advisory
agreement with a subsidiary of Wilmington Trust Company to provide daily
portfolio management for that Fund.
PURCHASE OF SHARES
Shares of the Funds are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares and Service Shares are sold to Barnett and its
affiliates, as well as to Barnett's correspondent banks and other institutions
("Institutions") acting on behalf of themselves or their customers who maintain
qualified trust, agency or custodial accounts ("Customers"). Customers may
include individuals, trusts, partnerships and corporations. All share purchases
are effected through a Customer's account at Barnett or another Institution
through procedures established in connection with the requirements of the
account, and confirmations of share purchases and redemptions will be sent to
Barnett or the other Institution involved. Barnett and other Institutions (or
their nominees) will normally be the holders of record of Institutional and
Service Shares acting on behalf of their Customers, and will reflect their
Customers' beneficial ownership of shares in the account statements provided by
them to their Customers. The exercise of voting rights and the delivery to
Customers of shareholder communications from the Funds will be governed by the
Customers' account agreements with Barnett and other Institutions.
Shares are sold at the net asset value per share next determined after
receipt of a purchase order from an Institution by the Funds' transfer agent.
The minimum initial investment in a Fund for an Institution is $5,000 and the
minimum subsequent investment is $100. Barnett and other Institutions may
establish different minimum investment requirements for their Customers. For
example, there is no minimum initial investment for transfers of assets by
Barnett's Customers from other banks or financial institutions. Barnett and
other Institutions may also charge their Customers certain account fees
depending on the type of account a Customer has established with the
Institution. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based
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<PAGE>
upon account transactions, assets or income. Information concerning these
minimum account requirements, services and any charges should be obtained from
the Institutions before a Customer authorizes the purchase of Fund shares, and
this Prospectus should be read in conjunction with any information so obtained.
Purchases for Shares of the Funds will be effected only on days on which
both the New York Stock Exchange (the "Exchange") and the Funds' Custodian are
open for business (a "Business Day") and only when federal funds or other funds
are immediately available to the Funds' transfer agent to make the purchase on
the day it receives the purchase order. Additionally, on days when the Exchange
and/ or the Fund's Custodian close early due to a partial holiday or otherwise,
the Fund reserves the right to advance the times at which purchase and
redemption orders must be received in order to be processed on that Business
Day. Institutions may transmit purchase orders by telephoning the transfer agent
c/o the Distributor at 1-800-367-5905 not later than 2:00 p.m. (Eastern time) on
any Business Day with respect to the Prime and Treasury Funds (12:00 noon
(Eastern time) with respect to the Tax-Exempt Fund). If federal funds are not
available with respect to any such order by the close of business on the day the
order is received by the transfer agent, the order will be cancelled. In
addition, any purchase order received by the transfer agent after 2:00 p.m.
(Eastern time) with respect to the Prime and Treasury Funds (12:00 noon (Eastern
time) with respect to the Tax-Exempt Fund) will not be accepted, and notice
thereof will be given to the Institution placing the order. Any funds received
in connection with late orders will be returned promptly.
Each Fund observes the following holidays: New Year's Day (observed), Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day, Veterans' Day (observed), Thanksgiving
Day and Christmas Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
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<PAGE>
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares and
Service Shares are redeemed. Barnett and other Institutions may charge fees to
their Customers for their services in connection with investments. Shares held
by an Institution on behalf of its Customers must be redeemed in accordance with
the instructions and limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940. A shareholder of record may be required to redeem shares in the Fund if
the balance in such shareholder's account in the Fund drops below $4,000 due to
share redemptions and not market fluctuations and the shareholder does not
increase its balance to at least $4,000 upon 60 days' written notice. If a
Customer has agreed with an Institution to maintain a minimum balance in his
account with the Institution, and the balance in the account falls below that
minimum, the Customer may be obligated to redeem all or part of his shares in
that Fund to the extent necessary to maintain the minimum balance required. The
Funds may also redeem shares involuntarily if it appears appropriate to do so in
light of the Funds' responsibilities under the Investment Company Act of 1940.
See the Statement of Additional Information ("Additional Purchase and Redemption
Information") for examples of when such redemptions might be appropriate.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. Payment for Prime and
Treasury Fund redemption orders which are received by the transfer agent before
2:00 p.m. (Eastern time) (12:00 noon (Eastern time) with respect to the
Tax-Exempt Fund) on a Business Day will normally be wired in federal funds the
same day. Payment for redemption orders which are received between 2:00 p.m.
(Eastern time) and the close of business with respect to the Prime and Treasury
Funds (12:00 noon (Eastern time) with respect to the Tax-Exempt Fund) or on a
non-Business Day will normally be wired in federal funds on the next Business
Day. Emerald Funds reserves the right, however, to delay the wiring of
redemption proceeds for up to seven days after receipt of a redemption order if,
in the judgment of the Adviser, an earlier payment could adversely affect the
Fund.
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DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income, which
flows from the interest that the Funds earn on the money market and other
investments they hold. Dividends on each Emerald Share and Emerald Service Share
are determined in the same manner and are paid in the same amount regardless of
class, except that Emerald Service Shares bear all fees paid to Service
Organizations for their services as described under "The Emerald Family of
Funds" and each class of shares bears certain other miscellaneous "class
expenses" (I.E., certain printing, registration and per account transfer agency
expenses).
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net capital gains, if any, after
any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund for which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
Emerald Funds
100 First Avenue, Suite 300
Pittsburgh, PA 15222
Your election is effective for dividends and distributions with payment
dates after the date the Funds' transfer agent receives the election.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------------
DECLARED PAID
----------- -----------------------
<S> <C> <C>
(1) Prime, Treasury and Tax-Exempt............................................ Daily Monthly within five
business days
after month end
</TABLE>
- ------------
(1) Shares of each Fund begin earning dividends on the day a purchase order is
accepted and payment in federal funds is received by the Funds' Custodian,
and continue to earn dividends through the day before they are redeemed.
If all the Emerald Shares or Emerald Service Shares held by an Institution
in the Funds are redeemed, the Funds will pay accrued dividends within five
Business Days after the end of each month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Net asset value per share is determined on each Business Day (as defined
above) at 2:00 p.m. (Eastern time) with respect to the Prime and Treasury Funds
(12:00 noon (Eastern time) with respect to the Tax-Exempt Fund) by adding the
value of a Fund's investments, cash and other assets allocated
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to a class of shares, subtracting the Fund's liabilities allocated to shares of
that class, and then dividing the result by the number of shares of that class
that are outstanding. All securities of the Funds are valued at amortized cost.
More information about valuation can be found in the Funds' Statement of
Additional Information, which you may request by calling 800/637-3759.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to some of the services these companies provide, as well as more information
regarding investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc.. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc. is the transfer agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized as a Massachusetts business trust on March 15,
1988 and is registered with the Securities and Exchange Commission as in
open-end management investment company. The Agreement and Declaration of Trust
authorizes the Board of Trustees to classify and reclassify any unissued shares
into one or more classes of shares. Pursuant to such authority, the Board of
Trustees has authorized the issuance of an unlimited number of shares in each of
three classes (the Institutional Share Class, Service Share Class and Retail
Share Class) representing
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<PAGE>
interests in the respective Funds, which are classified as diversified companies
under the Investment Company Act of 1940. The Board of Trustees has also
authorized the issuance of additional classes of shares representing interests
in other investment portfolios of Emerald Funds. Information regarding the
Funds' Retail Share Classes, as well as the other portfolios offered by Emerald
Funds, may be obtained by contacting the Distributor at the address listed on
page 19.
Shares of each Fund's three share classes bear a pro rata portion of all
operating expenses incurred by a Fund except as follows. Holders of a Fund's
Service Shares bear the fees that are paid to Service Organizations under the
Fund's Shareholder Processing and Services Plan described below. Similarly,
holders of a Fund's Retail Shares bear the payments set forth in the prospectus
describing such Shares that are paid under the Funds' Retail Plan. In addition,
shares of each Fund's three share classes bear other miscellaneous "class
expenses" (I.E., certain printing and registration expenses). Standardized yield
quotations are computed separately for each Fund's three classes of shares.
Because of these Plans and other "class expenses", the performance of a Fund's
Institutional Shares is expected to be higher than the performance of the Fund's
Service Shares, and the performance of both the Institutional Shares and Service
Shares of a Fund is expected to be higher than the performance of the Fund's
Retail Shares. The Funds offer various services and privileges in connection
with Retail Shares that are not generally offered in connection with
Institutional Shares and Service Shares, including an automatic investment plan
and automatic withdrawal plan. For further information regarding the Funds'
Retail Shares, contact the Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
holders of Service Shares will vote on matters pertaining to the Funds'
Shareholder Processing and Services Plan described below, and only holders of
Retail Shares will vote on matters pertaining to the Plan for those Shares.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment power with respect to a majority of the outstanding shares of Emerald
Funds. More information about shareholder voting rights can be found in the
Statement of Additional Information under "Description of Shares."
SHAREHOLDER PROCESSING AND SERVICES PLAN
Emerald Funds has adopted a Shareholder Processing and Services Plan (the
"Plan") pursuant to which Service Shares are sold to Institutional investors
("Service Organizations") which enter into service agreements with Emerald
Funds. The service agreements require the Service Organizations, which may
include Barnett, BISYS and their affiliates, to provide support services to
their Customers who are beneficial owners of Service Shares in return for
payment by a Fund which may not exceed .35% (on an annualized basis) of the
average daily net asset value of the Service Shares beneficially
24
<PAGE>
owned by their Customers. Holders of the Funds' Service Shares bear all fees
paid to Service Organizations for their services under the Plan. The Plan does
not cover, and the fees thereunder are not payable to Service Organizations with
respect to, Institutional Shares or Retail Shares.
Services provided by Service Organizations under their agreements may
include aggregating and processing purchase and redemption requests from
Customers for Service Shares and placing net purchase and redemption orders with
the Distributor; processing dividend payments from each Fund on behalf of
Customers; forwarding shareholder communications to Customers; and providing
sub-accounting with respect to Service Shares beneficially owned by Customers or
the information necessary for sub-accounting by the Funds.
Emerald Funds understands that Service Organizations may charge fees to
their Customers who are the beneficial owners of Service Shares in connection
with their Customer accounts. These fees would be in addition to any amounts
which may be received by a Service Organization under its service agreement with
Emerald Funds. The service agreement requires a Service Organization to disclose
to its Customers any compensation payable to the Service Organization by the
Funds and any other compensation payable by the Customers in connection with the
investment of their assets in Service Shares. Customers of Service Organizations
should read this Prospectus in light of the terms governing their accounts with
their Service Organizations.
Conflict of interest restrictions may apply to the receipt of compensation
paid by a Fund in connection with the investment of fiduciary funds in Service
Shares. Institutions, including banks regulated by the Comptroller of the
Currency, the Federal Reserve Board or the Federal Deposit Insurance
Corporation, and investment advisers and other money managers subject to the
jurisdiction of the Securities and Exchange Commission, the Department of Labor
or state securities commissions, are urged to consult their legal advisers
before investing in Service Shares.
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, transfer agent or custodian to such an investment company,
or from purchasing shares of such a company as agent for and upon the order of
such a customer. Service Organizations that are banks are subject to such
banking laws and regulations. Should future legislative, judicial or
administrative action prohibit or restrict the activities of bank Service
Organizations in connection with the provision of support services to their
Customers, Emerald Funds might be required to alter or discontinue its
arrangements with Service Organizations generally and change its method of
operations. It is not anticipated, however, that any change in the Funds' method
of operations would affect its net asset value per share or result in a
financial loss to any Customer.
25
<PAGE>
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership a wholly-owned subsidiary of The BISYS Group,
Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035 serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc., located at the same address is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286 and a transfer and dividend paying agent, BISYS Fund Services, Inc.,
located at 100 First Avenue, Suite 300, Pittsburgh, PA 15222.
ADVISER AND SUB-ADVISER. As of December 31, 1995 Barnett had approximately
$9.8 billion under active management, with $3.2 billion in equity securities,
$713 million in taxable fixed income securities, $1.4 billion in treasury and
government securities, $1.5 billion in municipals and $2.8 billion in money
market instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered
bank holding company that has offered general banking services since 1877.
Wilmington Trust Company, the Sub-Adviser's parent organization and a Delaware
banking corporation, is in turn a wholly-owned subsidiary of Wilmington Trust
Corporation, a registered bank holding company. The Sub-Adviser provides
management services to a number of mutual funds with total assets on December
31, 1995 of $1.5 billion.
Barnett manages the investment portfolios of the Prime and Treasury Funds,
including selecting portfolio investments and making purchase and sale orders.
The Sub-Adviser manages the investment portfolio of the Tax-Exempt Fund,
including selecting portfolio investments and making purchase and sale orders,
in accordance with investment requirements and policies established by the
Adviser.
26
<PAGE>
Although expected to be infrequent, Barnett (or the Sub-Adviser) may
consider the amount of Fund shares sold by broker-dealers and others (including
those who may be connected with Barnett or the Sub-Adviser) in allocating orders
for purchases and sales of portfolio securities. This allocation may involve the
payment of brokerage commissions or dealer concessions. Barnett (and the Sub-
Adviser) will not engage in this practice unless the execution capability of and
the amount received by such broker-dealer or other company is believed to be
comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio limited partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Fund, the Fund incurs certain
expenses. Expenses are paid out of the Fund's assets, and thus are reflected in
the Fund's dividends, but they are not billed directly to a shareholder or
deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of .25% of each Funds' average daily net assets.
Barnett has agreed to pay the Sub-Adviser .15% of the Tax-Exempt Fund's average
daily net assets, and is also voluntarily waiving the remainder of its fee for
that Fund. The fee paid by Barnett to the Sub-Adviser comes out of Barnett's
advisory fee for the Tax-Exempt Fund and is not an additional charge to that
Fund.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .23%, .24% and .15% of the average
daily net assets of the Prime, Treasury and Tax-Exempt Funds, respectively. All
of the fees that Barnett received for the Tax-Exempt Fund were paid to the
Sub-Adviser pursuant to the fee arrangement described above.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
Under the terms of the advisory agreement for the Prime Fund and Treasury
Fund, the fees payable to the Adviser are not subject to reduction as the value
of the Fund's net assets increases. The Adviser has, however, informed Emerald
Funds of its intention to reduce the annual rate of its
27
<PAGE>
advisory fees with respect to these two Funds to the following rates: .25% of
the first $600 million of the Prime Fund's and Treasury Fund's net assets,
respectively; .23% of each Fund's net assets over $600 million but not exceeding
$1 billion; .21% of the next $1 billion of each Fund's net assets; and .19% of
each Fund's net assets over $2 billion.
Expenses can be reduced by other voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
For the fiscal year ended November 30, 1995, the Prime, Treasury and
Tax-Exempt Funds' ratios of ordinary operating expenses to average net assets
after waivers were .37% and .40%, .40% and .72% and .75% and .75% for
Institutional Shares and Service Shares, respectively.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, the Prime and Treasury Funds will pay as dividends
at least 90% of its investment company taxable income. Investment company
taxable income includes taxable interest, dividends, gains attributable to
market discount on taxable as well as tax-exempt securities, and the excess of
net short-term capital gain over long-term capital loss. To the extent you
receive a dividend based on investment company taxable income you must treat
that dividend as ordinary income in determining your gross income for tax
purposes, whether you received it in the form of cash or additional shares.
Unless you are exempt from federal income taxes, the dividends you receive from
each Fund will be taxable to you.
In addition, the Tax-Exempt Fund will pay at least 90% of its net
exempt-interest income as dividends known as "exempt-interest dividends." These
dividends may be treated by you as excludable from your gross income (unless the
exclusion would be disallowed because of your particular situation). You should
note that income that is not subject to federal income taxes may nonetheless
have to be considered along with other adjusted gross income in determining
whether any Social Security payments received by you are subject to federal
income taxes.
28
<PAGE>
If the Tax-Exempt Fund holds certain so-called "private activity bonds"
issued after August 7, 1986, shareholders will need to include as an item of tax
preference for purposes of the federal alternative minimum tax that portion of
the dividends paid by the Fund derived from interest received on such bonds. The
maximum federal alternative minimum tax rate is 28% for individuals. In
addition, corporations will need to take into account all exempt-interest
dividends paid by the Fund in determining certain adjustments for the federal
alternative minimum tax and the environmental tax.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares.
Any dividends declared by the Funds in December of a particular year and
payable to shareholders of record on a date during that month will be deemed to
have been paid by the Funds and received by shareholders on December 31 of that
year, so long as the dividends are actually paid in January of the following
year.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes.
Except as stated below, shares of the Funds are not expected to qualify for
total exemption from the Florida intangibles tax. Shares of the Treasury Fund
may or may not qualify in any calendar year for this exemption. In order to
qualify for this exemption, the Treasury Fund may sell any non-exempt assets
held in its portfolio (such as repurchase agreements) during the year and
reinvest the proceeds in exempt assets, or hold cash, prior to December 31.
Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and monitoring
your investments. Each Fund may quote its performance in advertisements or
shareholder communications. The performance for each class of shares of a Fund
is calculated separately from the performance of a Fund's other classes of
shares. Because of the service fees borne by Service Shares, the net yield on
such shares can be expected, at any given time, to be lower than the net yield
on Institutional Shares.
UNDERSTANDING PERFORMANCE MEASURES:
- - The yields for the Funds are the income generated over a 7-day period (which
period will be identified in the quotation) and then assumed to be generated
over a 52-week period and shown as a percentage of the investment. In
addition, the Funds may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than net
income used for accounting purposes.
- - Tax-equivalent yield for the Tax-Exempt Fund shows the amount of taxable yield
needed to produce after-tax equivalent of a tax-free yield, and is calculated
by increasing the yield (as calculated above) the amount necessary to reflect
the payment of federal income taxes at a stated rate. The Fund's
"tax-equivalent yield" will always be higher than its "yield."
29
<PAGE>
PERFORMANCE COMPARISONS:
The Funds may compare their yields to those of mutual funds with similar
investment objectives or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
mutual fund performance.
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, be used for
comparison.
The yield of the Prime Fund may be compared to the Donoghue's Money Fund
Average, the yield of the Treasury Fund may be compared to the Donoghue's
Government Money Fund Average and the yield of the Tax-Exempt Fund may be
compared to the Donoghue's Tax-Free Money Fund Average, each of which monitors
performance of money market funds. Additionally, each Fund's performance may be
compared to data prepared by Lipper Analytical Services, Inc.
Performance quotations will fluctuate, and you should not consider quotations to
be representative of future performance. You should also remember that
performance is generally a function of the kind and quality of investments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Fees that Barnett and other Institutions may charge directly to their Customers
in connection with an investment in the Funds will not be included in the Funds'
calculations of yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 19.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
30
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION...................... 2
Expenses......................................................... 2
Financial Highlights............................................. 4
INVESTMENT PRINCIPLES AND POLICIES................................. 10
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................. 11
INVESTING IN EMERALD FUNDS......................................... 19
Your Money Manager............................................... 19
Purchase of Shares............................................... 19
Redemption of Shares............................................. 21
Dividends and Distributions...................................... 22
Explanation of Sales Price....................................... 22
Other Service Providers.......................................... 23
THE EMERALD FAMILY OF FUNDS........................................ 23
THE BUSINESS OF THE FUNDS.......................................... 26
Fund Management.................................................. 26
Tax Implications................................................. 28
Measuring Performance............................................ 29
</TABLE>
EMIMM96P
<PAGE>
EMERALD FUNDS
--------------------------
(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
EMERALD EQUITY FUND
EMERALD SMALL CAPITALIZATION FUND
EMERALD BALANCED FUND
EMERALD MANAGED BOND FUND
EMERALD PRIME FUND
INSTITUTIONAL SHARES
SUPPLEMENT DATED AUGUST __, 1996
TO THE PROSPECTUS DATED APRIL 1, 1996
INVESTMENT ADVISER - ADDITIONAL INFORMATION. Effective June 29, 1996
Barnett Capital Advisors, Inc., a newly-organized, wholly-owned subsidiary of
Barnett Bank, N.A. which, in turn, is a wholly-owned subsidiary of Barnett
Banks, Inc., assumed the investment advisory responsibilities of Barnett Banks
Trust Company, N.A. for each of the Funds on the terms and conditions stated in
the Prospectus. This change did not involve a change in control or management
of the investment adviser or a change in the Funds' portfolio managers. Barnett
Capital Advisors, Inc. maintains offices at 9000 Southside Boulevard, Building
100, Jacksonville, Florida 32256.
<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 FUND
EMERALD U.S. GOVERNMENT SECURITIES FUND
EMERALD MANAGED BOND FUND
EMERALD PRIME FUND
EMERALD TREASURY FUND
INSTITUTIONAL SHARES
SUPPLEMENT DATED AUGUST __, 1996
TO THE PROSPECTUS DATED APRIL 1, 1996
The following information has been added to the section entitled "Summary of
Expenses-Financial Highlights":
The following unaudited information for Institutional Shares of the Equity
Value Fund and International Equity Fund has been derived from the
financial statements included in the Statement of Additional Information.
This financial information should be read together with those financial
statements.
FINANCIAL HIGHLIGHTS FOR AN INSTITUTIONAL SHARE OF THE EQUITY VALUE FUND
AND INTERNATIONAL EQUITY FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED:
<PAGE>
<TABLE>
<CAPTION>
International
Equity Value Fund Equity Fund
For the Period For the Period
Ended 5/31/96* ended 5/31/96*
(unaudited) (unaudited)
<S> <C> <C>
Net asset value, beginning of
period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00 $ 10.00
Income from investment operations
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 0.13 0.09
Net realized and unrealized gains
on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.81 0.57
Total income from investment
operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.94 0.66
Less dividends and distributions:
Dividends from net investment
income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.13) (0.01)
Net change in net asset value . . . . . . . . . . . . . . . . . . . . . . 0.81 0.65
Net asset value, end of period. . . . . . . . . . . . . . . . . . . . . . $ 10.81 $ 10.65
----- -----
----- -----
Total return 9.42%++ 6.56%++
Ratios/supplemental data:
Net assets, end of period (000s). . . . . . . . . . . . . . . . . . . . $ 2,162 $ 2,147
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00%+ 0.00%+
Ratio of net investment income to
average net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 2.87%+ 1.86%+
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.46%+ 7.22%+
Ratio of net investment income to
average net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . -3.59%+ -5.36%+
Portfolio turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . 8% 1%
</TABLE>
* For the period December 27, 1995 (commencement of operations) through
May 31, 1996.
** During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursement had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
------------------------
<PAGE>
INVESTMENT ADVISER - ADDITIONAL INFORMATION. For the period ended May 31,
1996, all investment advisory fees payable by the Equity Value Fund and
International Equity Fund were waived.
Effective June 29, 1996 Barnett Capital Advisors, Inc., a newly-organized,
wholly-owned subsidiary of Barnett Bank, N.A. which, in turn, is a wholly-owned
subsidiary of Barnett Banks, Inc., assumed the investment advisory
responsibilities of Barnett Banks Trust Company, N.A. for each of the Funds on
the terms and conditions stated in the Prospectus. This change did not involve
a change in control or management of the investment adviser or a change in the
Funds' portfolio managers. Barnett Capital Advisors, Inc. maintains offices at
9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256.
<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 FUND
EMERALD U.S. GOVERNMENT SECURITIES FUND
EMERALD MANAGED BOND FUND
EMERALD FLORIDA TAX-EXEMPT FUND
INSTITUTIONAL SHARES
SUPPLEMENT DATED AUGUST __, 1996
TO THE PROSPECTUS DATED APRIL 1, 1996
The following information has been added to the section entitled "Summary of
Expenses-Financial Highlights":
The following unaudited information for Institutional Shares of the Equity
Value Fund and International Equity Fund has been derived from the
financial statements included in the Statement of Additional Information.
This financial information should be read together with those financial
statements.
FINANCIAL HIGHLIGHTS FOR AN INSTITUTIONAL SHARE OF THE EQUITY VALUE FUND
AND INTERNATIONAL EQUITY FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED:
<PAGE>
<TABLE>
<CAPTION>
International
Equity Value Fund Equity Fund
For the Period For the Period
Ended 5/31/96* ended 5/31/96*
(unaudited) (unaudited)
<S> <C> <C>
Net asset value, beginning of
period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00 $ 10.00
Income from investment operations
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 0.13 0.09
Net realized and unrealized gains
on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.81 0.57
Total income from investment
operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.94 0.66
Less dividends and distributions:
Dividends from net investment
income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.13) (0.01)
Net change in net asset value . . . . . . . . . . . . . . . . . . . . . . 0.81 0.65
Net asset value, end of period. . . . . . . . . . . . . . . . . . . . . . $ 10.81 $ 10.65
----- -----
----- -----
Total return 9.42%++ 6.56%++
Ratios/supplemental data:
Net assets, end of period (000s). . . . . . . . . . . . . . . . . . . . $ 2,162 $ 2,147
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00%+ 0.00%+
Ratio of net investment income to
average net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 2.87%+ 1.86%+
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.46%+ 7.22%+
Ratio of net investment income to
average net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . -3.59%+ -5.36%+
Portfolio turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . 8% 1%
</TABLE>
* For the period December 27, 1995 (commencement of operations) through
May 31, 1996.
** During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursement had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Unannualized.
------------------------
INVESTMENT ADVISER - ADDITIONAL INFORMATION. For the period ended May 31,
1996, all investment advisory fees payable by the Equity Value Fund and
International Equity Fund were waived.
Effective June 29, 1996 Barnett Capital Advisors, Inc., a newly-organized,
wholly-owned subsidiary of Barnett Bank, N.A. which, in turn, is a wholly-owned
subsidiary of Barnett Banks, Inc., assumed the investment advisory
responsibilities of Barnett Banks Trust Company, N.A. for each of the Funds on
the terms and conditions stated in the Prospectus. This change did not involve
a change in control or management of the investment adviser or a change in the
Funds' portfolio managers. Barnett Capital Advisors, Inc. maintains offices at
9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256.
<PAGE>
EMERALD FUNDS FOR BARNETT EMPLOYEE
SAVINGS & THRIFT (BEST) PLAN
EMERALD EQUITY FUND
EMERALD SMALL CAPITALIZATION FUND
EMERALD BALANCED FUND
EMERALD MANAGED BOND FUND
EMERALD PRIME FUND
INSTITUTIONAL SHARES
P R O S P E C T U S
APRIL 1, 1996
[LOGO]
E M E R A L D
F U N D S
EMBSTPLN96P
<PAGE>
For enrollment, contribution and
investment changes within the
BEST Plan call 800/727-BEST (2378).
For voice recorded price information
for the Equity and Fixed Income Funds call 800/548-6546
For yield information for
the Prime Fund call 800/367-5905
<PAGE>
EMERALD FUNDS
<TABLE>
<CAPTION>
April 1, 1996
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- ------------------------------ --------------------------------------------- ---------------------------------------------
EQUITY Long-term capital appreciation through Capital appreciation over the long term and
investments primarily in high quality common are willing to accept the relative risks
stocks and, secondarily, potential dividend associated with equity investments
income growth
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
SMALL Long-term capital appreciation Long-term rewards that may exceed those
CAPITALIZATION provided by a fund investing in larger, more
established companies and are willing to
accept the relative risks of smaller
companies
- ----------------------------------------------------------------------------------------------------------------------------
BALANCED Attractive investment return through a Asset allocation among equity securities,
combination of growth of capital and current fixed income securities and cash equivalents
income in light of prevailing market and economic
conditions
- ----------------------------------------------------------------------------------------------------------------------------
MANAGED BOND High level of current income and, Current income from corporate and government
secondarily, capital appreciation securities and can accept fluctuations in
price and yield
- ----------------------------------------------------------------------------------------------------------------------------
PRIME High current income, liquidity and the A flexible and convenient way to manage cash
preservation of capital through investments while earning money market returns
in short-term money market investments
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. Please read and keep it for future reference. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) in the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THIS SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. WHILE THE PRIME FUND WILL ATTEMPT TO MAINTAIN ITS NET
ASSET VALUE AT $1.00 A SHARE, THERE CAN BE NO ASSURANCE THAT IT NOT WILL BE ABLE
TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID
BY A FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST COMPANY, N.A. SERVES AS
INVESTMENT ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH EMERALD ASSET MANAGEMENT, INC., THE FUNDS' DISTRIBUTOR.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
<PAGE>
(This page has been left blank intentionally.)
2
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
and general Fund administration, accounting and other services.
Below is information regarding the Funds' shareholder transaction expenses
and operating expenses for Institutional Shares of the Equity, Small
Capitalization, Balanced, Managed Bond and Prime Funds. Examples based on this
information are also provided.
<TABLE>
<CAPTION>
SMALL
EQUITY CAPITALIZATION BALANCED
FUND FUND FUND
--------- ------------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases....................................... None None None
Sales Charge Imposed on Reinvested Dividends...................................... None None None
Deferred Sales Charge............................................................. None None None
Redemption Fee.................................................................... None None None
Exchange Fee...................................................................... None None None
ANNUAL FUND OPERATING EXPENSES:
Advisory Fees..................................................................... 0.60% 1.00% 0.60%
All Other Expenses................................................................ 0.19% 0.25% 0.24%
--------- ------ -----------
Total Fund Operating Expenses*.................................................... 0.79% 1.25% 0.84%
--------- ------ -----------
--------- ------ -----------
</TABLE>
<TABLE>
<CAPTION>
MANAGED PRIME
BOND FUND FUND
----------- ---------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases.................................................. None None
Sales Charge Imposed on Reinvested Dividends................................................ None None
Deferred Sales Charge....................................................................... None None
Redemption Fee.............................................................................. None None
Exchange Fee................................................................................ None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS:
Advisory Fees (After Fee Waivers)........................................................... 0.40% 0.23%
All Other Expenses.......................................................................... 0.21% 0.14%
----------- ---------
Total Fund Operating Expenses (After Fee Waivers*).......................................... 0.61% 0.37%
----------- ---------
----------- ---------
</TABLE>
- ------------
* This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the
Funds. The operating expenses for the Funds have been restated using the
current fees and operating expenses that would have been applicable had they
been in effect during the last fiscal year.
Without fee waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.25% for the Prime Fund. Absent these
waivers and other expenses reimbursements the total operating expenses for
the Institutional Shares of the Prime Fund would be 0.40%.
3
<PAGE>
The Adviser may waive its fee and/or reimburse expenses of the Funds from
time to time. These waivers and reimbursements are voluntary and may be
terminated at any time with respect to any Fund without the consent of the
Fund. You should note that any fees that are charged by the Adviser, its
affiliates or any other institutions directly to their customer accounts for
services related to an investment in the Funds are in addition to and not
reflected in the fees and expenses described above.
EXAMPLE: Let's say, hypothetically, that the annual return on the Institutional
Shares of each Fund is 5%, and that their operating expenses are as described
above. For every $1,000 you invested in a particular Fund, after the periods
shown below, you would have paid this much in expenses during such periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund...................................................... $ 8 $25 $44 $ 98
Small Capitalization Fund........................................ $13 $40 $68 $151
Balanced Fund.................................................... $ 9 $27 $47 $104
Managed Bond Fund................................................ $ 6 $20 $34 $ 76
Prime Fund....................................................... $ 4 $12 $21 $ 47
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995 ARE INCORPORATED BY REFERENCE INTO THE STATEMENT OF ADDITIONAL
INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING 800/637-3759). THE
FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL STATEMENTS AND
RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE IS CONTAINED IN
THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED NOVEMBER 30,
1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE DISTRIBUTOR.
DURING THE FISCAL YEARS 1993 AND 1992 AND THE PERIOD ENDED NOVEMBER 30,
1991, THE EQUITY FUND DID NOT OFFER INSTITUTIONAL SHARES. RATHER, THE EQUITY
FUND OFFERED A SEPARATE SHARE CLASS, PREVIOUSLY CALLED CLASS A SHARES, NOW
CALLED RETAIL SHARES, TO BOTH INSTITUTIONAL AND RETAIL INVESTORS. THE FOLLOWING
INFORMATION REGARDING RETAIL SHARES IS PROVIDED TO GIVE YOU A LONGER TERM
PERSPECTIVE OF THE FUNDS' FINANCIAL HISTORY. FOR A DESCRIPTION OF THE
CHARACTERISTICS AND EXPENSES OF RETAIL SHARES, SEE "THE EMERALD FAMILY OF
FUNDS."
4
<PAGE>
EMERALD EQUITY FUND
Financial highlights for an Institutional Share and a Retail Share of the
Equity Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
---------------------------------------------------------
INSTITUTIONAL SHARES
--------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 10.89 $ 11.94 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............ 0.08 0.11 0.08 0.15 0.16 0.12
Net realized and unrealized gain
(loss) on securities............ 3.74 (0.90) (0.39) (0.08) 1.73 0.24
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from
investment operations........... 3.82 (0.79) (0.31) 0.07 1.89 0.36
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment
income.......................... (0.08) (0.11) (0.08) (0.15) (0.16) (0.12)
Distributions from net realized
gains on securities............. (0.00) (0.15) (0.57) (0.07) (0.00) (0.00)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions................... (0.08) (0.26) (0.65) (0.22) (0.16) (0.12)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value...... 3.74 (1.05) (0.96) (0.15) 1.73 0.24
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD..... $ 14.63 $ 10.89 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return....................... 35.21% (6.62%)++ (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s).......................... $173,824 $164,015 $19,705 $138,642 $152,939 $98,953
Ratio of expenses to average net
assets.......................... 0.84% 0.79%+ 1.07%** 0.86%** 0.76%** 0.00%+
Ratio of net investment income to
average net assets.............. 0.67% 1.46%+ 0.36%** 1.22%** 1.41%** 2.64%+**
Portfolio turnover............... 104% 113% 113% 102% 40% 13%
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
5
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.66 $ 10.00
-------- --------
Income from investment operations:
Net investment loss.................................................... (0.03) (0.04)
Net realized and unrealized gains (losses) on securities............... 3.15 (0.30)
-------- --------
Net change in net asset value.......................................... 3.12 (0.34)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 12.78 $ 9.66
-------- --------
-------- --------
Total return............................................................. 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 88,561 $ 53,509
Ratio of expenses to average net assets................................ 1.39% 1.29%+
Ratio of net investment loss to average net assets..................... (0.65%) (0.54%)+
Ratio of expenses to average net assets**.............................. 1.42% 1.48%+
Ratio of net investment loss to average net assets**................... (0.68%) (0.73%)+
Portfolio turnover..................................................... 229% 118%
</TABLE>
- ------------
* For the period January 4, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized
++ Not Annualized.
6
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.63 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.33 0.27
Net realized and unrealized gains (losses) on securities............... 2.28 (0.37)
-------- --------
Total income (loss) from investment operations......................... 2.61 (0.10)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.33) (0.25)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions...................................... (0.33) (0.27)
-------- --------
Net change in net asset value............................................ 2.28 (0.37)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 11.91 $ 9.63
-------- --------
-------- --------
Total return............................................................. 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 73,830 $ 51,170
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 3.54% 4.11%+
Ratios of expenses to average net assets**............................. 1.10% 1.25%+
Ratios of net investment income to average net assets**................ 2.76% 3.14%+
Portfolio turnover..................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
7
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.55 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.70 0.45
Net realized and unrealized gains (losses) on securities............... 1.00 (0.45)
-------- --------
Total income (loss) from investment operations......................... 1.70 (0.00)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.70) (0.43)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions...................................... (0.70) (0.45)
-------- --------
Net change in net asset value............................................ 1.00 (0.45)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.55 $ 9.55
-------- --------
-------- --------
Total return............................................................. 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 68,923 $ 66,588
Ratio of expenses to average net assets................................ 0.31% 0.27%+
Ratio of net investment income to average net assets................... 6.95% 6.83%+
Ratio of expenses to average net assets**.............................. 0.83% 0.86%+
Ratio of net investment income to average net assets**................. 6.43% 6.25%+
Portfolio turnover..................................................... 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
8
<PAGE>
EMERALD PRIME FUND
Financial highlights for an Institutional Share of the Prime Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990 1989*
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment of
operations:
Net Investment
income................ 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805 0.0890
Net realized gains
(losses) on
securities............ 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income (loss)
from investment
operations............ 0.0568 0.0362 0.0315 0.0408 0.0638 0.0805 0.0889
------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
Dividends from net
investment income..... (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805) (0.0890)
Distributions from net
realized gains on
securities............ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions........... (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805) (0.0890)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital
contribution............ 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value................... 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............. 5.81% 3.97% 3.21% 4.14% 6.56% 8.36% 9.27%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s)......... $462,726 $413,541 $510,683 $1,947,016 $512,919 $278,419 $192,628
Ratio of expenses to
average net assets.... 0.37% 0.37% 0.35% 0.37% 0.40% 0.39% 0.36%+
Ratio of net investment
income to average net
assets................ 5.66% 3.92% 3.21% 3.84% 6.27% 8.03% 9.00%+
Ratio of expenses to
average net assets**.. 0.39% (a) (a) (a) 0.42% 0.45% 0.44%+
Ratio of net investment
income to average net
assets**.............. 5.64% (a) (a) (a) 6.25% 7.97% 8.92%+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
9
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objective. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks and which are also described in the following sections. You should
consider which funds best meet your investment goals. The Funds' Adviser will
use its best efforts to achieve a Fund's investment objective, although its
achievement cannot be assured.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term capital
appreciation by investing primarily in common stocks. The Fund seeks as a
secondary objective potential income growth through its investments. The Fund
invests primarily in high quality equity securities selected on the basis of
fundamental investment value and growth prospects that the Adviser believes
exceed those of the general economy. The Fund may also invest up to 25% of its
assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
The Equity Fund will normally invest at least 65% of its total assets in
equity securities, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period. For a further description
of the Fund's policies with respect to convertible securities, foreign
securities and other instruments, see "Portfolio Instruments, Practices and
Related Risks" below.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to provide
long-term capital appreciation. The Fund pursues its objective by investing
primarily in equity securities such as common stocks and instruments convertible
or exchangeable into common stocks.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index. The market
capitalization of the issuers of securities purchased by the Fund will normally
be between $50 million and $2 billion at the time of purchase. In managing the
Fund, the Adviser seeks smaller
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companies with above-average growth prospects. Factors considered in selecting
such issuers include participation in a fast growing industry, a strategic niche
position in a specialized market, adequate capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities of small capitalization companies. In addition
to investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRs, and may acquire convertible securities, warrants and
similar rights.
BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be invested in
fixed income securities (including cash equivalents, long-term debt securities,
and convertible debt securities and preferred stocks to the extent their value
is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adopted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income
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obligations or cash equivalents in the Fund. For example, if the Adviser expects
more rapid economic growth leading to better corporate earnings in the future,
it would normally increase the Fund's equity holdings while reducing its
holdings of fixed income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to
100% of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are backed by the full faith and
credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the
types that are permissible investments for the Equity and Small Capitalization
Funds. Non-convertible debt obligations will be limited to the types that are
permissible investments for the Managed Bond Fund. Convertible securities,
foreign securities and other instruments will be acquired in accordance with the
limitations described under "Portfolio Investments, Practices and Related
Risks."
The Fund may also invest, through ADRs and EDRS, up to 25% of the value of
its total assets in securities of foreign issuers, and may invest in warrants
and similar rights.
MANAGED BOND FUND
The investment objective of the Managed Bond Fund is to seek a high level of
current income and, secondarily, capital appreciation. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions the average weighted maturity of the
Managed Bond Fund will be ten years or more.
The Fund invests substantially all of its assets in debt obligations such as
bonds, debentures and cash equivalents, obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, debt obligations of domestic
and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Fund will purchase only those securities which are considered to
be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
the Fund's total assets will be invested in debt obligations rated "A" or better
by at least one NRSRO (or unrated obligations determined to be of comparable
quality). Obligations rated in the lowest of the top four rating categories
("BBB" or "Baa") have certain speculative characteristics and are subject to
more credit and market risk than securities with higher ratings.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
the Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships
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among various industry sectors, current economic cycles and the attractiveness
and creditworthiness of particular issuers. Depending upon the Adviser's
analysis of these and other factors, the Fund's holdings in issuers in
particular industry sectors may be overweighted or underweighted when compared
to the relative industry weightings in recognized indices.
Normally at least 65% of the Fund's total assets will be invested in bonds,
debentures, mortgage and other asset-related securities, zero coupon bonds and
convertible debentures. The Managed Bond Fund may, however, invest without
limitation in short-term investments to meet anticipated redemption requests, or
as a temporary defensive measure if the Adviser determines that market
conditions warrant.
The Fund may also invest in obligations convertible into common stocks, as
well as common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. Common stock received through the
conversion of convertible debt obligations will normally be sold. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other investments see "Portfolio Instruments, Practices
and Related Risks."
PRIME FUND
The investment objective of the Prime Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Prime Fund pursues its objective by investing
in a broad range of short-term, bank and corporate obligations. The Prime Fund
invests only in U.S. dollar-denominated securities that mature in thirteen
months or less (with certain exceptions). The dollar-weighted average portfolio
maturity of the Prime Fund may not exceed ninety days. In accordance with the
current rules of the Securities and Exchange Commission, the Fund intends to
limit its purchases in the securities of any one issuer (other than securities
of the U.S. Government or its agencies or instrumentalities) to no more than 5%
of its total assets at the time of purchase, with the exception that up to 25%
of its total assets may be invested in the securities of any single issuer for
up to three business days.
Instruments acquired by the Prime Fund will be U.S. Government securities or
other "First Tier Securities." The term "First Tier Securities" has a technical
definition given by the Securities and Exchange Commission, but such term
generally refers to securities that the Adviser has determined, under guidelines
established by the Board of Trustees, to present minimal credit risks, and have
the highest short-term debt ratings at the time of purchase by one (if rated by
only one) or more NRSROs. Unrated instruments (including instruments with
long-term but no short-term ratings) will be of comparable quality as determined
by the Adviser under guidelines approved by the Board of Trustees and the
Adviser. A description of the applicable ratings is attached to the Statement of
Additional Information as Appendix A.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. EACH FUND may
invest in securities issued or guaranteed by the U.S. Treasury, as well as in
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the
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Treasury; others, including the Federal National Mortgage Association, are
backed by the discretionary ability of the U.S. Government to purchase the
entity's obligations; and still others like the Student Loan Marketing
Association are backed solely by the issuer's credit. U.S. Government
obligations also include U.S. Government-backed trusts that hold obligations of
foreign governments and are guaranteed or backed by the full faith and credit of
the United States. There is no assurance that the U.S. Government would provide
support to a U.S. Government-sponsored entity were it not required to do so by
law. Some of these securities may have a variable or floating interest rate.
ASSET-BACKED SECURITIES. The BALANCED, MANAGED BOND and PRIME FUNDS may
invest in asset-backed securities (I.E., securities backed by installment sale
contracts, credit card receivables or other assets). In addition, each of these
Funds may invest in U.S. Government securities that are backed by adjustable or
fixed rate mortgage loans. The average life of an asset-backed instrument varies
with the maturities of the underlying instruments. In the case of mortgages,
these maturities may be a maximum of forty years. The average life of an
asset-backed instrument is likely to be substantially less than the original
maturity of the asset pools underlying the security as the result of scheduled
principal payments and prepayments. This may be particularly true for
mortgage-backed securities. The rate of such prepayments, and hence the life of
the security, will be primarily a function of current market rates and current
conditions in the relevant market. In calculating, the average weighted maturity
of a Fund's portfolio (except the Prime Fund), the maturity of asset-backed
instruments will be based on estimates of average life. The relationship between
prepayments and interest rates may give some high-yielding asset-backed
securities less potential for growth in value than conventional bonds with
comparable maturities. In addition, in periods of falling interest rates, the
rate of prepayment tends to increase. During such periods, the reinvestment of
prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid. Because of these
and other reasons, an asset-backed security's total return may be difficult to
predict precisely. To the extent a Fund purchases asset-backed securities at a
premium, prepayments (which often may be made at any time without penalty) may
result in some loss of a Fund's principal investment to the extent of any
premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including Guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently, elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The BALANCED, MANAGED BOND, and PRIME FUNDS may also
invest in municipal obligations. These securities may be advantageous for these
Funds when, as a result of prevailing economic, regulatory or other
circumstances, the yield of such securities on a pre-tax basis is comparable to
that of other securities the particular Fund can purchase. Dividends paid by
these Funds that come from interest on municipal obligations will be taxable to
shareholders.
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The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by specific purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser, under the supervision of the Board of Trustees, will determine the
credit quality of any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds and the Adviser rely on these
opinions and do not intend to review the basis for them.
Municipal obligations purchased by each Fund may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described below under "Foreign
Securities," foreign letters of credit and guarantees involve certain risks in
addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The BALANCED, MANAGED BOND, and PRIME FUNDS and, to
a limited extent, the EQUITY and SMALL CAPITALIZATION FUNDS, may purchase
corporate bonds and cash equivalents that meet a Fund's quality and maturity
limitations. These investments may include obligations issued by Canadian
corporations and Canadian counterparts of U.S. corporations, Eurodollar bonds,
which are U.S. dollar-denominated obligations of foreign issuers, Yankee bonds,
which are U.S. dollar-denominated bonds issued by foreign issuers in the U.S.,
and equipment trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The BALANCED, MANAGED BOND and PRIME FUNDS, and, to a
limited extent, the EQUITY, and SMALL CAPITALIZATION FUNDS may, purchase
certificates of deposit ("CDs"), bankers'
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acceptances, notes and time deposits issued or supported by U.S. or foreign
banks and savings institutions that have total assets of more than $1 billion.
These Funds may also invest in CDs and time deposits of domestic branches of
U.S. banks that have total assets of less than $1 billion if the CDs and time
deposits are insured by the FDIC. Investments in foreign banks and foreign
branches of U.S. banks will not make up more than 25% of a Fund's total assets
when the investment is made. (To the extent permitted by the SEC, bank
obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing savings deposits in amounts not exceeding 5% of their
total assets.
REPURCHASE AGREEMENTS. EACH FUND may buy portfolio securities subject to
the seller's agreement to repurchase them at an agreed upon time and price.
These transactions are known as repurchase agreements. A Fund will enter into
repurchase agreements only with financial institutions deemed to be creditworthy
by the Adviser, pursuant to guidelines established by the Board of Trustees.
During the term of any repurchase agreement, the Adviser will monitor the
creditworthiness of the seller, and the seller must maintain the value of the
securities subject to the agreement in an amount that is greater than the
repurchase price. Default or bankruptcy of the seller would, however, expose a
Fund to possible loss because of adverse market action or delays connected with
the disposition of the underlying obligations. Because of the seller's
repurchase obligations, the securities subject to repurchase agreements do not
have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. These instruments may include variable amount master
demand notes, which are instruments under which the indebtedness, as well as the
interest rate, varies. For the Prime Fund only, if rated, variable and floating
rate instruments must be rated in the highest short-term rating category by an
NRSRO. If unrated, such instruments will need to be determined to be of
comparable quality. Unless guaranteed by the U.S. Government or one of its
agencies or instrumentalities, variable or floating rate instruments purchased
by the Prime Fund must permit the Fund to demand payment of the instrument's
principal at least once every thirteen months. Because of the absence of a
market in which to resell a variable or floating rate instrument, a Fund might
have trouble selling an instrument should the issuer default or during periods
when a Fund is not permitted by agreement to demand payment of the instrument,
and for this or other reasons a loss could occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. Each Fund may invest in stripped securities
that have been issued by a federal instrumentality known as the Resolution
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Treasury, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities Program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently. Each Fund may also invest in instruments that
have been stripped by their holder,
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typically a custodian bank or investment brokerage firm, and then resold in a
custodian receipt program under names you may be familiar with such as Treasury
Investors Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS").
In addition, each Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. If the underlying obligations experience greater than
anticipated prepayments, a Fund may fail to fully recoup its initial investment.
The market value of the class consisting entirely of principal payments can be
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-backed obligations because their
cash flow patterns are also volatile and there is a greater risk that the
initial investment will not be fully recouped. SMBS issued by the U.S.
Government (or a U.S. Government agency or instrumentality) may be considered
liquid under guidelines established by the Board of Trustees if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of a Fund's per share net asset value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the extent
shareholders request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The
BALANCED, MANAGED BOND and PRIME FUNDS may invest in bank investment contracts
("BICs") issued by banks that meet the asset size requirements described above
under "Bank Obligations" and may also invest in guaranteed investment contracts
("GICs") issued by highly rated U.S. insurance companies that have assets of $1
billion or more and meet the quality and credit standards established by the
Adviser pursuant to guidelines approved by the Board of Trustees. Pursuant to a
BIC or GIC, a Fund would make cash contributions to a deposit account at a bank
or insurance company. These contracts are general obligations of the issuing
bank or insurance company and are paid from the general assets of the issuing
entity. In return for its cash contribution, a Fund would receive interest from
the issuing entity at either a negotiated fixed or floating rate. Because BICs
and GICs are generally not assignable or transferable without the permission of
the bank or insurance company involved, and an active secondary market does not
currently exist for these instruments, they are considered illiquid securities
and are subject to a Fund's limitation on such investments as described below
under "Managing Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The BALANCED, MANAGED BOND and PRIME
FUNDS may purchase from domestic financial institutions and trusts created by
such institutions participation interests and trust receipts in high quality
debt securities. A participation interest or receipt gives a Fund an undivided
interest in the security in the proportion that a Fund's participation interest
or receipt
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bears to the total principal amount of the security. Each Fund intends only to
purchase participations and trust receipts from an entity or syndicate, and do
not intend to serve as a co-lender in any such activity. As to certain
instruments for which a Fund will be able to demand payment, a Fund intends to
exercise its right to do so only upon a default under the terms of the security,
as needed to provide liquidity, or to maintain or improve the quality of its
investment portfolio. It is possible that a participation interest or trust
receipt may be deemed to be an extension of credit by a Fund to the issuing
financial institution rather than to the obligor of the underlying security and
may not be directly entitled to the protection of any collateral security
provided by the obligor. In such event, the ability of a Fund to obtain
repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objectives.
INTEREST RATE SWAPS, FLOORS AND CAPS. The MANAGED BOND and BALANCED FUNDS
may enter into interest rate swaps and purchase interest rate floors or caps in
order to protect their net asset value from interest rate fluctuations and to
hedge against fluctuations in the floating rate market in which a Fund's
investments are traded. A Fund would expect to enter into these hedging
transactions primarily to preserve the return or spread of a particular
investment or portion of its portfolio and to protect against an increase in the
price of securities a Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the
extent a specified index fell below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
floor. The purchase of an interest rate cap by a Fund would entitle it, to the
extent that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
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are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Deposition, Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When the Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either liquid
assets or high grade debt securities that have a value equal to or more than the
price the Fund must pay when it buys back the securities, and the account will
be continuously monitored to make sure the appropriate value is maintained.
Reverse repurchase agreements may be used to meet redemption requests without
selling portfolio securities. Reverse repurchase agreements involve the possible
risk that the value of portfolio securities the Fund relinquishes may decline
below the price the Fund must pay when the transaction closes. Interest paid by
the Fund in a reverse repurchase or other borrowing transaction will reduce the
Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, securities
loans will be made only to parties the Adviser deems to be of good standing, and
will only be made if the Adviser thinks the possible rewards from such loans
justify the possible risks. A loan will not be made if, as a result, the total
amount of a Fund's outstanding loans exceeds 30% of its total assets. Securities
loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED and MANAGED BOND FUNDS may enter into
transactions known as "mortgage dollar rolls" in which a Fund sells
mortgage-backed securities for current delivery and simultaneously contracts to
repurchase substantially similar securities in the future at a specified price
which reflects an interest factor and other adjustments. During the roll period,
a Fund does not receive principal and interest on the mortgage-backed
securities, but it is compensated by the difference between the current sales
price and the lower forward price for the future purchase as well as by the
interest earned on the cash proceeds of the initial sale. Unless a roll has been
structured so that it is "covered," meaning that there exists an offsetting cash
or cash-equivalent security position that will mature at least by the time of
settlement of the roll transaction, cash, U.S Government securities or other
liquid high grade debt instruments in the amount of the future purchase
commitment will be
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set apart for a Fund involved in a separate account at the custodian. Mortgage
rolls are not a primary investment technique for each of these Funds, and it is
expected that, under normal market conditions, a Fund's commitments under
mortgage rolls will not exceed 10% of the value of its total assets.
CONVERTIBLE SECURITIES. The EQUITY, SMALL CAPITALIZATION, BALANCED and
MANAGED BOND FUNDS may invest in convertible securities, including bonds, notes
and preferred stock, that may be converted into common stock either at a stated
price or within a specified period of time. By investing in convertibles, a Fund
is looking for the opportunity, through the conversion feature, to participate
in the capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock.
None of the assets of the Managed Bond Fund, and no more than 15% of the
total assets of the Equity, Small Capitalization and Balanced Funds, may be
invested in convertible securities rated below investment grade at the time of
purchase. Non-investment grade convertible securities must be rated "B" or
higher by at least one NRSRO. Non-investment grade securities are commonly
referred to as "junk" bonds and present a greater risk as to the timely
repayment of the principal, interest and dividends. Particular risks include (a)
the sensitivity of such securities to interest rate and economic changes, (b)
the lower degree of protection of principal and interest payments, (c) the
relatively low trading market liquidity for the securities, (d) the impact that
legislation may have on the market for these securities (and, in turn, on a
Fund's net asset value) and (e) the creditworthiness of the issuers of such
securities. During an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
negatively, affect their ability to meet their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. An economic downturn could also disrupt the market for lower rated
convertible securities and negatively affect the value of outstanding securities
and the ability of the issuers to repay principal and interest. If the issuer of
a convertible security held by a Fund defaulted, that Fund could incur
additional expenses to seek recovery. Adverse publicity and investor
perceptions, whether or not they are based on fundamental analysis, could also
decrease the value and liquidity of lower-rated convertible securities held by a
Fund, especially in a thinly traded market.
OPTIONS. EACH FUND (except the Prime Fund) may write covered call options,
buy put options, buy call options and sell, or "write," secured put options on
particular securities or various securities indices. A call option for a
particular security gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. Options may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation, which performs the
obligations of its members if they default.
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<PAGE>
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
FUTURES AND RELATED OPTIONS. EACH FUND (except the Prime Fund) may invest
to a limited extent in futures contracts and options on futures contracts in
order to gain fuller exposure to movements of security prices pending
investment, for hedging purposes or to maintain liquidity. Futures contracts
obligate a Fund, at maturity, to take or make delivery of certain securities or
the cash value of a securities index. A Fund may not purchase or sell a futures
contract (or related option) unless immediately after any such transaction the
sum of the aggregate amount of margin deposits on its existing futures positions
and the amount of premiums paid for related options is 5% or less of its total
assets (after taking into account certain technical adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price at any time during the option period. When a Fund
sells an option on a futures contract, it becomes obligated to purchase or sell
a futures contract if the option is exercised. In anticipation of a market
advance, a Fund may purchase call options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser has determined pursuant to guidelines adopted
by the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this limitation. This investment practice could have
the effect of increasing the level of illiquidity in a Fund during any period
that qualified institutional buyers were no longer interested in purchasing
these restricted securities.
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PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, the annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced and Managed Bond Funds were 104%, 229%, 87%, and
92%, respectively.
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers(including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve further
risks associated with the level of currency exchange rates, less complete
financial information about the issuer, less market liquidity and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Investments in foreign securities may be in the form of ADRs, EDRs and
similar securities. These securities may not be denominated in the same currency
is the securities they represent. ADRs are receipts typically issued by a United
States bank or trust company, and EDRs are receipts issued by a European
financial institution evidencing ownership of the underlying foreign securities.
ADRs, in registered form, are designed for use in the United States securities
markets, while EDRs, in bearer form, are generally designed for use in the
European securities market.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing, market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Managed Bond and Prime Funds may purchase zero-coupon bonds (I.E., discount debt
obligations that do not make periodic interest payments). Zero-coupon bonds are
subject to greater market fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Changes in the financial strength of
an issuer or changes in the ratings of any particular
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<PAGE>
security may also affect the value of these investments. Fluctuations in the
market value of fixed income securities subsequent to their acquisition will not
affect cash income from such securities but will be reflected in a Fund's net
asset values.
In addition the Balanced, Managed Bond and Prime Funds may purchase
custodial receipts, tender option bonds and certificates of participation in
trusts that hold municipals or other types of obligations. A certificate of
participation gives a Fund an individual, proportionate interest in the
obligation, and may have a variable or fixed rate. Because certificates of
participation are interests in obligations that may be funded through government
appropriations, they are subject to the risk that sufficient appropriations as
to the timely payment of principal and interest on the obligations may not be
made. The NRSRO quality rating of an issue of certificates of participation is
normally based upon the rating of the obligations held by the trust and the
credit rating of the issuer of any letter of credit and of any other guarantor
providing credit support to the issue.
These Funds, with the exception of the Prime Fund, may also hold other
derivative instruments, which may be in the form of participations and custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment, or both, and bonds that have interest rates that reset
inversely to changing short-term rates and/or have imbedded interest rate floors
and caps. Many of these derivative instruments are proprietary products that
have been recently developed by investment banking firms, and it is uncertain
how these instruments will perform under different economic and interest-rate
scenarios. In addition, to the extent that the market value of these instruments
is leveraged, they may be more volatile than other types of obligations and may
present greater potential for capital gain or loss. In some cases it may be
difficult to determine the fair value of a derivative instrument because of a
lack of reliable objective information, and an established secondary market for
some instruments may not exist.
Payment on municipal obligations held by a Fund relating to certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments. Should
a foreclosure occur, collection of the proceeds from that foreclosure may be
delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment, However, each Fund also has in place certain "fundamental
limitations" that cannot be changed for a Fund without the approval of a
majority of the Fund's outstanding shares. Some of these fundamental limitations
are summarized below, and all of the Funds' fundamental limitations are set out
in full in the Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be invested
in the securities of any one issuer, except
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that up to 25% of the total assets of each Fund can be invested without regard
to the 5% limitation. A Fund may not purchase more than 10% of the outstanding
voting securities of any issuer subject, however, to the foregoing 25%
exception.
3. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
-------------------
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS. Barnett is the
largest trust organization headquartered in Florida and has notable experience
in providing professional investment management services. Organized as a
national banking association in 1974, it is the successor to the business of
earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered bank holding company that has
offered general banking services since 1977.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis.
PURCHASE OF SHARES
Institutional Shares are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares are sold to Barnett and its affiliates, as well as to
Barnett's correspondent banks and other institutions ("Institutions") acting on
behalf of themselves or their customers who maintain qualified trust, agency or
custodial accounts ("Customers"). Customers may include individuals, trusts,
partnerships and corporations. All share purchases are effected through a
Customer's account at Barnett or another Institution through procedures
established in connection with the requirements of the account, and
confirmations of share purchases and redemptions will be sent to Barnett or the
other Institution involved. Barnett and other Institutions (or their nominees)
will normally be the holders of record of Institutional Shares acting on behalf
of their Customers, and will reflect their Customers' beneficial ownership of
shares in the account statements provided by them to
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their Customers. The exercise of voting rights and the delivery to Customers of
shareholder communications from the Funds will be governed by the Customers'
account agreements with Barnett and other Institutions.
Institutional Shares are sold at the net asset value per share next
determined after receipt of a purchase order from an Institution by the Funds'
transfer agent. The minimum initial investment in a Fund (other than the Prime
Fund) for an Institution is $250,000 with no minimum subsequent investment. The
minimum initial investment in the Prime Fund for an Institution is $5,000 and
the minimum subsequent investment is $100. Barnett and other Institutions may
establish different minimum investment requirements for their Customers. For
examples there is no minimum initial investment for transfers of assets by
Barnett's Customers from other banks or financial institutions. Barnett and
other Institutions may also charge their Customers certain account fees
depending on the type of account a Customer has established with the
Institution. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
The Equity and Fixed Income Funds may have different business days from
those of the Prime Fund. A "Business Day" for the Equity and Fixed Income Funds
is any day on which the New York Stock Exchange (the "Exchange") is open for
business, while for the Prime Fund it is any day on which both the Exchange and
the Fund's Custodian are open for business. Additionally, on days when the
Exchange (and/or the Custodian for the Prime Fund) closes early due to a partial
holiday or otherwise, the Funds reserve the right to advance the times at which
purchase and redemption orders must be received in order to be processed on that
Business Day.
For all Funds except the Prime Fund, purchase orders placed by an
Institution for Institutional Shares must be received by the Funds' transfer
agent before the close of regular trading hours (currently 4:00 p.m. Eastern
time) on the New York Stock Exchange (the "Exchange") on a Business Day. Payment
for Institutional Shares must be made by Institutions in federal funds or other
funds immediately available to the Funds' custodian no later than 4:00 p.m.
(Eastern time) on the Business Day immediately following placement of the
purchase order.
Purchase orders for the Prime Fund must be received by 2:00 p.m. (Eastern
time) on a Business Day to be effective. Purchases for Institutional Shares of
the Prime Fund will be effected only on days on which Emerald Funds and the
purchasing Institutions are open for business and only when federal funds or
other funds are immediately available to the Fund's transfer agent to make the
purchase on the day it receives the purchase order. Institutions may transmit
purchase orders for shares of the Prime Fund by telephoning the transfer agent
c/o the Distributor at 1-800-367-5905 not later than 2:00 p.m. (Eastern time) on
any Business Day. If federal funds are not available with respect to any such
order by the close of business on the day the order is received by the transfer
agent, the order will be cancelled. In addition, any purchase order received by
the transfer agent after 2:00 p.m. (Eastern time) will not be accepted, and
notice thereof will be given to the Institution placing the order. Any funds
received in connection with late orders will be returned promptly.
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Each Fund observes the following, holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). In addition, the Prime Fund
observes the following additional holidays: Martin Luther King, Jr. Day,
Columbus Day and Veterans Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by the Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares are
redeemed. Barnett and other Institutions may charge fees to their Customers for
their services in connection with investments. Shares held by an Institution on
behalf of its Customers must be redeemed in accordance with the instructions and
limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash. The Funds may also redeem
shares involuntarily if the balance has fallen below the minimum level due to
shareholder redemptions, not due to market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
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Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for all Funds (except the Prime Fund) are normally wired in federal funds to the
redeeming Institution the Business Day following receipt of the order by the
transfer agent. Payment for Prime Fund redemption orders which are received by
the transfer agent before 2:00 p.m. (Eastern time) on a Business Day will
normally be wired in federal funds the same day. Payment for Prime Fund
redemption orders which are received between 2:00 p.m. (Eastern time) and the
close of business or on a non-Business Day will normally be wired in federal
funds on the next Business Day. Emerald Funds reserves the right, however, to
delay the wiring of redemption proceeds for up to seven days after receipt of a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect a Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the Managed Bond Fund, net investment income comes from the interest on
the bonds and other investments that it holds in its portfolio. For the Equity,
Small Capitalization and Balanced Funds net investment income is made up of
dividends received from the stocks they hold, as well as interest accrued on
convertible securities, money market instruments and other debt obligations held
in their portfolios. For the Prime Fund, net investment income flows from the
interest that the Fund earns on the money market and other investments it holds.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net capital gains, if any, after
any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund for which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
<TABLE>
<S> <C>
Emerald Equity and Fixed Income Funds Emerald Prime Fund
P.O. Box 182697 100 First Avenue, Suite 300
Columbus, OH 43218-2697 Pittsburgh, PA 15222
</TABLE>
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Small Capitalization and Balanced Funds) or payment
dates (with respect to the Managed Bond and Prime Funds) after the date the
Funds' transfer agent receives the election.
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WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUNDS DECLARED PAID
- ----- --------- -------------------
<S> <C> <C> <C>
(1) Equity and Balanced..................... Quarterly Quarterly
(2) Small Capitalization.................... Annually Annually
(3) Managed Bond and Prime.................. Daily Monthly within five
business days after
month end
</TABLE>
- ------------
(1) Dividends for the Equity and Balanced Funds may be declared and paid at
times that do not fall at the end of a calendar quarter.
(2) Dividends for the Small Capitalization Fund may be declared and paid at
times that do not fall at the end of a calendar year.
(3) Shares of the Managed Bond Fund begin earning dividends the first Business
Day after acceptance of the purchase order for which Emerald Funds'
custodian has received payment, and stop earning dividends on the Business
Day such shares are redeemed. Shares of the Prime Fund begin earning
dividends on the day a purchase order is accepted and payment in federal
funds is received by the Fund's Custodian, and continue to earn dividends
through the day before they are redeemed.
With respect to the Managed Bond Fund, if all of the Institutional Shares
held by an Institution in such a Fund are redeemed, the Fund will pay accrued
dividends within five Business Days after redemption. With respect to the Prime
Fund, if all the Institutional Shares held by an Institution in such Funds are
redeemed, the Fund will pay dividends within five Business Days after the end of
each month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund other than the Prime Fund, and at
2:00 p.m. (Eastern time) with respect to the Prime Fund, by adding the value of
a Fund's investments, cash and other assets allocated to its Institutional
Shares, subtracting the Fund's liabilities allocated to those shares, and then
dividing the result by the number of Institutional Shares in the Fund that are
outstanding. The assets of the Funds (except the Prime Fund) are valued at
market value or, if market quotes cannot be readily obtained, fair value is used
as determined by the Board of Trustees. Debt securities held by these Funds that
have sixty days or less until they mature are valued at amortized cost, which
generally approximates market value. All securities of the Prime Fund are valued
at amortized cost. More information about valuation can be found in the Funds'
Statement of Additional Information, which you may request by calling
800/637-3759.
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EXCHANGE PRIVILEGE
If you wish, Institutional Shares of a Fund may be exchanged for Retail
Shares of the same Fund in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of Barnett or another bank, trust company, or thrift institution.
Similarly, a Customer may exchange Retail Shares for Institutional Shares of the
same Fund if the shares are to be held in such a qualified trust, agency or
custodial account. These exchanges are made at the net asset value of the
respective share classes. The particular class of shares you are exchanging into
must be registered for sale in your state.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to the services these companies provide, as well as more information regarding
investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares, on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
TRANSFER AGENT
BISYS FUND SERVICES INC.
BISYS Fund Services Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business
trust, and is a mutual fund of the type known as an "open-end management
investment company." The Agreement and Declaration of Trust permits the Board of
Trustees of Emerald Funds to classify any unissued
29
<PAGE>
shares into one or more classes of shares. Pursuant to such authority, the Board
of Trustees has authorized the issuance of an unlimited number of shares in each
of three share classes of the Funds. Each Fund is classified as diversified
company. The Board of Trustees has also authorized the issuance of additional
classes of shares representing interests in other portfolios of Emerald Funds.
Information regarding these other portfolios and share classes may be obtained
by contacting the Distributor at the address listed on page 24.
The Institutional Shares of the Funds are described in this prospectus.
These Funds also offer Retail Shares and, additionally, the Prime Fund offers
Service Shares. Shares of each share class of a Fund bear a pro rata portion of
all operating expenses incurred by the Funds, except for certain miscellaneous
"class expenses", (I.E. certain printing and registration expenses). In
addition, Retail Shares bear all payments under the Combined Distribution and
Service Plan and Shareholder Processing Plan for Retail Shares (the "Retail
Plans") and Service Shares bear all payments under the Shareholder Processing
and Service Plan for Service Shares (the "Service Plan") as described in the
prospectuses for those shares. Under the Plans, the Distributor and Service
Organizations receive fees for distribution and shareholder and administrative
support services.
Payments under the Retail Plans may not exceed .50% (on an annual basis) of
the average daily net asset value of outstanding Retail Shares. Payments under
the Service Plan may not exceed .35% (on an annual basis) of the average daily
net asset value of the outstanding Service Shares. Because of the Plan and other
"class expenses," the performance of a Fund's Institutional Shares is expected
to be higher than the performance of its Retail and Service Shares. The Funds
offer various services and privileges in connection with Retail Shares that are
not generally offered in connection with Institutional Shares and Service
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Retail or Service Shares, contact the
Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
Retail shareholders, however, will vote on matters pertaining to the Retail
Plans. Similarly, only holders of Service Shares will vote matters pertaining to
the Service Plan.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders, to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment power with respect to a majority of the outstanding shares of Emerald
Funds. More information about shareholder voting rights can be found in the
Statement of Additional Information under "Description of Shares."
30
<PAGE>
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership, a wholly-owned subsidiary of The BISYS Group,
Inc. located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc. located at the same address, is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286. The transfer and dividend paying agent for the Equity and Fixed
Income Funds is BISYS Fund Services Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035; for the Prime Fund, BISYS Fund Services Inc., located
at 100 First Avenue, Suite 300, Pittsburgh, PA 15222.
ADVISER. As of December 31, 1995 Barnett had approximately $9.8 billion
under active management, with $3.2 billion in equity securities, $713 million in
taxable fixed income securities, $1.4 billion in treasury and government
securities, $1.5 billion in municipals and $2.8 billion in money market
instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered bank
holding company that has offered general banking services since 1877.
Barnett manages the investment portfolios of the Funds, including selecting
portfolio investments and making purchase and sale orders.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., a Senior Vice
President of Barnett, has been the portfolio manager of the Equity Fund since
September of 1993, and has managed the Balanced Fund since it commenced
operations on April 11, 1994. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in addition to these Funds currently manages a
diversified common stock fund and assists in preparing ongoing equity investment
strategy. Dean McQuiddy, C.F.A., a Vice President with Barnett, has managed the
Small Capitalization Fund since its commencement of operations on January 4,
1994, and also manages the small capitalization portion of the Equity and
Balanced Funds. Since joining Barnett in 1983, Mr. McQuiddy has been an equity
analyst and an institutional portfolio manager, and for the last eight years has
managed Barnett's employee benefits small capitalization
31
<PAGE>
fund. Andrew Cantor, C,F.A., a Senior Vice President with Barnett, has managed
the Managed Bond Fund since it commenced operations on April 11, 1994. For the
past eleven years, Mr. Cantor has served as the senior fixed income manager in
Barnett's Institutional Investments Group, where his responsibilities have
included setting fixed income investment strategy and managing a number of major
taxable fixed income accounts, including several commingled funds.
Although expected to be infrequent, Barnett may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Barnett) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions or
dealer concessions. Barnett will not engage in this practice unless the
execution capability of and the amount received by such broker dealer or other
company is believed to be comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio Limited Partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to a
shareholder or deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the Small Capitalization Fund's average
daily net assets, .60% of each of the Equity and Balanced Funds' average daily
net assets, .40% of the Managed Bond Fund's average daily net assets and .25% of
the Prime Fund's average daily net assets. The advisory fee payable by the Small
Capitalization Fund is higher than those paid by most mutual funds, although the
Board of Trustees believes it is comparable to the advisory fees payable by many
similar funds.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00% and .23% of the average
daily net assets of the Equity, Small Capitalization and Prime Funds,
respectively. Barnett voluntarily waived all fees for the Balanced and Managed
Bond Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds,
32
<PAGE>
.07% of the next $2.5 billion, .065% of the next $2.5 billion and .05% of all
assets exceeding $10 billion. In the event the aggregate average daily net
assets for all Funds falls below $3 billion, the fee will be increased to .08%
of the aggregate average daily net assets of all of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees
and expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings; and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to the fiscal year end. Such waivers and
reimbursements would increase the return to investors when made but would
decrease return if a Fund were required to reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund will be taxable to you.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares. If you hold shares for
33
<PAGE>
six months or less, and during that time receive a distribution that is taxable
as a long-term capital gain, any loss you might realize on the sale of those
shares will be treated as a long-term loss to the extent of the earlier capital
gains distribution.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the Equity,
Small Capitalization, or Balanced Funds the record date of dividends and capital
gains distributions) should be aware that the amount of the forthcoming dividend
or distribution, although in effect a return on capital, will be taxable.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders in the Equity and Fixed Income Funds may realize a taxable gain
or loss when redeeming, transferring or exchanging shares of a Fund, depending
on the difference in the prices at which the shareholder purchased and sold the
shares.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. Shares of the Funds are not expected to qualify
for total exemption from the Florida intangibles tax.
MEASURING PERFORMANCE
- Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote its performance in
advertisements or shareholder communications. The performance for each
Fund's Institutional Shares will be calculated separately from the
performance of a Fund's other classes of shares.
UNDERSTANDING PERFORMANCE MEASURES:
- Total return for each Fund (except the Prime Fund) may be calculated on an
average annual total return basis or an aggregate total return basis.
Average annual total return reflects the average annual percentage change
in value of an investment over the measuring period. Aggregate total
return reflects the total percentage change in value of an investment over
the measuring period. Both measures assume the reinvestment of dividends
and distributions.
- Yields for the Funds (except the Prime Fund) are calculated for a
specified 30-day (or one-month) period by dividing the net income for the
period by the maximum offering price on the last day of the period, and
analyzing the result on a semi-annual basis. The yield for the Prime Fund
is the income generated over a 7-day period (which period will be
identified in the quotation) and then assumed to be generated over a
52-week period and shown as a percentage of the investment. In addition,
the Prime Fund may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than
net income used for accounting purposes.
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual
funds with similar investment objectives and to bond, stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor mutual fund performance.
34
<PAGE>
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Equity and Fixed Income Funds may also be compared to
data prepared by Lipper Analytical Services, Inc., Mutual Fund Forecaster,
Wiesenberger Investment Companies Services, Morningstar or CDA Investment
Technologies, Inc. and total returns for the Funds may be compared to indices
such as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index,
the Lehman Brothers Bond Indicies, the Merrill Lynch Bond Indicies, the Wilshire
5000 Equity Indicies or the Consumer Price Index.
The yield of the Prime Fund may be compared to the Donoghue's Money Fund
Average, which monitors the performance of money market funds. Additionally, the
Prime Fund's performance may be compared to data prepared by Lipper Analytical
Services, Inc.
OTHER PERFORMANCE INFORMATION -- EQUITY, SMALL CAPITALIZATION AND MANAGED BOND
FUNDS ONLY:
The Equity, Small Capitalization and Managed Bond Funds commenced their
initial investment operations in connection with the transfer of assets from
common trust funds managed by the Adviser for employee benefit plan accounts.
Set forth below is certain performance information relating to those common
trust funds before the Equity, Small Capitalization and Managed Bond Funds
registered as investment companies with the Securities and Exchange Commission,
together with the performance information of these Funds since their
commencement of operations. These common trust funds were operated using
substantially the same investment objectives, policies, restrictions and
methodologies as in the corresponding Funds. During that time the common trust
funds were not registered under the 1940 Act and therefore were not subject to
certain investment restrictions that are imposed by the Act. If the common trust
funds had been registered under the 1940 Act, the common trust funds'
performance might have been adversely affected. Because the common trust funds
did not charge any expenses, their performance has been adjusted as stated below
to reflect the Funds' estimated expenses at the time of their inception. The
following performance information is not necessarily indicative of the future
performance of the Funds. Because each Fund is actively managed, its investments
vary from time to time and are not identical to the past portfolio investments
of its predecessor common trust fund. Each Fund's performance fluctuates so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED NOVEMBER 30, 1995
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Equity Fund (1).................................................... 35.21% 9.96% 13.49% 13.20%
Small Capitalization Fund (2)...................................... 32.30% 17.46% 25.58% 12.93%*
Managed Bond Fund (3).............................................. 18.36% 8.54% 10.03% 9.48%**
</TABLE>
- ------------------------
(1) The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of
the predecessor common trust fund, assuming reinvestment of all net
investment income and capital gains and taking into account expenses of
0.49% of average daily net assets, which was the expected expense ratio of
shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Equity Fund also
assume reinvestment of all net investment income and realized capital gains
and take into account actual expenses of Retail Shares of the Fund for the
35
<PAGE>
period from June 28, 1991 to March 1, 1994 and of Institutional Shares of
the Fund thereafter. The average annual total return of the Fund
(Institutional Shares) since its inception to November 30, 1995 is 14.22%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
(2) The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 1.35% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Small Capitalization Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Institutional Shares of the Fund. The average annual total
return of the Fund (Institutional Shares) since its inception to November
30, 1995 is 13.73%. During this period fee waivers and expense
reimbursements were in effect. Without these waivers and reimbursements the
Fund's performance would have been lower.
(3) The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.27% of
average daily net assets, which was the expected expense ratio of
Institutional Shares of the Fund at the time of its inception. The average
annual total returns for the periods subsequent to the inception of the
Managed Bond Fund also assume reinvestment of all net investment income and
realized capital gains and take into account actual expenses of
Institutional Shares of the Fund. The average annual total return of the
Fund (Institutional Shares) since its inception to November 30, 1995 is
10.82%. During this period fee waivers and expense reimbursements were in
effect. Without these waivers and reimbursements the Fund's performance
would have been lower.
* Since inception of common trust fund: 12/31/86.
** Since inception of common trust fund: 4/30/87.
Performance quotations will fluctuate and you should not consider quotations
to be representative of future performance. You should also remember that
performance is generally a function of the kind and quality of investments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Fees that Barnett and other Institutions may charge directly to their Customers
in connection with an investment in the Funds will not be included in Funds'
calculations of total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address on page 24.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
36
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION......................... 3
Expenses............................................................ 3
Financial Highlights................................................ 4
INVESTMENT PRINCIPLES AND POLICIES.................................... 10
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS.................... 13
INVESTING IN EMERALD FUNDS............................................ 24
Your Money Manager.................................................. 24
Purchase of Shares.................................................. 24
Redemption of Shares................................................ 26
Dividends and Distributions......................................... 27
Explanation of Sales Price.......................................... 28
Exchange Privilege.................................................. 29
Other Service Providers............................................. 29
THE EMERALD FAMILY OF FUNDS........................................... 29
THE BUSINESS OF THE FUNDS............................................. 31
Fund Management..................................................... 31
Tax Implications.................................................... 33
Measuring Performance............................................... 34
</TABLE>
EMBSTPLN96P
<PAGE>
EMERALD FUNDS FOR INSTITUTIONS
EMERALD EQUITY FUND
EMERALD EQUITY VALUE FUND
EMERALD INTERNATIONAL EQUITY FUND
EMERALD SMALL CAPITALIZATION FUND
EMERALD BALANCED FUND
EMERALD SHORT-TERM FIXED INCOME FUND
EMERALD U.S. GOVERNMENT SECURITIES FUND
EMERALD MANAGED BOND FUND
EMERALD PRIME FUND
EMERALD TREASURY FUND
INSTITUTIONAL SHARES
P R O S P E C T U S
APRIL 1, 1996
[LOGO]
E M E R A L D
F U N D S
EMIEBMM96P
<PAGE>
For voice recorded price information for the
Equity and Fixed Income Funds call 800/548-6546
For yield information for the
Prime and Treasury Funds call 800/367-5905
<PAGE>
EMERALD FUNDS
<TABLE>
<CAPTION>
April 1, 1996
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- --------------------- -------------------------------- --------------------------------
EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long-term and are willing to
high quality common stocks and, accept the relative risks
secondarily, potential dividend associated with equity
income growth investments
<S> <C> <C>
- -----------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation Long-term capital appreciation
with income as a secondary and are willing to accept the
objective through investments relative risks associated with
primarily in common and investments in undervalued
preferred stock and debt stocks
securities convertible into
common stock
- -----------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long-term and are willing to
equity securities of foreign accept the relative risks
issuers associated with foreign
investments.
- -----------------------------------------------------------------------------------------
SMALL CAPITALIZATION Long-term capital appreciation Long-term rewards that may
exceed those provided by a fund
investing in larger, more
established companies and are
willing to accept the relative
risks of smaller companies
- -----------------------------------------------------------------------------------------
BALANCED Attractive investment return Asset allocation among equity
through a combination of growth securities, fixed income
of capital and current income securities and cash equivalents
in light of prevailing market
and economic conditions
- -----------------------------------------------------------------------------------------
SHORT-TERM FIXED Consistently positive current Current income greater than
INCOME income with relative stability normally available from a money
of principal through investments market fund and less principal
in investment grade securities volatility than normally
and high quality money market associated with a long-term fund
instruments
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income Current income from U.S.
SECURITIES through investments principally Government securities and can
in U.S. Government securities accept fluctuations in price and
and repurchase agreements yield
- -----------------------------------------------------------------------------------------
MANAGED BOND High level of current income Current income from corporate
and, secondarily, capital and government securities and
appreciation can accept fluctuations in price
and yield
- -----------------------------------------------------------------------------------------
PRIME High current income, liquidity A flexible and convenient way to
and the preservation of capital manage cash while earning money
through investments in market returns
short-term money market
instruments
- -----------------------------------------------------------------------------------------
TREASURY High current income, liquidity A way to earn money market
and the preservation of capital returns with the extra margin of
through investments in safety associated with U.S.
short-term U.S. Treasury Treasury Obligations
obligations, as well as related
repurchase agreements
- -----------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. Please read and keep it for future reference. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. WHILE THE PRIME AND TREASURY FUNDS WILL ATTEMPT TO
MAINTAIN THEIR NET ASSET VALUE AT $1.00 A SHARE, THERE CAN BE NO ASSURANCE THAT
THESE FUNDS WILL BE ABLE TO DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN
ADDITION, THE DIVIDENDS PAID BY A FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST
COMPANY, N.A. SERVES AS INVESTMENT ADVISOR TO THE FUNDS, IS PAID A FEE FOR ITS
SERVICES, AND IS NOT AFFILIATED WITH EMERALD ASSET MANAGEMENT, INC., THE FUNDS'
DISTRIBUTOR.
MISSOURI INVESTOR NOTICE: THE EMERALD SMALL CAPITALIZATION FUND, WHICH
CONCENTRATES ITS INVESTMENTS IN COMPANIES WITH SMALLER CAPITALIZATIONS, MAY BE
SUBJECT TO GREATER PRICE VOLATILITY THAN A FUND THAT CONCENTRATES ITS
INVESTMENTS IN LARGER CAPITALIZATION STOCKS. IN ADDITION, UP TO 15% OF THE TOTAL
ASSETS OF THE EQUITY, SMALL CAPITALIZATION AND BALANCED FUNDS MAY BE INVESTED IN
CONVERTIBLE SECURITIES RATED BELOW INVESTMENT GRADE AT THE TIME OF PURCHASE AND
ALL OF THE FUNDS MAY RETAIN SECURITIES THAT HAVE BEEN DOWNGRADED TO BELOW
INVESTMENT GRADE AFTER PURCHASE. EACH FUND MAY SELL PORTFOLIO SECURITIES SHORTLY
AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN HIGHER TRANSACTION COSTS AND
TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
general Fund administration, accounting and other services.
Below is information regarding the shareholder transaction expenses and
operating expenses for Institutional Shares of the Equity, Equity Value,
International Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
U.S. Government Securities, Managed Bond, Prime and Treasury Funds. Examples
based on this information are also provided.
<TABLE>
<CAPTION>
EQUITY SMALL
EQUITY VALUE INTERNATIONAL CAPITALIZATION BALANCED
FUND FUND EQUITY FUND FUND FUND
--------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases................ None None None None None
Sales Charge Imposed on Reinvested Dividends............... None None None None None
Deferred Sales Charge...................................... None None None None None
Redemption Fee............................................. None None None None None
Exchange Fee............................................... None None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees.............................................. 0.60% 0.60% 1.00% 1.00% 0.60%
All Other Expenses (After Expense Reimbursements).......... 0.19% 0.30% 0.40% 0.25% 0.24%
--------- --------- ------ ------ -----------
Total Fund Operating Expenses (After Expense
Reimbursements)*.......................................... 0.79% 0.90% 1.40% 1.25% 0.84%
--------- --------- ------ ------ -----------
--------- --------- ------ ------ -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
U.S.
SHORT-TERM GOVERNMENT
FIXED INCOME SECURITIES MANAGED PRIME TREASURY
FUND FUND BOND FUND FUND FUND
------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases............. None None None None None
Sales Charge Imposed on Reinvested Dividends............ None None None None None
Deferred Sales Charge................................... None None None None None
Redemption Fee.......................................... None None None None None
Exchange Fee............................................ None None None None None
ANNUAL FUND OPERATING EXPENSES AFTER FEE WAIVERS AND
EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees (After Fee Waivers)....................... 0.40% 0.40% 0.40% 0.23% 0.24%
All Other Expenses (After Expense Reimbursements)....... 0.20% 0.21% 0.21% 0.14% 0.14%
------ ----------- ----------- --------- -----------
Total Fund Operating Expenses (After Fee Waivers and
Expense Reimbursements)*............................... 0.60% 0.61% 0.61% 0.37% 0.38%
------ ----------- ----------- --------- -----------
------ ----------- ----------- --------- -----------
</TABLE>
- ------------
* This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the Funds.
The operating expenses for the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Prime and
Treasury Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the
last fiscal year. The operating expenses for the Equity Value and
International Equity Funds are based on estimated expenses expected to be
incurred during the remainder of the current fiscal year.
Without fee waivers by the Adviser, investment management fees as a percentage
of net assets would be 0.25% for each of the Prime and Treasury Funds. Absent
these waivers and other expense reimbursements, the total operating expenses
for the Institutional Shares of the Short-Term Fixed Income, Prime and
Treasury Funds would be 0.84%, 0.40% and 0.40%, respectively.
The Adviser may waive its fee and/or reimburse expenses of the Funds from time
to time. These waivers and reimbursements are voluntary and may be terminated
at any time with respect to any Fund without the consent of the Fund. You
should note that any fees that are charged by the Adviser, its affiliates or
any other institutions directly to their customer accounts for services
related to an investment in the Funds are in addition to, and not reflected
in, the fees and expenses described above.
4
<PAGE>
EXAMPLE: Let's say, hypothetically, that the annual return on the
Institutional Shares of each Fund is 5%, and that their operating expenses are
as described above. For every $1,000 you invested in a particular Fund, after
the periods shown below, you would have paid this much in expenses during such
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund....................................... $ 8 $25 $44 $ 98
Equity Value Fund................................. $ 9 $29 N/A N/A
International Equity Fund......................... $14 $44 N/A N/A
Small Capitalization Fund......................... $13 $40 $68 $151
Balanced Fund..................................... $ 9 $27 $47 $104
Short-Term Fixed Income Fund...................... $ 6 $19 $33 $ 75
U.S. Government Securities Fund................... $ 6 $20 $34 $ 76
Managed Bond Fund................................. $ 6 $20 $34 $ 76
Prime Fund........................................ $ 4 $12 $21 $ 47
Treasury Fund..................................... $ 4 $12 $21 $ 48
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENT OF
ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR. THE EMERALD EQUITY VALUE FUND AND INTERNATIONAL EQUITY FUND WERE
NOT OPERATIONAL DURING THE PERIODS PRESENTED.
DURING THE FISCAL YEARS 1993 AND 1992 AND THE PERIOD ENDED NOVEMBER 30,
1991, THE EQUITY FUND AND U.S. GOVERNMENT SECURITIES FUNDS DID NOT OFFER
INSTITUTIONAL SHARES. RATHER, EACH FUND OFFERED A SEPARATE SHARE CLASS, NOW
CALLED RETAIL SHARES, TO BOTH INSTITUTIONAL AND RETAIL INVESTORS. THE FOLLOWING
INFORMATION REGARDING RETAIL SHARES IS PROVIDED TO GIVE YOU A LONGER TERM
PERSPECTIVE OF THE FUNDS' FINANCIAL HISTORY. FOR A DESCRIPTION OF THE
CHARACTERISTICS AND EXPENSES OF RETAIL SHARES, SEE "THE EMERALD FAMILY OF
FUNDS."
5
<PAGE>
EMERALD EQUITY FUND
Financial highlights for an Institutional Share and a Retail Share of the
Equity Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
--------------------------------------------------------
INSTITUTIONAL SHARES
-------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ----------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 10.89 $ 11.94 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------ ------------ ------------- ------------ ------------ -------------
Income from investment operations:
Net investment income............... 0.08 0.11 0.08 0.15 0.16 0.12
Net realized and unrealized gains
(losses) on securities............. 3.74 (0.90) (0.39) (0.08) 1.73 0.24
------------ ------------ ------------- ------------ ------------ -------------
Total income (loss) from investment
operations......................... 3.82 (0.79) (0.31) 0.07 1.89 0.36
------------ ------------ ------------- ------------ ------------ -------------
Less dividends and distributions:
Dividends from net investment
income............................. (0.08) (0.11) (0.08) (0.15) (0.16) (0.12)
Distributions from net realized
gains on securities................ (0.00) (0.15) (0.57) (0.07) (0.00) (0.00)
------------ ------------ ------------- ------------ ------------ -------------
Total dividends and distributions... (0.08) (0.26) (0.65) (0.22) (0.16) (0.12)
------------ ------------ ------------- ------------ ------------ -------------
Net change in net asset value......... 3.74 (1.05) (0.96) 0.15) 1.73 0.24
------------ ------------ ------------- ------------ ------------ -------------
NET ASSET VALUE, END OF PERIOD........ $ 14.63 $ 10.89 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
Total return.......................... 35.21% (6.62%)++ (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 173,824 $ 164,015 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to average net
assets............................. 0.84% 0.79%+ 1.07%** 0.86%** 0.76%** 0.00%+
Ratio of net investment income to
average net assets................. 0.67% 1.46%+ 0.36%** 1.22%** 1.41%** 2.64%+**
Portfolio turnover.................. 104% 113% 113% 102% 40% 13%
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
6
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.66 $ 10.00
-------- --------
Income from investment operations:
Net investment loss..................................................... (0.03) (0.04)
Net realized and unrealized gains (losses) on securities................ 3.15 (0.30)
-------- --------
Net change in net asset value........................................... 3.12 (0.34)
-------- --------
NET ASSET VALUE, END OF PERIOD............................................ $ 12.78 $ 9.66
-------- --------
-------- --------
Total return.............................................................. 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 88,561 $ 53,509
Ratio of expenses to average net assets................................. 1.39% 1.29%+
Ratio of net investment loss to average net assets...................... (0.65%) (0.54%)+
Ratio of expenses to average net assets**............................... 1.42% 1.48%+
Ratio of net investment loss to average net assets**.................... (0.68%) (0.73%)+
Portfolio turnover...................................................... 229% 118%
</TABLE>
- ------------
* For the period January 4, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
7
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $ 9.63 $ 10.00
-------- --------
Income from investment operations:
Net investment income................................................... 0.33 0.27
Net realized and unrealized gains (losses) on securities................ 2.28 (0.37)
-------- --------
Total income (loss) from investment operations............................ 2.61 (0.10)
-------- --------
Less dividends and distributions:
Dividends from net investment income.................................... (0.33) (0.25)
Distributions in excess of net investment income........................ (0.00) (0.02)
-------- --------
Total dividends and distributions....................................... (0.33) (0.27)
-------- --------
Net change in net asset value........................................... 2.28 (0.37)
-------- --------
NET ASSET VALUE, END OF PERIOD............................................ $ 11.91 $ 9.63
-------- --------
-------- --------
Total return.............................................................. 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................ $ 73,830 $ 51,170
Ratio of expenses to average net assets................................. 0.32% 0.28%+
Ratio of net investment income to average net assets.................... 3.54% 4.11%+
Ratio of expenses to average net assets**............................... 1.10% 1.25%+
Ratio of net investment income to average net assets**.................. 2.76% 3.14%+
Portfolio turnover...................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
8
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for an Institutional Share of the Short-Term Fixed
Income Fund throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.74 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.61 0.35
Net unrealized gains (losses) on securities............................ 0.41 (0.26)
-------- --------
Total income (loss) from investment operations......................... 1.02 0.09
-------- --------
Dividends from net investment operations................................. (0.61) (0.35)
-------- --------
Net change in net asset value............................................ 0.41 (0.26)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.15 $ 9.74
-------- --------
-------- --------
Total return............................................................. 10.80% (0.90%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 14,037 $ 23,566
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 6.14% 5.55%+
Ratio of expenses to average net assets**.............................. 1.43% 1.60%+
Ratio of net investment income to average net assets**................. 5.03% 4.24%+
Portfolio turnover..................................................... 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
9
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for an Institutional Share and a Retail Share of U.S.
Government Securities Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
---------------------------------------------------------
INSTITUTIONAL SHARES
---------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991+
------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 9.71 $ 10.47 $ 10.79 $ 10.52 $ 10.46 $ 10.00
------------- ------------- ------------- ------------ ------------- -------------
Income from investment operations:
Net investment income............... 0.68 0.46 0.58 0.66 0.77 0.27
Net realized and unrealized gains
(losses) on securities............. 0.65 (0.75) (0.94) 0.41 0.12 0.46
------------- ------------- ------------- ------------ ------------- -------------
Total income (loss) from investment
operations......................... 1.33 (0.29) (0.36) 1.07 0.89 0.73
------------- ------------- ------------- ------------ ------------- -------------
Less dividends and distributions:
Dividends from net investment
income............................. (0.68) (0.46) (0.58) (0.66) (0.77) (0.27)
Distributions from net realized
gains on securities................ (0.00) (0.01) (0.10) (0.14) (0.06) (0.00)
Distributions in excess of net
investment income.................. (0.00) (0.00) (0.01) (0.00) (0.00) (0.00)
Distributions in excess of net
realized gains..................... (0.00) (0.00) (0.02) (0.00) (0.00) (0.00)
------------- ------------- ------------- ------------ ------------- -------------
Total dividends and distributions... (0.68) (0.47) (0.71) (0.80) (0.83) (0.27)
------------- ------------- ------------- ------------ ------------- -------------
Net change in net asset value......... 0.65 (0.76) (1.07) 0.27 0.06 0.46
------------- ------------- ------------- ------------ ------------- -------------
NET ASSET VALUE, END OF PERIOD........ $ 10.36 $ 9.71 $ 9.72 $ 10.79 $ 10.52 $ 10.46
------------- ------------- ------------- ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------- -------------
Total return.......................... 14.10% (2.83%)++ (3.45%) 10.40% 8.79% 7.34%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 74,753 $ 69,314 $ 30,855 $ 145,328 $ 94,006 $ 34,693
Ratio of expenses to average net
assets............................. 0.83% 0.68%+ 0.98% 0.64% 0.28% 0.00%
Ratio of net investment income to
average net assets................. 7.46% 5.90%+ 5.68% 5.91% 7.18% 7.88%+
Ratio of expenses to average net
assets**........................... (a) 0.69 %+ 1.09 % 1.06 % 0.99 % 1.47 %+
Ratio of net investment income to
average net assets**............... (a ) 5.90 %+ 5.57 % 5.49 % 6.42 % 6.41 %+
Portfolio turnover.................. 89 % 133 % 133 % 72 % 50 % 34 %
</TABLE>
- -----------------
* For the period July 31, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had
not occurred, the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
10
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.55 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.70 0.45
Net realized and unrealized gains (losses) on securities............... 1.00 (0.45)
-------- --------
Total income (loss) from investment operations......................... 1.70 (0.00)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.70) (0.43)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions...................................... (0.70) (0.45)
-------- --------
Net change in net asset value............................................ 1.00 (0.45)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.55 $ 9.55
-------- --------
-------- --------
Total return............................................................. 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 68,923 $ 66,588
Ratio of expenses to average net assets................................ 0.31% 0.27%+
Ratio of net investment income to average net assets................... 6.95% 6.83%+
Ratio of expenses to average net assets**.............................. 0.83% 0.86%+
Ratio of net investment income to average net assets**................. 6.43% 6.25%+
Portfolio turnover..................................................... 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
11
<PAGE>
EMERALD PRIME FUND
Financial highlights for an Institutional Share of the Prime Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
Income from investment of operations:
Net Investment income................. 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805
Net realized gains (losses) on
securities........................... 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... (0.0568) 0.0362 0.0315 0.0408 0.0638 0.0805
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income.. (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805)
Distributions from net realized gains
on securities........................ (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions..... $ (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805)
------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital contribution.......... 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.81% 3.97% 3.21% 4.14% 6.56% 8.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 462,726 $ 413,541 $ 510,683 $1,947,016 $ 512,919 $ 278,419
Ratio of expenses to average net
assets............................... 0.37% 0.37% 0.35% 0.37% 0.40% 0.39%
Ratio of net investment income to
average net assets................... 5.66% 3.92% 3.21% 3.84% 6.27% 8.03%
Ratio of expenses to average net
assets**............................. 0.39% (a) (a ) (a ) 0.42 % 0.45%
Ratio of net investment income to
average net assets**................. 5.64 % (a ) (a ) (a ) 6.25 % 7.97%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment of operations:
Net Investment income................. 0.0890
Net realized gains (losses) on
securities........................... (0.0001)
------------
Total income (loss) from investment
operations........................... 0.0889
------------
Less dividends and distributions:
Dividends from net investment income.. (0.0890)
Distributions from net realized gains
on securities........................ (0.0000)
------------
Total dividends and distributions..... (0.0890)
------------
Voluntary capital contribution.......... 0.0000
------------
Net change in net asset value........... (0.0001)
------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9999
------------
------------
Total return............................ 9.27%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 192,628
Ratio of expenses to average net
assets............................... 0.36%+
Ratio of net investment income to
average net assets................... 9.00%+
Ratio of expenses to average net
assets**............................. 0.44 %+
Ratio of net investment income to
average net assets**................. 8.92 %+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratio would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
12
<PAGE>
EMERALD TREASURY FUND
Financial highlights for an Institutional Share of the Treasury Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net Investment income................. 0.0548 0.0368 0.0291 0.0368 0.0590 0.0776
Net realized gains (losses) on
securities........................... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations........................... 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776
------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment income.... (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 5.62% 3.74% 2.95% 3.75% 6.07% 8.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 236,392 $ 283,920 $ 501,377 $ 452,170 $ 575,103 $ 416,131
Ratio of expenses to average net
assets............................... .40% 0.39% 0.40% 0.38% 0.40% 0.38%
Ratio of net investment income to
average net assets................... 5.49% 3.73% 2.91% 3.74% 5.86% 7.75%
Ratio of expenses to average net
assets**............................. 0.42% (a) (a ) (a ) 0.41 % 0.41%
Ratio of net investment income to
average net assets**................. 5.46 % (a ) (a ) (a ) 5.85 % 8.13%
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1989*
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.0000
------------
Income from investment operations:
Net Investment income................. 0.0856
Net realized gains (losses) on
securities........................... 0.0000
------------
Total income (loss) from investment
operations........................... 0.0856
------------
Dividends from net investment income.... (0.0856)
------------
Net change in net asset value........... 0.0000
------------
NET ASSET VALUE, END OF PERIOD.......... $ 1.0000
------------
------------
Total return............................ 8.90%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 349,183
Ratio of expenses to average net
assets............................... 0.73%+
Ratio of net investment income to
average net assets................... 8.69%+
Ratio of expenses to average net
assets**............................. 0.77 %+
Ratio of net investment income to
average net assets**................. 8.65 %+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1989.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) There were no waivers or reimbursements during the period.
13
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objective. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks, and which are also described in the following sections. You should
consider which Funds best meet your investment goals. The Funds' Adviser will
use its best efforts to achieve a Fund's investment objective, although its
achievement cannot be assured.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term capital
appreciation by investing primarily in common stocks. The Fund seeks as a
secondary objective potential income growth through its investments. The Fund
invests primarily in high quality equity securities selected on the basis of
fundamental investment value and growth prospects that the Adviser believes
exceed those of the general economy. The Fund may also invest up to 25% of its
assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
The Equity Fund will normally invest at least 65% of its total assets in
equity securities, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period. For a further description
of the Fund's policies with respect to convertible securities, foreign
securities and other instruments, see "Portfolio Instruments, Practices and
Related Risks" below.
EQUITY VALUE FUND
The investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Any income is incidental to this objective. The Fund seeks
to achieve its investment objective by investing primarily in common stock,
preferred stock (including convertible preferred stock) and debt obligations
convertible into common stock that the Adviser believes to be undervalued. The
Fund seeks to purchase stock with a price-book value ratio below that of the
median stock in the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"). The Adviser invests less than 25% of the value of the Fund's total assets
at the time of purchase in securities of issuers conducting their principal
business activities in the same industry.
Under normal market and economic conditions, the Fund will invest at least
75% of its total assets in common stock, preferred stock and debt securities
convertible into common stock. Equity investments consist primarily of common
stock of companies having capitalizations that exceed $100 million. Stocks of
such companies generally are listed on a national exchange or are unlisted
securities with an established
14
<PAGE>
over-the-counter market. In addition, the Fund may hold other types of
securities in such proportions as, in the opinion of the Adviser, existing
circumstances may warrant, including obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and other high quality
"money market" instruments as described below under "International Equity Fund."
The Fund may also hold cash pending investment, during temporary defensive
periods or if, in the opinion of the Adviser, suitable stock or convertible debt
securities are unavailable. The Fund may also invest up to 25% of its total
assets in foreign securities either directly or indirectly through ADRs and EDRs
and may write covered call options.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing at least 65% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes established
companies, although it may invest in companies of various sizes as measured by
assets, sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and The United Kingdom. More than 25% of the Fund's total assets may be invested
in the securities of issuers located in the same country. Investment in a
particular country of 25% or more of the Fund's total assets will make the
Fund's performance more dependent upon the political and economic circumstances
of a particular country than a mutual fund that is more widely diversified among
issuers in different countries. Criteria for determining the appropriate
distribution of investments among various countries and regions may include
prospects for relative economic growth, expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors.
The Fund invests in common stock and may invest in other securities with
equity characteristics, such as trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund may invest in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
The Fund may invest in securities issued in certain countries that are
currently accessible to the Fund only through investment in other investment
companies that are specifically authorized to invest in such securities. The
Fund's policies regarding investments in other investment companies are
described under "Portfolio Instruments, Practices and Related Risks." In
addition, the Fund may invest in securities of foreign issuers in the form of
ADRs or EDRs, also as described under "Portfolio Instruments, Practices and
Related Risks." The Fund expects that during its initial period of investment
operations substantially all of the Fund may be invested in ADRs.
15
<PAGE>
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, the Fund's assets may be invested
without limitation in short-term debt instruments. In addition, when the Fund
experiences large cash inflows from the issuance of new shares or the sale of
portfolio securities, and desirable equity securities that are consistent with
the Fund's investment objective are unavailable in sufficient quantities, the
Fund may hold more than 35% of its assets in short-term debt instrument
investments for a limited time pending availability of suitable equity
securities. During normal market conditions, no more than 35% of the Fund's
total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. Furthermore, the
Fund may purchase and sell securities on a when-issued basis as described in the
Statement of Additional Information. For temporary defensive purposes, the Fund
may also invest a major portion of its assets in securities of United States
issuers. Less than 25% of the value of the Fund's total assets at the time of
purchase will be invested in securities of issuers conducting their principal
business activities in the same industry.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to provide
long-term capital appreciation. The Fund pursues its objective by investing
primarily in equity securities such as common stocks and instruments convertible
or exchangeable into common stocks.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index. The market
capitalization of the issuers of securities purchased by the Fund will normally
be between $50 million and $2 billion at the time of purchase. In managing the
Fund, the Adviser seeks smaller companies with above-average growth prospects.
Factors considered in selecting such issuers include participation in a fast
growing industry, a strategic niche position in a specialized market, adequate
capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities of small capitalization companies. In addition
to investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
16
<PAGE>
invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRs, and may acquire convertible securities, warrants and
similar rights. For a further description of the Fund's policies with respect to
convertible securities, foreign securities and other instruments, see "Portfolio
Instruments, Practices and Related Risks" below.
BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be in fixed
income securities (including cash equivalents, long-term debt securities, and
convertible debt securities and preferred stocks to the extent their value is
attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would normally increase the Fund's equity holdings while
reducing its holdings of fixed income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to
100% of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are backed by the full faith and
credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the type
that are permissible investments for the Equity and Small Capitalization Funds.
Non-convertible debt obligations will be
17
<PAGE>
limited to the types that are permissible investments for the Managed Bond Fund.
Convertible securities, foreign securities and other instruments will be
acquired in accordance with the limitations described under "Portfolio
Investments, Practices and Related Risks."
The Fund may also invest, through ADRs and EDRs, up to 25% of the value of
its total assets in securities of foreign issuers, and may invest in warrants
and similar rights.
SHORT-TERM FIXED INCOME AND MANAGED BOND FUNDS
The Short-Term Fixed Income and Managed Bond Funds offer two alternatives
for participating in the fixed income securities markets. The average weighted
maturity of the Short-Term Fixed Income Fund is shorter than that of the Managed
Bond Fund. Both Funds are subject to the same quality requirements.
The investment objective of the Short-Term Fixed Income Fund is to seek
consistently positive current income with relative stability of principal by
investing in investment grade securities and high quality money market
instruments. The investment objective of the Managed Bond Fund is to seek a high
level of current income and, secondarily, capital appreciation. While the
maturity of individual securities will not be restricted, except during
temporary defensive periods or unusual market conditions the average weighted
maturity of the Short-Term Fixed Income Fund will not exceed three years and the
average weighted maturity of the Managed Bond Fund will be ten years or more.
Each Fund invests substantially all of its assets in debt obligations such
as bonds, debentures and cash equivalents, obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, debt obligations of
domestic and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Funds will purchase only those securities which are considered
to be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
each Fund's total assets will be invested in debt obligations rated "A" or
better by at least one NRSRO (or unrated obligations determined to be of
comparable quality). Obligations rated in the lowest of the top four rating
categories ("BBB" or "Baa") have certain speculative characteristics and are
subject to more credit and market risk than securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage and other
asset-related securities, zero coupon bonds and convertible debentures. The
Managed Bond
18
<PAGE>
Fund may, however, also invest without limitation in short-term investments to
meet anticipated redemption requests, or as a temporary defensive measure if the
Adviser determines that market conditions warrant.
The Funds may also invest in obligations convertible into common stocks, as
well as common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. Common stock received through the
conversion of convertible debt obligations will normally be sold. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other investments see "Portfolio Instruments, Practices
and Related Risks."
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities Fund is to seek
consistently positive income by investing principally in U.S. Government
securities and repurchase agreements collateralized by such securities. The Fund
will always invest at least 65% of its total assets in such instruments under
normal market conditions. There is no minimum or maximum maturity for securities
held, although the Fund expects that (except during temporary defensive periods
or unusual market conditions) its dollar-weighted average portfolio maturity
will be between five and ten years. The Fund may invest in a variety of U.S.
Government securities, including U.S. Treasury bonds, notes and bills, and
obligations of a number of U.S. Government agencies and instrumentalities. The
Fund may also invest in interests in the foregoing securities, including
collateralized mortgage obligations issued or guaranteed by a U.S. Government
agency or instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities have historically had a very low risk of loss of principal if
held to maturity. The Fund, however, can give no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
if it were not legally obligated to do so. The value of the Fund's portfolio
(and consequently its shares) is expected to fluctuate inversely to changes in
the direction of interest rates.
PRIME FUND AND TREASURY FUND
The investment objective of both the Prime and Treasury Funds is to seek to
provide a high level of current income consistent with liquidity, the
preservation of capital and a stable net asset value. The Prime Fund pursues its
objective by investing, in a broad range of short-term government, bank and
corporate obligations. The Treasury Fund seeks to achieve its objective by
investing in obligations that the U.S. Treasury has issued or to which the U.S.
Treasury has pledged its full faith and credit to guarantee the payment of
principal and interest. You should note, however, that shares of the Treasury
Fund are not themselves issued or guaranteed by the U.S. Treasury or any of its
agencies. U.S. Treasury obligations include Treasury bills, certain Treasury
strips, certificates of indebtedness, notes and bonds, and obligations of those
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. Treasury. It is the Treasury Fund's policy that under normal conditions
it will invest 65% or more of its total assets in U.S. Treasury obligations and
repurchase agreements for which such obligations serve as collateral.
Each of these Funds (the "Money Market Funds") invests only in U.S.
dollar-denominated securities that mature in thirteen months or less (with
certain exceptions). The dollar-weighted average portfolio maturity of each Fund
may not exceed ninety days. In accordance with the current rules of the
Securities and Exchange Commission, the Prime Fund intends to limit its
purchases in the securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government or its
19
<PAGE>
agencies or instrumentalities) to no more than 5% of its total assets at the
time of purchase, with the exception that up to 25% of its total assets may be
invested in the securities of any single issuer for up to three business days.
Instruments acquired by the Prime and Treasury Funds will be U.S. Government
securities or other "First Tier Securities." The term "First Tier Securities"
has a technical definition given by the Securities and Exchange Commission, but
generally refers to securities that the Adviser has determined, under guidelines
established by the Board of Trustees, present minimal credit risks, and have the
highest short-term debt ratings at the time of purchase by one (if rated by only
one) or more NRSROs. Unrated instruments (including instruments with long-term
but no short-term ratings) will be of comparable quality as determined by the
Adviser under guidelines approved by the Board of Trustees. A description of the
applicable ratings is attached to the Statement of Additional Information as
Appendix A.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuer, less market liquidity and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Although the International Equity Fund may invest in securities denominated
in foreign currencies, the Fund values its securities and other assets in U.S
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with the U.S. dollar exchange rates, as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies. The risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY FUND
may invest up to 100% of its total assets and the EQUITY, EQUITY VALUE, SMALL
CAPITALIZATION AND BALANCED FUNDS may
20
<PAGE>
invest up to 25% of their total assets in ADRs and EDRs. ADRs are receipts
issued in registered form by a U.S. bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of the underlying foreign or U.S. securities.
ADRs may be listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. ADRs and EDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Fund's limitation with respect to
such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in ADRs
and EDRs involve risks similar to those accompanying direct investments in
foreign securities.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY FUND
may invest in U.S. Treasury obligations as described above. Each of the other
Funds may also invest in securities issued or guaranteed by the U.S. Government,
as well as in obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED
BOND and PRIME FUNDS may invest in asset-backed securities (I.E., securities
backed by installment sale contracts, credit card receivables or other assets).
In addition, each of these Funds, as well as the U.S. GOVERNMENT SECURITIES
FUND, may invest in U.S. Government securities that are backed by adjustable or
fixed rate mortgage loans. The average life of an asset-backed instrument varies
with the maturities of the underlying instruments. In the case of mortgages,
these maturities may be a maximum of forty years. The average life of an
asset-backed instrument is likely to be substantially less than the original
maturity of the asset pools underlying the security as the result of scheduled
principal payments and prepayments. This may be particularly true for
mortgage-backed securities. The rate of such prepayments, and hence the life of
the security, will be primarily a function of current market rates and current
conditions in the relevant market. In calculating the average weighted maturity
of a Fund's portfolio (except the Prime Fund), the maturity of asset-backed
instruments will be based on estimates of average life. The relationship between
prepayments and interest rates may give some high-yielding asset-backed
securities less potential for growth in value than conventional bonds with
comparable maturities. In addition, in periods of falling interest rates, the
rate of prepayment tends to increase. During such periods, the reinvestment of
prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid. Because of these
and other reasons, an asset-backed security's total return may be difficult to
predict precisely.
21
<PAGE>
To the extent a Fund purchases asset-backed securities at a premium, prepayments
(which often may be made at any time without penalty) may result in some loss of
a Fund's principal investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS may also invest in municipal obligations. These securities may
be advantageous for these Funds when, as a result of prevailing economic,
regulatory or other circumstances, the yield of such securities on a pre-tax
basis is comparable to that of other securities the particular Fund can
purchase. Dividends paid by these Funds that come from interest on municipal
obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser will determine, under the supervision of the Board of Trustees, the
credit quality of any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds and the Adviser rely on these
opinions and do not intend to review the basis for them.
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Municipal obligations purchased by each Fund may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described above under "Foreign
Securities," foreign letters of credit and guarantees involve certain risks in
addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS and, to a limited extent, the EQUITY, EQUITY VALUE,
INTERNATIONAL EQUITY, and SMALL CAPITALIZATION FUNDS, may purchase corporate
bonds and cash equivalents that meet a Fund's quality and maturity limitations.
These investments may include obligations issued by Canadian corporations and
Canadian counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S., and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and
PRIME FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS, may purchase certificates of deposit
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. These Funds may also invest in CDs and time deposits of
domestic branches of U.S. banks that have total assets of less than $1 billion
if the CDs and time deposits are insured by the FDIC. Investments in foreign
banks and foreign branches of U.S. banks will not make up more than 25% of a
Fund's total assets when the investment is made. (To the extent permitted by the
SEC, bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing, savings deposits in amounts not exceeding 5% of
their total assets.
REPURCHASE AGREEMENTS. EACH FUND may buy portfolio securities subject to
the seller's agreement to repurchase them at an agreed upon time and price.
These transactions are known as repurchase agreements. A Fund will enter into
repurchase agreements only with financial institutions deemed to be creditworthy
by the Adviser, pursuant to guidelines established by the Board of Trustees.
During the term of any repurchase agreement, the Adviser will monitor the
creditworthiness of the seller, and the seller must maintain the value of the
securities subject to the agreement in an amount that is greater than the
repurchase price. Default or bankruptcy of the seller would, however, expose a
Fund to possible loss because of adverse market action or delays connected with
the disposition of the underlying obligations. Because of the seller's
repurchase obligations, the securities subject to repurchase agreements do not
have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of each Fund, except the U.S. Government
Securities and Treasury Funds,
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these instruments may include variable amount master demand notes, which are
instruments under which the indebtedness, as well as the interest rate, varies.
If rated, variable and floating rate instruments must be rated in the highest
short-term rating category by an NRSRO. If unrated, such instruments will need
to be determined to be of comparable quality. Unless guaranteed by the U.S.
Government or one of its agencies or instrumentalities, variable or floating
rate instruments purchased by the Prime Fund must permit the Fund to demand
payment of the instrument's principal at least once every thirteen months.
Because of the absence of a market in which to resell a variable or floating
rate instrument, a Fund might have trouble selling an instrument should the
issuer default or during periods when a Fund is not permitted by agreement to
demand payment of the instrument, and for this or other reasons a loss could
occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. The Treasury Fund's investments in these
obligations will be limited to "interest only" stripped securities that have
been issued by a federal instrumentality known as the Resolution Funding
Corporation and other stripped securities issued or guaranteed by the U.S.
Treasury, where the principal and interest components are traded independently
under the Separate Trading of Registered Interest and Principal Securities
Program ("STRIPS"). Under STRIPS, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently. Each Fund, except the Treasury Fund, may also invest in
instruments that have been stripped by their holder, typically a custodian bank
or investment brokerage firm, and then resold in a custodian receipt program
under names you may be familiar with such as Treasury Investors Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
In addition, each Fund, except the Treasury Fund, may purchase stripped
mortgage-backed securities ("SMBS") issued by the U.S. Government (or a U.S.
Government agency or instrumentality) or by private issuers such as banks and
other institutions. SMBS, in particular, may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. If the underlying obligations experience
greater than anticipated prepayments, a Fund may fail to fully recoup its
initial investment. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
are generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net asset
value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the
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extent shareholders request that they receive their dividends in cash rather
than reinvesting them, the money necessary to pay those dividends must come from
the assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The
BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND and PRIME FUNDS may invest in
bank investment contracts ("BICs") issued by banks that meet the asset size
requirements described above under "Bank Obligations" and may also invest in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, a Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, a Fund would receive interest from the issuing entity at either a
negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to a
Fund's limitation on such investments as described below under "Managing
Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. THE BALANCED, SHORT-TERM FIXED INCOME,
MANAGED BOND and PRIME FUNDS may purchase from domestic financial institutions
and trusts created by such institutions participation interests and trust
receipts in high quality debt securities. A participation interest or receipt
gives a Fund an undivided interest in the security in the proportion that a
Fund's participation interest or receipt bears to the total principal amount of
the security. Each Fund intends only to purchase participations and trust
receipts from an entity or syndicate, and do not intend to serve as a co-lender
in any such activity. As to certain instruments for which a Fund will be able to
demand payment, a Fund intends to exercise its right to do so only upon a
default under the terms of the security, as needed to provide liquidity, or to
maintain or improve the quality of its investment portfolio. It is possible that
a participation interest or trust receipt may be deemed to be an extension of
credit by a Fund to the issuing financial institution rather than to the obligor
of the underlying security and may not be directly entitled to the protection of
any collateral security provided by the obligor. In such event, the ability of a
Fund to obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objectives.
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INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which a Fund's investments are traded. A Fund would expect to enter into these
hedging transactions primarily to preserve the return or spread of a particular
investment or portion of its portfolio and to protect against an increase in the
price of securities a Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the
extent a specified index fell below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
floor. The purchase of an interest rate cap by a Fund would entitle it, to the
extent that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P. The INTERNATIONAL EQUITY FUND may also purchase shares
of investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting principally
of securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells
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portfolio securities and then buys them back later at an agreed-upon time and
price. When the Fund enters into a reverse repurchase agreement it will place in
a separate custodial account either liquid assets or high grade debt securities
that have a value equal to or more than the price the Fund must pay when it buys
back the securities, and the account will be continuously monitored to make sure
the appropriate value is maintained. Reverse repurchase agreements may be used
to meet redemption requests without selling portfolio securities. Reverse
repurchase agreements involve the possible risk that the value of portfolio
securities the Fund relinquishes may decline below the price the Fund must pay
when the transaction closes. Interest paid by a Fund in a reverse repurchase or
other borrowing transaction will reduce the Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, securities
loans will be made only to parties the Adviser deems to be of good standing, and
will only be made if the Adviser thinks the possible rewards from such loans
justify the possible risks. A loan will not be made if, as a result, the total
amount of a Fund's outstanding loans exceeds 30% of its total assets. Securities
loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash-equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash,
U.S. Government securities or other liquid high grade debt instruments in the
amount of the future purchase commitment will be set apart for a Fund involved
in a separate account at the custodian. Mortgage rolls are not a primary
investment technique for any of these Funds, and it is expected that, under
normal market conditions, a Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
CONVERTIBLE SECURITIES. The EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY,
SMALL CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS
may invest in convertible securities, including bonds, notes and preferred
stock, that may be converted into common stock either at a stated price or
within a specified period of time. By investing in convertibles, a Fund is
looking for the opportunity, through the conversion feature, to participate in
the capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock.
None of the assets of the Short-Term Fixed Income and Managed Bond Funds,
and no more than 15% of the total assets of the Equity, Equity Value,
International Equity, Small Capitalization and Balanced Funds, may be invested
in convertible securities rated below investment grade at the time of purchase.
Non-investment grade convertible securities must be rated "B" or higher by at
least one NRSRO. Non-investment grade securities are commonly referred to as
"junk" bonds and present a
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greater risk as to the timely repayment of the principal, interest and
dividends. Particular risks include (a) the sensitivity of such securities to
interest rate and economic changes, (b) the lower degree of protection of
principal and interest payments, (c) the relatively low trading market liquidity
for the securities, (d) the impact that legislation may have on the market for
these securities (and, in turn, on a Fund's net asset value) and (e) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would negatively affect their ability to meet
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower rated convertible securities and negatively affect
the value of outstanding securities and the ability of the issuers to repay
principal and interest. If the issuer of a convertible security held by a Fund
defaulted, that Fund could incur additional expenses to seek recovery. Adverse
publicity and investor perceptions, whether or not they are based on fundamental
analysis, could also decrease the value and liquidity of lower-rated convertible
securities held by a Fund, especially in a thinly traded market.
OPTIONS. EACH FUND (except the Prime and Treasury Funds), may write covered
call options, buy put options, buy call options and sell, or "write," secured
put options on particular securities or various securities indices. A call
option for a particular security gives the purchaser of the option the right to
buy, and a writer the obligation to sell, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. Options may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation which performs the
obligations of its members if they default.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
FUTURES AND RELATED OPTIONS. EACH FUND (except the Prime and Treasury
Funds) may invest to a limited extent in futures contracts and options on
futures contracts in order to gain fuller exposure to movements of security
prices pending investment, for hedging purposes or to maintain liquidity.
Futures contracts obligate a Fund, at maturity, to take or make delivery of
certain securities or the
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cash value of a securities index. A Fund may not purchase or sell a futures
contract (or related option) unless immediately after any such transaction the
sum of the aggregate amount of margin deposits on its existing futures positions
and the amount of premiums paid for related options is 5% or less of its total
assets (after taking into account certain technical adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price at any time during the option period. When a Fund
sells an option on a futures contract, it becomes obligated to purchase or sell
a futures contract if the option is exercised. In anticipation of a market
advance, a Fund may purchase call options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the INTERNATIONAL EQUITY
FUND may buy and sell securities denominated in currencies other than the U.S.
dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Fund from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies. The Fund may either enter into these
transactions on a spot (I.E. cash) basis at the spot rate prevailing in the
foreign currency exchange market, or use forward contracts to purchase or sell
foreign currencies. Forward foreign currency exchange contracts are agreements
to exchange one currency for another -- for example, to exchange a certain
amount of U.S. dollars for a certain amount of Japanese yen -- at a future date
and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, the
forward foreign currency exchange contracts may be rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to the Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by the Fund's Board of Trustees.
The International Equity Fund may maintain "short" positions in forward
foreign currency exchange transactions, which would involve the Fund's agreeing
to exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
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anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities equal in value to the fluctuating market value
of the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information for additional information regarding foreign currency
exchange transactions.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser has determined pursuant to guidelines adopted
by the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this limitation. This investment practice could have
the effect of increasing the level of illiquidity in a Fund during any period
that qualified institutional buyers were no longer interested in purchasing
these restricted securities.
PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, U.S. Government
Securities and Managed Bond Funds were 104%, 229%, 87%, 33%, 89%, and 92%,
respectively. The annual portfolio turnover rates for the Equity Value and
International Equity Funds are not expected to exceed 150%.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specifics of which you should
be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Short-Term
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Fixed Income, U.S. Government Securities, Managed Bond, Prime and Treasury Funds
may purchase zero-coupon bonds (I.E., discount debt obligations that do not make
periodic interest payments). Zero-coupon bonds are subject to greater market
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. Debt securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect cash income from such securities
but will be reflected in a Fund's net asset values.
In addition, the Balanced, Short-Term Fixed Income, Managed Bond and Prime
Funds may purchase custodial receipts, tender option bonds and certificates of
participation in trusts that hold municipals or other types of obligations. A
certificate of participation gives a Fund an individual, proportionate interest
in the obligation, and may have a variable or fixed rate. Because certificates
of participation are interest obligations that may be funded through government
appropriations, they are subject to the risk that sufficient appropriations as
to the timely payment of principal and interest on the obligations may not be
made. The NRSRO quality rating of an issue of certificates of participation is
normally based upon the rating of obligations held by the trust and the credit
rating of the issuer of any letter of credit and of any other guarantor
providing credit support to the issue.
These Funds, with the exception of the Prime Fund, may also hold other
derivative instruments, which may be in the form of participations and custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment, or both, and bonds that have interest rates that reset
inversely to changing short-term rates and/or have imbedded interest rate floors
and caps. Many of these derivative instruments are proprietary products that
have been recently developed by investment banking firms, and it is uncertain
how these instruments are will perform under different economic and
interest-rate scenarios. In addition, to the extent that the market value of
these instruments is leveraged, they may be more volatile than other types of
obligations and may present greater potential for capital gain or loss. In some
cases it may be difficult to determine the fair value of a derivative instrument
because of a lack of reliable objective information, and an established
secondary market for some instruments may not exist.
Payment on municipal obligations held by a Fund relating to certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments.
Should a foreclosure occur, collection of proceeds from that foreclosure may
be delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that
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<PAGE>
cannot be changed without the approval of a majority of the Fund's outstanding
shares. Some of these fundamental limitations are summarized below, and all of
the Funds' fundamental limitations are set out in full in the Statement of
Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be invested
in the securities of any one issuer, except that up to 25% of the total assets
of each Fund can be invested without regard to the 5% limitation. A Fund may not
purchase more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 25% exception.
3. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
-------------------
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INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS. Barnett is the
largest trust organization headquartered in Florida and has notable experience
in providing professional investment management services. Organized as a
national banking association in 1974, it is the successor to the business of
earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered bank holding company that has
offered general banking services since 1877.
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis.
PURCHASE OF SHARES
Institutional Shares are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares are sold to Barnett and its affiliates, as well as to
Barnett's correspondent banks and other institutions ("Institutions") acting on
behalf of themselves or their customers who maintain qualified trust, agency or
custodial accounts ("Customers"). Customers may include individuals, trusts,
partnerships and corporations. All share purchases are effected through a
Customer's account at Barnett or another Institution through procedures
established in connection with the requirements of the account, and
confirmations of share purchases and redemptions will be sent to Barnett or the
other Institution involved. Barnett and other Institutions (or their nominees)
will normally be the holders of record of Institutional Shares acting on behalf
of their Customers, and will reflect their Customers' beneficial ownership of
shares in the account statements provided by them to their Customers. The
exercise of voting rights and the delivery to Customers of shareholder
communications from the Funds will be governed by the Customers' account
agreements with Barnett and other Institutions.
Institutional Shares are sold at the net asset value per share next
determined after receipt of a purchase order from an Institution by the Funds'
transfer agent. The minimum initial investment in a Fund (other than the Prime
Fund or Treasury Fund) for an Institution is $250,000 with no minimum subsequent
investment. The minimum initial investment in the Prime and Treasury Funds for
an Institution is $5,000 and the minimum subsequent investment is $100. Barnett
and other Institutions may establish different minimum investment requirements
for their Customers. For example, there is no minimum initial investment for
transfers of assets by Barnett's Customers from other banks or financial
institutions. Barnett and other Institutions may also charge their Customers
certain account fees depending on the type of account a Customer has established
with the Institution. These fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
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<PAGE>
The Equity and Fixed Income Funds may have different business days from
those of the Money Market Funds. A "Business Day" for the Equity and Fixed
Income Funds is any day on which the New York Stock Exchange (the "Exchange") is
open for business, while for the Money Market Funds it is any day on which both
the Exchange and the Funds' Custodian are open for business. Additionally, on
days when the Exchange (and/or the Custodian for Money Market Funds) closes
early due to a partial holiday or otherwise, the Funds reserve the right to
advance the times at which purchase and redemption orders must be received in
order to be processed on that Business Day.
For all Funds except the Prime and Treasury Funds, purchase orders placed by
an Institution for Institutional Shares must be received by the Funds' transfer
agent before the close of regular trading hours (currently 4:00 p.m. Eastern
time) on the New York Stock Exchange (the "Exchange") on a Business Day. Payment
for Institutional Shares must be made by Institutions in federal funds or other
funds immediately available to the Funds' custodian no later than 4:00 p.m.
(Eastern time) on the Business Day immediately following placement of the
purchase order.
Purchase orders for the Prime and Treasury Funds must be received by 2:00
p.m. (Eastern time) on a Business Day in order to be effective. Purchases for
Institutional Shares of the Prime and Treasury Funds will be effected only on
days on which Emerald Funds and the purchasing Institutions are open for
business and only when federal funds or other funds are immediately available to
the Funds' transfer agent to make the purchase on the day it receives the
purchase order. Institutions may transmit purchase orders for shares of the
Prime and Treasury Funds by telephoning the transfer agent c/o the Distributor
at 800-367-5905 not later than 2:00 p.m. (Eastern time) on any Business Day. If
federal funds are not available with respect to any such order by the close of
business on the day the order is received by the transfer agent, the order will
be cancelled. In addition, any purchase order received by the transfer agent
after 2:00 p.m. (Eastern time) will not be accepted, and notice thereof will be
given to the Institution placing the order. Any funds received in connection
with late orders will be returned promptly.
Each Fund observes the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). In addition, the Prime and
Treasury Funds observe the following additional holidays: Martin Luther King,
Jr. Day, Columbus Day and Veterans Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
34
<PAGE>
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares are
redeemed. Barnett and other Institutions may charge fees to their Customers for
their services in connection with investments. Shares held by an Institution on
behalf of its Customers must be redeemed in accordance with the instructions and
limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash. The Funds may also redeem
shares involuntarily if the balance has fallen below the minimum level due to
shareholder redemptions, not due to market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for all Funds (except the Prime and Treasury Funds) are normally wired in
federal funds to the redeeming institution the Business Day following receipt of
the order by the transfer agent. Payment for Prime and Treasury Fund redemption
orders which are received by the transfer agent before 2:00 p.m. (Eastern time)
on a Business Day will normally be wired in federal funds the same day. Payment
for Prime and Treasury Fund redemption orders which are received between 2:00
p.m. (Eastern time) and the close of business or on a non-Business Day will
normally be wired in federal funds on the next Business Day. Emerald Funds
reserves the right, however, to delay the wiring of redemption proceeds for up
to seven days after receipt of a redemption order if, in the judgment of the
Adviser, an earlier payment could adversely affect a Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the Short-Term Fixed Income, U.S. Government Securities and Managed Bond
Funds, net investment income comes from the interest on the bonds and other
investments that they hold in their portfolios. For the Equity, Equity Value,
International Equity, Small Capitalization and Balanced Funds net investment
income is made up of dividends received from the stocks they hold, as well as
interest accrued on convertible securities, money market instruments and other
obligations held in their portfolios. For the Prime and Treasury Funds, net
investment income flows from interest that the Funds earn on the money market
and other investments they hold.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions automatically reinvested in the same share class of
the Fund on which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
<TABLE>
<S> <C>
Emerald Equity and Fixed Income Funds Emerald Prime and Treasury Funds
P.O. Box 182697 100 First Avenue, Suite 300
Columbus, OH 43218-2697 Pittsburgh, PA 15222
</TABLE>
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds) or payment dates (with respect to the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond, Prime and
Treasury Funds) after the date the Funds' transfer agent receives the election.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUNDS DECLARED PAID
- ----- --------- -------------------
<S> <C> <C> <C>
(1) Equity, Equity Value and Balanced....... Quarterly Quarterly
(2) International Equity and Small
Capitalization.......................... Annually Annually
(3) Short-Term Fixed Income, U.S. Government
Securities, Managed Bond, Prime and
Treasury................................ Daily Monthly within five
business days after
month end
</TABLE>
- ------------
(1) Dividends for the Equity, Equity Value and Balanced Funds may be declared
and paid at times that do not fall at the end of a calendar quarter.
(2) Dividends for the International Equity and Small Capitalization Funds may be
declared and paid at times that do not fall at the end of a calendar year.
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<PAGE>
(3) Shares of the Short-Term Fixed Income, U.S. Government Securities and
Managed Bond Funds begin earning dividends the first Business Day after
acceptance of the purchase order for which Emerald Funds' custodian has
received payment and stop earning dividends on the Business Day such shares
are redeemed. Shares of the Prime and Treasury Funds begin earning dividends
on the day a purchase order is accepted and payment in federal funds is
received by the Funds' Custodian, and continue to earn dividends through the
day before they are redeemed.
With respect to the Short-Term Fixed Income, U.S. Government Securities and
Managed Bond Funds, if all of the Institutional Shares held by an Institution in
such a Fund are redeemed, the Fund will pay accrued dividends within five
Business Days after redemption. With respect to the Prime and Treasury Funds, if
all Institutional Shares held by an Institution in such Funds are redeemed, the
Funds will pay accrued dividends within five Business Days after the end of each
month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund other than the Prime and Treasury
Funds, and at 2:00 p.m. (Eastern time) with respect to the Prime and Treasury
Funds, by adding the value of a Fund's investments, cash and other assets
allocated to its Institutional Shares, subtracting the Fund's liabilities
allocated to those shares, and then dividing the result by the number of
Institutional Shares in the Fund that are outstanding. The assets of the Funds
(except the Prime and Treasury Funds) are valued at market value or, if market
quotes cannot be readily obtained, fair value is used as determined by the Board
of Trustees. Debt securities held by these Funds that have sixty days or less
until they mature are valued at amortized cost, which generally approximates
market value. All securities of the Prime and Treasury Funds are valued at
amortized cost. More information about valuation can be found in the Funds'
Statement of Additional Information, which you may request by calling
800/637-3759.
Foreign securities acquired by the International Equity Fund as well as the
other Funds may be traded on foreign exchanges or over-the-counter markets on
days on which a Fund's net asset values are not calculated. In such cases, the
net asset values of the Fund's shares may be significantly affected on days when
investors can neither purchase nor redeem shares of the Fund.
EXCHANGE PRIVILEGE
If you wish, Institutional Shares of a Fund may be exchanged for Retail
Shares of the same Fund in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of Barnett or another bank, trust company or thrift institution.
Similarly, a Customer may exchange Retail Shares for Institutional Shares of the
same Fund if the shares are to be held in such a qualified trust, agency or
custodial account. These exchanges are made at the net asset value of the
respective share classes. The particular class of shares you are exchanging into
must be registered for sale in your state.
37
<PAGE>
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to the services these companies provide, as well as more information regarding
investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business
trust, and is a mutual fund of the type known as an "open-end management
investment company." The Agreement and Declaration of Trust permits the Board of
Trustees of Emerald Funds to classify any unissued shares into one or more
classes of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of two share
classes of the Equity and Fixed Income Funds and three share classes in the
Prime and Treasury Funds. Each Fund is classified as a diversified company. The
Board of Trustees has also authorized the issuance of additional classes of
shares representing interests in other portfolios of Emerald Funds. Information
regarding these other portfolios and share classes may be obtained by contacting
the Distributor at the address listed on page 33.
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<PAGE>
The Institutional Shares of the Funds are described in this prospectus.
These Funds also offer Retail Shares and, additionally, the Money Market Funds
offer Service Shares. Shares of each share class of a Fund bear a pro rata
portion of all operating expenses incurred by the Fund, except for certain
miscellaneous "class expenses" (I.E. certain printing and registration
expenses). In addition, Retail Shares bear all payments under the Combined
Distribution and Service Plan and Shareholder Processing Plan for Retail Shares
(the "Retail Plans") and Service Shares bear all payments under the Shareholder
Processing and Service Plan for Service Shares (the "Service Plan") as described
in the prospectuses for those shares. Under the Plans, the Distributor and
Service Organizations receive fees for distribution and shareholder and
administrative support services.
Payments under the Retail Plans may not exceed .50% (on an annual basis) of
the average daily net asset value of outstanding Retail Shares. Payments under
the Service Plan may not exceed .35% (on an annual basis) of the average daily
net asset value of the outstanding Service Shares. Because of these Plans and
other "class expenses," the performance of a Fund's Institutional Shares is
expected to be higher than the performance of its Retail and Service Shares. The
Funds offer various services and privileges in connection with Retail Shares
that are not generally offered in connection with Institutional and Service
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Retail and Service Shares, contact
the Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
Retail shareholders, however, will vote on matters pertaining to the Retail
Plans. Similarly, only holders of Service Shares will vote on matters pertaining
to the Service Plan.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment power with respect to a majority of the outstanding shares of Emerald
Funds. More information about shareholder voting rights can be found in the
Statement of Additional Information under "Description of Shares."
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a
Senior Partner of the law firm of Holland and Knight.
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<PAGE>
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership, a wholly-owned subsidiary of The BISYS Group,
Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc., located at the same address, is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286. The transfer and dividend paying agent for the Equity and Fixed
Income Funds is BISYS Fund Services, Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035; for the Prime and Treasury Funds, BISYS Fund
Services, Inc., located at 100 First Avenue, Suite 300, Pittsburgh, PA 15222.
ADVISER. As of December 31, 1995 Barnett had approximately $9.8 billion
under active management, with $3.2 billion in equity securities, $713 million in
taxable fixed income securities, $1.4 billion in treasury and government
securities, $1.5 billion in municipals and $2.8 billion in money market
instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered bank
holding company that has offered general banking services since 1877.
Barnett manages the investment portfolios of the Funds, including selecting
portfolio investments and making purchase and sale orders.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., a Senior Vice
President of Barnett, has been the portfolio manager of the Equity Fund since
September of 1993, and has also managed the Balanced Fund since it commenced
operations on April 11, 1994 and the Equity Value Fund since it commenced
operations on December 26, 1995. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in addition to these Funds currently manages a
diversified common stock fund and assists in preparing ongoing equity investment
strategy. Martin E. LaPrade, CFA, and Joseph E. Tannehill, CFA, have co-managed
the International Equity Fund since it commenced operations on December 26, 1995
and, along with Mr. Creighton, have co-managed the Equity Value Fund since it
commenced operations. Mr. LaPrade is a Senior Vice President with Barnett and
currently has 11 years of investment experience. He serves as a strategist and
an equity portfolio manager, with additional responsibility in asset allocation
research, and directs the asset allocation decisions for balanced account
management. He joined Barnett in 1978. Mr. Tannehill is a Vice President with
Barnett and currently has 9 years of investment experience. He is primarily
responsible for applying quantitative methods to equity security research. In
addition, he oversees the management of an enhanced index equity commingled
fund. He joined Barnett in 1986. Dean McQuiddy, C.F.A., a Vice President with
Barnett, has managed the Small Capitalization Fund since its commencement of
operations on January 4, 1994, and also
40
<PAGE>
manages the small capitalization portion of the Equity and Balanced Funds. Since
joining Barnett in 1983, Mr. McQuiddy has been an equity analyst and an
institutional portfolio manager, and for the last eight years has managed
Barnett's employee benefits small capitalization fund. Jacqueline Lunsford,
C.F.A., a Senior Vice President with Barnett, has managed the Short-Term Fixed
Income Fund since it commenced operations on April 11, 1994. Ms. Lunsford has
been with Barnett since 1988, and also manages money market mutual funds for
Emerald Funds and other customers. Andrew Cantor, C.F.A., a Senior Vice
President with Barnett, has managed the U.S. Government Securities Fund since
its inception in 1991, and has also managed the Managed Bond Fund since it
commenced operations on April 11, 1994. For the past eleven years, Mr. Cantor
has served as the senior fixed income manager in Barnett's Institutional
Investments Group, where his responsibilities have included setting fixed income
investment strategy and managing a number of major taxable fixed income
accounts, including several commingled funds.
Although expected to be infrequent, Barnett may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Barnett) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions or
dealer concessions. Barnett will not engage in this practice unless the
execution capability of and the amount received by such broker-dealer or other
company is believed to be comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio Limited Partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gains distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to a
shareholder or deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the International Equity and Small
Capitalization Funds' average daily net assets, .60% of each of the Equity,
Equity Value and Balanced Funds' average daily net assets, .40% of each of the
Short-Term Fixed Income, U.S. Government Securities and Managed Bond Funds'
average daily net assets and .25% of each of the Prime and Treasury Funds'
average daily net assets. The advisory
41
<PAGE>
fee payable by the International Equity and Small Capitalization Funds is higher
than those paid by most mutual funds, although the Board of Trustees believes it
is comparable to the advisory fees payable by many similar funds.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00% and .40% of the average
daily net assets of the Equity, Small Capitalization and U.S. Government
Securities Funds, respectively, and .23% and .24% of the average daily net
assets of the Prime and Treasury Funds, respectively. Barnett voluntarily waived
all fees for the Balanced, Short-Term Fixed Income and Managed Bond Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees
and expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
42
<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 will be taxable to you.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares. If you hold shares for six months or less, and
during that time receive a distribution that is taxable as a long-term capital
gain, any loss you might realize on the sale of those shares will be treated as
a long-term loss to the extent of the earlier capital gains distribution.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the Equity,
Equity Value, International Equity, Small Capitalization or Balanced Funds, the
record date of dividends and capital gains distributions) should be aware that
the amount of the forthcoming dividend or distribution, although in effect a
return on capital, will be taxable.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders in the Equity and Fixed Income Funds may realize a taxable gain
or loss when redeeming, transferring or exchanging shares of a Fund, depending
on the difference in the prices at which the shareholder purchased and sold the
shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. If more than 50% of the value of this Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of such taxes against their federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes.
Except as stated below, shares of the Funds are not expected to qualify for
total exemption from the Florida intangibles tax. Shares of the Treasury Fund
may or may not qualify in any calendar year for this exemption from the Florida
intangibles tax. In order to qualify for this exemption, the Treasury Fund may
sell non-exempt assets held in its portfolio (such as repurchase agreements)
during the year and reinvest the proceeds in exempt assets, or hold cash, prior
to December 31.
43
<PAGE>
Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote its performance in
advertisements or shareholder communications. The performance for each class
of shares of a Fund is calculated separately from the performance of a Fund's
other classes of shares.
UNDERSTANDING PERFORMANCE:
- - Total return for each Fund (except the Prime and Treasury Funds) may be
calculated on an average annual total return basis or an aggregate total
return basis. Average annual total return reflects the average annual
percentage change in value of an investment over the measuring period.
Aggregate total return reflects the total percentage change in value of an
investment over the measuring period. Both measures assume the reinvestment
of dividends and distributions.
- - Yields for the Funds (except the Prime and Treasury Funds) are calculated for
a specified 30-day (or one-month) period by dividing the net income for the
period by the maximum offering price on the last day of the period, and
annualizing the result on a semi-annual basis. Yields for the Prime and
Treasury Funds are the income generated over a 7-day period (which period
will be identified in the quotation) and then assumed to be generated over a
52-week period and shown as a percentage of the investment. In addition, the
Prime and Treasury Funds may quote an "effective" yield that is calculated
similarly, but the income quoted over a 7-day period is assumed to be
reinvested. Net income used in yield calculations may be different than net
income used for accounting purposes.
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual
funds with similar investment objectives and to bond, stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor mutual fund performance.
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Equity and Fixed Income Funds may also be compared to
data prepared by Lipper Analytical Services, Inc., Mutual Fund Forecaster,
Wiesenberger Investment Companies Services, Morningstar or CDA Investment
Technologies, Inc., and total returns for the Funds may be compared to indices
such as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index,
the Lehman Brothers Bond Indices, the Merrill Lynch Bond Indices, the Wilshire
5000 Equity Indices or the Consumer Price Index.
The performance of the International Equity Fund may be compared to either
the Morgan Stanley Capital International Index or the FT World Actuaries Index.
The yield of the Prime Fund may be compared to the Donoghue's Money Fund
Average, which monitors the performance of money market funds. The yield of the
Treasury Fund may be compared to the Donoghue's Government Money Fund Average.
Additionally, the Prime and Treasury Funds' performance may be compared to data
prepared by Lipper Analytical Services, Inc.
44
<PAGE>
OTHER PERFORMANCE INFORMATION -- EQUITY, SMALL CAPITALIZATION, MANAGED BOND AND
SHORT-TERM FIXED INCOME FUNDS ONLY:
The Equity, Small Capitalization, Managed Bond and Short-Term Fixed Income
Funds commenced their initial investment operations in connection with the
transfer of assets from common trust funds managed by the Adviser for employee
benefit plan accounts. Set forth below is certain performance information
relating to those common trust funds before the Equity, Small Capitalization,
Managed Bond and Short-Term Fixed Income Funds registered as investment
companies with the Securities and Exchange Commission, together with the
performance information of these Funds since their commencement of operations.
These common trust funds were operated using substantially the same investment
objectives, policies, restrictions and methodologies as in the corresponding
Funds. During that time the common trust funds were not registered under the
1940 Act and therefore were not subject to certain investment restrictions that
are imposed by the Act. If the common trust funds had been registered under the
1940 Act, the common trust funds' performance might have been adversely
affected. Because the common trust funds did not charge any expenses, their
performance has been adjusted as stated below to reflect the Funds' estimated
expenses at the time of their inception. The following performance information
is not necessarily indicative of the future performance of the Funds. Because
each Fund is actively managed, its investments vary from time to time and are
not identical to the past portfolio investments of its predecessor common trust
fund. Each Fund's performance fluctuates so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED NOVEMBER 30, 1995
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Equity Fund (1).................................................... 35.21% 9.96% 13.49% 13.20%
Small Capitalization Fund (2)...................................... 32.30% 17.46% 25.58% 12.93%*
Managed Bond Fund (3).............................................. 18.36% 8.54% 10.03% 9.48%**
Short-Term Fixed Income Fund (4)................................... 10.80% 5.71% 7.17% 7.63%
</TABLE>
- ------------------------
(1) The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of
the predecessor common trust fund, assuming reinvestment of all net
investment income and capital gains and taking into account expenses of
0.49% of average daily net assets, which was the expected expense ratio of
shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Equity Fund also
assume reinvestment of all net investment income and realized capital gains
and take into account actual expenses of Retail Shares of the Fund for the
period from June 28, 1991 to March 1, 1994 and of Institutional Shares of
the Fund thereafter. The average annual total return of the Fund
(Institutional Shares) since its inception to November 30, 1995 is 14.22%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
(2) The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 1.35% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Small Capitalization Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Institutional Shares of
45
<PAGE>
the Fund. The average annual total return of the Fund (Institutional Shares)
since its inception to November 30, 1995 is 13.73%. During this period fee
waivers and expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(3) The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.27% of
average daily net assets, which was the expected expense ratio of
Institutional Shares of the Fund at the time of its inception. The average
annual total returns for the periods subsequent to the inception of the
Managed Bond Fund also assume reinvestment of all net investment income and
realized capital gains and take into account actual expenses of
Institutional Shares of the Fund. The average annual total return of the
Fund (Institutional Shares) since its inception to November 30, 1995 is
10.82%. During this period fee waivers and expense reimbursements were in
effect. Without these waivers and reimbursements the Fund's performance
would have been lower.
(4) The above information for the periods prior to inception of the Short-Term
Fixed Income Fund (4/11/94) is the average annual total return for the
periods indicated of the precedessor common trust fund, assuming
reinvestment of all net investment income and capital gains and taking into
account expenses of 0.28% of average daily net assets, which was the
expected expense ratio of shares of the Fund at the time of its inception.
The average annual total returns for the periods subsequent to the inception
of the Short-Term Fixed Income Fund also assume reinvestment of all net
investment income and realized capital gains and take into account actual
expenses of Institutional Shares of the Fund. The average annual total
return of the Fund (Institutional Shares) since its inception to November
30, 1995 is 7.03%. During this period fee waivers and expense reimbursements
were in effect. Without these waivers and reimbursements the Fund's
performance would have been lower.
* Since inception of common trust fund: 12/31/86.
** Since inception of common trust fund: 4/30/87.
-------------------
Performance quotations will fluctuate, and you should not consider
quotations to be representative of future performance. You should also remember
that performance is generally a function of the kind and quality of investments
held in a portfolio, portfolio maturity, operating expenses and market
conditions. Fees that Barnett and other Institutions may charge directly to
their Customers in connection with an investment in the Funds will not be
included in the Funds' calculations of total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 33.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED INTO THIS PROSPECTUS
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
46
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION......................... 3
Expenses............................................................ 3
Financial Highlights................................................ 5
INVESTMENT PRINCIPLES AND POLICIES.................................... 14
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS.................... 20
INVESTING IN EMERALD FUNDS............................................ 33
Your Money Manager.................................................. 33
Purchase of Shares.................................................. 33
Redemption of Shares................................................ 35
Dividends and Distributions......................................... 36
Explanation of Sales Price.......................................... 37
Exchange Privilege.................................................. 37
Other Service Providers............................................. 38
THE EMERALD FAMILY OF FUNDS........................................... 38
THE BUSINESS OF THE FUNDS............................................. 39
Fund Management..................................................... 39
Tax Implications.................................................... 42
Measuring Performance............................................... 44
</TABLE>
EMIEBMM96P
<PAGE>
EMERALD FUNDS FOR INSTITUTIONS
EMERALD EQUITY FUND
EMERALD EQUITY VALUE FUND
EMERALD INTERNATIONAL EQUITY FUND
EMERALD SMALL CAPITALIZATION FUND
EMERALD BALANCED FUND
EMERALD SHORT-TERM FIXED INCOME FUND
EMERALD U.S. GOVERNMENT SECURITIES FUND
EMERALD MANAGED BOND FUND
EMERALD FLORIDA TAX-EXEMPT FUND
INSTITUTIONAL SHARES
P R O S P E C T U S
APRIL 1, 1996
[LOGO]
E M E R A L D
EMIEB96P F U N D S
<PAGE>
For voice recorded price information
call 800/548-6546
<PAGE>
EMERALD FUNDS
<TABLE>
<CAPTION>
April 1, 1996
EMERALD FUND GOAL FOR INVESTORS WHO WANT
- --------------------- -------------------------------- --------------------------------
EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long term and are willing to
high quality common stocks and, accept the relative risks
secondarily, potential dividend associated with equity
income growth investments
<S> <C> <C>
- -----------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation Long-term capital appreciation
with income as a secondary and are willing to accept the
objective through investments relative risks associated with
primarily in common and investments in undervalued
preferred stock and debt stocks
securities convertible into
common stock
- -----------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation Capital appreciation over the
through investments primarily in long- term and are willing to
equity securities of foreign accept the relative risks
issuers associated with foreign
investments
- -----------------------------------------------------------------------------------------
SMALL CAPITALIZATION Long-term capital appreciation Long-term rewards that may
exceed those provided by a fund
investing in larger, more
established companies and are
willing to accept the relative
risks of small companies
- -----------------------------------------------------------------------------------------
BALANCED Attractive investment return Asset allocation among equity
through a combination of growth securities, fixed income
of capital and current income securities and cash equivalents
in light of prevailing market
and economic conditions
- -----------------------------------------------------------------------------------------
SHORT-TERM FIXED Consistently positive current Current income greater than
INCOME income with relative stability normally available from a money
of principal through investments market fund and less principal
in investment grade securities volatility than normally
and high quality money market associated with a long-term fund
instruments
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income Current income from U.S.
SECURITIES through investments principally Government securities and can
in U.S. Government securities accept fluctuations in price and
and repurchase agreements yield
- -----------------------------------------------------------------------------------------
MANAGED BOND High level of current income Current income from corporate
and, secondarily, capital and government securities and
appreciation can accept fluctuations in price
and yield
- -----------------------------------------------------------------------------------------
FLORIDA TAX-EXEMPT High tax-free income and current Current income from an
liquidity and, secondarily, investment that is both free
long-term capital appreciation from regular federal income tax
and Florida intangibles tax and
has the possibility of some
price appreciation
- -----------------------------------------------------------------------------------------
</TABLE>
This Prospectus describes concisely the information about the Funds that you
should know before investing. Please read and keep it for future reference. More
information about the Funds is contained in a Statement of Additional
Information dated April 1, 1996 that has been filed with the Securities and
Exchange Commission. The Statement of Additional Information can be obtained
free upon request by calling 800/637-3759, and is incorporated by reference into
(considered a part of) the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND SHARES ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BARNETT BANKS TRUST COMPANY, N.A. OR ANY OF ITS AFFILIATES AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF, OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID BY A
FUND WILL GO UP AND DOWN. BARNETT BANKS TRUST COMPANY, N.A. SERVES AS INVESTMENT
ADVISER TO THE FUNDS, IS PAID A FEE FOR ITS SERVICES, AND IS NOT AFFILIATED WITH
EMERALD ASSET MANAGEMENT, INC., THE FUND'S DISTRIBUTOR.
MISSOURI INVESTOR NOTICE: THE EMERALD SMALL CAPITALIZATION FUND, WHICH
CONCENTRATES ITS INVESTMENTS IN COMPANIES WITH SMALLER CAPITALIZATIONS, MAY BE
SUBJECT TO GREATER PRICE VOLATILITY THAN A FUND THAT CONCENTRATES ITS
INVESTMENTS IN LARGER CAPITALIZATION STOCKS. IN ADDITION, UP TO 15% OF THE TOTAL
ASSETS OF THE, SMALL CAPITALIZATION AND BALANCED FUNDS MAY BE INVESTED IN
CONVERTIBLE SECURITIES RATED BELOW INVESTMENT GRADE AT THE TIME OF PURCHASE AND
ALL OF THE FUNDS MAY RETAIN SECURITIES THAT HAVE BEEN DOWNGRADED TO BELOW
INVESTMENT GRADE AFTER PURCHASE. EACH FUND MAY SELL PORTFOLIO SECURITIES SHORTLY
AFTER THEY ARE PURCHASED, WHICH MAY RESULT IN HIGHER TRANSACTION COSTS AND
TAXABLE GAINS FOR THE FUND.
OHIO INVESTOR NOTICE: EACH FUND MAY INVEST MORE THAN 15% OF ITS TOTAL ASSETS IN
SECURITIES ISSUED UNDER RULE 144A WHICH ARE RESTRICTED AS TO DISPOSITION AND
SECURITIES OF UNSEASONED ISSUERS WHICH, TOGETHER WITH THEIR PREDECESSORS, HAVE A
RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS.
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets
and include fees for portfolio management, maintenance of shareholder accounts,
general Fund administration, accounting and other services.
Below is information regarding the shareholder transaction expenses and
operating expenses for Institutional Shares of the Equity, Equity Value,
International Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
U.S. Government Securities, Managed Bond and Florida Tax-Exempt Funds. Examples
based on this information are also provided.
<TABLE>
<CAPTION>
EQUITY SMALL
EQUITY VALUE INTERNATIONAL CAPITALIZATION BALANCED
FUND FUND EQUITY FUND FUND FUND
--------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases................ None None None None None
Sales Charge Imposed on Reinvested Dividends............... None None None None None
Deferred Sales Charge...................................... None None None None None
Redemption Fee............................................. None None None None None
Exchange Fee............................................... None None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees.............................................. 0.60% 0.60% 1.00% 1.00% 0.60%
All Other Expenses (After Expense Reimbursements).......... 0.19% 0.30% 0.40% 0.25% 0.24%
--------- --------- ------ ------ -----------
Total Fund Operating Expenses (After Expense
Reimbursements)*.......................................... 0.79% 0.90% 1.40% 1.25% 0.84%
--------- --------- ------ ------ -----------
--------- --------- ------ ------ -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
U.S.
SHORT-TERM GOVERNMENT FLORIDA
FIXED INCOME SECURITIES MANAGED TAX-EXEMPT
FUND FUND BOND FUND FUND
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Front End Sales Charge Imposed on Purchases........................ None None None None
Sales Charge Imposed on Reinvested Dividends....................... None None None None
Redemption Fee..................................................... None None None None
Deferred Sales Charge.............................................. None None None None
Exchange Fee....................................................... None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE REIMBURSEMENTS
(as a percentage of average net assets):
Advisory Fees...................................................... 0.40% 0.40% 0.40% 0.40%
All Other Expenses (After Expense Reimbursements).................. 0.20% 0.21% 0.21% 0.22%
------ ----------- ----------- -----------
Total Fund Operating Expenses (After Expense Reimbursements)*...... 0.60% 0.61% 0.61% 0.62%
------ ----------- ----------- -----------
------ ----------- ----------- -----------
</TABLE>
- ------------
* This expense information is provided to help you understand the expenses you
would bear either directly (as with the transaction expenses) or indirectly
(as with the annual operating expenses) as a shareholder of one of the Funds.
The operating expenses for the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds have been restated using the current fees and operating
expenses that would have been applicable had they been in effect during the
last fiscal year. The operating expenses for the Equity Value and
International Equity Funds are based on estimated expenses expected to be
incurred during the remainder of the current fiscal year.
Absent expense reimbursements, the total operating expenses for the
Institutional Shares of the Short-Term Fixed Income Fund would be 0.84%.
The Adviser may waive its fee and/or reimburse expenses of the Funds from
time to time. These waivers and reimbursements are voluntary and may be
terminated at any time with respect to any Fund without the consent of the
Fund. You should note that any fees that are charged by the Adviser, its
affiliates or any other institutions directly to their customer accounts for
services related to an investment in the Funds are in addition, to and not
reflected in, the fees and expenses described above.
4
<PAGE>
EXAMPLE: Let's say, hypothetically, that the annual return on the
Institutional Shares of each Fund is 5%, and that their operating expenses are
as described above. For every $1,000 you invested in a particular Fund, after
the periods shown below, you would have paid this much in expenses during such
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
AFTER AFTER AFTER AFTER
PURCHASE PURCHASE PURCHASE PURCHASE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund....................................... $ 8 $25 $44 $ 98
Equity Value Fund................................. $ 9 $29 N/A N/A
International Equity Fund......................... $14 $44 N/A N/A
Small Capitalization Fund......................... $13 $40 $68 $151
Balanced Fund..................................... $ 9 $27 $47 $104
Short-Term Fixed Income Fund...................... $ 6 $19 $33 $ 75
U.S. Government Securities Fund................... $ 6 $20 $34 $ 76
Managed Bond Fund................................. $ 6 $20 $34 $ 76
Florida Tax-Exempt Fund........................... $ 6 $20 $35 $ 78
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS, WHOSE UNQUALIFIED REPORTS ON THE FINANCIAL
STATEMENTS CONTAINING SUCH INFORMATION FOR THE FIVE YEARS IN THE PERIOD ENDED
NOVEMBER 30, 1995, ARE INCORPORATED BY REFERENCE INTO THE STATEMENT OF
ADDITIONAL INFORMATION (WHICH CAN BE OBTAINED FREE OF CHARGE BY CALLING
800/637-3759). THE FINANCIAL HIGHLIGHTS SHOULD BE READ ALONG WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES. FURTHER INFORMATION ABOUT EACH FUND'S PERFORMANCE
IS CONTAINED IN THAT FUND'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE
DISTRIBUTOR. THE EMERALD EQUITY VALUE FUND AND INTERNATIONAL EQUITY FUND WERE
NOT OPERATIONAL DURING THE PERIODS PRESENTED.
DURING THE FISCAL YEARS 1993 AND 1992 AND THE PERIOD ENDED NOVEMBER 30,
1991, THE EQUITY, U.S. GOVERNMENT SECURITIES AND FLORIDA TAX-EXEMPT FUNDS DID
NOT OFFER INSTITUTIONAL SHARES. RATHER, EACH FUND OFFERED A SEPARATE SHARE
CLASS, PREVIOUSLY CALLED CLASS A SHARES, NOW CALLED RETAIL SHARES, TO BOTH
INSTITUTIONAL AND RETAIL INVESTORS. THE FOLLOWING INFORMATION REGARDING RETAIL
SHARES IS PROVIDED TO GIVE YOU A LONGER TERM PERSPECTIVE OF THE FUNDS' FINANCIAL
HISTORY. FOR A DESCRIPTION OF THE CHARACTERISTICS AND EXPENSES OF RETAIL SHARES,
SEE "THE EMERALD FAMILY OF FUNDS."
5
<PAGE>
EMERALD EQUITY FUND
Financial highlights for an Institutional Share and a Retail Share of the
Equity Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
----------------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------ YEAR ENDED
YEAR ENDED PERIOD ENDED ----------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
-------------- -------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $ 10.89 $ 11.94 $ 11.82 $ 11.97 $ 10.24 $ 10.00
-------------- -------------- ------- -------------- -------------- -------
Income from investment
operations:
Net investment income..... 0.08 0.11 0.08 0.15 0.16 0.12
Net realized and
unrealized gains (losses)
on securities............ 3.74 (0.90) (0.39) (0.08) 1.73 0.24
-------------- -------------- ------- -------------- -------------- -------
Total income (loss) from
investment operations.... 3.82 (0.79) (0.31) 0.07 1.89 0.36
-------------- -------------- ------- -------------- -------------- -------
Less dividends and
distributions:
Dividends from net
investment income........ (0.08) (0.11) (0.08) (0.15) (0.16) (0.12)
Distributions from net
realized gains on
securities............... (0.00) (0.15) (0.57) (0.07) -- --
-------------- -------------- ------- -------------- -------------- -------
Total dividends and
distributions............ (0.08) (0.26) (0.65) (0.22) (0.16) (0.12)
-------------- -------------- ------- -------------- -------------- -------
Net change in net asset
value...................... 3.74 (1.05) (0.96) (0.15) 1.73 0.24
-------------- -------------- ------- -------------- -------------- -------
Net asset value, end of
period..................... $ 14.63 $ 10.89 $ 10.86 $ 11.82 $ 11.97 $ 10.24
-------------- -------------- ------- -------------- -------------- -------
-------------- -------------- ------- -------------- -------------- -------
Total return................ 35.21% (6.62%)++ (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)................... $ 173,824 $ 164,015 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to
average net assets....... 0.84% 0.79%+ 1.07%** 0.86%** 0.76%** 0.00%+
Ratio of net investment
income to average net
assets................... 0.67% 1.46%+ 0.36%** 1.22%** 1.41%** 2.64%+**
Portfolio turnover........ 104% 113% 113% 102% 40% 13%
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
6
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.66 $ 10.00
-------- --------
Income from investment operations:
Net investment loss.................................................... (0.03) (0.04)
Net realized and unrealized gains (losses) on securities............... 3.15 (0.30)
-------- --------
Net change in net asset value............................................ 3.12 (0.34)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 12.78 $ 9.66
-------- --------
-------- --------
Total return............................................................. 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 88,561 $ 53,509
Ratio of expenses to average net assets................................ 1.39% 1.29%+
Ratio of net investment loss to average net assets..................... (0.65%) (0.54%)+
Ratio of expenses to average net assets**.............................. 1.42% 1.48%+
Ratio of net investment loss to average net assets (**)................ (0.68%) (0.73%)+
Portfolio turnover..................................................... 229% 118%
</TABLE>
- ------------
* For the period January 4, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
7
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.63 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.33 0.27
Net realized and unrealized gains (losses) on securities............... 2.28 (0.37)
-------- --------
Total income (loss) from investment operations........................... 2.61 (0.10)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.33) (0.25)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions........................................ (0.33) (0.27)
-------- --------
Net change in net asset value............................................ 2.28 (0.37)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 11.91 $ 9.63
-------- --------
-------- --------
Total return............................................................. 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 73,830 $ 51,170
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 3.54% 4.11%+
Ratio of expenses to average net assets**.............................. 1.10% 1.25%+
Ratio of net investment income to average net assets**................. 2.76% 3.14%+
Portfolio turnover..................................................... 87% 33%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
8
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for an Institutional Share of the Short-Term Fixed
Income Fund throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.74 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.61 0.35
Net unrealized gains (losses) on securities............................ 0.41 (0.26)
-------- --------
Total income (loss) from investment operations......................... 1.02 0.09
Dividends from net investment operations................................. (0.61) (0.35)
-------- --------
Net change in net asset value............................................ 0.41 (0.26)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.15 $ 9.74
-------- --------
-------- --------
Total return............................................................. 10.80% (0.90%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 14,037 $ 23,566
Ratio of expenses to average net assets................................ 0.32% 0.28%+
Ratio of net investment income to average net assets................... 6.14% 5.55%+
Ratio of expenses to average net assets**.............................. 1.43% 1.60%+
Ratio of net investment income to average net assets**................. 5.03% 4.24%+
Portfolio turnover..................................................... 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
9
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for an Institutional Share and a Retail Share of U.S.
Government Securities Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
----------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------ YEAR ENDED
YEAR ENDED PERIOD ENDED ------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
------------- --------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.71 $ 10.47 $ 10.79 $ 10.52 $ 10.46 $ 10.00
------------- ------- ------------- ------------- ------------- -------------
Income from investment
operations:
Net investment
income............... 0.68 0.46 0.58 0.66 0.77 0.27
Net realized and
unrealized gains
(losses) on
securities........... 0.65 (0.75) (0.94) 0.41 0.12 0.46
------------- ------- ------------- ------------- ------------- -------------
Total income (loss)
from investment
operations........... 1.33 (0.29) (0.36) 1.07 0.89 0.73
------------- ------- ------------- ------------- ------------- -------------
Less dividends and
distributions:
Dividends from net
investment income.... (0.68) (0.46) (0.58) (0.66) (0.77) (0.27)
Distributions from net
realized gains on
securities........... (0.00) (0.01) (0.10) (0.14) (0.06) (0.00)
Distributions in
excess of net
investment income.... (0.00) (0.00) (0.01) (0.00) (0.00) (0.00)
Distributions in
excess of net
realized gains....... (0.00) (0.00) (0.02) (0.00) (0.00) (0.00)
------------- ------- ------------- ------------- ------------- -------------
Total dividends and
distributions........ (0.68) (0.47) (0.71) (0.80) (0.83) (0.27)
------------- ------- ------------- ------------- ------------- -------------
Net change in net asset
value.................. 0.65 (0.76) (1.07) 0.27 0.06 0.46
------------- ------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
PERIOD................. $ 10.36 $ 9.71 $ 9.72 $ 10.79 $ 10.52 $ 10.46
------------- ------- ------------- ------------- ------------- -------------
------------- ------- ------------- ------------- ------------- -------------
Total return............ 14.10% (2.83%)++ (3.45%) 10.40% 8.79% 7.34%++
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s)........ $ 74,753 $ 69,314 $ 30,855 $ 145,328 $ 94,006 $ 34,693
Ratio of expenses to
average net assets... 0.83% 0.68%+ 0.98% 0.64% 0.28% 0.00%
Ratio of net
investment income to
average net assets... 7.46% 5.90%+ 5.68% 5.91% 7.18% 7.88%+
Ratio of expenses to
average net
assets**............. (a) 0.69 %+ 1.09 % 1.06 % 0.99 % 1.47 %+
Ratio of net
investment income to
average net
assets**............. (a ) 5.90 %+ 5.57 % 5.49 % 6.42 % 6.41 %+
Portfolio turnover.... 89 % 133 % 133 % 72 % 50 % 34 %
</TABLE>
- -----------------
* For the period July 31, 1991 (commencement of operations) through November
30, 1991.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
10
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 9.55 $ 10.00
-------- --------
Income from investment operations:
Net investment income.................................................. 0.70 0.45
Net realized and unrealized gains (losses) on securities............... 1.00 (0.45)
-------- --------
Total income (loss) from investment operations......................... 1.70 (0.00)
-------- --------
Less dividends and distributions:
Dividends from net investment income................................... (0.70) (0.43)
Distributions in excess of net investment income....................... (0.00) (0.02)
-------- --------
Total dividends and distributions........................................ (0.70) (0.45)
-------- --------
Net change in net asset value............................................ 1.00 (0.45)
-------- --------
NET ASSET VALUE, END OF PERIOD........................................... $ 10.55 $ 9.55
-------- --------
-------- --------
Total return............................................................. 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................................... $ 68,923 $ 66,588
Ratio of expenses to average net assets................................ 0.31% 0.27%+
Ratio of net investment income to average net assets................... 6.95% 6.83%+
Ratio of expenses to average net assets**.............................. 0.83% 0.86%+
Ratio of net investment income to average net assets**................. 6.43% 6.25%+
Portfolio turnover..................................................... 92% 83%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
11
<PAGE>
EMERALD FLORIDA TAX-EXEMPT FUND
Financial highlights for an Institutional Share and a Retail Share of the
Florida Tax-Exempt Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
---------------------------------------------------------------
INSTITUTIONAL SHARES
-------------------------------- YEAR ENDED
YEAR ENDED PERIOD ENDED ---------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1995 1994+++ 1994 1993 1992 1991*
--------------- --------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 9.87 $ 11.07 $ 11.33 $ 10.55 $ 10.14 $ 10.00
------- ------- -------------- -------------- -------------- -------
Income from investment
operations:
Net investment income..... 0.57% 0.42 0.53 0.61 0.68 0.21
Net realized and
unrealized gains (losses)
on securities............ 1.22 (1.19) (1.37) 0.78 0.45 0.14
------- ------- -------------- -------------- -------------- -------
Total income (loss) from
investment operations.... 1.79 (0.77) (0.84) 1.39 1.13 0.35
------- ------- -------------- -------------- -------------- -------
Less dividends and
distributions:
Dividends from net
investment income........ (0.57) (0.42) (0.53) (0.61) (0.68) (0.21)
Distributions from net
realized gains on
securities............... (0.00) (0.01) (0.09) (0.00) (0.04) (0.00)
------- ------- -------------- -------------- -------------- -------
Total dividends and
distributions............ (0.57) (0.43) (0.62) (0.61) (0.72) (0.21)
------- ------- -------------- -------------- -------------- -------
Net change in net asset
value...................... 1.22 (1.20) (1.46) 0.78 0.41 0.14
------- ------- -------------- -------------- -------------- -------
Net asset value, end of
period..................... $ 11.09 $ 9.87 $ 9.87 $ 11.33 $ 10.55 $ 10.14
------- ------- -------------- -------------- -------------- -------
------- ------- -------------- -------------- -------------- -------
Total return................ 18.55% (7.07%)++ (7.75%) 13.37% 11.51% 3.49%++
Ratios/supplemental data:
Net assets, end of period
(000s)................... $ 33,979 $ 29,309 $ 109,426 $ 207,764 $ 106,946 $ 10,589
Ratio of expenses to
average net assets....... 0.74% 0.71%+ 0.96%** 0.65% 0.25%** (0.00)
Ratio of net investment
income to average net
assets................... 5.39% 5.34%+ 4.96% 5.32% 6.39% 6.40%+
Ratio of expenses to
average net assets....... (a) 0.71 %+ 1.04 % 1.00 % 1.21 % 3.42 %+
Ratio of net investment
income to average net
assets................... (a ) 5.33 % 4.88 % 4.97 % 5.43 % 2.98 %+
Portfolio turnover........ 89 % 89 % 89 % 48 % 105 % 45 %
</TABLE>
- -----------------
* For the period June 28, 1991 (commencement of operations) through November
30, 1991.
** During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
+++ For the period March 1, 1994 (initial offering date) through November 30,
1994.
(a) There were no waivers or reimbursements during the period.
12
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve a Fund's investment objective. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks, and which are also described in the following schedule. You should
consider which Funds best meet your investment goals. The Funds' Adviser will
use its best efforts to achieve a Fund's investment objective, although its
achievement cannot be assured.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term capital
appreciation by investing primarily in common stocks. The Fund seeks as a
secondary objective potential income growth through its investments. The Fund
invests primarily in high quality equity securities selected on the basis of
fundamental investment value and growth prospects that the Adviser believes
exceed those of the general economy. The Fund may also invest up to 25% of its
assets in the types of equity securities permissible for the Small
Capitalization Fund. In making investment decisions, the Adviser assesses
factors such as trading liquidity, financial condition, earnings stability,
reasonable market valuation and profitability.
The Equity Fund will normally invest at least 65% of its total assets in
equity securities, with the remainder of its assets in cash or cash equivalents
(however, the Fund may invest in cash equivalents without limit for temporary
defensive purposes). "Equity securities" are either common stock or preferred
stock and debt instruments convertible into common stock. Convertible securities
acquired by the Fund may be considered speculative. The Fund intends, however,
to invest only in convertible securities of issuers with proven earnings and/or
credit, and not more than 15% of the Fund's total assets will be invested in
convertible securities rated below investment grade by a Nationally Recognized
Statistical Rating Organization ("NRSRO") at the time of purchase. (A
description of applicable ratings is attached to the Statement of Additional
Information as Appendix A.) "Cash equivalents" include commercial paper,
certificates of deposit, repurchase agreements, variable or floating rate notes,
bankers' acceptances, U.S. Government obligations and money market mutual fund
shares. Additionally, the Fund may invest, through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), up to 25% of the value of
its total assets in securities of foreign issuers, and may acquire warrants and
similar rights giving the Fund the right (but not the obligation) to buy shares
of a company at a given price during a certain period.
EQUITY VALUE FUND
The Investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Any income is incidental to this objective. The Fund seeks
to achieve its investment objective by investing primarily in common stock,
preferred stock (including convertible preferred stock) and debt obligations
convertible into common stock that the Adviser believes to be undervalued. The
Fund seeks to purchase stock with a price-book value ratio below that of the
median stock in the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"). The Adviser invests less than 25% of the value of the Fund's total assets
at the time of purchase in securities of issuers conducting their principal
business activities in the same industry.
Under normal market and economic conditions, the Fund will invest at least
75% of its total assets in common stock, preferred stock and debt securities
convertible into common stock. Equity
13
<PAGE>
investments consist primarily of common stock of companies having
capitalizations that exceed $100 million. Stocks of these companies generally
are listed on a national exchange or are unlisted securities with an established
over-the-counter market. In addition, the Fund may hold other types of
securities in such proportions as, in the opinion of the Adviser, existing
circumstances may warrant, including obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and other high quality
"money market" instruments. The Fund may also hold cash pending investment,
during temporary defensive periods or if, in the opinion of the Adviser,
suitable stock or convertible debt securities are unavailable. The Fund may
invest up to 25% of its total assets in foreign securities either directly or
indirectly through ADRs and EDRs and may write covered call options.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing at least 65% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes established
companies, although it may invest in companies of various sizes as measured by
assets, sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, The Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and The United Kingdom. More than 25% of the Fund's total assets may be invested
in the securities of issuers located in the same country. Investment in that
country of 25% or more of the Fund's total assets will make the Fund's
performance more dependent upon the political and economic circumstances of a
particular country than a mutual fund that is more widely diversified among
issuers in different countries. Criteria for determining the appropriate
distribution of investments among various countries and regions may include
prospects for relative economic growth, expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors.
The Fund invests in common stock and may invest in other securities with
equity characteristics, such as trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund may invest in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
The Fund may invest in securities issued in certain countries that are
currently accessible to the Fund only through investment in other investment
companies that are specifically authorized to invest in such securities. The
Fund's policies regarding investments in other investment companies are
described under "Portfolio Instruments, Practices and Related Risks." In
addition, the Fund may
14
<PAGE>
invest in securities of foreign issuers in the form of ADRs or EDRs also as
described under "Portfolio Instruments, Practices and Related Risks." The Fund
expects that during its initial period of investment operations, substantially
all of the Fund may be invested in ADRs.
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, the Fund's assets may be invested
without limitation in short-term debt instruments. In addition, when the Fund
experiences large cash inflows from the issuance of new shares or the sale of
portfolio securities, and desirable equity securities that are consistent with
the Fund's investment objective are unavailable in sufficient quantities, the
Fund may hold more than 35% of its assets in short-term debt investment
investments for a limited time pending availability of suitable equity
securities. During normal market conditions, no more than 35% of the Fund's
total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. For temporary
defensive purposes, the Fund may also invest a major portion of its assets in
securities of United States issuers. Less than 25% of the value of the Fund's
total assets at the time of purchase will be invested in securities of issuers
conducting their principal business activities in the same industry.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to provide
long-term capital appreciation. The Fund pursues its objective by investing
primarily in equity securities such as common stocks and instruments convertible
or exchangeable into common stocks.
Securities held by the Fund will generally be issued by smaller companies.
Smaller companies will be considered those companies with market capitalizations
that are less than the capitalization of companies which predominate the major
market indices, such as the Standard & Poor's 500 Index. The market
capitalization of the issuers of securities purchased by the Fund will normally
be between $50 million and $2 billion at the time of purchase. In managing the
Fund, the Adviser seeks smaller companies with above-average growth prospects.
Factors considered in selecting such issuers include participation in a fast
growing industry, a strategic niche position in a specialized market, adequate
capitalization and fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
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Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities of small capitalization companies. In addition
to investing in equity securities, the Fund is authorized to invest in cash
equivalents to provide cash reserves. The Fund also retains the ability to
invest up to 25% of the value of its total assets in foreign securities by
utilizing ADRs and EDRS, and may acquire convertible securities, warrants and
similar rights.
BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, yields,
interest rates and fiscal and monetary developments. The Fund will not purchase
a security if as a result less than 25% of its total assets will be in invested
fixed income securities (including cash equivalents, long-term debt securities,
and convertible debt securities and preferred stocks to the extent their value
is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would normally increase the Fund's equity holdings while
reducing its holdings of fixed income and cash equivalent securities.
The Fund reserves the right to hold as a temporary defensive measure up to
100% of its total assets in cash and short-term obligations (having remaining
maturities of 13 months or less) at such times and in such proportions as, in
the opinion of the Adviser, prevailing market or economic conditions warrant.
These short-term obligations include, but are not limited to, commercial paper,
bankers' acceptances, certificates of deposit, demand and time deposits of
domestic and foreign banks and savings and loan associations, repurchase
agreements and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Other types of fixed income securities the Fund
may purchase include collateralized mortgage obligations guaranteed by a U.S.
Government agency or instrumentality, and U.S. Government-backed trusts that
hold obligations of foreign governments and are backed by the full faith and
credit of the United States.
Equity securities purchased by the Balanced Fund will be limited to the
types that are permissible investments for the Equity and Small Capitalization
Funds. Non-convertible debt obligations will be
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limited to the types that are permissible investments for the Managed Bond Fund.
Convertible securities, foreign securities and other instruments will be
acquired in accordance with the limitations described under "Portfolio
Investments, Practices and Related Risks."
The Fund may also invest, through ADRs and EDRS, up to 25% of the value of
its total assets in securities of foreign issuers, and may invest in warrants
and similar rights.
SHORT-TERM FIXED INCOME AND MANAGED BOND FUNDS
The Short-Term Fixed Income and Managed Bond Funds offer two alternatives
for participating in the fixed income securities markets. The average weighted
maturity of the Short-Term Fixed Income Fund is shorter than that of the Managed
Bond Fund. Both Funds are subject to the same quality requirements.
The investment objective of the Short-Term Fixed Income Fund is to seek
consistently positive current income with relative stability of principal by
investing in investment grade securities and high quality money market
instruments. The investment objective of the Managed Bond Fund is to seek a high
level of current income and, secondarily, capital appreciation. While the
maturity of individual securities will not be restricted, except during
temporary defensive periods or unusual market conditions the average weighted
maturity of the Short-Term Fixed Income Fund will not exceed three years and the
average weighted maturity of the Managed Bond Fund will be ten years or more.
Each Fund invests substantially all of its assets in debt obligations such
as bonds, debentures and cash equivalents, obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, debt obligations of
domestic and foreign corporations, debt obligations of foreign, state and local
governments and their political subdivisions, and asset-backed securities,
including various collateralized mortgage obligations and other mortgage-related
securities. The Funds will purchase only those securities which are considered
to be investment grade or better by at least one NRSRO or, if unrated, of
comparable quality. In addition, during normal market conditions at least 65% of
each Fund's total assets will be invested in debt obligations rated "A" or
better by at least one NRSRO (or unrated obligations determined to be of
comparable quality). Obligations rated in the lowest of the top four rating
categories ("BBB" or "Baa") have certain speculative characteristics and are
subject to more credit and market risk than securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage
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and other asset-related securities, zero coupon bonds and convertible
debentures. The Managed Bond Fund may, however, also invest without limitation
in short-term investments to meet anticipated redemption requests, or as a
temporary defensive measure if the Adviser determines that market conditions
warrant.
The Funds may also invest in obligations convertible into common stocks, and
common stocks, warrants or other rights to buy shares if they are attached to a
fixed income obligation. Common stock received through the conversion of
convertible debt obligations will normally be sold. For a further description of
the Funds' policies with respect to convertible securities, foreign securities
and other instruments see "Portfolio Instruments, Practices and Related Risks."
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities Fund is to seek
consistently positive income by investing principally in U.S. Government
securities and repurchase agreements collateralized by such securities. The Fund
will always invest at least 65% of its total assets in such instruments under
normal market conditions. There is no minimum or maximum maturity for securities
held, although the Fund expects that (except during temporary defensive periods
or unusual market conditions) its dollar-weighted average portfolio maturity
will be between five and ten years. The Fund may invest in a variety of U.S.
Government securities, including U.S. Treasury bonds, notes and bills, and
obligations of a number of U.S. Government agencies and instrumentalities. The
Fund may also invest in interests in the foregoing securities, including
collateralized mortgage obligations issued or guaranteed by a U.S. Government
agency or instrumentality.
Securities issued or guaranteed by the U.S Government, its agencies or
instrumentalities have historically had a very low risk of loss of principal if
held to maturity. The Fund, however, can give no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
if it were not legally obligated to do so. The value of the Fund's portfolio
(and consequently its shares) is expected to fluctuate inversely to changes in
the direction of interest rates.
FLORIDA TAX-EXEMPT FUND
The primary investment objective of the Florida Tax-Exempt Fund is to seek
to provide high tax-free income and current liquidity. The potential for
long-term capital appreciation is considered to be a secondary objective. In
seeking to attain its objective, the Fund invests its assets primarily in
municipal obligations that are rated investment grade or above by one or more
NRSROs at the time of purchase. The Fund may also acquire tax-exempt commercial
paper, municipal notes and tax-exempt variable rate demand obligations that are
rated in the highest rating category by an NRSRO. Obligations purchased by the
Fund that have not been assigned a rating will be determined by the Adviser to
be of comparable quality. Although obligations rated BBB or Baa (the lowest
ratings permitted for the Fund) are considered to be investment grade, they have
speculative characteristics and are subject to more credit and market risk than
securities with higher ratings. If a portfolio security ceases to be rated
investment grade by at least one NRSRO, the security will be sold in an orderly
manner as quickly as possible.
The Adviser hopes to use market opportunities (caused by things such as
temporary differences between the yields on securities) to achieve a better
performance than what might be obtained by investing in an unmanaged portfolio
of municipal securities. The Florida Tax-Exempt Fund will invest at least 80% of
its net assets in securities the interest on which is exempt from regular
federal income
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tax, except during defensive periods or periods of unusual market conditions. In
addition, under normal conditions the Fund will invest at least 65% of its net
assets in securities issued by the state of Florida and its municipalities,
counties and other taxing districts, as well as in other securities exempt from
the Florida intangibles tax. Under normal market conditions the Fund may invest
up to 20% of its net assets in taxable instruments, including certain so-called
private activity bonds which are a type of obligation that, although exempt from
regular federal income tax, may be subject to the federal alternative minimum
tax. From time to time the Fund may hold cash reserves that do not earn income.
Although the Fund has the flexibility to invest in municipal obligations with
short, medium or long maturities, the Adviser expects that under normal
conditions the Fund will invest primarily in obligations that have remaining
maturities of more than ten years.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
FOREIGN SECURITIES. There are risks and costs involved in investing in
securities of foreign issuers (including foreign governments), which are in
addition to the usual risks inherent in U.S. investments. Investments in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may involve risks
associated with the level of currency exchange rates, less complete financial
information about the issuer, less market liquidity and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Although the International Equity Fund will invest in securities denominated
in foreign currencies, the Fund values its securities and other assets in U.S
dollars. As a result, the net asset value of the Fund's shares will fluctuate
with the U.S. dollar exchange rates, as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies. The risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY FUND
may invest up to 100% of its total assets and the EQUITY, EQUITY VALUE, SMALL
CAPITALIZATION AND BALANCED FUNDS, may invest up to 25% of its total assets in
ADRs and EDRs. ADRs are receipts issued in registered form by a
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U.S. bank or trust company evidencing ownership of underlying securities issued
by a foreign issuer. EDRs are receipts issued in Europe typically by non-U.S.
banks or trust companies and foreign branches of U.S. banks that evidence
ownership of the underlying foreign or U.S. securities. ADRs may be listed on a
national securities exchange or may be traded in the over-the-counter market.
EDRs are designed for use in European exchange and over-the-counter markets.
ADRs and EDRs traded in the over-the-counter market which do not have an active
or substantial secondary market will be considered illiquid and therefore will
be subject to the Fund's limitation with respect to such securities. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs and EDRs involve risks
similar to those accompanying direct investments in foreign securities.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. EACH FUND, may
invest in securities issued or guaranteed by the U.S. Treasury, as well as in
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities or in money market instruments, including bank obligations and
commercial paper. Obligations of certain agencies and instrumentalities, such as
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, like the Export-Import Bank, are
supported by the issuer's right to borrow from the Treasury; others, including
the Federal National Mortgage Association, are backed by the discretionary
ability of the U.S. Government to purchase the entity's obligations; and still
others like the Student Loan Marketing Association are backed solely by the
issuer's credit. U.S. Government obligations also include U.S. Government-backed
trusts that hold obligations of foreign governments and are guaranteed or backed
by the full faith and credit of the United States. There is no assurance that
the U.S. Government would provide support to a U.S. Government-sponsored entity
were it not required to do so by law. Some of these securities may have a
variable or floating interest rate.
ASSET-BACKED SECURITIES. The BALANCED, SHORT-TERM FIXED INCOME, and MANAGED
BOND FUNDS may invest in asset-backed securities (I.E., securities backed by
installment sale contracts, credit card receivables or other assets). In
addition, each of these Funds, as well as the U.S. GOVERNMENT SECURITIES FUND,
may invest in U.S. Government securities that are backed by adjustable or fixed
rate mortgage loans. The average life of an asset-backed instrument varies with
the maturities of the underlying instruments. In the case of mortgages, these
maturities may be a maximum of forty years. The average life of an asset-backed
instrument is likely to be substantially less than the original maturity of the
asset pools underlying the security as the result of scheduled principal
payments and prepayments. This may be particularly true for mortgage-backed
securities. The rate of such prepayments, and hence the life of the security,
will be primarily a function of current market rates and current conditions in
the relevant market. In calculating the average weighted maturity of a Fund's
portfolio, the maturity of asset-backed instruments will be based on estimates
of average life. The relationship between prepayments and interest rates may
give some high-yielding asset-backed securities less potential for growth in
value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of prepayment tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Fund will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. Because of these and other reasons, an asset-backed
security's total return may be difficult to predict precisely. To the extent a
Fund purchases asset-backed securities at a premium, prepayments (which often
may be made at any time without penalty) may result in some loss of a Fund's
principal investment to the extent of any premiums paid.
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Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage pass-
through certificates, which provide the holder with a pro rata interest in the
underlying mortgages, and collateralized mortgage obligations ("CMOs"), which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as a real estate
mortgage investment conduit, or REMIC. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final distribution date.
Although the relative payment rights of these classes can be structured in a
number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities. CMOs can expose
a Fund to more volatility and interest rate risk than other types of asset-
backed obligations.
MUNICIPAL OBLIGATIONS. The FLORIDA TAX-EXEMPT FUND will invest primarily in
municipal obligations. The BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND
FUNDS may also invest in municipal obligations. These securities may be
advantageous for these Funds when, as a result of prevailing economic,
regulatory or other circumstances, the yield of such securities on a pre-tax
basis is comparable to that of other securities the particular Fund can
purchase. Dividends paid by Funds other than the Florida Tax-Exempt Fund that
come from interest on municipal obligations will be taxable to shareholders.
The two main types of municipal obligations are "general obligation"
securities (which are secured by the issuer's full faith credit and taxing
power) and "revenue" securities (which are payable only from revenues received
from the operation of a particular facility or other specific revenue source). A
third type of municipal obligation, normally issued by special purpose public
authorities, is known as a "moral obligation" security because if the issuer
cannot meet its obligations it then draws on a reserve fund, the restoration of
which is not a legal requirement. Private activity bonds (such as bonds issued
by industrial development authorities) are usually revenue securities issued by
or for public authorities to finance a privately operated facility.
Within the principal classifications described above there are a variety of
categories including municipal leases and certificates of participation.
Municipal lease obligations are issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser, under the supervision of the Board of Trustees, will determine the
credit quality or any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds and the Adviser rely on these
opinions and do not intend to review the basis for them.
Municipal obligations purchased by each Fund, including the Florida
Tax-Exempt Fund, may be backed by letters of credit or guarantees issued by
domestic or foreign banks and other financial
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institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described above under "Foreign
Securities," foreign letters of credit and guarantees involve certain risks in
addition to those domestic obligations.
CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME and MANAGED
BOND FUNDS and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS may purchase corporate bonds and cash
equivalents that meet a Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurodollar bonds, which are U.S.
dollar-denominated obligations of foreign issuers, Yankee bonds, which are U.S.
dollar-denominated bonds issued by foreign issuers in the U S. and equipment
trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of 13 months or less, will
either have short-term ratings at the time of purchase in the top category of by
one or more NRSROs or be issued by issuers with such ratings. Unrated
instruments of these types purchased by a Fund will be determined to be of
comparable quality.
BANK OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND
FUNDS, and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY
and SMALL CAPITALIZATION FUNDS, may purchase certificates of deposit ("CDs"),
bankers' acceptances, notes and time deposits issued or supported by U.S. or
foreign banks and savings institutions that have total assets of more than $1
billion. These Funds may also invest in CDs and time deposits of domestic
branches of U.S. banks that have total assets of less than $1 billion if the CDs
and time deposits are insured by the FDIC. Investments in foreign banks and
foreign branches of U.S. banks will not make up more than 25% of a Fund's total
assets when the investment is made. (To the extent permitted by the SEC, bank
obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) These Funds may
also make interest-bearing savings deposits in amounts not exceeding 5% of their
total assets.
REPURCHASE AGREEMENTS. EACH FUND, except the FLORIDA TAX-EXEMPT FUND, may
buy portfolio securities subject to the seller's agreement to repurchase them at
an agreed upon time and price. These transactions are known as repurchase
agreements. A Fund will enter into repurchase agreements only with financial
institutions deemed to be creditworthy by the Adviser pursuant to guidelines
established by the Board of Trustees. During the term of any repurchase
agreement, the Adviser will monitor the creditworthiness of the seller, and the
seller must maintain the value of the securities subject to the agreement in an
amount that is greater than the repurchase price. Default or bankruptcy of the
seller would, however, expose a Fund to possible loss because of adverse market
action or delays connected with the disposition of the underlying obligations.
Because of the seller's repurchase obligations, the securities subject to
repurchase agreements do not have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of each Fund, except the U.S. GOVERNMENT
SECURITIES and FLORIDA TAX-EXEMPT FUNDS, these instruments may include variable
amount master demand notes, which are instruments under which the indebtedness,
as well as the interest rate, varies. If rated, variable and floating rate
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instruments must be rated in the highest short-term rating category by an NRSRO.
If unrated, such instruments will need to be determined to be of comparable
quality. Because of the absence of a market in which to resell a variable or
floating rate instrument, a Fund might have trouble selling an instrument should
the issuer default or during periods when a Fund is not permitted by agreement
to demand payment of the instrument, and for this or other reasons a loss could
occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. Each Fund may invest in stripped securities
that have been issued by a federal instrumentality known as the Resolution
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Treasury, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities Program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently. Each Fund may also invest in instruments that
have been stripped by their holder, typically a custodian bank or investment
brokerage firm, and then resold in a custodian receipt program under names you
may be familiar with such as Treasury Investors Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS").
In addition, each Fund, except the Florida Tax-Exempt Fund, may purchase
stripped mortgage-backed securities ("SMBS") issued by the U.S. Government (or a
U.S. Government agency or instrumentality) or by private issuers such as banks
and other institutions. SMBS, in particular, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. If the underlying obligations
experience greater than anticipated prepayments, a Fund may fail to fully recoup
its initial investment. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
are generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net asset
value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the extent
shareholders request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.
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BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The
BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS may invest in bank
investment contracts ("BICs") issued by banks that meet the asset size
requirements described above under "Bank Obligations" and may also invest in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, a Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, a Fund would receive interest from the issuing entity at either a
negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or insurance
company involved, and an active secondary market does not currently exist for
these instruments, they are considered illiquid securities and are subject to a
Fund's limitation on such investments as described below under "Managing
Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may purchase from domestic financial institutions and
trusts created by such institutions participation interests and trust receipts
in high quality debt securities. A participation interest or receipt gives a
Fund an undivided interest in the security in the proportion that a Fund's
participation interest or receipt bears to the total principal amount of the
security. Each Fund intends only to purchase participations and trust receipts
from an entity or syndicate, and do not intend to serve as a co-lender in any
such activity. As to certain instruments for which a Fund will be able to demand
payment, a Fund intends to exercise its right to do so only upon a default under
the terms of the security, as needed to provide liquidity, or to maintain or
improve the quality of its investment portfolio. It is possible that a
participation interest or trust receipt may be deemed to be an extension of
credit by a Fund to the issuing financial institution rather than to the obligor
of the underlying security and may not be directly entitled to the protection of
any collateral security provided by the obligor. In such event, the ability of a
Fund to obtain repayment could depend on the issuing financial institution.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into, for speculative purposes but only
in furtherance of a Fund's investment objectives.
INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
AND MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which a Fund's investments are traded. A Fund would expect to enter into these
hedging transactions primarily to preserve the return or spread of a particular
investment or
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portion of its portfolio and to protect against an increase in the price of
securities a Fund anticipates purchasing at a later date. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the
extent a specified index fell below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
floor. The purchase of an interest rate cap by a Fund would entitle it, to the
extent that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
STAND-BY COMMITMENTS. The FLORIDA TAX-EXEMPT FUND may acquire stand-by
commitments under which a dealer agrees to purchase certain municipal
obligations at the Fund's option at a price equal to amortized cost plus
interest. These commitments will be used only to assist in maintaining the
liquidity of the Fund, and not for trading purposes.
OTHER INVESTMENT COMPANIES. EACH FUND may invest in the securities of other
mutual funds that invest in the particular instruments in which a Fund itself
may invest, subject to the requirements of applicable securities laws. When a
Fund invests in another mutual fund, it pays a pro rata portion of the advisory
and other expenses of that fund as a shareholder of that fund. These expenses
are in addition to the advisory and other expenses a Fund pays in connection
with its own operations. In particular, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P. The INTERNATIONAL EQUITY FUND may also purchase shares
of investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting principally
of securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). The Funds currently intend to limit these investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of their total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of their total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund, except the FLORIDA TAX-EXEMPT FUND, may enter
into reverse repurchase agreements.
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Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When the Fund enters into a reverse
repurchase agreement it will place in a separate custodial account either liquid
assets or high grade debt securities that have a value equal to or more than the
price the Fund must pay when it buys back the securities, and the account will
be continuously monitored to make sure the appropriate value is maintained.
Reverse repurchase agreements may be used to meet redemption requests without
selling portfolio securities. Reverse repurchase agreements involve the possible
risk that the value of portfolio securities a Fund relinquishes may decline
below the price a Fund must pay when the transaction closes. Interest paid by a
Fund in a reverse repurchase or other borrowing transaction will reduce a Fund's
income.
SECURITIES LENDING. EACH FUND, except the FLORIDA TAX-EXEMPT FUND, may lend
securities held in its portfolio to broker-dealers and other institutions as a
means of earning additional income. These loans present risks of delay in
receiving additional collateral or in recovering the securities loaned or even a
loss of rights in the collateral should the borrower of the securities fail
financially. However, securities loans will be made only to parties the Adviser
deems to be of good standing, and will only be made if the Adviser thinks the
possible rewards from such loans justify the possible risks. A loan will not be
made if, as a result, the total amount of a Fund's outstanding loans exceeds 30%
of its total assets. Securities loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash- equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash,
U.S. Government securities or other liquid high grade debt instruments in the
amount of the future purchase commitment will be set apart for a Fund involved
in a separate account at the custodian. Mortgage rolls are not a primary
investment technique for any of these Funds, and it is expected that, under
normal market conditions, a Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
CONVERTIBLE SECURITIES. The EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY,
SMALL CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS
may invest in convertible securities, including bonds, notes and preferred
stock, that may be converted into common stock either at a stated price or
within a specified period of time. By investing in convertibles, a Fund is
looking for the opportunity, through the conversion feature, to participate in
the capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock.
None of the assets of the Short-Term Fixed Income and Managed Bond Funds,
and no more than 15% of the total assets of the Equity, Equity Value,
International Equity, Small Capitalization and Balanced Funds, may be invested
in convertible securities rated below investment grade at the time of purchase.
Non-investment grade convertible securities must be rated "B" or higher by at
least one NRSRO. Non-investment grade securities are commonly referred to as
"junk" bonds and present a
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greater risk as to the timely repayment of the principal, interest and
dividends. Particular risks include (a) the sensitivity of such securities to
interest rate and economic changes, (b) the lower degree of protection of
principal and interest payments, (c) the relatively low trading market liquidity
for the securities, (d) the impact that legislation may have on the market for
these securities (and, in turn, on a Fund's net asset value) and (e) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would negatively affect their ability to meet
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower rated convertible securities and negatively affect
the value of outstanding securities and the ability of the issuers to repay
principal and interest. If the issuer of a convertible security held by a Fund
defaulted, that Fund could incur additional expenses to seek recovery. Adverse
publicity and investor perceptions, whether or not they are based on fundamental
analysis, could also decrease the value and liquidity of lower-rated convertible
securities held by a Fund, especially in a thinly-traded market.
OPTIONS. EACH FUND may write covered call options, buy put options, buy
call options and sell, or "write," secured put options on particular securities
or various securities indices. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is the consideration for undertaking the obligations
under the option contract. A put option for a particular security gives the
purchaser the fight to sell the underlying security at the stated exercise price
at any time prior to the expiration date of the option, regardless of the market
price of the security. In contrast to an option on a particular security, an
option on a securities index provides the holder with the fight to make or
receive a cash settlement upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. Options may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
Unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation, which performs the
obligations of its members if they default.
Options trading is a highly specialized activity and carries greater than
ordinary investment risk. Purchasing options may result in the complete loss of
the amounts paid as premiums to the writer of the option. In writing a covered
call option, a Fund gives up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price (except to the
extent the premium represents such a profit). Moreover, it will not be able to
sell the underlying security until the covered call option expires or is
exercised or a Fund closes out the option. In writing a secured put option, a
Fund assumes the risk that the market value of the security will decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of any Fund.
FUTURES AND RELATED OPTIONS. EACH FUND may invest to a limited extent in
futures contracts and options on futures contracts in order to gain fuller
exposure to movements of security prices pending investment, for hedging
purposes or to maintain liquidity. Futures contracts obligate a Fund, at
maturity, to take or make delivery of certain securities or the cash value of a
securities index. A Fund may not purchase or sell a futures contract (or related
option) unless immediately after any such
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transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options is 5% or
less of its total assets (after taking into account certain technical
adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts. When a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price at any time during the option period. When a Fund
sells an option on a futures contract, it becomes obligated to purchase or sell
a futures contract if the option is exercised. In anticipation of a market
advance, a Fund may purchase call options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, that Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the INTERNATIONAL EQUITY
FUND may buy and sell securities denominated in currencies other than the U.S.
dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Fund from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies. The Fund may either enter into these
transactions on a spot (I.E. cash) basis at the spot rate prevailing in the
foreign currency exchange market, or use forward contracts to purchase or sell
foreign currencies. Forward foreign currency exchange contracts are agreements
to exchange one currency for another-- for example, to exchange a certain amount
of U.S. dollars for a certain amount of Japanese yen--at a future date and at a
specified price. Typically, the other party to a currency exchange contract will
be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exch ange
contracts are of short duration, generally between one and twelve months, the
forward foreign currency exchange contracts may be rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to the Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by the Board of Trustees.
The International Equity Fund may maintain "short" positions in forward
foreign currency exchange transactions, which would involve the Fund's agreeing
to exchange currency that it currently does not own for another currency--for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars--at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund
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has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash, U.S. Government securities or other liquid high-grade debt securities
equal in value to the fluctuating market value of the currency as to which the
short position is being maintained. The value of the securities in the
segregated account will be adjusted at least daily to reflect changes in the
market value of the short position. See the Statement of Additional Information
for additional information regarding foreign currency exchange transactions.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICS, BICS, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser has determined pursuant to guidelines adopted
by the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this limitation. This investment practice could have
the effect of increasing the level of illiquidity in a Fund during any period
that qualified institutional buyers were no longer interested in purchasing
these restricted securities.
PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objective. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, the annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, U.S. Government
Securities, Managed Bond and Florida Tax-Exempt Funds were 104%, 229%, 87%, 33%,
89%, 92% and 89%, respectively. The annual portfolio turnover rates for the
Equity Value and International Equity Funds are not expected to exceed 150%.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Short-Term
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Fixed Income, Managed Bond, U.S. Government Securities and Florida Tax-Exempt
Funds may purchase zero-coupon bonds (I.E., discount debt obligations that do
not make periodic interest payments). Zero-coupon bonds are subject to greater
market fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset values.
In addition, the Florida Tax-Exempt, Balanced, Short-Term Fixed Income and
Managed Bond Funds, may purchase custodial receipts, tender option bonds and
certificates of participation in trusts that hold municipals or other types of
obligations. A certificate of participation gives a Fund an individual,
proportionate interest in the obligation and may have a variable or fixed rate.
Because certificates of participation are interests in obligations that may be
funded through government appropriations, they are subject to the risk that
sufficient appropriations as to the timely payment of principal and interest on
the obligations may not be made. The NRSRO quality rating of an issue of
certificates of participation is normally based upon the rating of the
obligations held by the trust and the credit rating of the issuer of any letter
of credit and of any other guarantor providing credit support to the issue.
These Funds may also hold other derivative instruments, which may be in the
form of participations, custodial receipts evidencing rights to receive a
specific future interest payment, principal payment, or both, and bonds that
have interest rates that reset inversely to changing short-term rates and/or
have imbedded interest rate floors and caps. Many of these derivative
instruments are proprietary products that have been recently developed by
investment banking firms, and it is uncertain how these instruments will perform
under different economic and interest-rate scenarios. In addition, to the extent
that the market value of these instruments is leveraged, they may be more
volatile than other types of obligations and may present greater potential for
capital gain or loss. In some cases it may be difficult to determine the fair
value of a derivative instrument because of a lack of reliable objective
information, and an established secondary market for some instruments may not
exist.
Although the Florida Tax-Exempt Fund does not presently intend to do so on a
regular basis, it may invest more than 25% of its total assets in municipal
obligations the interest on which comes solely from revenues of similar
projects. Additionally, the Florida Tax-Exempt Fund will normally invest more
than 25% of its net assets in municipal obligations the issuers of which are
located in Florida, and may invest more than 25% of its net assets in industrial
development bonds issued before August 7, 1986 that are not treated as a
specific tax preference item under the federal alternative minimum tax.
When a Fund's assets are concentrated in obligations payable from revenues
of similar projects or issued by issuers located in the same state, or in
industrial development bonds, the Fund will be subject to the particular risks
(including legal and economic conditions) relating to such securities to a
greater extent than if its assets were not so concentrated. If Florida or any of
its political subdivisions
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should suffer serious financial difficulties to the extent their ability to pay
their obligations might be jeopardized, the ability of such entities to market
their securities, and the value of the Florida Tax-Exempt Fund, could be
adversely affected.
Payment on municipal obligations held by a Fund relating to certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of a mortgage or deed of trust will be subject to statutory
enforcement procedures and limitations on obtaining deficiency judgments.
Should a foreclosure occur, collection of the proceeds from that foreclosure
may be delayed and the amount of the proceeds received may not be enough to pay
the principal or accrued interest on the defaulted municipal obligation.
While the other Funds are classified as "diversified," the Florida
Tax-Exempt Fund has been set up as a "non-diversified" portfolio. The investment
return of a non-diversified portfolio is typically dependent on the performance
of a smaller number of securities than a diversified portfolio, and the change
in value of one particular security may have a greater impact on the value of a
non-diversified portfolio. A non-diversified portfolio may therefore be subject
to greater fluctuations in net asset value. Additionally, non-diversified
portfolios may be more susceptible to economic, political and legal developments
than a diversified portfolio with similar objectives.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have a different investment objective from the one it had at the time of
your investment. However, each Fund also has in place certain "fundamental
limitations" that cannot be changed without the approval of a majority of the
Fund's outstanding shares. Some of these fundamental limitations are summarized
below, and all of the Funds' fundamental limitations are set out in full in the
Statement of Additional Information.
1. A Fund may not invest 25% or more of its total assets in one or more
issuers conducting their principal business activities in the same industry.
2. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be invested
in the securities of any one issuer, except that up to 50% of the Florida
Tax-Exempt Fund's total assets, and up to 25% of the total assets of each other
Fund, can be invested without regard to the 5% limitation. A Fund may not
purchase more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 50% or 25% exception.
3. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing,
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
4. Under normal market conditions the Florida Tax-Exempt Fund must invest
at least 80% of its net assets in securities that provide interest exempt from
regular federal income tax.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
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In order to permit the sale of a Fund's shares (or a particular class of
shares) in some states, Emerald Funds may agree to certain restrictions that may
be stricter than the investment policies and limitations discussed above. If
Emerald Funds decides that any of these restrictions is no longer in a Fund's
best interest, it may revoke its agreement to abide by such restriction by no
longer selling shares in the state involved.
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INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT BANKS TRUST COMPANY, N.A. (REFERRED TO AS "BARNETT" OR THE
"ADVISER") SERVES AS INVESTMENT ADVISER FOR EMERALD FUNDS. Barnett is the
largest trust organization headquartered in Florida and has notable experience
in providing professional investment management services. Organized as a
national banking association in 1974, it is the successor to the business of
earlier organizations that had provided continuous trust services since 1926.
Barnett first began providing advisory services to mutual funds in 1988 and is a
subsidiary of Barnett Banks, Inc., a registered Bank holding company that has
offered general banking services since 1877,
ENTRUSTED WITH APPROXIMATELY $9.8 BILLION UNDER ACTIVE MANAGEMENT, Barnett
is an industry leader in providing investment management services to individuals
and institutions. As the investment adviser to Emerald Funds, Barnett employs
investment professionals who are dedicated to managing money on a full-time
basis.
PURCHASE OF SHARES
Institutional Shares are sold on a continuous basis by Emerald Asset
Management, Inc. (called the "Distributor"). The Distributor is located at 3435
Stelzer Road, Columbus, Ohio 43219-3035.
Institutional Shares are sold to Barnett and its affiliates, as well as to
Barnett's correspondent banks and other institutions ("Institutions") acting on
behalf of themselves or their customers who maintain qualified trust, agency or
custodial accounts ("Customers"). Customers may include individuals, trusts,
partnerships and corporations. All share purchases are effected through a
Customer's account at Barnett or another Institution through procedures
established in connection with the requirements of the account, and
confirmations of share purchases and redemptions will be sent to Barnett or the
other Institution involved. Barnett and other Institutions (or their nominees)
will normally be the holders of record of Institutional Shares acting on behalf
of their Customers, and will reflect their Customers' beneficial ownership of
shares in the account statements provided by them to their Customers. The
exercise of voting rights and the delivery to Customers of shareholder
communications from the Funds will be governed by the Customers' account
agreements with Barnett and other Institutions.
Institutional Shares are sold at the net asset value per share next
determined after receipt of a purchase order from an Institution by the Funds'
transfer agent. The minimum initial investment in a Fund for an Institution is
$250,000 with no minimum subsequent investment. Barnett and other Institutions
may establish different minimum investment requirements for their Customers. For
example, there is no minimum initial investment for transfers of assets by
Barnett's Customers from other banks or financial institutions. Barnett and
other Institutions may also charge their Customers
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certain account fees depending on the type of account a Customer has established
with the Institution. These fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these minimum account requirements,
services and any charges should be obtained from the Institutions before a
Customer authorizes the purchase of Fund shares, and this Prospectus should be
read in conjunction with any information so obtained.
Purchase orders placed by an Institution for Institutional Shares must be
received by the Funds' transfer agent before the close of regular trading hours
(currently 4:00 p.m. Eastern time) on the New York Stock Exchange (the
"Exchange") on a day on which the Exchange is open for business (a "Business
Day"). Payment for Institutional Shares must be made by Institutions in federal
funds or other funds immediately available to the Funds' custodian no later than
4:00 p.m. (Eastern time) on the Business Day immediately following placement of
the purchase order. On days when the Exchange closes early due to a partial
holiday or otherwise, the Funds reserve the right to advance the times at which
purchase and redemption orders must be received in order to be processed on that
Business Day.
Each Fund observes the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Funds in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
You should note that neither Emerald Funds nor its service contractors will
be responsible for any loss or expense for acting upon telephone instructions
that are believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Emerald Funds will use procedures considered
reasonable. To the extent Emerald Funds does not use reasonable procedures to
form its belief, it and/ or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order from an Institution by Emerald Funds'
transfer agent. Emerald Funds imposes no charges when Institutional Shares are
redeemed. Barnett and other Institutions may charge fees to their
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Customers for their services in connection with investments. Shares held by an
Institution on behalf of its Customers must be redeemed in accordance with the
instructions and limitations pertaining to the account at the Institution.
The Funds may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act of
1940.
Emerald Funds intends to pay cash for all shares redeemed, but in unusual
circumstances may make payment wholly or partly in readily marketable portfolio
securities at their then market value equal to the redemption price if it
appears appropriate to do so in light of the Funds' responsibilities under the
Investment Company Act of 1940. See the Statement of Additional Information
("Additional Purchase and Redemption Information") for examples of when such
redemptions might be appropriate. In those cases, an investor may incur
brokerage costs in converting securities to cash. The Funds may also redeem
shares involuntarily if the balance has fallen below the minimum level due to
shareholder redemptions, not due to market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for all Funds are normally wired in federal funds to the redeeming Institution
the Business Day following receipt of the order by the transfer agent. Emerald
Funds reserves the right, however, to delay the wiring of redemption proceeds
for up to seven days after receipt of a redemption order if, in the judgment of
the Adviser, an earlier payment could adversely affect a Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the Short-Term Fixed Income, U.S. Government Securities, Managed Bond
and Florida Tax-Exempt Funds, net investment income comes from the interest on
the bonds and other investments that they hold in their portfolios. For the
Equity, Equity Value, International Equity, Small Capitalization and Balanced
Funds net investment income is made up of dividends received from the stocks
they hold, as well as interest accrued on convertible securities, money market
instruments and other debt obligations held in their portfolios.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
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WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund on which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
Emerald Funds
P.O. Box 182697
Columbus, OH 43218-2697
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, Equity Value, International Equity, Small
Capitalization and Balanced Funds) or payment dates (with respect to the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds) after the date the Funds' transfer agent receives the
election.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUNDS DECLARED PAID
- ----- --------- -------------------
<S> <C> <C> <C>
(1) Equity, Equity Value and Balanced....... Quarterly Quarterly
(2) International Equity and Small
Capitalization.......................... Annually Annually
(3) Short-Term Fixed Income, U.S. Government
Securities, Managed Bond and Florida
Tax-Exempt.............................. Daily Monthly within five
business days after
month end
</TABLE>
- ------------
(1) Dividends for the Equity, Equity Value and Balanced Funds may be declared
and paid at times that do not fall at the end of a calendar quarter.
(2) Dividends for the International Equity and Small Capitalization Fund may be
declared and paid at times that do not fall at the end of a calendar year.
(3) Shares of the Short-Term Fixed Income, U.S. Government Securities, Managed
Bond and Florida Tax-Exempt Funds begin earning dividends the first Business
Day after acceptance of the purchase order for which Emerald Funds'
custodian has received payment and stop earning dividends on the Business
Day such shares are redeemed.
With respect to the Short-Term Fixed Income, U.S. Government Securities,
Managed Bond and Florida Tax-Exempt Funds, if all the Institutional Shares held
by an Institution in such a Fund are redeemed, the Fund will pay accrued
dividends within five Business Days after redemption.
Net capital gain distributions for each of the Funds, if any, are made at
least annually.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund by adding the value of a Fund's
investments, cash and other assets allocated to its Institutional Shares,
subtracting the Fund's liabilities allocated to those shares, and then dividing
the result by the
35
<PAGE>
number of Institutional Shares of the Fund that are outstanding. More
information about valuation can be found in the Funds' Statement of Additional
Information, which you may request by calling (800)/637-3759.
Foreign of the securities acquired by the International Equity as well as
the other Funds may be traded on foreign exchanges or over-the-counter markets
on days on which a Fund's net asset values are not calculated. In such cases,
the net asset values of the Fund's shares may be significantly affected on days
when investors can neither purchase nor redeem shares of the Fund.
EXCHANGE PRIVILEGE
If you wish, Institutional Shares of a Fund may be exchanged for Retail
Shares of the same Fund in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of Barnett or another bank, trust company or thrift institution.
Similarly, a Customer may exchange Retail Shares for Institutional Shares of the
same Fund if the shares are to be held in such a qualified trust, agency or
custodial account. These exchanges are made at the net asset value of the
respective share classes. The particular class of shares you are exchanging into
must be registered for sale in your state.
OTHER SERVICE PROVIDERS
While the investment advice provided to the Funds is essential, Emerald
Funds would not be able to function without the services of a number of other
companies. Some of these companies are listed below. For further information as
to the services these companies provide, as well as more information regarding
investment advisory services, see "The Business of the Funds."
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of The BISYS
Group, Inc. Mutual funds structured like the Funds sell shares on a continuous
basis. The Funds' shares are sold through the Distributor. Certain officers of
Emerald Funds, namely Messrs. Blundin, Martinez and Tuch, are also officers
and/or directors of the Distributor.
CUSTODIAN
THE BANK OF NEW YORK
The Bank of New York is responsible for holding the investments that the
Funds own.
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<PAGE>
TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc. is the Transfer Agent for the Funds. This means
that its job is to maintain the account records of all shareholders of record in
the Funds, as well as to administer the distribution of any dividends or
distributions declared by the Funds.
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business
trust, and is a mutual fund of the type known as an "open-end management
investment company." The Agreement and Declaration of Trust permits the Board of
Trustees of Emerald Funds to classify any unissued shares into one or more
classes of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of two share
classes of the Funds. Each Fund, except the Florida Tax-Exempt Fund, is
classified as a diversified company. The Board of Trustees has also authorized
the issuance of additional classes of shares representing interests in other
portfolios of Emerald Funds. Information regarding these other portfolios and
share classes may be obtained by contacting the Distributor at the address
listed on page 33.
The Institutional Shares of the Funds are described in this prospectus.
These Funds also offer Retail Shares. Institutional and Retail Shares bear a pro
rata portion of all operating expenses incurred by the Funds, except for certain
miscellaneous "class expenses" (I.E. certain printing and registration
expenses). In addition, Retail Shares bear all payments under the Combined
Distribution and Service Plan and the Shareholder Processing Plan for Retail
Shares (the "Retail Plans") as described in the prospectuses for those shares.
Under the Retail Plans, the Distributor and Service Organizations receive fees
for distribution and shareholder and administrative support services.
Payments under the Retail Plans for Retail Shares may not exceed .50% (on an
annual basis) of the average daily net asset value of outstanding Retail Shares.
Because of these Plans and other "class expenses," the performance of a Fund's
Institutional Shares is expected to be higher than the performance of its Retail
Shares. The Funds offer various services and privileges in connection with
Retail Shares that are not generally offered in connection with Institutional
Shares, including an automatic investment plan and automatic withdrawal plan.
For further information regarding a Fund's Retail Shares, contact the
Distributor at 800-637-3759.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shares of all Emerald
Fund portfolios vote together and not by class, unless otherwise required by law
or permitted by the Board of Trustees. All shareholders of a particular Fund
will vote together as a single class on matters pertaining to the Fund's
investment advisory agreement and fundamental investment limitations. Only
Retail shareholders, however, will vote on matters pertaining to the Retail
Plans.
Emerald Funds is not required to and does not currently expect to hold
annual meetings of shareholders to elect trustees. The trustees will call a
shareholder meeting upon the written request of shareholders owning at least 10%
of the shares entitled to vote. As of December 31, 1995, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment
37
<PAGE>
power with respect to a majority of the outstanding shares of Emerald Funds.
More information about shareholder voting rights can be found in the Statement
of Additional Information under "Description of Shares."
THE BUSINESS OF THE FUNDS
FUND MANAGEMENT
THE BUSINESS AFFAIRS OF EMERALD FUNDS ARE MANAGED UNDER THE GENERAL
SUPERVISION OF THE BOARD OF TRUSTEES.
The following individuals serve as trustees of Emerald Funds:
- Chesterfield H. Smith, Chairman of the Board of Emerald Funds, is a Senior
Partner of the law firm of Holland and Knight.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Mahoney, Adams & Criser.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is the Dean in Residence of the Association of American Law
Schools and Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT BANKS
TRUST COMPANY, N.A. serves as the Funds' adviser and has its principal offices
at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. BISYS
Fund Services Limited Partnership, a wholly-owned subsidiary of The BISYS Group,
Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3055 serves as the
Funds' administrator, and Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc. located at the same address, is the
registered broker-dealer that sells the Funds' shares. The Funds also have a
custodian, The Bank of New York, located at 90 Washington Street, New York, New
York 10286 and a transfer and dividend paying agent, BISYS Fund Services, Inc.,
located at 3435 Stelzer Road, Columbus, Ohio 43219-3055.
ADVISER. As of December 31, 1995 Barnett had approximately $9.8 billion
under active management, with $3.2 billion in equity securities, $713 million in
taxable fixed income securities, $1.4 billion in treasury and government
securities, $1.5 billion in municipals and $2.8 billion in money market
instruments. Barnett is a subsidiary of Barnett Banks, Inc., a registered bank
holding company that has offered general banking services since 1877.
Barnett manages the investment portfolios of the Funds, including selecting
portfolio investments and making purchase and sale orders.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., a Senior Vice
President of Barnett, has been the portfolio manager of the Equity Fund since
September of 1993, and has also managed the Balanced Fund since it commenced
operations on April 11, 1994 and the Equity Value Fund since it commenced
operations on December 26, 1995. Mr. Creighton has been a portfolio manager with
Barnett since 1983, and in
38
<PAGE>
addition to these Funds currently manages a diversified common stock fund and
assists in preparing ongoing equity investment strategy. Martin E. LaPrade, CFA,
and Joseph E. Tannehill, CFA, have co-managed the International Equity Fund
since it commenced operations on December 26, 1995 and, along with Mr.
Creighton, have co-managed the Equity Value Fund since it commenced operations.
Mr. LaPrade is a Senior Vice President with Barnett and currently has 11 years
of investment experience. He serves as a strategist and an equity portfolio
manager with additional responsibility in asset allocation research, and directs
the asset allocation decisions for balanced account management. He joined
Barnett in 1978. Mr. Tannehill is a Vice President with Barnett and currently
has 9 years of investment experience. He is primarily responsible for applying
quantitative methods to equity security research. In addition, he oversees the
management of the enhanced index equity commingled fund. He joined Barnett in
1986. Dean McQuiddy, C.F.A., a Vice President with Barnett, has managed the
Small Capitalization Fund since its commencement of operations on January 4,
1994, and also manages the small capitalization portion of the Equity and
Balanced Funds. Since joining Barnett in 1983, Mr. McQuiddy has been an equity
analyst and an institutional portfolio manager, and for the last seven years has
managed Barnett's employee benefits small capitalization fund. Jacqueline
Lunsford, C.F.A., a Senior Vice President with Barnett, has managed the
Short-Term Fixed Income Fund since it commenced operations April 11, 1994. Ms.
Lunsford has been with Barnett since 1988, and also manages money market mutual
funds for Emerald Funds and other customers. Andrew Cantor, C.F.A., a Senior
Vice President with Barnett, has managed the U.S. Government Securities Fund
since its inception in 1991, and has also managed the Managed Bond Fund since it
commenced operations April 11, 1994. For the past ten years, Mr. Cantor has
served as the senior fixed income manager in Barnett's Institutional Investments
Group, where his responsibilities have included setting fixed income investment
strategy and managing a number of major taxable fixed income accounts, including
several commingled funds. Douglas Byrne, a Senior Vice President of Barnett, has
been the portfolio manager of the Florida Tax-Exempt Fund since it commenced
operations in 1991. Mr. Byrne is the manager of Barnett's Trading Department and
for the last eight years has been its senior tax-exempt portfolio manager. In
addition to managing the Florida Tax-Exempt Fund, Mr. Byrne has direct
responsibility for several tax-exempt common trust funds and institutional
accounts.
Although expected to be infrequent, Barnett may consider the amount of Fund
shares sold by broker-dealers and others (including those who may be connected
with Barnett) in allocating orders for purchases and sales of portfolio
securities. This allocation may involve the payment of brokerage commissions or
dealer concessions. Barnett will not engage in this practice unless the
execution capability of and the amount received by such broker-dealer or other
company is believed to be comparable to what another qualified firm could offer.
Barnett may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of shares of a Fund. The amount of
such compensation may be made on a one-time and/or periodic basis, and may be up
to 100% of the annual fees that are earned by Barnett as investment adviser to
such Fund (after adjustments) and are attributable to shares held by such
customers. Such compensation will not represent an additional expense to the
Funds or their shareholders, since it will be paid from assets of Barnett or its
affiliates.
BISYS. BISYS is an Ohio limited partnership and is a wholly-owned
subsidiary of The BISYS Group, Inc.
39
<PAGE>
BISYS provides a wide range of such services to Emerald Funds, including
maintaining the Funds' offices, providing statistical and research data,
coordinating the preparation of reports to shareholders, calculating or
providing for the calculation of the net asset values of Fund shares, dividends
and capital gain distributions to shareholders, and performing other
administrative functions necessary for the smooth operation of the Funds.
EXPENSES. In order to support the services described above, as well as
other matters essential to the operation of the Funds, the Funds incur certain
expenses. Expenses are paid out of a Fund's assets, and thus are reflected in
the Fund's dividends and net asset value, but they are not billed directly to a
shareholder or deducted from a shareholder's account.
Barnett is entitled to advisory fees that are calculated daily and payable
monthly at the annual rate of 1.00% of the International Equity and Small
Capitalization Funds' average daily net assets, .60% of each of the Equity,
Equity Value and Balanced Funds' average daily net assets, and .40% of the
Short-Term Fixed Income, U.S. Government Securities, Managed Bond and Florida
Tax-Exempt Funds' average daily net assets. The advisory fee payable by the
International Equity and Small Capitalization Funds is higher than those paid by
most mutual funds, although the Board of Trustees believes it is comparable to
the advisory fees payable by many similar funds.
For the fiscal year ended November 30, 1995, Barnett received fees, after
waivers, at the effective annual rates of .60%, 1.00%, .40% and .40% of the
average daily net assets of the Equity, Small Capitalization, U.S. Government
Securities and Florida Tax-Exempt Funds, respectively. Barnett voluntarily
waived all fees for the Balanced, Short-Term Fixed Income and Managed Bond
Funds.
BISYS is entitled to an administration fee calculated daily and payable
monthly at the effective annual rate of .0775% of the first $5 billion of the
aggregate net assets of all of the Emerald Funds, .07% of the next $2.5 billion,
.065% of the next $2.5 billion and .05% of all assets exceeding $10 billion. In
the event the aggregate average daily net assets for all Funds falls below $3
billion, the fee will be increased to .08% of the aggregate average daily net
assets of all of the Emerald Funds.
Other operating expenses borne by the Funds include taxes; interest; fees
and expenses of trustees and officers who are not also officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS or any of their affiliates; Securities and Exchange Commission
fees; state securities registration and qualification fees; charges of the
custodian and of the transfer and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareholders; costs
of shareholder reports and meetings; and any extraordinary expenses. Each Fund
also pays any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of its portfolio securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers, as well as by
certain mandatory expense limits imposed by some state securities regulators.
The amount of the fee waivers may be changed at any time at the sole discretion
of the Adviser, with respect to advisory fees, and the Funds' other service
providers with respect to all other fees. As to any amounts voluntarily waived
or reimbursed, the service providers retain the ability to be reimbursed by a
Fund for such amounts prior to fiscal year end. Such waivers and reimbursements
would increase the return to investors when made but would decrease the return
if a Fund were required to reimburse a service provider.
40
<PAGE>
TAX IMPLICATIONS
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting the Funds and their shareholders. You
should consult your tax adviser with specific reference to your own tax
situation.
You will be advised at least annually regarding the federal income tax
treatment of dividends and distributions made to you.
FEDERAL TAXES. Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (called the "Code"), meaning that to
the extent a Fund's earnings are passed on to shareholders as required by the
Code, the Fund itself generally will not be required to pay federal income
taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you received
it in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund, other than the "exempt
interest dividends" from the Florida Tax-Exempt Fund, will be taxable to you.
In addition, the Florida Tax-Exempt Fund will pay at least 90% of its net
exempt-interest income as dividends known as "exempt-interest dividends." These
dividends may be treated by you as excludable from your gross income (unless the
exclusion would be disallowed because of your particular situation). You should
note that income that is not subject to federal income taxes may nonetheless
have to be considered along with other adjusted gross income in determining
whether any Social Security payments received by you are subject to federal
income taxes.
If the Florida Tax-Exempt Fund holds certain so-called "private activity
bonds," issued after August 7, 1986, shareholders will need to include as an
item of tax preference for purposes of the federal alternative minimum tax that
portion of the dividends paid by the Fund derived from interest received on such
bonds.
Any distribution you receive of net long-term capital gain over net
short-term capital loss will be taxed as a long-term capital gain, no matter how
long you have held Fund shares. If you hold shares for six months or less, and
during that time receive a distribution that is taxable as a long-term capital
gain, any loss you might may realize on the sale of those shares will be treated
as a long-term loss to the extent of the earlier capital gains distribution.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the equity
Funds, the record date of dividends and capital gains distributions) should be
aware that the amount of the forthcoming dividend or distribution, although in
effect a return on capital, will be taxable.
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<PAGE>
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders of the Funds may realize a taxable gain or loss when redeeming,
transferring or exchanging shares of a Fund, depending on the difference in the
prices at which the shareholder purchased and sold the shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. If more than 50% of the value of this Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of such taxes against their federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income.
STATE AND LOCAL TAXES GENERALLY. Because your state and local taxes may be
different than the federal taxes described above, you should see your tax
adviser regarding these taxes. In particular, dividends paid by the Florida
Tax-Exempt and the U.S. Government Securities Funds may be taxable under state
or local law as dividend income, even though all or part of those dividends come
from interest on obligations that would be free of such income taxes if held by
you directly. In addition, except as stated below, shares of the Funds are not
expected to qualify for total exemption from the Florida intangibles tax.
FLORIDA TAXES (FLORIDA TAX-EXEMPT FUND). Florida does not currently have an
income tax for individuals, and therefore individual shareholders of the Florida
Tax-Exempt Fund will not be subject to any Florida income tax on amounts
received from the Fund. However, Florida does impose an income tax on certain
corporations, so that such amounts may be taxable to corporate shareholders.
Florida also imposes an "intangibles tax" at the annual rate of 2 mills or
0.20% on certain securities and other intangible assets owned by Florida
residents. With respect to the first mill, or first .10%, of the intangibles
tax, every natural person is entitled each year to an exemption of the first
$20,000 of the value of the property subject to the tax. A husband and wife
filing jointly will have an exemption of $40,000. With respect to the last one
mill, or last .10%, of the intangibles tax, every natural person is entitled
each year to an exemption of the first $100,000 of the value of the property
subject to the tax. A husband and wife filing jointly will have an exemption of
$200,000.
Obligations issued by the State of Florida or its municipalities, counties,
and other taxing districts, or by the U.S. Government, certain U.S. Government
agencies and certain U.S. territories and possessions (such as Guam, Puerto Rico
and the Virgin Islands), as well as cash, are exempt from this intangibles tax.
If on December 31 of any year the portfolio of the Florida Tax-Exempt Fund
consists solely of such exempt assets, then that Fund's shares will be entirely
exempt from the Florida intangibles tax payable in the following year.
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<PAGE>
The Florida Tax-Exempt Fund intends, but cannot guarantee, that its shares
will qualify for total exemption from the Florida intangibles tax. In order to
take advantage of this exemption, the Fund may sell non-exempt assets held in
its portfolio (such as repurchase agreements) during the year and reinvest the
proceeds in exempt assets, or hold cash, prior to December 31. Transaction costs
involved in restructuring the portfolio in this fashion would likely reduce the
Fund's investment return and might exceed any increased investment return the
Fund achieved by investing in non-exempt assets during the year.
MEASURING PERFORMANCE
- Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote its performance in
advertisements or shareholder communications. The performance for each
class of shares of a Fund is calculated separately from the performance of
a Fund's other classes of shares.
UNDERSTANDING PERFORMANCE MEASURES:
- Total return for each Fund may be calculated on an average annual total
return basis or an aggregate total return basis. Average annual total
return reflects the average annual percentage change in value of an
investment over the measuring period. Aggregate total return reflects the
total percentage change in value of an investment over the measuring
period. Both measures assume the reinvestment of dividends and
distributions.
- Yields for the Funds are calculated for a specified 30-day (or one-month)
period by dividing the net income for the period by the maximum offering
price on the last day of the period, and analyzing the result on a
semi-annual basis. Net income used in yield calculations may be different
than net income used for accounting purposes.
- Tax-equivalent yield for the Florida Tax-Exempt Fund shows the amount of
taxable yield needed to produce an after-tax equivalent of a tax-free
yield, and is calculated by increasing the yield (as calculated above) by
the amount necessary to reflect the payment of federal income taxes at a
stated rate. The Fund's "tax-equivalent yield" will always be higher than
its "yield".
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual
funds with similar investment objectives and to bond, stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor mutual fund performance.
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Funds may also be compared to data prepared by Lipper
Analytical Services, Inc., Mutual Fund Forecaster, Wiesenberger Investment
Companies Services, Morningstar or CDA Investment Technologies, Inc., and total
returns for the Funds may be compared to indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Lehman Brothers
Bond Indices, the Merrill Lynch Bond Indices, the Wilshire 5000 Equity Indices
or the Consumer Price Index.
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The performance of the International Equity Fund may be compared to either
the Morgan Stanley Capital International Index or the FT World Actuaries Index.
OTHER PERFORMANCE INFORMATION -- EQUITY, SMALL CAPITALIZATION, MANAGED BOND AND
SHORT-TERM FIXED INCOME FUNDS ONLY:
The Equity, Small Capitalization, Managed Bond and Short-Term Fixed Income
Funds commenced their initial investment operations in connection with the
transfer of assets from common trust funds managed by the Adviser for employee
benefit plan accounts. Set forth below is certain performance information
relating to those common trust funds before the Equity, Small Capitalization,
Managed Bond and Short-Term Fixed Income Funds registered as investment
companies with the Securities and Exchange Commission, together with the
performance information of these Funds since their commencement of operations.
These common trust funds were operated using substantially the same investment
objectives, policies, restrictions and methodologies as in the corresponding
Funds. During that time the common trust funds were not registered under the
1940 Act and therefore were not subject to certain investment restrictions that
are imposed by the Act. If the common trust funds had been registered under the
1940 Act, the common trust funds' performance might have been adversely
affected. Because the common trust funds did not charge any expenses, their
performance has been adjusted as stated below to reflect the Funds' estimated
expenses at the time of their inception. The following performance information
is not necessarily indicative of the future performance of the Funds. Because
each Fund is actively managed, its investments vary from time to time and are
not identical to the past portfolio investments of its predecessor common trust
fund. Each Fund's performance fluctuates so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED NOVEMBER 30, 1995
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equity Fund(1)........................................................ 35.21% 9.96% 13.49% 13.20%
Small Capitalization Fund(2).......................................... 32.30% 17.46% 25.58% 12.93%*
Managed Bond Fund(3).................................................. 18.36% 8.54% 10.03% 9.48%**
Short-Term Fixed Income Fund(4)....................................... 10.80% 5.71% 7.17% 7.63%
--------- --------- --------- ---------
</TABLE>
- ------------
(1)The above information for the periods prior to inception of the Equity Fund
(6/28/91) is the average annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.49% of average
daily net assets, which was the expected expense ratio of shares of the Fund
at the time of its inception. The average annual total returns for the
periods subsequent to the inception of the Equity Fund also assume
reinvestment of all net investment income and realized capital gains and take
into account actual expenses of Retail Shares of the Fund for the period from
June 28, 1991 to March 1, 1994 and of Institutional Shares of the Fund
thereafter. The average annual total return of the Fund (Institutional
Shares) since its inception to November 30, 1995 is 14.22%. During this
period fee waivers and expense reimbursements were in effect. Without these
waivers and reimbursements the Fund's performance would have been lower.
(2)The above information for the periods prior to inception of the Small
Capitalization Fund (1/4/94) is the average annual total return for the
periods indicated of the predecessor common trust fund,
44
<PAGE>
assuming reinvestment of all net investment income and capital gains and
taking into account expenses of 1.35% of average daily net assets, which was
the expected expense ratio of shares of the Fund at the time of its
inception. The average annual total returns for the periods subsequent to the
inception of the Small Capitalization Fund also assume reinvestment of all
net investment income and realized capital gains and take into account actual
expenses of Institutional Shares of the Fund. The average annual total return
of the Fund (Institutional Shares) since its inception to November 30, 1995
is 13.73%. During this period fee waivers and expense reimbursements were in
effect. Without these waivers and reimbursements the Fund's performance would
have been lower.
(3)The above information for the periods prior to inception of the Managed Bond
Fund (4/11/94) is the annual total return for the periods indicated of the
predecessor common trust fund, assuming reinvestment of all net investment
income and capital gains and taking into account expenses of 0.27% of average
daily net assets, which was the expected expense ratio of Institutional
Shares of the Fund at the time of its inception. The average annual total
returns for the periods subsequent to the inception of the Managed Bond Fund
also assume reinvestment of all net investment income and realized capital
gains and take into account actual expenses of Institutional Shares of the
Fund. The average annual total return of the Fund (Institutional Shares)
since its inception to November 30, 1995 is 10.82%. During this period fee
waivers and expense reimbursements were in effect. Without these waivers and
reimbursements the Fund's performance would have been lower.
(4)The above information for the periods prior to inception of the Short-Term
Fixed Income Fund (4/11/94) is the average annual total return for the
periods indicated of the predecessor common trust fund, assuming reinvestment
of all net investment income and capital gains and taking into account
expenses of 0.28% of average daily net assets, which was the expected expense
ratio of shares of the Fund at the time of its inception. The average annual
total returns for the periods subsequent to the inception of the Short-Term
Fixed Income Fund also assume reinvestment of all net investment income and
realized capital gains and take into account actual expenses of Institutional
Shares of the Fund. The average annual total return of the Fund
(Institutional Shares) since its inception to November 30, 1995 is 7.03%.
During this period fee waivers and expense reimbursements were in effect.
Without these waivers and reimbursements the Fund's performance would have
been lower.
* Since inception of the common trust: 12/31/86.
** Since inception of the common trust: 4/30/87.
SPECIAL INFORMATION FOR INVESTORS IN THE FLORIDA TAX-EXEMPT FUND:
You may find it particularly useful to compare the tax-free yield of the
Florida Tax-Exempt Fund to the equivalent yield from taxable investments. For an
investor in a low tax bracket, it may not be helpful to invest in a tax-exempt
investment if a higher after-tax yield can be achieved from a taxable
instrument.
45
<PAGE>
The following table illustrates the differences between hypothetical
tax-free yields and tax-equivalent yields for different tax brackets. You should
be aware, however, that tax brackets can change over time and that your tax
adviser should be consulted for specific yield calculations. (The federal tax
brackets and rates below are those currently available for 1996.)
<TABLE>
<CAPTION>
TAXABLE INCOME TAX EXEMPT YIELD
- ---------------------------------------- FEDERAL ---------------------------------------------------------------------------
SINGLE RETURN JOINT RETURN BRACKET 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------------------- ------------------- --------- --------- --------- --------- --------- --------- --------- ---------
EQUIVALENT TAXABLE YIELD
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Not over $24,000 Not over $40,100 15.000% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
24,001-58,150 40,101-96,900 28.000% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
58,151-121,300 96,901-147,700 31.000% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
121,301-263,750 147,701-263,750 36.000% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
Over 263,750 Over 263,750 39.600% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
<CAPTION>
TAXABL
- -------------------
SINGLE RETURN 7.50% 8.00%
- ------------------- --------- ---------
<S> <C> <C>
Not over $24,000 8.82% 9.41%
24,001-58,150 10.42% 11.11%
58,151-121,300 10.87% 11.59%
121,301-263,750 11.72% 12.50%
Over 263,750 12.42% 13.25%
</TABLE>
These yields are for illustrative purposes only. The tax brackets do not
take into account the effect of reductions in the deductibility of itemized
deductions for taxpayers with adjusted gross income over approximately $118,000
or the possible effect of the federal alternative minimum tax. Additionally,
effective brackets and equivalent taxable yields could be higher than those
shown. The brackets do not take into consideration the Florida intangibles tax,
and equivalent taxable yields would actually be greater than those shown when
compared to a taxable security which is also subject to the Florida intangibles
tax.
Performance quotations will fluctuate and you should not consider quotations
to be representative of future performance. you should also remember that
performance is generally a function of the kind and quality of investments held
in a portfolio, portfolio maturity, operating expenses and market conditions.
Fees that Barnett and other Institutions may charge directly to their Customers
in connection with an investment in the Funds will not be included in the Funds
calculations of total return and yield.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 33.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
46
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C> <C> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION...................... 3
Expenses........................................................... 3
Financial Highlights............................................... 5
INVESTMENT PRINCIPLES AND POLICIES................................. 13
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................. 19
INVESTING IN EMERALD FUNDS......................................... 32
Your Money Manager................................................. 32
Purchase of Shares................................................. 32
Redemption of Shares............................................... 33
Dividends and Distributions........................................ 34
Explanation of Sales Price......................................... 35
Exchange Privilege................................................. 36
Other Service Providers............................................ 36
THE EMERALD FAMILY OF FUNDS........................................ 37
THE BUSINESS OF THE FUNDS.......................................... 38
Fund Management.................................................... 38
Tax Implications................................................... 41
Measuring Performance.............................................. 43
</TABLE>
EMIEB96P
<PAGE>
EMERALD FUNDS
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
(as revised August __, 1996)
TABLE OF CONTENTS
PAGE
----
EMERALD FUNDS.............................................................. 1
INVESTMENT OBJECTIVES AND POLICIES......................................... 1
NET ASSET VALUE............................................................ 32
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 36
DESCRIPTION OF SHARES...................................................... 41
ADDITIONAL INFORMATION CONCERNING TAXES.................................... 44
MANAGEMENT OF EMERALD FUNDS................................................ 53
INDEPENDENT ACCOUNTANTS/EXPERTS............................................ 72
COUNSEL.................................................................... 72
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS......................... 72
MISCELLANEOUS.............................................................. 79
FINANCIAL STATEMENTS....................................................... 81
APPENDIX A............................................................... A-1
APPENDIX B............................................................... B-1
APPENDIX C............................................................... C-1
<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, as supplemented August __, 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 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 800-637-3759. 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.
<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
(Institutional Shares and 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
Capital Advisors, Inc. (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 and for the Prime and Treasury Funds. 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 any of the
other Funds.)
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
<PAGE>
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.
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-Adviser for the International Equity and
Tax-Exempt Funds) will normally deal directly with the dealers who
-2-
<PAGE>
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 Tax-Exempt Fund, 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 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 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-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
-3-
<PAGE>
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. 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 $597,942,
$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-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
-4-
<PAGE>
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 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 the 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. With respect to a Money Market Fund in such an event, 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. With respect to an Equity and Fixed
Income Fund, the Adviser 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.
-5-
<PAGE>
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. Except for the International Equity and Equity Value Funds
(which are subject to the limitation stated below), 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 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 Additional
Information or in the Prospectuses are not deemed to be pledged for purposes of
this limitation.
6. Except for the International Equity and Equity Value Funds
(which are subject to the limitation stated below), purchase securities on
margin, make short sales of securities or maintain a short position, except that
(a) this investment
-6-
<PAGE>
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. Except for the International Equity and Equity Value Funds
(which are subject to the limitation stated below), 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(s), 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(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 Fund) 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 Funds, 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 Fund (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 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
-7-
<PAGE>
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 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.
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[Note: In construing Investment Limitation 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 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 and Equity Value Funds may
not:
15. 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, 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, 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.
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17. 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; and each Fund may enter into
foreign currency contracts and related options to the extent permitted by its
investment objective and policies.
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 non-fundamental
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
high-grade debt securities having a value equal to or greater than the
repurchase price (including accrued interest) and will
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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-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 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-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 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
stock of any one investment company will be owned by the Fund or 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 Equity and Fixed Income Funds and the Prime Fund include, in
addition to U.S. Treasury bonds, notes and
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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.
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
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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 collateralized mortgage obligations ("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.
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
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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 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
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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 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
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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 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
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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 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
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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.
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
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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 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
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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.
GUARANTEED INVESTMENT CONTRACTS
Generally, a guaranteed investment contract ("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
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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 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.
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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 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
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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 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
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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 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
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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 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
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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 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
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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-Adviser) 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-Adviser) 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-Adviser)
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 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:
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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-Adviser), also performs its own analysis of issuers in selecting
convertible securities for a Fund. The Adviser's, (or the Sub-Adviser's)
analysis of 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
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by the Adviser, (or the Sub-Adviser) 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-Adviser) 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 $29,115,034,000 during the
1993-94 fiscal year ended June 30, 1994 to $31,178,025,000 during the fiscal
year ended June 30, 1995. The State's expenses increased from $27,878,146,000
during the 1993-94 fiscal year ended June 30, 1994 to $30,775,597,000 during the
1994-95 fiscal year ended June 30, 1995. The Florida Comptroller also projected
non-agricultural jobs to gross 3.2% and 3.0% in fiscal years 1995-96 and
1996-97, 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.
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
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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 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
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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 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
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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 and the Shareholder Processing Plan
for Retail Shares (the "Retail Plans") 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 Retail
Shares under the Retail Plans described in the Prospectuses for such Shares and
certain "plan" payments that are borne solely by Service Shares as described in
the Prospectus 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. 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
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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.
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."
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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
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
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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 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 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
Shares), should contact such entity directly for appropriate instructions.
Clients of Barnett Capital Advisors, Inc. interested in purchasing Institutional
Shares may call their administrative officer. Other interested investors may
call 800-637-3759.
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;
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call 800-637-3759 for wiring instructions, 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 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 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
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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., P.O. Box 182697, Columbus, Ohio
43219-3035. 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 be effected as a TeleTrade
transaction through the Automated Clearing House (ACH) system unless more prompt
transmittal specifically is requested. Redemption proceeds 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.
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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 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 Columbus, Ohio 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
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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 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
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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, 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
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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 "Service Shares"; and Classes D-1, E-1 and F-1 of the Money Market
Funds are known as "Institutional Shares."
Except as noted in the Prospectuses with respect to certain
miscellaneous "class expenses" and below with respect to the Retail Plans,
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 respect to certain miscellaneous "class expenses"
and below with respect to the Retail Plans and the Shareholder Processing and
Services Plan (the "Service Plan") for Service Shares, Shares of 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 Retail Plans; and
each Money Market Fund's Service Shares will be solely responsible for such
Fund's payments to Service
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Organizations pursuant to the Service 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 the Fund's
Retail Plans, and only Service Shares of a Money Market Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to the Fund's
Service Plan. (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 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
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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 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
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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 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 "Financial Instruments" below, for a general
discussion of the federal tax treatment of futures contracts and related options
thereon, including their treatment under the Short-Short test.
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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.
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
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<PAGE>
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, when required to do so, to the Fund that they are not subject
to backup withholding 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. If 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 were 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 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.
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.
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.
FINANCIAL INSTRUMENTS
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
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<PAGE>
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 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.
With respect to futures contracts and other financial instruments
subject to the mark-to-market rules, the Internal
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<PAGE>
Revenue Service has ruled in private letter rulings that for purposes of the
Short-Short test 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
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the Short-Short test is met for a taxable year, increases and decreases
in the value of each Fund's futures contracts and other investments that qualify
as part of a "designated hedge," as defined in the Code, may be netted.
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.
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
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<PAGE>
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.
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 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, 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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:
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
Suite 3000 the Board firm of Holland and Knight;
701 Brickell Avenue of Trustees Director, Greenwich Air
Miami, FL 33101 Services, Inc. (an aircraft
Age 78 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
Age 62 Truck Equipment and Trailer
Sales; Director, Greater
Jacksonville Fair Association.
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Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
Mary Doyle Trustee Professor of Law, University
University of Miami of Miami Law School, 1995 to
Law School present; Dean in Residence,
1311 Miller Drive Association of American Law
Coral Gables, FL 33124 Schools, 1994 to date; Dean,
Age 52 University of Miami School of
Law, 1986-1994.
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
Age 65 Officer, Barnett Banks, Inc.,
1988 to 1991; Director, Barnett
Banks, Inc., 1982 to 1991;
Director, Florida Rock
Industries, Inc. (mining and
construction materials);
Director, FRP Properties, Inc.
(transportation, hauling and
real estate development);
Director, Regency Realty, Inc.;
Director, Stein Mart, Inc.
(retail); and Director, Wickes
Lumber Company.
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
Age 57
Harvey R. Holding Trustee Retired; Executive Vice
189 Laurel Lane President and Chief Financial
Ponte Vedra Beach, Officer, BellSouth Corp.,
Fl 32082 1990 to 1993; Vice Chairman
Age 61 of the Board of BellSouth Corp.,
1991 to 1993; Director, Golden
Poultry Company, Inc.
William B. Blundin Executive Executive Vice President,
125 West 55th Street Vice President BISYS Fund Services, Inc.
New York, NY 10019 March 1995 to present; Vice
Age 57 President of Emerald Asset
Management, Inc. March 1995 to
present; Vice Chairman of
the Board of Concord Holding
Corporation and Distributor,
July 1993 to March 1995;
Director and President of
Concord Holding Corporation and
Distributor, February 1987 to
March 1995.
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<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
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
Age 42 Communications, July 1987 to
August 1992
J. David Huber Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., June
3435 Stelzer Road 1987 to present.
Columbus, OH 43219-3035
Age 49
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
Age 32 thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
Philadelphia National Reath (law firm).
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 45
George Martinez Assistant Senior Vice President and
BISYS Fund Services Secretary Director of Legal and
3435 Stelzer Road Compliance Services, BISYS
Columbus, OH 43219-3035 Fund Services, Inc., March
Age 36 1995 to present; Senior Vice
President, Emerald Asset
Management, Inc., August 1995 to
present; Vice President and
Associate General Counsel,
Alliance Capital Management,
June 1989 to March 1995.
William J. Tomko Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., April 1987
3435 Stelzer Road to present.
Columbus, OH 43219-3035
Age 36
Robert Tuch Assistant Employee of BISYS Fund
BISYS Fund Services Secretary Services, Inc., June 1991 to
3435 Stelzer Road present; Assistant Secretary,
Columbus, OH 43219-3035 Emerald Asset Management, Inc.
Age 44 August 1995 to present; Vice
President and Associate General
Counsel with National Securities
Research Corp., July 1990 to
June 1991.
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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
Age 28 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 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 $99,750. Drinker Biddle & Reath, of which
Mr. Dalke is a partner, receives legal fees as counsel to Emerald Funds. As of
May 31, 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.
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<PAGE>
<TABLE>
<CAPTION>
TOTAL
PENSION OR 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
Chairman of the Board of Trustees $20,750 N/A N/A $20,750
- ---------------------------------------------------------------------------------------
John G. Grimsley
President and Trustee $26,000 N/A N/A $26,000
- ---------------------------------------------------------------------------------------
Raynor E. Bowditch
Trustee $19,000 N/A N/A $19,000
- ---------------------------------------------------------------------------------------
Mary Doyle
Trustee $20,500 N/A N/A $20,500
- ---------------------------------------------------------------------------------------
Albert D. Ernest**
Trustee $13,500 N/A N/A $13,500
- ---------------------------------------------------------------------------------------
Harvey R. Holding***
Trustee N/A N/A N/A N/A
</TABLE>
______________________________
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Ernest was appointed to the Board of Trustees on May 4, 1995.
*** Mr. Holding was elected to the Board of Trustees on May 29, 1996.
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
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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 AGREEMENTS
Barnett Capital Advisors, Inc. (the "Adviser") assumed, as of June
29, 1996, the responsibilities of Barnett Banks Trust Company, N.A. ("BBTC") as
investment adviser to each Fund. 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-Adviser may occasionally consult, on an informal basis, with
personnel from the investment department; 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 the Fund.
In their Investment Advisory and Sub-Advisory Agreement, 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
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. Government
Securities
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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 sub-advisory
fees paid by the Adviser to the Sub-Adviser are borne entirely by the Adviser
and have no effect on the advisory fees payable by the Tax-Exempt Fund. Emerald
Funds has 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.
The Adviser and Sub-Adviser 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, BBTC 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, BBTC 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, BBTC
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, BBTC
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.
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For the fiscal years ended November 30, 1995, 1994 and 1993, BBTC
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 BBTC 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, BBTC 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, BBTC 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, BBTC 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-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 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
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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 Agreements and as contemplated by the Prospectuses and
this Statement of Additional Information, and the Sub-Adviser believe, with
respect to their 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
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 Limited
Partnership, 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 Fund
Services Limited Partnership 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 Fund Services Limited Partnership and Emerald
Asset Management, Inc. In this
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regard it may be noted that the Adviser has entered into an agreement 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 AGREEMENT
BISYS Fund Services Limited Partnership (the "Administrator"), a
wholly-owned subsidiary of The BISYS Group, Inc., serves as administrator to
each Fund. In its administration agreements, 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 certain out-of-pocket expenses
relating to its fund accounting responsibilities and as otherwise 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 portfolios
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 its fees or reimburse
the Funds for expenses under the agreements described above, either voluntarily
or as required by certain state securities laws.
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<PAGE>
For the fiscal years ended November 30, 1995, 1994 and 1993, Concord
Holding Corporation, the Trust's prior administrator which was acquired by The
BISYS Group, Inc. in 1995, received administration fees (net of waivers) under
the respective administration agreements then in effect for those Funds (which
provided for different administration fee rates than those currently in effect)
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 prior administrator received administration 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 prior administrator waived administration 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
prior administrator received administration 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 prior administrator waived administration fees totalling
$53,487, $55,868 and $57,955 for the Tax-Exempt Fund. During these periods, the
prior administrator did not waive any administration 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 Tax-Exempt Fund in any fiscal
year exceed applicable state expense limitations, the Adviser and Sub-Adviser
have
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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-Adviser's 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, distribution plan expenses, foreign
custody costs 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 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 AGREEMENT
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.
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 Equity and Fixed Income Funds' shares) and of printing and distributing all
sales literature.
SALES CHARGES; DISTRIBUTION AND OTHER PLANS
The Board of Trustees of Emerald Funds 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 for all share purchases
and redemptions made on or after February 5, 1996 and to convert Class B Shares
into Retail Shares on March 9, 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. For the fiscal years ended
November 30, 1995, 1994 and 1993, the Distributor received front-end sales
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charges in connection with Class A Share purchases as follows: Equity Fund --
$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. 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 retained:
Equity Fund -- $15,319 and $2,495; U.S. Government
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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>
Equity Fund $ 4,066 $ 15,319 $ 0 $ 99,146
Small Capitalization
Fund $ 1,195 $ 13,269 $ 0 $ 30,794
Balanced Fund $ 1,547 $ 10,005 $ 0 $ 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 were in effect for the respective Funds
(see discussion in the following paragraphs).
____________________
Securities dealers, financial institutions or other industry
professionals ("Service Organizations") may receive payments 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 on April 1, 1996. Under the Combined Amended and Restated
Distribution and Service Plan the Trust pays for distribution assistance and/or
the provision of shareholder liaison services to one or more Service
Organizations (which may include the Distributor itself). These payments are
based on the average daily value of the Trust's Retail Shares beneficially owned
by persons ("Clients") for whom the Service Organization is the
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dealer of record or with whom the Service Organization has a servicing
relationship.
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.
Shareholder processing services provided by Service Organizations
pursuant to the Shareholder Processing Plan may include some or all of the
following: (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 Trust's distributor; (iv)
arranging for wiring of funds; (v) transmitting and receiving funds in
connection with Client orders to purchase or redeem Retail 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) 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 other similar services.
Payments made out of or charged against the assets of the Retail
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 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.)
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Previously, the Distributor was entitled to payment by the Trust for
distribution services under distribution plans for Retail and Class B Shares in
addition to the sales charges then in effect as described above. These plans
were terminated and replaced with the Combined Amended and Restated Distribution
and Service Plan described above. The distribution plans in effect from March
1, 1994 through March 31, 1996 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 related.
The distribution plan in effect for Class B Shares for the period
from March 1, 1994 through March 9, 1996 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 related. 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 in connection with the adoption of the
distribution plans for Retail and Class B Shares just described.
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 $0, $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; $14,792, $0 and
$0; and $0, $0 and $0 were paid to the Distributor, the Adviser and affiliates
of the Adviser, respectively; and the 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
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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.
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 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 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.
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.
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Prior to April 1, 1996, Emerald Funds maintained Shareholder and
Administrative Services Plans for Retail Shares and Class B Shares. The
shareholder and administrative support services provided by the Funds' prior
administrator pursuant to these Plans were services designed particularly for
retail investors. For these services, the prior 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.
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 to the prior Administrator; the Small
Capitalization Fund was charged $2,916 and $1,163, of which $2,916 and $1,138
was paid to the prior 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 prior
Administrator; and the Florida Tax-Exempt Fund was charged $151,096 and $156,105
of which $151,096 and $136,763 was paid to the prior 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 $1,064
and $294 of which $1,064 and $0 was paid to the prior Administrator; the
Short-Term Fixed Income Fund was charged $408 and $106 of which $408 and $0 was
paid to the prior Administrator and the Managed Bond Fund was charged $2,021 and
$330 of which $2,021 and $0 was paid to the prior 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 prior 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 prior Administrator.
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MATTERS PERTAINING TO COMBINED DISTRIBUTION AND SERVICE PLAN FOR RETAIL 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. 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, the Plan provides 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 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 their Retail
Shareholders. The Plan is subject to annual re-approval by a majority of the
Disinterested Trustees of the Plan and is terminable at any time with respect to
any Fund by a vote of a majority of such Trustees or by vote of the holders of a
majority of the Retail 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 Retail Shares of such Fund, by the Distributor or by the Service
Organization. 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.
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As long as the Combined Distribution and Service Plan for the Retail
Shares is 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 investments in the Funds. These fees would be
in addition to any amounts which might be received under the Retail Plans.
Small, inactive long-term accounts involving such additional charges may not be
in the best interest of shareholders.
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., 3435 Stelzer Road, Columbus, Ohio
43219-3035 provides transfer agency and dividend disbursing services for 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 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 800-637-3759. In addition to the publications listed in
the Funds' Prospectuses, yields and total returns as reported in the
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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 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
6
Yield = 2 [(----- + 1) - 1]
cd
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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.
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.
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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 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% and 5.72%, respectively, for the Short-Term Fixed Income Fund;
5.99% and 6.80%, respectively, for the U.S. Government Securities Fund; 5.81%
and 6.49%, respectively, for the Managed Bond Fund; and 4.28% and 4.83%,
respectively, for the Florida Tax-Exempt Fund.
The yields for Retail Shares and Institutional Shares for the same
period before fee waivers and expense reimbursements were (5.11)% and 4.19%,
respectively, for the Short-Term Fixed Income Fund; 5.99% and 6.80%,
respectively, for the U.S. Government Securities Fund; 2.93% and 6.07%,
respectively, for the Managed Bond Fund; and 4.28% and 4.83% for the Florida
Tax-Exempt Fund.
The Florida Tax-Exempt Fund's "tax-equivalent" yields for its Retail
Shares and Institutional Shares were 6.69% and 7.55%, respectively, after fee
waivers and expense reimbursements, and 6.69% and 7.55%, respectively, before
fee waivers and expense
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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:
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.
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Based on the foregoing calculations, the average annual total
returns for Retail 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 -- 34.82% and 11.43%, respectively; Small Capitalization
Fund -- 32.19% and 11.87%, respectively; Balanced Fund -- 27.45% and 15.65%,
respectively; U.S. Government Securities Fund -- 13.85% and 8.36%, respectively;
Short-Term Fixed Income Fund -- 10.25% and 6.55%, respectively; Managed Bond
Fund -- 18.47% and 10.64%, respectively; and the Florida Tax-Exempt Fund --
18.17% and 8.53%, 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 Funds, for the
period from their respective commencement dates to November 30, 1995 were
61.52%, 21.74%, 26.94%, 41.70%, 10.97%, 18.06% and 42.64%, respectively. The
commencement dates for Retail Shares of the respective Funds were as follows:
Equity Fund - June 28, 1991; Small Capitalization Fund - March 1, 1994; Balanced
Fund - April 11, 1994; U.S. Government Securities Fund - July 31, 1991;
Short-Term Fixed Income Fund - April 11, 1994; Managed Bond Fund - April 11,
1994; and Florida Tax-Exempt Fund - August 1, 1991.
Based on the foregoing calculations, the average annual total
returns for Institutional 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 -- 35.21% and 14.22%, respectively; Small
Capitalization Fund -- 32.30% and 13.73%, respectively; Balanced Fund -- 27.99%
and 15.51%, respectively; U.S. Government Securities Fund -- 14.10% and 6.06%,
respectively; Short-Term Fixed Income Fund -- 10.80% and 7.03%, respectively;
Managed Bond Fund -- 18.36% and 10.82%, respectively; and the Florida
Tax-Exempt Fund -- 18.55% and 5.68%, respectively. The aggregate total
returns for Institutional Shares of the Equity, Small Capitalization, Balanced,
Short-Term Fixed Income, Managed Bond, U.S. Government Securities, and Florida
Tax-Exempt Funds, for the period from their respective commencement dates to
November 30, 1995 were 26.26%, 27.80%, 26.69%, 11.80%, 18.37%, 10.87% and
10.17%, respectively. The commencement dates for Institutional Shares of the
respective Funds were as follows: Equity Fund - March 1, 1994; Small
Capitalization Fund - January 4, 1994; Balanced Fund - April 11, 1994; U.S.
Government Securities Fund - March 1, 1994; Short-Term Fixed Income Fund -
April 11, 1994; Managed Bond Fund - April 11, 1994; and Florida Tax-Exempt
Fund - March 1, 1994
The aggregate total returns of the Equity Value Fund and
International Equity Fund for the period from their commencement of operations
on December 27, 1995 to May 31, 1996 were 9.42% and 6.56%, respectively.
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During the periods indicated fee waivers and expense reimbursements
were in effect; without these waivers and reimbursements the Funds' total
returns would have been lower.
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 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%).
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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 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 June 4, 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 -
Institutional Shares (100%), Prime Trust Fund - Institutional Shares (100%),
Treasury Fund - Institutional Shares (94.04%), Prime Fund - Institutional Shares
(62.65%), Tax-Exempt Fund - Institutional Shares (99.99%), Equity Fund -
Institutional Shares (47.37%), Equity Value Fund - Institutional Shares (99.99);
Small Capitalization Fund - Institutional Fund (51.93%), Balanced Fund -
Institutional Shares (50.40%), U.S. Government Securities Fund - Institutional
Shares (6.03%), Managed Bond Fund - Institutional Shares (10.86%), International
Equity Fund - Institutional Fund (99.99%); Short-Term Fixed Income Fund -
Institutional Shares (6.2%); and Florida Tax-Exempt Bond Fund - Institutional
Shares (10.61%). As of June 4, 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 - Retail Shares - National Financial
Services Corporation for the Exclusive Benefit of Our Customers, P.O. Box 3908,
Church Street Station, New York, NY 10008 (56.03%)
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and University of West Florida Foundation, 11000 University Parkway, Pensacola,
FL 32514-5750 (6.53%); Small Capitalization Fund - Retail Shares - National
Financial Services Corporation for the Exclusive Benefit of Our Customers and
John T. R. Hayt Trust, John T. R. Hayt Living Trust, 1169 Queens Harbor Blvd.,
Jacksonville, FL 32225 (5.59%); Short-Term Fixed Income Fund - Retail Shares -
National Financial Services Corporation for the Exclusive Benefit of Our
Customers/FOB John W. Selby, 2888 La Concha Dr., Clearwater, FL 34622 (11.15%);
National Financial Services Corporation for the Exclusive Benefit of Our
Customers/FOB Wayne Bodie and Nikki Bodie, P.O. Box 828, Defuniak Springs, FL
32433 (5.55%); National Financial Services Corporation for the Exclusive Benefit
of Our Customers/FOB George A. Zellner, 530 Park St., Jacksonville, FL 32204
(16.50); U.S. Government Securities Fund - Retail Shares - Barnett Bank & Trust
Company N.A., Customer Capital Network Services, P.O. Box 40200, Jacksonville,
FL 32203-0200 (11.12%); National Financial Services Corporation for the
Exclusive Benefit of Our Customers, P.O. Box 3908, Church Street Station, New
York, NY 10008 (54.22%); Managed Bond Fund - Retail Shares - National Financial
Services Corporation for the Exclusive Benefit of Our Customers and Susan A.
Fairbank Trust, Fairbank Rev Trust, 85 N. Pizarro Pt., LeCanto, FL 34461
(5.53%); First National Bank of Florida, Trust Gregory K. Cook, 401 S. Tryon
St., Charlotte, NC 28288-1151 (15.83%); National Financial Services Corporation
for the Exclusive Benefit of Our Customers/FOB Robert White, 3101 Riverview
Blvd., Bradenton, FL 34205 (6.74%); Florida Tax-Exempt Bond Fund - Retail Shares
- - National Financial Services Corporation for the Exclusive Benefit of Our
Customers, P.O. Box 3908, Church Street Station, New York, NY 10008 (62.21%);
Treasury Fund - Service Shares - BISYS Fund Services Inc. Pittsburgh, Omnibus
Account, First Market Building, Attn: Linda Zerbe, 100 First Ave., Suite 300,
Pittsburgh, PA 15222 (95.74%); Treasury Fund - Retail Shares - National
Financial Service Corporation for the Exclusive Benefit of our Customers, P.O.
Box 3908, Church Street Station, New York, NY 10281 (99.84%); Prime Fund -
Institutional Shares - Wilmington Trust Company, Attn: Martin Klopping, Rodney
Square North, Wilmington, DE 19890 (3.35%); Prime Fund - Service Shares - BISYS
Fund Services, Inc., Pittsburgh, Omnibus Account, Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222 (91.20%);
BISYS Fund Services, Inc., Pittsburgh, Omnibus Account, Attn: Linda Zerbe, First
and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222 (8.79%);
Prime Fund - Retail Shares - National Financial Service Corporation for the
Exclusive Benefit of our Customers, P.O. Box 3908, Church Street Station, New
York, NY 10281 (99.43%); Tax-Exempt Fund - Service Shares - BISYS Fund Services,
Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222 (22.48%); BISYS Fund Services, Inc., Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222 (77.52%);
Tax-Exempt Fund - Retail Shares - National
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Financial Service Corporation for the Exclusive Benefit of our Customers, P.O.
Box 3908, Church Street Station,, New York, NY 10281 (98.67%); International
Equity Fund - Retail Shares - Emerald Asset Management Inc., 3435 Stelzer Rd.,
Columbus, OH 43219 (100%); and Equity Value Fund - Retail Shares - Emerald Asset
Management Inc., 3435 Stelzer Rd., Columbus, OH 43219 (100%). 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 Funds' annual report to
shareholders for the fiscal year ended November 30, 1995 (the "Annual Report")
are hereby incorporated herein by reference. No other parts of the Annual
Report are incorporated by reference. Copies of the Annual Report may be
obtained by writing to BISYS Fund Services, Inc. at P.O. Box 182697, Columbus,
Ohio 43219-3035 or by calling toll-free at 800-637-3759.
Unaudited financial statements for the Equity Value Fund and
International Equity Fund for the period ended May 31, 1996 are attached to this
Statement of Additional Information as Appendix C.
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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-
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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.
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"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-
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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:
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"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
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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
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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.
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"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.
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"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
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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.
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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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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
B-4
<PAGE>
prior to sales of securities, in the value of the securities to 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).
B-5
<PAGE>
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.
B-6
<PAGE>
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
B-7
<PAGE>
Fund's custodian an amount of cash or cash equivalents (generally, short-term
U.S. Government securities), the value of which may vary but is generally equal
to 10% or less of the value of the contract. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying 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
B-8
<PAGE>
the hedge. To compensate for the imperfect correlation of movements in the
price of securities being hedged and movements in the price of futures
contracts, a Fund may buy or sell futures contracts in a greater dollar amount
than the dollar amount of securities being hedged if the volatility over a
particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to be
appropriate by the 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
B-9
<PAGE>
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may also
cause temporary price distortions. Due to the possibility of price distortion
in the futures market, and because of the imperfect correlation between the
movements in the cash market and movements in the price of futures, a correct
forecast of general market trends or interest rate movements by the adviser 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
B-10
<PAGE>
market. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
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.
B-11
<PAGE>
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 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
B-12
<PAGE>
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
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
B-13
<PAGE>
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
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,
B-14
<PAGE>
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.
B-15
<PAGE>
APPENDIX C
Equity Value Fund and International Equity Fund
Unaudited Financial Statements for the Period
Ended May 31, 1996
C-1
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Financial Highlights
=============================================================================
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31,
1996*
--------
(UNAUDITED)
<S> <C>
RETAIL SHARES
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 10.00
--------
Income from investment
operations:
Net investment income....... 0.13
Net realized and unrealized gains on securities...... 0.81
--------
Total income from investment operations.............. 0.94
--------
Less dividends and distributions:
Dividends from net investment income................. (0.13)
--------
Net change in net asset value.......................... 0.81
--------
NET ASSET VALUE, END OF PERIOD......................... $ 10.81
========
Total return.................. 9.42%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)..................... $ 1
Ratio of expenses to average net assets.............. 0.00%+
Ratio of net investment income to average net
assets............................................. 2.85%+
Ratio of expenses to average net assets**............ 317.36%+
Ratio of net investment income to average net
assets**........................................... -314.51%+
Portfolio turnover................................... 8%
</TABLE>
- ---------------
* For the period December 27, 1995 (commencement of operations) through May
31, 1996.
** 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.
++ Unannualized.
See Notes to Financial Statements.
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Financial Highlights
=============================================================================
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31,
1996*
--------
(UNAUDITED)
<S> <C>
INSTITUTIONAL SHARES
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 10.00
-----------------
Income from investment operations:
Net investment income................................ 0.13
Net realized and unrealized gains on securities...... 0.81
-----------------
Total income from investment operations.............. 0.94
-----------------
Less dividends and distributions:
Dividends from net investment income................. (0.13)
-----------------
Net change in net asset value.......................... 0.81
-----------------
NET ASSET VALUE, END OF PERIOD......................... $ 10.81
=================
Total return........................................... 9.42%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)..................... $ 2,162
Ratio of expenses to average net assets.............. 0.00%+
Ratio of net investment income to average net
assets............................................. 2.87%+
Ratio of expenses to average net assets**............ 6.46%+
Ratio of net investment income to average net
assets**........................................... -3.59%+
Portfolio turnover................................... 8%
</TABLE>
- ---------------
* For the period December 27, 1995 (commencement of operations) through May
31, 1996.
** 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.
++ Unannualized.
See Notes to Financial Statements.
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------
Financial Highlights
=============================================================================
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31,
1996*
--------
(UNAUDITED)
<S> <C>
RETAIL SHARES
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 10.00
--------
Income from investment
operations:
Net investment income................................ 0.08
Net realized and unrealized gains on securities...... 0.58
--------
Total Income from investment operations.............. 0.66
--------
Less dividends and distributions:
Dividends from net investment income................. (0.01)
--------
Net change in net asset value.......................... 0.65
--------
NET ASSET VALUE, END OF PERIOD......................... $ 10.65
========
Total return.................. 6.56%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)..................... $ 1
Ratio of expenses to average net assets.............. 0.00%+
Ratio of net investment income to average net 1.82%+
assets.............................................
Ratio of expenses to average net assets**............ 328.68%+
Ratio of net investment income to average net
assets**........................................... -326.87%+
Portfolio turnover................................... 1%
</TABLE>
- ---------------
* For the period December 27, 1995 (commencement of operations) through May
31, 1996.
** 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.
++ Unannualized.
See Notes to Financial Statements.
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------
Financial Highlights
=============================================================================
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31,
1996*
--------
(UNAUDITED)
<S> <C>
INSTITUTIONAL SHARES
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 10.00
-----------------
Income from investment operations:
Net investment income................................ 0.09
Net realized and unrealized gains on securities...... 0.57
-----------------
Total income from investment operations.............. 0.66
-----------------
Less dividends and distributions:
Dividends from net investment income................. (0.01)
-----------------
Net change in net asset value.......................... 0.65
-----------------
NET ASSET VALUE, END OF PERIOD......................... $ 10.65
=================
Total return........................................... 6.56%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)..................... $ 2,147
Ratio of expenses to average net assets.............. 0.00%+
Ratio of net investment income to average net 1.86%+
assets.............................................
Ratio of expenses to average net assets**............ 7.22%+
Ratio of net investment income to average net
assets**............................................ -5.36%+
Portfolio turnover.................................... 1%
</TABLE>
- ---------------
* For the period December 27, 1995 (commencement of operations) through
May 31, 1996.
** 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.
++ Unannualized.
See Notes to Financial Statements.
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Statement of Assets and Liabilities
May 31, 1996 (Unaudited)
=============================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities, at value (cost $2,010,750)............. $ 2,174,558
Dividends receivable............................................. 7,425
Deferred organization costs...................................... 12,700
Prepaid expenses................................................. 25,743
---------------
Total assets..................................................... 2,220,426
---------------
LIABILITIES:
Net payable to Investment Adviser 13,120
Payable to brokers for investment securities purchased........... 90
Dividends payable................................................ 13,858
Accrued expenses and other payables:
Transfer agent fees........................................... 26,042
Other......................................................... 3,985
---------------
Total liabilities................................................. 57,095
---------------
Net Assets........................................................ $ 2,163,331
===============
Net Asset Value, Offering Price and Redemption Price per
Share:
Retail Shares:
($1,087/101 shares of beneficial interest issued
and outstanding $0.001 par value, unlimited number of $ 10.81
shares authorized)......................................... ===============
Net Asset Value, Offering Price and Redemption Price per
Share:
Institutional Shares:
($2,162,244/200,101 shares of beneficial interest
issued and outstanding $0.001 par value, unlimited
number of shares authorized)............................... $ 10.81
===============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par............................ $ 200
Additional paid-in capital....................................... 2,000,816
Accumulated net realized losses on investment transactions....... (1,493)
Net unrealized appreciation of investments....................... 163,808
---------------
Net Assets, May 31, 1996.......................................... $ 2,163,331
===============
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------
Statement of Assets and Liabilities
May 31, 1996 (Unaudited)
=============================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities, at value (cost $2,023,565)............ $ 2,137,557
Dividends receivable............................................ 8,163
Deferred organization costs..................................... 12,698
Prepaid expenses................................................ 31,363
---------------
Total assets.................................................... 2,189,781
---------------
LIABILITIES:
Net payable to Investment Adviser 11,887
Payable to brokers for investment securities purchased.......... 246
Accrued expenses and other payables:
Transfer agent fees......................................... 25,853
Other....................................................... 3,982
---------------
Total liabilities................................................ 41,968
---------------
Net Assets....................................................... $ 2,147,813
===============
Net Asset Value, Offering Price and Redemption Price per
Retail Shares:
($1,066/100 shares of beneficial interest issued
and outstanding $0.001 par value, unlimited number of
shares authorized)........................................ $ 10.65
===============
Net Asset Value, Offering Price and Redemption Price per
Share:
Institutional Shares:
($2,146,747/201,510 shares of beneficial interest
issued and outstanding $0.001 par value, unlimited
number of shares authorized).............................. $ 10.65
===============
Composition of Net Assets:
Shares of beneficial interest, at par........................... $ 202
Additional paid-in capital...................................... 2,015,809
Accumulated undistributed net investment income................. 15,207
Accumulated net realized gains on investment transactions....... 2,604
Net unrealized appreciation of investments...................... 113,991
---------------
Net Assets, May 31, 1996......................................... $ 2,147,813
================
</TABLE>
- ---------------
See Notes to Financial Statements.
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Portfolio of Investments
May 31, 1996
(Unaudited)
=============================================================================
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ --------
<S> <C> <C>
COMMON STOCK -- 98.4%
AEROSPACE & AIR TRANSPORTATION --2.8%
AMR Corp.* 300 $ 28,313
Delta Air Lines 200 16,575
Raytheon Co. 300 15,975
-----------
60,863
-----------
AUTOMOTIVE -- 4.7%
Chrysler Corp. 200 13,325
Echlin, Inc. 600 20,625
Ford Motor Co. 600 21,900
General Motors Co. 300 16,538
TRW, Inc. 300 28,275
-----------
100,663
-----------
BANKING -- 7.2%
BankAmerica Co. 600 45,150
Chase Manhattan Corp. 400 28,000
Citicorp 700 58,800
Mellon Bank Corp. 400 22,850
-----------
154,800
-----------
BUILDING & FOREST PRODUCTS -- 1.0%
Weyerhauser Co. 500 22,688
-----------
CHEMICALS -- 4.6%
B.F. Goodrich Co. 800 31,700
Dow Chemical 600 50,175
Olin Corp. 200 18,500
-----------
100,375
-----------
COMPUTERS & COMPUTER SERVICES -- 4.5%
International Business Machines 300 32,025
Seagate Technology Inc.* 300 17,625
Xerox Corp. 300 47,213
-----------
96,863
-----------
CONTAINERS -- 1.1%
American President Cos., Ltd. 900 23,737
-----------
ELECTRICAL EQUIPMENT & ELECTRONICS -- 3.1%
Cypress Semiconductor Corp.* 1,100 15,125
Eaton Corp. 400 23,150
Rockwell International Corp. 200 11,675
Texas Instruments, Inc. 300 16,875
-----------
66,825
-----------
FINANCE & INSURANCE -- 12.7%
American Financial Group, Inc. 500 15,000
BayBanks, Inc. 500 54,000
Federal Home Loan Mortgage Corp. 300 24,787
Federal National Mortgage Assoc. 1,200 37,050
Finova Group 300 15,900
First Tennessee National Corp. 600 20,175
NationsBank Corp. 300 24,338
Salomon, Inc. 700 29,313
Travelers Group, Inc. 750 31,125
-----------
275,313
-----------
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Portfolio of Investments
May 31, 1996
(Unaudited)
=============================================================================
Value
Shares (Note 2)
------ --------
FOOD, BEVERAGE & TOBACCO -- 5.8%
Canandaigua Wine Co., Inc.* 300 $ 9,075
Dole Food Co. 300 11,325
IBP Corp. 1,000 27,375
Philip Morris Cos., Inc. 200 19,875
Safeway, Inc.* 1,000 33,750
Vons Cos., Inc.* 400 14,600
Wendy's International, Inc. 500 9,000
-----------
125,000
-----------
FOREST PRODUCTS & PAPER -- 3.1%
Harnischifeger Industries, Inc. 700 24,500
International Paper Co. 709 28,271
Union Camp Corp. 300 15,788
-----------
68,559
-----------
HEALTH CARE -- 0.6%
Baxter International, Inc. 300 13,275
-----------
INSURANCE -- 4.3%
Allstate Corp. 400 16,900
Cigna Corp. 200 22,975
Conseco, Inc. 600 21,750
Lowes Corp. 400 31,900
-----------
93,525
-----------
IRON / STEEL & OTHER MATERIALS -- 2.7%
Aluminum Co. of America 700 43,138
USX U.S. Steel Group Inc. 500 15,500
-----------
58,638
-----------
MANUFACTURING -- 2.3%
Johnson Controls 300 20,925
Parker-Hannifin Corp. 700 28,525
-----------
49,450
-----------
METALS -- 0.7%
Reynolds Metal Co. 300 16,200
-----------
Mineral Resources -- 1.0%
Cyprus Amax Minerals Co. 900 21,600
-----------
OIL & GAS -- 16.6%
Amoco Corp. 500 36,250
Atlantic Richfield Co. 200 23,925
Coastal Corp. 700 28,700
Exxon Corp. 1,100 93,225
Mobil Corp. 600 67,725
Pacific Enterprises 500 13,187
Panenergy Corp. 1,000 32,125
Texaco, Inc. 500 41,875
USX Marathon Group 1,000 21,875
-----------
358,887
-----------
RAILROADS -- 1.3%
Conrail, Inc. 400 28,100
-----------
REAL ESTATE -- 0.1%
Castle & Cooke, Inc.* 66 1,155
-----------
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Portfolio of Investments
May 31, 1996
(Unaudited)
=============================================================================
Value
Shares (Note 2)
------ --------
RETAIL -- 2.9%
Rite Aid Corp. 700 $ 20,562
Sears Roebuck & Co. 500 25,437
Tandy Corp. 300 16,200
----------
62,199
----------
TRANSPORTATION -- 0.7%
Federal Express Corp.* 200 15,323
----------
UTILITIES - ELECTRIC -- 5.9%
DQE, Inc. 600 16,125
Entergy Corp. 900 23,625
FPL Group, Inc. 900 38,475
Illinova Corp. 700 18,375
Unicom Corp. 1,100 30,388
-----------
126,988
-----------
UTILITIES & TELECOMMUNICATIONS -- 8.7%
Ameritech Corp. 1,400 79,100
Bell Atlantic Corp. 300 18,712
GTE Corp. 1,100 47,025
WorldCom* 900 43,988
-----------
188,825
-----------
TOTAL COMMON STOCKS (COST $1,966,043) 2,129,851
-----------
SHORT-TERM INVESTMENTS -- 2.1%
Provident Institutional Temp Cash Fund 44,707
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $44,707) 44,707
-----------
TOTAL INVESTMENTS (COST $ 2,010,750)(a) -- 100.5% 2,174,558
OTHER LIABILITIES IN EXCESS OF ASSETS -- (0.5%) (11,227)
-----------
NET ASSSETS -- 100.0% $ 2,163,331
===========
</TABLE>
- -----
The percentages indicated are based on net assets of $2,163,331.
(a) The cost for financial reporting purposes is substantially the same for
federal income tax purposes and differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 194,724
Unrealized depreciation (30,916)
------------
Net unrealized appreciation $ 163,808
============
</TABLE>
See Notes to Financial Statements
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------ ------------
Portfolio of Investments
May 31,1996 (Unaudited)
- ------------------------------------------------------------ ------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
COMMON STOCKS - 98.2%
AIRLINES - 1.0%
British Airways, ADR 250 $ 21,687
------------
APPAREL -1.9%
Benetton Group Spa, ADR 1,633 40,008
------------
AUTOMOTIVE - 7.9%
Daimler-Benz AG, ADR 1,943 105,894
Fiat SPA, ADR 2,680 46,230
Honda Motor Co Ltd, ADR 359 17,142
------------
169,266
------------
BANKING & FINANCE - 13.8%
Australia and New Zealand Banking, ADR 430 10,320
Banco Bilbao Vizcaya, ADR 786 29,180
Banco Santander SA, ADR 269 12,172
Bank of Tokyo-Mitsubshi, ADR 3,190 75,364
Barclays PLC, ADR 468 22,054
Corporacion Bancaria de Espana-ADR 650 13,650
Invesco PLC, ADR 106 4,055
Istituto Mobiliare Italia, ADR 3,807 94,699
National Westminster Bank, ADR 219 12,647
Westpac Banking, ADR 965 22,316
------------
296,457
------------
BEVERAGES - 9.0%
Cadbury Schweppes PLC, ADR 157 4,477
Kirin Brewery Co., ADR 895 112,323
LVMH Moet Hennesey, ADR 1,561 76,099
------------
192,899
------------
BROADCASTING & CABLE - 1.4%
Carlton Comm PLC, ADR 811 30,615
------------
BUILDING & BUILDING PRODUCTS - 0.1%
Fletcher Challange Building, ADR * 104 2,132
------------
CHEMICALS - 4.4%
Akzo Nobel NV, ADR 375 22,734
Norsk Hydro A/S, ADR 329 15,422
Rhone-Poulenc SA, ADR 2,299 56,613
------------
94,769
------------
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------ ------------
Portfolio of Investments
May 31,1996 (Unaudited)
- ------------------------------------------------------------ ------------
VALUE
SHARES (NOTE 2)
------ --------
COMMERCIAL SERVICES - 0.6%
BET PLC, ADR 956 $ 13,384
------------
ELECTRICAL EQUIPMENT & ELECTRONICS - 12.8%
Hitachi LTD, ADR 629 58,969
Kyocera Corp., ADR 185 25,391
NEC Corp., ADR 1,263 69,781
Pioneer Electronics, ADR 1,060 24,645
Sony Corp., ADR 425 27,253
TDK Corp., ADR 367 20,873
Thomson CSF, ADR 1,880 48,645
------------
275,557
------------
ENTERTAINMENT & LEISURE - 1.0%
Rank Organization, ADR 1,408 22,880
------------
FOREST PRODUCTS & PAPER - 0.4%
Fletcher Challange Paper, ADR * 208 3,796
Fletcher Challange Forests, ADR 425 5,525
------------
9,321
------------
INSURANCE - 5.0%
Tokio Marine & Fire Insurance Co., ADR 1,667 108,355
------------
MANUFACTURING - 1.2%
Memtec LTD., ADR 248 7,564
Tomkins PLC, ADR 1,100 17,738
------------
25,302
------------
MEDICAL EQUIPMENT - 3.2%
Novo-Nordisk, ADR 2,003 69,354
------------
OFFICE & BUSINESS EQUIPMENT SERVICES - 3.2%
Canon, Inc., ADR 697 68,306
------------
OIL & GAS - 7.0%
Elf Aquitaine, ADR 2,420 88,633
Fletcher Challange Energy, ADR * 104 2,184
Petroleum Geo-Services, ADR * 302 9,249
Royal Dutch Petroleum Co.-
New York, ADR 175 26,250
Total S.A., ADR 694 24,984
------------
151,300
------------
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------ ------------
Portfolio of Investments
May 31,1996 (Unaudited)
- ------------------------------------------------------------ ------------
VALUE
SHARES (NOTE 2)
------ --------
PHARMACEUTICALS - 0.3%
Nycomed ASA, ADR Class B * 286 $ 5,577
Zeneca Group PLC, ADR 16 1,026
------------
6,603
------------
PHOTOGRAPHY - 1.0%
Fuji Photo Film, ADR 347 21,514
------------
PRINTING & PUBLISHING - 2.6%
Elesvier NV, ADR 1,782 55,465
------------
RETAIL - 5.2%
Ito-Yokado Co. LTD., ADR 252 56,763
Koninklijke Ahold NV, ADR 1,015 54,303
------------
111,066
------------
STEEL - 0.2%
British Steel PLC, ADR 157 4,219
------------
TELECOMMUNICATIONS - 10.5%
Alcatel Alsthom CGE, ADR 2,721 49,998
General Cable PLC, ADR * 537 8,491
L.M. Ericsson Telecommunications, ADR 404 9,317
Nippon Telegraph & Telephone, ADR 1,547 56,562
Nokia Corp., ADR - A 232 10,092
PT Indosat, ADR 32 1,096
Royal PTT Nederland, ADR 322 11,632
Stet Soc Finanz Telef, ADR 2,122 75,596
Tele-Danmark A/S, ADR 178 4,428
------------
227,212
------------
TOBACCO - 0.4%
BAT Industries PLC, ADR 530 8,679
------------
UTILITIES - ELECTRIC - 3.9%
Empresa Nacional Electridad, ADR 805 50,111
National Power PLC, ADR 608 19,380
Powergen PLC, ADR 444 14,430
------------
83,921
------------
TOTAL COMMON STOCKS (COST $1,996,280) 2,110,271
------------
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------ ------------
Portfolio of Investments
May 31,1996 (Unaudited)
- ------------------------------------------------------------ ------------
VALUE
SHARES (NOTE 2)
------ --------
SHORT-TERM INVESTMENTS - 1.3%
Provident Institutional Temp Cash Fund 27,286 $ 27,286
------------
TOTAL SHORT-TERM INVESTMENTS (COST $27,286) 27,286
------------
TOTAL INVESTMENTS (COST $2,023,565)(A) - 2,137,557
Other assets in excess of liabilities - 0.5% 10,256
------------
NET ASSETS - 100.0% $ 2,147,813
============
</TABLE>
_________
Percentages are based on net assets of $2,147,813.
ADR - American Depository Receipts
(a) The cost for financial reporting purposes is substancially the same for
federal income tax purposes and differs from value by that net realized
appreciation of securities as follows:
Unrealized appreciation $153,523
Unrealized depreciation (39,531)
---------
Net unrealized appreciation $113,992
=========
*Represents non-income producing security.
See Notes to Financial Statements.
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Statement of Operations
For the period ended May 31, 1996 (a)(Unaudited)
=============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends..................................... $ 23,646
Interest...................................... 2,199
-----------
25,845
-----------
EXPENSES:
Advisory fees................................. $ 5,400
Administration fees........................... 644
Transfer agent fees and expenses.............. 32,916
Audit fees.................................... 3,713
Legal fees.................................... 125
Registration fees............................. 8,618
Custodian fees and expenses................... 3,768
Amortization of organization costs............ 4,212
Other expenses................................ 187
-----------
59,583
Less: Fee waivers and expense reimbursements (59,583) ----
----------- -----------
NET INVESTMENT INCOME: 25,845
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized loss on securities
transactions................................. (1,493)
Net change in unrealized appreciation of
investments.................................. 163,808
-----------
Net Realized and Unrealized Gains on
Investments.................................. 162,315
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 188,160
===========
</TABLE>
- ---------------
(a) For the period December 27, 1995 (commencement of operations) through
May 31, 1996.
See Notes to Financial Statements.
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------
Statement of Operations
For the period ended May 31, 1996 (a)(Unaudited)
=============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................. $ 13,874
Interest.............................................. 2,495
-----------
16,369
-----------
EXPENSES:
Advisory fees.......................................... $ 8,794
Administration fees.................................... 629
Transfer agent fees and expenses....................... 32,916
Audit fees............................................. 3,713
Legal fees............................................. 125
Registration fees...................................... 8,618
Custodian fees and expenses............................ 5,760
Amortization of organization costs..................... 4,212
Other expenses......................................... 187
--------
64,954
Less: Fee waivers and expense reimbursements (64,954) ----
---------- -----------
NET INVESTMENT INCOME: 16,369
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on securities
transactions.......................................... 2,604
Net change in unrealized appreciation of investments... 113,991
-----------
Net Realized and Unrealized Gains on Investments....... 116,595
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................................. $ 132,964
===========
</TABLE>
- ---------------
(a) For the period December 27, 1995 (commencement of operations) through May
31, 1996.
See Notes to Financial Statements.
<PAGE>
EMERALD EQUITY VALUE FUND
- -----------------------------------------------------------------------------
Statement of Changes in Net Assets
=============================================================================
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31, 1996(a)
---------------
(UNAUDITED)
<S> <C>
Increase (Decrease) in Net Assets:
Operations
Net investment income........................ $ 25,845
Net realized losses on securities
transactions............................... (1,493)
Net change in unrealized appreciation of
investments................................ 163,808
--------------
Net increase in net assets
resulting from operations.................. 188,160
--------------
Dividends to shareholders from net
investment income
Retail Shares................................ (13)
Institutional Shares......................... (25,832)
---------------
Total dividends to shareholders from net
investment income............................ (25,845)
---------------
Fund Share Transactions
Net proceeds from shares subscribed........... 2,001,010
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions................. 6
---------------
Net increase in net assets
from fund share transactions................ 2,001,016
---------------
Total increase................................. 2,163,331
Net Assets:
Beginning of period............................ -
---------------
End of period................................. $ 2,163,331
===============
</TABLE>
- ---------------
(a) For the period December 27, 1995 (commencement of operations) through May
31, 1996.
*Represents non-income producing security.
See Notes to Financial Statements.
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------
Statement of Changes in Net Assets
=============================================================================
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31, 1996(A)
----------------
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations
Net investment income........................ $ 16,369
Net realized gains on securities
transactions............................... 2,604
Net change in unrealized appreciation of
investments................................ 113,991
---------------
Net increase in net assets
resulting from operations.................. 132,964
---------------
Dividends to shareholders from net
investment income
Institutional Shares......................... (1,162)
----------------
Fund Share Transactions
Net proceeds from shares subscribed.......... 2,016,011
----------------
Total increase................................. 2,147,813
NET ASSETS:
Beginning of period........................... -
----------------
End of period (including undistributed net
investment income of $15,209)................ $ 2,147,813
================
</TABLE>
---------------
(a) For the period December 27, 1995 (commencement of operations) through
May 31, 1996.
See Notes to Financial Statements.
<PAGE>
EMERALD FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
Emerald Funds (the "Trust") was organized as a Massachusetts business trust
on March 15, 1988. The Trust is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment
company. The Trust operates as a series company currently comprising thirteen
portfolios. The accompanying financial statements and notes relate only to
the Equity Value Fund and the International Equity Fund (the "Funds"). The
investment objective of the Equity Value Fund is to seek long-term capital
appreciation. The Fund invests primarily in common stock, preferred stock and
debt obligations convertible into common stock that the investment adviser
believes to be undervalued. The investment objective of the International
Equity Fund is to seek long-term capital appreciation. The Fund invests at
least 65% of its total assets in equity securities of foreign issuers.
Barnett Banks Trust Company, N.A. ("Barnett") serves as the Funds' investment
adviser. Effective July 1, 1996, Barnett Capital Advisors, Inc. will assume
the investment advisory responsibilities of Barnett. Effective April 1,
1996, BISYS Fund Services Limited Partnership ("BISYS") became as the Funds'
administrator. Emerald Asset Management, Inc. (the "Distributor") serves as
the distributor of the Funds' shares. BISYS is a wholly-owned subsidiary and
the Distributor is an indirectly owned subsidiary of The BISYS Group, Inc.
The Funds are authorized to issue two classes of shares: Retail Shares, and
Institutional Shares. Prior to April 1, 1996, the Retail Shares were
referred to as Class A Shares. Retail Shares and Institutional Shares are
substantially the same, except that Retail Shares bear the fees payable under
the Combined Distribution and Service Plan (the "Combined Plan") and also
bear the fees payable under the Shareholder Processing Plan (the "Processing
Plan"). In addition to the fees paid pursuant to the Combined Plan and the
Processing Plan, each class also bears the expenses associated with the
printing of their shareholder reports.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
A) Security Valuation:
The Funds value portfolio securities (other than debt securities with
remaining maturities of 60 days or less) at the last reported sales price on
the securities exchange on which such securities are primarily traded or at
the last sales price on the NASDAQ 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 mean between the
current quoted bid and asked prices on the date of valuation. Bid price is
used when no asked price is available. The Funds may also use an independent
pricing service, approved by the Board of Trustees, to value certain of its
securities. Such prices reflect market values which may be established
through the use of electronic data processing techniques and matrix systems.
Restricted securities and securities for which market quotations are not
readily available, if any, are valued at fair value using methods approved by
the Board of Trustees. Debt securities with remaining maturities of 60 days
or less are normally valued at amortized cost.
<PAGE>
B) Securities Transactions and Investment Income:
Securities transactions are recorded on the trade date. Realized gains and
losses on the sales of investments are calculated on the identified cost
basis. Interest income, including accretion of discount and amortization of
the premium on investments, is accrued daily. Dividend income is recorded on
the ex-dividend date.
C) Dividends and Distributions to Shareholders:
The Equity Value Fund declares and pays dividends from net investment income,
if any, quarterly. The International Equity Fund declares and pays
dividends, if any, annually. Distributions of net realized gains, if any,
will be paid at least annually. However, to the extent that net realized
gains of a Fund can be reduced by any capital loss carryovers of that Fund,
such gains will not be distributed. Dividends and distributions are recorded
by the Funds on the ex-dividend date.
The amounts of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the composition of net assets based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions to shareholders which exceed
net investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or net distributions in excess of net realized gains. To
the extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of capital.
D) Repurchase Agreements:
The Trust's custodian and other banks acting in a sub-custodian capacity take
possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market
basis to determine that the value, including accrued interest, exceeds the
repurchase price. In the event of the seller's default of the obligation to
repurchase, the Funds have the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
E) Expenses:
The Trust accounts separately for the assets, liabilities and operations of
each Fund. Direct expenses of a Fund are charged to that Fund while general
Trust expenses are allocated among the Trust's respective portfolios.
The investment income and expenses of a Fund (other than expenses incurred
under the Combined Plan and the Processing Plan, and the reports to
shareholders expenses) and realized and unrealized gains and losses on
investments of a Fund are allocated to separate classes of shares based upon
their relative net asset value on the date income is earned or expenses and
realized and unrealized gains and losses are incurred.
All costs incurred by the Funds in connection with the organization of the
Trust and the initial public offering of shares of the Funds, principally
professional fees and printing costs, have been deferred. Upon commencement
of investment operations of each Fund, the deferred organization expenses are
being amortized on a straight-line basis over a period of five years.
F) Federal Income Taxes:
For federal income tax purposes, each Fund is treated as a separate entity
for the purpose of determining its qualification as a regulated investment
company under the Internal Revenue Code (the"Code"). It is the policy of
<PAGE>
each Fund to meet the requirements of the Code applicable to regulated
investment companies, including the requirement that it distribute
substantially all of its taxable income to shareholders. Therefore, no
federal income tax provision is required.
NOTE 3 - AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into Investment Advisory Agreements with Barnett, an
Administration Agreement with BISYS and a Distribution Agreement with the
Distributor.
As investment adviser, Barnett manages the investments of each Fund and is
responsible for all purchases and sales of each Fund's portfolio securities.
For its services, Barnett is entitled to receive a fee based on each Fund's
average daily net assets at the following annual rates:
Equity Value Fund 0.60%
International Equity Fund 1.00%
As administrator, BISYS assists in supervising the operations of the Funds.
For its services, BISYS is entitled to a fee, accrued daily and payable
monthly, at the effective annual rate of .0775% of the first $5 billion of
the Trust's aggregate net assets, .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 Trust's aggregate average daily net assets falls below $3 billion, the
fee will be increased to .08% of the aggregate average daily net assets of
the Trust. Prior to April 1, 1996, Concord Holding Corporation
("Concord")(the prior administrator), also a wholly-owned subsidiary of The
BISYS Group, Inc., received a fee at the effective annual rate of 0.05% of
each Fund's daily net assets.
Under the Processing Plan with respect to Retail Shares of the Funds,
institutions (including BISYS) that have entered into agreements with the
Distributor ("Service Organizations") agree to provide various shareholder
and administrative support services to the shareholders of Retail Shares.
For their services, Service Organizations are entitled to a fee ("Shareholder
Processing Fee") accrued daily and paid monthly at an annual rate of up to
0.25% of the respective average daily net assets of Retail Shares. Prior to
April 1, 1996, the Funds were charged a Shareholder and Administrative
Service Fee under a Shareholder Plan at an effective annual rate of 0.15% of
the average daily net assets of the Retail Shares.
Barnett may reimburse expenses of the Funds to the extent these expenses
exceed levels determined from time to time by Barnett or state expense
limitations. For the period from December 27, 1995 (commencement of
operations) through May 31, 1996, Barnett reimbursed Fund expenses in the
following amounts:
Equity Value Fund $53,538
International Equity Fund 55,530
Barnett and BISYS have also waived a portion of their fees. For the period
from December 27, 1995 (commencement of operations) through May 31, 1996,
Barnett and BISYS waived their investments advisory and administration fees
in the following amounts:
Barnett BISYS
------------------- --------------
Equity Value Fund $5,400 $645
International Equity Fund 8,794 630
The Funds have each adopted the Combined Plan. Under the Combined Plan, each
Fund may make payments to the Distributor and Service Organizations for
distribution and Shareholder liason services provided to Retail Shareholders.
Under the Combined Plan, payments by each Fund may not exceed an annual rate
of 0.25% of the average daily net assets of Retail Shares.
For the period from December 27, 1995 (commencement of operations) through
May 31, 1996, the Funds did not incur any expenses pursuant to the Combined
Plan.
<PAGE>
Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS or the Distributor. Each Trustee receives an annual fee of
$14,000 and a meeting fee of $1,500 per meeting for services relating to all
of the portfolios constituting the Trust. For the period from December 27,
1995 (commencement of operations) through May 31, 1996, the Funds incurred
the following legal expenses of a law firm, a partner of which serves as
Secretary to the Trust:
Equity Value Fund $125
International Equity Fund 125
NOTE 4 - SECURITIES TRANSACTIONS
For the period from December 27, 1995 (commencement of operations) through
May 31, 1996, the cost of purchases and the proceeds from sales of portfolio
securities (excluding short-term investments) were as follows:
Purchases Sales
---------- -----
Equity Value Fund $2,105,432 $138,355
International Equity Fund 2,009,193 15,967
<PAGE>
Notes to Financial Statements, Continued
May 31, 1996
NOTE 5 - CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds are summarized below:
EQUITY VALUE FUND (000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1996(a)
---------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Retail Shares
Sold ---- $ 1
Reinvestment of dividends ---- ----
Redeemed ---- ----
------------ ------------
Net increase - Retail ---- 1
------------ ------------
Institutional Shares
Sold 200 2,000
Reinvestment of dividends ---- ----
Redeemed ---- ----
------------ ------------
Net increase - Institutional 200 2,000
------------ ------------
Net increase in Fund 200 $ 2,001
============ ============
</TABLE>
INTERNATIONAL EQUITY FUND (000 OMITTED):
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1996(a)
---------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Retail Shares
Sold ---- $ 1
Reinvestment of dividends ---- ----
Redeemed ---- ----
------------ ------------
Net increase - Retail ---- 1
------------ ------------
Institutional Shares
Sold 202 2,015
Reinvestment of dividends ---- ----
Redeemed ---- ----
------------ ------------
Net increase - Institutional 202 2,015
------------ ------------
Net increase in Fund 202 $ 2,016
============ ============
</TABLE>
(a) For the period from December 27, 1995 (commencement of operations)
through May 31, 1996.
<PAGE>
EMERALD FUNDS
Statement of Additional Information
for the
*Treasury Trust Fund*
*Prime Trust Fund*
April 1, 1996
(as revised August , 1996)
TABLE OF CONTENTS
Page
----
EMERALD FUNDS.............................................................. 1
INVESTMENT OBJECTIVES AND POLICIES......................................... 1
NET ASSET VALUE AND DIVIDENDS.............................................. 15
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 16
DESCRIPTION OF SHARES...................................................... 17
ADDITIONAL INFORMATION CONCERNING TAXES.................................... 19
MANAGEMENT OF EMERALD FUNDS................................................ 21
INDEPENDENT ACCOUNTANTS/EXPERTS............................................ 31
COUNSEL.................................................................... 32
ADDITIONAL INFORMATION ON YIELD............................................ 32
MISCELLANEOUS.............................................................. 33
FINANCIAL STATEMENTS....................................................... 35
APPENDIX A............................................................... A-1
This Statement of Additional Information is meant to be read in
conjunction with Emerald Funds' Prospectus dated April 1, 1996, as supplemented
August __, 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 800-637-3759. 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
-1-
<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.
-2-
<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
-3-
<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.
-4-
<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
-5-
<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 Investment Limitation 10 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
-6-
<PAGE>
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.
-7-
<PAGE>
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
stock of any one investment company will be owned by the Fund or 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,
-8-
<PAGE>
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
-9-
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
-13-
<PAGE>
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 guaranteed investment contract ("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
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<PAGE>
Trust Fund to be illiquid 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
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
Suite 3000 the Board firm of Holland and Knight;
701 Brickell Avenue of Trustees Director, Greenwich Air
Miami, FL 33101 Services, Inc. (an aircraft
Age 78 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
Age 62 Truck Equipment and Trailer
Sales; Director, Greater
Jacksonville Fair Association.
Mary Doyle Trustee Professor of Law, University
University of Miami of Miami Law School, 1995
Law School to present; Dean in Residence,
1311 Miller Drive Association of American Law
Coral Gables, FL 33124 Schools, 1994 to date; Dean,
Age 52 University of Miami School of
Law, 1986 to 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
Age 65 Officer, Barnett Banks, Inc.,
1988 to 1991; Director, Barnett
Banks, Inc., 1982 to 1991;
Director, Florida Rock
Industries, Inc. (mining and
construction materials);
Director, FRP Properties, Inc.
(transportation, hauling and
real estate development);
Director, Regency Realty, Inc.;
Director, Stein Mart, Inc.
(retail); and Director, Wickes
Lumber Company.
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
Age 57
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Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
Harvey R. Holding Trustee Retired; Executive Vice
189 Laurel Lane President and Chief Financial
Ponte Vedra Beach, Officer, BellSouth Corp.,
FL 32082 1990 to 1993; Vice Chairman
Age 61 of the Board of BellSouth Corp.,
1991 to 1993; Director, Golden
Poultry Company, Inc.
William B. Blundin Executive Executive Vice President,
125 West 55th Street Vice President BISYS Fund Services, Inc.,
New York, NY 10019 March 1995 to present; Vice
Age 57 President of Emerald Asset
Management, Inc., March 1995
to present; Vice Chairman of
the Board of Concord Holding
Corporation and Distributor,
July 1993 to March 1995;
Director and President of
Concord Holding Corporation and
Distributor, February 1987 to
March 1995.
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
Age 42 Communications, July 1987 to
August 1992
J. David Huber Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., June 1987 to
3435 Stelzer Road present.
Columbus, OH 43219-30-35
Age 49
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
Age 32 thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
Philadelphia National Reath (law firm).
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 45
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Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
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
Age 36 1995 to present; Senior Vice
President, Emerald Asset
Management, Inc., August 1995 to
present; Vice President and
Associate General Counsel,
Alliance Capital Management,
June 1989 to March 1995.
William J. Tomko Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., April 1987
3435 Stelzer Road to present.
Columbus, OH 43219-3035
Age 36
Robert Tuch Assistant Employee of BISYS Fund
BISYS Fund Services Secretary Services, Inc., June 1991 to
3435 Stelzer Road present; Assistant Secretary,
Columbus, OH 43219-3035 Emerald Asset Management, Inc.,
Age 44 August 1995 to present; Vice
President and 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
Age 28 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 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
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<PAGE>
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 $99,750. Drinker Biddle & Reath, of which Mr. Dalke is a partner, receives
legal fees as counsel to Emerald Funds. As of May 31, 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 THE 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
Chairman of the Board of Trustees $20,750 N/A N/A $20,750
- --------------------------------------------------------------------------------------------
John G. Grimsley
President and Trustee $26,000 N/A N/A $26,000
- --------------------------------------------------------------------------------------------
Raynor E. Bowditch
Trustee $19,000 N/A N/A $19,000
- --------------------------------------------------------------------------------------------
Mary Doyle
Trustee $20,500 N/A N/A $20,500
- --------------------------------------------------------------------------------------------
Albert D. Ernest**
Trustee $13,500 N/A N/A $13,500
- --------------------------------------------------------------------------------------------
Harvey R. Holding***
Trustee N/A N/A N/A N/A
</TABLE>
______________________________
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Ernest was appointed to the Board of Trustees on May 4, 1995.
*** Mr. Holding was elected to the Board of Trustees on May 29, 1996.
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
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<PAGE>
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 Capital Advisors, Inc. (the "Adviser") assumed, as of June
29, 1996, the responsibilities of Barnett Banks Trust Company, N.A. ("BBTC") as
investment adviser to each Fund. Rodney Square Management Corporation (the
"Sub-Adviser"), a wholly-owned subsidiary of 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
-26-
<PAGE>
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
and reimbursements) 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 reimbursed sub-advisory fees totalling
$32,074 for the Prime Trust Fund and $32,055 for the Treasury Trust Fund. For
the fiscal years ended November 30, 1994 and 1993 the Sub-Adviser waived
sub-advisory fees totalling $28,256 and $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
-27-
<PAGE>
performance of their duties or from their reckless disregard of their duties and
obligations under the Agreements.
The 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
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
-28-
<PAGE>
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 BISYS Fund Services Limited
Partnership 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 Fund
Services Limited Partnership 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 Fund Services Limited Partnership and
Emerald Asset Management, Inc. In this regard it may be noted that the Adviser
has entered into an agreement 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 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 Fund Services Limited Partnership (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
-29-
<PAGE>
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 certain out-of-pocket expenses relating to its fund
accounting responsibilities and as otherwise 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
portfolios 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.
For the fiscal years ended November 30, 1995, 1994 and 1993, Concord
Holding Corporation, Emerald Funds' prior administrator which was acquired by
The BISYS Group, Inc. in 1995, received (net of waivers and reimbursements)
administration 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
prior administrator reimbursed administration fees totalling $32,074 for the
Prime Trust Fund and $32,055 for the Treasury Trust Fund. For the fiscal years
ended November 30, 1994 and 1993, the prior administrator waived administration
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-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.
-30-
<PAGE>
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. BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035 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.
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.
-31-
<PAGE>
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
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 800-637-3759. 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 reimbursed.
-32-
<PAGE>
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 June 4, 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 -
Institutional Shares (100%), Prime Trust Fund - Institutional Shares (100%),
Treasury Fund - Institutional Shares (94.04%), Prime Fund - Institutional Shares
(62.65%), Tax-Exempt Fund - Institutional Shares (99.99%), Equity Fund -
Institutional Shares (47.37%), Equity Value Fund - Institutional Shares (99.99);
Small Capitalization Fund - Institutional Fund (51.93%), Balanced Fund -
Institutional Shares (50.40%), U.S. Government Securities Fund - Institutional
Shares (6.03%), Managed Bond Fund - Institutional Shares (10.86%), International
Equity Fund - Institutional Fund (99.99%); Short-Term Fixed Income Fund -
Institutional Shares (6.2%); and Florida Tax-Exempt Bond Fund - Institutional
Shares (10.61%). As of June 4, 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 - Retail Shares - National Financial
-33-
<PAGE>
Services Corporation for the Exclusive Benefit of Our Customers, P.O. Box 3908,
Church Street Station, New York, NY 10008 (56.03%) and University of West
Florida Foundation, 11000 University Parkway, Pensacola, FL 32514-5750 (6.53%);
Small Capitalization Fund - Retail Shares - National Financial Services
Corporation for the Exclusive Benefit of Our Customers and John T. R. Hayt
Trust, John T. R. Hayt Living Trust, 1169 Queens Harbor Blvd., Jacksonville, FL
32225 (5.59%); Short-Term Fixed Income Fund - Retail Shares - National Financial
Services Corporation for the Exclusive Benefit of Our Customers/FOB John W.
Selby, 2888 La Concha Dr., Clearwater, FL 34622 (11.15%); National Financial
Services Corporation for the Exclusive Benefit of Our Customers/FOB Wayne Bodie
and Nikki Bodie, P.O. Box 828, Defuniak Springs, FL 32433 (5.55%); National
Financial Services Corporation for the Exclusive Benefit of Our Customers/FOB
George A. Zellner, 530 Park St., Jacksonville, FL 32204 (16.50); U.S. Government
Securities Fund - Retail Shares - Barnett Bank & Trust Company N.A., Customer
Capital Network Services, P.O. Box 40200, Jacksonville, FL 32203-0200 (11.12%);
National Financial Services Corporation for the Exclusive Benefit of Our
Customers, P.O. Box 3908, Church Street Station, New York, NY 10008 (54.22%);
Managed Bond Fund - Retail Shares - National Financial Services Corporation for
the Exclusive Benefit of Our Customers and Susan A. Fairbank Trust, Fairbank Rev
Trust, 85 N. Pizarro Pt., LeCanto, FL 34461 (5.53%); First National Bank of
Florida, Trust Gregory K. Cook, 401 S. Tryon St., Charlotte, NC 28288-1151
(15.83%); National Financial Services Corporation for the Exclusive Benefit of
Our Customers/FOB Robert White, 3101 Riverview Blvd., Bradenton, FL 34205
(6.74%); Florida Tax-Exempt Bond Fund - Retail Shares - National Financial
Services Corporation for the Exclusive Benefit of Our Customers, P.O. Box 3908,
Church Street Station, New York, NY 10008 (62.21%); Treasury Fund - Service
Shares - BISYS Fund Services Inc. Pittsburgh, Omnibus Account, First Market
Building, Attn: Linda Zerbe, 100 First Ave., Suite 300, Pittsburgh, PA 15222
(95.74%); Treasury Fund - Retail Shares - National Financial Service Corporation
for the Exclusive Benefit of our Customers, P.O. Box 3908, Church Street
Station, New York, NY 10281 (99.84%); Prime Fund - Institutional Shares -
Wilmington Trust Company, Attn: Martin Klopping, Rodney Square North,
Wilmington, DE 19890 (3.35%); Prime Fund - Service Shares - BISYS Fund Services,
Inc., Pittsburgh, Omnibus Account, Attn: Linda Zerbe, First and Market Building,
100 First Avenue, Suite 300, Pittsburgh, PA 15222 (91.20%); BISYS Fund Services,
Inc., Pittsburgh, Omnibus Account, Attn: Linda Zerbe, First and Market Building,
100 First Avenue, Suite 300, Pittsburgh, PA 15222 (8.79%); Prime Fund - Retail
Shares - National Financial Service Corporation for the Exclusive Benefit of our
Customers, P.O. Box 3908, Church Street Station, New York, NY 10281 (99.43%);
Tax-Exempt Fund - Service Shares - BISYS Fund Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222
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<PAGE>
(22.48%); BISYS Fund Services, Inc., Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (77.52%); Tax-Exempt Fund - Retail
Shares - National Financial Service Corporation for the Exclusive Benefit of our
Customers, P.O. Box 3908, Church Street Station,, New York, NY 10281 (98.67%);
International Equity Fund - Retail Shares - Emerald Asset Management Inc., 3435
Stelzer Rd., Columbus, OH 43219 (100%); and Equity Value Fund - Retail Shares -
Emerald Asset Management Inc., 3435 Stelzer Rd., Columbus, OH 43219 (100%). 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 Funds'
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 Funds' annual report to
shareholders for the fiscal year ended November 30, 1995 (the "Annual Report")
are hereby incorporated herein by reference. No other parts of the Annual
Report are incorporated by reference. Copies of the Annual Report may be
obtained by writing to BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219-3035 or by calling 800-637-3759.
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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
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<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.
A-11
<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>
EMERALD FUNDS
Statement of Additional Information
for Institutional Shares and Service Shares
of the
* Prime Fund *
*Treasury Fund*
*Tax-Exempt Fund*
April 1, 1996
(as revised August , 1996)
TABLE OF CONTENTS
PAGE
----
EMERALD FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . 1
NET ASSET VALUE AND DIVIDENDS. . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . 19
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . 19
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . 23
MANAGEMENT OF EMERALD FUNDS. . . . . . . . . . . . . . . . . . . . . . 27
INDEPENDENT ACCOUNTANTS/EXPERTS. . . . . . . . . . . . . . . . . . . . 38
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ADDITIONAL INFORMATION ON YIELD. . . . . . . . . . . . . . . . . . . . 38
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 42
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
This Statement of Additional Information, which applies to the
Institutional Share and 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, as supplemented August __, 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 Institutional Shares and 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 800-637-3759. 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, 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 the Institutional Share and 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 telephone number stated on the cover page of this Statement
of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
As stated in the Prospectus for the 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 Prospectus for the Funds.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, Barnett
Capital Advisors, Inc. (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 transactions, the Adviser for the Treasury and
Prime Funds, and
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<PAGE>
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.
Supplemental research information so received is in addition to, and
not in lieu of, services required to be per-
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<PAGE>
formed 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 respect to the Tax-Exempt Fund) believes to be equitable to
the Fund and such other investment company or account. In some
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<PAGE>
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.
4. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except for transac-
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tions 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, 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
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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 Investment Limitation 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 the 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 non-fundamental additional
restriction 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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<PAGE>
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
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 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 includecash 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
stock of any one investment company will be owned by the Fund or 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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<PAGE>
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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<PAGE>
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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<PAGE>
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 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.
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 guaranteed investment contract ("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 under the Shareholder Processing and Services Plan adopted
for Services Shares (the "Service Plan") are borne solely by 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
-17-
<PAGE>
Retail Shares. In addition, each class of Shares bears certain miscellaneous
"class expenses" as described in the Prospectus.
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
Prospectus for Institutional Shares and Service Shares, or to revise the
policies in order to mitigate, to the extent possible, the
-18-
<PAGE>
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
Prospectus, Institutional Shares and 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 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'
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 (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
-19-
<PAGE>
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. Nine of these classes
(Institutional Shares, 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 Institutional Share, Service Share and
Retail Share in a Fund has a par value of $.001.
Except as noted below with respect to the fees paid under the Combined
Distribution and Services Plan and the Shareholder Processing and Services Plan
for Retail Shares (the "Retail Plans") and the Shareholder Processing and
Services Plan for Service Shares (the "Emerald Service Plan"), Institutional,
Service and Retail Shares bear the same types of ongoing expenses with respect
to the Fund to which they belong. 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
Service Shares will be solely responsible for the Fund's payments to Service
Organizations pursuant to the Service Plan adopted for those Shares; and each
Fund's Retail Shares will be solely responsible for the Fund's payments under
the Retail Plans. In addition, each class of Shares will be responsible for
certain miscellaneous "class expenses" as described in the Prospectus.
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
Service Shares of a Fund will be entitled to vote on matters submitted to a vote
of shareholders pertaining to the Service 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 Plans. (See "Other Information Concerning Emerald
Funds and Its Shares" in the Prospectus.) Further, shareholders of all of the
Funds, as well
-20-
<PAGE>
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 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
-21-
<PAGE>
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 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.
SERVICE SHARES
As stated in the Prospectus, 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 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 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
Service Plan totalled $1,898,193, $1,678,991 and $1,332,955, respectively, with
respect to Service Shares of the Treasury Fund; $2,814,354, $2,409,889 and
$1,937,188, respectively, with respect to Service Shares of the Prime Fund; and
$10,478, $9,468 and $1,420, respectively, with respect to 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
$1,898,193; $0, $0 and $1,678,991; and $0, $0, and $1,332,665, respectively, for
the fiscal years ended November 30, 1995, 1994 and 1993 with respect to Service
Shares of the Treasury Fund; $0, $0 and $2,804,354; $0, $0, and $2,409,889; and
$0, $0 and $1,936,926, respectively, for the fiscal years ended November 30,
1995, 1994 and 1993 with respect to Service Shares of the Prime Fund; and $0, $0
and $10,478; $0, $0 and $0; and $0, $0 and $0, respectively, for the fiscal
years ended November 30, 1995, 1994 and 1993 with respect to Service Shares of
the Tax-Exempt Fund.
Services provided by Service Organizations under their service
agreements may include: (i) providing necessary personnel and facilities to
establish and maintain shareholder accounts and records for customers; (ii)
assisting in aggregating and processing purchase, exchange and redemption
transactions;
-22-
<PAGE>
(iii) placing net purchase and redemption orders with the Distributor; (iv)
arranging for wiring of funds; (v) transmitting and receiving funds in
connection with customer orders to purchase or redeem Service Shares; (vi)
processing dividend payments; (vii) verifying and guaranteeing customer
signatures in connection with redemption orders and transfers and changes in
customer-designated accounts, as necessary; (viii) providing periodic statements
showing a customer's account balance, and to the extent practicable, integrating
such information with other customer transactions otherwise effected through or
with us; (ix) furnishing (either separately or on an integrated basis with other
reports sent to a customer 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 customers; (xi) receiving, tabulating and transmitting to the
Funds proxies executed by customers 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 a Service
Organization or customer may reasonably request.
Pursuant to the Service 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 Prospectus for Institutional Shares and 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 Prospectus is
not intended as a substitute for careful tax
-23-
<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 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, 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
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<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
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<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, when required to do so, to the Fund
that they are not subject to backup withholding 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:
<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
Age 78 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
Age 62 Truck Equipment and Trailer
Sales; Director, Greater
Jacksonville Fair Association.
Mary Doyle Trustee Professor of Law, University
University of Miami of Miami Law School, 1995 to
Law School present; Dean in Residence,
1311 Miller Drive Association of American Law
Coral Gables, FL 33124 Schools, 1994 to date; Dean,
Age 52 University of Miami School of
Law, 1986-1994.
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<PAGE>
<CAPTION>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
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
Age 65 Officer, Barnett Banks, Inc.,
1988 to 1991; Director, Barnett
Banks, Inc., 1982 to 1991;
Director, Florida Rock
Industries, Inc. (mining and
construction materials);
Director, FRP Properties, Inc.
(transportation, hauling and
real estate development);
Director, Regency Realty, Inc.;
Director, Stein Mart, Inc.
(retail); and Director, Wickes
Lumber Company.
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
Age 57
Harvey R. Holding Trustee Retired; Executive Vice
189 Laurel Lane President and Chief Financial
Ponte Vedra Beach, Officer, BellSouth Corp.,
FL 32082 1990 to 1993; Vice Chairman
Age 61 of the Board of BellSouth Corp.,
1991 to 1993; Director, Golden
Poultry Company, Inc.
William B. Blundin Executive Executive Vice President,
125 West 55th Street Vice President BISYS Fund Services, Inc.
New York, NY 10019 March 1995 to present; Vice
Age 57 President of Emerald Asset
Management, Inc. March 1995 to
present; Vice Chairman of
the Board of Concord Holding
Corporation and Distributor,
July 1993 to March 1995;
Director and President of
Concord Holding Corporation
and Distributor, February 1987
to March 1995.
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
Age 42 Communications, July 1987 to
August 1992
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<PAGE>
<CAPTION>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
J. David Huber Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., June 1987 to
3435 Stelzer Road present.
Columbus, OH 43219-30-35
Age 49
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
Age 32 thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
Philadelphia National Reath (law firm).
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 45
George Martinez Assistant Senior Vice President and
BISYS Fund Services Secretary Director of Legal and
3435 Stelzer Road Compliance Services, BISYS
Columbus, OH 43219-3035 Fund Services, Inc., March
Age 36 1995 to present; Senior Vice
President, Emerald Asset
Management, Inc., August 1995
to present; Vice President and
Associate General Counsel,
Alliance Capital Management,
June 1989 to March 1995.
William J. Tomko Vice President Employee of BISYS Fund
BISYS Fund Services Services, Inc., April 1987 to
3435 Stelzer Road present.
Columbus, OH 43219-3035
Age 36
Robert Tuch Assistant Employee of BISYS Fund
BISYS Fund Services Secretary Services, Inc., June 1991 to
3435 Stelzer Road present; Assistant Secretary,
Columbus, OH 43219-3035 Emerald Asset Management,
Age 44 Inc., August 1995 to present;
Vice President and Associate
General Counsel with National
Securities Research Corp.,
July 1990 to June 1991.
-29-
<PAGE>
<CAPTION>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
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
Age 28 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.
-------------------------------
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 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 $99,750. Drinker Biddle
& Reath, of which Mr. Dalke is a partner, receives legal fees as counsel to
Emerald Funds. As of May 31, 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.
-30-
<PAGE>
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
AGGREGATE RETIREMENT ESTIMATED EMERALD
COMPENSATION BENEFITS ANNUAL FUNDS
FROM THE 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
Harvey R. Holding*** N/A N/A N/A N/A
</TABLE>
- ------------------------------
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Ernest was appointed to the Board of Trustees on May 4, 1995.
*** Mr. Holding was elected to the Board of Trustees on May 29, 1996.
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
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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 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 Capital Advisors, Inc. (the "Adviser") assumed, as of June 29,
1996, the responsibilities of Barnett Banks Trust Company, N.A. ("BBTC") as
investment adviser to each Fund. 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;
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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 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. Emerald Funds has 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.
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, BBTC 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 BBTC with respect to the Tax-Exempt Fund was paid to the Sub-
Adviser. In addition, BBTC 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 BBTC waived fees
totaling $358,950 and $134,960 for the Prime and Treasury Funds respectively.
For the fiscal years ended November 1994 and 1993, BBTC 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
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<PAGE>
performance of their duties or from their reckless disregard of their duties and
obligations under the agreements.
The 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 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
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<PAGE>
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 BISYS Fund Services Limited
Partnership 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 Fund
Services Limited Partnership 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 Fund Services Limited Partnership and
Emerald Asset Management, Inc. In this regard it may be noted that the Adviser
has entered into an agreement 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' Institutional Shares and 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' Institutional Shares or
Service Shares to the Distributor for its distribution services.
BISYS Fund Services Limited Partnership (the "Administrator"), a
wholly-owned subsidiary of The BISYS Group,
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<PAGE>
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 certain out-of-pocket expenses relating to its fund accounting
responsibilities and as otherwise described in this Statement of Additional
Information and the Prospectus.
For its services with respect to the Treasury Fund, Prime Fund and
Tax-Exempt 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 portfolios 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 its fees or reimburse the Fund for expenses, either voluntarily or as
required by certain state securities laws.
For the fiscal years ended November 30, 1995, 1994 and 1993, Concord
Holding Corporation, Emerald Funds' prior administrator which was acquired by
The BISYS Group, Inc. in 1995, received (net of waivers) administration 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 prior administrator waived fees in the
amount of $33,145, $11,028 and $0, respectively, for the Prime, Treasury and
Tax-Exempt Funds, respectively. The prior administrator did not waive any
administration fees for the Prime or Treasury Funds for the fiscal years ended
November 30, 1994 and 1993; however, during these periods, the prior
administrator waived $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
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
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<PAGE>
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-
Adviser'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.
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-
3035, 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; 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.
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<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 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 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-
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<PAGE>
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 800-637-3759. For the seven-day period ended November 30,
1995, the annualized yields (after fee waivers) of Institutional 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 Institutional 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 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 Service Shares
in the Tax-Exempt Fund was 4.78% (assuming a federal income tax rate of 36%).
During this seven-day period, fee waivers amounted to 0.00%, 0.00% and 0.10% of
the average daily net assets of the Treasury Fund, Prime Fund and Tax-Exempt
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 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
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<PAGE>
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 June 4, 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 -
Institutional Shares (100%), Prime Trust Fund - Institutional Shares (100%),
Treasury Fund - Institutional Shares (94.04%), Prime Fund - Institutional Shares
(62.65%), Tax-Exempt Fund - Institutional Shares (99.99%), Equity Fund -
Institutional Shares (47.37%), Equity Value Fund - Institutional Shares (99.99);
Small Capitalization Fund - Institutional Fund (51.93%), Balanced Fund -
Institutional Shares (50.40%), U.S. Government Securities Fund - Institutional
Shares (6.03%), Managed Bond Fund - Institutional Shares (10.86%), International
Equity Fund - Institutional Fund (99.99%); Short-Term Fixed Income Fund -
Institutional Shares (6.2%); and Florida Tax-Exempt Bond Fund - Institutional
Shares (10.61%). As of June 4, 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 - Retail Shares - National Financial
Services Corporation for the Exclusive Benefit of Our Customers, P.O. Box 3908,
Church Street Station, New York, NY 10008 (56.03%) and University of West
Florida Foundation, 11000 University Parkway, Pensacola, FL 32514-5750 (6.53%);
Small Capitalization Fund - Retail Shares - National Financial Services
Corporation for the Exclusive Benefit of Our Customers and John T. R. Hayt
Trust, John T. R. Hayt Living Trust, 1169 Queens Harbor Blvd., Jacksonville, FL
32225 (5.59%); Short-Term Fixed Income Fund - Retail Shares - National Financial
Services Corporation for the Exclusive Benefit of Our Customers/FOB John W.
Selby, 2888 La Concha Dr., Clearwater, FL 34622 (11.15%); National Financial
Services Corporation for the Exclusive Benefit of Our Customers/FOB Wayne Bodie
and Nikki Bodie, P.O. Box 828, Defuniak Springs, FL 32433 (5.55%); National
Financial Services Corporation for the Exclusive Benefit of Our Customers/FOB
George A. Zellner, 530 Park St., Jacksonville, FL 32204 (16.50); U.S. Government
Securities Fund - Retail Shares - Barnett Bank & Trust Company N.A., Customer
Capital Network Services, P.O. Box 40200, Jacksonville, FL 32203-0200 (11.12%);
National Financial Services Corporation for the Exclusive Benefit of Our
Customers, P.O. Box 3908, Church Street Station, New York, NY 10008 (54.22%);
Managed
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Bond Fund - Retail Shares - National Financial Services Corporation for the
Exclusive Benefit of Our Customers and Susan A. Fairbank Trust, Fairbank Rev
Trust, 85 N. Pizarro Pt., LeCanto, FL 34461 (5.53%); First National Bank of
Florida, Trust Gregory K. Cook, 401 S. Tryon St., Charlotte, NC 28288-1151
(15.83%); National Financial Services Corporation for the Exclusive Benefit of
Our Customers/FOB Robert White, 3101 Riverview Blvd., Bradenton, FL 34205
(6.74%); Florida Tax-Exempt Bond Fund - Retail Shares - National Financial
Services Corporation for the Exclusive Benefit of Our Customers, P.O. Box 3908,
Church Street Station, New York, NY 10008 (62.21%); Treasury Fund - Service
Shares - BISYS Fund Services Inc. Pittsburgh, Omnibus Account, First Market
Building, Attn: Linda Zerbe, 100 First Ave., Suite 300, Pittsburgh, PA 15222
(95.74%); Treasury Fund - Retail Shares - National Financial Service Corporation
for the Exclusive Benefit of our Customers, P.O. Box 3908, Church Street
Station, New York, NY 10281 (99.84%); Prime Fund - Institutional Shares -
Wilmington Trust Company, Attn: Martin Klopping, Rodney Square North,
Wilmington, DE 19890 (3.35%); Prime Fund - Service Shares - BISYS Fund Services,
Inc., Pittsburgh, Omnibus Account, Attn: Linda Zerbe, First and Market Building,
100 First Avenue, Suite 300, Pittsburgh, PA 15222 (91.20%); BISYS Fund Services,
Inc., Pittsburgh, Omnibus Account, Attn: Linda Zerbe, First and Market Building,
100 First Avenue, Suite 300, Pittsburgh, PA 15222 (8.79%); Prime Fund - Retail
Shares - National Financial Service Corporation for the Exclusive Benefit of our
Customers, P.O. Box 3908, Church Street Station, New York, NY 10281 (99.43%);
Tax-Exempt Fund - Service Shares - BISYS Fund Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222
(22.48%); BISYS Fund Services, Inc., Linda Zerbe, First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (77.52%); Tax-Exempt Fund - Retail
Shares - National Financial Service Corporation for the Exclusive Benefit of our
Customers, P.O. Box 3908, Church Street Station,, New York, NY 10281 (98.67%);
International Equity Fund - Retail Shares - Emerald Asset Management Inc., 3435
Stelzer Rd., Columbus, OH 43219 (100%); and Equity Value Fund - Retail Shares -
Emerald Asset Management Inc., 3435 Stelzer Rd., Columbus, OH 43219 (100%). 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.
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<PAGE>
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 Funds' annual report to
shareholders for the fiscal year ended November 30, 1995 (the "Annual Report")
are hereby incorporated herein by reference. No other parts of the Annual
Report are incorporated by reference. Copies of the Annual Report may be
obtained by writing to BISYS Fund Services, Inc., P.O. Box 182697, Columbus,
Ohio 43219-3035 or by calling toll-free at 800-637-3759.
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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
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<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
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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.
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<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.
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<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 "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.
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<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
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<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.
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<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.
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<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Prospectuses and Included in, or
Incorporated by Reference into, the Statements of
Additional Information:
(1) Unaudited Financial Statements:
Financial Highlights for the period from December 26,
1995 (commencement of operations) through May 31,
1996 -Equity Value Fund and International Equity Fund.
Statements of Assets and Liabilities for the period
from December 26, 1995 (commencement of operations)
through May 31, 1996 - Equity Value Fund and
International Equity Fund.
Portfolios of Investments - May 31, 1996 - Equity
Value Fund and International Equity Fund.
Statements of Operations for the period from December
26, 1995 (commencement of operations) through May 31,
1996 - Equity Value Fund and International Equity
Fund.
Statements of Changes in Net Assets for the period
from December 26, 1995 (commencement of operations)
through May 31, 1996 - Equity Value Fund and
International Equity Fund.
(2) Audited Financial Statements: 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.
Statements of Assets and Liabilities - 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, Managed Bond Fund and Short-Term Fixed Income
Fund.
<PAGE>
Portfolios of Investments - 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, Managed
Bond Fund and Short-Term Fixed Income Fund.
Statements of Operations 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.
Statements of Changes in Net Assets 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.
Notes to Financial Statements - November 30, 1995
- Treasury Fund, Prime Fund, Tax-Exempt Fund, Treasury
Trust Fund, Prime Trust Fund, 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.
Reports of Independent Accountants - January 24, 1996
- 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, Managed
Bond Fund and Short-Term Fixed Income Fund.
(3) All required financial statements are included in
Parts A and B hereof, or incorporated by reference.
All other financial statements and schedules are
inapplicable.
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<PAGE>
(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.
(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
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<PAGE>
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 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
____________
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<PAGE>
(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. is incorporated by
reference to Exhibit (5) (j) to Registrant's
Post Effective Amendment No. 17 to Registration
Statement on Form N-1A, filed on February 1,
1996.
(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.
(b) Amendment No. 1 to Distribution Agreement
between Registrant and Emerald Asset
Management, Inc. is incorporated by reference
to Exhibit (6) (b) to Registrant's Post
Effective Amendment No. 17 to Registration
Statement on Form N-1A, filed on February 1,
1996.
(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.
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<PAGE>
(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
BISYS Fund Services Limited Partnership.
(b) Shareholder Processing and Services Plan and
Form of Servicing Agreement for Emerald Service
Shares is incorporated by reference to Exhibit
(9)(o) to Registrant's Post-Effective Amendment
No. 17 to Registration Statement on Form N-1A
filed on February 1, 1996.
(c) Shareholder Processing Plan and Form of
Servicing Agreement for Retail Shares is
incorporated by reference to Exhibit (9) (p) to
Registrant's Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A filed on
February 1, 1996.
(d) Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc.
(e) 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.
(f) Amendment to Cash Management and Related
Services Agreement between Registrant and the
Bank of New York dated as of May 20, 1996.
(g) Fund Accounting Agreement between BISYS Fund
Services Limited Partnership and BISYS Fund
Services, Inc.
(10) (a)(1) Opinion and consent of counsel that shares are
validly issued, fully paid and non-assessable.
_______________________
(1) Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
C-6
<PAGE>
(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) Combined Amended and Restated Distribution and
Service Plan with Related Agreement for Retail
Shares (All Funds) is incorporated by reference
to Exhibit (15)(e) to Registrant's
Post-Effective Amendment No. 17 to Registration
Statement on Form N-1A filed on February 1,
1996.
(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 Statement on Form N-1A, filed
on January 31, 1992.
C-7
<PAGE>
(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.
(h) Schedule for Computation of Performance
Quotations - Florida Tax-Exempt Fund is
C-8
<PAGE>
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) Schedules 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) Schedules 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) Schedules 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.
(m) Schedules for Computation of Performance
Quotations - Equity Value Fund.
(n) Schedules for Computation of Performance
Quotations - International Equity Fund.
(18) (a) Revised Plan pursuant to Rule 18f-3 for
operation of a Multi-Class System.
(27) Financial Data Schedules.
C-9
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
Item 26. NUMBER OF HOLDERS OF SECURITIES
As of June 1, 1996:
TITLE OF CLASS OF HOLDERS NUMBER OF RECORD HOLDERS
Class A-1 Shares 1
Class B-1 Shares 1
Class C-1 Shares 0
Class D-1 Shares 2
Class D-2 Shares 5
Class D-3 Shares 7
Class E-1 Shares 5
Class E-2 Shares 6
Class E-3 Shares 409
Class F-1 Shares 2
Class F-2 Shares 4
Class F-3 Shares 17
Class G-1 Shares 1245
Class G-3 Shares 622
Class H-1 Shares 700
Class H-3 Shares 315
Class I-1 Shares 1030
Class I-3 Shares 327
Class J-1 Shares 941
Class J-3 Shares 637
C-10
<PAGE>
TITLE OF CLASS OF HOLDERS NUMBER OF RECORD HOLDERS
Class K-1 Shares 62
Class K-3 Shares 302
Class L-1 Shares 102
Class L-3 Shares 312
Class M-1 Shares 404
Class M-3 Shares 117
Class N-1 Shares 1
Class N-3 Shares 2
Class O-1 Shares 1
Class O-3 Shares 2
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 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 by
reference as Exhibit (9)(e). Registrant has obtained from a major insurance
carrier a trustees' and officers' liability 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
C-11
<PAGE>
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 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
C-12
<PAGE>
(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 Capital Advisors, Inc., a Florida corporation
with principal offices in Jacksonville, Florida, offers investment advisory
services in the states of Florida and Georgia. Barnett Capital Advisors,
Inc. is a wholly-owned subsidiary of Barnett Bank, N.A. which, in turn, 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 Capital Advisors, Inc., except those set forth
below, is, or has been at any time during Registrant's past two fiscal years,
engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers of Barnett
Capital Advisors, Inc., also hold various positions with, and engage in
business for, affiliates of Barnett Capital Advisors, Inc. Set forth below
are the names and principal businesses of the directors and certain of the
senior executive officers of Barnett Capital Advisors, Inc. who are or have
been engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
Position with Other
Barnett Capital Business Type of
Name Advisors, Inc. Connections Business
- ---- --------------- ----------- ---------
<S> <C> <C> <C>
Donna L. Terry Chairman The Boston Company Advisors, Investment Advisor
Inc., Boston MA; The
Boston Company Asset
Management, Inc., Boston
MA
Richard H. Jones Director Barnett Bank & Trust Trust
Company, N.A.,
Jackonsville, FL
Fleet Financial Group, Financial Services
Providence, RI
Rebecca S. Allen Director Barnett Bank & Trust Trust Company
Company, N.A.
Jacksonville, FL
Barnett Bank of Bank
Southwest Florida,
Sarasota, FL
Richard A. Anderson Director Barnett Banks, Inc. Banking
Jacksonville, FL
Barnett Bank of Banking
Broward, Ft. Lauderdale,
FL
James E. Loskill Director Barnett Bank of Bank
Naples, Naples, FL
Robert K. Mackenzie Director Barnett Securities, Inc. Financial Services
Jacksonville, FL
Fidelity Investments, Financial Services
New York, NY; Chicago, IL;
Boston, MA
Robert L. Nellsen Director Barnett Banks, Inc. Bank Holding Company
Jacksonville, FL
The New England Mutual Insurance
Boston, MA Company
Fleet Financial Bank Holding Company
Group, Providence, RI
</TABLE>
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. Edmonds Senior 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 Senior 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>
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 Senior Funds Administration N/A N/A
Officer
Robert J. Christian Director Senior Vice President, Banking
Wilmington Trust Company,
Rodney Square North,
1100 N. Market Street,
Wilmington, DE 19890;
the sole parent of RSMC.
Director of Rodney Square broker/dealer
Distributors, Inc.
Carl M. Rizzo Vice President, since N/A N/A
July, 1996
Jody I. Thomas Senior Transfer N/A/ N/A
Officer, since
January, 1995
Wayne D. Weaver* Vice President, since N/A N/A
February, 1995
Assistant
Vice President,
since August,
1992
M. Martine Slicer Accounting Officer, N/A N/A
since November 1995
Richard Arthur Morgan Vice President Asst. Vice Pres. Mutual Fund
Since Nov. 1995 PFPC, Inc. Serv.
6/84 to 11/95
Lynette Lucille Becker Operations Officer N/A N/A
Jo Michelle Robinson Operations Officer N/A N/A
Louis Craig Schwartz Sr. Fund Admin. Associate Law Firm
Officer Mason, Briody,
Since 11/95 Gallagher & Taylor
8/93 to 2/95
Connie L. Meyers Regulatory N/A N/A
Compliance Officer
James John Palermo Investment Officer N/A N/A
David A. Fischer Accounting Officer Fund Accountant Mutual Fund
PFPC, Inc. Services
11/91 to 12/93
Jeffrey A. Wirosloff Operations Officer Transfer Agent Mutual Fund
Supervisor Services
PFPC, Inc.
9/92 to 9/94
</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.
C-15
<PAGE>
(b) To the best of Registrant's knowledge, the directors and
executive officers of Emerald Asset Management, Inc., distributor for
Registrant, are as follows:
<TABLE>
<CAPTION>
Name and Positions and
Principal Offices with Positions and
Business Emerald Asset Offices with
Address Management, Inc. Registrant
- --------- ---------------- --------------
<S> <C> <C>
Lynn J. Mangum Chairman None
3435 Stelzer Road
Columbus, OH 43219-3035
Richard E. Stierwalt President/CEO None
3435 Stelzer Road
Columbus, OH 43219-3035
Robert J. McMullan Executive Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
Sean Kelly First Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
William Blundin Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
Dennis Sheehan Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
Catherin T. Dwyer Vice President/Secretary None
3435 Stelzer Road
Columbus, OH 43219-3035
Michael Burns Vice President/Compliance None
3435 Stelzer Road
Columbus, OH 43219-3035
Annamarie Porcaro Assistant Secretary None
3435 Stelzer Road
Columbus, OH 43219-3035
Robert Tuch Assistant Secretary None
3435 Stelzer Road
Columbus, OH 43219-3035
Stephen G. Mintos Executive Vice President/COO None
3435 Stelzer Road
Columbus, OH 43219-3035
George Martinez Senior Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
Dale Smith Vice President/CFO None
3435 Stelzer Road
Columbus, OH 43219-3035
Chris Davis Regional Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
</TABLE>
(c) None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Barnett Captial Advisors, Inc., 9000 Southside Blvd.,
Building 100, P.O. Box 40200, Jacksonville, Florida
32203-0200 (records relating to its functions as
investment adviser - all portfolios).
(2) Bank of America, NT&SA, 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).
C-16
<PAGE>
(4) BISYS Fund Services Limited Partnership, 3435 Stelzer
Road, Columbus, OH 43219-3035 (records relating to
its functions as administrator and accounting
services agent - 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 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).
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
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-17
<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. 18 to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized in the City of
Jacksonville and State of Florida on the 28th day of June, 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 has been signed below by the
following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
*CHESTERFIELD H. SMITH Chairman of the June 28, 1996
- -------------------------- Board of Trustees
Chesterfield H. Smith
/S/ JOHN G. GRIMSLEY President (Chief June 28, 1996
- -------------------------- Executive Officer)
John G. Grimsley and Trustee
*MARTIN R. DEAN Treasurer June 28, 1996
- -------------------------- (Principal Financial
Martin R. Dean and Accounting Officer)
*RAYNOR E. BOWDITCH Trustee June 28, 1996
- --------------------------
Raynor E. Bowditch
*ALBERT D. ERNEST Trustee June 28, 1996
- --------------------------
Albert D. Ernest
*MARY DOYLE Trustee June 28, 1996
- --------------------------
Mary Doyle
*HARVEY R. HOLDING Trustee June 28, 1996
- --------------------------
Harvey R. Holding
/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 May 3, 1996 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 of 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 A. Dalke
-------------------------
Jeffrey A. Dalke
Secretary
Dated: June 28, 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>
EMERALD FUNDS
POWER OF ATTORNEY
Harvey R. Holding, 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.
Date: May 29, 1996 /s/ Harvey R. Holding
-----------------------------
Harvey R. Holding
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE NO.
- ----------- -------- ---------
(9) (a) Administration Agreement between
Registrant and BISYS Fund Services
Limited Partnership.
(9) (d) Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc.
(9)(f) Amendment to Cash Management and Relared Services
Agreement between Registrant and The Bank of New
York dated as of May 20, 1996.
(9)(g) Fund Accounting Agreement between BISYS Fund Services
Limited Partnership and BISYS Fund Services, Inc.
(11)(a) Consent of Price Waterhouse LLP.
(11)(b) Consent of Drinker Biddle & Reath.
(16)(m) Schedules for Computation of Performance Quotations
- Equity Value Fund.
(16)(n) Schedules for Computation of Performance Quotations -
International Equity Fund.
(18)(a) Revised Plan pursuant to Rule 18f-3 for operation of a
Multi-Class System.
(27) Financial Data Schedules
<PAGE>
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.
(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
3
<PAGE>
day, and shall provide such other fund accounting services that are
more particularly described in the Fund Accounting Agreement referred
to in Section 3 herein.
(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") on or about June 1, 1996 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 pursuant to Section
1(b)(ii) of the Fund Accounting Agreement;
(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 March 31,
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's reasonable cash
disbursements for services in connection with BISYS's 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.
7
<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 (a) the fees payable to BISYS hereunder for the lesser of (i) the one-year
period commencing on the date upon which BISYS is replaced or such third party
is added or (ii) the remainder of such initial term, 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
such one-year period or the remainder of such initial term plus (b) the amount
of all of BISYS's out-of-pocket cash disbursements to unaffiliated persons for
services in connection with BISYS's activities in effecting the replacement of
BISYS or the addition of a third party to provide administrative services
(including, without limitation, the delivery of Trust documents and other
property or any copies thereof).
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
8
<PAGE>
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.
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 2 shall not limit or in any
way affect BISYS's 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, 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
9
<PAGE>
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: /s/ John G. Grimsley
--------------------------------------
President
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund
Services, Inc.,
General Partner
By: /s/ J. David Huber
-------------------------------------------
Executive Vice President
10
<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, Institutional Shares and Service Shares
Emerald Treasury Fund - Retail Shares, Institutional Shares and Service Shares
Emerald Tax-Exempt Fund - Retail Shares, Institutional Shares and Service Shares
Emerald Treasury Trust Fund - Institutional Shares
Emerald Prime Trust Fund - Institutional 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's 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's 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 30 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: April 1, 1996
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: /s/ John G. Grimsley
----------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
BY: BISYS FUND SERVICES, INC.,
GENERAL PARTNER
By: /s/ J. David Huber
---------------------------
<PAGE>
I. ADMINISTRATION & COMPLIANCE SERVICE STANDARDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERVICE PROPOSED STANDARDS
- -------------------------------------------------------------------------------------------------
A. CLIENT SERVICES
- -------------------------------------------------------------------------------------------------
<S> <C>
Project status reports; to include summary of -Twice monthly; by 1st and 15th of each
all projects-in-progress; in all BISYS service month
areas (Fund Accounting, Transfer Agency,
Administration & Compliance), plus
financial updates.
- -------------------------------------------------------------------------------------------------
In-person project status meetings with - minimum of once per month; date/
Barnett; in Jacksonville or other time TBD by Barnett; additional meetings to
Barnett-determined location be scheduled on as-needed basis
- --------------------------------------------------------------------------------------------------
Coordination of quarterly Board meetings, -formal review of agenda with Barnett and
including preparation of Fund Counsel 3 weeks prior to meeting
Administrator/Distributor Reports -forward draft of Administrator/Distributor
Reports to Barnett 14 days prior to meeting
- forward Administrator/Distributor Reports
to Trustees 7 days prior to meeting
- -------------------------------------------------------------------------------------------------
Annual Business Plan; develop annual plan - timing TBD by Barnett (generally during
covering business objectives, marketing 4th Quarter)
objectives and strategies.
- -------------------------------------------------------------------------------------------------
Review of BISYS performance against - monthly summary report
service standards - formal review annually
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
I. ADMINISTRATION & COMPLIANCE SERVICE STANDARDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERVICE PROPOSED STANDARD
- --------------------------------------
B. COMPLIANCE
- -------------------------------------------------------------------------------------------------
<S> <C>
Prepare and file Rule 24f-2 Notice to Annual requirement within 60 days after
S.E.C. fiscal year end.
- -------------------------------------------------------------------------------------------------
Review and file Form N-SAR Semi-annual requirement, to S.E.C. 60 days after
fiscal year annual-, semi-annual period end.
- -------------------------------------------------------------------------------------------------
File Annual and Semi-Annual Reports to Final documents filed with S.E.C. 10 days
Shareholders after 60 day period following fiscal
year annual-, semi-annual period end.
- -------------------------------------------------------------------------------------------------
Review and coordinate Counsel's filing At least annually, not later than four
of Fund Prospectuses; supervise months following fiscal year end;
printing and distribution (more depending on Fund activity)
- -------------------------------------------------------------------------------------------------
Review and File Form 1120-RIC Tax Due 75 days after tax year end (unless 6
Return (prepared by Auditors) month extension filed, Form 7004)
- -------------------------------------------------------------------------------------------------
Monthly Compliance Check: BISYS Completed monthly by 10th business day:
verifies certain SEC, IRS and Fund- - Barnett advised immediately of any
specific compliance tests against significant discrepancies
fund accounting reports; IRS short-short - reported quarterly to Board
test is checked; IRS quarterly at regular Board meetings
diversification checks
- -------------------------------------------------------------------------------------------------
Provide annual compliance training to Fund Annually; time and location TBD by Barnett.
portfolio managers and Barnett compliance
staff
- -------------------------------------------------------------------------------------------------
Massachusetts business statement report Annual requirement, filed with state by May 31
- -------------------------------------------------------------------------------------------------
Review D&O, E&O insurance coverage Annually
- -------------------------------------------------------------------------------------------------
Circulate Code of Ethics reporting forms Before each calendar quarter
- -------------------------------------------------------------------------------------------------
17g-1 Fidelity Bond filings As required by SEC regulations
- -------------------------------------------------------------------------------------------------
Coordinate the filing and payment of state, Within applicable time periods
local and foreign tax returns and taxes,
if any
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
I. ADMINISTRATION & COMPLIANCE STANDARDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERVICE PROPOSED STANDARD
- -------------------------------------------------------------------------------------------------
C. BLUE SKY
- -------------------------------------------------------------------------------------------------
<S> <C>
Annual renewal filings Renewals mailed 30 days prior to expiration
- -------------------------------------------------------------------------------------------------
Filings of Prospectus, SAI, Annual Reports, Mailed within 15 business days of printing/release
Supplements
- -------------------------------------------------------------------------------------------------
Sales reports (for states requiring) Mailed 10 days prior to expiration
- -------------------------------------------------------------------------------------------------
Initial registrations Must be filed in States 60 days prior to
SEC Effective date
- -------------------------------------------------------------------------------------------------
Responses to State comment letters Responses sent to Barnett, Fund Counsel
within 10 business days of receiving comment letter
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
III. ACCOUNTING SERVICE STANDARDS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SERVICE PROPOSED STANDARDS
- ---------------------------------------------------------------------------------------------------
<S> <C>
FUND ACCOUNTING:
- ---------------------------------------------------------------------------------------------------
NASDAQ input Daily, by 5:40 PM; NASDAQ deadlines
met 99%/minimum; all exceptions reported
to Barnett by 9:00 AM following day
- ---------------------------------------------------------------------------------------------------
Custodial reconciliations Weekly, by Friday for the previous week
- ---------------------------------------------------------------------------------------------------
Account reconciliations Monthly, by 15th business day
- ---------------------------------------------------------------------------------------------------
Provide daily dividend factors Daily; variable NAV Funds by
6:00 p.m., Money Markets by 4:00 PM
- ---------------------------------------------------------------------------------------------------
Money market mark-to-market Calculated daily, priced weekly
- ---------------------------------------------------------------------------------------------------
FUND REPORTING:
- ---------------------------------------------------------------------------------------------------
Monthly financial statements Monthly, by 15th business day
- ----------------------------------------------------------------------------------------------------
Total return & distribution rate Monthly, by 5th business day
reports
- ---------------------------------------------------------------------------------------------------
Monthly broker-dealer performance Monthly, mailed by 10th business day
reports
- ---------------------------------------------------------------------------------------------------
Financial statements, N-SAR Semi-annually; to Barnett 45 days after
close of period; file 60 days after
close of period
- ---------------------------------------------------------------------------------------------------
Pricing service audit - Perform monthly; report any exceptions
to Barnett by end of month
- Report to Board quarterly
- ---------------------------------------------------------------------------------------------------
Exhibit 16 to Form N-1A Registration As needed
Statement & 4-6 month financials
- ---------------------------------------------------------------------------------------------------
Quarterly Financial Highlights report Quarterly, delivered to Barnett 14 days
for Board meetings prior to Board meeting; to Board 7 days prior
- ---------------------------------------------------------------------------------------------------
Portfolio Manager distribution/ Monthly, by 20th of month
yield reports
- ---------------------------------------------------------------------------------------------------
Government Bond Fund paydown loss Review and report monthly; adjust
report quarterly, 5 business days prior to
quarter end
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SERVICE PROPOSED STANDARDS
- -------------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL CONTROL:
- ------------------------------------------------------------------------------------------------
Expense analysis & accruals Monthly, by 20th business day
- ------------------------------------------------------------------------------------------------
Bill payment Within 30 days of receipt
- ------------------------------------------------------------------------------------------------
Pay Investment Advisory fees Monthly, by first business day
- ------------------------------------------------------------------------------------------------
Process 12b-1 payments to all Monthly, by 12th business day
broker-dealers
- -----------------------------------------------------------------------------------------------
Calculate Rule 24f-2 expense Annually, complete 45 days following year-end,
for filing within 60 days of year-end
- -----------------------------------------------------------------------------------------------
Preparation of vendor 1099s Annually, complete by
January 24 for filing by January 31
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TRANSFER AGENCY AGREEMENT
AGREEMENT made this 20th day of May, 1996, between EMERALD FUNDS (the
"Trust"), a Massachusetts business trust 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 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").
2
<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
March 31, 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 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
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 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
(a) the fees payable to BISYS hereunder for the lesser of (i) the one-year
period commencing on the date upon which BISYS is replaced or such third
party is added or (ii) the remainder of such initial term, 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 such one-year period or the remainder of such initial term
plus (b) the amount of all of BISYS' out-of-pocket cash disbursements to
unaffiliated persons for services in connection with BISYS' activities in
effecting the replacement of BISYS or the addition of a third party to
provide transfer agency services (including, without limitation, the delivery
of Trust documents and other property or any copies thereof).
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.
4
<PAGE>
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
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
5
<PAGE>
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.
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. In addition, as part of
its duties hereunder and under the Schedules hereto, BISYS shall maintain and
keep the records that are described in any cash management agreement between
the Trust and The Bank of New York ("BONY") and that are provided by BONY to
BISYS. 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.
6
<PAGE>
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,
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
7
<PAGE>
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 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
8
<PAGE>
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;
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.
9
<PAGE>
(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.
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,
10
<PAGE>
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.
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 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 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.
11
<PAGE>
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, 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:________________________________
12
<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, Institutional Shares and Service Shares
Emerald Treasury Fund - Retail Shares, Institutional Shares and Service Shares
Emerald Tax-Exempt Fund - Retail Shares, Institutional Shares and Service
Shares
Emerald Treasury Trust Fund - Institutional Shares
Emerald Prime Trust Fund - Institutional 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 page
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 30 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>
EMERALD FUNDS
TRANSFER AGENCY SERVICE STANDARDS
<TABLE>
<CAPTION>
SERVICE STANDARDS UNDER NEW STANDARDS
PRIOR AGREEMENT
- --------------------- --------------------------------- ---------------
<S> <C> <C> <C>
PROCESSING QUALITY: EMERALD INDUSTRY 1
New Account Setup 98.5% 98% 99%
Financial Transactions
(Purchases, Redemptions, 98.5% 98% 99%
Transfers, Exchanges)
PROCESSING TURNAROUND:
New Account Setup 24 hours Same Day Same Day
Financial Transactions
(Purchases, Redemptions, 24 hours Same Day Same Day
Transfers, Exchanges)
Account Maintenance 72 hours 2-3 days 72 hours
Research 72 hours 2-3 days 72 hours
TELEPHONE SERVICES
(SHAREHOLDER, BROKER)
Response Standard 85% in 20 78% in 20 90% within 20 seconds
seconds or seconds or
less less
Average Response Time 13 seconds NA 12 seconds
Abandon Rate N/A 2.5% 2.0%
MAILING:
Daily Confirmations, Within 2 Day after Day after transaction
Dividend Checks days of transaction
transaction
Monthly Statements Within 2 NA By 5th business day of
days of month
scheduled
date
</TABLE>
1-Source: ICI- "The Service Quality Challenge" 1994
2
<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.
1
<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>
AMENDMENT
AMENDMENT made as of May 20, 1996 between Emerald Funds, a
Massachusetts business trust (the "Fund") and The Bank of New York (the "Bank")
to that certain Cash Management and Related Services Agreement between the Fund
and the Bank dated as of January 3, 1994 (the "Agreement").
W I T N E S E T H:
That in consideration of the mutual agreements and covenants herein
contained, the Bank and the Fund hereby agree as follows:
1. Article I of the Agreement is hereby amended by adding the
following defined terms:
"'Account' shall mean an account registered in the name of a
Series for receiving and disbursing money as provided in this
Agreement.
'Omnibus Account' shall mean an account at the Bank for the
benefit of the Fund into which money (A) to be deposited into an
Account is initially credited pending its transfer to such Account
pursuant to Article III hereof, or (B) transferred from an Account
pursuant to Article III is deposited pending its disbursement pursuant
to Article III."
2. Article I of the Agreement is hereby further amended by deleting
the words "Emerald Shares or Emerald Service Shares" in the definition of
"Shares" and adding in place thereof the words: "shares of a Series".
3. Section 3 of Article II of the Agreement is hereby amended by
adding the following as a continuation of the first sentence: "or the Fund's
utilization of an Omnibus Account".
4. Section 2 of Article III of the Agreement is hereby amended by
adding the following sentence as the second sentence of the unnumbered paragraph
immediately succeeding subsection (vi):
"If an Omnibus Account has been established for the Fund,
such money shall be initially credited to the
<PAGE>
Omnibus Account pending its allocation to, and deposit in, an Account."
5. Section 2 of Article III of the Agreement is hereby further
amended by adding in the last sentence the words "or an Omnibus Account"
immediately after the words "credits previously made to an Account" and
immediately before the words "where money is not finally collected".
6. Section 3 of Article III of the Agreement is hereby amended by
adding the following as a continuation of the first sentence:
"or in payment of drafts drawn by an Authorized Person or
Shareholder (as appropriate for the particular Account or Omnibus
Account), subject to the terms hereof."
7. Section 3 of Article III of the Agreement is hereby further
amended by adding the following new sentence after the second sentence thereof:
"If an Omnibus Account has been established for the Fund, such
money shall be credited to an Omnibus Account pending such
disbursement."
8. Section 3 of Article III of the Agreement is hereby still further
amended by adding in the fourth sentence the words "or an Omnibus Account"
immediately after the words "money credited to an Account" and immediately
before the words "under this Agreement".
9. Article III of the Agreement is hereby amended by adding new
Sections 4 and 5 to read as follows:
"4. REDEMPTION DRAFTS: SHAREHOLDER INFORMATION. (a) The
Fund shall be entitled to supply its Shareholders with redemption
drafts, but only in a form and substance agreed to by the Bank. The
Bank agrees to give each Fund sixty (60) days prior notice of any
changes to the form or substance of redemption drafts required by the
Bank, provided that if such change is required by applicable rules or
procedures of the Federal Reserve or any clearinghouse through which
such drafts may be presented, the Bank may give less than sixty (60)
days prior notice of such change.
(b) The Fund will promptly furnish to the Bank speciman
signatures for all individuals authorized to draw redemption drafts
(whether on their behalf or on behalf of third parties). The Fund
will promptly advise the Bank of individuals no longer authorized to
-2-
<PAGE>
draw redemption drafts, and those individuals newly authorized. Such
information shall be provided to the Bank in a mutually agreed upon format.
5. REDEMPTION DRAFT RETURNS. The Fund may give the Bank
Oral or Written Instructions from time to time to return unpaid
redemption drafts of the Fund to the presenting financial institution
for any reason, and the Bank shall use reasonable efforts to comply
with such Oral or Written Instructions provided that such compliance
would not prejudice or impair any rights or privileges of the Bank
under prevailing draft return procedures and would not be contrary to
prevailing industry rules, procedures, customs or practices.
Notwithstanding the foregoing, or any other provisions in this
Agreement or the Schedules hereto, the Bank (i) may return redemption
drafts with unauthorized or missing signatures to the presenting
financial institution in accordance with prevailing banking industry
draft return procedures, and (ii) shall have no obligation to request
Oral or Written Instructions from the Fund with respect to any
redemption drafts."
10. The text of Article IV of the Agreement is hereby amended to read
in its entirety as follows:
"If the Bank in its sole discretion advances funds in connection
with this Agreement, or if there shall arise for whatever reason an
overdraft or other indebtedness in connection with any Account or an
Omnibus Account, such advancement of funds or overdraft with respect
to such Account or Omnibus Account shall be deemed a loan made by the
Bank to the Series to which such Account relates, or in the case of an
Omnibus Account, to which such advance, overdraft, or indebtedness
relates, payable on demand, and bearing interest from the date
incurred at the Overdraft Rate, such Overdraft Rate to be adjusted on
the effective date of any change in the prime commercial lending rate
constituting a part thereof. In the event of any advance, overdraft
or other indebtedness in connection with an Omnibus Account, the Bank
shall be furnished promptly (and in any event by 12:00 p.m. on the
next Business Day after such advance, overdraft, or indebtedness) with
Written Instructions identifying each Series to which such advance,
overdraft or indebtedness relates, and the amount allocable to each
such Series. The Fund hereby agrees with respect to the Account(s)
and any Omnibus Account, and any such advancement of funds, overdraft
or indebtedness that the Bank shall have a continuing lien and
security interest in and to any property at any time held by it for
the benefit of the Fund that is
-3-
<PAGE>
specifically allocated to the Series to which such Account relates, or in
the case of an Omnibus Account, to which such advance, overdraft or
indebtedness relates, either hereunder or under the Fund's Custody
Agreement with the Bank, or in which such Series may have an interest which
is then in the Bank's possession or control or in the possession or control
of any third party acting in the Bank's behalf, including in its behalf as
Custodian under the Fund's Custody Agreement with the Bank, provided such
lien and security interest shall from time to time be limited to that
property whose value from time to time does not exceed the amount of such
outstanding advancement of funds, overdraft, or indebtedness with respect
to a Series, together with interest due thereon at the Overdraft Rate,
against any balance of account standing to the Fund's credit that is
specifically allocated to such Series on the books of the Bank, including
those books maintained by the Bank in its capacity as Custodian for the
Fund under its Custody Agreement with the Fund. In addition, the Fund
hereby covenants that on each Business Day on which it either intends to
enter a reverse repurchase agreement and/or borrow from a third party, or
which next succeeds a Business Day on which at the close of business the
Fund had outstanding a reverse repurchase agreement or such a borrowing, it
shall prior to 9:00 a.m (New York City time) advise the Bank, in writing,
of each such borrowing, shall specify the Series to which the same relates,
and shall not incur any indebtedness not so specified other than from the
Bank."
11. Subsection (b) of Section 4 of Article VI of the Agreement is
hereby amended by adding the words "or any Omnibus Account" twice, first,
immediately after the words "deposited in any Account," and, immediately before
the words "or whether such endorsement" and, second, immediately after the words
"deposit in any Account" and, immediately before the words "pursuant to Oral or
Written Instructions".
12. Subsection (e) of Section 4 of Article VI of the Agreement is
hereby amended by adding the following as a continuation of the clause: "other
than a stop payment order placed by a Fund on a draft drawn by such Fund on its
Account or an Omnibus Account".
13. Subsection (f) of Section 4 of Article VI of the Agreement is
hereby amended by deleting the word "or" at the end and adding after the words
"any Account" the words "or any Omnibus Account".
-4-
<PAGE>
14. Section 4 of Article VI of the Agreement is hereby further
amended by adding the following new subsections:
"(h) any determination of the Share balance of any Shareholder
whose name is signed on any redemption draft;
(i) any determination of the length of time any Shares have been
owned by any Shareholder or the method of payment utilized to purchase
such Shares by such Shareholder; or
(j) whether any redemption draft equals or exceeds any minimum
amount."
15. Subsection (b) of Section 10 of Article VI of the Agreement is
hereby amended by adding the words "or an Omnibus Account" immediately after the
words "charge against the Accounts" and immediately before the words "the
amounts so specified"
16. Section 15 of Article VIII of the Agreement is hereby amended by
renumbering clause (ii) in the first sentence as clause (iii), and adding as a
new clause (ii) the following: "the payment of redemption drafts written by
Shareholders of the Fund;".
17. Section 15 of Article VIII of the Agreement is hereby further
amended by adding in the second sentence the words "or an Omnibus Account"
immediately after the words "money credited to an Account" and immediately
before the words "for any purpose".
18. Section 15 of Article VIII of the Agreement is hereby still
further amended by adding in the last sentence of the Agreement the words "or an
Omnibus Account" immediately after the words "net proceeds in the Account" and
immediately before the words "that are payable to the Fund".
19. Article VIII of the Agreement is hereby further amended by the
addition of a new Section 17 to read as follows:
"17. ALLOCATION. The Fund understands that the Bank may pay
Calendar Month Earnings Credits with respect to an Omnibus Account as
mutually agreed upon by the Bank and the Fund, and the Fund
acknowledges it is its responsibility to allocate such Calendar Month
Earnings Credits among and between the various Series."
-5-
<PAGE>
20. The list of Series on Schedule A to the Agreement is hereby
amended to read in its entirety as follows:
Emerald Prime Fund
Emerald Treasury Fund
Emerald Tax-Exempt Fund
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 Florida Tax-Exempt Value Fund
Emerald Equity Value Fund
Emerald International Equity Fund
Emerald Prime Trust Fund
Emerald Treasury Trust Fund
IN WITNESS WHEREOF the parties hereto have caused this Amended to be
executed by their respective corporate officers, thereunto duly authorized, as
of the day and year first above written.
EMERALD FUNDS
By:
--------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
--------------------------
Name:
Title:
-6-
<PAGE>
FUND ACCOUNTING AGREEMENT
AGREEMENT made this 1st day of June, 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
April 1, 1996, 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
4
<PAGE>
BISYS to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to Section
l(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
March 31, 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. 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 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 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
6
<PAGE>
property of the Trust and to make such books and records available for
inspection by the Trust, the Trust's authorized 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 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.
8
<PAGE>
15. INFORMATION TO BE FURNISHED BY THE ADMINISTRATOR.
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
10
<PAGE>
accordance with the laws of the State of Ohio.
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: /s/
------------------------------------
BISYS FUND SERVICES, INC.
By: /s/J.David Huber
------------------------------------
J. David Huber
11
<PAGE>
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
BISYS FUND SERVICES, INC.
SERVICE STANDARDS
BISYS has agreed to perform the services described in this Agreement in
accordance with the service standards set forth in this Schedule A. 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 any failure to raise for a period of at least 30 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 herein 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>
ACCOUNTING SERVICE STANDARDS
- -------------------------------------------------------------------------------
SERVICE STANDARDS
- -------------------------------------------------------------------------------
FUND ACCOUNTING:
- -------------------------------------------------------------------------------
NASDAQ input Daily, by 5:40 PM; NASDAQ deadlines met
99%/minimum; all exceptions reported to
Barnett by 9:00 AM following day
- -------------------------------------------------------------------------------
Custodial reconciliations Weekly, by Friday for the previous week
- -------------------------------------------------------------------------------
Account reconciliations Monthly, by 15th business day
- -------------------------------------------------------------------------------
Provide daily dividend factors Daily; variable NAV Funds by 6:00 p.m.,
Money Markets by 4:00 PM
- -------------------------------------------------------------------------------
Money market mark-to-market Calculated daily, priced weekly
- -------------------------------------------------------------------------------
FUND REPORTING:
- -------------------------------------------------------------------------------
Monthly financial statements Monthly, by 15th business day
- -------------------------------------------------------------------------------
Total return & distribution rate Monthly, by 5th business day
reports
- -------------------------------------------------------------------------------
Monthly broker-dealer performance Monthly, mailed by 10th business day
reports
- -------------------------------------------------------------------------------
Financial statements, N-SAR Semi-annually; to Barnett 45 days after
close of period; file 60 days after
close of period
- -------------------------------------------------------------------------------
Pricing service audit -Perform monthly; report any exceptions
to Barnett by end of month
-Report to Board quarterly
- -------------------------------------------------------------------------------
Exhibit 16 to Form N-1A As needed
Registration Statement & 4-6 month
financials
- -------------------------------------------------------------------------------
Quarterly Financial Highlights report Quarterly, delivered to Barnett 14 days
for Board meetings prior to Board meeting; to Board 7 days
prior
- -------------------------------------------------------------------------------
Portfolio Manager distribution/yield Monthly, by 20th of month
reports
- -------------------------------------------------------------------------------
Government Bond Fund paydown loss Review and report monthly; adjust
report quarterly, 5 business days prior to
quarter end
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2
<PAGE>
- -------------------------------------------------------------------------------
SERVICE STANDARDS
- -------------------------------------------------------------------------------
FINANCIAL CONTROL:
- -------------------------------------------------------------------------------
Expense analysis & accruals Monthly, by 20th business day
- -------------------------------------------------------------------------------
Bill payment Within 30 days of receipt
- -------------------------------------------------------------------------------
Pay Investment Advisory fees Monthly, by first business day
- -------------------------------------------------------------------------------
Process 12b-1 payments to all Monthly, by 12th business day
broker-dealers
- -------------------------------------------------------------------------------
Calculate Rule 24f-2 expense Annually, complete 45 days following
year-end, for filing within 60 days of
year-end
- -------------------------------------------------------------------------------
Preparation of vendor 1099s Annually, complete by January 24 for
filing by January 31
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3
<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.
18 so the registration statement on Form N-1A (the "Registration Statement")
of our reports 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 Florida
Tax-Exempt Fund, Emerald Prime Fund, Emerald Treasury Fund, Emerald
Tax-Exempt Fund, Emerald Treasury Trust Fund and Emerald Prime Trust Fund
(twelve of the portfolios constituting the Emerald Funds), which are 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.
/s/ Price Waterhouse, LLP
- -------------------------
Price Waterhouse LLP
New York, New York
June 26, 1996
<PAGE>
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 Statements of Additional Information
that are included in Post-Effective Amendment No. 18 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.
/s/DRINKER BIDDLE & REATH
--------------------------
Drinker Biddle & Reath
Philadelphia, Pennsylvania
June 28, 1994
<PAGE>
EMERALD FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO LOAD CALCULATIONS
EMERALD EQUITY VALUE FUND
Retail Shares
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
-------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 12/27/95 TO 05/31/96 ):
( 1,094.2 /1,000) - 1 = 9.42%
YEAR TO DATE: ( 01/01/96 TO 05/31/96 ):
( 1,086.0 /1,000) - 1 = 8.60%
QUARTERLY: ( 03/01/96 TO 05/31/96 ):
( 1,040.1 /1,000) - 1 = 4.01%
MONTHLY: ( 05/01/96 TO 05/31/96 ):
( 1,005.5 /1,000) - 1 = 0.55%
<PAGE>
EMERALD FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO LOAD CALCULATIONS
EMERALD EQUITY VALUE FUND
Institutional Shares
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
-------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 12/27/95 TO 05/31/96 ):
( 1,094.2 /1,000) - 1 = 9.42%
YEAR TO DATE: ( 01/01/96 TO 05/31/96 ):
( 1,086.0 /1,000) - 1 = 8.60%
QUARTERLY: ( 03/01/96 TO 05/31/96 ):
( 1,040.1 /1,000) - 1 = 4.01%
MONTHLY: ( 05/01/96 TO 05/31/96 ):
( 1,005.5 /1,000) - 1 = 0.55%
<PAGE>
EMERALD FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO LOAD CALCULATIONS
EMERALD INTERNATIONAL EQUITY FUND
Retail Shares
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
-------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 12/27/95 TO 05/31/96 ):
( 1,065.6 /1,000) - 1 = 6.56%
YEAR TO DATE: ( 01/01/96 TO 05/31/96 ):
( 1,071.4 /1,000) - 1 = 7.14%
QUARTERLY: ( 03/01/96 TO 05/31/96 ):
( 1,057.6 /1,000) - 1 = 5.76%
MONTHLY: ( 05/01/96 TO 05/31/96 ):
( 992.6 /1,000) - 1 = -0.75%
<PAGE>
EMERALD FUNDS
EXHIBIT 16
TOTAL RETURN
VARIABLE FUNDS
NO LOAD CALCULATIONS
EMERALD INTERNATIONAL EQUITY FUND
Institutional Shares
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
-------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 12/27/95 TO 05/31/96 ):
( 1,065.6 /1,000) - 1 = 6.56%
YEAR TO DATE: ( 01/01/96 TO 05/31/96 ):
( 1,071.4 /1,000) - 1 = 7.14%
QUARTERLY: ( 03/01/96 TO 05/31/96 ):
( 1,057.6 /1,000) - 1 = 5.76%
MONTHLY: ( 05/01/96 TO 05/31/96 ):
( 992.6 /1,000) - 1 = -0.75%
<PAGE>
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, Institutional Shares and 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, Institutional Shares and 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 (i)
<PAGE>
expenses assessed to Service Shares pursuant to a Shareholder Processing and
Service Plan (the "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 Service Shares shall vote
separately on matters which pertain to the Service Plan, and (ii) the Retail
Shares shall vote separately on matters which pertain to the 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.
SERVICE SHARES
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 Service Plan to their customers
who are the beneficial owners of the Service Shares. Service Shares shall be
offered without a sales charge. Service Shares shall be subject to a fee
payable pursuant to the 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 Service Shares.
- 2 -
<PAGE>
INSTITUTIONAL SHARES
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. 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 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.
INSTITUTIONAL SHARES
The Company shall not initially offer holders of Institutional Shares
an exchange privilege, except that holders of 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.
SERVICE SHARES
The Company shall not initially offer holders of Service Shares an
exchange privilege.
D. CONVERSION FEATURES
The Company shall not initially offer a conversion feature to holders
of Retail, Institutional or 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.
INSTITUTIONAL SHARES
The Company shall not initially make IRAs available to holders of
Institutional Shares.
SERVICE SHARES
The Company shall not initially make IRAs available to holders of
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.
INSTITUTIONAL SHARES
The Company shall not initially offer an e-z matic investment plan to
holders of Institutional Shares.
SERVICE SHARES
The Company shall not initially offer an e-z matic investment plan to
holders of 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.
INSTITUTIONAL SHARES
The Company shall not initially offer an automatic withdrawal plan to
holders of Institutional Shares.
- 4 -
<PAGE>
SERVICE SHARES
The Company shall not initially offer an automatic withdrawal plan to
holders of 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.
INSTITUTIONAL SHARES
The Company shall not initially offer a periodic investment plan to
holders of Institutional Shares.
SERVICE SHARES
The Company shall not initially offer a periodic investment plan to
holders of 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 1, 1996)
- 5 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 141
<NAME> EQUITY VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 2010750
<INVESTMENTS-AT-VALUE> 2174558
<RECEIVABLES> 7425
<ASSETS-OTHER> 38443
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2220426
<PAYABLE-FOR-SECURITIES> 90
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57005
<TOTAL-LIABILITIES> 57095
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2001016
<SHARES-COMMON-STOCK> 101<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1493
<ACCUM-APPREC-OR-DEPREC> 163808
<NET-ASSETS> 2163331
<DIVIDEND-INCOME> 23646
<INTEREST-INCOME> 2199
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 25845
<REALIZED-GAINS-CURRENT> (1493)
<APPREC-INCREASE-CURRENT> 163808
<NET-CHANGE-FROM-OPS> 188160
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 100<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 1<F1>
<NET-CHANGE-IN-ASSETS> 2163331
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5400
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59583
<AVERAGE-NET-ASSETS> 1060<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .13<F1>
<PER-SHARE-GAIN-APPREC> .81<F1>
<PER-SHARE-DIVIDEND> .13<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.81<F1>
<EXPENSE-RATIO> .26<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Retail Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 142
<NAME> EQUITY VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 2010750
<INVESTMENTS-AT-VALUE> 2174558
<RECEIVABLES> 7425
<ASSETS-OTHER> 38443
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2220426
<PAYABLE-FOR-SECURITIES> 90
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57005
<TOTAL-LIABILITIES> 57095
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2001016
<SHARES-COMMON-STOCK> 200101<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1493
<ACCUM-APPREC-OR-DEPREC> 163808
<NET-ASSETS> 2163331
<DIVIDEND-INCOME> 23646
<INTEREST-INCOME> 2199
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 25845
<REALIZED-GAINS-CURRENT> (1493)
<APPREC-INCREASE-CURRENT> 163808
<NET-CHANGE-FROM-OPS> 188160
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25832<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 200001<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 2163331
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5400
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59583
<AVERAGE-NET-ASSETS> 2111595<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .13<F1>
<PER-SHARE-GAIN-APPREC> .81<F1>
<PER-SHARE-DIVIDEND> .13<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.81<F1>
<EXPENSE-RATIO> .01<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Institutional Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 151
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 2023566
<INVESTMENTS-AT-VALUE> 2137557
<RECEIVABLES> 8163
<ASSETS-OTHER> 44061
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2189781
<PAYABLE-FOR-SECURITIES> 246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41722
<TOTAL-LIABILITIES> 41968
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2031217
<SHARES-COMMON-STOCK> 100<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2604
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 113992
<NET-ASSETS> 2147813
<DIVIDEND-INCOME> 13874
<INTEREST-INCOME> 2495
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 16369
<REALIZED-GAINS-CURRENT> 2604
<APPREC-INCREASE-CURRENT> 113991
<NET-CHANGE-FROM-OPS> 132964
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 100<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 2148975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8794
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64954
<AVERAGE-NET-ASSETS> 1024<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .08<F1>
<PER-SHARE-GAIN-APPREC> .58<F1>
<PER-SHARE-DIVIDEND> .01<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.65<F1>
<EXPENSE-RATIO> .26<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Retail Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 152
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 2023566
<INVESTMENTS-AT-VALUE> 2137557
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2189781
<PAYABLE-FOR-SECURITIES> 246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41722
<TOTAL-LIABILITIES> 41968
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2031217
<SHARES-COMMON-STOCK> 201510<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2604
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 113992
<NET-ASSETS> 2147813
<DIVIDEND-INCOME> 13874
<INTEREST-INCOME> 2495
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 16369
<REALIZED-GAINS-CURRENT> 2604
<APPREC-INCREASE-CURRENT> 113991
<NET-CHANGE-FROM-OPS> 132964
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1162<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 201510<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 2148975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8794
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64954
<AVERAGE-NET-ASSETS> 2063286<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .09<F1>
<PER-SHARE-GAIN-APPREC> .57<F1>
<PER-SHARE-DIVIDEND> .01<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.65<F1>
<EXPENSE-RATIO> .01<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Institutional Share Class
</FN>
</TABLE>
