<PAGE>
As filed with the Securities and Exchange Commission
on March 31, 1997
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. 21 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 22 /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)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on __________________ pursuant to paragraph (b)
[ ] 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 for the fiscal year ended November 30, 1996 was filed on January 28,
1997.
<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, Florida Tax-Exempt Fund,
Prime Fund, Treasury Fund and Tax-Exempt Fund)
FORM N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
Form N-1A Item Number Prospectus Heading/Location
- --------------------- ---------------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . Summary of Expenses and Financial
Information - Expenses
3. Condensed Financial Summary of Expenses and Financial
Information . . . . . . . . Information - Financial Highlights; The
Business of the Funds - Measuring
Performance
4. General Description of Cover Page; Risk Factors, Investment
Registrant . . . . . . . . . Principles and Policies; Your Emerald
Fund Account - The Emerald Family of
Funds;
5. Management of the Investing in Emerald Funds - Your Money
Fund . . . . . . . . . . . . Manager; Investing in Emerald Funds -
Other Service Providers; The Business of
the Funds - Fund Management
5A. Management's Discussion Summary of Expenses and Financial
of Fund Performance . . . . Information - Financial Highlights
6. Capital Stock and Other Your Emerald Fund Account - The Emerald
Securities . . . . . . . . . Family of Funds; Investing in Emerald
Funds - If You Have Questions; Investing
in Emerald Funds -
<PAGE>
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 - Getting
Being Offered . . . . . . . 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>
PROSPECTUS
EMERALD FUNDS
RETAIL SHARES
April 1, 1997
-photo-
-photo-
-photo-
Logo: EMERALD
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
HIGHLIGHTS........................................................... 3
SUMMARY OF EXPENSES.................................................. 5
Expenses........................................................... 5
Financial Highlights............................................... 9
INVESTMENT PRINCIPLES AND POLICIES................................... 21
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS................... 27
INVESTING IN EMERALD FUNDS........................................... 38
Your Money Manager................................................. 38
Getting Your Investment Started.................................... 38
If You Have Questions.............................................. 39
Other Service Providers............................................ 40
How To Buy Shares.................................................. 41
Opening and Adding to Your Emerald Fund Account.................. 41
Explanation of Sales Price....................................... 44
How To Sell Shares................................................. 44
Transaction Rules.................................................. 46
YOUR EMERALD FUND ACCOUNT............................................ 48
Shareholder Services............................................... 48
Dividends And Distributions........................................ 49
Distribution and Service Arrangements.............................. 50
The Emerald Family Of Funds........................................ 51
THE BUSINESS OF THE FUNDS............................................ 52
Fund Management.................................................... 52
Tax Implications................................................... 54
Measuring Performance.............................................. 56
</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
Investments, Inc., please speak
directly with your assigned registered representative, or contact 800/535-6579
for assistance with your account.
<PAGE>
[LOGO]
April 1, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EMERALD FUND GOAL FOR INVESTORS WHO WANT
<S> <C> <C>
EQUITY Long-term capital appreciation through investments Capital appreciation over the long term and
primarily in high quality common stocks are willing to accept the relative risks
associated with equity investments
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation through investments Long-term capital appreciation and are
primarily in common and preferred stock and debt willing to accept the relative risks
securities convertible into common stock associated with investments in undervalued
stocks
- -------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital appreciation through investments Capital appreciation over the long-term and
primarily in equity securities of foreign issuers are willing to accept the relative risks
associated with foreign investments
- -------------------------------------------------------------------------------------------------------------------------------
SMALL Long-term capital appreciation Long-term rewards that may exceed those
CAPITALIZATION provided by a fund investing in larger, more
established companies and are willing to
accept the relative risks of smaller
companies
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED Attractive investment return through a combination of Asset allocation among equity securities,
growth of capital and current income fixed income securities and cash equivalents
in light of prevailing market and economic
conditions
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM Consistently positive current income with relative Current income greater than normally
FIXED INCOME stability of principal through investments in available from a money market fund and less
investment grade securities and high quality money principal volatility than normally associated
market instruments with a long-term fund
- -------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT Consistent positive income through investments Current income from U.S. Government
SECURITIES principally in U.S. Government securities and securities and can accept fluctuations in
repurchase agreements price and yield
- -------------------------------------------------------------------------------------------------------------------------------
MANAGED BOND High level of current income and, secondarily, capital Current income from corporate and government
appreciation securities and can accept fluctuations in
price and yield
- -------------------------------------------------------------------------------------------------------------------------------
FLORIDA High tax-free income and current liquidity and, Current income from an investment that is
TAX-EXEMPT secondarily, long- term capital appreciation both free from regular federal income tax and
Florida intangibles tax and has the
possibility of some price appreciation
- -------------------------------------------------------------------------------------------------------------------------------
PRIME High current income, liquidity and the preservation of A flexible and convenient way to manage cash
capital through investments in short-term money market while earning money market returns
instruments
- -------------------------------------------------------------------------------------------------------------------------------
TREASURY High current income, liquidity and the preservation of A way to earn money market returns with the
capital through investments in short-term U.S. extra margin of safety associated with U.S.
Treasury obligations, as well as related repurchase Treasury obligations
agreements
- -------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT High current income free of federal income tax, with A way to earn tax-free money market returns
liquidity and the preservation of 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, 1997 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 Bank, N.A. or any of its affiliates ("Barnett Bank") 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 Capital
Advisors, Inc. serves as investment adviser to the Funds, is paid a fee for its
services, and is not affiliated with Emerald Asset Management, Inc., the Funds'
distributor.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
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 Capital Advisors, Inc. ("Barnett"). Barnett is headquartered in
Florida with approximately $10 billion under active management. Brandes
Investment Partners, L.P. serves as sub-adviser to the Emerald International
Equity Fund. 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 Investments, Inc. They may also be purchased
directly through BISYS Fund Services, Inc. (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 and pay dividends quarterly, and the Small
Capitalization Fund and International Equity Fund declare and pay 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 Investments, 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% 0.75% 0.65% 0.55% 0.52%
----------- ----------- ----------- ----------- ------
Total Fund Operating Expenses
(After Expense Reimbursements)(1).............. 1.33% 1.60% 1.90% 1.80% 1.37%
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
</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).................... 0.45% 0.50% 0.45%
------ ------ -----------
Total Fund Operating Expenses
(After Expense Reimbursements)(1).................................. 1.10% 1.15% 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% 0.22% 0.24% 0.15%
12b-1 Fees............................................. 0.25% 0.25% 0.25% 0.25%
All Other Expenses (After Expense Reimbursements)...... 0.30% 0.48% 0.46% 0.48%
------ ----------- ------ ------
Total Fund Operating Expenses
(After Fee Waivers and Expense Reimbursements)(1).... 0.95% 0.95% 0.95%(2) 0.88%
------ ----------- ------ ------
------ ----------- ------ ------
</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 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 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 Equity Value,
International Equity, Short-Term Fixed Income, Managed Bond, Florida
Tax-Exempt, Prime, Treasury and Tax-Exempt Funds would be 30.02%, 4.20%,
1.44%, 2.30%, 1.12%, .98%, .97%, and .98%, 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.
(2) See "Financial Highlights" below for information about the additional
interest expense of 0.07% paid by the Treasury Fund on reverse repurchase
agreements during the last fiscal year.
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................................................ $16 $50 $ 87 $190
International Equity Fund........................................ $19 $60 $103 $222
Small Capitalization Fund........................................ $18 $57 $ 97 $212
Balanced Fund.................................................... $14 $43 $ 75 $165
Short-Term Fixed Income Fund..................................... $11 $35 $ 61 $134
U.S. Government Securities Fund.................................. $12 $37 $ 63 $140
Managed Bond Fund................................................ $11 $35 $ 61 $134
Florida Tax-Exempt Fund.......................................... $10 $30 $ 53 $117
Prime Fund....................................................... $10 $30 $ 53 $117
Treasury Fund.................................................... $10 $30 $ 53 $117
Tax-Exempt Fund.................................................. $ 9 $28 $ 49 $108
</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 FOR THE FISCAL PERIODS SHOWN, WHOSE UNQUALIFIED
REPORTS ON THE FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR EACH OF THE
FIVE YEARS IN THE PERIOD ENDED NOVEMBER 30, 1996, 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, 1996, WHICH MAY BE OBTAINED WITHOUT CHARGE
FROM THE DISTRIBUTOR.
EMERALD EQUITY FUND
Financial highlights for a Retail Share of the Equity Fund outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------- Period Ended
November 30, November 30, November 30, November November November 30,
1996(b)(d) 1995 1994 30, 1993 30, 1992 1991*
------------- ------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 14.62 $ 10.86 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------- ------------- ------------- ----------- ----------- -------------
Income from investment operations:
Net investment income (loss).... (0.01) 0.02 0.08 0.15 0.16 0.12
Net realized and unrealized gain
(loss) on securities.......... 3.01 3.76 (0.39) (0.08) 1.73 0.24
------------- ------------- ------------- ----------- ----------- -------------
Total income (loss) from
investment operations......... 3.00 3.78 (0.31) 0.07 1.89 0.36
------------- ------------- ------------- ----------- ----------- -------------
Less dividends and distributions:
Dividends from net investment
income........................ (0.00) (0.02) (0.08) (0.15) (0.16) (0.12)
Distributions in excess of net
investment income............. (0.02) (0.00) (0.00) (0.00) (0.00) (0.00)
Distributions from net realized
gains on securities........... (1.29) (0.00) (0.57) (0.07) (0.00) (0.00)
------------- ------------- ------------- ----------- ----------- -------------
Total dividends and
distributions................. (1.31) (0.02) (0.65) (0.22) (0.16) (0.12)
------------- ------------- ------------- ----------- ----------- -------------
Net change in net asset value..... (1.69) 3.76 (0.96) (0.15) 1.73 0.24
------------- ------------- ------------- ----------- ----------- -------------
NET ASSET VALUE, END OF PERIOD.... $ 16.31 $ 14.62 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------- ------------- ------------- ----------- ----------- -------------
------------- ------------- ------------- ----------- ----------- -------------
Total return...................... 22.66% 34.82% (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)........................ $ 33,177 $ 22,209 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to average net
assets........................ 1.27% 1.37% 1.07% 0.86% 0.76% 0.00%+
Ratio of net investment income
(loss) to average net
assets........................ (0.08%) 0.15% 0.36% 1.22% 1.41% 2.64%+
Ratio of expenses to average net
assets**...................... 1.28% (a) 1.29% 1.21% 1.18% 1.22%+
Ratio of net investment income
(loss) to average net
assets**...................... (0.09%) (a) 0.13% 0.87% 0.99% 1.42%+
Portfolio turnover.............. 89% 104% 113% 102% 40% 13%
Average commission rate
paid(c)....................... $ 0.0518 -- -- -- -- --
</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.
(b) On March 11, 1996, the Fund terminated its offering of Class B Shares under
the then-current sales load schedule and such shares converted to Retail
Shares without affecting the net asset value of the Retail Shares.
(c) Represents the total dollar amount of commissions paid on portfolio
transaction divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(d) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly-owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
9
<PAGE>
EMERALD EQUITY VALUE FUND
Financial highlights for a Retail Share of the Equity Value Fund outstanding
throughout the period indicated:
<TABLE>
<CAPTION>
Period Ended
November 30,
1996*(b)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $10.00
------------
Income from investment operations:
Net investment income................. 0.27
Net realized and unrealized gains on
securities.......................... 2.18
------------
Total income from investment
operations.......................... 2.45
------------
Less dividends and distributions:
Dividends from net investment
income.............................. (0.27)
------------
Net change in net asset value........... 2.18
------------
NET ASSET VALUE, END OF PERIOD.......... $12.18
------------
------------
Total return............................ 24.84%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $ 23
Ratio of expenses to average net
assets.............................. 0.00%+
Ratio of net investment income to
average net assets.................. 3.01%+
Ratio of expenses to average net
assets**............................ 277.68%+
Ratio of net investment loss to
average net assets**................ (274.67%)+
Portfolio turnover.................... 19%
Average commission rate paid(a)....... $0.0791
</TABLE>
- ------------
* For the period December 27, 1995 (commencement of operations) through
November 30, 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.
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly-owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
10
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
Financial highlights for a Retail Share of the International Equity Fund
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
Period
Ended
November
30,
1996*(b)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................................................. $ 10.00
-----------
Income from investment operations:
Net investment income........................................................................... 0.04
Net realized and unrealized gains on securities................................................. 1.31
-----------
Total income from investment operations......................................................... 1.35
-----------
Less dividends and distributions:
Dividends from net investment income............................................................ (0.04)
Distributions in excess of net investment income................................................ (0.02)
-----------
Total dividends and distributions............................................................... (0.06)
-----------
Net change in net asset value..................................................................... (1.29)
-----------
NET ASSET VALUE, END OF PERIOD.................................................................... $ 11.29
-----------
-----------
Total return...................................................................................... 13.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)................................................................ $ 115
Ratio of expenses to average net assets......................................................... 0.00%+
Ratio of net investment income to average net assets............................................ 1.83%+
Ratio of expenses to average net assets**....................................................... 57.40%+
Ratio of net investment loss to average net assets**............................................ (55.57%)+
Portfolio turnover.............................................................................. 50%
Average commission rate paid(a)................................................................. $ 0.0463
</TABLE>
- ------------
* For the period December 27, 1995 (commencement of operations) through
November 30, 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.
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly-owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser, and
effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's sub-investment adviser.
11
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for a Retail Share of the Small Capitalization Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
Year Ended
November Year Ended Period Ended
30, November 30, November 30,
1996(a)(c) 1995 1994*
----------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $ 12.77 $ 9.66 $ 10.49
----------- ------ ------
Income from investment operations:
Net investment loss............................................ (0.11) (0.04) (0.04)
Net realized and unrealized gains (losses) on securities....... 1.77 3.15 (0.79)
----------- ------ ------
Total income (loss) from investment operations................. 1.66 3.11 (0.83)
----------- ------ ------
Distribution from net realized gains on securities............... (1.00) (0.00) (0.00)
----------- ------ ------
Net change in net asset value.................................... 0.66 3.11 (0.83)
----------- ------ ------
NET ASSET VALUE, END OF PERIOD................................... $ 13.43 $ 12.77 $ 9.66
----------- ------ ------
----------- ------ ------
Total return..................................................... 13.83% 32.19% (7.91%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)............................... $ 9,490 $ 2,657 $ 1,583
Ratio of expenses to average net assets........................ 1.59% 1.54% 1.54%+
Ratio of net investment loss to average net assets............. (1.02%) (0.81%) (0.67%)+
Ratio of expenses to average net assets**...................... 1.70% 2.43% 2.50%+
Ratio of net investment loss to average net assets**........... (1.13%) (1.70%) (1.63%)+
Portfolio turnover............................................. 356% 229% 118%
Average commission rate paid(b)................................ $ 0.0420 -- --
</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.
(a) On March 11, 1996, the Fund terminated its offering of Class B Shares under
the then-current sales load schedule and such shares subsequently converted
to Retail Shares without affecting the net asset value of the Retail Shares.
(b) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(c) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
12
<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 Year Ended
November November Period Ended
30, 30, November 30,
1996(a)(c) 1995 1994*
----------- ----------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................ $ 12.02 $ 9.72 $ 10.00
----------- ----------- ------
Income from investment operations:
Net investment income............................................. 0.30 0.30 0.24
Net realized and unrealized gains (losses) on securities.......... 1.36 2.30 (0.28)
----------- ----------- ------
Total income (loss) from investment operations.................... 1.66 2.60 (0.04)
----------- ----------- ------
Less dividends and distributions:
Dividends from net investment income.............................. (0.31) (0.30) (0.22)
Distributions in excess of net investment income.................. (0.00) (0.00) (0.02)
Distributions from net realized gains on securities............... (0.22) (0.00) (0.00)
----------- ----------- ------
Total dividends and distributions................................. (0.53) (0.30) (0.24)
----------- ----------- ------
Net change in net asset value....................................... 1.13 2.30 (0.28)
----------- ----------- ------
NET ASSET VALUE, END OF PERIOD...................................... $ 13.15 $ 12.02 $ 9.72
----------- ----------- ------
----------- ----------- ------
Total return........................................................ 14.23% 27.45% (0.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................. $ 5,592 $ 1,082 $ 543
Ratio of expenses to average net assets........................... 1.06% 0.72% 0.68%+
Ratio of net investment income to average net assets.............. 2.02% 3.14% 3.70%+
Ratio of expenses to average net assets**......................... 1.35% 4.20% 2.50%+
Ratio of net investment income (loss) to average net assets**..... 1.73% (0.34%) 1.88%+
Portfolio turnover................................................ 106% 87% 33%
Average commission rate paid(b)................................... $ 0.0466 -- --
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) On March 11, 1996, the Fund terminated its offering of Class B Shares under
the then-current sales load schedule and such shares subsequently converted
to Retail Shares without affecting the net asset value of the Retail Shares.
(b) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(c) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
13
<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 Year Ended Period Ended
November 30, November 30, November 30,
1996(a)(b) 1995 1994*
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................. $ 10.14 $ 9.74 $ 10.00
------ ------ ------
Income from investment operations:
Net investment income........................................... 0.55 0.57 0.32
Net unrealized gains (losses) on securities..................... (0.04) 0.40 (0.26)
------ ------ ------
Total income (loss) from investment operations.................. (0.51) 0.97 0.06
------ ------ ------
Less dividends and distributions:
Dividends from net investment income............................ (0.55) (0.57) (0.32)
Dividends from net realized gains on securities................. (0.03) (0.00) (0.00)
------ ------ ------
Total dividends and distributions............................... (0.58) (0.57) (0.32)
------ ------ ------
Net change in net asset value..................................... (0.07) 0.40 (0.26)
------ ------ ------
NET ASSET VALUE, END OF PERIOD.................................... $ 10.07 $ 10.14 $ 9.74
------ ------ ------
------ ------ ------
Total return...................................................... 5.23% 10.25% 0.65%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)................................ $ 985 $ 343 $ 223
Ratio of expenses to average net assets......................... 0.80% 0.71% 0.67%+
Ratio of net investment income to average net assets............ 5.17% 5.72% 5.20%+
Ratio of expenses to average net assets**....................... 2.33% 9.10% 2.50%+
Ratio of net investment income (loss) to average net assets**... 3.64% (2.67%) 3.36%+
Portfolio turnover.............................................. 138% 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) On March 11, 1996, the Fund terminated its offering of Class B Shares under
the then-current sales load schedule and such shares subsequently converted
to Retail Shares without affecting the net asset value of the Retail Shares.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
14
<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, November 30, 30, November 30, November 30,
1996(b)(c) 1995 1994 1993 1992 1991*
------------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 10.39 $ 9.72 $ 10.79 $ 10.52 $ 10.46 $ 10.00
Income from investment operations:
Net investment income............. 0.61 0.64 0.58 0.66 0.77 0.27
Net realized and unrealized gains
(losses) on securities.......... (0.09) 0.67 (0.94) 0.41 0.12 0.46
------------- ------------- ------------- ----------- ------------- -------------
Total income (loss) from
investment operations........... 0.52 1.31 (0.36) 1.07 0.89 0.73
------------- ------------- ------------- ----------- ------------- -------------
Less dividends and distributions:
Dividends from net investment
income.......................... (0.61) (0.64) (0.58) (0.66) (0.77) (0.27)
Distributions in excess of net
investment income............... (0.00) (0.00) (0.01) (0.00) (0.00) (0.00)
Distributions from net realized
gains on securities............. (0.00) (0.00) (0.10) (0.14) (0.06) (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................... (0.61) (0.64) (0.71) (0.80) (0.83) (0.27)
------------- ------------- ------------- ----------- ------------- -------------
Net change in net asset value....... (0.09) 0.67 (1.07) 0.27 0.06 0.46
------------- ------------- ------------- ----------- ------------- -------------
NET ASSET VALUE, END OF PERIOD...... $ 10.30 $ 10.39 $ 9.72 $ 10.79 $ 10.52 $ 10.46
------------- ------------- ------------- ----------- ------------- -------------
------------- ------------- ------------- ----------- ------------- -------------
Total return........................ 5.24% 13.85% (3.45%) 10.40% 8.79% 7.34%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s).......................... $ 22,631 $ 26,912 $ 30,855 $ 145,328 $ 94,006 $ 34,693
Ratio of expenses to average net
assets.......................... 1.09% 1.27% 0.98% 0.64% 0.28% 0.00%+
Ratio of net investment income to
average net assets.............. 5.88% 7.02% 5.68% 5.91% 7.18% 7.88%+
Ratio of expenses to average net
assets**........................ 1.14% (a) 1.09% 1.06% 0.99% 1.47%+
Ratio of net investment income to
average net assets**............ 5.83% (a) 5.57% 5.49% 6.42% 6.41%+
Portfolio turnover................ 53% 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 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.
(b) On March 11, 1996, the Fund terminated its offering of Class B Shares under
the then-current sales load schedule and such shares converted to Retail
Shares without affecting the net asset value of the Retail Shares.
(c) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
15
<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, November 30,
1996(a)(b) 1995 1994*
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................ $ 10.59 $ 9.54 $ 10.00
------ ------ ------
Income from investment operations:
Net investment income............................................. 0.61 0.66 0.43
Net realized and unrealized gains (losses) on securities.......... (0.06) 1.05 (0.46)
------ ------ ------
Total income (loss) from investment operations.................... 0.55 1.71 (0.03)
------ ------ ------
Less dividends and distributions:
Dividends from net investment income.............................. (0.61) (0.66) (0.41)
Distributions in excess of net investment income.................. (0.00) (0.00) (0.02)
Distributions from net realized gains on securities............... (0.12) (0.00) (0.00)
------ ------ ------
Total dividends and distributions................................. (0.73) (0.66) (0.43)
------ ------ ------
Net change in net asset value....................................... (0.18) 1.05 (0.46)
------ ------ ------
NET ASSET VALUE, END OF PERIOD...................................... $ 10.41 $ 10.59 $ 9.54
------ ------ ------
------ ------ ------
Total return........................................................ 5.51% 18.47% (0.35)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................. $ 1,697 $ 820 $ 609
Ratio of expenses to average net assets........................... 0.91% 0.71% 0.65%+
Ratio of net investment income to average net assets.............. 5.35% 6.49% 6.29%+
Ratio of expenses to average net assets**......................... 1.59% 3.17% 2.50%+
Ratio of net investment income to average net assets**............ 4.67% 4.03% 4.44%+
Portfolio turnover................................................ 97% 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.
(a) On March 11, 1996, the Fund terminated its offering of Class B Shares under
the then-current sales load schedule and such shares subsequently converted
to Retail Shares without affecting the net asset value of the Retail Shares.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
16
<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, November 30, 30, 30, 30, November 30,
1996(b)(c) 1995 1994 1993 1992 1991*
------------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 11.09 $ 9.87 $ 11.33 $ 10.55 $ 10.14 $ 10.00
------------- ------------- ----------- ----------- ----------- -------------
Income from investment operations:
Net investment income............... 0.53 0.54 0.53 0.61 0.68 0.21
Net realized and unrealized gains
(loss) on securities.............. (0.03) 1.22 (1.37) 0.78 0.45 0.14
------------- ------------- ----------- ----------- ----------- -------------
Total income (loss) from investment
operations........................ 0.50 1.76 (0.84) 1.39 1.13 0.35
------------- ------------- ----------- ----------- ----------- -------------
Less dividends and distributions:
Dividends from net investment
income............................ (0.53) (0.54) (0.53) (0.61) (0.68) (0.21)
Distributions from net realized
gains on securities............... (0.00) (0.00) (0.09) (0.00) (0.04) (0.00)
------------- ------------- ----------- ----------- ----------- -------------
Total dividends and distributions... (0.53) (0.54) (0.62) (0.61) (0.72) (0.21)
------------- ------------- ----------- ----------- ----------- -------------
Net change in net asset value......... (0.03) 1.22 (1.46) 0.78 0.41 0.14
------------- ------------- ----------- ----------- ----------- -------------
NET ASSET VALUE, END OF PERIOD........ $ 11.06 $ 11.09 $ 9.87 $ 11.33 $ 10.55 $ 10.14
------------- ------------- ----------- ----------- ----------- -------------
------------- ------------- ----------- ----------- ----------- -------------
Total return.......................... 4.69% 18.17% (7.75%) 13.37% 11.51% 3.49%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 87,452 $ 94,017 $ 109,426 $ 207,764 $ 106,946 $ 10,589
Ratio of expenses to average net
assets............................ 0.92% 1.07% 0.96% 0.65% 0.25% 0.00%+
Ratio of net investment income to
average net assets................ 4.73% 5.08% 4.96% 5.32% 6.39% 6.40%+
Ratio of expenses to average net
assets**.......................... 1.06% (a) 1.04% 1.00% 1.21% 3.42%+
Ratio of net investment income to
average net assets**.............. 4.59% (a) 4.88% 4.97% 5.43% 2.98%+
Portfolio turnover.................. 152% 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 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.
(b) On March 11, 1996, the Fund terminated its offering of Class B Shares under
the then-current sales load schedule and such shares subsequently converted
to Retail Shares without affecting the net asset value of the Retail Shares.
(c) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
17
<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, November 30,
1996(b) 1995 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income.................. 0.0469 0.0515 0.0339 0.0266 0.0356 0.0181
Net realized gains (losses) on
securities........................... 0.0000 0.0002 (0.0028) (0.0001) 0.0001 0.0001
------------ ------------ ------------ ------------ ------------ ------------
Total income from investment
operations........................... 0.0469 0.0517 0.0311 0.0265 0.0357 0.0181
------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income... (0.0469) (0.0515) (0.0339) (0.0266) (0.0356) (0.0181)
Distributions from net realized gains
on securities........................ (0.0002) (0.0000) (0.0000) (0.0001) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------
Total dividends and distributions...... (0.0471) (0.0515) (0.0339) (0.0267) (0.0356) (0.0181)
------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital contribution........... 0.0000 0.0000 0.0029 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value............ (0.0002) 0.0002 0.0001 (0.0002) 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........... $ 1.0000 $ 1.0002 $ 1.0000 $ 0.9999 $1.0001 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................. 4.81% 5.27% 3.44% 2.70% 3.62% 1.82%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....... $557,093 $444,928 $208,714 $181,155 $96,730 $16,465
Ratio of expenses to average net
assets............................... 0.90% 0.90% 0.88% 0.86% 0.87% 0.90%+
Ratio of net investment income to
average net assets................... 4.67% 5.13% 3.40% 2.63% 3.33% 4.80%+
Ratio of expenses to average net
assets**............................. 0.98% 0.93% (a) (a) (a) 0.91%+
Ratio of net investment income to
average net assets**................. 4.59% 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 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
18
<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, November 30,
1996(b) 1995 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $0.9996 $0.9999 $1.0000 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 0.0447 0.0498 0.0316 0.0241 0.0318 0.0162
Net realized gains (losses) on
securities.......................... (0.0003) (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
Total income from investment
operations.......................... 0.0444 0.0495 0.0315 0.0241 0.0318 0.0162
------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment income.... (0.0447) (0.0498) (0.0316) (0.0241) (0.0318) (0.0162)
------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset value........... (0.0003) (0.0003) (0.0001) 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD.......... $0.9993 $0.9996 $0.9999 $1.0000 $1.0000 $1.0000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total return............................ 4.56% 5.10% 3.21% 2.44% 3.23% 1.63%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...... $42,939 $49,047 $32,444 $21,362 $3,762 $1,099
Ratio of operating expenses to average
net assets.......................... 0.90% 0.90% 0.90% 0.90% 0.88% 0.90%+
Ratio of interest expense to average
net assets.......................... 0.07%(c) 0.00% 0.00% 0.00% 0.00% 0.00%
------------ ------------ ------------ ------------ ------------ ------------
Ratio of total expenses to average net
assets.............................. 0.97% 0.90% 0.90% 0.90% 0.88% 0.90%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Ratio of net investment income to
average net assets.................. 4.48% 4.98% 3.13% 2.42% 3.12% 4.34%+
Ratio of operating expenses to average
net assets**........................ 0.95% 1.04% 1.00% (a) (a) 0.91%+
Ratio of interest expense to average
net assets.......................... 0.07%(c) 0.00% 0.00% (a) (a) 0.00%+
------------ ------------ ------------ ------------ ------------ ------------
Ratio of total expenses to average net
assets**............................ 1.02% 1.04% 1.00% (a) (a) 0.91%+
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Ratio of net investment income to
average net assets**................ 4.43% 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 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, reimbursements or interest expenses during the
period.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
(c) Represents interest expense on reverse repurchase agreements.
19
<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 November November November November November
30, 30, 30, 30, 30, 30,
1996(a) 1995 1994 1993 1992*** 1991*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9998
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income............... 0.0273 0.0305 0.0192 0.0164 0.0240 0.0126
Net realized and unrealized gains
(losses) on securities............ (0.0000) (0.0003) 0.0000 0.0001 0.0000 0.0000
----------- ----------- ----------- ----------- ----------- -----------
Total income from investment
operations........................ 0.0273 0.0302 0.0192 0.0165 0.0240 0.0126
----------- ----------- ----------- ----------- ----------- -----------
Dividends from net investment
income............................ (0.0273) (0.0305) (0.0192) (0.0164) (0.0240) (0.0126)
----------- ----------- ----------- ----------- ----------- -----------
Net change in net asset value......... 0.0000 (0.0003) 0.0000 0.0001 0.0000 0.0000
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD........ $ 0.9996 $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Total return.......................... 2.76% 3.09% 1.94% 1.65% 2.43% 0.96%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 47,145 $ 38,243 $ 38,123 $ 45,609 $ 16,477 $ 1,155
Ratio of expenses to average net
assets............................ 0.85% 0.90% 0.90% 0.90% 0.90% 0.87%+
Ratio of net investment income to
average net assets................ 2.71% 3.04% 1.90% 1.62% 2.21% 3.42%+
Ratio of expenses to average net
assets**.......................... 0.99% 1.15% 1.02% 1.06% 1.07% 0.97%+
Ratio of net investment income to
average net assets**.............. 2.57% 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 voluntarily 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.
(a) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly-owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
20
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PRINCIPLES AND POLICIES
- -----------------------
The Funds' investment adviser (the "Adviser") and, with respect to the
International Equity Fund and the Tax-Exempt Fund, the Fund's sub-adviser (the
"Sub-Advisers") use a range of different investments and investment techniques
in seeking to achieve a Fund's investment objective. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks, and which are also described in the following sections. You should
consider which Funds best meet your investment goals. The Adviser and
Sub-Advisers will use their best efforts to achieve a Fund's investment
objective, although its achievement cannot be assured. An investor should not
consider an investment in any Fund to be a complete investment program.
- -------------------------------
EQUITY FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY FUND IS
TO SEEK LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN COMMON STOCKS. THE FUND
SEEKS AS A SECONDARY OBJECTIVE POTENTIAL INCOME GROWTH THROUGH ITS INVESTMENTS.
The Fund invests primarily in high quality 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 also seeks to be well
diversified across many economic sectors. 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.) In managing the Fund, the Adviser generally seeks
securities of larger companies with market capitalizations exceeding $5 billion
at the time of purchase. "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"), European Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs"), 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. The Fund may also write covered call options.
- -------------------------------
EQUITY VALUE FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY VALUE
FUND IS TO SEEK LONG-TERM CAPITAL APPRECIATION.
ANY INCOME IS INCIDENTAL TO THIS OBJECTIVE. THE
FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN COMMON
STOCK, PREFERRED STOCK (INCLUDING CONVERTIBLE PREFERRED STOCK) AND DEBT
OBLIGATIONS CONVERTIBLE INTO COMMON STOCK THAT THE ADVISER BELIEVES TO BE
UNDERVALUED. The Fund also seeks to be well diversified across many economic
sectors.
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
21
<PAGE>
its total assets in foreign securities either directly or indirectly through
ADRs, EDRs and GDRs 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, INCLUDING EMERGING MARKETS COUNTRIES. 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, Argentina,
Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, the Czech
Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, India,
Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico,
The Netherlands, New Zealand, Norway, Pakistan, Peru, the Philippines, Poland,
Portugal, Singapore, Slovak Republic, Spain, Sri Lanka, Sweden, Switzerland,
Taiwan, Thailand, Turkey, The United Kingdom, Venezuela and the countries that
comprise the former Soviet Union. More than 25% of the Fund's total assets may
be invested in the securities of issuers located in the same country, except
that no more than 20% of the Fund's total assets may be invested in all emerging
markets countries. 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. Investments in
emerging markets countries may not be as liquid as those in developed countries
and pose greater risks.
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 Sub-Adviser to the International Equity Fund is committed to the use of the
Graham and Dodd-style value investing approach as introduced in the classic book
SECURITY ANALYSIS. Using this philosophy, the Sub-Adviser views stocks as small
pieces of businesses which are for sale. It seeks to purchase a diversified
group of these businesses at prices its research indicates are below their true
long-term, or intrinsic, value. By purchasing stocks whose current prices are
believed to be below their intrinsic values, the Sub-Adviser seeks to secure not
only a possible margin of safety against price declines, but also an attractive
opportunity for profit over the business cycle.
In analyzing a company's true long-term value, the Sub-Adviser uses sources of
information such as company reports, filings with the Securities and Exchange
Commission, computer databases, industry publications, general and business
publications, brokerage firm research reports, and interviews with company
management. Its focus is on fundamental characteristics of a company, including,
but not limited to, book value, cash flow and capital structure, as well as
management's record and broad industry issues. Once the intrinsic value of a
company is estimated, this value is compared to the current price of the stock.
If the price is substantially lower than the indicated intrinsic value, the
stock may be purchased.
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 issues in the form of ADRs, EDRs or GDRs also as
described under "Portfolio Instruments, Practices and Related Risks."
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,
22
<PAGE>
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
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.
- -------------------------------
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-Registered Trademark-
Composite Stock Price Index ("S&P 500").
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, EDRs and GDRs, 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
23
<PAGE>
developments. The Fund will not purchase a security if as a result less than 25%
of its total assets will be invested in fixed income securities (including cash
equivalents and long-term debt securities, and convertible debt securities and
preferred stocks to the extent their value is attributable to their fixed income
characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would normally increase the Fund's equity holdings while
reducing its holdings of fixed-income and cash equivalent holdings.
The Fund reserves the right to hold as a temporary defensive measure up to 100%
of its total assets in cash and short-term obligations (having remaining
maturities of 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, EDRs and GDRs, 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 FUND
AND MANAGED BOND FUND
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,
24
<PAGE>
during normal market conditions at least 65% of each Fund's total assets will be
invested in debt obligations rated "A" or better by at least one NRSRO (or
unrated obligations determined to be of comparable quality). Obligations rated
in the lowest of the top four rating categories ("BBB" or "Baa") have certain
speculative characteristics and are subject to more credit and market risk than
securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider, among
other things, historical yield relationships between corporate and government
securities, intermarket yield relationships among various industry sectors,
current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high-quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage and other
asset-related securities, zero coupon bonds and convertible debentures. The
Managed Bond Fund may, however, 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 each Fund's 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.
25
<PAGE>
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, medium or long
maturities, the Adviser expects that under normal conditions the Fund will
invest primarily in obligations that have remaining maturities of more than ten
years.
- -------------------------------
PRIME FUND, TREASURY FUND
AND TAX-EXEMPT FUND
THE INVESTMENT OBJECTIVE OF BOTH THE PRIME AND
TREASURY FUND IS TO SEEK TO PROVIDE A HIGH LEVEL
OF CURRENT INCOME CONSISTENT WITH LIQUIDITY, THE
PRESERVATION OF CAPITAL AND A STABLE NET ASSET
VALUE. THE PRIME FUND PURSUES ITS OBJECTIVE BY
INVESTING IN A BROAD RANGE OF 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, 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 and securities subject to certain
unconditional demand features are subject to different diversification
requirements. 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 Money Market Funds will be "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 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). A description of applicable ratings
is attached to the Statement of Additional Information as Appendix A.
26
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
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- - 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, and emerging markets countries with respect to the International
Equity Fund. Political and economic structures in many emerging markets
countries may be undergoing significant evolution and rapid development, and may
lack the social, political and economic stability characteristic of more
developed countries. Some emerging markets countries may also have failed in the
past to recognize private property rights and may have at times nationalized or
expropriated the assets at private companies. Therefore, the risks of
expropriation, nationalism and social, political and economic instability are
greater in those countries than in more developed capital markets.
Emerging markets are the capital markets of any country which, in the opinion of
the Sub-Adviser, is generally considered to be a developing country by the
international financial community. Currently, with respect to the International
Equity Fund, these markets include, but are not limited to, the markets of
Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Greece, India,
Indonesia, Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines,
Poland, Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand, Turkey,
Venezuela, and countries that comprise the former Soviet Union. As opportunities
to invest in other emerging markets countries develop, the International Equity
Fund may expand and diversify further the emerging markets countries in which it
invests. As stated above, no more than 20% of the International Equity Fund's
total assets may be invested in all emerging markets countries.
Some countries with emerging securities markets have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuation in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain countries.
Moreover, the economies of some countries may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency,
number and depth of industries forming the economy's base, governmental controls
and investment restrictions that are subject to political change and balance of
payments position. Further, there may be greater difficulties or restrictions
with respect to investments made in emerging markets countries.
In addition, foreign securities markets typically have substantially less volume
than U.S. markets, and the securities in these markets can be less liquid and
present greater risk of loss than the securities of comparable
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U.S. companies. Such markets often have different clearance and settlement
procedures for securities transactions, and in some markets there have been
times when settlements have been unable to keep pace with the volume of
transactions, making it difficult to conduct transactions. Delays in settlement
could result in temporary periods when assets may be uninvested. Settlement
problems in foreign countries also could cause the International Equity Fund to
miss attractive investment opportunities. Satisfactory custodial services may
not be available in some countries, which may result in the International Equity
Fund incurring additional costs and delays in the transportation and custody of
such securities.
- - AMERICAN, EUROPEAN AND GLOBAL 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 , EDRs and GDRs. 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 and GDRs are receipts issued 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. Unsponsored ADRs, EDRs and GDRs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer. ADRs may be listed on a national securities exchange or may be
traded in the over-the-counter market. EDRs and GDRs are generally designed for
use in foreign exchanges and over-the-counter markets. ADRs, EDRs and GDRs
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, EDRs and GDRs 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. 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
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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 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
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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 Florida Tax-Exempt and Tax-Exempt
Funds (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 FUND and
TAX-EXEMPT 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 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. 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
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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 deemed to be an extension of
credit by a Fund to the issuing financial institution rather than to the obligor
of the underlying security and may not be directly entitled to the protection of
any collateral security provided by the obligor. In such event, the ability of a
Fund to obtain repayment could depend on the issuing financial institution.
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- - WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. EACH FUND may purchase
securities on a "when-issued" basis and purchase or sell securities on a
"forward commitment" basis. When-issued and forward commitment transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit a Fund to lock-in a price or yield on a security it
intends to purchase or sell, regardless of future changes in interest rates.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place.
When-issued purchases and forward purchase commitments are not expected to
exceed 25% of the value of a Fund's total assets under normal circumstances.
These transactions will not be entered into for speculative purposes but only in
furtherance of a Fund's investment objectives.
- - INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which 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. As examples, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P 500. The International Equity Fund may also purchase
shares of investment companies investing primarily in foreign securities,
including so-called "country funds." Country funds have portfolios consisting
exclusively of securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"). 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.
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- - 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 liquid assets 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. In addition, a Fund may use reverse repurchase agreements when it is
anticipated that the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the
transaction. This use of reverse repurchase agreements may be regarded as
leveraging and, therefore, speculative. Reverse repurchase agreements involve
the possible risks that the interest income earned on the investment of the
proceeds will be less than the interest expense, that the market value of
portfolio securities a Fund relinquishes may decline below the price a Fund must
pay when the transaction closes and that the securities may not be returned to
the Fund. 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 loan justify the possible risks. A loan will not be
made if, as a result, the total amount of a Fund's outstanding loans exceeds 33%
of its total assets. Securities loans will be fully collateralized.
- - MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES AND MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash-equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash or
U.S. Government securities or other liquid high grade debt instruments in the
amount of the future purchase commitment will be set apart for a Fund involved
in a separate account at the custodian. Mortgage rolls are not a primary
investment technique for any of these Funds, and it is expected that, under
normal market conditions, a Fund's commitments under mortgage rolls will not
exceed 10% of the value of its total assets.
- - CONVERTIBLE SECURITIES. The EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY, SMALL
CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS may
invest in convertible securities, including bonds, notes and preferred stock,
that may be converted into common stock either at a stated price or within a
specified period of time. 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 leveraged issuers may
experience financial stress which would negatively affect their ability to meet
their
33
<PAGE>
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.
34
<PAGE>
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, but is not required
to, 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. There is a risk of loss to
the Fund if the other party does not complete the transaction.
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 liquid assets 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-Advisers in the case of the International
Equity and Tax-Exempt Funds) has determined pursuant to guidelines adopted by
the Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under SEC Rule
144A), are not subject to this 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
35
<PAGE>
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 89%, 356%, 106%,
138%, 53%, 97% and 152%, respectively. The portfolio turnover rates for the
Equity Value and International Equity Funds for the period from commencement of
operations (December 27, 1995) through November 30, 1996 were 19% and 50%,
respectively.
- - 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 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 TAX-EXEMPT and PRIME Funds, may also hold
other derivative instruments, which may be in the form of participations,
custodial receipts evidencing rights to receive a specific future interest
payment, principal payment, or both, and bonds that have interest rates that
reset inversely to changing short-term rates and/or have imbedded interest rate
floors and caps. Many of these derivative instruments are proprietary products
that have been recently developed by investment banking firms, and it is
uncertain how these instruments will perform under different economic and
interest-rate scenarios. In addition, to the extent that the market value of
these instruments is leveraged, they may be more volatile than other types of
obligations and may present greater potential for capital gain or loss. In some
cases it may be difficult to determine the fair value of a derivative instrument
because of a lack of reliable objective information, and an established
secondary market for some instruments may not exist.
The Florida Tax-Exempt, Short-Term Fixed Income, Managed Bond and U.S.
Government Securities Funds will normally maintain the average weighted
maturities of their portfolios within specified ranges as previously described.
The maturities of certain instruments, however, such as those subject to
prepayment or redemption by the issuers, are subject to estimation. There is no
assurance that the estimations used by the Funds for these instruments will, in
fact, be accurate or that, if inaccurate, a Fund's average weighted maturity
will remain within the specified limits.
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<PAGE>
Although the two Tax-Exempt Funds do not presently intend to do so on a regular
basis, they may invest more than 25% of their total assets in municipal
obligations the interest on which comes solely from revenues of similar
projects. Additionally, the Florida Tax-Exempt Fund will normally invest more
than 25% of its net assets in municipal obligations the issuers of which are
located in Florida, and may invest more than 25% of its net assets in industrial
development bonds issued before August 7, 1986 that are not treated as a
specific tax preference item under the federal alternative minimum tax.
When a Fund's assets are concentrated in obligations payable from revenues of
similar projects or issued by issuers located in the same state, or in
industrial development bonds, the Fund will be subject to the particular risks
(including legal and economic conditions) relating to such securities to a
greater extent than if its assets were not so concentrated. If Florida or any of
its political subdivisions should suffer serious financial difficulties to the
extent its ability to pay its 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 obligations held by a Fund 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
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, nondiversified
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 (with
certain limited exceptions).
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.
------------------------
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INVESTING IN EMERALD FUNDS
- ------------------------
YOUR MONEY MANAGER
BARNETT (ALSO REFERRED TO AS THE "ADVISER") SERVES AS INVESTMENT ADVISER FOR
EMERALD FUNDS. Barnett is a newly-organized, wholly-owned subsidiary of Barnett
Bank, N.A., which, in turn, is a wholly-owned subsidiary of Barnett Banks, Inc.
Barnett is a corporation headquartered in Florida. Barnett first began providing
advisory services to mutual funds in 1996.
ENTRUSTED WITH APPROXIMATELY $10 BILLION UNDER ACTIVE MANAGEMENT, Barnett
provides investment management services to individuals and institutions. As the
investment adviser to Emerald Funds, Barnett employs investment professionals
who are dedicated to managing money on a full-time basis. For the International
Equity and Tax-Exempt Funds, Barnett has entered into sub-advisory agreements
with Brandes Investment Partners, L.P. and a subsidiary of Wilmington Trust
Company, respectively, to provide daily portfolio management for those Funds.
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 an account at Barnett Investments, Inc. where a
registered representative can advise you in selecting among the Emerald Funds.
Whether you currently have a Barnett Investments 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 registered representative of
Barnett Investments, Inc. Call the Investment Services Center at 800/535-6579 to
speak with a registered representative, 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 Investments, 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 Investments, 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.
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<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 Investments, Inc. or another Service Organization, you may choose to
speak directly with your assigned registered representative 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>
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<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, Fanning, 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.
40
<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 Investments, Inc. or another
Service Organization.
41
<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
</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>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
E-Z MATIC INVESTMENT - You must first complete an - You must first complete an
(ALLOWS REGULAR Account Registration Form and Account Registration Form.
INVESTMENT WITHOUT select the E-Z Matic option Call 800/637-3759 to find
ONGOING PAPERWORK) - Call 800/637-3759 for more out how to set up this
information service
- Additional purchases will
then automatically be made as
directed by you
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PERIODIC INVESTMENT PLAN - You must first complete an - You must first complete an Account
(ALLOWS REGULAR authorization letter for Periodic Registration Form. Call 800/535-6579
INVESTMENT THROUGH YOUR Investment Plan and select an to find out more about this service
BARNETT INVESTMENTS investment schedule and investment - Additional purchases will then
BROKERAGE ACCOUNT) amount automatically be made as directed by
- Contact your Barnett registered you
representative or call 800/535-6579 for
more information
</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, P.O. Box Columbus, Ohio 43218-2697
182697, Columbus, Ohio - Retail Shares may be
43218-2697 exchanged for Retail Shares in
- Retail Shares may be exchanged other Funds.
for Retail Shares in other Funds.
</TABLE>
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<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
attributed to the class, subtracting the Fund's liabilities attributed 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 Investments, 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 Investments, 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
Investments, 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 Investments, Inc. or another Service Organization,
however, a fee may be charged by those institutions for providing administrative
services in connection with your investment.
44
<PAGE>
HOW TO REDEEM 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 (Certificates for shares will
MARKET ACCOUNT) not be issued to new
shareholders)
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) or by telegraph - 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.
45
<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 Investments, 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
Investments, Inc., Barnett Bank'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 OR FIXED INCOME FUND THROUGH BARNETT
INVESTMENTS, 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 Investments, 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 Investments,
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
Investments, 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
Bank's Business Retirement Services are not able to place wire purchases and
redemption orders directly with Emerald Funds.
46
<PAGE>
BARNETT PROGRAMS. Shareholders who maintain a Barnett Bank 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 Bank offers 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 Bank 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 1940 Act.
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 Bank's 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.
47
<PAGE>
- --------------------------------------------------------------------------------
YOUR EMERALD FUND ACCOUNT
- -----------------------
SHAREHOLDER SERVICES
Emerald Funds provides a variety of ways to make managing your investments more
convenient. Some of these methods require you to request them on your Account
Registration Form or you may request them after opening an account by calling
800/637-3759. The Exchange Privilege, E-Z Matic Investment Plan and Automatic
Withdrawal Plan described below are not available for clients of Barnett Bank's
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 Application Form 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 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.
48
<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 Fund Services, Inc.
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.
49
<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 (but not payments for shareholder liaison
services) 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 dividends
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 INVESTMENTS, 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 Investments,
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
50
<PAGE>
all of the services and privileges described may not be available to you).
Barnett Investments, 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 Funds, 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 38.
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 Plans 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 March 5, 1997, 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."
51
<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:
- - Marshall M. Criser, Chairman of the Board, is Chairman of the law firm of
Mahoney Adams & Criser, P.A.
- - John G. Grimsley, President of Emerald Funds, is a member of the law firm of
Grimsley Marker & Iseley, P.A.
- - Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- - Mary Doyle is a Professor of Law, University of Miami Law School.
- - Albert D. Ernest is the President of Albert Ernest Enterprises.
- - Harvey R. Holding is the retired Executive Vice President and Chief Financial
Officer of BellSouth Corp.
Emerald Funds has also employed a number of professionals to provide investment
management and other important services to the Funds. BARNETT CAPITAL ADVISORS,
INC. 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 "Rodney Square" or 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. Brandes Investment Partners, L.P. (referred to as "Brandes" or the
"Sub-Adviser") acts as sub-adviser for the International Equity Fund and is
located at 12750 High Bluff Drive, San Diego, California 92130. Brandes
Investment Partners, Inc. owns a controlling interest in Brandes Investment
Partners, L.P. and serves as its General Partner. Charles Brandes is the
controlling shareholder of Brandes Investment Partners, Inc. 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, Inc. located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
ADVISER AND SUB-ADVISER. Barnett manages the investment portfolios of each Fund,
except the International Equity and Tax-Exempt Funds, includ-
ing selecting portfolio investments and making purchase and sale orders. The
respective Sub-Advisers manage the investment portfolios of the International
Equity and Tax-Exempt Funds in accordance with investment requirements and
policies established by Barnett, except that cash balances of the International
Equity Fund are managed by the Adviser.
As of December 31, 1996, Barnett had approximately $10 billion under active
management. Barnett 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 that has offered general banking services since 1877. Wilmington
Trust Company, the parent organization of Rodney Square and a Delaware banking
corporation, is in turn a wholly-owned subsidiary of Wilmington Trust
Corporation, a registered bank holding company. Rodney Square provides
management services to a number of mutual funds with total assets under
management of $1.7 billion as of December 31, 1996. As of December 31, 1996
Brandes had approximately $8.9 billion under management.
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., has been
the portfolio manager of the Equity Fund since September of 1993, and has also
managed the Balanced Fund since it commenced operations on April 11, 1994. Mr.
Creighton joined Barnett in 1981 and has worked with the firm throughout his
investment career. He plays an integral role on the equity investment team, and
works with highly qualified investment professsionals to integrate the Adviser's
quantitative models with specific security analysis. Mr. Creighton earned his
BBA in Finance from Stetson University and his MBA in Finance
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from the University of North Florida. He holds membership in the Association for
Investment Management and Research ("AIMR"). Mr. Creighton has 16 years of
investment experience. Martin E. LaPrade, C.F.A., has been the portfolio manager
of the Equity Value Fund since it commenced operations. Mr. LaPrade joined
Barnett in 1978 and has worked with the firm throughout his investment career.
He plays an integral role on the equity investment team, and works with highly
qualified investment professionals to integrate the Adviser's quantitative
models with specific security analysis. He received his BS in accounting from
Furman University. Mr. LaPrade holds membership in AIMR. He has 16 years of
investment experience. Jeffrey A. Busby, CFA, a Managing Partner and Senior
Portfolio Manager at Brandes since August 1988, has been the portfolio manager
of the International Equity Fund, except, as noted, with respect to the Fund's
cash balances, since August 19, 1996. Also in connection with Brandes'
appointment as Sub-Adviser, Don W. Bryant, CFA, became Barnett's "Sub-Advisory
Liaison." In that capacity, Mr. Bryant oversees the provision of sub-investment
advisory services by Brandes. Mr. Bryant joined Barnett in 1987 and has served
as an institutional portfolio manager for Barnett for the past 7 years. He has
worked with the firm throughout his investment career and plays an integral role
on the equity investing team. He received his undergraduate degree from the
University of South Alabama and his MBA in Finance from the University of
Georgia. Mr. Bryant holds membership in AIMR. He has 10 years of investment
experience. Dean McQuiddy, C.F.A., has managed the Small Capitalization Fund
since it commenced operations on January 4, 1994 and its predecessor, the
Employee Benefits Small Capitalization Fund since its inception in January 1987.
Since joining Barnett in 1983, Mr. McQuiddy has been an equity analyst and
institutional portfolio manager. He received his BS in Finance from the
University of Florida. Mr. McQuiddy holds membership in AIMR. He has 14 years of
investment experience. Jeffery A. Greenert has been the portfolio manager of the
Short-Term Fixed Income Fund since August 3, 1996. Mr. Greenert joined Barnett
in 1985 and has worked with the firm throughout his investment career. He plays
an integral role as part of the Adviser's fixed income investing team, and works
with a highly qualified team of fixed income professionals to analyze interest
rates, as well as individual fixed income securities. Mr. Greenert received his
BS in Finance from the University of Florida. He has 12 years of investment
experience. Andrew Cantor, C.F.A., 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. Mr. Cantor joined Barnett in
1983 and plays a leading role on the fixed income investing team. Prior to
joining the firm, he worked for Gulf United Corporation, where he was
responsible for economic and interest rate analysis and the management of
approximately $1.1 billion in fixed income investments. He received his BS in
Mathematics from Florida Atlantic University and his MA in Economics from the
University of South Carolina. Mr. Cantor holds membership in AIMR and the
Jacksonville Financial Analysts Society. He has 23 years of investment
experience. Margaret L. Moore has managed the Florida Tax-Exempt Fund since
August 31, 1996. Ms. Moore joined Barnett in 1991 from First Florida Bank, N.A.
where she was a fixed income trader for individual trust accounts for five
years. Ms. Moore currently serves as a tax-exempt investment manager for Barnett
and is a member of the Adviser's Fixed Income Strategy Committee. She received
her BS in Finance from Florida State University and her MBA from the University
of North Florida. Ms. Moore has 13 years of investment experience.
Although expected to be infrequent, Barnett (or a Sub-Adviser) may consider the
amount of Fund shares sold by broker-dealers and others (including those who may
be connected with Barnett or 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
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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 fee rates 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 fee rates payable by many similar funds. Barnett has agreed to pay
Rodney Square a fee equal to .15% of the Tax-Exempt Fund's average daily net
assets, and is voluntarily waiving the remainder of its fee for that Fund. In
addition, Barnett has agreed to pay Brandes a fee equal to .50% of the
International Equity Fund's average daily net assets. The fees paid by Barnett
to the Sub-Advisers for the International Equity Fund and the Tax-Exempt Fund
come out of Barnett's advisory fee for that Fund and are not an additional
charge to the Funds.
For the fiscal year ended November 30, 1996, Barnett and the prior adviser
received fees, after waivers, at the effective annual rates of .60%, 1.00%,
.44%, .31%, .30%, .40%, .40%, .21%, .24%, and .15% of the average daily net
assets of the Equity, Small Capitalization, Balanced, Short-Term Fixed Income,
Managed Bond, U.S. Government Securities, Florida Tax-Exempt, Prime, Treasury
and Tax-Exempt Funds, respectively. All of the fees that Barnett and the prior
adviser received for the Tax-Exempt Fund were paid to the Sub-Adviser pursuant
to the fee arrangement described above. Barnett and the prior adviser
voluntarily waived all fees from the Equity Value and International Equity
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 portfolios securities.
FEE WAIVERS. Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Barnett and the Funds' other service providers. 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.
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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 (the "Code"), meaning that to the extent a
Fund's earnings are passed on to shareholders as required by the Code, the Fund
itself generally will not be required to pay federal income taxes.
In order to so qualify, each Fund will pay as dividends at least 90% of its
investment company taxable income. Investment company taxable income includes
taxable interest, dividends, gains attributable to market discount on taxable as
well as tax-exempt securities, and the excess of net short-term capital gain
over net long-term capital loss. To the extent you receive a dividend based on
investment company taxable income, you must treat that dividend as ordinary
income in determining your gross income for tax purposes, whether you receive it
in the form of cash or additional shares. Unless you are exempt from federal
income taxes, the dividends you receive from each Fund, other than the "exempt
interest dividends" from the two Tax-Exempt Funds, will be taxable to you.
In addition, the two 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 an item
of tax preference for purposes of the federal alternative minimum tax that
portion of the dividends paid by the two 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 two 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 created
as sales on which you will realize a capital gain or loss depending on whether
the value of the shares exchanged is more or less than your basis in the shares
at the time of the transaction.
A shareholder considering purchasing shares of a Fund on or just before the
record date of any capital gains distributions (or in the case of the Equity
Funds, the record date of dividend and capital gains distributions) should be
aware that the amount of the forthcoming dividend or distribution, although in
effect a return of capital, will be taxable.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders in the Equity and Fixed Income Funds may realize a taxable gain or
loss when redeeming, transferring or exchanging shares of a Fund, depending on
the difference in the prices at which the shareholder purchased and sold the
shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. If more than 50% of the value of this Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally, any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by
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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 $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 consists solely of such exempt assets, then that Fund's shares
will be entirely exempt from the Florida intangibles tax payable in the
following year.
The Florida Tax-Exempt Fund intends, but cannot guarantee, that its shares will
qualify for total exemption from the Florida intangibles tax. 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 THE FUND'S OTHER CLASSES OF
SHARES.
UNDERSTANDING PERFORMANCE MEASURES:
- - TOTAL RETURN 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
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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 S&P 500, the Lehman Brothers Bond
Indices, the Merrill Lynch Bond Indices, the Wilshire 5000 Equity Indices or the
Consumer Price Index. In addition, the International Equity Fund's performance
may be compared to either the Morgan Stanley Capital International Index or the
FT World Actuaries Index.
The performance of Prime Fund Retail Shares may be compared to the DONOGHUE'S
MONEY FUND AVERAGE which monitors the performance of money market funds, the
performance of Treasury Fund Investor Shares may be compared to the DONOGHUE'S
GOVERNMENT MONEY FUND AVERAGE, and the performance of Tax-Exempt Fund Retail
Shares may be compared to DONOGHUE'S TAX-FREE MONEY FUND AVERAGE. Additionally,
the Money Market Funds' performance may also be compared to data prepared by
Lipper Analytical Services, Inc.
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 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,
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when redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
Average Annual Total Return
For The Periods Ended November 30, 1996
------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity Fund(1)......... 22.66% 17.09% 13.86% 12.04%
Small Capitalization
Fund(2)............... 13.83% 15.14% 19.12% 12.79%*
Managed Bond Fund(3)... 5.51% 6.43% 7.98% 8.71%**
Short-Term Fixed Income
Fund(4)............... 5.23% 5.00% 5.49% 6.77%
--------- ----- ----- -----
</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. During
the periods shown 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 a 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 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. During the periods shown 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.
During the periods shown 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 expense 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. During the periods shown 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.
OTHER PERFORMANCE INFORMATION -
INTERNATIONAL EQUITY FUND ONLY:
For the one year period ending December 31, 1996 and the period from
commencement of operations (December 27, 1995) through December 31, 1996, the
average annual total return for Retail Shares of
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the International Equity Fund was 15.32% and 14.44%, respectively. These total
returns assume the reinvestment of all dividends and capital gains and reflect
fee waivers and expense reimbursements in effect. Without these waivers and
reimbursements the Fund's performance would have been lower. Of course, past
performance is no guarantee of future results. Investment return and principal
value will fluctuate, so that shares, when redeemed, may be worth more or less
than the original cost. For more information on performance, see "Additional
Information on Performance Calculations" in the Statement of Additional
Information.
Set forth below is certain performance information provided by Brandes
Investment Partners, L.P., Sub-Adviser for the International Equity Fund,
relating to historical performance of a composite of international equity
accounts of clients of the Sub-Adviser. The international equity accounts in the
Brandes composite had the same investment objective as the International Equity
Fund and were managed by the same team that manages the International Equity
Fund's securities, using substantially similar, though not identical, investment
strategies, policies and techniques as those contemplated for use by the Fund.
This information is provided to illustrate the past performance of Brandes in
managing similar accounts as measured against the Morgan Stanley Capital
International ("MSCI") EAFE Index, a standard international equity investment
benchmark. The accounts that are included in the Brandes' composite are not
subject to the same types of expenses and liquidity requirements to which the
International Equity Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed on the
International Equity Fund by the 1940 Act or the Code. Consequently, the
performance results for the Sub-Adviser's composite could have been adversely
affected if the accounts included in the composite had been regulated as
investment companies. The composite performance shown below does not represent
the performance of the International Equity Fund. You should not consider this
past performance as an indication of future performance of the International
Equity Fund or of the Sub-Adviser.
The results presented below may not necessarily equate with the returns
experienced by any particular account of the Sub-Adviser or shareholder of the
International Equity Fund as a result of timing of investments and redemptions.
In addition, the effect of taxes on any client or shareholder will depend on
such person's tax status, and the results have not been reduced to reflect any
income tax which may have been payable.
<TABLE>
<CAPTION>
For Periods ended December 31, 1996
--------------------------------------------------
Since
Inception
One Year Three Years Five Years (7/1/90)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Annualized Total
Return*............... 16.01% 8.58% 13.90% 16.16%
MSCI EAFE**............ 6.05% 8.32% 8.15% 5.90%
----- ----- ----- -----
</TABLE>
- ------------
* The net annual returns presented above for the Brandes' composite were
calculated on a time-weighted and asset-weighted total return basis,
including investment of all dividends and interest on a cash basis, realized
and unrealized gains or losses and are net of applicable investment advisory
fees, brokerage commissions and execution costs, any applicable foreign
withholding taxes and custodial fees, without provision for federal and
state income taxes, if any. Brandes' composite results include all actual,
fee-paying, fully discretionary international equity accounts under
management for at least one month beginning 7/1/90, other than wrap fee
accounts. The weighted-average management fee during the period from 7/1/90
through 12/31/96 was 0.96% per year. Securities transactions are accounted
for on the trade date and cash accounting is utilized. Cash and cash
equivalents are included in performance returns. Starting with calendar year
1992 through calendar year 1995, the net annual total returns for the
Brandes International Equity composite have been examined by a Big Six
accounting firm in accordance with AIMR Level II verification standards. The
examination of net annual total returns for calendar year 1996 is not
completed as of the date of this prospectus. Copies of the auditors' reports
and a complete list and description of Brandes' composites are available on
request by calling the Distributor at 800/637-3759. The results for
individual accounts and for different periods may vary. Investors should not
rely on prior performance results as a reliable indication of future
results.
** The MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage commission
or other expenses of investing.
59
<PAGE>
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 1997.)
<TABLE>
<CAPTION>
Taxable Income Tax Exempt Yield
- ------------------------------------ ----------------------------------------------------------------------------------
Single Joint Federal 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
Return Return Bracket 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 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 Investments, 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 38.
------------------------
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 INVESTMENTS, 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.
60
<PAGE>
[LOGO]
<PAGE>
EMERALD FUNDS
(Treasury Fund -- Institutional Shares/Service Shares)
(Prime Fund -- Institutional Shares/Service Shares)
(Tax-Exempt Fund -- Institutional Shares/Service Shares)
FORM N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
Form N-1A Item Number Prospectus Heading/Location
- --------------------- ---------------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . Summary of Expenses and Financial
Information - Expenses
3. Condensed Financial Summary of Expenses and Financial
Information . . . . . . . . Information - Financial Highlights; The
Business of the Funds - Measuring
Performance
4. General Description of Cover Page; Risk Factors, Investment
Registrant . . . . . . . . . Principles and Policies; Your Emerald
Fund Account - The Emerald Family of
Funds;
5. Management of the Investing in Emerald Funds - Your Money
Fund . . . . . . . . . . . . Manager; Investing in Emerald Funds -
Other Service Providers; The Business of
the Funds - Fund Management
5A. Management's Discussion Summary of Expenses and Financial
of Fund Performance . . . . Information - Financial Highlights
6. Capital Stock and Other Your Emerald Fund Account - The Emerald
Securities . . . . . . . . . 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
<PAGE>
Form N-1A Item Number Prospectus Heading/Location
- --------------------- ---------------------------
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 - Getting
Being Offered . . . . . . . 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 - How to Sell
Repurchase . . . . . . . . . Shares; Investing in Emerald Funds -
Transaction Rules
9. Pending Legal Not applicable (All Portfolios)
Proceedings . . . . . . . .
<PAGE>
PROSPECTUS
EMERALD FUNDS
INSTITUTIONAL &
SERVICE SHARES
PRIME FUND
TREASURY FUND
TAX-EXEMPT FUND
April 1, 1997
-photo-
-photo-
-photo-
Logo: EMERALD
<PAGE>
EMERALD FUNDS
PROSPECTUS FOR PRIME, TREASURY AND TAX-EXEMPT 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 Bank, N.A. ("Barnett")
Jacksonville, Florida, 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, 1997 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 BANK, 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 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 CAPITAL ADVISORS, INC. 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.
April 1, 1997
<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 AND
EXPENSE REIMBURSEMENTS)
(as a percent of average net assets)
Advisory Fees (After Fee
Waivers)(2)............. 0.22% 0.22% 0.24% 0.24% 0.15% 0.15%
All Other Expenses (After
Expense
Reimbursements)(2)...... 0.15% 0.49% 0.14% 0.49% 0.18% 0.60%
------ --------- ------ --------- ------ ---------
Total Fund Operating
Expenses
(After Fee Waivers and
Expense
Reimbursements)(2)...... 0.37% 0.71% 0.38%(1) 0.73%(1) 0.33% 0.75%
------ --------- ------ --------- ------ ---------
------ --------- ------ --------- ------ ---------
</TABLE>
- ------------
(1) See "Financial Highlights" below for information about the additional
interest expense of 0.07% paid by the Treasury Fund on reverse repurchase
agreements during the last fiscal year.
This expense information is provided to help you understand the expenses you
would bear either directly or 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) Without fee waivers by the Adviser, investment management fees as a
percentage of net assets would be 0.25% for each Fund. Absent these waivers
and other expense reimbursements, the total operating expenses for the
Institutional Shares and Service Shares would be the following: 0.40% and
0.74%, respectively, for the Prime Fund; 0.39% and 0.74%, respectively, for
the Treasury Fund; and 0.43% and 1.21%, respectively, for the Tax-Exempt
Fund. The Adviser may waive its fees and/or reimburse expenses of the Fund
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. Service Shares bear the expenses incurred under the Fund's Shareholder
Processing and Services Plan at a rate not to exceed .35% (annualized) of
the average daily net asset value of the outstanding 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
2
<PAGE>
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.
EXAMPLE:
Let's say, hypothetically, that the annual return of the Shares of each Fund
is 5%, and that operating expenses are as described above. For every $1,000 you
invested in a 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 $ 88
Treasury Fund Institutional Shares........... $ 4 $ 12 $ 21 $ 48
Treasury Fund Service Shares................. $ 7 $ 23 $ 41 $ 91
Tax-Exempt Fund Institutional Shares......... $ 3 $ 11 $ 19 $ 42
Tax-Exempt Fund Service Shares............... $ 8 $ 24 $ 42 $ 93
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
EMERALD FUNDS' INDEPENDENT ACCOUNTANTS FOR THE FISCAL PERIODS SHOWN, WHOSE
UNQUALIFIED REPORTS ON THE FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR
EACH OF THE FIVE YEARS ENDED NOVEMBER 30, 1996, 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 THE
FUNDS' PERFORMANCE IS CONTAINED IN THE FUNDS' ANNUAL REPORT TO SHAREHOLDERS FOR
THE FISCAL YEAR ENDED NOVEMBER 30, 1996, 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
------------------------------------------------------------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994 1993 1992 1991 1990 1989*
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from
investment
operations:
Net investment
income........... 0.0519 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805 0.0890
Net realized gains
(losses) on
securities....... 0.0000 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment
operations....... 0.0519 0.0568 0.0362 0.0315 0.0408 0.0638 0.0805 0.0889
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net
investment
income........... (0.0519) (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805) (0.0890)
Distributions from
net realized
gains on
securities....... (0.0002) (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total dividends
and
distributions.... (0.0521) (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805) (0.0890)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital
contribution....... 0.0000 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net
asset value........ (0.0002) 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END
OF PERIOD.......... $ 1.0000 $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return........ 5.34% 5.81% 3.97% 3.21% 4.14% 6.56% 8.36% 9.27%++
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s).... $598,009 $462,636 $413,541 $510,683 $1,947,016 $512,919 $278,419 $192,628
Ratio of expenses
to average net
assets........... 0.38% 0.37% 0.37% 0.35% 0.37% 0.40% 0.39% 0.36%+
Ratio of net
investment income
to average net
assets........... 5.19% 5.66% 3.92% 3.21% 3.84% 6.27% 8.03% 9.00%+
Ratio of expenses
to average net
assets**......... 0.42% 0.39% (a) (a) (a) 0.42% 0.45% 0.44%+
Ratio of net
investment income
to average net
assets**......... 5.15% 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
4
<PAGE>
Financial highlights for a Service Share of the PRIME FUND outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994 1993 1992 1991 1990*
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net investment
income................ 0.0486 0.0536 0.0355 0.0281 0.0371 0.0602 0.0445
Net realized gains
(losses) on
securities............ 0.0000 0.0002 (0.0028) (0.0001) 0.0001 0.0001 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment
operations............ 0.0486 0.0538 0.0327 0.0280 0.0372 0.0603 0.0444
------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
Dividends from net
investment income..... (0.0486) (0.0536) (0.0355) (0.0281) (0.0371) (0.0602) (0.0445)
Distributions from net
realized gains on
securities............ (0.0002) (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions......... (0.0488) (0.0536) (0.0355) (0.0282) (0.0371) (0.0602) (0.0445)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital
contribution............ 0.0000 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value................... (0.0002) 0.0002 0.0001 (0.0002) 0.0001 0.0001 (0.0001)
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 1.0000 $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............. 4.99% 5.49% 3.61% 2.85% 3.78% 6.19% 4.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s)......... $ 989,227 $ 902,006 $ 833,667 $ 619,149 $ 548,622 $ 182,928 $ 7,202
Ratio of expenses to
average net assets.... 0.72% 0.72% 0.72% 0.71% 0.72% 0.75% 0.75%+
Ratio of net investment
income to average net
assets................ 4.86% 5.31% 3.59% 2.80% 3.54% 5.63% 7.51%+
Ratio of expenses to
average net
assets**.............. 0.77% 0.74% (a) (a) (a) 0.77% 0.80%+
Ratio of net investment
income to average net
assets**.............. 4.81% 5.29% (a) (a) (a) 5.61% 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
5
<PAGE>
Financial highlights for an Institutional Share of the TREASURY FUND
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994 1993 1992 1991 1990 1989*
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from
investment
operations:
Net investment
income........... 0.0494 0.0548 0.0368 0.0291 0.0368 0.0590 0.0776 0.0856
Net realized gains
(losses) on
securities....... (0.0003) (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment
operations....... 0.0491 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776 0.0856
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and distributions:
Dividends from net
investment
income............. (0.0494) (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776) (0.0856)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net
asset value........ (0.0003) (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END
OF PERIOD.......... $ 0.9993 $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return........ 5.05% 5.62% 3.74% 2.95% 3.75% 6.07% 8.04% 8.90%++
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s).... $218,020 $236,392 $283,920 $501,377 $452,170 $575,103 $416,131 $349,183
Ratio of operating
expenses to
average net
assets........... 0.40% 0.40% 0.39% 0.40% 0.38% 0.40% 0.38% 0.73%+
Ratio of interest
expense to
average net
assets........... 0.07%(c) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%+
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of total
expense to
average net
assets........... 0.47% 0.40% 0.39% 0.40% 0.38% 0.40% 0.38% 0.73%+
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of net
investment income
to average net
assets........... 4.97% 5.49% 3.73% 2.91% 3.74% 5.86% 7.75% 8.69%+
Ratio of operating
expenses to
average net
assets**......... 0.42% 0.42% (a) (a) (a) 0.41% 0.41% 0.77%+
Ratio of interest
expense to
average net
assets........... 0.07%(c) 0.00% (a) (a) (a) 0.00% 0.00% 0.00%+
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of total
expenses to
average net
assets**......... 0.49% 0.42% (a) (a) (a) 0.41% 0.41% 0.77%+
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of net
investment income
to average net
assets**......... 4.95% 5.46% (a) (a) (a) 5.85% 8.13% 7.22%+
</TABLE>
- -----------------
* For the period December 7, 1988 (commencement of operations) through
November 30, 1988.
** 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, reimbursements or interest expenses during the
period.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
(c) Represents interest expense on reverse repurchase agreements.
6
<PAGE>
Financial highlights for a Service Share of the TREASURY FUND outstanding
throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994 1993 1992 1991 1990*
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net investment
income................ 0.0463 0.0513 0.0331 0.0256 0.0333 0.0555 0.0428
Net realized loss on
securities............ (0.0001) (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment operations... 0.0462 0.0510 0.0330 0.0256 0.0333 0.0555 0.0428
------------ ------------ ------------ ------------ ------------ ------------ ------------
Dividends from net
investment income....... (0.0463) (0.0513) (0.0331) (0.0256) (0.0333) (0.0555) (0.0428)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value................... (0.0001) (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of
period.................. $ 0.9995 $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............. 4.72% 5.25% 3.36% 2.59% 3.39% 5.70% 4.36%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s)......... $ 682,628 $ 525,609 $ 591,991 $ 403,809 $ 372,691 $ 219,912 $ 6,862
Ratio of operating
expenses to average
net assets............ 0.75% 0.75% 0.74% 0.75% 0.73% 0.75% 0.75%+
Ratio of interest
expense to average net
assets................ 0.07%(c) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%+
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of total expenses
to average net
assets................ 0.82% 0.75% 0.74% 0.75% 0.73% 0.75% 0.75%+
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of net investment
income to average net
assets................ 4.62% 5.13% 3.38% 2.56% 3.30% 5.09% 7.24%+
Ratio of operating
expenses to average
net assets**.......... 0.77% 0.77% (a) (a) (a) 0.76% 0.77%+
Ratio of interest
expense to average net
assets................ 0.07%(c) 0.00% (a) (a) (a) 0.00% 0.00%+
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of total expenses
to average net
assets**.............. 0.84% 0.77% (a) (a) (a) 0.76% 0.77%+
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of net
investments income to
average net
assets**.............. 4.60% 5.11% (a) (a) (a) 5.08% 7.22%+
</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.
(a) There were no waivers, reimbursements or interest expenses during the
period.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
(c) Represents interest expense on reverse repurchase agreements.
7
<PAGE>
Financial highlights for an Institutional Share of the TAX-EXEMPT FUND
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------------------------ PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992+++ 1991 1990 1989*
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 0.9998 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from
investment
operations:
Net investment
income........... 0.0324 0.0355 0.0242 0.0214 0.0290 0.0446 0.0560 0.0605
Net realized and
unrealized gains
(losses) on
securities....... 0.0000 (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001) (0.0002)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment
operations....... 0.0324 0.0352 0.0242 0.0215 0.0290 0.0447 0.0559 0.0603
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Dividends from net
investment
income............. (0.0324) (0.0355) (0.0242) (0.0214) (0.0290) (0.0446) (0.0560) (0.0605)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net
asset value........ 0.0000 (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0001) (0.0002)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END
OF PERIOD.......... $ 0.9996 $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 0.9998
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return........ 3.29% 3.61% 2.45% 2.16% 2.94% 4.55% 5.74% 6.22%++
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s).... $145,592 $156,353 $162,856 $147,525 $158,692 $122,151 $124,270 $143,211
Ratio of expenses
to average net
assets........... 0.34% 0.40% 0.40% 0.40% 0.40% 0.39% 0.38% 0.36%+
Ratio of net
investment income
to average
assets........... 3.23% 3.53% 2.42% 2.13% 2.88% 4.46% 5.60% 6.14%+
Ratio of expenses
to average net
assets**......... 0.45% 0.52% 0.46% 0.56% 0.57% 0.54% 0.53% 0.51%+
Ratio of net
investment income
to average net
assets**......... 3.12% 3.41% 2.36% 1.97% 2.71% 4.31% 5.45% 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
---------------------------------------------------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992+++ 1991 1990*
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net investment income....... 0.0283 0.0319 0.0206 0.0179 0.0255 0.0411 0.0304
Net realized and unrealized
gains (losses) on
securities................. 0.0000 (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0003)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total from investment
operations................... 0.0283 0.0316 0.0206 0.0180 0.0255 0.0412 0.0301
------------ ------------ ------------ ------------ ------------ ------------ ------------
Dividends from net investment
income....................... (0.0283) (0.0319) (0.0206) (0.0179) (0.0255) (0.0411) (0.0304)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value........................ 0.0000 (0.0003) 0.0000 0.0001 0.0000 0.0001 (0.0003)
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD....................... $ 0.9996 $ 0.9996 $ 0.9999 $ 0.9999 $ 0.9998 $ 0.9998 $ 0.9997
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return.................. 2.87% 3.24% 2.08% 1.80% 2.58% 4.19% 2.61%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)..................... $ 2,861 $ 2,855 $ 4,028 $ 487 $ 111 $ 11 $ 1,943
Ratio of expenses to average
net assets................. 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%+
Ratio of net investment
income to average net
assets..................... 2.83% 3.19% 2.17% 1.75% 2.65% 5.08% 5.17%+
Ratio of expenses to average
net asset**................ 1.03% 1.20% 1.59% 0.92% 0.92% 0.91% 0.94%+
Ratio of net investment
income to average net
assets**................... 2.55% 2.74% 1.33% 1.58% 2.48% 4.92% 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, which involve various risks, and which are
described in following sections. Although the Funds will endeavor to attain
their investment objectives, there can be no assurance they will be successful.
Each Fund invests only in U.S. dollar-denominated securities that mature in
thirteen months or less (with certain exceptions). The dollar-weighted average
portfolio maturity of each Fund may not exceed ninety days.
Instruments acquired by the Funds will be "First Tier Securities" as
described below. The term "First Tier Securities" has a technical definition
given by the Securities and Exchange Commission ("SEC"), but generally refers to
securities that the Adviser or Sub-Adviser has determined 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.
PRIME FUND
The investment objective of the Prime Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Prime Fund pursues its objective by investing
in a broad range of government, bank and corporate obligations. In accordance
with the current rules of the SEC, 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. Securities subject to certain unconditional demand features are
subject to different diversification requirements.
TREASURY FUND
The investment objective of the Treasury Fund is to seek to provide a high
level of current income consistent with liquidity, the preservation of capital
and a stable net asset value. The Treasury Fund seeks to achieve its objective
by investing in obligations that the U.S. Government has issued or to which the
U.S. Government has pledged its full faith and credit to guarantee the payment
of principal and interest. You should note, however, that shares of the Treasury
Fund are not themselves issued or guaranteed by the U.S. Government or any of
its agencies. U.S. Treasury obligations include Treasury bills, certain Treasury
strips, certificates of indebtedness, notes and bonds, and obligations of other
agencies and instrumentalities that are backed by the U.S. Treasury. It is the
Treasury Fund's policy that under normal conditions it will invest 65% or more
of its total assets in U.S. Treasury obligations and repurchase agreements for
which such obligations serve as collateral.
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
10
<PAGE>
possessions of the United States and the District of Columbia, and of their
agencies, authorities, instrumentalities and political sub-divisions ("municipal
obligations"). Under normal conditions the Fund invests 80% or more of its
assets in these municipal obligations. The Fund may also invest up to 20% of its
total assets in municipal obligations subject to the federal alternative minimum
tax. Otherwise, the Fund will not knowingly purchase securities the interest on
which is subject to federal tax. Cash may temporarily be held uninvested (and
thus not earn income) if market or economic conditions are unfavorable. In
accordance with the current rules of the SEC, 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. Securities subject to certain unconditional demand features are
subject to different diversification requirements.
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 instruments, including bank obligations and
commercial paper. Obligations of certain agencies, 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 support 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 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.
11
<PAGE>
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 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 (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.
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.
12
<PAGE>
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 obligations of 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 deposits
("CDs"), bankers' acceptances, notes and time deposits issued or supported by
U.S. or foreign banks and savings institutions that have total assets of more
than $1 billion. The Fund may also invest in CDs and time deposits of domestic
branches of U.S. banks that have total assets of less than $1 billion if the CDs
and time deposits are insured by the FDIC. Investments in foreign banks and
foreign branches of U.S. banks will not make up more than 25% of the Fund's
total assets when the investment is made. (To the extent permitted by the SEC,
bank obligations of U.S. branches of foreign banks will be considered to be
investments in U.S. banks for purposes of this calculation.) The Fund may also
make interest-bearing savings deposits in amounts not exceeding 5% of its total
assets.
REPURCHASE AGREEMENTS. The PRIME FUND and TREASURY FUND may buy portfolio
securities subject to the seller's agreement to repurchase them at an agreed
upon time and price. These transactions are known as repurchase agreements. The
Funds will enter into repurchase agreements only with financial institutions
deemed to be creditworthy by the Adviser, pursuant to guidelines established by
the Board of Trustees. During the term of any repurchase agreement, the Adviser
will monitor the creditworthiness of the seller, and the seller must maintain
the value of the securities subject to the agreement in an amount that is
greater than the repurchase price. Default or bankruptcy of the seller would,
however, expose the Funds to possible loss because of adverse market action or
delays connected with the disposition if the underlying obligations. Because of
the seller's repurchase obligation, 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 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.
13
<PAGE>
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 Emerald Funds' Board of
Trustees if they can be disposed of promptly in the ordinary course of business
at a value reasonable close to that used in the calculation of the PRIME FUND'S
per share net asset value.
Although 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 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.
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Pursuant to a BIC or GIC, the Fund would make cash contributions to a deposit
account at a bank or insurance company. These contracts are general obligations
of the issuing bank or insurance company and are paid from the general assets of
the issuing entity. In return for its cash contribution, the Fund would receive
interest from the issuing entity at either a negotiated fixed or floating rate.
Because BICs and GICs are generally not assignable or transferable without the
permission of the bank or insurance company involved, and an active secondary
market does not currently exist for these instruments, they are considered
illiquid securities and are subject to the Fund's policy and limitation on such
investments as described below under "Managing Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The PRIME 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.
STAND-BY COMMITMENTS. The 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 each Fund pays in connection
with its own operations.
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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"). Each Fund currently intends to limit these investments so
that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of other investment
companies as a group; (c) not more than 3% of the outstanding voting stock of
any one investment company will be owned by a Fund; and (d) not more than 10% of
the outstanding voting stock of any one closed-end investment company will be
owned in the aggregate by a Fund, other investment portfolios of Emerald Funds,
or any other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund, except the 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 liquid assets 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. In addition, a Fund may use reverse repurchase
agreements when it is anticipated that the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. This use of reverse repurchase agreements may be
regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the possible risks that the interest income earned on the
investment of the proceeds will be less than the interest expense, that the
market value of portfolio securities the Fund relinquishes may decline below the
price the Fund must pay when the transaction closes and that the securities may
not be returned to the Fund. Interest paid by the Fund in a reverse repurchase
or other borrowing transaction will reduce the Fund's income.
SECURITIES LENDING. The PRIME FUND and TREASURY FUND may lend securities
held in their portfolios to broker-dealers and other institutions as a means of
earning additional income. These loans present risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, securities loans will be made only to parties the Adviser deems to be
of good standing, and will only be made if the Adviser thinks the possible
rewards from such loan justify the possible risks. A loan will not be made if,
as a result, the total amount of a Fund's outstanding loans exceeds 33% 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 each 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 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
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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 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.
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In addition, the PRIME FUND and TAX-EXEMPT FUND may purchase custodial
receipts, tender option bonds and certificates of participation in trusts that
hold municipal or other types of obligations. A certificate of participation
gives the Fund an individual, proportionate interest in the obligation, and may
have a variable or fixed rate. Because certificates of participation are
interests in obligations that may be funded through government appropriations,
they are subject to the risk that sufficient appropriations as to the timely
payment of principal and interest on the obligations may not be made. The NRSRO
quality rating of an issue of certificates of participation is normally based
upon the rating of the obligations held by the trust and the credit rating of
the issuer of any letter of credit and of any other guarantor providing credit
support to the issue.
Payment on obligations held by a Fund 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
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 (with
certain limited exceptions).
2. A Fund may not borrow money except for temporary purposes in amounts up to
one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, that Fund will not
make any investments.
3. Under normal market conditions, the Tax-Exempt Fund must invest at least 80%
of its net assets in securities that provide interest exempt from regular
federal income tax.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT CAPITAL ADVISORS, INC. (REFERRED TO AS 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. The Adviser is a
newly-organized, wholly-owned subsidiary of Barnett Bank, N.A., which, in turn,
is a wholly-owned subsidiary of Barnett Banks, Inc. The Adviser is a corporation
headquartered in Florida.
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ENTRUSTED WITH APPROXIMATELY $10 BILLION UNDER ACTIVE MANAGEMENT, the
Adviser provides investment management services to individuals and institutions.
As the investment adviser to Emerald Funds, the Adviser employs investment
professionals who are dedicated to managing money on a full-time basis. For the
Tax-Exempt Fund, the Adviser 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
Customers from other banks or financial institutions. Barnett and other
Institutions may also charge their Customers certain account fees depending on
the type of account a Customer has established with the Institution. These fees
may include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income.
Information concerning these minimum account requirements, services and any
charges should be obtained from the Institutions before a Customer authorizes
the purchase of Fund shares, and this Prospectus should be read in conjunction
with any information so obtained.
Purchases for shares of the Funds will be effected only on days on which
both the New York Stock Exchange (the "Exchange") and the Funds' Custodian are
open for business (a "Business Day") and only when federal funds or other funds
are immediately available to the Funds' transfer agent to make the purchase on
the day it receives the purchase order. Additionally, on days when the Exchange
and/ or the Fund's Custodian close early due to a partial holiday or otherwise,
the Funds reserve the right to advance the times by 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
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of business on the day the order is received by the transfer agent, the order
will be cancelled. In addition, any purchase order received by the transfer
agent after 2:00 p.m. (Eastern time) with respect to the Prime and Treasury
Funds (12:00 noon (Eastern time) with respect to the Tax-Exempt Fund) will not
be accepted, and notice thereof will be given to the Institution placing the
order. Any funds received in connection with late orders will be returned
promptly.
Each Fund observes the following holidays: New Year's Day (observed), Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day, Veterans' Day (observed), Thanksgiving
Day and Christmas Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Fund in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
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 to new shareholders.
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 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 1940 Act. A shareholder of
record may be required to redeem shares in a Fund if the balance in such
shareholder's account in the Fund drops below $4,000 and the shareholder does
not increase its balance to at least $4,000 upon 60 days' written notice. If a
Customer has agreed with an Institution to maintain a minimum balance in his
account with the Institution, and the balance in the account falls below that
minimum, the Customer may be obligated to redeem all or part of his shares in
that Fund to the extent necessary to maintain the minimum balance required. The
Funds may also
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redeem shares involuntarily if it appears appropriate to do so in light of the
Funds' responsibilities under the 1940 Act. 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
1940 Act. 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) with respect to the Prime and Treasury Funds (12:00 noon (Eastern
time) with respect to the Tax-Exempt Fund) and the close of business or on a
non-Business Day will normally be wired in federal funds on the next Business
Day. Emerald Funds reserves the right, however, to delay the wiring of
redemption proceeds for up to seven days after receipt of a redemption order if,
in the judgment of the Adviser, an earlier payment could adversely affect a
Fund.
DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income, which
flows from the interest that the Fund earns on the money market and other
investments it owns. Dividends on each Institutional Share and Service Share are
determined in the same manner and are paid in the same amount regardless of
class, except that 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 and registration expenses).
The Funds realize a capital gain when they sell a security for more than its
cost. Each Fund may make distributions of its net capital gains, if any, after
any reductions for capital loss carryforwards.
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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 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 Institutional Shares or Service Shares held by an Institution in
the Funds are redeemed, the Funds will pay accrued dividends within five
Business Days after the end of each month in which the redemption occurs.
Net capital gain distributions for the Funds, if any, are made at least
annually after any reductions for capital loss carryforwards.
EXPLANATION OF SALES PRICE
Net asset value per share is determined on each Business Day (as defined
above) at 2:00 p.m. (Eastern time) with respect to the Prime and Treasury Funds
(12:00 noon (Eastern time) with respect to the Tax-Exempt Fund) by adding the
value of a Fund's investments, cash and other assets allocated 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."
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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, Fanning, 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
Fund owns.
TRANSFER AGENT
BISYS FUND SERVICES, INC.
BISYS Fund Services, Inc. is the transfer agent for the Funds. This means
that its job is to maintain the account records of all shareholders 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 SEC 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 in each of three classes
(Institutional Shares, Service Shares and Retail Shares) representing interests
in the Prime, Treasury and Tax-Exempt Funds, which are classified as diversified
companies under the 1940 Act. 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
Shares, 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 paid 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 Plans. In addition, shares of
each Fund's three share classes bear other miscellaneous "class expenses" (I.E.,
certain printing and registration expenses).
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Standardized yield quotations and total returns 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 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 March 5, 1997, 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 and Processing 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 the Adviser, 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 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
24
<PAGE>
would be in addition to any amounts which may be received by a Service
Organization under its service agreement with Emerald Funds. 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 SEC, 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.
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:
- Marshall M. Criser, Chairman of the Board of Emerald Funds, is Chairman of
the law firm of Mahoney Adams & Criser, P.A.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Grimsley Marker & Iseley, P.A.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is a Professor, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
- Harvey R. Holding is the retired Executive Vice President and Chief
Financial Officer of BellSouth Corp.
25
<PAGE>
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT CAPITAL
ADVISORS, INC. 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 "Rodney Square" or 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., 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, 1996, the Adviser had
approximately $10 billion under active management. The Adviser 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 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, 1996 of $1.7 billion.
The Adviser manages the investment portfolios of the Prime and Treasury
Funds, including selecting portfolio investments and making purchase and sale
orders. The Sub-Adviser manages the investment portfolio of the Tax-Exempt Fund,
including selecting portfolio investments and making purchase and sale orders,
in accordance with investment requirements and policies established by the
Adviser.
Although expected to be infrequent, the Adviser (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) in allocating orders for purchases and
sales of portfolio securities. This allocation may involve the payment of
brokerage commissions or dealer concessions. The Adviser (or 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.
The Adviser 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 the Adviser 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 the Adviser 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
26
<PAGE>
shareholders, calculating the net asset values of Fund shares, dividends and
capital gain distributions to shareholders, and performing other administrative
functions necessary for the smooth operation of the Funds.
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.
The Adviser is entitled to advisory fees that are calculated daily and
payable monthly at the annual rate of .25% of each Fund's average daily net
assets. The Adviser 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 the Adviser to the Sub-Adviser comes
out of the Adviser's advisory fee for the Tax-Exempt Fund and is not an
additional charge to that Fund.
For the fiscal year ended November 30, 1996, the Adviser and the prior
adviser received fees, after waivers, at the effective annual rates of .21%,
.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 each Fund's net assets increases. The Adviser has, however, informed Emerald
Funds of its intention to reduce the annual rate of its advisory fees with
respect to these two Funds to the following rates: .25% 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 the Adviser and the Funds' other service providers. 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, 1996, the Prime, Treasury and
Tax-Exempt Funds' ratios of ordinary operating expenses to average net assets
after waivers were 0.38% and 0.72%, 0.40% and 0.75% and 0.34% and 0.75% for
Institutional Shares and Service Shares, respectively.
27
<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 (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
the Prime Fund and Treasury Fund will be taxable to you.
In order to so qualify, 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.
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.
28
<PAGE>
Shares of the Prime Fund and Tax-Exempt Fund are not expected to qualify for
total exemption from the Florida intangibles tax. Shares of the Treasury Fund
may or may not qualify in any calendar year for this exemption. In order to
qualify for this exemption, the Treasury Fund may sell any non-exempt assets
held in its portfolio (such as repurchase agreements) during the year and
reinvest the proceeds in exempt assets, or hold cash, prior to December 31.
Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and monitoring
your investments. Each Fund may quote performance in advertisements or
shareholder communications. The performance for each class of shares of a Fund
is calculated separately from the performance of the 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) 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."
- - Total return 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.
PERFORMANCE COMPARISONS:
The Funds may compare their total returns and 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, may be used for
comparison.
The performance of the Prime Fund may be compared to the Donoghue's Money
Fund Average, the performance of the Treasury Fund may be compared to the
Donoghue's Government Money Fund
29
<PAGE>
Average and the performance 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'
performance quotations.
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......................................... 18
Your Money Manager............................................... 18
Purchase of Shares............................................... 19
Redemption of Shares............................................. 20
Dividends and Distributions...................................... 21
Explanation of Sales Price....................................... 22
Other Service Providers.......................................... 22
THE EMERALD FAMILY OF FUNDS........................................ 23
THE BUSINESS OF THE FUNDS.......................................... 25
Fund Management.................................................. 25
Tax Implications................................................. 27
Measuring Performance............................................ 29
</TABLE>
<PAGE>
EMERALD FUNDS
-------------
(Institutional Shares of the Equity Fund, International Equity Fund,
Small Capitalization Fund, Balanced Fund,
Managed Bond Fund and Prime Fund)
(Institutional 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, Prime Fund and Treasury Fund)
(Institutional 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
Pursuant to Rule 495(a)
under the Securities Act of 1933
Form N-1A Item Number Prospectus Heading/Location
- --------------------- --------------------------
1. Cover Page . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . Summary of Expenses and Financial
Information - Expenses
3. Condensed Financial Summary of Expenses and Financial
Information . . . . . . . . . . Information - Financial Highlights;
The Business of the Funds -
Measuring Performance
4. General Description of Cover Page; Risk Factors, Investment
Registrant . . . . . . . . . . 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 Financial
Fund Performance . . . . . . . Information -
Financial Highlights
<PAGE>
Form N-1A Item Number Prospectus Heading/Location
- --------------------- --------------------------
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 Portfolios)
Proceedings . . . . . . . . . .
<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
PROSPECTUS FOR EQUITY, INTERNATIONAL EQUITY, SMALL CAPITALIZATION, BALANCED,
MANAGED BOND AND PRIME FUNDS
<TABLE>
<CAPTION>
April 1, 1997
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 associated with equity investments
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital appreciation through Capital appreciation over the long-term and
EQUITY investments primarily in equity securities of are willing to accept the relative risks
foreign issuers associated with foreign investments
- ----------------------------------------------------------------------------------------------------------------------------
SMALL Long-term capital appreciation Long-term rewards that may exceed those
CAPITALIZATION provided by a fund investing in larger, more
established companies and can accept the
investment risks of smaller companies
- ----------------------------------------------------------------------------------------------------------------------------
BALANCED Attractive investment return through a Asset allocation among equity securities,
combination of growth of capital and current fixed income securities and cash equivalents
income in light of prevailing market and economic
conditions
- ----------------------------------------------------------------------------------------------------------------------------
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, 1997 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 BANK, 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 ATTEMPTS 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 CAPITAL ADVISORS, INC. 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.
<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, International
Equity, Small Capitalization, Balanced and Managed Bond and Prime Funds.
Examples based on this information are also provided.
<TABLE>
<CAPTION>
SMALL
EQUITY INTERNATIONAL CAPITALIZATION BALANCED
FUND EQUITY FUND 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
Deferred Sales Charge................................................ None None None None
Redemption Fee....................................................... None None None None
Exchange Fee......................................................... None None None None
ANNUAL FUND OPERATING EXPENSES:
Advisory Fees (After Fee Waivers).................................... 0.60% 1.00% 1.00% 0.60%
All Other Expenses................................................... 0.15% 0.31% 0.18% 0.20%
--------- ------ ------ -----------
Total Fund Operating Expenses (After Fee Waivers)*................... 0.75% 1.31% 1.18% 0.80%
--------- ------ ------ -----------
--------- ------ ------ -----------
</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% 0.22%
All Other Expenses.......................................................................... 0.17% 0.15%
----------- ---------
Total Fund Operating Expenses (After Fee Waivers)........................................... 0.57% 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 .25% for the Prime Fund. Absent these
waivers and other expense reimbursements the
3
<PAGE>
total operating expenses for Institutional Shares of the Prime Fund would be
.40%. 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 $24 $42 $ 93
International Equity Fund........................................ $13 $42 $72 $158
Small Capitalization Fund........................................ $12 $37 $65 $143
Balanced Fund.................................................... $ 8 $26 $44 $ 99
Managed Bond Fund................................................ $ 6 $18 $32 $ 71
Prime Fund....................................................... $ 4 $12 $21 $ 47
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS FOR THE FISCAL PERIODS SHOWN, WHOSE
UNQUALIFIED REPORTS ON THE FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR
EACH OF THE FIVE YEARS IN THE PERIOD ENDED NOVEMBER 30, 1996 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, 1996, 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 YEAR ENDED PERIOD ENDED ------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(C) 1995 1994+++ 1994 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 14.63 $ 10.89 $ 11.94 $ 11.82 $ 11.97
-------------- -------------- -------------- -------------- --------------
Income from investment operations:
Net investment income............... 0.06 0.08 0.11 0.08 0.15
Net realized and unrealized gain
(loss) on securities............... 3.02 3.74 (0.90) (0.39) (0.08)
-------------- -------------- -------------- -------------- --------------
Total income (loss) from investment
operations......................... 3.08 3.82 (0.79) (0.31) 0.07
-------------- -------------- -------------- -------------- --------------
Less dividends and distributions:
Dividends from net investment
income............................. (0.06) (0.08) (0.11) (0.08) (0.15)
Distributions from net realized
gains on securities................ (1.29) (0.00) (0.15) (0.57) (0.07)
-------------- -------------- -------------- -------------- --------------
Total dividends and distributions... (1.35) (0.08) (0.26) (0.65) (0.22)
-------------- -------------- -------------- -------------- --------------
Net change in net asset value......... 1.73 3.74 (1.05) (0.96) (0.15)
-------------- -------------- -------------- -------------- --------------
NET ASSET VALUE, END OF PERIOD........ $ 16.36 $ 14.63 $ 10.89 $ 10.86 $ 11.82
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Total return 23.33% 35.21% (6.62%)++ (2.91%) 0.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 217,184 $ 173,824 $ 164,015 $ 19,705 $ 138,642
Ratio of expenses to average net
assets............................. 0.79% 0.84% 0.79%+ 1.07% 0.86%
Ratio of net investment income to
average net assets................. 0.43% 0.67% 1.46%+ 0.36% 1.22%
Ratio of expenses to average net
assets**........................... 0.79% (a) (a) 1.29% 1.21%
Ratio of net investment income to
average net assets**............... 0.43% (a) (a) 0.13% 0.87%
Portfolio turnover.................. 89% 104% 113% 113% 102%
Average commission rate paid(b)..... $ 0.0518 -- -- -- --
<CAPTION>
PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1992 1991*
-------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................... $ 10.24 $ 10.00
-------------- --------------
Income from investment operations:
Net investment income............... 0.16 0.12
Net realized and unrealized gain
(loss) on securities............... 1.73 0.24
-------------- --------------
Total income (loss) from investment
operations......................... 1.89 0.36
-------------- --------------
Less dividends and distributions:
Dividends from net investment
income............................. (0.16) (0.12)
Distributions from net realized
gains on securities................ (0.00) (0.00)
-------------- --------------
Total dividends and distributions... (0.16) (0.12)
-------------- --------------
Net change in net asset value......... 1.73 0.24
-------------- --------------
NET ASSET VALUE, END OF PERIOD........ $ 11.97 $ 10.24
-------------- --------------
-------------- --------------
Total return 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).... $ 152,939 $ 98,953
Ratio of expenses to average net
assets............................. 0.76% 0.00%+
Ratio of net investment income to
average net assets................. 1.41% 2.64%+
Ratio of expenses to average net
assets**........................... 1.18% 1.22%+
Ratio of net investment income to
average net assets**............... 0.99% 1.42%+
Portfolio turnover.................. 40% 13%
Average commission rate paid(b)..... -- --
</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 free 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.
(a) There were no waivers or reimbursements during the period.
(b) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(c) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
5
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
Financial highlights for an Institutional Share of the International Equity
Fund outstanding throughout the period indicated:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30
1996*(B)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................................................... $ 10.00
--------
Income from investment operations:
Net Investment income........................................................................ 0.06
Net realized and unrealized gains on securities.............................................. 1.29
--------
Total income from investment operations...................................................... 1.35
--------
Dividends from net investment income........................................................... (0.06)
--------
Net change in net asset value................................................................ 1.29
--------
NET ASSET VALUE, END OF PERIOD................................................................. $ 11.29
--------
--------
Total return................................................................................... 13.47%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)............................................................. $ 17,528
Ratio of expenses to average net assets...................................................... 0.00%+
Ratio of net investment income to average net assets......................................... 1.99%+
Ratio of expenses to average net assets**.................................................... 3.46%+
Ratio of net investment loss to average net assets**......................................... (1.47%)+
Portfolio Turnover........................................................................... 50%
Average commission rate paid (a)............................................................. $ 0.0463
</TABLE>
- ------------
* For the period December 27, 1995 (commencement of operations) through
November 30, 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
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly-owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser, and
effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's investment sub-adviser.
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 YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 12.78 $ 9.66 $ 10.00
------------ ------------ ------------
Income from investment operations:
Net investment loss................................................. (0.07) (0.03) (0.04)
Net realized and unrealized gains (losses) on securities............ 1.81 3.15 (0.30)
------------ ------------ ------------
Total income (loss) from investment operations...................... 1.74 3.12 (0.34)
------------ ------------ ------------
Distributions from net realized gains on securities................... (1.00) (0.00) (0.00)
------------ ------------ ------------
Net change in net asset value......................................... 0.74 3.12 (0.34)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................................ $ 13.52 $ 12.78 $ 9.66
------------ ------------ ------------
------------ ------------ ------------
Total return.......................................................... 14.49% 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................... $ 138,008 $ 88,561 $ 53,509
Ratio of expenses to average net assets............................. 1.22% 1.39% 1.29%+
Ratio of net investment loss to average net assets.................. (0.60%) (0.65%) (0.54%)+
Ratio of expenses to average net assets**........................... 1.24% 1.42% 1.48%+
Ratio of net investment loss to average net assets**................ (0.62%) (0.68%) (0.73%)+
Portfolio turnover.................................................. 356% 229% 118%
Average commission rate paid (a).................................... $ 0.0420 -- --
</TABLE>
- ------------
* For the period January 4, 1994 (commencement of operations) throughNovember
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
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 YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 11.91 $ 9.63 $ 10.00
------------ ------------ ------------
Income from investment operations:
Net investment income............................................... 0.35 0.33 0.27
Net realized and unrealized gains (losses) on securities............ 1.34 2.28 (0.37)
------------ ------------ ------------
Total income from investment operations............................. 1.69 2.61 (0.10)
------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income................................ (0.35) (0.33) (0.25)
Distributions in excess of net investment income.................... (0.00) (0.00) (0.02)
Distributions from net realized gains on securities................. (0.22) (0.00) (0.00)
------------ ------------ ------------
Total dividends and distributions................................... (0.57) (0.33) (0.27)
------------ ------------ ------------
Net change in net asset value......................................... 1.12 2.28 (0.37)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................................ $ 13.03 $ 11.91 $ 9.63
------------ ------------ ------------
------------ ------------ ------------
Total return.......................................................... 14.73% 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................... $ 90,602 $ 73,830 $ 51,170
Ratio of expenses to average net assets............................. 0.69% 0.32% 0.28%+
Ratio of net investment income to average net assets................ 2.96% 3.54% 4.11%+
Ratios of expenses to average net assets**.......................... 0.90% 1.10% 1.25%+
Ratios of net investment income to average net assets**............. 2.75% 2.76% 3.14%+
Portfolio turnover.................................................. 106% 87% 33%
Average commission rate paid (a).................................... $ 0.0466 -- --
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized
++ Not Annualized
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
8
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(A) 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 10.55 $ 9.55 $ 10.00
------------ ------------ ------------
Income from investment operations:
Net investment income............................................... 0.65 0.70 0.45
Net realized and unrealized gains (losses) on securities............ (0.06) 1.00 (0.45)
------------ ------------ ------------
Total income (loss) from investment operations...................... (0.59) 1.70 0.00
------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income................................ (0.65) (0.70) (0.43)
Distributions in excess of net investment income.................... (0.12) (0.00) (0.02)
------------ ------------ ------------
Total dividends and distributions................................... (0.77) (0.70) (0.45)
------------ ------------ ------------
Net change in net asset value......................................... (0.18) 1.00 (0.45)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................................ $ 10.37 $ 10.55 $ 9.55
------------ ------------ ------------
------------ ------------ ------------
Total return.......................................................... 5.96% 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................... $ 75,519 $ 68,923 $ 66,588
Ratio of expenses to average net assets............................. 0.55% 0.31% 0.27%+
Ratio of net investment income to average net assets................ 6.32% 6.95% 6.83%+
Ratio of expenses to average net assets**........................... 0.67% 0.83% 0.86%+
Ratio of net investment income to average net assets**.............. 6.20% 6.43% 6.25%+
Portfolio turnover.................................................. 97% 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.
(a) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
9
<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,
1996(B) 1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
-------------- -------------- -------------- -------------- -------------- --------------
Income from investment of
operations:
Net investment income........ 0.0519 0.0566 0.0390 0.0316 0.0407 0.0637
Net realized gains (losses)
on securities............... 0.0000 0.0002 (0.0028) (0.0001) 0.0001 0.0001
-------------- -------------- -------------- -------------- -------------- --------------
Total income from investment
operations.................. 0.0519 0.0568 0.0362 0.0315 0.0408 0.0638
-------------- -------------- -------------- -------------- -------------- --------------
Less dividends and
distributions:
Dividends from net investment
income...................... (0.0519) (0.0566) (0.0390) (0.0316) (0.0407) (0.0637)
Distributions from net
realized gains on
securities.................. (0.0002) (0.0000) (0.0000) (0.0001) (0.0000) (0.0000)
-------------- -------------- -------------- -------------- -------------- --------------
Total dividends and
distributions................. (0.0521) (0.0566) (0.0390) (0.0317) (0.0407) (0.0637)
-------------- -------------- -------------- -------------- -------------- --------------
Voluntary capital
contribution.................. 0.0000 0.0000 0.0029 0.0000 0.0000 0.0000
-------------- -------------- -------------- -------------- -------------- --------------
Net change in net asset
value......................... (0.0002) 0.0002 0.0001 (0.0002) 0.0001 0.0001
-------------- -------------- -------------- -------------- -------------- --------------
NET ASSET VALUE, END OF
PERIOD........................ $ 1.0000 $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
Total return................... 5.34% 5.81% 3.97% 3.21% 4.14% 6.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)...................... $ 598,009 $ 462,726 $ 413,541 $ 510,683 $ 1,947,016 $ 512,919
Ratio of expenses to average
net assets.................. 0.38% 0.37% 0.37% 0.35% 0.37% 0.40%
Ratio of net investment
income to average net
assets...................... 5.19% 5.66% 3.92% 3.21% 3.84% 6.27%
Ratio of expenses to average
net assets**................ 0.42% 0.39% (a) (a) (a) 0.42%
Ratio of net investment
income to average net
assets**.................... 5.15% 5.64% (a) (a) (a) 6.25%
<CAPTION>
PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1990 1989*
-------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 0.9999 $ 1.0000
-------------- --------------
Income from investment of
operations:
Net investment income........ 0.0805 0.0890
Net realized gains (losses)
on securities............... 0.0000 (0.0001)
-------------- --------------
Total income from investment
operations.................. 0.0805 0.0889
-------------- --------------
Less dividends and
distributions:
Dividends from net investment
income...................... (0.0805) (0.0890)
Distributions from net
realized gains on
securities.................. (0.0000) (0.0000)
-------------- --------------
Total dividends and
distributions................. (0.0805) (0.0890)
-------------- --------------
Voluntary capital
contribution.................. 0.0000 0.0000
-------------- --------------
Net change in net asset
value......................... 0.0000 (0.0001)
-------------- --------------
NET ASSET VALUE, END OF
PERIOD........................ $ 0.9999 $ 0.9999
-------------- --------------
-------------- --------------
Total return................... 8.36% 9.27%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)...................... $ 278,419 $ 192,628
Ratio of expenses to average
net assets.................. 0.39% 0.36%+
Ratio of net investment
income to average net
assets...................... 8.03% 9.00%+
Ratio of expenses to average
net assets**................ 0.45% 0.44%+
Ratio of net investment
income to average net
assets**.................... 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
10
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser and, with respect to the International Equity Fund, the Fund's
Sub-Adviser, uses a range of different investments and investment techniques in
seeking to achieve a Fund's investment objectives. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks and which are also described in the following sections. You should
consider which Funds best meet your investment goals. The Funds' Adviser and
Sub-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 also seeks to be well diversified
across many economic sectors. 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.) In managing the Fund, the Adviser generally seeks
securities of larger companies with market capitalizations exceeding $5 billion
at the time of purchase. "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"), European Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs"), 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. The Fund may also write covered call options.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing at least 65% of its total assets in equity securities of foreign
issuers, including emerging markets countries. 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.
11
<PAGE>
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia,
the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, India,
Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico,
The Netherlands, New Zealand, Norway, Pakistan, Peru, The Philippines, Poland,
Portugal, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, The United Kingdom, Venezuela and the countries that comprise
the former Soviet Union. More than 25% of the Fund's total assets may be
invested in the securities of issuers located in the same country, except that
no more than 20% of the Fund's total assets may be invested in all emerging
markets countries. 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. Investments in emerging
markets countries may not be as liquid as those in developed countries and pose
greater risks.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund may invest in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
The Sub-Adviser to the International Equity Fund is committed to the use of
the Graham and Dodd-style value investing approach as introduced in the classic
book SECURITY ANALYSIS. Using this philosophy, the Sub-Adviser views stocks as
small pieces of businesses which are for sale. It seeks to purchase a
diversified group of these businesses at prices its research indicates are below
their true long-term, or intrinsic, value. By purchasing stocks whose current
prices are believed to be below their intrinsic values, the Sub-Adviser seeks to
secure not only a possible margin of safety against price declines, but also an
attractive opportunity for profit over the business cycle.
In analyzing a company's true long-term value, the Sub-Adviser uses sources
of information such as company reports, filings with the Securities and Exchange
Commission, computer databases, industry publications, general and business
publications, brokerage firm research reports, and interviews with company
management. Its focus is on fundamental characteristics of a company, including,
but not limited to, book value, cash flow and capital structure, as well as
management's record and broad industry issues. Once the intrinsic value of a
company is estimated, this value is compared to the current price of the stock.
If the price is substantially lower than the indicated intrinsic value, the
stock may be purchased.
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, EDRs or GDRs also as described under "Portfolio Instruments, Practices and
Related Risks."
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, the Fund's assets may be invested in
short-term debt instruments. In addition, when
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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
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-Registered Trademark-
Composite Stock Price Index ("S&P 500"). The market capitalization of the
issuers of securities purchased by the Fund will normally be between $50 million
and $2 billion at the time of purchase. In managing the Fund, the Adviser seeks
smaller companies with above-average growth prospects. Factors considered in
selecting such issuers include participation in a fast growing industry, a
strategic niche position in a specialized market, adequate capitalization and
fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities. In addition to investing in equity securities,
the Fund is authorized to invest in cash equivalents to provide cash reserves.
The Fund also retains the ability to invest up to 25% of the value of its total
assets in foreign securities by utilizing ADRs, EDRs and GDRs, and may acquire
convertible securities, warrants and similar rights.
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BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, trends and
yields, interest rates and fiscal and monetary developments. The Fund will not
purchase a security if as a result less than 25% of its total assets will be
invested in fixed income securities (including cash equivalents, long-term debt
securities, and convertible debt securities and preferred stocks to the extent
their value is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adopted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income obligations or cash equivalents in the Fund. For example, if the
Adviser expects more rapid economic growth leading to better corporate earnings
in the future, it would normally increase the Fund's equity holdings while
reducing its fixed income and cash equivalent 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, EDRS and GDRs, up to 25% of the
value of its total assets in securities of foreign issuers, and may invest in
warrants and similar rights.
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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 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 Fund's 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
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exceed ninety days. In accordance with the current rules of the Securities and
Exchange Commission ("SEC"), 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.
Securities subject to certain unconditional demand features are subject to
different diversification requirements. The Prime Fund intends to use its best
efforts to maintain the net asset value 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 "First Tier Securities." The
term "First Tier Securities" has a technical definition given by the SEC, but
such term generally refers to securities that the Adviser has determined 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. 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. 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 support 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
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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.
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.
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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 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, 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, MANAGED BOND and PRIME FUNDS and, to a
limited extent, the EQUITY, 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 obligation, 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
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only, if rated, variable and floating rate instruments must be rated in the
highest short-term rating category by an NRSRO. If unrated, such instruments
will need to be determined to be of comparable quality. Unless guaranteed by the
U.S. Government or one of its agencies or instrumentalities, variable or
floating rate instruments purchased by the Prime Fund must permit the Fund to
demand payment of the instrument's principal at least once every thirteen
months. Because of the absence of a market in which to resell a variable or
floating rate instrument, a Fund might have trouble selling an instrument should
the issuer default or during periods when a Fund is not permitted by agreement
to demand payment of the instrument, and for this or other reasons a loss could
occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. Each Fund may invest in stripped securities
that have been issued by a federal instrumentality known as the Resolution
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then 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 may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions.
SMBS, in particular, may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. If the underlying obligations experience greater than
anticipated prepayments, a Fund may fail to fully recoup its initial investment.
The market value of the class consisting entirely of principal payments can be
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-backed obligations because their
cash flow patterns are also volatile and there is a greater risk that the
initial investment will not be fully recouped. SMBS issued by the U.S.
Government (or a U.S. Government agency or instrumentality) may be considered
liquid under guidelines established by Emerald Funds' Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net asset
value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the extent
shareholders request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of a Fund or from other sources
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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
BALANCED, MANAGED BOND and PRIME FUNDS may invest in bank investment contracts
("BICs") issued by banks that meet the asset size requirements described above
under "Bank Obligations" and may also invest in guaranteed investment contracts
("GICs") issued by highly rated U.S. insurance companies that have assets of $1
billion or more and meet the quality and credit standards established by the
Adviser pursuant to guidelines approved by the Board of Trustees. Pursuant to a
BIC or GIC, a Fund would make cash contributions to a deposit account at a bank
or insurance company. These contracts are general obligations of the issuing
bank or insurance company and are paid from the general assets of the issuing
entity. In return for its cash contribution, a Fund would receive interest from
the issuing entity at either a negotiated fixed or floating rate. Because BICs
and GICs are generally not assignable or transferable without the permission of
the bank or insurance company involved, and an active secondary market does not
currently exist for these instruments, they are considered illiquid securities
and are subject to a Fund's policy and limitation on such investments as
described below under "Managing Liquidity."
PARTICIPATIONS AND TRUST RECEIPTS. The BALANCED, MANAGED BOND and PRIME
FUNDS may purchase from domestic financial institutions and trusts created by
such institutions participation interests and trust receipts in high quality
debt securities. A participation interest or receipt gives a Fund an undivided
interest in the security in the proportion that a Fund's participation interest
or receipt bears to the total principal amount of the security. Each Fund
intends only to purchase participations and trust receipts from an entity or
syndicate, and does 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
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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. As examples, the Equity and Balanced Funds may invest
in Standard & Poor's Depository, Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P 500. The INTERNATIONAL EQUITY FUND may also purchase
shares of investment companies investing primarily in foreign securities,
including so-called "country funds." Country funds have portfolios consisting
exclusively of securities of issuers located in one foreign country.
Securities of other investment companies will be acquired by the Funds
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"). Each Fund currently intends to limit these investments so
that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of other investment
companies as a group; (c) not more than 3% of the outstanding voting stock of
any one investment company will be owned by a Fund; and (d) not more than 10% of
the outstanding voting stock of any one closed-end investment company will be
owned in the aggregate by a Fund, other investment portfolios of Emerald Funds,
or any other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When a Fund enters into a reverse
repurchase agreement it will place in a separate custodial account liquid assets
that have a value equal to or more than the price a Fund must pay when it buys
back the securities,
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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. In addition, a Fund
may use reverse repurchase agreements when it is anticipated that the interest
income to be earned from the investment of the proceeds of the transaction is
greater than the interest expense of the transaction. This use of reverse
repurchase agreements may be regarded as leveraging and, therefore, speculative.
Reverse repurchase agreements involve the possible risks that the interest
income earned on the investment of the proceeds will be less than the interest
expense, that the market value of portfolio securities a Fund relinquishes may
decline below the price a Fund must pay when the transaction closes and that the
securities may not be returned to the Fund. Interest paid by a Fund in a reverse
repurchase or other borrowing transaction will reduce a Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, securities
loans will be made only to parties the Adviser deems to be of good standing, and
will only be made if the Adviser thinks the possible rewards from such loan
justify the possible risks. A loan will not be made if, as a result, the total
amount of a Fund's outstanding loans exceeds 31% of its total assets. Securities
loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED and MANAGED BOND FUNDS may enter into
transactions known as "mortgage dollar rolls" in which a Fund sells
mortgage-backed securities for current delivery and simultaneously contracts to
repurchase substantially similar securities in the future at a specified price
which reflects an interest factor and other adjustments. During the roll period,
a Fund does not receive principal and interest on the mortgage-backed
securities, but it is compensated by the difference between the current sales
price and the lower forward price for the future purchase as well as by the
interest earned on the cash proceeds of the initial sale. Unless a roll has been
structured so that it is "covered," meaning that there exists an offsetting cash
or cash-equivalent security position that will mature at least by the time of
settlement of the roll transaction, cash, U.S. Government securities or other
liquid high grade debt instruments in the amount of the future purchase
commitment will be set apart for a Fund involved in a separate account at the
custodian. Mortgage rolls are not a primary investment technique for each of
these Funds, and it is expected that, under normal market conditions, a Fund's
commitments under mortgage rolls will not exceed 10% of the value of its total
assets.
CONVERTIBLE SECURITIES. The EQUITY, INTERNATIONAL EQUITY, SMALL
CAPITALIZATION, BALANCED and MANAGED BOND FUNDS may invest in convertible
securities, including bonds, notes and preferred stock, that may be converted
into common stock either at a stated price or within a specified period of time.
In investing in convertibles, a Fund is looking for the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible, while earning higher current
income than is available from the common stock.
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None of the assets of the Managed Bond Fund, and no more than 15% of the
total assets of the Equity, International Equity, Small Capitalization and
Balanced Funds, may be invested in convertible securities rated below investment
grade at the time of purchase. Non-investment grade convertible securities must
be rated "B" or higher by at least one NRSRO. (A description of applicable
ratings is attached to the Statement of Additional Information as Appendix A.)
Non-investment grade securities are commonly referred to as "junk" bonds and
present a greater risk as to the timely repayment of
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the principal, interest and dividends. Particular risks include (a) the
sensitivity of such securities to interest rate and economic changes, (b) the
lower degree of protection of principal and interest payments, (c) the
relatively low trading market liquidity for the securities, (d) the impact that
legislation may have on the market for these securities (and, in turn, on a
Fund's net asset value) and (e) the creditworthiness of the issuers of such
securities. During an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
negatively affect their ability to meet their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. An economic downturn could also disrupt the market for lower rated
convertible securities and negatively affect the value of outstanding securities
and the ability of the issuers to repay principal and interest. If the issuer of
a convertible security held by a Fund defaulted, that Fund could incur
additional expenses to seek recovery. Adverse publicity and investor
perceptions, whether or not they are based on fundamental analysis, could also
decrease the values and liquidity of lower-rated convertible securities held by
a Fund, especially in a thinly traded market.
OPTIONS. EACH FUND (except the Prime Fund) may write covered call options,
buy put options, buy call options and sell, or "write," secured put options on
particular securities or various securities indices. A call option for a
particular security gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a securities
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by a
Fund will not exceed 25%, of its net assets. 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. projected business goals and to
obtain additional financing. An economic downturn could also disrupt the market
for lower rated convertible securities and negatively affect the value of
outstanding securities and the ability of the issuers to repay principal and
interest. If the issuer of a convertible security held by a Fund defaulted, that
Fund could incur additional expenses to seek recovery. Adverse publicity and
investor perceptions, whether or not they are based on fundamental analysis,
could also decrease the values and liquidity of lower-rated convertible
securities held by a Fund, especially in a thinly traded market.
OPTIONS. EACH FUND (except the Prime Fund) may write covered call options,
buy put options, buy call options and sell, or "write," secured put options on
particular securities or various securities indices. A call option for a
particular security gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. A put
option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise
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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 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 traded on an exchange or board of trade. When a Fund purchases
an option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When a Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, a Fund may purchase
call options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
that Fund intends to purchase. Similarly, if the value of a Fund's portfolio
securities is expected to decline, that Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
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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, but is not required
to, 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. There is a risk of loss to
the Fund if the other party does not complete the transaction.
The International Equity Fund may maintain "short" positions in forward
foreign currency exchange transactions, which would involve the Fund agreeing to
exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of liquid assets 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 (or Sub-Adviser in the case of the
International Equity Fund) has determined pursuant to guidelines adopted by the
Board of Trustees that a liquid trading market exists (including certain
securities that may be purchased by institutional investors under
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SEC Rule 144A), are not subject to this 10% limitation. This investment practice
could have the effect of increasing the level of illiquidity in a Fund during
any period that qualified institutional buyers were no longer interested in
purchasing these restricted securities.
PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objectives. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, the annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced and Managed Bond Funds were 89%, 356%, 106%, and
97%, respectively. The portfolio turnover rate for the International Equity Fund
for the period from commencement of operations (December 27, 1995) through
November 30, 1996 was 50%.
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.
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, and emerging markets countries with respect to the International
Equity Fund. Political and economic structures in many emerging markets
countries may be undergoing significant evolution and rapid development, and may
lack the social, political and economic stability characteristic of more
developed countries. Some emerging markets countries may also have failed in the
past to recognize private property rights and may have
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at times nationalized or expropriated the assets at private companies.
Therefore, the risks of expropriation, nationalism and social, political and
economic instability are greater in those countries than in more developed
capital markets.
Emerging markets are the capital markets of any country which, in the
opinion of the Sub-Adviser, is generally considered to be a developing country
by the international financial community. Currently, with respect to the
International Equity Fund, these markets include, but are not limited to, the
markets of Argentina, Brazil, Chile, China, Colombia, the Czech Republic,
Greece, India, Indonesia, Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the
Philippines, Poland, Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela, and countries that comprise the former Soviet Union. As
opportunities to invest in other emerging markets countries develop, the
International Equity Fund may expand and diversify further the emerging markets
countries in which it invests. As stated above, no more than 20% of the
International Equity Fund's total assets may be invested in all emerging markets
countries.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
In addition, foreign securities markets typically have substantially less
volume than U.S. markets, and the securities in these markets can be less liquid
and present greater risk of loss than the securities of comparable U.S.
companies. Such markets often have different clearance and settlement procedures
for securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets may be uninvested. Settlement problems in
foreign countries also could cause the International Equity Fund to miss
attractive investment opportunities. Satisfactory custodial services may not be
available in some countries, which may result in the International Equity Fund
incurring additional costs and delays in the transportation and custody of such
securities.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS. The International Equity
Fund may invest up to 100% of its total assets and each of the Equity, Small
Capitalization and Balanced Funds may invest up to 25% of its total assets in
ADRs, EDRs and GDRs. 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 and GDRs are receipts issued by non-U.S. banks or trust
companies and foreign branches of U.S. banks that evidence ownership of foreign
or U.S. securities. Unsponsored ADRs, EDRs and GDRs are organized independently
and without the cooperation of the issuer of the underlying securities. As a
result, information concerning the issuer may not be as current as for sponsored
ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be
more volatile than if such instruments were sponsored by the issuer. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs and GDRs are generally
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designed for use in foreign exchanges and over-the-counter markets. ADRs, EDRs
and GDRs 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, EDRs and GDRs involve risks similar
to those accompanying direct investments in foreign securities.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that, in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing, market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Managed Bond and Prime Funds may purchase zero-coupon bonds (I.E., discount debt
obligations that do not make periodic interest payments). Zero-coupon bonds are
subject to greater market fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Changes in the financial strength of
an issuer or changes in the ratings of any particular security may also affect
the value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not affect 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
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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.
The Managed Bond Fund will normally maintain the average weighted maturity
of its portfolio within the specified range previously described. The maturities
of certain instruments, however, such as those subject to prepayment or
redemption by the issuers, are subject to estimation. There is no assurance that
the estimations used by the Fund for these instruments will, in fact, be
accurate or that, if inaccurate, the Fund's average weighted maturity will
remain within the specified limits.
Payment on obligations held by a Fund 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
obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental limitations and may be changed by the Board of Trustees without
shareholder approval. You will be notified of any material changes, but as a
result, a Fund may have different investment objectives from the one 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
(with certain limited exceptions).
2. A Fund may not purchase securities (with certain exceptions, including
U.S. Government securities) if more than 5% of its total assets will be invested
in the securities of any one issuer, except that up to 25% of the total assets
of each Fund can be invested without regard to the 5% limitation. A Fund may not
purchase more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 25% exception.
3. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any additional investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
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INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT CAPITAL ADVISORS, INC. (REFERRED TO AS THE "ADVISER") SERVES AS
INVESTMENT ADVISER FOR EMERALD FUNDS. The Adviser is a newly-organized,
wholly-owned subsidiary of Barnett Bank, N.A., which, in turn, is a wholly-owned
subsidiary of Barnett Banks, Inc. The Adviser is a corporation headquartered in
Florida.
ENTRUSTED WITH APPROXIMATELY $10 BILLION UNDER ACTIVE MANAGEMENT, the
Adviser provides investment management services to individuals and institutions.
As the investment adviser to Emerald Funds, the Adviser employs investment
professionals who are dedicated to managing money on a full-time basis. For the
International Equity Fund only, the Adviser has entered into a sub-advisory
agreement with Brandes Investment Partners, L.P. to provide daily portfolio
management for that Fund.
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 Bank, N.A. and its affiliates
("Barnett"), 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 their 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
example, there is no minimum initial investment for transfers of assets by
Customers from other banks or financial institutions. Barnett and other
Institutions may also charge their Customers certain account fees depending on
the type of account a Customer has established with the Institution. These fees
may include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income.
Information concerning these minimum account requirements, services and any
charges should be obtained from the Institutions before a Customer authorizes
the purchase of Fund shares, and this Prospectus should be read in conjunction
with any information so obtained.
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The Equity, International Equity, Small Capitalization, Balanced and Managed
Bond Funds (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 shares must be made by Institutions in federal funds or other funds
immediately available to the Funds' custodian no later than 4:00 p.m. (Eastern
time) on the Business Day immediately following placement of the purchase order.
Purchase orders for the Prime Fund must be received by 2:00 p.m. (Eastern
Time) on a Business Day in order to be effective. Purchases for shares of the
Prime Fund will be effected only on days on which Emerald Funds and the
purchasing Institutions are open for business and only when federal funds or
other funds are immediately available to the Fund's transfer agent to make the
purchase on the day it receives the purchase order. Institutions may transmit
purchase orders by telephoning the transfer agent c/o the Distributor at
1-800-367-5905 not later than 2:00 p.m. (Eastern time) on any Business Day. If
federal funds are not available with respect to any such order by the close of
business on the day the order is received by the transfer agent, the order will
be cancelled. In addition, any purchase order received by the transfer agent
after 2:00 p.m. (Eastern time) will not be accepted, and notice thereof will be
given to the Institution placing the order. Any funds received in connection
with late orders will be returned promptly.
Each Fund observes the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). In addition, the Prime Fund
observes the following additional holidays: Martin Luther King, Jr. Day,
Columbus Day and Veterans Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to a Fund in accordance with their agreements with
their Customers, and to deliver required investments on a timely basis. If
federal funds are not received within the period described, the order will be
cancelled, notice will be given, and the Institution will be responsible for any
loss to Emerald Funds or its beneficial shareholders. Payments for shares of a
Fund may, at the discretion of the Adviser, be made in the form of securities
that are permissible investments for that Fund. For further information see
"In-Kind Purchases" in the Statement of Additional Information.
Purchase orders must include the purchasing Institution's tax identification
number. Emerald Funds reserves the right to reject any purchase order or to
waive the minimum initial investment requirement. Payment for orders which are
not received or accepted will be returned after prompt inquiry. The issuance of
shares is recorded in the shareholder records of the Funds, and share
certificates are not issued to new shareholders.
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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 1940 Act.
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
1940 Act. See the Statement of Additional Information ("Additional Purchase and
Redemption Information") for examples of when such redemptions might be
appropriate. In those cases, an investor may incur brokerage costs in converting
securities to cash. The Funds may also redeem shares involuntarily if the
balance has fallen below the minimum level due to shareholder redemptions, not
due to market fluctuations.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to transactions made for their accounts at
the Institutions.
Share balances may be redeemed pursuant to arrangements between Institutions
and their Customers. It is the responsibility of an Institution to transmit
redemption orders to Emerald Funds' transfer agent and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for all Funds (except the Prime Fund) are normally wired in federal funds to the
redeeming Institution the Business Day following receipt of the order by the
transfer agent. Payment for Prime Fund redemption orders which are received by
the Transfer Agent before 2:00 p.m. (Eastern time) on a Business Day will
normally be wired in federal funds the same day. Payment for Prime Fund
redemption orders which are received between 2:00 p.m. (Eastern time) and the
close of business or on a non-Business Day will normally be wired in federal
funds on the next Business Day. Emerald Funds reserve the right, however, to
delay the wiring of redemption proceeds for up to seven days after receipt of a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect a Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
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DIVIDENDS AND DISTRIBUTIONS
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the 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,
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. For the Prime Fund, net investment
income flows from the interest that the Fund earns on the money market and other
investments it holds.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund may make distributions of its net capital gains, if any, after
any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund for which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
<TABLE>
<S> <C>
Emerald Equity and Fixed Income Funds Emerald Prime Fund
c/o BISYS Fund Services, Inc. 100 First Avenue, Suite 300
P.O. Box 182697 Pittsburgh, PA 15222
Columbus, OH 43218-2697
</TABLE>
Your election is effective for dividends and distributions with record dates
(with respect to the Equity, International Equity, Small Capitalization and
Balanced Funds) or payment dates (with respect to the Managed Bond and Prime
Funds) after the date the Funds' transfer agent receives the election.
WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUNDS DECLARED PAID
- ----- --------- -------------------
<S> <C> <C> <C>
(1) Equity and Balanced..................... Quarterly Quarterly
(2) International Equity and 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 International Equity and Small Capitalization Funds may be
declared and paid at times that do not fall at the end of a calendar year.
(3) Shares of the 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
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<PAGE>
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 that 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 the Fund are
redeemed, the Fund will pay dividends within five Business Days after the end of
each month in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually after any reductions for capital loss carryforwards.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund other than the Prime Fund, and at
2:00 p.m. (Eastern time) with respect to the Prime Fund, by adding the value of
a Fund's investments, cash and other assets attributed to its Institutional
Shares, subtracting the Fund's liabilities attributed 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.
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 the Funds' net asset values are not calculated. In such cases, the
net asset value of a 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 without a sales charge at the net
asset value of the respective share classes. The particular class of shares you
are exchanging into must be registered for sale in your state.
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."
34
<PAGE>
ADMINISTRATOR
BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS")
BISYS, a wholly-owned subsidiary of The BISYS Group, Inc., is responsible
for coordinating Emerald Funds' efforts and generally overseeing the operation
of the Funds' business. It has been providing services to mutual funds since
1987.
DISTRIBUTOR
EMERALD ASSET MANAGEMENT, INC.
Emerald Asset Management, Inc. is a wholly-owned subsidiary of BISYS. Mutual
funds structured like the Funds sell shares on a continuous basis. The Funds'
shares are sold through the Distributor. Certain officers of Emerald Funds,
namely Messrs. Blundin, Fanning, 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 three share
classes of the 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 offered by Emerald Funds may
be obtained by contacting the Distributor at the address listed on page 28.
The Institutional Shares of the Funds are described in this prospectus. The
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
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<PAGE>
the Shareholder Processing and Service Plan for Service Shares (the "Service
Plan") as described in the prospectuses for those shares. Under these 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 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 March 5, 1997, 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:
- Marshall M. Criser, Chairman of the Board of Emerald Funds, is Chairman of
the law firm of Mahoney Adams & Criser, P.A.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Grimsley Marker & Iseley, P.A.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is a Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
36
<PAGE>
- Harvey R. Holding is the retired Executive Vice President and Chief
Financial Officer of BellSouth Corp.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. Barnett Capital
Advisors, Inc. serves as the Funds' adviser and has its principal offices at
9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. Brandes
Investment Partners, L.P. (referred to as "Brandes" or the "Sub-Adviser") acts
as sub-adviser for the International Equity Fund and is located at 12750 High
Bluff Drive, San Diego, California 92130. Brandes Investment Partners, Inc. owns
a controlling interest in Brandes Investment Partners, L.P. and serves as its
General Partner. Charles Brandes is the controlling shareholder of Brandes
Investment Partners, Inc. 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. The transfer and dividend paying
agent for the Equity and 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, 1996, the Adviser had approximately $10 billion
under active management. The Adviser 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 that has offered general banking services
since 1877. As of December 31, 1996, Brandes had approximately $8.9 billion
under management.
The Adviser manages the investment portfolios of each Fund, except the
International Equity Fund, including selecting portfolio investments and making
purchase and sale orders. The Sub-Adviser manages the investment portfolio of
the International Equity Fund in accordance with the investment requirements and
policies established by the Adviser, except that cash balances of the
International Equity Fund are managed by the Adviser.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., 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
joined Barnett in 1981 and has worked with the firm throughout his investment
career. He plays an integral role on the equity investment team, and works with
highly qualified investment professionals to integrate the Adviser's
quantitative models with specific security analysis. Mr. Creighton earned his
BBA in Finance from Stetson University and his MBA in Finance from the
University of North Florida. He holds membership in the Association for
Investment Management and Research ("AIMR"). Mr. Creighton has 16 years of
investment experience. Jeffrey A. Busby, C.F.A., a Managing Partner and Senior
Portfolio Manager at Brandes since August 1988, has been the portfolio manager
of the International Equity Fund, except, as noted, with respect to the Fund's
cash balances, since August 19, 1996. Also in connection with Brandes'
appointment as Sub-Adviser, Don W. Bryant, C.F.A., became Barnett's
"Sub-Advisory Liaison." In that capacity, Mr. Bryant oversees the provision of
sub-investment advisory services by Brandes. Mr. Bryant joined Barnett in 1987
37
<PAGE>
and has served as an institutional portfolio manager for Barnett for the past 7
years. He has worked with the firm throughout his investment career and plays an
integral role on the equity investing team. He received his undergraduate degree
from the University of South Alabama and his MBA in Finance from the University
of Georgia. Mr. Bryant holds membership in AIMR. He has 10 years of investment
experience. Dean McQuiddy, C.F.A., has managed the Small Capitalization Fund
since its commencement of operations on January 4, 1994 and its predecessor, the
Employee Benefits Small Capitalization Fund since its inception in January 1987.
Since joining Barnett in 1983, Mr. McQuiddy has been an equity analyst and an
institutional portfolio manager. He received his BS in Finance from the
University of Florida. Mr. McQuiddy holds membership in AIMR. He has 14 years of
investment experience. Andrew Cantor, C.F.A., has managed the Managed Bond Fund
since it commenced operations on April 11, 1994. Mr. Cantor joined Barnett in
1983 and plays a leading role on the fixed income investing team. Prior to
joining the firm, he worked for Gulf United Corporation, where he was
responsible for economic and interest rate analysis and the management of
approximately $1.1 billion in fixed income investments. He received his BS in
Mathematics from Florida Atlantic University and his MA in Economics from the
University of South Carolina. Mr. Cantor holds membership in AIMR and the
Jacksonville Financial Analysts Society. He has 23 years of investment
experience.
Although expected to be infrequent, the Adviser (or Sub-Adviser) may
consider the amount of Fund shares sold by broker-dealers and others (including
those who may be connected with the Adviser or 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 Adviser (and the
Sub-Adviser) will not engage in this practice unless the execution capability of
and the amount received by such brokerdealer or other company is believed to be
comparable to what another qualified firm could offer.
The Adviser 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 the Adviser 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 the Adviser 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.
38
<PAGE>
The Adviser 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
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 rates 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 fee rates
payable by many comparable funds. In addition, the Adviser has agreed to pay
Brandes a fee equal to .50% of the International Equity Fund's average daily net
assets. The fees paid by the Adviser to the Sub-Adviser for the International
Equity Fund come out of the Adviser's advisory fee for that Fund and are not an
additional charge to the Fund.
For the fiscal year ended November 30, 1996, the Adviser and the prior
adviser received fees, after waivers, at the effective annual rates of .60%,
1.00%, .44%, .30% and .21% of the average daily net assets of the Equity, Small
Capitalization, Balanced, Managed Bond, and Prime Funds, respectively. The
Adviser voluntarily waived all fees from the International Equity Fund.
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; SEC 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 the Adviser and the Funds' other service providers. 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.
39
<PAGE>
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 (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 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,
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, International Equity, Small Capitalization,
Balanced and Managed Bond Funds may realize a taxable gain or loss when
redeeming, transferring or exchanging shares of a Fund, depending on the
difference in the prices at which the shareholder purchased and sold the shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. So long as more than 50% of the value of this Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and each shareholder would be entitled either (a) to credit
their proportionate amount of
40
<PAGE>
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.
MEASURING PERFORMANCE
- Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote performance in
advertisements or shareholder communications. The performance for each
Funds' Institutional Shares will be calculated separately from the
performance of the Funds' other classes of shares.
UNDERSTANDING PERFORMANCE MEASURES:
- Total return for each Fund 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 on a specified
30-day (or one-month) period by dividing the net income for the period by
the maximum offering price on the last day of the period, and analyzing
the result on a semi-annual basis. The yield for the Prime Fund is the
income generated over a 7-day period (which period will be identified in
the quotation) and then assumed to be generated over a 52-week period and
shown as a percentage of the investment. In addition, the Prime Fund may
quote an "effective" yield that is calculated similarly, but the income
quoted over a 7-day period is assumed to be reinvested. Net income used in
yield calculations may be different than net income used for accounting
purposes.
PERFORMANCE COMPARISONS:
The Funds may compare their yields and total returns to those of mutual
funds with similar investment objectives and to bond, stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor mutual fund performance.
Total return and yield data as reported in national financial publications
such as MONEY, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
as well as in publications of a local or regional nature, may be used for
comparison.
The performance of the Funds may also be compared to data prepared by Lipper
Analytical Services, Inc., Mutual Fund Forecaster, Wiesenberger Investment
Companies Services, Morningstar or CDA Investment Technologies, Inc. and total
returns for the Funds may be compared to indices such as the Dow Jones
Industrial Average, the S&P 500, the Lehman Brothers Bond Indices, the Merrill
Lynch Bond Indicies, 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.
41
<PAGE>
The performance 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 SEC, 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, 1996
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Equity Fund (1).................................................... 23.33% 17.69% 14.21% 12.21%
Small Capitalization Fund (2)...................................... 14.49% 15.63% 19.51% 13.08%*
Managed Bond Fund (3).............................................. 5.96% 6.73% 8.33% 9.10%**
</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. DURING THE PERIODS SHOWN 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. DURING THE PERIODS
SHOWN 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 THE 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. DURING THE PERIODS SHOWN FEE WAIVERS AND
EXPENSE REIMBURSEMENTS WERE IN EFFECT. WITHOUT THESE WAIVERS AND
REIMBURSEMENTS THE FUND'S PERFORMANCE WOULD HAVE BEEN LOWER.
42
<PAGE>
*
SINCE INCEPTION OF COMMON TRUST FUND: 12/31/86.
** SINCE INCEPTION OF COMMON TRUST FUND: 4/30/87.
OTHER PERFORMANCE INFORMATION -- INTERNATIONAL EQUITY FUND ONLY:
For the one year period ended December 31, 1996 and for the period from
commencement of operations (December 27, 1995) through December 31, 1996, the
average annual total returns for Institutional Shares of the International
Equity Fund were 15.35% and 14.47%, respectively. These total returns assume the
reinvestment of all dividends and capital gains and reflect fee waivers and
expense reimbursements in effect. Without these waivers and reimbursements the
Fund's performance would have been lower. Of course, past performance is no
guarantee of future results. Investment return and principal value will
fluctuate, so that shares, when redeemed may be worth more or less than the
original cost. For more information on performance, see "Additional Information
on Performance Calculations" in the Statement of Additional Information.
Set forth below is certain performance information provided by Brandes
Investment Partners, L.P., Sub-Adviser for the International Equity Fund,
relating to historical performance of a composite of international equity
accounts of clients of the Sub-Adviser. The international equity accounts in the
Brandes composite had the same investment objective as the International Equity
Fund and were managed by the same team that manages the International Equity
Fund's securities, using substantially similar, though not identical, investment
strategies, policies and techniques as those contemplated for use by the Fund.
This information is provided to illustrate the past performance of Brandes in
managing similar accounts as measured against the Morgan Stanley Capital
International ("MSCI") EAFE Index, a standard international equity investment
benchmark. The accounts that are included in the Brandes' composite are not
subject to the same types of expenses and liquidity requirements to which the
International Equity Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed on the
International Equity Fund by the 1940 Act or the Code. Consequently, the
performance results for the Sub-Adviser's composite could have been adversely
affected if the accounts included in the composite had been regulated as
investment companies. The composite performance shown below does not represent
the performance of the International Equity Fund. You should not consider this
past performance as an indication of future performance of the International
Equity Fund or of the Sub-Adviser.
<TABLE>
<CAPTION>
FOR PERIODS ENDED DECEMBER 31, 1996
----------------------------------------------------
SINCE
INCEPTION
ONE YEAR THREE YEARS FIVE YEARS (7/1/90)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Annualized Total Return*............................................. 16.01 8.58% 13.90% 16.16%
MSCI EAFE**.......................................................... 6.05% 8.32% 8.15% 5.90%
</TABLE>
- ------------
* The net annual returns presented above for the Brandes' composite were
calculated on a time-weighted and asset-weighted total return basis,
including investment of all dividends and interest on a cash basis, realized
and unrealized gains or losses and are net of applicable investment advisory
fees, brokerage commissions and execution costs, any applicable foreign
withholding taxes and custodial fees, without provision for federal and
state income taxes, if any. Brandes' composite results include all actual,
fee-paying, fully discretionary international equity accounts under
management for at least one month beginning 7/1/90, other than wrap fee
accounts. The
43
<PAGE>
weighted-average management fee during the period from 7/1/90 through
12/31/96 was 0.96% per year. Securities transactions are accounted for on
the trade date and cash accounting is utilized. Cash and cash equivalents
are included in performance returns. Starting with calendar year 1992
through calendar year 1995, the net annual total returns for the Brandes
International Equity composite have been examined by a Big Six accounting
firm in accordance with AIMR Level II verification standards. The
examination of net annual total returns for calendar year 1996 is not
completed as of the date of this prospectus. Copies of the auditors' reports
and a complete list and description of Brandes' composites are available on
request by calling the distributor at 800/637-3759. The results for
individual accounts and for different periods may vary. Investors should not
rely on prior performance results as a reliable indication of future
results.
**
The MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage commission or
other expenses of investing.
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 28.
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.
44
<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.................................... 11
INVESTING IN EMERALD FUNDS............................................ 30
Your Money Manager.................................................. 30
Purchase of Shares.................................................. 30
Redemption of Shares................................................ 32
Dividends and Distributions......................................... 33
Explanation of Sales Price.......................................... 34
Exchange Privilege.................................................. 34
Other Service Providers............................................. 34
THE EMERALD FAMILY OF FUNDS........................................... 35
THE BUSINESS OF THE FUNDS............................................. 36
Fund Management..................................................... 36
Tax Implications.................................................... 39
Measuring Performance............................................... 41
</TABLE>
<PAGE>
PROSPECTUS
EMERALD FUNDS
INSTITUTIONAL SHARES
FOR QUALIFIED RETIREMENT PLANS
April 1, 1997
-photo-
-photo-
-photo-
Logo: EMERALD
<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, 1997
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 accept the relative risks
associated with equity
investments
<S> <C> <C>
- -----------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation Long-term capital appreciation
through investments primarily in and are willing to accept the
common and preferred stock and relative risks associated with
debt securities convertible into investments in undervalued
common stock stocks
- -----------------------------------------------------------------------------------------
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 Government 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, 1997 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 BANK, 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 CAPITAL ADVISORS, INC. 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.
<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)*......... 0.15% 0.55% 0.31% 0.18% 0.20%
--------- --------- ------ ------ -----------
Total Fund Operating Expenses (After Expense
Reimbursements)*.......................................... 0.75% 1.15% 1.31% 1.18% 0.80%
--------- --------- ------ ------ -----------
--------- --------- ------ ------ -----------
</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% 0.22% 0.24%
All Other Expenses (After Expense Reimbursement)........ 0.22% 0.20% 0.17% 0.15% 0.14%
------ ----------- ----------- --------- -----------
Total Fund Operating Expenses (After Fee Waivers and
Expense Reimbursements)*............................... 0.62% 0.60% 0.57% 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 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 .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 Equity Value, Prime and Treasury Funds would be
1.21%, 0.40% and 0.39%, 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.
** See "Financial Highlights" below for information about the additional
interest expense of 0.07% paid by the Treasury Fund on reverse repurchase
agreements during the last fiscal year.
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 $24 $42 $ 93
Equity Value Fund................................. $12 $37 $63 $140
International Equity Fund......................... $13 $42 $72 $158
Small Capitalization Fund......................... $12 $37 $65 $143
Balanced Fund..................................... $ 8 $26 $44 $ 99
Short-Term Fixed Income Fund...................... $ 6 $20 $35 $ 77
U.S. Government Securities Fund................... $ 6 $19 $33 $ 75
Managed Bond Fund................................. $ 6 $18 $32 $ 71
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 FOR THE FISCAL PERIODS SHOWN, WHOSE
UNQUALIFIED REPORTS ON THE FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR
EACH OF THE FIVE YEARS IN THE PERIOD ENDED NOVEMBER 30, 1996, 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, 1996, 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 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 YEAR ENDED PERIOD ENDED ---------------------------------------- PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(C) 1995 1994+++ 1994 1993 1992 1991*
------------ ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 14.63 $ 10.89 $ 11.94 $ 11.82 $ 11.97 $ 10.24 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------ -------------
Income from investment
operations:
Net investment
income................ 0.06 0.08 0.11 0.08 0.15 0.16 0.12
Net realized and
unrealized gains
(losses) on
securities............ 3.02 3.74 (0.90) (0.39) (0.08) 1.73 0.24
------------ ------------ ------------ ------------ ------------ ------------ -------------
Total income (loss)
from investment
operations............ 3.08 3.82 (0.79) (0.31) 0.07 1.89 0.36
------------ ------------ ------------ ------------ ------------ ------------ -------------
Less dividends and
distributions:
Dividends from net
investment income..... (0.06) (0.08) (0.11) (0.08) (0.15) (0.16) (0.12)
Distributions from net
realized gains on
securities............ (1.29) (0.00) (0.15) (0.57) (0.07) (0.00) (0.00)
------------ ------------ ------------ ------------ ------------ ------------ -------------
Total dividends and
distributions......... (1.35) (0.08) (0.26) (0.65) (0.22) (0.16) (0.12)
------------ ------------ ------------ ------------ ------------ ------------ -------------
Net change in net asset
value................... 1.73 3.74 (1.05) (0.96) (0.15) 1.73 0.24
------------ ------------ ------------ ------------ ------------ ------------ -------------
NET ASSET VALUE, END OF
PERIOD.................. $ 16.36 $ 14.63 $ 10.89 $ 10.86 $ 11.82 $ 11.97 $ 10.24
------------ ------------ ------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ ------------ ------------ -------------
Total return............. 23.33% 35.21% (6.62%)++ (2.91%) 0.58% 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s)......... $ 217,184 $ 173,824 $ 164,015 $ 19,705 $ 138,642 $ 152,939 $ 98,953
Ratio of expenses to
average net assets.... 0.79% 0.84% 0.79%+ 1.07% 0.86% 0.76% 0.00%+
Ratio of net investment
income to average net
assets................ 0.43% 0.67% 1.46%+ 0.36% 1.22% 1.41% 2.64%+
Ratio of expenses to
average net
assets**.............. 0.79% (a) (a) 1.29% 1.21% 1.18% 1.22%+
Ratio of net investment
income to average net
assets**.............. 0.43% (a) (a) 0.13% 0.87% 0.99% 1.42%+
Portfolio turnover..... 89% 104% 113% 113% 102% 40% 13%
Average commission rate
paid(b)............... $ 0.0518 -- -- -- -- -- --
</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.
(b) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(c) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
6
<PAGE>
EMERALD EQUITY VALUE FUND
Financial highlights for an Institutional Share of the Equity Value Fund
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1996*(B)
------------
<S> <C>
Net asset value, beginning of period................................................................ $ 10.00
------------
Income from investment operations:
Net investment income............................................................................. 0.28
Net realized and unrealized gains on securities................................................... 2.18
------------
Total income from investment operations........................................................... 2.46
------------
Dividends from net investment income................................................................ (0.28)
------------
Net change in net asset value....................................................................... 2.18
------------
NET ASSET VALUE, END OF PERIOD...................................................................... $ 12.18
------------
------------
Total return........................................................................................ 24.93%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................................................. $ 3,945
Ratio of expenses to average net assets........................................................... 0.00%+
Ratio of net investment income to average net assets.............................................. 2.89%+
Ratio of expenses to average net assets**......................................................... 4.37%+
Ratio of net investment loss to average net assets**.............................................. (1.48%)+
Portfolio turnover................................................................................ 19%
Average commission rate paid(a)................................................................... $ 0.0791
</TABLE>
- ------------
* For the period December 27, 1995 (commencement of operations) through
November 30, 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.
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
7
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
Financial highlights for an Institutional Share of the International Equity
Fund outstanding throughout the period indicated:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1996*(B)
------------
<S> <C>
INSTITUTIONAL SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD................................................................ $ 10.00
------------
Income from investment operations:
Net investment income............................................................................. 0.06
Net realized and unrealized gains on securities................................................... 1.29
------------
Total income from investment operations........................................................... 1.35
------------
Dividends from net investment income................................................................ (0.06)
------------
Net change in net asset value....................................................................... 1.29
------------
NET ASSET VALUE, END OF PERIOD...................................................................... $ 11.29
------------
------------
Total return........................................................................................ 13.47%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................................................. $ 17,528
Ratio of expenses to average net assets........................................................... 0.00%+
Ratio of net investment income to average net assets.............................................. 1.99%+
Ratio of expenses to average net assets**......................................................... 3.46%+
Ratio of net investment loss to average net assets**.............................................. (1.47%)+
Portfolio turnover................................................................................ 50%
Average commission rate paid(a)................................................................... $ 0.0463
</TABLE>
- ------------
* For the period December 27, 1995 (commencement of operations) through
November 30, 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.
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly-owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser, and
effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's investment sub-adviser.
8
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER YEAR ENDED PERIOD ENDED
30, 1996(B) NOVEMBER 30, 1995 NOVEMBER 30, 1994*
-------------------- ----------------- ------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 12.78 $ 9.66 $ 10.00
---------- -------- --------
Income from investment operations:
Net investment loss............................... (0.07) (0.03) (0.04)
Net realized and unrealized gains (losses)
on securities.................................... 1.81 3.15 (0.30)
---------- -------- --------
Total income (loss) from investment
operations....................................... 1.74 3.12 (0.34)
---------- -------- --------
Distributions from net realized gains on
securities......................................... (1.00) (0.00) (0.00)
---------- -------- --------
Net change in net asset value....................... 0.74 3.12 (0.34)
---------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 13.52 $ 12.78 $ 9.66
---------- -------- --------
---------- -------- --------
Total return........................................ 14.49% 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................. $ 138,008 $ 88,561 $ 53,509
Ratio of expenses to average net
assets........................................... 1.22% 1.39% 1.29%+
Ratio of net investment loss to average
net assets....................................... (0.60%) (0.65%) (0.54%)+
Ratio of expenses to average net
assets**......................................... 1.24% 1.42% 1.48%+
Ratio of net investment loss to average
net assets **.................................... (0.62%) (0.68%) (0.73%)+
Portfolio turnover................................ 356% 229% 118%
Average commission rate paid(a)................... $ 0.0420 -- --
</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.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
9
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, YEAR ENDED PERIOD ENDED
1996(B) NOVEMBER 30, 1995 NOVEMBER 30, 1994*
----------------- ----------------- --------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 11.91 $ 9.63 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income.................................. 0.35 0.33 0.27
Net realized and unrealized gains (losses)
on securities......................................... 1.34 2.28 (0.37)
-------- -------- --------
Total income (loss) from investment operations......... 1.69 2.61 (0.10)
-------- -------- --------
Less dividends and distributions:
Dividends from net investment income................... (0.35) (0.33) (0.25)
Distributions in excess of net investment
income................................................ (0.00) (0.00) (0.02)
Distributions from net realized gains
on securities......................................... (0.22) (0.00) (0.00)
-------- -------- --------
Total dividends and distributions........................ (0.57) (0.33) (0.27)
-------- -------- --------
Net change in net asset value............................ 1.12 2.28 (0.37)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD........................... $ 13.03 $ 11.91 $ 9.63
-------- -------- --------
-------- -------- --------
Total return............................................. 14.73% 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)....................... $ 90,602 $ 73,830 $ 51,170
Ratio of expenses to average net
assets................................................ 0.69% 0.32% 0.28%+
Ratio of net investment income to average
net assets............................................ 2.96% 3.54% 4.11%+
Ratio of expenses to average net
assets**.............................................. 0.90% 1.10% 1.25%+
Ratio of net investment income to average
net assets**.......................................... 2.75% 2.76% 3.14%+
Portfolio turnover..................................... 106% 87% 33%
Average commission rate paid(a)........................ $ 0.0466 -- --
</TABLE>
- -------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
10
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for an Institutional Share of the Short-Term Fixed
Income Fund throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER YEAR ENDED PERIOD ENDED
30, 1996(A) NOVEMBER 30, 1995 NOVEMBER 30, 1994*
-------------------- ----------------- --------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 10.15 $ 9.74 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income........................... 0.58 0.61 0.35
Net realized and unrealized gains (losses) on
securities..................................... (0.05) 0.41 (0.26)
-------- -------- --------
Total income from investment
operations..................................... 0.53 1.02 0.09
-------- -------- --------
Less dividends and distributions:
Dividends from net investment income............ (0.58) (0.61) (0.35)
Distributions from net realized gains
on securities.................................. (0.03) (0.00) (0.00)
-------- -------- --------
Total dividends and distributions............... (0.61) (0.61) (0.35)
-------- -------- --------
Net change in net asset value..................... (0.08) 0.41 (0.26)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD.................... $ 10.07 $ 10.15 $ 9.74
-------- -------- --------
-------- -------- --------
Total return...................................... 5.47% 10.80% (0.90%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)................ $ 53,200 $ 14,037 $ 23,566
Ratio of expenses to average net
assets......................................... 0.53% 0.32% 0.28%+
Ratio of net investment income to average net
assets......................................... 5.79% 6.14% 5.55%+
Ratios of expenses to average net
assets**....................................... 0.90% 1.43% 1.60%+
Ratios of net investment income to average net
assets**....................................... 5.42% 5.03% 4.24%+
Portfolio turnover.............................. 138% 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
11
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for an Institutional Share and a Retail Share of U.S.
Government Securities Fund outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
------------------------------------------
INSTITUTIONAL SHARES
------------------------------------------- YEAR ENDED
YEAR ENDED YEAR ENDED PERIOD ENDED ------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994+++ 1994 1993 1992
------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 10.36 $ 9.71 $ 10.47 $ 10.79 $ 10.52 $ 10.46
------------- ------------- ------------- ------------- ------------ -------------
Income from investment
operations:
Net investment income......... 0.65 0.68 0.46 0.58 0.66 0.77
Net realized and unrealized
gains (losses) on
securities................... (0.09) 0.65 (0.75) (0.94) 0.41 0.12
------------- ------------- ------------- ------------- ------------ -------------
Total income (loss) from
investment operations........ 0.56 1.33 (0.29) (0.36) 1.07 0.89
------------- ------------- ------------- ------------- ------------ -------------
Less dividends and
distributions:
Dividends from net investment
income....................... (0.65) (0.68) (0.46) (0.58) (0.66) (0.77)
Distributions from net
realized gains on
securities................... (0.00) (0.00) (0.00) (0.10) (0.14) (0.06)
Distributions in excess of net
investment income............ (0.00) (0.00) (0.01) (0.01) (0.00) (0.00)
Distributions in excess of net
realized gains............... (0.00) (0.00) (0.00) (0.02) (0.00) (0.00)
------------- ------------- ------------- ------------- ------------ -------------
Total dividends and
distributions................ (0.65) (0.68) (0.47) (0.71) (0.80) (0.83)
------------- ------------- ------------- ------------- ------------ -------------
Net change in net asset value... (0.09) 0.65 (0.76) (1.07) 0.27 0.06
------------- ------------- ------------- ------------- ------------ -------------
NET ASSET VALUE, END OF
PERIOD......................... $ 10.27 $ 10.36 $ 9.71 $ 9.72 $ 10.79 $ 10.52
------------- ------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------- ------------ -------------
Total return.................... 5.69% 14.10% (2.83%)++ (3.45%) 10.40% 8.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)....................... $ 37,468 $ 74,753 $ 69,314 $ 30,855 $ 145,328 $ 94,006
Ratio of expenses to average
net assets................... 0.69% 0.83% 0.68%+ 0.98% 0.64% 0.28%
Ratio of net investment income
to average net assets........ 6.39% 7.46% 5.90%+ 5.68% 5.91% 7.18%
Ratio of expenses to average
net assets**................. 0.69% (a) 0.69 %+ 1.09 % 1.06 % 0.99 %
Ratio of net investment income
to average net assets**...... 6.39 % (a ) 5.90 %+ 5.57 % 5.49 % 6.42 %
Portfolio turnover............ 53 % 89 % 133 % 133 % 72 % 50 %
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1991*
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 10.00
-------------
Income from investment
operations:
Net investment income......... 0.27
Net realized and unrealized
gains (losses) on
securities................... 0.46
-------------
Total income (loss) from
investment operations........ 0.73
-------------
Less dividends and
distributions:
Dividends from net investment
income....................... (0.27)
Distributions from net
realized gains on
securities................... (0.00)
Distributions in excess of net
investment income............ (0.00)
Distributions in excess of net
realized gains............... (0.00)
-------------
Total dividends and
distributions................ (0.27)
-------------
Net change in net asset value... 0.46
-------------
NET ASSET VALUE, END OF
PERIOD......................... $ 10.46
-------------
-------------
Total return.................... 7.34%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)....................... $ 34,693
Ratio of expenses to average
net assets................... 0.00%+
Ratio of net investment income
to average net assets........ 7.88%+
Ratio of expenses to average
net assets**................. 1.47 %+
Ratio of net investment income
to average net assets**...... 6.41 %+
Portfolio turnover............ 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
12
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED NOVEMBER 30,
1996(A) NOVEMBER 30, 1995 1994*
----------------- ----------------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 10.55 $ 9.55 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income................................. 0.65 0.70 0.45
Net realized and unrealized gains (losses) on
securities........................................... (0.06) 1.00 (0.45)
-------- -------- --------
Total income from investment operations............... 0.59 1.70 0.00
-------- -------- --------
Less dividends and distributions:
Dividends from net investment income.................. (0.65) (0.70) (0.43)
Distributions in excess of net investment income...... (0.12) (0.00) (0.02)
-------- -------- --------
Total dividends and distributions (0.77) (0.70) (0.45)
-------- -------- --------
Net change in net asset value........................... (0.18) 1.00 (0.45)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 10.37 $ 10.55 $ 9.55
-------- -------- --------
-------- -------- --------
Total return............................................ 5.96% 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)...................... $ 75,519 $ 68,923 $ 66,588
Ratio of expenses to average net assets............... 0.55% 0.31% 0.27%+
Ratio of net investment income to average net
assets............................................... 6.32% 6.95% 6.83%+
Ratio of expenses to average net assets**............. 0.67% 0.83% 0.86%+
Ratio of net investment income to average net
assets**............................................. 6.20% 6.43% 6.25%+
Portfolio turnover.................................... 97% 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.
(a) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
13
<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, NOVEMBER 30,
1996(B) 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net investment income.... 0.0519 0.0566 0.0390 0.0316 0.0407 0.0637 0.0805
Net realized gains
(losses) on
securities.............. 0.0000 0.0002 (0.0028) (0.0001) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment operations... 0.0519 0.0568 0.0362 0.0315 0.0408 0.0638 0.0805
------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
Dividends from net
investment income....... (0.0519) (0.0566) (0.0390) (0.0316) (0.0407) (0.0637) (0.0805)
Distributions from net
realized gains on
securities.............. (0.0002) (0.0000) (0.0000) (0.0001) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions........... (0.0521) (0.0566) (0.0390) (0.0317) (0.0407) (0.0637) (0.0805)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Voluntary capital
contribution.............. 0.0000 0.0000 0.0029 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value..................... (0.0002) 0.0002 0.0001 (0.0002) 0.0001 0.0001 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................... $ 1.0000 $ 1.0002 $ 1.0000 $ 0.9999 $ 1.0001 $ 1.0000 $ 0.9999
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............... 5.34% 5.81% 3.97% 3.21% 4.14% 6.56% 8.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s).................. $ 598,009 $ 462,726 $ 413,541 $ 510,683 $1,947,016 $ 512,919 $ 278,419
Ratio of expenses to
average net assets...... 0.38% 0.37% 0.37% 0.35% 0.37% 0.40% 0.39%
Ratio of net investment
income to average net
assets.................. 5.19% 5.66% 3.92% 3.21% 3.84% 6.27% 8.03%
Ratio of expenses to
average net assets**.... 0.42% 0.39% (a) (a ) (a ) 0.42 % 0.45%
Ratio of net investment
income to average net
assets**................ 5.15 % 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 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
14
<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
------------------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net Investment income.... 0.0494 0.0548 0.0368 0.0291 0.0368 0.0590 0.0776
Net realized gains
(losses) on
securities.............. (0.0003) (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment operations... 0.0491 0.0545 0.0367 0.0291 0.0368 0.0590 0.0776
------------ ------------ ------------ ------------ ------------ ------------ ------------
Dividends from net
investment income......... (0.0494) (0.0548) (0.0368) (0.0291) (0.0368) (0.0590) (0.0776)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value..................... (0.0003) (0.0003) (0.0001) 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................... $ 0.9993 $ 0.9996 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............... 5.05% 5.62% 3.74% 2.95% 3.75% 6.07% 8.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s).................. $ 218,020 $ 236,392 $ 283,920 $ 501,377 $ 452,170 $ 575,103 $ 416,131
Ratio of operating
expenses to average net
assets.................. 0.40% 0.40% 0.39% 0.40% 0.38% 0.40% 0.38%
Ratio of interest expense
to average net assets... 0.07%(c) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of total expenses
to average net assets... 0.47% 0.40% 0.39% 0.40% 0.38% 0.40% 0.38%
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of net investment
income to average net
assets.................. 4.97% 5.49% 3.73% 2.91% 3.74% 5.86% 7.75%
Ratio of expenses to
average net assets**.... 0.42% 0.42% (a) (a ) (a ) 0.41 % 0.41%
Ratio of interest expense
to average net assets... 0.07 (c) 0.00 % (a ) (a ) (a ) 0.00 % 0.00%
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of total expenses
to average net
assets**................ 0.49 % 0.42 % (a ) (a ) (a ) 0.41 % 0.41%
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Ratio of net investment
income to average net
assets**................ 4.95 % 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 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 operating
expenses to average net
assets.................. 0.73%+
Ratio of interest expense
to average net assets... 0.00%+
------------
Ratio of total 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 interest expense
to average net assets... 0.00 %+
------------
Ratio of total 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, reimbursements or interest expenses during the
period.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
15
<PAGE>
(c) Represents interest expense on reverse repurchase agreements.
16
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser and, with respect to the International Equity Fund, the
Sub-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 and
Sub-Adviser will use their 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 also seeks to be well diversified
across many economic sectors. 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.) In managing the Fund, the Adviser generally seeks
securities of larger companies with market capitalizations exceeding $5 billion
at the time of purchase. "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") European Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs"), 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. The Fund may also write covered call options.
EQUITY VALUE FUND
The Investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Any income is incidental to this objective. The Fund seeks
to achieve its investment objective by investing primarily in common stock,
preferred stock (including convertible preferred stock) and debt obligations
convertible into common stock that the Adviser believes to be undervalued. The
Fund also seeks to be well diversified across many economic sectors.
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
16
<PAGE>
investments consist primarily of common stock of companies having
capitalizations that exceed $100 million. Stocks of such companies generally are
listed on a national exchange or are unlisted securities with an established
over-the-counter market. In addition, the Fund may hold over types of securities
in such proportions as, in the opinion of the Adviser, existing circumstances
may warrant, including obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, and other high quality "money market"
instruments 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, EDRs and GDRs 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, including emerging markets countries. 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,
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia,
The Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, India,
Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico,
The Netherlands, New Zealand, Norway, Pakistan, Peru, The Philippines, Poland,
Portugal, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, The United Kingdom, Venezuela and the countries that comprise
the former Soviet Union. More than 25% of the Fund's total assets may be
invested in the securities of issuers located in the same country, except that
no more than 20% of the Fund's total assets may be invested in all emerging
markets countries. 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.
Investments in emerging markets countries may not be as liquid as those in
developed countries and pose greater risks.
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 Sub-Adviser to the International Equity Fund is committed to the use of
the Graham and Dodd-style value investing approach as introduced in the classic
book SECURITY ANALYSIS. Using this philosophy, the Sub-Adviser views stocks as
small pieces of businesses which are for sale. It seeks to purchase a
diversified group of these businesses at prices its research indicates are below
their true
17
<PAGE>
long-term, or intrinsic, value. By purchasing stocks whose current prices are
believed to be below their intrinsic values, the Sub-Adviser seeks to secure not
only a possible margin of safety against price declines, but also an attractive
opportunity for profit over the business cycle.
In analyzing a company's true long-term value, the Sub-Adviser uses sources
of information such as company reports, filings with the Securities and Exchange
Commission, computer databases, industry publications, general and business
publications, brokerage firm research reports, and interviews with company
management. Its focus is on fundamental characteristics of a company, including,
but not limited to, book value, cash flow and capital structure, as well as
management's record and broad industry issues. Once the intrinsic value of a
company is estimated, this value is compared to the current price of the stock.
If the price is substantially lower than the indicated intrinsic value, the
stock may be purchased.
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, EDRs or GDRs, also as described under "Portfolio Instruments, Practices
and Related Risks."
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. 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-Registered Trademark-
Composite Stock Price Index ("S&P 500").
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
18
<PAGE>
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, EDRs and GDRs, 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 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
19
<PAGE>
obligations or cash equivalents in the Fund. For example, if the Adviser expects
more rapid economic growth leading to better corporate earnings in the future,
it would normally increase the Fund's equity holdings while reducing its 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 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, EDRs and GDRs, 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 FUND AND MANAGED BOND FUND
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
20
<PAGE>
unrated obligations determined to be of comparable quality). Obligations rated
in the lowest of the top four rating categories ("BBB" or "Baa") have certain
speculative characteristics and are subject to more credit and market risk than
securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage and other
asset-related securities, zero coupon bonds and convertible debentures. The
Managed Bond Fund may, however, also invest without limitation in short-term
investments to meet anticipated redemption requests, or as a temporary defensive
measure if the Adviser determines that market conditions warrant.
The Funds may also invest in obligations convertible into common stocks, as
well as common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. Common stock received through the
conversion of convertible debt obligations will normally be sold. For a further
description of the Funds' policies with respect to convertible securities,
foreign securities and other investments see "Portfolio Instruments, Practices
and Related Risks."
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities Fund is to seek
consistently positive income by investing principally in U.S. Government
securities and repurchase agreements collateralized by such securities. The Fund
will always invest at least 65% of its total assets in such instruments under
normal market conditions. There is no minimum or maximum maturity for securities
held, although the Fund expects that (except during temporary defensive periods
or unusual market conditions) its dollar-weighted average portfolio maturity
will be between five and ten years. The Fund may invest in a variety of U.S.
Government securities, including U.S. Treasury bonds, notes and bills, and
obligations of a number of U.S. Government agencies and instrumentalities. The
Fund may also invest in interests in the foregoing securities, including
collateralized mortgage obligations issued or guaranteed by a U.S. Government
agency or instrumentality.
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities have historically had a very low risk of loss of principal if
held to maturity. The Fund, however, can give no assurance that the U.S.
Government would provide financial support to its agencies or 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.
21
<PAGE>
PRIME FUND AND TREASURY FUND
The investment objective of both the Prime and Treasury Funds is to seek to
provide a high level of current income consistent with liquidity, the
preservation of capital and a stable net asset value. The Prime Fund pursues its
objective by investing in a broad range of government, bank and corporate
obligations. 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 other agencies
and instrumentalities that are backed by the U.S. Treasury. It is the Treasury
Fund's policy that under normal conditions it will invest 65% or more of its
total assets in U.S. Treasury obligations and repurchase agreements for which
such obligations serve as collateral.
Each of these Funds (the "Money Market Funds") invests only in U.S.
dollar-denominated securities that mature in thirteen months or less (with
certain exceptions). The dollar-weighted average portfolio maturity of each Fund
may not exceed ninety days. In accordance with the current rules of the
Securities and Exchange Commission ("SEC"), the Prime Fund intends to limit its
purchases in the securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities) to no
more than 5% of its total assets at the time of purchase, with the exception
that up to 25% of its total assets may be invested in the securities of any
single issuer for up to three business days and securities subject to certain
unconditional demand features are subject to different diversification
requirements. 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 Money Market Funds will be "First Tier
Securities." The term "First Tier Securities" has a technical definition given
by the SEC, but such term generally refers to securities that the Adviser has
determined 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. 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
22
<PAGE>
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, and emerging markets countries with respect to the International
Equity Fund. Political and economic structures in many emerging markets
countries may be undergoing significant evolution and rapid development, and may
lack the social, political and economic stability characteristic of more
developed countries. Some emerging markets countries may also have failed in the
past to recognize private property rights and may have at times nationalized or
expropriated the assets at private companies. Therefore, the risks of
expropriation, nationalism and social, political and economic instability are
greater in those countries than in more developed capital markets.
Emerging markets are the capital markets of any country which, in the
opinion of the Sub-Adviser, is generally considered to be a developing country
by the international financial community. Currently, with respect to the
International Equity Fund, these markets include, but are not limited to, the
markets of Argentina, Brazil, Chile, China, Colombia, the Czech Republic,
Greece, India, Indonesia, Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the
Philippines, Poland, Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela, and countries that comprise the former Soviet Union. As
opportunities to invest in other emerging markets countries develop, the
International Equity Fund may expand and diversify further the emerging markets
countries in which it invests. As stated above, no more than 20% of the
International Equity Fund's total assets may be invested in all emerging markets
countries.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
23
<PAGE>
In addition, foreign securities markets typically have substantially less
volume than U.S. markets, and the securities in these markets can be less liquid
and present greater risk of loss than the securities of comparable U.S.
companies. Such markets often have different clearance and settlement procedures
for securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets may be uninvested. Settlement problems in
foreign countries also could cause the International Equity Fund to miss
attractive investment opportunities. Satisfactory custodial services may not be
available in some countries, which may result in the International Equity Fund
incurring additional costs and delays in the transportation and custody of such
securities.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY
FUND may invest up to 100% of its total assets and each of the EQUITY, EQUITY
VALUE, SMALL CAPITALIZATION and BALANCED FUNDS may invest up to 25% of its total
assets in ADRs, EDRs and GDRs. 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 and GDRs are receipts issued by non-U.S. banks or
trust companies and foreign branches of U.S. banks that evidence ownership of
foreign or U.S. securities. Unsponsored ADRs, EDRs and GDRs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, information concerning the issuer may not be as current
as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs
and GDRs may be more volatile than if such instruments were sponsored by the
issuer. ADRs may be listed on a national securities exchange or may be traded in
the over-the-counter market. EDRs and GDRs are generally designed for use in
foreign exchanges and over-the-counter markets. ADRs, EDRs and GDRs 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, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY FUND
may invest in U.S. Government obligations as described above. Each of the other
Funds 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,
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credit card receivables or other assets). In addition, each of these Funds, as
well as the U.S. GOVERNMENT SECURITIES FUND, may invest in U.S. Government
securities that are backed by adjustable or fixed rate mortgage loans. The
average life of an asset-backed instrument varies with the maturities of the
underlying instruments. In the case of mortgages, these maturities may be a
maximum of forty years. The average life of an asset-backed instrument is likely
to be substantially less than the original maturity of the asset pools
underlying the security as the result of scheduled principal payments and
prepayments. This may be particularly true for mortgage-backed securities. The
rate of such prepayments, and hence the life of the security, will be primarily
a function of current market rates and current conditions in the relevant
market. In calculating the average weighted maturity of a Fund's portfolio
(except the Prime Fund), the maturity of asset-backed instruments will be based
on estimates of average life. The relationship between prepayments and interest
rates may give some high-yielding asset-backed securities less potential for
growth in value than conventional bonds with comparable maturities. In addition,
in periods of falling interest rates, the rate of prepayment tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Fund will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. Because of these and other reasons, an asset-backed
security's total return may be difficult to predict precisely. To the extent a
Fund purchases asset-backed securities at a premium, prepayments (which often
may be made at any time without penalty) may result in some loss of a Fund's
principal investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as 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, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS may 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
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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.
Municipal obligations purchased by each Fund may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a municipal obligation held by a Fund could have an adverse effect on a
Fund's portfolio and the value of its shares. As described below under "Foreign
Securities," foreign letters of credit and guarantees involve certain risks in
addition to those of domestic obligations.
CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME, MANAGED BOND
and PRIME FUNDS and, to a limited extent, the EQUITY, 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 deposits
("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
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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 obligation, the
securities subject to repurchase agreements do not have maturity limitations.
VARIABLE AND FLOATING RATE INSTRUMENTS. EACH FUND may purchase variable and
floating rate instruments. In the case of each Fund, except the U.S. Government
Securities and Treasury Funds, these instruments may include variable amount
master demand notes, which are instruments under which the indebtedness, as well
as the interest rate, varies. 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 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 may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. The Treasury Fund's investments in these
obligations will be limited to "interest only" stripped securities that have
been issued by a federal instrumentality known as the Resolution Funding
Corporation and other stripped securities issued or guaranteed by the U.S.
Government, where the principal and interest components are traded independently
under the Separate Trading of Registered Interest and Principal Securities
Program ("STRIPS"). Under STRIPS, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently. Each Fund, except the Treasury Fund, may also invest in
instruments that have been stripped by
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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 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
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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 does 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 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.
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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. As examples, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P 500. 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 its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund may enter into reverse repurchase agreements.
Under such an agreement a Fund sells portfolio securities and then buys them
back later at an agreed-upon time and price. When a Fund enters into a reverse
repurchase agreement it will place in a separate custodial account liquid assets
that have a value equal to or more than the price a Fund must pay when it buys
back the securities, and the account will be continuously monitored to make sure
the appropriate value is maintained. Reverse repurchase agreements may be used
to meet redemption requests without selling portfolio securities. In addition, a
Fund may use reverse repurchase agreements when it is anticipated that the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. This use of
reverse repurchase agreements may be regarded as leveraging, and therefore,
speculative. Reverse repurchase agreements involve the possible risks that the
interest income earned on the investment of the proceeds will be less than the
interest expense, that the market value of portfolio securities the Fund
relinquishes may decline below the price a Fund must pay when the transaction
closes and that the securities may not be returned to the Fund. Interest paid by
a Fund in a reverse repurchase or other borrowing transaction will reduce a
Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, securities
loans will be made only to parties the Adviser deems to be of good standing, and
will only be made if the Adviser thinks
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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
33% of its total assets. Securities loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash-equivalent security position that
will mature at least by the time of settlement of the roll transaction, cash,
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 greater risk as to the timely repayment of the
principal, interest and dividends. Particular risks include (a) the sensitivity
of such securities to interest rate and economic changes, (b) the lower degree
of protection of principal and interest payments, (c) the relatively low trading
market liquidity for the securities, (d) the impact that legislation may have on
the market for these securities (and, in turn, on a Fund's net asset value) and
(e) the creditworthiness of the issuers of such securities. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would negatively affect their
ability to meet their principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. An economic
downturn could also disrupt the market for lower rated convertible securities
and negatively affect the value of outstanding securities and the ability of the
issuers to repay principal and interest. If the issuer of a convertible security
held by a Fund defaulted, that Fund could incur additional expenses to seek
recovery. Adverse publicity and investor perceptions, whether or not they are
based on fundamental analysis, could also decrease the values and liquidity of
lower-rated convertible securities held by a Fund, especially in a thinly traded
market.
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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 cash value of a securities index. A Fund may not
purchase or sell a futures contract (or related option) unless immediately after
any such transaction the sum of the aggregate amount of margin deposits on its
existing futures positions and the amount of premiums paid for related options
is 5% or less of its total assets (after taking into account certain technical
adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts traded on an exchange or board of trade. When a Fund purchases
an option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When a Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, a Fund may purchase
call options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
that Fund intends to purchase. Similarly, if the value of a Fund's portfolio
securities is expected to decline, that Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts.
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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, but is not required
to, 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. There is a risk of loss to
the Fund if the other party does not complete the transaction.
The International Equity Fund may maintain "short" positions in forward
foreign currency exchange transactions, which would involve the Fund's agreeing
to exchange currency that it currently does not own for another currency -- for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars -- at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of liquid assets 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
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<PAGE>
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser (Sub-Adviser in the case of the International
Equity Fund) has determined pursuant to guidelines adopted by the Board of
Trustees that a liquid trading market exists (including certain securities that
may be purchased by institutional investors under SEC Rule 144A), are not
subject to this limitation. This investment practice could have the effect of
increasing the level of illiquidity in a Fund during any period that qualified
institutional buyers were no longer interested in purchasing these restricted
securities.
PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
objectives. Portfolio turnover may occur for a variety of reasons, including the
appearance of a more favorable investment opportunity. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase the amount of income received by a Fund that constitutes taxable
capital gains. To the extent capital gains are realized, distributions from the
gains may be ordinary income for federal tax purposes (see "Tax Implications").
During the last fiscal year, annual portfolio turnover rates of the Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, U.S. Government
Securities and Managed Bond Funds were 89%, 356%, 106%, 138%, 53%, and 97%,
respectively. The portfolio turnover rates for the Equity Value and
International Equity Funds for the period from commencement of operations
(December 27, 1995) through November 30, 1996 were 19% and 50%, respectively.
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 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 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
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<PAGE>
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 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.
The Short-Term Fixed Income, Managed Bond and U.S. Government Securities
Funds will normally maintain the average weighted maturities of their portfolios
within specified ranges as previously described. The maturities of certain
instruments, however, such as those subject to prepayment or redemption by the
issuers, are subject to estimation. There is no assurance that the estimations
used by the Funds for these instruments will, in fact, be accurate or that, if
inaccurate, a Fund's average weighted maturity will remain within the specified
limits.
Payment on obligations held by a Fund 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 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 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
(with certain limited exceptions).
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.
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT CAPITAL ADVISORS, INC. (REFERRED TO AS THE "ADVISER") SERVES AS
INVESTMENT ADVISER FOR EMERALD FUNDS. The Adviser is a newly-organized,
wholly-owned subsidiary of Barnett Bank, N.A., which, in turn, is a wholly-owned
subsidiary of Barnett Banks, Inc. The Adviser is a corporation headquartered in
Florida.
ENTRUSTED WITH APPROXIMATELY $10 BILLION UNDER ACTIVE MANAGEMENT, the
Adviser provides investment management services to individuals and institutions.
As the investment adviser to Emerald Funds, the Adviser employs investment
professionals who are dedicated to managing money on a full-time basis. For the
International Equity Fund, the Adviser has entered into a sub-advisory agreement
with Brandes Investment Partners, L.P. to provide daily portfolio management for
that Fund.
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 Bank, N.A. and its affiliates
("Barnett"), 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 their 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
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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.
The Equity, Equity Value, International Equity, Small Capitalization,
Balanced, Short-Term Fixed Income, U.S. Government Securities and Managed Bond
Funds (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
shares of the Prime and Treasury Funds will be effected only on days on which
Emerald Funds and the purchasing Institutions are open for business and only
when federal funds or other funds are immediately available to the Fund's
transfer agent to make the purchase on the day it receives the purchase order.
Institutions may transmit purchase orders for shares of the Prime and Treasury
Funds by telephoning the transfer agent c/o the Distributor at 800-367-5905 not
later than 2:00 p.m. (Eastern time) on any Business Day. If federal funds are
not available with respect to any such order by the close of business on the day
the order is received by the transfer agent, the order will be cancelled. In
addition, any purchase order received by the transfer agent after 2:00 p.m.
(Eastern time) will not be accepted, and notice thereof will be given to the
Institution placing the order. Any funds received in connection with late orders
will be returned promptly.
Each Fund observes the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). In addition, the Prime and
Treasury Funds observe the following additional holidays: Martin Luther King,
Jr. Day, Columbus Day and Veterans Day (observed).
It is the responsibility of Institutions to transmit orders for purchases by
their Customers promptly to the Fund in accordance with their agreements with
their Customers, and to deliver
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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 to new shareholders.
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. In addition, share
certificates will not be issued to new shareholders.
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 1940 Act.
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
1940 Act. 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
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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.
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
c/o BISYS Fund Services, Inc. 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.
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WHEN ARE DIVIDENDS AND DISTRIBUTIONS DECLARED AND PAID?
<TABLE>
<CAPTION>
DIVIDENDS ARE
------------------------------
FUND 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.
(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
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 a Fund are redeemed, the Fund
will pay accrued dividends within five Business Days after the end of each month
in which the redemption occurs.
Net capital gain distributions for each of the Funds, if any, are made at
least annually after any reductions for capital loss carryforwards.
EXPLANATION OF SALES PRICE
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund other than the Prime and Treasury
Funds, and at 2:00 p.m. (Eastern time) with respect to the Prime and Treasury
Funds, by adding the value of a Fund's investments, cash and other assets
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.
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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 the Fund's net asset values are 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.
EXCHANGE PRIVILEGE
If you wish, Institutional Shares of the 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, Fanning, 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.
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<PAGE>
THE EMERALD FAMILY OF FUNDS
Emerald Funds was organized on March 15, 1988 as a Massachusetts business
trust, and is a mutual fund of the type known as an "open-end management
investment company." The Agreement and Declaration of Trust permits the Board of
Trustees of Emerald Funds to classify any unissued shares into one or more
classes of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of two share
classes of the Equity and Fixed Income Funds and three share classes in the
Prime and Treasury Funds. Each Fund is classified as a diversified company. The
Board of Trustees has also authorized the issuance of additional classes of
shares representing interests in other portfolios of Emerald Funds. Information
regarding these other portfolios and share classes may be obtained by contacting
the Distributor at the address listed on page 35.
The Institutional Shares of the Funds are described in this prospectus. The
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 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 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 March 5, 1997, the Adviser and its
affiliates possessed, on behalf of their underlying customer accounts, voting or
investment power
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<PAGE>
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:
- Marshall M. Criser, Chairman of the Board of Emerald Funds, is Chairman
of the law firm of Mahoney Adams & Criser, P.A.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Grimsley Marker & Iseley, P.A.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is a Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
- Harvey R. Holding is the retired Executive Vice President and Chief
Financial Officer of BellSouth Corp.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT CAPITAL
ADVISORS, INC. serves as the Funds' adviser and has its principal offices at
9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. Brandes
Investment Partners, L.P. (referred to as the "Sub-Adviser") acts as sub-adviser
for the International Equity Fund and is located at 12750 High Bluff Drive, San
Diego, California 92130. Brandes Investment Partners, Inc. owns a controlling
interest in Brandes Investment Partners, L.P. and serves as its General Partner.
Charles Brandes is the controlling shareholder of Brandes Investment Partners,
Inc. 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, 1996, the Adviser had approximately $10 billion
under active management. The Adviser 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 that has offered general banking services
since 1877. As of December 31, 1996, the Sub-Adviser had approximately $8.9
billion under management.
43
<PAGE>
The Adviser manages the investment portfolios of each Fund except the
International Equity Fund, including selecting portfolio investments and making
purchase and sale orders. The Sub-Adviser manages the investment portfolio of
the International Equity Fund, except that cash balances of the Fund are managed
by the Adviser.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., has been the
portfolio manager of the Equity Fund since September of 1993, and has also
managed the Balanced Fund since it commenced operations on April 11, 1994. Mr.
Creighton joined Barnett in 1981 and has worked with the firm throughout his
investment career. He plays an integral role on the equity investment team, and
works with highly qualified investment professionals to integrate the Adviser's
quantitative models with specific security analysis. Mr. Creighton earned his
BBA in Finance from Stetson University and his MBA in Finance from the
University of North Florida. He holds membership in the Association for
Investment Management and Research ("AIMR"). Mr. Creighton has 16 years of
investment experience. Martin E. LaPrade, C.F.A., has been the portfolio manager
of the Equity Value Fund since it commenced operations. Mr. LaPrade joined
Barnett in 1978 and has worked with the firm throughout his investment career.
He plays an integral role on the equity investment team and works with highly
qualified investment professionals to integrate the Adviser's quantitative
models with specific security analysis. He received his BS in accounting from
Furman University. Mr. LaPrade holds membership in AIMR. He has 16 years of
investment experience. Jeffrey A. Busby, C.F.A., a Managing Partner and Senior
Portfolio Manager at Brandes since August 1988, has been the portfolio manager
of the International Equity Fund, except, as noted, with respect to the Fund's
cash balances, since August 19, 1996. Also in connection with Brandes'
appointment as Sub-Adviser, Don W. Bryant, C.F.A., became Barnett's
"Sub-Advisory Liaison." In that capacity, Mr. Bryant oversees the provision of
sub-investment advisory services by Brandes. Mr. Bryant joined Barnett in 1987
and has served as an institutional portfolio manager for Barnett for the past 7
years. He has worked with the firm throughout his investment career and plays an
integral role on the equity investing team. He received his undergraduate degree
from the University of South Alabama and his MBA in Finance from the University
of Georgia. Mr. Bryant holds membership in AIMR. He has 10 years of investment
experience. Dean McQuiddy, C.F.A., has managed the Small Capitalization Fund
since its commencement of operations on January 4, 1994 and its predecessor, the
Employee Benefits Small Capitalization Fund, since its inception in January
1987. Since joining Barnett in 1983, Mr. McQuiddy has been an equity analyst and
an institutional portfolio manager. He received his BS in Finance from the
University of Florida. Mr. McQuiddy holds membership in AIMR. He has 14 years of
investment experience. Jeffery A. Greenert has been the portfolio manager of the
Short-Term Fixed Income Fund since August 3, 1996. Mr. Greenert joined Barnett
in 1985 and has worked with the firm throughout his investment career. He plays
an integral role as part of the Adviser's fixed income investing team, and works
with a highly qualified team of fixed income professionals to analyze interest
rates, as well as individual fixed income securities. Mr. Greenert received his
BS in Finance from the University of Florida. He has 12 years of investment
experience. Andrew Cantor, C.F.A., 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. Mr. Cantor joined Barnett in
1983 and plays a leading role on the fixed income investment team. Prior to
joining the firm, he worked for Gulf United Corporation, where he was
responsible for economic and interest rate analysis and the management of
approximately $1.1 billion in fixed income investments. He received his BS in
Mathematics from
44
<PAGE>
Florida Atlantic University and his MA in Economics from the University of South
Carolina. Mr. Cantor holds membership in AIMR and the Jacksonville Financial
Analysts Society. He has 23 years of investment experience.
Although expected to be infrequent, the Adviser (or Sub-Adviser) may
consider the amount of Fund shares sold by broker-dealers and others (including
those who may be connected with the Adviser or 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 Adviser (or
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.
The Adviser 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 on a one-time and/or periodic basis, and may be up to
100% of the annual fees that are earned by the Adviser 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 the Adviser
(or Sub-Adviser) 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.
The Adviser is entitled to advisory fees that are calculated daily and
payable monthly at the annual rate of 1.00% of the International Equity and
Small Capitalization Funds' average daily net assets, .60% of each of the
Equity, Equity Value and Balanced Funds' average daily net assets, .40% of each
of the Short-Term Fixed Income, U.S. Government Securities, and Managed Bond
Funds' average daily net assets and .25% of each of the Prime and Treasury
Funds' average daily net assets. The advisory fee rates 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 fee rates payable by many similar funds. In addition,
the Adviser has agreed to pay the Sub-Adviser a fee equal to .50% of the
International Equity Fund's average daily net assets. The fee paid by the
Adviser to the Sub-Adviser for the International Equity Fund comes out of the
Adviser's advisory fee for that Fund and is not an additional charge to the
Fund.
For the fiscal year ended November 30, 1996, the Adviser and the prior
adviser received fees, after waivers, at the effective annual rates of .60%,
1.00%, .44%, .31%, .30% and .40% of the average daily net assets of the Equity,
Small Capitalization, Balanced, Short-Term Fixed Income, Managed Bond
45
<PAGE>
and U.S. Government Securities Funds, respectively, and .21% and .24% of the
average daily net assets of the Prime and Treasury Funds, respectively. The
Adviser voluntarily waived all fees from the Equity Value and International
Equity 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; SEC 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 the Adviser and the Funds' other service providers. 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 (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
46
<PAGE>
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. 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.
47
<PAGE>
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 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 S&P 500, 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 performance of the Prime Fund may be compared to the Donoghue's Money
Fund Average, which monitors the performance of money market funds. The
performance 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.
48
<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 fund before the Equity, Small Capitalization,
Managed Bond and Short-Term Income Funds registered as investment companies with
the SEC, together with the performance information of these Funds since their
commencement of operations. These common 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, 1996
----------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Equity Fund (1).................................................... 23.33% 17.69% 14.21% 12.21%
Small Capitalization Fund (2)...................................... 14.49% 15.63% 19.51% 13.08%*
Managed Bond Fund (3).............................................. 5.96% 6.73% 8.33% 9.10%**
Short-Term Fixed Income Fund (4)................................... 5.47% 5.40% 5.90% 7.19%
</TABLE>
- ------------
(1) THE ABOVE INFORMATION FOR THE PERIODS PRIOR TO INCEPTION OF THE EQUITY FUND
(6/28/91) IS THE AVERAGE 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. DURING THE PERIODS SHOWN 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 RATION 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. DURING THE PERIODS
SHOWN 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 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. DURING THE PERIODS SHOWN 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
49
<PAGE>
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. DURING THE PERIODS SHOWN 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.
OTHER PERFORMANCE INFORMATION -- INTERNATIONAL EQUITY FUND ONLY:
For the one year period ended December 31, 1996 and for the period from
commencement of operations (December 27, 1995) through December 31, 1996, the
average annual total returns for Institutional Shares of the International
Equity Fund were 15.35% and 14.47%, respectively. These total returns assume the
reinvestment of all dividends and capital gains and reflect fee waivers and
expense reimbursements in effect. Without these waivers and reimbursements the
Fund's performance would have been lower. Of course, performance is no guarantee
of future results. Investment return and principal value will fluctuate, so that
shares, when redeemed, may be worth more or less than the original cost. For
more information in performance see "Additional Information on Performance
Calculations" in the Statement of Additional Information.
Set forth below is certain performance information provided by Brandes
Investment Partners, L.P., Sub-Adviser for the International Equity Fund,
relating to historical performance of a composite of international equity
accounts of clients of the Sub-Adviser. The international equity accounts in the
Brandes composite had the same investment objective as the International Equity
Fund and were managed by the same team that manages the International Equity
Fund's securities, using substantially similar, though not identical, investment
strategies, policies and techniques as those contemplated for use by the Fund.
This information is provided to illustrate the past performance of Brandes in
managing similar accounts as measured against the Morgan Stanley Capital
International ("MSCI") EAFE Index, a standard international equity investment
benchmark. The accounts that are included in the Brandes' composite are not
subject to the same types of expenses and liquidity to which the Fund is subject
nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on the International Equity Fund by the 1940 Act
or the Code. Consequently, the performance results for the Sub-Adviser's
composite could have been adversely affected if the accounts included in the
composite had been regulated as investment companies. The composite performance
shown below does not represent the performance of the International Equity Fund.
You should not consider this as an indication of future performance of the
International Equity Fund or of the Sub-Adviser.
The results presented below may not necessarily equate with the returns
expected by an particular account of the Sub-Adviser or shareholder of the
International Equity Fund as a result of timing of investments and redemptions.
In addition, the effect of taxes on any client or shareholder will depend on
such person's tax status, and the results have not been reduced to reflect any
income tax which may have been payable.
<TABLE>
<CAPTION>
FOR PERIODS ENDED DECEMBER 31, 1996
----------------------------------------------------
FIVE SINCE INCEPTION
ONE YEAR THREE YEARS YEARS (7/1/90)
--------- ----------- --------- -----------------
<S> <C> <C> <C> <C>
Annualized Total Return*................................... 16.01% 8.58% 13.90% 16.16%
MSCI EAFE**................................................ 6.05% 8.32% 8.15% 5.90%
</TABLE>
- ------------
* The net annual returns presented above for the Brandes' composite were
calculated on a time-weighted and asset-weighted total return basis,
including investment of all dividends and interest
50
<PAGE>
on a cash basis, realized and unrealized gains or losses and are net of
applicable investment advisory fees, brokerage commissions and execution
costs, any applicable foreign withholding taxes and custodial fees, without
provision for federal and state income taxes, if any. Brandes' composite
results include all actual, fee-paying, fully discretionary international
equity accounts under management for at least one month beginning 7/1/90,
other than wrap fee accounts. The weighted-average management fee during the
period from 7/1/90 through 12/31/96 was 0.96% per year. Securities
transactions are accounted for on the trade date and cash accounting is
utilized. Cash and cash equivalents are included in performance returns.
Starting with calendar year 1992 through 1995, the net annual returns for
the Brandes International Equity composite have been examined by a Big Six
accounting form in accordance with AIMR Level II verification standards. The
examination of net annual returns for calendar year 1996 is not completed as
of the date of this prospectus. Copies of the auditors' report and complete
list and description of Brandes' composites are available on request by
calling the Distributor at 800/637-3759. The results for individual accounts
and for different periods may vary. Investors should not rely on prior
performance results as a reliable indication of future results.
** MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage commission
or other expenses of investing.
-------------------
Performance quotations will fluctuate, and you should not consider
quotations to be representa-
tive 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 36.
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.
51
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION......................... 3
<S> <C>
Expenses............................................................ 3
Financial Highlights................................................ 5
INVESTMENT PRINCIPLES AND POLICIES.................................... 16
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS.................... 22
INVESTING IN EMERALD FUNDS............................................ 36
Your Money Manager.................................................. 36
Purchase of Shares.................................................. 36
Redemption of Shares................................................ 38
Dividends and Distributions......................................... 39
Explanation of Sales Price.......................................... 40
Exchange Privilege.................................................. 41
Other Service Providers............................................. 41
THE EMERALD FAMILY OF FUNDS........................................... 42
THE BUSINESS OF THE FUNDS............................................. 43
Fund Management..................................................... 43
Tax Implications.................................................... 46
Measuring Performance............................................... 48
</TABLE>
<PAGE>
PROSPECTUS
EMERALD FUNDS
INSTITUTIONAL SHARES
For Barnett Private Client Customers
April 1, 1997
-photo-
-photo-
-photo-
Logo: EMERALD
<PAGE>
For voice recorded price information
call 800/548-6546.
<PAGE>
EMERALD FUNDS
PROSPECTUS for EQUITY, EQUITY VALUE, INTERNATIONAL EQUITY,
SMALL CAPITALIZATION, BALANCED, SHORT-TERM FIXED INCOME,
U.S. GOVERNMENT SECURITIES, MANAGED BOND AND FLORIDA TAX-EXEMPT FUNDS
<TABLE>
<CAPTION>
April 1, 1997
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 accept the relative risks
associated with equity
investments
<S> <C> <C>
- -----------------------------------------------------------------------------------------
EQUITY VALUE Long-term capital appreciation Long-term capital appreciation
through investments primarily in and are willing to accept the
common and preferred stock and relative risks associated with
debt securities convertible into investments in undervalued
common stock stocks
- -----------------------------------------------------------------------------------------
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 can
accept the investment 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, 1997 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 BANK, N.A. OR ANY OF ITS AFFILIATES ("BARNETT") 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 CAPITAL ADVISORS, INC. 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.
<PAGE>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION
Expenses
SHAREHOLDER TRANSACTION 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 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)*......... 0.15% 0.55% 0.31% 0.18% 0.20%
--------- --------- ------ ------ -----------
Total Fund Operating Expenses (After Expense
Reimbursements)*.......................................... 0.75% 1.15% 1.31% 1.18% 0.80%
--------- --------- ------ ------ -----------
--------- --------- ------ ------ -----------
</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
Deferred Sales Charge.............................................. None None None None
Redemption Fee..................................................... None None None None
Exchange Fee....................................................... None None None None
ANNUAL FUND OPERATING EXPENSES
Advisory Fees...................................................... 0.40% 0.40% 0.40% 0.40%
All Other Expenses................................................. 0.22% 0.20% 0.17% 0.20%
------ ----------- ----------- -----------
Total Fund Operating Expenses...................................... 0.62% 0.60% 0.57% 0.60%
------ ----------- ----------- -----------
------ ----------- ----------- -----------
</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.
Absent expense reimbursements, the total operating expenses for the
Institutional Shares of the Equity Value Fund would be 1.21%
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 $24 $42 $ 93
Equity Value Fund................................. $12 $37 $63 $140
International Equity Fund......................... $13 $42 $72 $158
Small Capitalization Fund......................... $12 $37 $65 $143
Balanced Fund..................................... $ 8 $26 $44 $ 99
Short-Term Fixed Income Fund...................... $ 6 $20 $35 $ 77
U.S. Government Securities Fund................... $ 6 $19 $33 $ 75
Managed Bond Fund................................. $ 6 $18 $32 $ 71
Florida Tax-Exempt Fund........................... $ 6 $19 $33 $ 75
</TABLE>
- ---------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
INVESTMENT RETURNS OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURNS AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
Financial Highlights
THE FINANCIAL HIGHLIGHTS BELOW HAVE BEEN AUDITED BY PRICE WATERHOUSE LLP,
THE FUNDS' INDEPENDENT ACCOUNTANTS FOR THE FISCAL PERIODS SHOWN, WHOSE
UNQUALIFIED REPORTS ON THE FINANCIAL STATEMENTS CONTAINING SUCH INFORMATION FOR
EACH OF THE FIVE YEARS IN THE PERIOD ENDED NOVEMBER 30, 1996, 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, 1996, WHICH MAY BE OBTAINED
WITHOUT CHARGE FROM THE DISTRIBUTOR.
DURING THE FISCAL YEARS 1993 AND 1992 AND THE PERIODS ENDED NOVEMBER 30,
1991, THE EQUITY, U.S. GOVERNMENT SECURITIES AND FLORIDA TAX-EXEMPT FUNDS DID
NOT OFFER INSTITUTIONAL SHARES. RATHER, EACH FUND OFFERED A SEPARATE SHARE
CLASS, 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 YEAR ENDED PERIOD ENDED --------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(C) 1995 1994+++ 1994 1993
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 14.63 $ 10.89 $ 11.94 $ 11.82 $ 11.97
------- ------- ------- ------- -------
Income from investment operations:
Net investment income........... 0.06 0.08 0.11 0.08 0.15
Net realized and unrealized
gains (losses) on securities... 3.02 3.74 (0.90) (0.39) (0.08)
------- ------- ------- ------- -------
Total income (loss) from
investment operations.......... 3.08 3.82 (0.79) (0.31) 0.07
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment
income......................... (0.06) (0.08) (0.11) (0.08) (0.15)
Distributions from net realized
gains on securities............ (1.29) (0.00) (0.15) (0.57) (0.07)
------- ------- ------- ------- -------
Total dividends and
distributions.................. (1.35) (0.08) (0.26) (0.65) (0.22)
------- ------- ------- ------- -------
Net change in net asset value..... 1.73 3.74 (1.05) (0.96) (0.15)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 16.36 $ 14.63 $ 10.89 $ 10.86 $ 11.82
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total return...................... 23.33% 35.21% (6.62%)++ (2.91%) 0.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $217,184 $173,824 $164,015 $19,705 $138,642
Ratio of expenses to average net
assets......................... 0.79 % 0.84 % 0.79 %+ 1.07 % 0.86 %
Ratio of net investment income
to average net assets.......... 0.43 % 0.67 % 1.46 %+ 0.36 % 1.22 %
Ratio of expenses to average net
assets**....................... 0.79 % (a ) (a ) 1.29 % 1.21 %
Ratio of net investment income
to average net assets**........ 0.43 % (a ) (a ) 0.13 % 0.87 %
Portfolio turnover.............. 89 % 104 % 113 % 113 % 102 %
Average commission rate
paid(b)........................ $0.0518 -- -- -- --
<CAPTION>
PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1992 1991*
--------------- ---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.24 $ 10.00
------- -------
Income from investment operations:
Net investment income........... 0.16 0.12
Net realized and unrealized
gains (losses) on securities... 1.73 0.24
------- -------
Total income (loss) from
investment operations.......... 1.89 0.36
------- -------
Less dividends and distributions:
Dividends from net investment
income......................... (0.16) (0.12)
Distributions from net realized
gains on securities............ (0.00) (0.00)
------- -------
Total dividends and
distributions.................. (0.16) (0.12)
------- -------
Net change in net asset value..... 1.73 0.24
------- -------
NET ASSET VALUE, END OF PERIOD.... $ 11.97 $ 10.24
------- -------
------- -------
Total return...................... 18.49% 3.54%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $152,939 $98,953
Ratio of expenses to average net
assets......................... 0.76 % 0.00 %+
Ratio of net investment income
to average net assets.......... 1.41 % 2.64 %+
Ratio of expenses to average net
assets**....................... 1.18 % 1.22 %+
Ratio of net investment income
to average net assets**........ 0.99 % 1.42 %+
Portfolio turnover.............. 40 % 13 %
Average commission rate
paid(b)........................ -- --
</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.
(b) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(c) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
6
<PAGE>
EMERALD EQUITY VALUE FUND
Financial highlights for an Institutional Share of the Equity Value Fund
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
PERIOD ENDED NOVEMBER
30 1996*(B)
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................................................... $ 10.00
--------
Income from investment operations:
Net Investment income................................................................................... 0.28
Net realized and unrealized gains on securities......................................................... 2.18
--------
Total income from investment operations................................................................. 2.46
--------
Dividends from net investment income...................................................................... (0.28)
--------
Net change in net asset value............................................................................. 2.18
--------
NET ASSET VALUE, END OF PERIOD............................................................................ $ 12.18
--------
--------
Total return.............................................................................................. 24.93%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)........................................................................ $ 3,945
Ratio of expenses to average net assets................................................................. 0.00%+
Ratio of net investment income to average net assets.................................................... 2.89%+
Ratio of expenses to average net assets**............................................................... 4.37%+
Ratio of net investment loss to average net assets**.................................................... (1.48%)+
Portfolio Turnover...................................................................................... 19%
Average commission rate paid(a)......................................................................... $ 0.0791
</TABLE>
- ------------
* For the period December 27, 1995 (commencement of operations) through
November 30, 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
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
7
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
Financial highlights for an Institutional Share of the International Equity
Fund outstanding throughout the period indicated:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1996*(B)
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................................................ $ 10.00
--------
Income from investment operations:
Net investment income..................................................................... 0.06
Net realized and unrealized gains on securities........................................... 1.29
--------
Total income from investment operations................................................... 1.35
--------
Dividends from net investment income........................................................ (0.06)
--------
Net change in net asset value............................................................... 1.29
--------
NET ASSET VALUE, END OF PERIOD.............................................................. $ 11.29
--------
--------
Total return................................................................................ 13.47%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).......................................................... $ 17,528
Ratio of expenses to average net assets................................................... 0.00%+
Ratio of net investment income to average net assets...................................... 1.99%+
Ratio of expenses to average net assets**................................................. 3.46%+
Ratio of net investment loss to average net assets**...................................... (1.47%)+
Portfolio Turnover........................................................................ 50%
Average commission rate paid(a)........................................................... $ 0.0463
</TABLE>
- ------------
* For the period December 27, 1995 (commencement of operations) through
November 30, 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
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly-owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser, and
effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's investment sub-adviser.
8
<PAGE>
EMERALD SMALL CAPITALIZATION FUND
Financial highlights for an Institutional Share of the Small Capitalization
Fund outstanding throughout each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 12.78 $ 9.66 $ 10.00
------------ ------------ ------------
Income from investment operations:
Net investment loss................................................. (0.07) (0.03) (0.04)
Net realized and unrealized gains (losses) on securities............ 1.81 3.15 (0.30)
------------ ------------ ------------
Total income (loss) from investment operations...................... 1.74 3.12 (0.34)
------------ ------------ ------------
Distributions from net realized gains on securities................... (1.00) (0.00) (0.00)
------------ ------------ ------------
Net change in net asset value......................................... 0.74 3.12 (0.34)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................................ $ 13.52 $ 12.78 $ 9.66
------------ ------------ ------------
------------ ------------ ------------
Total return.......................................................... 14.49% 32.30% (3.40%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................... $ 138,008 $ 88,561 $ 53,509
Ratio of expenses to average net assets............................. 1.22% 1.39% 1.29%+
Ratio of net investment loss to average net assets.................. (0.60%) (0.65%) (0.54%)+
Ratio of expenses to average net assets**........................... 1.24% 1.42% 1.48%+
Ratio of net investment loss to average net assets**................ (0.62%) (0.68%) (0.73%)+
Portfolio turnover.................................................. 356% 229% 118%
Average commission rate paid(a)..................................... $ 0.0420 -- --
</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.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
9
<PAGE>
EMERALD BALANCED FUND
Financial highlights for an Institutional Share of the Balanced Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 11.91 $ 9.63 $ 10.00
------------ ------------ ------------
Income from investment operations:
Net investment income............................................... 0.35 0.33 0.27
Net realized and unrealized gains (losses) on securities............ 1.34 2.28 (0.37)
------------ ------------ ------------
Total income (loss) from investment operations...................... 1.69 2.61 (0.10)
------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income................................ (0.35) (0.33) (0.25)
Distributions in excess of net investment income.................... (0.00) (0.00) (0.02)
Distributions from net realized gains on securities................. (0.22) (0.00) (0.00)
------------ ------------ ------------
Total dividends and distributions..................................... (0.57) (0.33) (0.27)
------------ ------------ ------------
Net change in net asset value......................................... 1.12 2.28 (0.37)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................................ $ 13.03 $ 11.91 $ 9.63
------------ ------------ ------------
------------ ------------ ------------
Total return.......................................................... 14.73% 27.99% (1.02%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................... $ 90,602 $ 73,830 $ 51,170
Ratio of expenses to average net assets............................. 0.69% 0.32% 0.28%+
Ratio of net investment income to average net assets................ 2.96% 3.54% 4.11%+
Ratio of expenses to average net assets**........................... 0.90% 1.10% 1.25%+
Ratio of net investment income to average net assets**.............. 2.75% 2.76% 3.14%+
Portfolio turnover.................................................. 106% 87% 33%
Average commission rate paid(a)..................................... $ 0.0466 -- --
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged. Disclosure is not required
for prior periods.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
10
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND
Financial highlights for an Institutional Share of the Short-Term Fixed
Income Fund throughout the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(A) 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 10.15 $ 9.74 $ 10.00
------------ ------------ ------------
Income from investment operations:
Net investment income............................................... 0.58 0.61 0.35
Net realized and unrealized gains (losses) on securities............ (0.05) 0.41 (0.26)
------------ ------------ ------------
Total income from investment operations............................. 0.53 1.02 0.09
------------ ------------ ------------
Less dividends and distributions:
Dividends from net investment income................................ (0.58) (0.61) (0.35)
Distributions from net realized gains on securities................. (0.03) (0.00) (0.00)
------------ ------------ ------------
Total dividends and distributions................................... (0.61) (0.61) (0.35)
------------ ------------ ------------
Net change in net asset value......................................... (0.08) 0.41 (0.26)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD........................................ $ 10.07 $ 10.15 $ 9.74
------------ ------------ ------------
------------ ------------ ------------
Total return.......................................................... 5.47% 10.80% (0.90%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s).................................... $ 53,200 $ 14,037 $ 23,566
Ratio of expenses to average net assets............................. 0.53% 0.32% 0.28%+
Ratio of net investment income to average net assets................ 5.79% 6.14% 5.55%+
Ratio of expenses to average net assets**........................... 0.90% 1.43% 1.60%+
Ratio of net investment income to average net assets**.............. 5.42% 5.03% 4.24%+
Portfolio turnover.................................................. 138% 33% 0%
</TABLE>
- ------------
* For the period April 11, 1994 (commencement of operations) through November
30, 1994.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not Annualized.
(a) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
11
<PAGE>
EMERALD U.S. GOVERNMENT SECURITIES FUND
Financial highlights for an Institutional Share and a Retail Share of the
U.S. Government Securities Fund outstanding throughout each of the periods
indicated:
<TABLE>
<CAPTION>
RETAIL SHARES
------------------------------
INSTITUTIONAL SHARES
------------------------------------------------- YEAR ENDED
YEAR ENDED YEAR ENDED PERIOD ENDED ------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994+++ 1994 1993
--------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.36 $ 9.71 $ 10.47 $ 10.79 $ 10.52
------- ------- ------- ------- -------------
Income from investment operations:
Net investment income........... 0.65 0.68 0.46 0.58 0.66
Net realized and unrealized
gains (losses) on securities... (0.09) 0.65 (0.75) (0.94) 0.41
------- ------- ------- ------- -------------
Total income (loss) from
investment operations.......... 0.56 1.33 (0.29) (0.36) 1.07
------- ------- ------- ------- -------------
Less dividends and distributions:
Dividends from net investment
income......................... (0.65) (0.68) (0.46) (0.58) (0.66)
Distributions from net realized
gains on securities............ (0.00) (0.00) (0.00) (0.10) (0.14)
Distributions in excess of net
investment income.............. (0.00) (0.00) (0.01) (0.01) (0.00)
Distributions in excess of net
realized gains................. (0.00) (0.00) (0.00) (0.02) (0.00)
------- ------- ------- ------- -------------
Total dividends and
distributions.................. (0.65) 0.68 (0.47) (0.71) (0.80)
------- ------- ------- ------- -------------
Net change in net asset value..... (0.09) 0.65 (0.76) (1.07) 0.27
------- ------- ------- ------- -------------
NET ASSET VALUE, END OF PERIOD.... $ 10.27 $ 10.36 $ 9.71 $ 9.72 $ 10.79
------- ------- ------- ------- -------------
------- ------- ------- ------- -------------
Total return...................... 5.69% 14.10% (2.83%)++ (3.45%) 10.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $37,468 $74,753 $69,314 $30,855 $145,328
Ratio of expenses to average net
assets......................... 0.69 % 0.83 % 0.68 %+ 0.98 % 0.64 %
Ratio of net investment income
to average net assets.......... 6.39 % 7.46 % 5.90 %+ 5.68 % 5.91 %
Ratio of expenses to average net
assets**....................... 0.69 (a ) 0.69 %+ 1.09 % 1.06 %
Ratio of net investment income
to average net assets**........ 6.39 (a ) 5.90 %+ 5.57 % 5.49 %
Portfolio turnover.............. 53 % 89 % 133 % 133 % 72 %
<CAPTION>
PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1992 1991*
--------------- ---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.46 $ 10.00
------- -------
Income from investment operations:
Net investment income........... 0.77 0.27
Net realized and unrealized
gains (losses) on securities... 0.12 0.46
------- -------
Total income (loss) from
investment operations.......... 0.89 0.73
------- -------
Less dividends and distributions:
Dividends from net investment
income......................... (0.77) (0.27)
Distributions from net realized
gains on securities............ (0.06) (0.00)
Distributions in excess of net
investment income.............. (0.00) (0.00)
Distributions in excess of net
realized gains................. (0.00) (0.00)
------- -------
Total dividends and
distributions.................. (0.83) (0.27)
------- -------
Net change in net asset value..... 0.06 0.46
------- -------
NET ASSET VALUE, END OF PERIOD.... $ 10.52 $ 10.46
------- -------
------- -------
Total return...................... 8.79% 7.34%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $94,006 $34,693
Ratio of expenses to average net
assets......................... 0.28 % 0.00 %+
Ratio of net investment income
to average net assets.......... 7.18 % 7.88 %+
Ratio of expenses to average net
assets**....................... 0.99 % 1.47 %+
Ratio of net investment income
to average net assets**........ 6.42 % 6.41 %+
Portfolio turnover.............. 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
12
<PAGE>
EMERALD MANAGED BOND FUND
Financial highlights for an Institutional Share of the Managed Bond Fund
outstanding throughout each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(A) 1995 1994*
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................................. $ 10.55 $ 9.55 $ 10.00
------------- ------------- -------------
Income from investment operations:
Net investment income........................................................... 0.65 0.70 0.45
Net realized and unrealized gains (losses) on securities........................ (0.06) 1.00 (0.00)
------------- ------------- -------------
Total income from investment operations......................................... 0.59 1.70 0.00
------------- ------------- -------------
Less dividends and distributions:
Dividends from net investment income............................................ (0.65) (0.70) (0.43)
Distributions in excess of net investment income................................ (0.12) (0.00) (0.02)
------------- ------------- -------------
Total dividends and distributions............................................... (0.77) (0.70) (0.45)
------------- ------------- -------------
Net change in net asset value..................................................... (0.18) (1.00) (0.45)
------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD.................................................... $ 10.37 $ 10.55 $ 9.55
------------- ------------- -------------
------------- ------------- -------------
Total return...................................................................... 5.96% 18.36% (0.01%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)................................................ $ 75,519 $ 68,923 $ 66,588
Ratio of expenses to average net assets......................................... 0.55% 0.31% 0.27%+
Ratio of net investment income to average net assets............................ 6.32% 6.95% 6.83%+
Ratio of expenses to average net assets**....................................... 0.67% 0.83% 0.86%+
Ratio of net investment income to average net assets**.......................... 6.20% 6.43% 6.25%+
Portfolio turnover.............................................................. 97% 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.
(a) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
13
<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 YEAR ENDED PERIOD ENDED -------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996(B) 1995 1994+++ 1994 1993 1992
--------------- --------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 11.09 $ 9.87 $ 11.07 $ 11.33 $ 10.55 $ 10.14
------- ------- ------- ------------- ------------- -------------
Income from investment operations:
Net investment income........... 0.56 0.57 0.42 0.53 0.61 0.68
Net realized and unrealized
gains (losses) on securities... (0.02) 1.22 (1.19) (1.37) 0.78 0.45
------- ------- ------- ------------- ------------- -------------
Total income (loss) from
investment operations.......... 0.54 1.79 (0.77) (0.84) 1.39 1.13
------- ------- ------- ------------- ------------- -------------
Less dividends and distributions:
Dividends from net investment
income......................... (0.56) (0.57) (0.42) (0.53) (0.61) (0.68)
Distributions from net realized
gains on securities............ (0.00) (0.00) (0.01) (0.09) (0.00) (0.04)
------- ------- ------- ------------- ------------- -------------
Total dividends and
distributions.................. (0.56) (0.57) (0.43) (0.62) (0.61) (0.72)
------- ------- ------- ------------- ------------- -------------
Net change in net asset value..... (0.02) (1.22) (1.20) (1.46) 0.78 0.41
------- ------- ------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD.... $ 11.07 $ 11.09 $ 9.87 $ 9.87 $ 11.33 $ 10.55
------- ------- ------- ------------- ------------- -------------
------- ------- ------- ------------- ------------- -------------
Total return...................... 5.09% 18.55% (7.07%)++ (7.75%) 13.37% 11.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $34,875 $33,979 $29,309 $109,426 $207,764 $106,946
Ratio of expenses to average net
assets......................... 0.69 % 0.74 % 0.71 %+ 0.96 % 0.65 % 0.25 %
Ratio of net investment income
to average net assets.......... 5.17 % 5.39 % 5.34 %+ 4.96 % 5.32 % 6.39 %
Ratio of expenses to average net
assets**....................... 0.69 % (a ) 0.71 %+ 1.04 % 1.00 % 1.21 %
Ratio of net investment income
to average net assets**........ 5.17 % (a ) 5.33 %+ 4.88 % 4.97 % 5.43 %
Portfolio turnover.............. 152 % 89 % 89 % 89 % 48 % 105 %
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1991*
---------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 10.00
-------
Income from investment operations:
Net investment income........... 0.21
Net realized and unrealized
gains (losses) on securities... 0.14
-------
Total income (loss) from
investment operations.......... 0.35
-------
Less dividends and distributions:
Dividends from net investment
income......................... (0.21)
Distributions from net realized
gains on securities............ (0.00)
-------
Total dividends and
distributions.................. (0.21)
-------
Net change in net asset value..... 0.14
-------
NET ASSET VALUE, END OF PERIOD.... $ 10.14
-------
-------
Total return...................... 3.49%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s)......................... $10,589
Ratio of expenses to average net
assets......................... 0.00 %+
Ratio of net investment income
to average net assets.......... 6.40 %+
Ratio of expenses to average net
assets**....................... 3.42 %+
Ratio of net investment income
to average net assets**........ 2.98 %+
Portfolio turnover.............. 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.
(b) Effective June 29, 1996, Barnett Capital Advisors, Inc., a wholly owned
subsidiary of Barnett Banks, Inc., became the Fund's investment adviser.
14
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser and, with respect to the International Equity Fund, the Fund's
Sub-Adviser uses a range of different investments and investment techniques in
seeking to achieve a Fund's investment objectives. All Funds do not use all of
the investments and investment techniques described below, which involve various
risks, and which are also described in the following schedule. You should
consider which Funds best meet your investment goals. Although the Funds will
endeavor to attain their investment objectives, there can be no assurance they
will be successful.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term capital
appreciation by investing primarily in common stocks. The Fund seeks as a
secondary objective potential income growth through its investments. The Fund
invests primarily in high quality common stocks selected on the basis of
fundamental investment value and growth prospects that the Adviser believes
exceed those of the general economy. The Fund also seeks to be well diversified
across many economic sectors. 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.) In managing the Fund, the Adviser generally seeks
securities of larger companies with market capitalizations exceeding $5 billion
at the time of purchase. "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"), European Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs"), 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. The Fund may also write covered call options.
EQUITY VALUE FUND
The Investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Any income is incidental to this objective. The Fund seeks
to achieve its investment objective by investing primarily in common stock,
preferred stock (including convertible preferred stock) and debt obligations
convertible into common stock that the Adviser believes to be undervalued. The
Fund also seeks to be well diversified across many economic sectors.
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
15
<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 over types of securities
in such proportions as, in the opinion of the Adviser, existing circumstances
may warrant, including obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, and other high quality "money market"
instruments. The Fund may also hold cash pending investment, during temporary
defensive periods or if, in the opinion of the Adviser, suitable stock or
convertible debt securities are unavailable. The Fund may invest up to 25% of
its total assets in foreign securities either directly or indirectly through
ADRs, EDRs and GDRs and may also write covered call options.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing at least 65% of its total assets in equity securities of foreign
issuers, including emerging markets countries. 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,
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia,
the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, India,
Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico,
The Netherlands, New Zealand, Norway, Pakistan, Peru, the Philippines, Poland,
Portugal, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, The United Kingdom, Venezuela and the countries that comprise
the former Soviet Union. More than 25% of the Fund's total assets may be
invested in the securities of issuers located in the same country, except that
no more than 20% of the Fund's total assets may be invested in all emerging
markets countries. 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. Investments in emerging
markets countries may not be as liquid as those in developed countries and pose
greater risks.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
The Fund may invest in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
The Sub-Adviser to the International Equity Fund is committed to the use of
the Graham and Dodd-style value investing approach as introduced in the classic
book SECURITY ANALYSIS. Using this philosophy, the Sub-Adviser views stocks as
small pieces of business which are for sale. It seeks to purchase a diversified
group of these businesses at prices its research indicates are below their true
16
<PAGE>
long-term, or intrinsic, value. By purchasing stocks whose current prices are
believed to be below their intrinsic values, the Sub-Adviser seeks to secure not
only a possible margin of safety against price declines, but also an attractive
opportunity for profit over the business cycle.
In analyzing a company's true long-term value, the Sub-Adviser uses sources
of information such as company reports, filings with the Securities and Exchange
Commission ("SEC"), computer databases, industry publications, general and
business publications, brokerage firm research reports, and interviews with
company management. Its focus is on fundamental characteristics of a company,
including, but not limited to, book value, cash flow and capital structure, as
well as management's record and broad industry issues. Once the intrinsic value
of a company is estimated, this value is compared to the current price of the
stock. If the price is substantially lower than the indicated intrinsic value,
the stock may be purchased.
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, EDRs or GDRs also as described under "Portfolio Instruments, Practices and
Related Risks."
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, the Fund's assets may be invested in
short-term debt instruments. In addition, when the Fund experiences large cash
inflows from the issuance of new shares or the sale of portfolio securities, and
desirable equity securities that are consistent with the Fund's investment
objective are unavailable in sufficient quantities, the Fund may hold more than
35% of its assets in short-term 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-Registered Trademark-
Composite Stock Price Index ("S&P 500").
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
17
<PAGE>
smaller companies with above-average growth prospects. Factors considered in
selecting such issuers include participation in a fast growing industry, a
strategic niche position in a specialized market, adequate capitalization and
fundamental value.
The Fund has been designed to provide investors with potentially greater
long-term rewards than those provided by an investment in a fund that seeks
capital appreciation from equity securities of larger, more established
companies. Since small capitalization companies are generally not as well-known
to investors and have less of an investor following than larger companies, they
may provide opportunities for greater investment gains as a result of
inefficiencies in the marketplace.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalized companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks. By maintaining a broadly diversified
portfolio, the Adviser will attempt to reduce this volatility.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in equity securities. In addition to investing in equity securities,
the Fund is authorized to invest in cash equivalents to provide cash reserves.
The Fund also retains the ability to invest up to 25% of the value of its total
assets in foreign securities by utilizing ADRs, EDRS and GDRs, and may acquire
convertible securities, warrants and similar rights.
BALANCED FUND
The investment objective of the Balanced Fund is to provide an attractive
investment return through a combination of growth of capital and current income.
The Fund seeks to achieve its objective by allocating assets among three major
asset groups: equity securities, fixed income securities and cash equivalents.
In pursuing its investment objective, the Adviser will allocate the Fund's
assets based upon its evaluation of the relative attractiveness of the major
asset groups.
The Fund's policy is to invest at least 25% of the value of its total assets
in fixed income securities (including cash equivalents) and no more than 75% in
equity securities at all times. The actual percentage of assets invested in
fixed income and equity securities will vary from time to time, depending on the
Adviser's judgment as to general market and economic conditions, trends and
yields, interest rates and fiscal and monetary developments. The Fund will not
purchase a security if as a result less than 25% of its total assets will be in
invested fixed income securities (including cash equivalents, long-term debt
securities, and convertible debt securities and preferred stocks to the extent
their value is attributable to their fixed income characteristics).
The Fund's assets may be invested in U.S. Government and agency obligations,
corporate bonds, mortgage securities, senior debt securities, preferred stocks
and common stocks in such proportions and of such type as are deemed by the
Adviser to be best adapted to the current economic and market outlook. The
Adviser has incorporated several considerations into its asset allocation
decision-making process, including its outlook for future returns on each asset
class, inflation, interest rates and long-term corporate earnings growth.
Investment returns are normally strongly influenced by these variables and their
expected change over time. Therefore, the Adviser will attempt to take advantage
of changing economic conditions by increasing or decreasing the ratio of stocks
to fixed income
18
<PAGE>
obligations or cash equivalents in the Fund. For example, if the Adviser expects
more rapid economic growth leading to better corporate earnings in the future,
it would normally increase the Fund's equity holdings while reducing its fixed
income and cash equivalent holdings.
The Fund reserves the right to hold as a temporary defensive measure up to
100% of its total assets in cash and short-term obligations (having remaining
maturities of 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, EDRS and GDRs, 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 FUND AND MANAGED BOND FUND
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
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unrated obligations determined to be of comparable quality). Obligations rated
in the lowest of the top four rating categories ("BBB" or "Baa") have certain
speculative characteristics and are subject to more credit and market risk than
securities with higher ratings.
Most obligations acquired by the Funds will be issued by companies or
governmental entities located within the U.S. Up to 35% of the total assets of
each Fund may, however, be invested in U.S. dollar-denominated debt obligations
of foreign issuers.
In acquiring particular portfolio securities, the Adviser will consider,
among other things, historical yield relationships between corporate and
government securities, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon the Adviser's analysis of these and other
factors, a Fund's holdings in issuers in particular industry sectors may be
overweighted or underweighted when compared to the relative industry weightings
in recognized indices.
Due to its short-term average weighted maturity, the Short-Term Fixed Income
Fund may generally acquire high quality cash equivalents and repurchase
agreements of the types described below under "Portfolio Instruments, Practices
and Related Risks" without limitation. Normally at least 65% of the Managed Bond
Fund's total assets will be invested in bonds, debentures, mortgage and other
asset-related securities, zero coupon bonds and convertible debentures. The
Managed Bond Fund may, however, also invest without limitation in short-term
investments to meet anticipated redemption requests, or as a temporary defensive
measure if the Adviser determines that market conditions warrant.
The Funds may also invest in obligations convertible into common stocks, 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.
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FLORIDA TAX-EXEMPT FUND
The primary investment objective of the Florida Tax-Exempt Fund is to seek
to provide high tax-free income and current liquidity. The potential for
long-term capital appreciation is considered to be a secondary objective. In
seeking to attain its objectives, the Fund invests its assets primarily in
municipal obligations that are rated investment grade or above by one or more
NRSROs at the time of purchase. The Fund may also acquire tax-exempt commercial
paper, municipal notes and tax-exempt variable rate demand obligations that are
rated in the highest rating category by an NRSRO. Obligations purchased by the
Fund that have not been assigned a rating will be determined by the Adviser to
be of comparable quality. Although obligations rated BBB or Baa (the lowest
ratings permitted for the Fund) are considered to be investment grade, they have
speculative characteristics and are subject to more credit and market risk than
securities with higher ratings. If a portfolio security ceases to be rated
investment grade by at least one NRSRO, the security will be sold in an orderly
manner as quickly as possible.
The Adviser hopes to use market opportunities (caused by things such as
temporary differences between the yields on securities) to achieve a better
performance than what might be obtained by investing in an unmanaged portfolio
of municipal securities. The Florida Tax-Exempt Fund will invest at least 80% of
its net assets in securities the interest on which is exempt from regular
federal income tax, except during defensive periods or periods of unusual market
conditions. In addition, under normal conditions the Fund will invest at least
65% of its net assets in securities issued by the state of Florida and its
municipalities, counties and other taxing districts, as well as in other
securities exempt from the Florida intangibles tax. Under normal market
conditions the Fund may invest up to 20% of its net assets in taxable
instruments, including certain so-called private activity bonds which are a type
of obligation that, although exempt from regular federal income tax, may be
subject to the federal alternative minimum tax. From time to time the Fund may
hold cash reserves that do not earn income. Although the Fund has the
flexibility to invest in municipal obligations with short, medium or long
maturities, the Adviser expects that under normal conditions the Fund will
invest primarily in obligations that have remaining maturities of more than ten
years.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
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
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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 and emerging markets countries with respect to the International
Equity Fund. Political and economic structures in many emerging markets
countries may be undergoing significant evolution and rapid development, and may
lack the social, political and economic stability characteristic of more
developed countries. Some emerging markets countries may also have failed in the
past to recognize private property rights and may have at times nationalized or
expropriated the assets at private companies. Therefore, the risks of
expropriation, nationalism and social, political and economic instability are
greater in those countries than in more developed capital markets.
Emerging markets are the capital markets of any country which, in the
opinion of the Sub-Adviser, is generally considered to be a developing country
by the international financial community. Currently, with respect to the
International Equity Fund, these markets include, but are not limited to, the
markets of Argentina, Brazil, Chile, China, Colombia, the Czech Republic,
Greece, India, Indonesia, Israel, Korea, Malaysia, Mexico, Pakistan, Peru, the
Philippines, Poland, Portugal, Slovak Republic, Sri Lanka, Taiwan, Thailand,
Turkey, Venezuela, and countries that comprise the former Soviet Union. As
opportunities to invest in other emerging markets countries develop, the
International Equity Fund may expand and diversify further the emerging markets
countries in which it invests. As stated above, no more than 20% of the
International Equity Fund's total assets may be invested in all emerging markets
countries.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
In addition, foreign securities markets typically have substantially less
volume than U.S. markets, and the securities in these markets can be less liquid
and present greater risk of loss than the securities of comparable U.S.
companies. Such markets often have different clearance and settlement procedures
for securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets may be uninvested.
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Settlement problems in foreign countries also could cause the International
Equity Fund to miss attractive investment opportunities. Satisfactory custodial
services may not be available in some countries, which may result in the
International Equity Fund incurring additional costs and delays in the
transportation and custody of such securities.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS. The INTERNATIONAL EQUITY
FUND may invest up to 100% of its total assets and each of the EQUITY, EQUITY
VALUE, SMALL CAPITALIZATION and BALANCED FUNDS may invest up to 25% of its total
assets in ADRs, EDRs and GDRs. 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 and GDRs are receipts issued by non-U.S. banks or
trust companies and foreign branches of U.S. banks that evidence ownership of
foreign or U.S. securities. Unsponsored ADRs, EDRs and GDRs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, information concerning the issuer may not be as current
as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs
and GDRs may be more volatile than if such instruments were sponsored by the
issuer. ADRs may be listed on a national securities exchange or may be traded in
the over-the-counter market. EDRs and GDRs are generally designed for use in
foreign exchange and over-the-counter markets. ADRs, EDRs and GDRs 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, EDRs and GDRs 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. 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 some of these agencies and instrumentalities,
such as the Government National Mortgage Association, are supported by the U.S.
Treasury; others, like the Export-Import Bank, are supported by the issuer's
right to borrow from the Treasury; others, including the Federal National
Mortgage Association, are backed by the discretionary ability of the U.S.
Government to purchase the entity's obligations; and still others like the
Student Loan Marketing Association are backed solely by the issuer's credit.
U.S. Government obligations also include U.S. Government-backed trusts that hold
obligations of foreign governments and are guaranteed or backed by the full
faith and credit of the United States. There is no assurance that the U.S.
Government would support a U.S. Government-sponsored entity were it not required
to do so by law. 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
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prepayments. This may be particularly true for mortgage-backed securities. The
rate of such prepayments, and hence the life of the security, will be primarily
a function of current market rates and current conditions in the relevant
market. In calculating the average weighted maturity of a Fund's portfolio, the
maturity of asset-backed instruments will be based on estimates of average life.
The relationship between prepayments and interest rates may give some
high-yielding asset-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of prepayment tends to increase. During such
periods, the reinvestment of prepayment proceeds by a Fund will generally be at
lower rates than the rates that were carried by the obligations that have been
prepaid. Because of these and other reasons, an asset-backed security's total
return may be difficult to predict precisely. To the extent a Fund purchases
asset-backed securities at a premium, prepayments (which often may be made at
any time without penalty) may result in some loss of a Fund's principal
investment to the extent of any premiums paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which 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
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municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Municipal leases (and participations in such leases) present
the risk that a municipality will not appropriate funds for the lease payments.
The Adviser, under the supervision of the Board of Trustees, will determine the
credit quality or any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt and, accordingly,
purchases of such securities are based on the opinion of counsel to the sponsors
or issuers of the instruments. Emerald Funds and the Adviser rely on these
opinions and do not intend to review the basis for them.
Municipal obligations purchased by each Fund, including the Florida
Tax-Exempt Fund, may be backed by letters of credit or guarantees issued by
domestic or foreign banks and other financial institutions which are not subject
to federal deposit insurance. Adverse developments affecting the banking
industry generally or a particular bank or financial institution that has
provided its credit or a guarantee with respect to a municipal obligation held
by a Fund could have an adverse effect on a Fund's portfolio and the value of
its shares. As described above under "Foreign Securities," foreign letters of
credit and guarantees involve certain risks in addition to those domestic
obligations.
CORPORATE OBLIGATIONS. The BALANCED, SHORT-TERM FIXED INCOME and MANAGED
BOND FUNDS and, to a limited extent, the EQUITY, EQUITY VALUE, INTERNATIONAL
EQUITY and SMALL CAPITALIZATION FUNDS may purchase corporate bonds and cash
equivalents that meet a Fund's quality and maturity limitations. These
investments may include obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, Eurobonds, which are U.S. dollar-denominated
obligations of foreign issuers, Yankee bonds, which are U.S. dollar-denominated
bonds issued by foreign issuers in the U.S., and equipment trust certificates.
Cash equivalents, such as commercial paper and other similar obligations
purchased by a Fund that have an original maturity of 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 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.
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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 obligation, 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. Because of the absence of a market in
which to resell a variable or floating rate instrument, a Fund might have
trouble selling an instrument should the issuer default or during periods when a
Fund is not permitted by agreement to demand payment of the instrument, and for
this or other reasons a loss could occur with respect to the instrument.
STRIPPED SECURITIES. EACH FUND may invest in instruments known as
"stripped" securities. These instruments include U.S. Treasury bonds and notes
and federal agency obligations on which the unmatured interest coupons have been
separated from the underlying obligation. These obligations are usually issued
at a discount to their "face value," and because of the manner in which
principal and interest are returned may exhibit greater price volatility than
more conventional debt securities. Each Fund may invest in stripped securities
that have been issued by a federal instrumentality known as the Resolution
Funding Corporation and other stripped securities issued or guaranteed by the
U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then 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
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recouped. SMBS issued by the U.S. Government (or a U.S. Government agency or
instrumentality) may be considered liquid under guidelines established by
Emerald Funds' Board of Trustees if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of a Fund's per share net asset value.
Although stripped securities may not pay interest to their holders before
they mature, federal income tax rules require a Fund each year to recognize a
part of the discount attributable to a security as interest income. This income
must be distributed along with the other income a Fund earns. To the extent
shareholders request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.
BANK INVESTMENT CONTRACTS AND GUARANTEED INVESTMENT CONTRACTS. The
BALANCED, SHORT-TERM FIXED INCOME and MANAGED BOND FUNDS may invest in bank
investment contracts ("BICs") issued by banks that meet the asset size
requirements described above under "Bank Obligations" and may also invest in
guaranteed investment contracts ("GICs") issued by highly rated U.S. insurance
companies that have assets of $1 billion or more and meet the quality and credit
standards established by the Adviser pursuant to guidelines approved by the
Board of Trustees. Pursuant to a BIC or GIC, a Fund would make cash
contributions to a deposit account at a bank or insurance company. These
contracts are general obligations of the issuing bank or insurance company and
are paid from the general assets of the issuing entity. In return for its cash
contribution, a Fund would receive interest from the issuing entity at either a
negotiated fixed or floating rate. Because BICs and GICs are generally not
assignable or transferable without the permission of the bank or 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 does 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
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particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit a Fund to lock-in a price or yield on
a security it intends to purchase or sell, regardless of future changes in
interest rates. These transactions involve the risk that the price or yield
obtained may be less favorable than the price or yield available when the
delivery takes place. When-issued purchases and forward purchase commitments are
not expected to exceed 25% of the value of a Fund's total assets under normal
circumstances. These transactions will not be entered into for speculative
purposes but only in furtherance of a Fund's investment objectives.
INTEREST RATE SWAPS, FLOORS AND CAPS. The BALANCED, SHORT-TERM FIXED INCOME
and MANAGED BOND FUNDS may enter into interest rate swaps and purchase interest
rate floors or caps in order to protect their net asset value from interest rate
fluctuations and to hedge against fluctuations in the floating rate market in
which a Fund's investments are traded. A Fund would expect to enter into these
hedging transactions primarily to preserve the return or spread of a particular
investment or portion of its portfolio and to protect against an increase in the
price of securities a Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest. For example, a Fund might exchange its
right to receive a floating rate of interest for another party's right to
receive a fixed rate of interest. The excess, if any, of a Fund's obligations
over what it is owed with respect to each interest rate swap will be accrued on
a daily basis and cash or other liquid high grade debt securities having an
aggregate net asset value equal to such accrued excess will be maintained by a
Fund's custodian in a separate account.
The purchase of an interest rate floor by a Fund would entitle it, to the
extent a specified index fell below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
floor. The purchase of an interest rate cap by a Fund would entitle it, to the
extent that a specified index exceeded a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party that sold the
cap. A Fund will only enter into an interest rate swap, floor or cap transaction
if the unsecured commercial paper, senior debt, or claims paying ability of the
other party to the transaction is rated either in the top rating category for
short-term debt or "A" or its equivalent for long-term debt by an NRSRO.
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. As examples, the Equity and Balanced Funds may invest
in Standard & Poor's Depository Receipts ("SPDRs") and shares of other
investment companies that are structured to seek a correlation to the
performance of the S&P 500. The INTERNATIONAL EQUITY FUND may also purchase
shares of investment companies investing primarily in foreign securities,
including so-called "country funds." Country funds have portfolios consisting
exclusively of securities of issuers located in one foreign country.
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Securities of other investment companies will be acquired by a Fund within
the limits prescribed by the Investment Company Act of 1940, as amended (the
"1940 Act"). Each Fund currently intends to limit these investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by a Fund, other investment portfolios of Emerald Funds, or any
other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund, except the FLORIDA TAX-EXEMPT FUND, may enter
into reverse repurchase agreements. Under such an agreement a Fund sells
portfolio securities and then buys them back later at an agreed-upon time and
price. When a Fund enters into a reverse repurchase agreement it will place in a
separate custodial account liquid assets that have a value equal to or more than
the price a Fund must pay when it buys back the securities, and the account will
be continuously monitored to make sure the appropriate value is maintained. In
addition, a Fund may use reverse repurchase agreements when it is anticipated
that the interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. This use of
reverse repurchase agreements may be regarded as leveraging and, therefore,
speculative. Reverse repurchase agreements may be used to meet redemption
requests without selling portfolio securities. Reverse repurchase agreements
involve the possible risks that the interest income earned on the investment of
the proceeds will be less than the interest expense, that the market value of
portfolio securities a Fund relinquishes may decline below the price a Fund must
pay when the transaction closes and that the securities may not be returned to
the Fund. 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 loan justify the possible risks. A loan will not be
made if, as a result, the total amount of a Fund's outstanding loans exceeds 33%
of its total assets. Securities loans will be fully collateralized.
MORTGAGE ROLLS. The BALANCED, SHORT-TERM FIXED INCOME, U.S. GOVERNMENT
SECURITIES and MANAGED BOND FUNDS may enter into transactions known as "mortgage
dollar rolls" in which a Fund sells mortgage-backed securities for current
delivery and simultaneously contracts to repurchase substantially similar
securities in the future at a specified price which reflects an interest factor
and other adjustments. During the roll period, a Fund does not receive principal
and interest on the mortgage-backed securities, but it is compensated by the
difference between the current sales price and the lower forward price for the
future purchase as well as by the interest earned on the cash proceeds of the
initial sale. Unless a roll has been structured so that it is "covered," meaning
that there exists an offsetting cash or cash-equivalent security position that
will mature at least by the
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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 greater risk as to the timely repayment of the
principal, interest and dividends. Particular risks include (a) the sensitivity
of such securities to interest rate and economic changes, (b) the lower degree
of protection of principal and interest payments, (c) the relatively low trading
market liquidity for the securities, (d) the impact that legislation may have on
the market for these securities (and, in turn, on a Fund's net asset value) and
(e) the creditworthiness of the issuers of such securities. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would negatively affect their
ability to meet their principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. An economic
downturn could also disrupt the market for lower rated convertible securities
and negatively affect the value of outstanding securities and the ability of the
issuers to repay principal and interest. If the issuer of a convertible security
held by a Fund defaulted. that Fund could incur additional expenses to seek
recovery. Adverse publicity and investor perceptions, whether or not they are
based on fundamental analysis, could also decrease the values and liquidity of
lower-rated convertible securities held by a Fund, especially in a thinly-traded
market.
OPTIONS. EACH FUND 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
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the Options Clearing Corporation. Unlisted options are not subject to the
protection 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 transaction the sum of the aggregate
amount of margin deposits on its existing futures positions and the amount of
premiums paid for related options is 5% or less of its total assets (after
taking into account certain technical adjustments).
Each of these Funds may also purchase and sell call and put options on
futures contracts traded on an exchange or board of trade. When a Fund purchases
an option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When a Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, a Fund may purchase
call options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
that Fund intends to purchase. Similarly, if the value of a Fund's portfolio
securities is expected to decline, that Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts.
The International Equity Fund may engage in futures transactions on either a
domestic or foreign exchange or board of trade. The other Funds will engage in
futures transactions only on domestic exchanges or boards of trade.
More information regarding futures contracts and related options can be
found in Appendix B attached to the Statement of Additional Information, which
you may request by calling 800/637-3759.
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, but is not required
to, 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
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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. There is a risk of loss to
the Fund if the other party does not complete the transaction.
The International Equity Fund may maintain "short" positions in forward
foreign currency exchange transactions, which would involve the Fund's agreeing
to exchange currency that it currently does not own for another currency--for
example, to exchange an amount of Japanese yen that it does not own for a
certain amount of U.S. dollars--at a future date and at a specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. In order
to ensure that the short position is not used to achieve leverage with respect
to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of liquid assets equal in value to the fluctuating
market value of the currency as to which the short position is being maintained.
The value of the securities in the segregated account will be adjusted at least
daily to reflect changes in the market value of the short position. See the
Statement of Additional Information for additional information regarding foreign
currency exchange transactions.
MANAGING LIQUIDITY. Disposing of illiquid investments may involve
time-consuming negotiations and legal expenses, and it may be difficult or
impossible to dispose of such investments promptly at an acceptable price.
Additionally, the absence of a trading market can make it difficult to value a
security. For these and other reasons a Fund does not knowingly invest more than
10% of its net assets in illiquid securities. Illiquid securities include
repurchase agreements, securities loans and time deposits that do not permit a
Fund to terminate them after seven days notice, GICs, BICs, stripped
mortgage-backed securities issued by private issuers and securities that are not
registered under the securities laws. Certain securities that might otherwise be
considered illiquid, however, such as some issues of commercial paper and
variable amount master demand notes with maturities of nine months or less and
securities for which the Adviser (Sub-Adviser in the case of the International
Equity Fund) has determined pursuant to guidelines adopted by the Board of
Trustees that a liquid trading market exists (including certain securities that
may be purchased by institutional investors under SEC Rule 144A), are not
subject to this 10% limitation. This investment practice could have the effect
of increasing the level of illiquidity in a Fund during any period that
qualified institutional buyers were no longer interested in purchasing these
restricted securities.
PORTFOLIO TURNOVER. EACH FUND may sell a portfolio security shortly after
it is purchased if it is believed such disposition is consistent with a Fund's
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
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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 89%, 356%, 106%, 138%, 53%, 97%
and 152%, respectively. The portfolio turnover rates for the Equity Value and
International Equity Funds for the period from commencement of operations
(December 27, 1995) through November 30, 1996 were 19% and 50%, respectively.
OTHER RISK CONSIDERATIONS. As with an investment in any mutual fund, an
investment in the Funds entails market and economic risks associated with
investments generally. However, there are certain specific risks of which you
should be aware.
Generally, the market value of fixed income securities in the Funds can be
expected to vary inversely to changes in prevailing interest rates. You should
recognize that, in periods of declining interest rates the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and in periods of rising interest rates the market value will tend
to decrease. You should also recognize that in periods of declining interest
rates, the yields of investment portfolios comprised primarily of fixed income
securities will tend to be higher than prevailing market rates and, in periods
of rising interest rates, yields will tend to be somewhat lower. The Balanced,
Short-Term Fixed Income, Managed Bond, U.S. Government Securities and Florida
Tax-Exempt Funds may purchase zero-coupon bonds (i.e., discount debt obligations
that do not make periodic interest payments). Zero-coupon bonds are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities which make current distributions of interest. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset values.
In addition, the Florida Tax-Exempt, Balanced, Short-Term Fixed Income and
Managed Bond Funds may purchase custodial receipts, tender option bonds and
certificates of participation in trusts that hold municipals or other types of
obligations. A certificate of participation gives a Fund an individual,
proportionate interest in the obligation and may have a variable or fixed rate.
Because certificates of participation are interests in obligations that may be
funded through government appropriations, they are subject to the risk that
sufficient appropriations as to the timely payment of 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
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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.
The Florida Tax-Exempt, Short-Term Fixed Income, Managed Bond and U.S.
Government Securities Funds will normally maintain the average weighted
maturities of their portfolios within specified ranges as previously described.
The maturities of certain instruments, however, such as those subject to
prepayment or redemption by the issuers, are subject to estimation. There is no
assurance that the estimations used by the Funds for the instruments will, in
fact, be accurate or that, if inaccurate, a Fund's average weighted maturity
will remain within the specified limits.
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 should suffer serious financial difficulties to the
extent its ability to pay its 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 obligations held by a Fund 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
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.
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FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. You will be notified of any material changes, but as a result, a Fund
may have different investment objectives from the one 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 (with certain limited exceptions).
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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INVESTING IN EMERALD FUNDS
Your Money Manager
BARNETT CAPITAL ADVISORS, INC. (REFERRED TO AS THE "ADVISER") SERVES AS
INVESTMENT ADVISER FOR EMERALD FUNDS. The Adviser is a newly-organized,
wholly-owned subsidiary of Barnett Bank, N.A., which, in turn, is a wholly-owned
subsidiary of Barnett Banks, Inc. The Adviser is a corporation headquartered in
Florida.
ENTRUSTED WITH APPROXIMATELY $10 BILLION UNDER ACTIVE MANAGEMENT, the
Adviser provides investment management services to individuals and institutions.
As the investment adviser to Emerald Funds, the Adviser employs investment
professionals who are dedicated to managing money on a full-time basis. For the
International Equity Fund only, the Adviser has entered into a sub-advisory
agreement with Brandes Investment Partners, L.P. to provide daily portfolio
management for that Fund.
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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 Bank, N.A. and its affiliates
("Barnett"), 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 their net asset value per share next
determined after receipt of a purchase order from an Institution by the Funds'
transfer agent. The minimum initial investment in a Fund for an Institution is
$250,000 with no minimum subsequent investment. Barnett and other Institutions
may establish different minimum investment requirements for their Customers. For
example, there is no minimum initial investment for transfers of assets by
Customers from other banks or financial institutions. Barnett and other
Institutions may also charge their Customers certain account fees depending on
the type of account a Customer has established with the Institution. These fees
may include, for example, account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income.
Information concerning these minimum account requirements, services and any
charges should be obtained from the Institutions before a Customer authorizes
the purchase of Fund shares, and this Prospectus should be read in conjunction
with any information so obtained.
For all Funds, purchase orders placed by an Institution for Institutional
Shares must be received by the Funds' transfer agent before the close of regular
trading hours (currently 4:00 p.m. Eastern time) on the New 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,
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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 to new shareholders.
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 1940 Act.
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
1940 Act. 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.
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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 reserve the right, however, to delay the wiring of
redemption proceeds for up to seven days after receipt of a redemption order if,
in the judgment of the Adviser, an earlier payment could adversely affect a
Fund.
The value of shares that are redeemed may be more or less than their
original cost, depending on a Fund's current net asset value.
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Dividends and Distributions
WHERE DO DIVIDENDS AND DISTRIBUTIONS COME FROM?
Dividends for each Fund are derived from its net investment income. In the
case of the Short-Term Fixed Income, U.S. Government Securities, Managed Bond
and Florida Tax-Exempt Funds, net investment income comes from the interest on
the bonds and other investments that they hold in their portfolios. For the
Equity, Equity Value, International Equity, Small Capitalization and Balanced
Funds net investment income is made up of dividends received from the stocks
they hold, as well as interest accrued on convertible securities, money market
instruments and other debt obligations held in their portfolios.
The Funds realize capital gains when they sell a security for more than its
cost. Each Fund will make distributions of its net realized capital gains, if
any, after any reductions for capital loss carryforwards.
WHAT ARE THE DIVIDEND AND DISTRIBUTION OPTIONS?
Shareholders receive dividends and net capital gains distributions.
Dividends and distributions are automatically reinvested in the same share class
of the Fund on which the dividend or distribution was declared, unless the
shareholder specifically elects to receive payments in cash. Your election and
any subsequent change should be made in writing to:
Emerald Funds
c/o BISYS Fund Services, Inc.
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
------------------------------
FUND 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.
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(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 a Fund are redeemed, the Fund will pay accrued dividends
within five Business Days after redemption.
Net capital gain distributions for each of the Funds, if any, are made at
least annually after any reductions for capital loss carryforwards.
Explanation of Sales Price
Institutional Shares of the Funds are sold at net asset value. Net asset
value per share is determined on each Business Day (as defined above) at 4:00
p.m. (Eastern time) with respect to each Fund by adding the value of a Fund's
investments, cash and other assets attributed to its Institutional Shares,
subtracting the Fund's liabilities attributed to those shares, and then dividing
the result by the number of Institutional Shares of the Fund that are
outstanding. The assets of the 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. 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 the Funds' net asset values are not calculated. In such cases, the
net asset value of a Funds' 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."
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<PAGE>
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, Fanning, 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 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 35.
The Institutional Shares of the Funds are described in this prospectus. The
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 Shareholder and Administrative Service Plan and the Shareholder
Processing Plan for Retail Shares (the "Retail Plans") as described in the
prospectus for those shares. Under the Retail Plans, the Distributor and Service
Organizations receive fees for distribution and shareholder and administrative
support services.
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<PAGE>
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 March 5, 1997, 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:
- Marshall M. Criser, Chairman of the Board of Emerald Funds, is Chairman of
the law firm of Mahoney Adams & Criser, P.A.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Grimsley Marker & Iseley, P.A.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is a Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
- Harvey R. Holding is the retired Executive Vice President and Chief
Financial Officer of BellSouth Corp.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT CAPITAL
ADVISORS, INC. serves as the Funds' adviser and has its principal offices at
9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. Brandes
Investment Partners, L.P. (referred to as "Brandes" or the "Sub-Adviser") acts
as sub-
41
<PAGE>
adviser for the International Equity Fund and is located at 12750 High Bluff
Drive, San Diego, California 92130. Brandes Investment Partners, Inc. owns a
controlling interest in Brandes Investment Partners, L.P. and serves as its
General Partner. Charles Brandes is the controlling shareholder of Brandes
Investment Partners, Inc. 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, 1996, the Adviser had approximately $10 billion
under active management. The Adviser 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 that has offered general banking services
since 1877. As of December 31, 1996, Brandes had approximately $8.9 billion
under management.
The Adviser manages the investment portfolios of each Fund, except the
International Equity Fund, including selecting portfolio investments and making
purchase and sale orders. The Sub-Adviser manages the investment portfolio of
the International Equity Fund in accordance with the investment requirements and
policies established by the Adviser, except that cash balances of the
International Equity Fund are managed by the Adviser.
A Fund's portfolio manager is primarily responsible for the day-to-day
management of its investment portfolio. Russell Creighton, C.F.A., has been the
portfolio manager of the Equity Fund since September of 1993, and has also
managed the Balanced Fund since it commenced operations on April 11, 1994. Mr.
Creighton joined Barnett in 1981 and has worked with the firm throughout his
investment career. He plays an integral role on the equity investment team, and
works with highly qualified investment professionals to integrate the Adviser's
quantitative models with specific security analysis. Mr. Creighton earned his
BBA in Finance from Stetson University and his MBA in Finance from the
University of North Florida. He holds membership in the Association for
Investment Management and Research ("AIMR"). Mr. Creighton has 16 years of
investment experience. Martin E. LaPrade, C.F.A., has been the portfolio manager
of the Equity Value Fund since it commenced operations. Mr. LaPrade joined
Barnett in 1978 and has worked with the firm throughout his investment career.
He plays an integral role on the equity investment team, and works with highly
qualified investment professionals to integrate the Adviser's quantitative
models with specific security analysis. He received his BS in accounting from
Furman University. Mr. LaPrade holds membership in AIMR. He has 16 years of
investment experience. Jeffrey A. Busby, C.F.A., a Managing Partner and Senior
Portfolio Manager at Brandes since August 1988, has been the portfolio manager
of the International Equity Fund, except, as noted, with respect to the Fund's
cash balances, since August 19, 1996. Also in connection with Brandes'
appointment as Sub-Adviser, Don W. Bryant, C.F.A., became Barnett's
"Sub-Advisory Liaison." In that capacity, Mr. Bryant oversees the provision of
sub-investment advisory services by Brandes. Mr. Bryant joined Barnett in 1987
and has served as an institutional portfolio manager for Barnett for the past 7
years. He has worked with the firm throughout his investment career and plays an
integral role on the equity investing team. He received his undergraduate degree
from the University of South Alabama and his MBA in Finance from the
42
<PAGE>
University of Georgia. Mr. Bryant holds membership in AIMR. He has 10 years of
investment experience. Dean McQuiddy, C.F.A., has managed the Small
Capitalization Fund since its commencement of operations on January 4, 1994 and
its predecessor, the Employee Benefits Small Capitalization Fund, since its
inception in January 1987. Since joining Barnett in 1983, Mr. McQuiddy has been
an equity analyst and an institutional portfolio manager. He received his BS in
Finance from the University of Florida. Mr. McQuiddy holds membership in AIMR.
He has 14 years of investment experience. Jeffery A. Greenert has been the
portfolio manager of the Short-Term Fixed Income Fund since August 3, 1996. Mr.
Greenert joined Barnett in 1985 and has worked with the firm throughout his
investment career. He plays an integral role as part of the Adviser's fixed
income investing team, and works with a highly qualified team of fixed income
professionals to analyze interest rates, as well as individual fixed income
securities. Mr. Greenert received his BS in Finance from the University of
Florida. He has 12 years of investment experience. Andrew Cantor, C.F.A., 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. Mr. Cantor joined Barnett in 1983 and plays a leading role on the fixed
income investing team. Prior to joining the firm, he worked for Gulf United
Corporation, where he was responsible for economic and interest rate analysis
and the management of approximately $1.1 billion in fixed income investments. He
received his BS in Mathematics from Florida Atlantic University and his MA in
Economics from the University of South Carolina. Mr. Cantor holds membership in
AIMR and the Jacksonville Financial Analysts Society. He has 23 years of
investment experience. Margaret L. Moore has managed the Florida Tax-Exempt Fund
since August 31, 1996. Ms. Moore joined Barnett in 1991 from First Florida Bank,
N.A. where she was a fixed income trader for individual trust accounts for five
years. Ms. Moore currently serves as a tax-exempt investment manager for Barnett
and is a member of the Adviser's Fixed Income Strategy Committee. She received
her BS in Finance from Florida State University and her MBA from the University
of North Florida. Ms. Moore has 13 years of investment experience.
Although expected to be infrequent, the Adviser (or the Sub-Adviser) may
consider the amount of Fund shares sold by broker-dealers and others (including
those who may be connected with the Adviser or 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 Adviser (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.
The Adviser 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 the Adviser 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 the Adviser 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
43
<PAGE>
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.
The Adviser 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 rates
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 fee rates payable by many comparable funds.
In addition, the Adviser has agreed to pay Brandes a fee equal to .50% of the
International Equity Fund's average daily net assets. The fee paid by the
Adviser to the Sub-Adviser for the International Equity Fund comes out of the
Adviser's advisory fee for that Fund and is not an additional charge to the
Fund.
For the fiscal year ended November 30, 1996, the Adviser and the prior
adviser received fees, after waivers, at the effective annual rates of .60%,
1.00%, .44%, .31%, .30%, .40% and .40% of the average daily net assets of the
Equity, Small Capitalization, Balanced, Short-Term Fixed Income, Managed Bond,
U.S. Government Securities and Florida Tax-Exempt Funds, respectively. The
Adviser and the prior Adviser voluntarily waived all fees from the Equity Value
and International Equity 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; SEC 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 the Adviser and the Funds' other service providers. 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,
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<PAGE>
the service providers retain the ability to be reimbursed by a Fund for such
amounts prior to fiscal year end. Such waivers and reimbursements would increase
the return to investors when made but would decrease return if a Fund were
required to reimburse a service provider.
Tax Implications
As with any investment, you should consider the tax implications of an
investment in the Funds. The following is only a short summary of the important
tax considerations generally affecting 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 (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 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.
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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.
Any dividends declared by a Fund in October, November or December of a
particular year and payable to shareholders of record on a date during those
months will be deemed to have been paid by the Fund and received by shareholders
on December 31 of that year, so long as the dividends are actually paid in
January of the following year.
Shareholders of the Funds may realize a taxable gain or loss when redeeming,
transferring or exchanging shares of a Fund, depending on the difference in the
prices at which the shareholder purchased and sold the shares.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. So long as more than 50% of the value of this Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the 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.
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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.
The Florida Tax-Exempt Fund intends, but cannot guarantee, that its shares
will qualify for total exemption from the Florida intangibles tax. In order to
take advantage of this exemption, the Fund may sell non-exempt assets held in
its portfolio during the year and reinvest the proceeds in exempt assets, or
hold cash, prior to December 31. Transaction costs involved in restructuring the
portfolio in this fashion would likely reduce the Fund's investment return and
might exceed any increased investment return the Fund achieved by investing in
non-exempt assets during the year.
Measuring Performance
- Performance information provides you with a method of measuring and
monitoring your investments. Each Fund may quote performance in
advertisements or shareholder communications. The performance for each
class of shares of a Fund will be calculated separately from the
performance of the 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 on a specified 30-day (or one-month)
period by dividing the net income for the period by the maximum offering
price on the last day of the period, and analyzing the result on a
semi-annual basis. Net income used in yield calculations may be different
than net income used for accounting purposes.
- Tax-equivalent yield for the Florida Tax-Exempt Fund shows the amount of
taxable yield needed to produce an after-tax equivalent of a tax-free
yield, and is calculated by increasing the yield (as calculated above) by
the amount necessary to reflect the payment of federal income taxes at a
stated rate. 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.
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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 S&P 500, 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.
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 SEC, 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, 1996
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equity Fund(1)........................................................ 23.33% 17.69% 14.21% 12.21%
Small Capitalization Fund(2).......................................... 14.49% 15.63% 19.51% 13.08%*
Managed Bond Fund(3).................................................. 5.96% 6.73% 8.33% 9.10%**
Short-Term Fixed Income Fund(4)....................................... 5.47% 5.40% 5.90% 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 for the period from
June 28, 1991
48
<PAGE>
to March 1, 1994 and of Institutional Shares of the Fund thereafter. During
the periods shown 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. During the periods shown 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 the 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. During the periods shown 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. During the periods shown 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.
OTHER PERFORMANCE INFORMATION -- INTERNATIONAL EQUITY FUND ONLY:
For the one year period ended December 31, 1996 and for the period from
commencement of operations (December 27, 1995) through December 31, 1996, the
average annual total returns for Institutional Shares of the International
Equity Fund were 15.35% and 14.47%, respectively. These total returns assume the
reinvestment of all dividends and capital gains and reflect fee waivers and
expense reimbursements in effect. Without these waivers and reimbursements the
Fund's performance would have been lower. Of course, performance is no guarantee
of future results. Investment
49
<PAGE>
return and principal value will fluctuate, so that shares, when redeemed, may be
worth more or less than the original cost. For more information in performance
see "Additional Information on Performance Calculations" in the Statement of
Additional Information.
Set forth below is certain performance information provided by Brandes
Investment Partners, L.P., Sub-Adviser for the International Equity Fund,
relating to historical performance of a composite of international equity
accounts of clients of the Sub-Adviser. The international equity accounts had
the same investment objective as the International Equity Fund and were managed
by the same team that manages the International Equity Fund's securities, using
substantially similar, though not identical, investment strategies, policies and
techniques as those contemplated for use by the Fund. This information is
provided to illustrate the past performance of Brandes in managing similar
accounts as measured against the Morgan Stanley Capital International ("MSCI")
EAFE Index, a standard international equity investment benchmark. The accounts
that are included in the Brandes' composite are not subject to the same types of
expenses and liquidity requirements to which the International Equity Fund is
subject nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on the International Equity Fund by the 1940 Act
or the Code. Consequently, the performance results for the Sub-Adviser's
composite could have been adversely affected if the accounts included in the
composite had been regulated as investment companies. The composite performance
information shown below does not represent the performance of the International
Equity Fund. You should not consider this past performance as an indication of
future performance of the International Equity Fund or of the Sub-Adviser.
<TABLE>
<CAPTION>
FOR PERIODS ENDED DECEMBER 31, 1996
---------------------------------------------------
SINCE
INCEPTION
ONE YEAR THREE YEARS FIVE YEARS (7/1/90)
--------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Annualized Total Return*..................................... 16.01% 8.58% 13.90% 16.16%
MSCI EAFE**.................................................. 6.05% 8.32% 8.15% 5.90%
</TABLE>
- ------------------------
*The net annual returns presented above for the Brandes' composite were
calculated on a time-weighted and asset-weighted total return basis, including
investment of all dividends and interest on a cash basis, realized and
unrealized gains or losses and are net of applicable investment advisory fees,
brokerage commissions and execution costs and any applicable foreign
withholding taxes and custodian fees, without provision for federal and state
income taxes, if any. Brandes' composite results include all actual,
fee-paying, fully discretionary international equity accounts under management
for at least one month beginning 7/1/90, other than wrap fee accounts. The
weighted-average management fee during the period from 7/1/90 through 12/31/96
was 0.96% per year. Securities transactions are accounted for on the trade
date and cash accounting is utilized. Cash and cash equivalents are included
in performance returns. Starting with calendar year 1992 through calendar year
1995, the net annual total returns for the Brandes International Equity
composite have been examined by a Big Six accounting firm in accordance with
AIMR Level II verification standards. The examination of net annual total
returns for calendar year 1996 is not completed as of the date of this
prospectus. Copies of the auditors' reports and a complete list and
description of Brandes' composites are available on request. The results for
individual accounts and for different periods may vary. Investors should not
rely on prior performance results as a reliable indication of future results.
50
<PAGE>
**The MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage commission
or other expenses of investing.
-------------------
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 1997.)
<TABLE>
<CAPTION>
TAXABLE INCOME TAX EXEMPT YIELD
- ------------------------------------ ----------------------------------------------------------------------------------
SINGLE JOINT FEDERAL 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
RETURN RETURN BRACKET 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 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 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.
51
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUMMARY OF EXPENSES AND FINANCIAL INFORMATION.......................................... 3
Expenses............................................................................. 3
Financial Highlights................................................................. 5
INVESTMENT PRINCIPLES AND POLICIES..................................................... 15
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS..................................... 21
INVESTING IN EMERALD FUNDS............................................................. 35
Your Money Manager................................................................... 35
Purchase of Shares................................................................... 35
Redemption of Shares................................................................. 37
Dividends and Distributions.......................................................... 38
Explanation of Sales Price........................................................... 39
Exchange Privilege................................................................... 39
Other Service Providers.............................................................. 39
THE EMERALD FAMILY OF FUNDS............................................................ 40
THE BUSINESS OF THE FUNDS.............................................................. 41
Fund Management...................................................................... 41
Tax Implications..................................................................... 45
Measuring Performance................................................................ 47
</TABLE>
EMD-160
EM PC 447 PRO
<PAGE>
EMERALD FUNDS
(Treasury Advantage Institutional Fund (formerly the Treasury Trust Fund)
and Prime Advantage Institutional Fund (formerly the Prime Trust Fund))
FORM N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
Form N-1A Item Number Prospectus Heading/Location
- --------------------- ---------------------------
1. Cover Page . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . Summary of Expenses and Financial
Information - Expenses
3. Condensed Financial Summary of Expenses and Financial
Information . . . . . . . . Information - Financial Highlights; The
Business of the Funds - Measuring
Performance
4. General Description of Cover Page; Risk Factors, Investment
Registrant . . . . . . . . . Principles and Policies; Your Emerald
Fund Account - The Emerald Family of
Funds;
5. Management of the Investing in Emerald Funds - Your Money
Fund . . . . . . . . . . . . Manager; Investing in Emerald Funds -
Other Service Providers; The Business of
the Funds - Fund Management
5A. Management's Discussion Summary of Expenses and Financial
of Fund Performance . . . . Information - Financial Highlights
6. Capital Stock and Other Your Emerald Fund Account - The Emerald
Securities . . . . . . . . . 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
<PAGE>
Form N-1A Item Number Prospectus Heading/Location
- --------------------- ---------------------------
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 - Getting
Being Offered . . . . . . . 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 - How to Sell
Repurchase . . . . . . . . . Shares; Investing in Emerald Funds -
Transaction Rules
9. Pending Legal Not applicable (All Portfolios)
Proceedings . . . . . . . .
<PAGE>
PROSPECTUS
EMERALD INSTITUTIONAL
MONEY MARKET FUNDS
TREASURY ADVANTAGE - PRIME ADVANTAGE
April 1, 1997
-photo-
-photo-
-photo-
Logo: EMERALD FUNDS
<PAGE>
EMERALD FUNDS
Prospectus for Treasury Advantage Institutional and
Prime Advantage Institutional Funds
(Previously called the "Treasury Trust Fund" and the "Prime Trust Fund")
This Prospectus relates to the Treasury Advantage Institutional and Prime
Advantage Institutional Funds (the "Funds"), two separate short-term money
market funds that are designed to meet the cash management needs of qualified
institutional investors. Each of the Funds seeks to provide a high level of
current income, consistent with liquidity, the preservation of capital and a
stable net asset value.
Barnett Capital Advisors, Inc. (the "Adviser") serves as the Funds'
investment adviser. The Funds' shares are sold by Emerald Asset Management, Inc.
without any purchase or redemption charge imposed by the Funds, although Barnett
Bank, N.A. and other institutions may charge their customer accounts for
services provided in connection with investments in the Funds.
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, 1997 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 BANK, N.A. OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. WHILE EACH FUND ATTEMPTS 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. BARNETT CAPITAL ADVISORS, INC. 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.
April 1, 1997
<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 Treasury Advantage Institutional and Prime Advantage Institutional Funds.
Examples based on this information are also provided.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES AFTER
EXPENSE REIMBURSEMENTS
(as a percentage of average net TREASURY ADVANTAGE PRIME ADVANTAGE
assets) INSTITUTIONAL FUND INSTITUTIONAL FUND
------------------ ------------------
<S> <C> <C>
Advisory Fees........................... 0.10% 0.10%
12b-1 Fees.............................. 0.00% 0.00%
Shareholder Service Fees................ 0.00% 0.00%
All Other Expenses (After Expense
Reimbursements)........................ 0.10% 0.10%
------ ------
Total Fund Operating Expenses (After
Expense Reimbursements)................ 0.20% 0.20%
------ ------
------ ------
EXAMPLE: Let's say, hypothetically, that the annual net return on each Fund is
5%, and that the Funds' 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 Advantage Institutional Fund... $ 2 $ 6 $ 11 $ 26
Prime Advantage Institutional Fund...... $ 2 $ 6 $ 11 $ 26
</TABLE>
- ------------
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
This expense information is provided to help you understand the expenses you
would bear indirectly as a shareholder of 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 voluntary expense reimbursements that are expected to be in
effect during the current fiscal year, "All Other Expenses" of the Treasury
Advantage Institutional and Prime Advantage Institutional Funds would be .22%
and .23%, respectively, and "Total Operating Expenses" would be .32% and .33%,
respectively.
See "Management of Emerald Funds" in this Prospectus and the financial
statements and related notes in the Statement of Additional Information for a
further description of the Funds' operating expenses. You should note that any
fees that are charged by Barnett Bank, N.A., 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
EXCEPT AS NOTED BELOW, THE FOLLOWING FINANCIAL HIGHLIGHTS HAVE BEEN AUDITED
BY PRICE WATERHOUSE LLP, EMERALD FUNDS' INDEPENDENT ACCOUNTANTS FOR THE FISCAL
PERIODS SHOWN, WHOSE UNQUALIFIED REPORT ON THE FINANCIAL STATEMENTS CONTAINING
SUCH INFORMATION FOR EACH OF THE FIVE YEARS IN THE PERIOD ENDED NOVEMBER 30,
1996 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, 1996, WHICH
MAY BE OBTAINED WITHOUT CHARGE FROM THE DISTRIBUTOR. DURING THE PERIODS SHOWN,
THE FUNDS RECEIVED SUB-ADVISORY SERVICES FROM COMPANIES THAT WERE NOT AFFILIATED
WITH THE ADVISER. ON DECEMBER 1, 1996, THE ADVISER ASSUMED RESPONSIBILITY FOR
THE SERVICES PREVIOUSLY PROVIDED BY THESE SUB-ADVISERS.
Financial highlights for a Share of the TREASURY ADVANTAGE INSTITUTIONAL
FUND outstanding throughout each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 1.0000 $ 1.0015 $ 0.9999 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net investment
income............... 0.0501 0.0551 $ 0.0367 0.0292 0.0367 0.0598 0.0777
Net realized gains
(losses) on
securities........... (0.0004) (0.0006) 0.0016 0.0000 (0.0001) (0.0000) 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment operations... 0.0497 0.0545 0.0383 0.0292 0.0366 0.0598 0.0777
------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
Dividends from net
investment income.... (0.0501) (0.0551) (0.0367) (0.0292) (0.0367) (0.0598) (0.0777)
Distributions from net
realized gains on
securities........... (0.0000) (0.0009) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions........... (0.0501) (0.0560) (0.0367) (0.0292) (0.0367) (0.0598) (0.0777)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value................... (0.0004) (0.0015) 0.0016 0.0000 (0.0001) 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 0.9996 $ 1.0000 $ 1.0015 $ 0.9999 $ 0.9999 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............. 5.13% 5.74% 3.73% 2.96% 3.74% 6.15% 8.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s)........ $146,859 $132,850 $126,771 $166,410 $183,072 $184,420 $215,948
Ratio of expenses to
average net assets... 0.37% 0.40% 0.40% 0.40% 0.40% 0.39% 0.38%
Ratio of net investment
income to average net
assets............... 5.00% 5.54% 3.61% 2.92% 3.72% 6.00% 7.77%
Ratio of expenses to
average net
assets**............. 0.37% 0.45% 0.44% 0.42% (a) 0.39% 0.39%
Ratio of net investment
income to average net
assets**............. 5.00% 5.50% 3.57% 2.90% (a) 6.00% 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 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........... (0.0849)
------------
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**............. 0.04%+
Ratio of net investment
income to average net
assets**............. 8.59%+
</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.
(a) There were no waivers or reimbursements during the period.
+ Annualized.
++ Not Annualized.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Financial highlights for a Share of PRIME ADVANTAGE INSTITUTIONAL FUND
outstanding throughout each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 0.9999 $ 0.9999 $ 1.0000 $ 1.0017 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from investment
operations:
Net investment
income............... 0.0516 0.0561 $ 0.0377 0.0304 0.0392 0.0637 0.0800
Net realized gains
(losses) on
securities........... 0.0000 0.0000 (0.0038) 0.0005*** 0.0017 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total income from
investment operations... 0.0516 0.0561 0.0339 0.0309 0.0409 0.0637 0.0800
------------ ------------ ------------ ------------ ------------ ------------ ------------
Less dividends and
distributions:
Dividends from net
investment income.... (0.0516) (0.0561) (0.0377) (0.0304) (0.0392) (0.0637) (0.0800)
Distributions from net
realized gains on
securities........... (0.0000) (0.0000) (0.0000) (0.0022) (0.0000) (0.0000) (0.0000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions........... (0.0516) (0.0561) (0.0377) (0.0326) (0.0392) (0.0637) (0.0800)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Increase due to voluntary
capital contribution
from sub-adviser........ 0.0000 0.0000 0.0037 0.0000 0.0000 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net change in net asset
value................... 0.0000 0.0000 (0.0001) (0.0017) 0.0017 0.0000 0.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD.................. $ 0.9999 $ 0.9999 $ 0.9999 $ 1.0000 $ 1.0017 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total return............. 5.29% 5.76% 3.83% 3.31% 4.00% 6.56% 8.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s)........ $133,044 $131,089 $131,758 $111,769 $ 99,192 $ 89,777 $ 78,363
Ratio of expenses to
average net assets... 0.35% 0.40% 0.40% 0.40% 0.40% 0.40% 0.38%
Ratio of net investment
income to average net
assets............... 5.16% 5.60% 3.80% 3.03% 3.89% 6.34% 8.00%
Ratio of expenses to
average net
assets**............. 0.35% 0.46% 0.44% 0.44% 0.46% 0.46% 0.47%
Ratio of net investment
income to average net
assets** 5.16% 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 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.
4
<PAGE>
INVESTMENT PRINCIPLES AND POLICIES
The Adviser uses a range of different investments and investment techniques
in seeking to achieve each Fund's investment objective. The Adviser will use its
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 "First Tier Securities" as
described below. The term "First Tier Securities" has a technical definition
given by the Securities and Exchange Commission ("SEC"), but generally refers to
securities that, in the Adviser's view, present minimal credit risks and have
the highest short-term debt rating 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.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of both the TREASURY ADVANTAGE INSTITUTIONAL and
the PRIME ADVANTAGE INSTITUTIONAL 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 ADVANTAGE INSTITUTIONAL FUND pursues its
objective by investing in a broad range of short-term government, bank and
corporate obligations. The TREASURY ADVANTAGE INSTITUTIONAL 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 ADVANTAGE INSTITUTIONAL 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 other agencies and
instrumentalities that are backed by the full faith and credit of the U.S.
Treasury. It is the TREASURY ADVANTAGE INSTITUTIONAL 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 ADVANTAGE INSTITUTIONAL 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. Securities subject to certain
unconditional demand features are subject to different diversification
requirements.
PORTFOLIO INSTRUMENTS, PRACTICES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The TREASURY
ADVANTAGE INSTITUTIONAL FUND may invest in U.S. Treasury obligations as
described above. The PRIME ADVANTAGE INSTITUTIONAL 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
5
<PAGE>
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 will provide support to a U.S. Government-sponsored entity if it is
not required to do so by law. Some of these securities may have a variable or
floating interest rate.
ASSET-BACKED SECURITIES. The PRIME ADVANTAGE INSTITUTIONAL 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.
MUNICIPAL OBLIGATIONS. The PRIME ADVANTAGE INSTITUTIONAL 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 Fund can purchase. Dividends paid by the Fund that
come from interest on municipal obligations will be taxable to shareholders.
6
<PAGE>
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 of any unrated municipal leases on an on-going basis, including
an assessment of the likelihood that the lease will not be cancelled.
Municipal obligations purchased by the PRIME ADVANTAGE INSTITUTIONAL 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 ADVANTAGE INSTITUTIONAL 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 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 ADVANTAGE INSTITUTIONAL 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
7
<PAGE>
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, 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 obligation, 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 Advantage Institutional
Fund these instruments must be issued or fully guaranteed by the U.S. Treasury
but for the PRIME ADVANTAGE INSTITUTIONAL 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 ADVANTAGE INSTITUTIONAL 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 Advantage Institutional Fund's
investments in these instruments will be limited to "interest only" stripped
securities that have been issued by a federal instrumentality known as the
Resolution Funding Corporation and other stripped securities issued or
guaranteed by the U.S. 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 Advantage Institutional Fund may
also invest in instruments that have been stripped by their holder, typically a
custodian bank or investment brokerage firm, and then
8
<PAGE>
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 Advantage Institutional 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 certain 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
ADVANTAGE INSTITUTIONAL 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 ADVANTAGE INSTITUTIONAL 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
9
<PAGE>
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 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.
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"). Each Fund currently intends to limit these investments so
that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of other investment
companies as a group; (c) not more than 3% of the outstanding voting stock of
any one investment company will be owned by a Fund; and (d) not more than 10% of
the outstanding voting stock of any one closed-end investment company will be
owned in the aggregate by a Fund, other investment portfolios of Emerald Funds,
or any other investment companies advised by the Adviser.
BORROWINGS. EACH FUND is authorized to make limited borrowings for
temporary purposes and each Fund 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 liquid assets
that have a value at least equal to the price a Fund must pay when it buys back
the securities, and the account will be continuously monitored to make sure the
appropriate value is maintained. Reverse repurchase agreements may be used to
meet redemption requests without selling portfolio securities. In addition, each
Fund may use reverse repurchase agreements when it is anticipated that the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. This use of
reverse repurchase agreements may be regarded as leveraging, and therefore,
speculative. Reverse repurchase agreements involve the possible risks that the
interest
10
<PAGE>
income earned on the investment of the proceeds will be less than the interest
expense, that the market value of portfolio securities the Fund relinquishes may
decline below the price a Fund must pay when the transaction closes and that the
securities may not be returned to the Fund. Interest paid by a Fund in a reverse
repurchase or other borrowing transaction will reduce a Fund's income.
SECURITIES LENDING. EACH FUND may lend securities held in its portfolio to
broker-dealers and other institutions as a means of earning additional income.
These loans present risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, securities
loans will be made only to parties the Adviser deems to be of good standing, and
will only be made if the Adviser thinks the possible rewards from such loan
justify the possible risks. A loan will not be made if, as a result, the total
amount of a Fund's outstanding loans exceeds 30% of its total assets. Securities
loans will be fully collateralized.
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 will 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 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 are 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) that 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.
11
<PAGE>
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 ADVANTAGE INSTITUTIONAL 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 for 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 obligations held by the PRIME ADVANTAGE INSTITUTIONAL FUND 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 obligation.
FUNDAMENTAL LIMITATIONS
The Funds' investment objectives and policies discussed above are not
fundamental limitations and may be changed by the Board of Trustees without
shareholder approval. You will be notified of any material changes, but as a
result, the Funds may have 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
(with certain limited exceptions).
2. A Fund may not borrow money except for temporary purposes in amounts up
to one-third of the value of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of a Fund's total assets, the Fund will not make
any investments.
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<PAGE>
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.
-------------------
INVESTING IN EMERALD FUNDS
YOUR MONEY MANAGER
BARNETT CAPITAL ADVISORS, INC. (REFERRED TO AS THE "ADVISER") SERVES AS
INVESTMENT 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.
Except as noted below, shares of each Fund are sold only to Barnett Bank,
N.A. and its affiliates ("Barnett") acting on their own behalf or on behalf of
their customer accounts (except employee benefit plan accounts) that invest at
least $1 million in a Fund. This minimum investment requirement does not apply
to customer accounts that owned Fund shares on November 30, 1996. In addition,
Fund shares are sold to other institutional investors that invest at least $1
million in a Fund. (These institutions, together with Barnett, are called
"Institutions.") There is no minimum for subsequent purchases.
All share purchases by customers of an Institution are effected through the
customer's account at the Institution through procedures established in
connection with the requirements of the account, and confirmations of share
purchases and redemptions will be sent by the Funds to the particular
Institution involved. Fund shares will normally be held of record by an
Institution for its customers or in the name of a nominee of an Institution.
Beneficial ownership of Fund shares will be recorded by an Institution for its
customers and reflected in the account statements provided to 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 the Institution.
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.
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 ("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 3:00 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 3:00 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), 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 investor'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 to new shareholders.
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.
Institutions may 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
charges should be obtained from the particular Institution before a customer
authorizes the purchase of Fund shares, and this Prospectus should be read in
conjunction with any information so obtained.
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. Shares
held by an Institution on behalf of its customers must be redeemed in accordance
with the instructions and limitations pertaining to the customer accounts. These
procedures will vary according to the type of account and Institution involved,
and 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
3:00 p.m. (Eastern Time) will normally be wired in federal funds the same day.
Payment for redemption orders which are received between 3:00 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 either Fund. No charge for wiring redemption
payments is imposed by the Funds, although Institutions may charge their
customer accounts for redemption services. Information relating to such
redemption services and charges, if any, is available from the Institutions. If
all of the shares owned by an Institution 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."
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An investor may be required to redeem shares in a Fund if the investor's
shareholdings drop below the required minimum investment amount stated above
under "Purchase of Shares" due to share redemptions and not market fluctuations
and the shareholder does not increase its balance to at least the required
minimum upon 60 days' written notice. If an Institution requires its customers
to maintain a minimum balance in their customer accounts, and the balance in an
account falls below that minimum, a customer may also be obligated to redeem
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 1940 Act. 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 1940 Act. 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
transaction costs in converting securities to cash.
It is the responsibility of the Institutions to provide their customers with
statements of account with respect to share transactions made for their
accounts.
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 are automatically
reinvested in shares of the Fund that pay the dividends and distributions,
unless a shareholder specifically elects to receive payments in cash by writing
Emerald Funds, 100 First Avenue, Suite 300, Pittsburgh, PA 15222. An election is
effective for dividends and distributions with payment dates after the date the
Funds' transfer agent receives the election. Cash 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 3:00 p.m. (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.
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<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 "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, Fanning, 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., 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 SEC 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 1940
Act. 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,
16
<PAGE>
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 agreement 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 March 5, 1997, 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:
- Marshall M. Criser, Chairman of the Board of Emerald Funds, is Chairman of
the law firm of Mahoney Adams & Criser, P.A.
- John G. Grimsley, President of Emerald Funds, is a member of the law firm
of Grimsley Marker & Iseley, P.A.
- Raynor E. Bowditch is the President of Bowditch Insurance Corporation.
- Mary Doyle is a Professor of Law, University of Miami Law School.
- Albert D. Ernest is the President of Albert Ernest Enterprises.
- Harvey R. Holding is the retired Executive Vice President and Chief
Financial Officer of BellSouth Corp.
Emerald Funds has also employed a number of professionals to provide
investment management and other important services to the Funds. BARNETT CAPITAL
ADVISORS, INC. 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. Emerald Asset Management, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc., located
17
<PAGE>
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. The Adviser 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 that has offered general banking services since
1877.
The Adviser manages the investment portfolios of the Funds, including
selecting portfolio investments and making purchase and sale orders. For the
services provided and expenses assumed for its advisory services, the Adviser is
entitled to receive a fee from the Funds, calculated daily and payable monthly,
at the annual rate of .10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1996 the Adviser did not receive any advisory
fees from the Funds, and the Funds' former sub-adviser received fees, after
waivers, at the effective annual rates of .15% and .15% of the average daily net
assets of each Fund under the agreements then in effect.
Although expected to be infrequent, the Adviser 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. The 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.
The Adviser 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 the Adviser 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 the Adviser or
its affiliates.
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.
The Administrator 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.
The Administrator 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.
18
<PAGE>
FEE WAIVERS AND EXPENSES
Expenses can be reduced by voluntary fee waivers and expense reimbursements
by the Adviser and the Funds' other service providers. The amount of the waivers
may be changed at any time at the sole discretion of the Adviser and the Funds'
other service providers. 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 (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 a 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
Advantage Institutional Fund may or may not qualify in any calendar year for
this exemption from the Florida intangibles tax. In order to qualify for
19
<PAGE>
this exemption, the Treasury Advantage Institutional Fund may sell non-exempt
assets held in its portfolio (such as repurchase agreements) during the year and
reinvest the proceeds in exempt assets, or hold cash, prior to December 31.
Transaction costs involved in restructuring the portfolio in this fashion would
likely reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
MEASURING PERFORMANCE
- - Performance information provides you with a method of measuring and monitoring
your investments. Each Fund may quote performance in advertisements or
shareholder communications.
UNDERSTANDING PERFORMANCE MEASURES:
- - Total return may be calculated on an average annual total return basis or on
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.
- - 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 performance 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 performance of the Prime Advantage Institutional Fund may be compared to
the Donoghue's Money Fund Average, which monitors the performance of money
market funds. The performance of the Treasury Advantage Institutional 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' performance quotations.
Inquiries regarding the Funds may be directed to the Distributor at the
address stated on page 13.
-------------------
20
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION RELATING TO THE FUNDS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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
Investment Objective and Policies................................ 5
Portfolio Instruments, Practices and Related Risks............... 5
Fundamental Limitations.......................................... 12
INVESTING IN EMERALD FUNDS......................................... 13
Your Money Manager............................................... 13
Purchase of Shares............................................... 13
Redemption of Shares............................................. 14
Dividends and Distributions...................................... 15
Explanation of Sales Price....................................... 15
Other Service Providers.......................................... 16
THE EMERALD FAMILY OF FUNDS........................................ 16
THE BUSINESS OF THE FUNDS.......................................... 17
Fund Management.................................................. 17
Fee Waivers and Expenses......................................... 19
Tax Implications................................................. 19
Measuring Performance............................................ 20
</TABLE>
EMD-163
EM ADV MM 497 PRO
<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, 1997
TABLE OF CONTENTS
-----------------
Page
----
EMERALD FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . . . . 1
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. . . . . . . . . . . . . . . 36
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . 44
MANAGEMENT OF EMERALD FUNDS . . . . . . . . . . . . . . . . . . . . . . . . 53
INDEPENDENT ACCOUNTANTS/EXPERTS . . . . . . . . . . . . . . . . . . . . . . 75
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS. . . . . . . . . . . . . 76
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-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, 1997 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 (except the International Equity Fund) and for the Prime
and Treasury Funds. Brandes Investment Partners, L.P. ("Brandes") performs such
services (except for the management of cash balances) for the International
Equity Fund and Rodney Square Management Corporation ("Rodney Square" and,
together with Brandes, the "Sub-Advisers") a wholly-owned subsidiary of
Wilmington Trust Company, has similar responsibilities for the Tax-Exempt Fund.
The Sub-Advisers are subject to the general supervision of both the Board of
Trustees and the Adviser. (The Sub-Advisers do not provide sub-advisory
services for any of the other Funds.)
The portfolio turnover rate for the Funds is calculated by dividing
the lesser of purchases or sales of portfolio
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securities for the reporting period by the monthly average value of the
portfolio securities owned during the reporting period. The calculation
excludes all securities (such as those held by the Money Market Funds),
including options, whose maturities or expiration dates at the time of
acquisition are thirteen months or less. Portfolio turnover may vary greatly
from year to year, as well as within a particular year, and may be affected
by cash requirements for redemption of shares and by requirements which
enable the Funds to receive favorable tax treatment. The portfolio turnover
rates for the fiscal years ended November 30, 1995 and 1996 were 104% and
89%, respectively, for the Equity Fund; 89% and 53%, respectively, for the
U.S. Government Securities Fund; 89% and 152%, respectively, for the Florida
Tax-Exempt Fund; 229% and 356%, respectively, for the Small Capitalization
Fund; 87% and 106%, respectively, for the Balanced Fund; 33% and 138%,
respectively, for the Short-Term Fixed Income Fund; and 92% and 97%,
respectively, for the Managed Bond Fund. On March 9, 1996, each of these
Funds terminated its offering of Class B Shares under the then current sales
load schedule and such shares subsequently converted to Retail Shares of the
particular Fund. The portfolio turnover rates for the Funds for the period
December 1, 1995 to March 11, 1996 were 47% for the Equity Fund; 20% for the
U.S. Government Securities Fund; 147% for the Small Capitalization Fund; 48%
for the Balanced Fund; 19% for the Short-Term Fixed Income Fund; and 50% for
the Managed Bond Fund. The portfolio turnover rates for the period December
27, 1995 (commencement of operations) through November 30, 1996 for the
Equity Value Fund and International Equity Fund were 19% and 50%,
respectively. No Class B Shares of the Equity Value and International Equity
Funds were offered during this period. There was a significant variation
between the portfolio turnover rates for the fiscal year ended November 30,
1995 and for the fiscal year ended November 30, 1996 for the Small
Capitalization, Short-Term Fixed Income and Florida Tax-Exempt Funds due
primarily to rapid growth in fund assets or interim strategy initiatives.
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
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among different brokers. For the fiscal years ended November 30, 1996, 1995 and
1994, the Equity Fund paid $492,625, $579,942 and $499,826, respectively, in
brokerage commissions. For the fiscal years ended November 30, 1996 and 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 $1,537,302, $706,112 and $241,074,
respectively, and the Balanced Fund paid $199,228, $138,534 and $54,784,
respectively, in brokerage commissions. For period from commencement of
operations (December 27, 1995) through November 30, 1996, the Equity Value Fund
paid $6,987 and the International Equity Fund paid $27,262 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 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 newly issued securities purchased from
underwriters includes an underwriting commission or concession. 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, 1996, 1995 and 1994,
no Funds other than the Equity Fund, Small Capitalization Fund (for the period
from the commencement of operations January 4, 1994), Balanced Fund (for the
period from the commencement of operations April 4, 1994), Equity Value Fund
(for the period from the commencement of operations December 27, 1995) and
International Equity Fund (for the period from the commencement of operations
December 27, 1995) 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 the Sub-
Adviser as applicable) believes such practice to be in the Fund's interests.
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<PAGE>
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 the Sub-Advisory Agreements the Sub-Advisers agree with respect to the
International Equity Fund and 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-Advisers will consider factors they deem
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the respective Agreements
authorize the Adviser and Sub-Advisers to cause the Funds to pay a broker-dealer
which furnishes brokerage and research services a higher 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
International Equity Fund and 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.
For the fiscal years ended November 30, 1996, 1995 and 1994 approximately
$147,071,037, $397,588,560 and $357,702,702, respectively, in brokerage
transactions for the Equity Fund (involving the payment of $207,458, $597,942
and $227,951, respectively, in brokerage commissions) were allocated to brokers
because of research services provided. For the fiscal years ended November 30,
1996 and 1995 and the period from the commencement of operations of the Small
Capitalization Fund on January 4, 1994 through November 30, 1994, approximately
$117,426,203, $323,757,624 and $148,069,898, respectively, in brokerage
transactions (involving payment of $281,263, $3,974 and $16,307, respectively,
in brokerage commissions) were allocated to brokers because of research services
provided. For the fiscal years ended November 30, 1996 and 1995 and the period
from the commencement of operations of the Balanced Fund on April 11, 1994
through November 30, 1994, approximately $34,826,958, $108,669,292 and
$36,145,647, respectively, in brokerage transactions (involving payment of
$51,253, $54,779 and $22,137, respectively, in brokerage commissions) were
allocated to brokers because of research services provided. For the period from
the commencement of operations of the Equity Value Fund and the International
Equity Fund on December 27, 1995 through November 30, 1996, approximately
$1,464,163 and $15,250,082, respectively, in
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<PAGE>
brokerage transactions (involving payment of $2,988 and $3,401, respectively, in
brokerage commissions) were allocated to brokers because of research services
provided.
Supplemental research information so received is in addition to, and
not in lieu of, services required to be performed by the Adviser (and Sub-
Advisers) and does not reduce the advisory fees payable to the Adviser by the
Funds. The Trustees will periodically review the commissions paid by the Funds
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Funds. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other accounts
for which investment discretion is exercised. Conversely, a Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
Portfolio securities will not be purchased from or sold to (and
savings deposits will not be made in and repurchase and reverse repurchase
agreements will not be entered into with) the Adviser, the Sub-Advisers, the
Distributor or an affiliated person of any of them (as such term is defined in
the Investment 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 as applicable) 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 a 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 a 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-Advisers. Such other investment companies and accounts may also invest
in the same securities as the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of
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<PAGE>
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 (or Sub-Adviser as applicable) believes to be equitable
to the Fund and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by the Fund. To the extent permitted
by law, the Adviser and Sub-Advisers may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. With respect to a Money Market Fund in such an event, the
Board of Trustees or the Adviser (Sub-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 (Sub-Adviser with respect to the International Equity
Fund) anticipates selling such a security in an orderly manner as soon as
possible. In addition, it is possible that unregistered securities purchased by
a Fund in reliance upon Rule 144A under the Securities Act of 1933 could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a period, uninterested in purchasing
these securities.
FUNDAMENTAL POLICIES
Each Fund is subject to the fundamental policies enumerated in this
sub-section, which policies may be changed with respect to a particular Fund
only by a vote of the holders of a majority of such Fund's outstanding shares
(as defined under "Miscellaneous" below).
No Fund may:
1. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the Investment Company Act
of 1940.
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<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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.
[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
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<PAGE>
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.
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.
As stated in the Prospectus under "Investment Principles and Policies,"
securities subject to unconditional demand features
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<PAGE>
acquired by the Prime Fund must satisfy special SEC diversification
requirements. In particular, a security that has an unconditional demand
feature (as defined by SEC regulations) which is issued by a person that,
directly or indirectly, does not control, and is not controlled by or under
common control with, the issuer of the security (an "Unconditional Demand
Feature") is subject to the following diversification requirements: Immediately
after the acquisition of the security, the Prime Fund may not have invested more
than 10% of its total assets in securities issued by or subject to Unconditional
Demand Features from the same person, except that the Prime Fund may invest up
to 25% of its total assets in securities subject to Unconditional Demand
Features of persons that are rated in the highest rating category as determined
by two NRSROs (or one NRSRO if the security is rated by only one NRSRO).
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 having a value equal to or greater than the repurchase
price (including accrued interest) and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by a Fund may decline below
the price of the securities it is obligated to repurchase. Reverse repurchase
agreements are considered to be borrowings under the Investment Company Act of
1940. Each Fund intends to limit its borrowings (including reverse repurchase
agreements) during the next 12 months to not more than 5% of its net assets.
VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that may be
acquired by the Funds as described in the Prospectuses, the Adviser (or Sub-
Adviser as applicable) 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
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<PAGE>
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.
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
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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 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
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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 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
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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 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
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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 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
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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 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
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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 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
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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 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.
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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 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 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
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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-Advisers' 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 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
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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 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
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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.
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, liquid assets
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
liquid assets 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 liquid
assets 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
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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 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 (or Sub-
Adviser with respect to the International Equity Fund) 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
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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 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.
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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 would be subject to Brandes' 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 would be accurate or that the use of these portfolio
strategies would be successful. The International Equity Fund may 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 liquid assets in an amount
equal to the market value of the option, and will maintain the account while the
option is open.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS -- INTERNATIONAL EQUITY FUND
Because the International Equity Fund may buy and sell securities
denominated in currencies other than the U.S. dollar, and receive interest,
dividends and sale proceeds in currencies other than the U.S. dollar, the Fund
may, but is not required to, 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 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.
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.
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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 does not expect to 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 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"), EUROPEAN DEPOSITORY RECEIPTS ("EDRS") AND
GLOBAL DEPOSITORY RECEIPTS ("GDRS")
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 and GDRs, which are receipts issued by
non-U.S. 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 and GDR prices are generally
denominated in foreign currencies. The securities underlying an ADR, EDR or
GDR will also normally be denominated in a foreign currency. The underlying
securities may be subject to foreign government
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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 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 Sub-Adviser as
applicable) will consider, among other factors, the creditworthiness of the
issuers of the securities; the interest or dividend income generated by the
securities; the
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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 Adviser (or Sub-Adviser as applicable) 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 Adviser (or Sub-Adviser as
applicable) 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:
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
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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 by the Adviser (or the Sub-Advisers) are anticipated changes in
interest rates, the availability of new investment opportunities and the outlook
for specific industries. Issues of convertible securities rated by S&P,
Moody's, D&P or Fitch at the time of purchase may subsequently cease to be
rated. This event will not require the elimination of such obligations from a
Fund's portfolio, but the Adviser (or the Sub-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.
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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 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
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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 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
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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 attributed to the class,
subtracting the Funds' liabilities that are attributed 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 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.
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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 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
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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."
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-
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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.
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 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. Restricted securities for which market quotations are not readily
available, if any, are valued at fair value as determined in accordance with
policies established in good faith by the Board of Trustees. 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
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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 (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
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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 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
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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
43218-2697. 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.
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
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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.
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 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
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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
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.
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.
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DESCRIPTION OF SHARES
Emerald Funds is a Massachusetts business trust. Under Emerald Funds'
Agreement and Declaration of Trust, the beneficial interests in Emerald Funds
may be divided into an unlimited number of full and fractional transferable
shares. The Agreement and Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares of Emerald Funds into one or more
classes by setting or changing, in any one or more respects, their respective
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of twenty-nine 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
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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 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
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in its discretion. When issued for payment as described in the Prospectuses,
shares will be fully paid and nonassessable by Emerald Funds. Shares of each
Fund have a par value of $.001.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. If such should
occur, the Trustees then in office will call a shareholders meeting for the
election of Trustees. Except as set forth above, the Trustees shall continue to
hold office and may appoint successor Trustees. The Agreement and Declaration
of Trust provides that meetings of the shareholders of Emerald Funds shall be
called by the Trustees upon the written request of shareholders owning at least
10% of the outstanding shares entitled to vote.
Emerald Funds' Agreement and Declaration of Trust authorizes the Board
of Trustees, without shareholder approval (unless otherwise required by
applicable law), to: (a) sell and convey the assets belonging to a Fund to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of such Fund to be redeemed at a price which is equal to
their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the assets belonging to a Fund into money and, in connection
therewith, to cause all outstanding shares of such Fund to be redeemed at their
net asset value; or (c) combine the assets belonging to a Fund with the assets
belonging to one or more other funds if the Board of Trustees reasonably
determines that such combination will not have a material adverse effect on the
shareholders of any fund participating in such combination and, in connection
therewith, to cause all outstanding shares of any such Fund to be redeemed or
converted into shares of another fund at their net asset value. However, the
exercise of such 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
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not qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to federal income
tax at regular corporate rates (without any deduction for distributions to its
shareholders). In such event, the Fund's dividend distributions (including
amounts derived from interest on municipal obligations) to shareholders would be
taxable as ordinary income, to the extent of the current and accumulated
earnings and profits of the particular Fund, and would be eligible for the
dividends received deduction for corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund distribute to its shareholders each
taxable year an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt income net of certain
deductions (the "Distribution Requirement"). 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.
In addition to satisfy of Distribution Requirement, each Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities, loans and gains from the sale or other
disposition of stock or securities or foreign currencies (including, but not
limited to gains from foreign currency exchange contracts), or from other income
derived with respect to its business of investment in such stock, securities, or
currencies (the "Income Requirement").
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
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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.
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,
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long-term capital gains and ordinary income are both taxable at a maximum
marginal rate of 35%.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or of gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify, 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 the 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
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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 Distribution Requirement, on the income or gain
qualifying under the Income Requirement and on their ability to comply with the
Short-Short 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
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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 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
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Depository Receipts and foreign currency contracts, may be subject to the
provisions of Subpart J of the Code, which govern the federal income tax
treatment of certain transactions denominated in terms of a currency other than
the U.S. dollar or determined by reference to the value of one or more
currencies other than the U.S dollar. The types of transactions covered by
these provisions include the following: (1) the acquisition of, or becoming the
obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (2) the accruing of certain
trade receivables and payables; and (3) the entering into or acquisition of any
forward contract, futures contract, option and similar financial instrument.
The disposition of a currency other than the U.S. dollar by a U.S. taxpayer also
is treated as a transaction subject to the special currency rules. However,
foreign currency-related regulated futures contracts and nonequity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the mark-to-market
rules, unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions that
are part of a "Section 988 hedging transaction" (as defined in the Code and
Treasury regulations) may be integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by the Fund, which is not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks), is treated as capital gain or loss and is not segregated from the gain
or loss on the underlying transaction.
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
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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
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
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<PAGE>
the greater of 31 days or the period between regular distributions where the
investment company regularly distributes at least 90% of its net tax-exempt
interest. No such regulations had been issued as of the date of this Statement
of Additional Information.
Income itself exempt from federal income taxation may be considered in
addition to adjusted gross income when determining whether Social Security
payments received by a shareholder are subject to federal income taxation.
FLORIDA TAXES
The State of Florida does not currently impose an income tax on
individuals. Thus individual shareholders of the Florida Tax-Exempt Fund will
not be subject to any Florida income tax on distributions received from the
Fund. However, Florida does currently impose an income tax on certain
corporations. Consequently, distributions may be taxable to corporate
shareholders.
The State of Florida currently imposes an "intangibles tax" at the
annual rate of 2 mills or 0.20% on certain securities and other intangible
assets owned by Florida residents. With respect to the first mill, or first
.10%, of the intangibles tax, every natural person is entitled each year to an
exemption of the first $20,000 of the value of the property subject to the tax.
A husband and wife filing jointly will have an exemption of $40,000. With
respect to the last 1 mill, or last .10%, of the intangibles tax, every natural
person is entitled each year to an exemption of the first $100,000 of the value
of the property subject to the tax. A husband and wife filing jointly will have
an exemption of $200,000. Notes, bonds and other obligations issued by the
State of Florida or its municipalities, counties, and other taxing districts, or
by the United States Government, its agencies and certain U.S. territories and
possessions (such as Guam, Puerto Rico and the Virgin Islands) as well as cash
are exempt from this intangibles tax. If on December 31 of any year the
portfolio of the Florida Tax-Exempt Fund consists solely of such exempt assets,
then the Fund's shares will be exempt from the Florida intangibles tax payable
in the following year.
In order to take advantage of the exemption from the intangibles tax
in any year, the Florida Tax-Exempt Fund must sell any non-exempt assets held in
its portfolio during the year 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.
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<PAGE>
OTHER INFORMATION
Depending upon the extent of activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities.
Outside the State of Florida, income distributions may be taxable to
shareholders under state or local law as dividend income even though all or a
portion of such distributions may be derived from interest on tax-exempt
obligations or U.S. Government obligations which, if realized directly, would be
exempt from such income taxes. Shareholders are advised to consult their tax
advisers concerning the application of state and local taxes.
The foregoing discussion is a general and abbreviated summary of
certain provisions of federal and Florida law and is based on tax laws and
regulations which are in effect on the date of this Statement of Additional
Information. Such laws and regulations may be changed by legislative or
administrative action. This discussion is only a summary of some of the
important tax considerations generally affecting purchasers of shares of the
Funds. No attempt is made to present a detailed explanation of the federal
income tax treatment of the Funds or their shareholders, and this discussion is
not intended as a substitute for careful tax planning. Accordingly, potential
purchasers of shares of the Funds should consult their tax advisers with
specific reference to their own tax situation.
MANAGEMENT OF EMERALD FUNDS
TRUSTEES AND OFFICERS
The Trustees and officers of Emerald Funds, their addresses, principal
occupations during the past five years and other affiliations are as follows:
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
Marshall M. Criser* Chairman of the Chairman of the law firm of
3400 Barnett Center Board of Trustees Mahoney Adams & Criser, P.A.,
50 N. Laura Street 1989 to date; Director of
Jacksonville, FL 32201 BellSouth Corp., Barnett
Age 68 Banks, Inc., FPL Group, Inc.,
Perini Corp., Flagler System,
Inc., and Shands Hospital;
Chairman and Director of CSR
America Inc; Trustee,
University of Florida
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<PAGE>
Foundation.
Raynor E. Bowditch Trustee President, Bowditch
4811 Beach Blvd. Insurance Corporation (a
Suite 105 general lines independent
Jacksonville, FL 33207 agency); Director, General
Age 63 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 1995; Dean,
Age 53 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 66 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 Grimsley, Marker & Iseley,
50 N. Laura St. President P.A.; Member of the law firm
Suite 3300 of Mahoney Adams & Criser,
Jacksonville, FL 32202 P.A. from 1966 to 1996.
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 58 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
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<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
and Distributor, February 1987
to March 1995.
Hugh Fanning Vice President Vice President of Emerald
BISYS Fund Services Asset Management, Inc.,
3435 Stelzer Road October 1996 to present;
Columbus, OH 43219-3035 Employee of BISYS Fund
Age 43 Services, Inc., August 1992 to
present; Director of
Marketing, Ketchum
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 50
Martin R. Dean Vice President 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 LLP
Age 33 prior thereto.
Thomas E. Line Treasurer Employee of BISYS Fund
Services Fund Services Services Inc., December 1996
3435 Stelzer Road to present; Senior Manager
Columbus, OH 43219-3035 at KPMG Peat Marwick LLP prior
Age 29 thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
Philadelphia National Reath (law firm).
Bank Building
1345 Chestnut Street
Philadelphia, PA
19107-3496
Age 46
George O. 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 37 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.
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<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
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 37
Robert L. 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 45 August 1995 to present; Vice
President and Associate
General Counsel with National
Securities Research Corp.,
July 1990 to June 1991.
Alaina V. 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 29 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.
----------------------------------
Effective March 1, 1997, each Trustee receives an annual fee of
$15,000 plus $2,000 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 $5,000 for service in such
capacities. On a case-by-case basis, the Board of Trustees also may approve
additional compensation for any Trustee who serves on a special committee
appointed by the Board or the Chairman or for any Trustee who is assigned to a
special project approved by the Board or the Chairman.
Remuneration for services rendered during Emerald Funds' fiscal year
ended November 30, 1996 and distributed to all Trustees and officers as a group
was $131,500. Drinker Biddle & Reath, of which Mr. Dalke is a partner, receives
legal fees as counsel to Emerald Funds. As of March 5, 1997, the
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<PAGE>
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 for the fiscal year ended November 30,
1996.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX* PAID
FROM EMERALD PART OF FUND UPON TO
NAME OF PERSON POSITION FUNDS EXPENSES RETIREMENT TRUSTEES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chesterfield H. Smith $25,000 N/A N/A $25,000
Former Chairman of the
Board of Trustees**
Marshall M. Criser N/A N/A N/A N/A
Chairman of the
Board of Trustees***
John G. Grimsley $25,000 N/A N/A $25,000
President and Trustee
Raynor E. Bowditch $21,500 N/A N/A $21,500
Trustee
Mary Doyle $26,500 N/A N/A $26,500
Trustee
Albert D. Ernest $23,500 N/A N/A $23,500
Trustee
Harvey R. Holding**** $10,000 N/A N/A $10,000
Trustee
- ------------------------------
</TABLE>
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Smith resigned as a member of the Board of Trustees of Emerald Funds,
effective February 15, 1997.
*** Mr. Criser was appointed Trustee and Chairman of the Board of Emerald Funds
effective upon the resignation of Mr. Smith on February 15, 1997.
**** 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
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<PAGE>
as partners for the obligations of the trust. However, Emerald Funds' Agreement
and Declaration of Trust provides that shareholders shall not be subject to any
personal liability in connection with the assets of Emerald Funds for the acts
or obligations of Emerald Funds, and that every note, bond, contract, order or
other undertaking made by Emerald Funds shall contain a provision to the effect
that the shareholders are not personally liable thereunder. The Agreement and
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his or her being or
having been a shareholder and not because of his or her acts or omissions or
some other reason. The Agreement and Declaration of Trust also provides that
Emerald Funds shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of Emerald Funds, and shall satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which Emerald
Funds itself would be unable to meet its obligations.
The Agreement and Declaration of Trust further provides that all
persons, having any claim against the Trustees or Emerald Funds shall look
solely to the trust property for payment; that no Trustee of Emerald Funds shall
be personally liable for or on account of any contract, debt, tort, claim,
damage, judgment or decree arising out of or connected with the administration
or preservation of the trust property or the conduct of any business of Emerald
Funds; and that no Trustee shall be personally liable to any person for any
action or failure to act except by reason of his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties as
Trustee. With the exception stated, the Agreement and Declaration of Trust
provides that a Trustee is entitled to be indemnified against all liabilities
and expenses reasonably incurred by him or her in connection with the defense or
disposition of any proceeding in which he or she may be involved or with which
he or she may be threatened by reason of his or her being or having been a
Trustee, and that the Trustees will indemnify representatives and employees of
Emerald Funds to the same extent that Trustees are entitled to indemnification.
ADVISORY AND SUB-ADVISORY AGREEMENTS
Barnett Capital Advisors, Inc. assumed, as of June 29, 1996, the
responsibilities of Barnett Banks Trust Company, N.A. ("BBTC") as investment
adviser to each Fund. Brandes Investment Partners, L.P. serves as sub-
investment adviser to the International Equity Fund. Brandes Investment
Partners, Inc. owns a controlling interest in Brandes and serves as its general
partner. Charles Brandes is the controlling shareholder of Brandes Investment
Partners, Inc. Rodney Square Management Corporation, a wholly-owned subsidiary
of Wilmington Trust
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<PAGE>
Company ("WTC"), serves as sub-investment adviser to the Tax-Exempt Fund. In
rendering sub-advisory services, Rodney Square may occasionally consult, on an
informal basis, with personnel from WTC's 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 Agreements, the Adviser
and Sub-Advisers have agreed to pay all expenses incurred by them in connection
with their advisory and sub-advisory services other than the cost of securities
and other investments, including brokerage commissions and other transaction
costs, if any, purchased or sold for each Fund. For the services provided and
expenses assumed pursuant to the advisory agreements, Emerald Funds has agreed
to pay the Adviser fees, computed daily and paid monthly, at the annual rate of
1.00% of the average daily net assets of the International Equity and Small
Capitalization Funds, 0.60% of the respective average daily net assets of each
of the Equity, Equity Value and Balanced Funds; 0.40% of the respective average
daily net assets of each of the Short-Term Fixed Income Fund, U.S. Government
Securities Fund, Managed Bond Fund and Florida Tax-Exempt Fund; and 0.25% of the
respective average net assets of each Money Market Fund. Under the terms of the
agreements, the fees payable to the Adviser are not subject to reduction as the
value of each Fund's net assets increases; however, the Adviser has informed
Emerald Funds of its intention to reduce the annual rate of its advisory fees
with respect to the Treasury Fund and the Prime Fund to the following rates:
.25% of the first $600 million of each Fund's net assets; .23% of each Fund's
net assets over $600 million but not exceeding $1 billion; .21% of the next $1
billion of each Fund's net assets; and .19% of each Fund's net assets over $2
billion. The Adviser has agreed to pay the International Equity Fund's Sub-
Adviser a sub-advisory fee at the rate of .50% of the Fund's net assets and 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-
Advisers are borne entirely by the Adviser and have no effect on the advisory
fees payable by the International Equity Fund and 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 Rodney Square.
The Adviser and Rodney Square 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 Rodney Square
with respect to the Funds. For the fiscal year ended November 30, 1996, the
Adviser and BBTC received (net of
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<PAGE>
waivers) advisory fees totalling $1,321,335 for the Equity Fund, $0 for the
Equity Value Fund (for the period from the commencement of operations on
December 27, 1995), $0 for the International Equity Fund, (for the period from
the commencement of operations on December 27, 1995), $1,187,772 for the Small
Capitalization Fund, $361,644 for the Balanced Fund, $73,150 for the Short-Term
Fixed Income Fund, $270,222 for the U.S. Government Securities Fund, $209,253
for the Managed Bond Fund and $500,722 for the Florida Tax-Exempt Fund.
Of the advisory fees received by the Adviser and BBTC with respect to
the International Equity Fund for the period from the commencement of operations
(December 27, 1995) through November 30, 1996, $19,395 was paid to the Sub-
Adviser, Brandes. For the same period, the Advisor and BBTC waived advisory
fees and reimbursed expenses in the amount of $1,112 for the Equity Fund,
$110,037 for the Equity Value Fund, $146,079 for the International Equity Fund,
$20,574 for the Small Capitalization Fund, $164,634 for the Balanced Fund,
$94,269 for the Short-Term Fixed Income Fund, $9,415 for the U.S. Government
Securities Fund, $90,873 for the Managed Bond Fund and $93,545 for the Florida
Tax-Exempt Fund.
For the fiscal years ended November 30, 1995 and 1994, BBTC received
(net of waivers) advisory fees totalling $1,155,425 and $1,156,911,
respectively, for the Equity Fund; $400,689 and $497,815, respectively, for the
U.S. Government Securities Fund; and $557,888 and $740,873, 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. For the same time
periods, BBTC waived advisory fees and reimbursed expenses in the amount of
$13,355 and $0, respectively, for the Equity Fund; $17,957 and $0,
respectively, for the U.S. Government Securities Fund; $33,887 and $0,
respectively, for the Florida Tax-Exempt Fund; $53,824 and $0, respectively, for
the Small Capitalization Fund; $526,354 and $170,207, respectively, for the
Balanced Fund; $278,214 and $53,025, respectively, for the Short-Term Fixed
Income Fund; and $380,759 and $177,688, respectively, for the Managed Bond Fund.
For the fiscal year ended November 30, 1996, the Adviser and BBTC
received (net of waivers) advisory fees totalling $4,226,587 for the Prime Fund,
$2,164,868 for the
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<PAGE>
Treasury Fund and $292,524 for the Tax-Exempt Fund. Of the advisory fee
received by the Adviser and BBTC with respect to the Tax-Exempt Fund for the
fiscal year ended November 30, 1996, the entire fee was paid to the Sub-Adviser,
Rodney Square. In addition, the Adviser and BBTC waived advisory fees and
reimbursed expenses in the amount of $195,132 and Rodney Square waived advisory
fees and reimbursed expenses in the amount of $26,640 with respect to the Tax-
Exempt Fund for the fiscal year ended November 30, 1996. For the fiscal year
ended November 30, 1996, the Adviser and BBTC waived advisory fees and
reimbursed expenses in the amount of $963,441 and $97,600 for the Prime Fund and
Treasury Fund, respectively.
For the fiscal years ended November 30, 1995 and 1994 , BBTC received
(net of waivers) advisory fees totalling $3,677,324 and $3,243,600,
respectively, for the Prime Fund; $1,914,250 and $2,231,677, respectively, for
the Treasury Fund; and $304,013 and $222,183, 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 and 1994, the entire fee was paid
to the Sub-Adviser, Rodney Square. BBTC waived $202,676 and $186,758 in
advisory fees with respect to the Tax-Exempt Fund for the fiscal years ended
November 30, 1995 and 1994, 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 year ended November 30, 1994,
BBTC did not waive any advisory fees for the Prime Fund and the Treasury Fund.
For the fiscal years ended November 30, 1995 and 1994, Rodney Square waived sub-
advisory fees totalling $53,487 and $55,868 with respect to the Tax-Exempt Fund.
Under the Investment Advisory and Sub-Advisory Agreements for the
Funds, the Adviser and Sub-Advisers are not liable for any error of judgment or
mistake of law or for any loss suffered by Emerald Funds in connection with the
performance of such agreements, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Adviser or Sub-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
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<PAGE>
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 Agreements and as contemplated by the Prospectuses and
this Statement of Additional Information, and Rodney Square believes, with
respect to its activities as required by the Sub-Advisory Agreement, and as
contemplated by the Prospectuses and this Statement of Additional Information,
that, if the question were properly presented, a court should hold that the
Adviser or Rodney Square 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 Rodney Square 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 Rodney Square from continuing to
perform such services for the Funds. If the Adviser or Rodney Square 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
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<PAGE>
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 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 on 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
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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.
Prior to April 1, 1996, Concord Holding Corporation, the Trust's prior
administrator which was acquired by The BISYS Group, Inc. in 1995, received
administration fees under administration agreements then in effect for the Funds
which provided for different administration fee rates than those currently in
effect.
For the fiscal year ended November 30, 1996, the Administrator and the
prior administrator received administration fees (net of waivers) totalling
$152,061 for the Equity Fund; $40 for the Equity Value Fund (for the period from
commencement of operations on December 27, 1995 through November 30, 1996); $0
for the International Equity Fund (for the period from commencement of
operations on December 27, 1995 through November 30, 1996); $83,350 for the
Small Capitalization Fund; $44,521 for the Balanced Fund; $14,173 for the Short-
Term Fixed Income Fund; $66,634 for the U.S. Government Securities Fund; $36,784
for the Managed Bond Fund; and $84,756 for the Florida Tax-Exempt Fund. For the
same time periods, the Administrator and the prior administrator waived
administration fees and reimbursed expenses in the amount of $371 for the Equity
Fund; $644 for the Equity Value Fund; $624 for the International Equity Fund;
$4,214 for the Small Capitalization Fund; $12,771 for the Balanced Fund; $2,846
for the Short-Term Fixed Income Fund; $4,637 for the U.S. Government Securities
Fund; $11,616 for the Managed Bond Fund; and $46,075 for the Florida Tax-Exempt
Fund.
For the fiscal years ended November 30, 1995 and 1994, the prior
administrator received administration fees (net of waivers) totalling $96,285
and $121,409, respectively, for the Equity Fund; $50,152 and $113,986,
respectively, for the U.S. Government Securities Fund; and $69,736 and $230,514,
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) through November 30, 1994, the
prior administrator received administration fees (net of waivers) totalling
$37,116 and $19,776, respectively, for the Small Capitalization Fund; $30,958
and $0, respectively, for the Balanced Fund; $10,509 and $0, respectively, for
the Short-Term
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Fixed Income Fund; and $33,391 and $0, respectively, 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 and $48,972, respectively, for
the Equity Fund; $9,052 and $48,561, respectively, for the U.S. Government
Securities Fund; $16,016 and $92,309, respectively, for the Florida Tax-Exempt
Fund; $9,992 and $4,179, respectively, for the Small Capitalization Fund; $0 and
$15,246, respectively, for the Balanced Fund; $0 and $6,747, respectively, for
the Short-Term Fixed Income Fund; and $0 and $22,818, respectively, for the
Managed Bond Fund.
For the fiscal year ended November 30, 1996, the Administrator and the
prior administrator received administration fees (net of waivers) totalling
$2,071,918 for the Prime Fund; $772,967 for the Treasury Fund; and $197,123 for
the Tax-Exempt Fund. For the same period, the Administrator and the prior
administrator waived administration fees and reimbursed expenses totalling
$90,143 for the Prime Fund; $42,738 for the Treasury Fund; and $0 for the Tax-
Exempt Fund.
For the fiscal years ended November 30, 1995 and 1994 , the prior
administrator received administration fees (net of waivers) totalling $1,451,222
and $1,273,698, respectively, for the Prime Fund; $797,128 and $885,278,
respectively, for the Treasury Fund; and $304,013 and $211,853, respectively,
for the Tax-Exempt Fund. For the same time periods, the prior administrator
waived administration fees and reimbursed expenses totalling $53,487 and $55,868
for the Tax-Exempt Fund. During these periods, the prior administrator did not
waive any administration fees or reimburse any expenses for the Prime and
Treasury Funds.
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.
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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 period ended February 4, 1996, 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 period December 1, 1995
through February 4, 1996 and the fiscal years ended November 30, 1995 and 1994,
the Distributor received front-end sales charges in connection with Class A
Share purchases as follows: Equity Fund -- $7,509, $36,840 and $257,556,
respectively; U.S. Government Securities Fund -- $2,496, $14,369 and $572,054,
respectively; and Florida Tax-Exempt Fund -- $9,144, $121,393 and $579,867,
respectively. For the period December 1, 1995 through February 4, 1996, 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 $3,138, $10,759 and $17,401, respectively, for the Small
Capitalization Fund; $3,381, $14,299 and $10,000, respectively, for the Balanced
Fund; $0, $4,628 and $1,500, respectively, for the Short-Term Fixed Income Fund;
and $2,166, $9,447 and $8,000, respectively for the Managed Bond Fund. For the
period from the commencement of operations (December 27, 1995) through February
4, 1996, the Distributor received front-end sales charges in connection with
Class A Share purchases of $0 for the Equity Value Fund and $0 for the
International Equity Fund. Of these amounts, the Distributor retained $612,
$1,113 and $5,750, respectively, and the Adviser and its affiliates retained
$6,897, $11,904 and $10,623 , respectively, with respect to the Equity Fund; the
Distributor retained $55, $466 and $15,739, respectively, and the Adviser and
its affiliates retained $2,441, $3,567 and $28,164, respectively, with respect
to the U.S. Government Securities Fund; the Distributor retained $149, $793 and
$55,688, respectively, and the Adviser and its affiliates retained $3,409,
$7,261 and $76,543, respectively, with respect to the Florida Tax-Exempt Fund;
the Distributor retained $45, $199 and $2,457,
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respectively, and the Adviser and its affiliates retained $702, $11,041 and
$696, respectively, with respect to the Small Capitalization Fund; the
Distributor retained $81, $859 and $361, respectively, and the Adviser and its
affiliates retained $1,137, $21,641 and $400, respectively, with respect to the
Balanced Fund; the Distributor retained $0, $426 and $146, respectively, and the
Adviser and its affiliates retained $0, $1,571 and $30, respectively, with
respect to the Short-Term Fixed Income Fund; and the Distributor retained $19,
$165 and $1,491, respectively, and the Adviser and its affiliates retained
$2,147, $7,289 and $520, respectively, 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 period December 1, 1995 through March 9,
1996, 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 --
$765, $15,319 and $62,366; U.S. Government Securities Fund -- $207, $14,490 and
$61,800; Florida Tax-Exempt-Fund -- $4,208, $22,167 and $259,483; Small
Capitalization Fund -- $892, $13,269 and $71,180; Balanced Fund -- $2,526,
$10,005 and $51,329; Short-Term Fixed Income Fund -- $3, $2,873 and $0; and
Managed Bond Fund -- $3,366, $3,306 and $19,889, respectively. Of these
amounts, the Distributor retained: Equity Fund -- $765, $15,319 and $2,495;
U.S. Government Securities Fund -- $207, $14,490 and $2,472; Florida Tax-Exempt
Fund -- $4,208, $22,167 and $10,379; Small Capitalization Fund --$892, $13,269
and $2,847; Balanced Fund -- $2,526, $10,005 and $2,053; Short Term Fixed
Income Fund -- $3, $2,873 and $0; and Managed Bond Fund -- $3,366, $3,306 and
$796, respectively. No Class B Shares of the Equity Value and International
Equity Funds were offered during these periods.
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,
1996:
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<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 $ 612 $ 765 $ 0 $ 152,450
Equity Value Fund $ 0 $ 0 $ 0 $ 41
International Equity
Fund $ 0 $ 0 $ 0 $ 2
Small Capitalization
Fund $ 45 $ 892 $ 0 $ 83,439
Balanced Fund $ 81 $ 2,526 $ 0 $ 44,529
Short-Term Fixed
Income Fund $ 0 $ 3 $ 0 $ 14,191
U.S. Government
Securities Fund $ 55 $ 207 $ 0 $ 66,880
Managed Bond Fund $ 19 $ 3,366 $ 0 $ 36,999
Florida Tax-Exempt
Fund $ 149 $ 4,208 $ 0 $ 85,096
- --------------------
</TABLE>
(1) Represents amounts received from front-end sales charges on Class A Shares
through February 4, 1996.
(2) Represents amounts received from contingent deferred sales charges on Class
B Shares through March 9, 1996.
(3) Represents the total of (i) amounts paid to the Administrator and prior
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 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
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<PAGE>
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.)
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
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<PAGE>
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 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, 1996, 1995 and 1994, pursuant
to the current Combined Amended and Restated Distribution and Service Plan and
the previous distribution plans for Retail Shares then in effect, the Equity
Fund was charged $68,645, $49,877 and $131,931, of which $389, $0 and $0; $0,
$0, $0; and $47,663, $18,625 and $18,484 were paid to the Distributor, the
Adviser and affiliates of the Adviser, respectively; the U.S. Government
Securities Fund was charged $61,311, $70,145 and $174,243, of which $246, $0
and $0; $0, $0 and $0; and $31,285, $14,792 and $16,834 were paid to the
Distributor, the Adviser and affiliates of the Adviser, respectively; and the
Florida Tax-Exempt Fund was charged $222,038, $251,826 and $389,107, of which
$340, $0 and $0; $0, $0 and $0; and $122,912, $44,307 and $37,476 were paid to
the Distributor, the Adviser and affiliates of the Adviser, respectively. For
the fiscal years ended November 30, 1996 and 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 $15,455,
$4,747 and $1,939 of which $89, $0 and $0; $0, $0 and $0; and $12,184, $1,074
and $404 was paid to the Distributor, the Adviser and affiliates of the Adviser,
respectively; the Balanced Fund was charged $10,046, $1,836 and $489 of which
$8, $0 and $0; $0, $0 and $0; and $7,177, $521 and $96 was paid to the
Distributor, the Adviser and affiliates of the Adviser, respectively; the Short-
Term Fixed Income Fund was charged $1,980, $681 and $177 of which $18, $0 and
$0; $0, $0 and $0; and $1,477, $152 and $15 was paid to the Distributor, the
Adviser and affiliates of the Adviser respectively; and the Managed Bond Fund
was charged $3,565, $2,539 and $550 of which
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$215, $0 and $0; $0, $0 and $0; and $2,374, $976 and $128 was paid to the
Distributor, the Adviser and affiliates of the Adviser, respectively. For the
period from commencement of operations (December 27, 1995) through November 30,
1996, pursuant to the respective distribution plans for Retail Shares then in
effect, the Equity Value Fund was charged $8 of which $1, $0, and $6 was paid to
Distributor, the Adviser and affiliates of the Adviser, respectively, and the
International Equity Fund was charged $51 of which $2, $0 and $49 was paid to
the Distributor, the Adviser and affiliates of the Adviser, respectively.
For the fiscal years ended November 30, 1996, 1995 and 1994, the
Distributor and various brokers of record waived $0, $0 and $61,965 for the
Equity Fund; $0, $0 and $27,775, respectively for the U.S. Government Securities
Fund; and $0, $0 and $21,715, respectively, for the Florida Tax-Exempt Fund.
For the fiscal years ended November 30, 1996, 1995 and 1994, pursuant
to the current Combined Amended and Restated Distribution and Service Plan and
the previous distribution plans for Retail Shares then in effect, the Prime Fund
was charged $1,724,906, $1,523,956 and $902,581, of which amount $5, $154,828
and $89,233, $0, $0 and $83,701 and $681,779, $9,336 and $386,118 was earned by
the Distributor, the Adviser, and affiliates of the Adviser, respectively; the
Treasury Fund was charged $173,529, $200,869 and $142,700, of which amount $0,
$20,170 and $14,261, $0, $0 and $0 and $52,640, $339 and $27,539 was earned by
the Distributor, the Adviser and affiliates of the Adviser, respectively; and
the Tax-Exempt Fund was charged $147,695, $188,796 and $198,481, of which amount
$0, $18,722 and $19,269, $0, $0 and $0 and $55,133, $1,247 and $63,944 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 period December 1, 1995
through March 9, 1996, 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, pursuant to the respective distribution plans for
Class B Shares then in effect, the Equity Fund was charged $6,670, $16,820 and
$8,478; of which amount $4,828, $13,858 and $8,264, $0, $0 and $0, and $235,
$884 and $1 was paid to the Distributor, the Adviser and affiliates of the
Adviser, respectively, the Small Capitalization Fund was charged $7,145, $20,053
and $9,983 of which amount $5,203, $16,017 and $9,982, $0, $0 and $0, and $113,
$979 and $1 was paid to the Distributor, the Adviser and affiliates of the
Adviser, respectively; the Balanced Fund was charged $6,867, $16,107 and $5,123
of which amount $5,007, $13,242 and $5,072,
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$0, $0 and $0, and $170, $838 and 0 was paid to the Distributor, the Adviser and
affiliates of the Adviser, respectively; the Short-Term Fixed Income Fund was
charged $366, $898 and $90 of which amount $267, $766 and $73, $0, $0 and $0,
and $0, $11 and $0 was paid to the Distributor, the Adviser and affiliates of
the Adviser, respectively; the U.S. Government Securities Fund was charged
$3,907, $13,340 and $8,207 of which amount $2,837, $11,134 and $7,819, $0, $0
and $0, and $24, $572 and $1 was paid to the Distributor, the Adviser and
affiliates of the Adviser, respectively; the Managed Bond Fund was charged
$1,601, $5,219 and $1,845 of which amount $1,165, $4,288 and $1,832, $0, $0 and
$0, and $8, $226, and $0 was paid to the Distributor, the Adviser and affiliates
of the Adviser, respectively; and the Florida Tax-Exempt Fund was charged
$26,917, $76,047 and $31,280 of which amount $19,351, $62,228 and $30,051, $0,
$0 and $0, $228, $3,553, and $8 was paid to the Distributor, the Adviser and
affiliates of the Adviser, respectively. For the same time periods the
Distributor and various broker dealers waived $0, $0 and $3,982; $0, $0 and $0;
$0, $0 and $0; $0, $0 and $0; $0, $0 and $1,308; $0, $0 and $0; and $0, $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. No Class B Shares of the Equity Value and International Equity Funds
were offered during those periods or fiscal years.
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 ended November 30, 1996, pursuant to the
respective shareholder service plans then in effect for Retail and Class B
Shares, the Equity Fund was charged $62,663, of which $62,663 was paid to the
Adviser; the Small Capitalization Fund was charged $19,051, of which $19,051 was
paid to the Adviser; the Balanced Fund was charged $10,343, of which $10,343 was
paid to the Adviser; the Short-Term Fixed Income was charged $1,914, of which
$1,914 was paid to the Adviser; the U.S. Government Securities Fund was charged
$28,849, of which $28,849 was paid to the Adviser; the Managed Bond Fund was
charged $4,182, of which $4,182 was paid to the Adviser; the Florida Tax-Exempt
Fund was charged $195,393, of which $195,393 was paid to the Adviser. For the
period from commencement of operations (December 27, 1995) through November 30,
1996, pursuant to the respective shareholder service plans then in
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effect for Retail Shares, the Equity Value and International Equity Funds were
each charged $0. No Class B Shares of the Equity Value and International Equity
Funds were offered during this period.
For the fiscal year ended November 30, 1996, pursuant to the
respective shareholder service plans then in effect for Retail Shares, the Prime
Fund was charged $906,317, of which $81,237 was paid to the Distributor and
$825,080 was paid to the Adviser; the Treasury Fund was charged $71,325, of
which $10,165 was paid to the Distributor and $61,070 was paid to the Adviser;
and the Tax-Exempt Fund was charged $73,869, of which $7,315 was paid to the
Distributor and $66,554 was paid to the Adviser.
For fiscal year ended 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 respective shareholder service plans
then in effect 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, the Managed Bond Fund was
charged $2,021 and $330, of which $2,021 and $0 was paid to the prior
administrator; the Prime Fund was charged $1,523,904 and $902,581, of which
$1,523,904 and $89,233 was paid to the prior administrator; the Treasury Fund
was charged $200,689 and $142,700, of which $200,689 and $14,261 was paid to the
prior administrator; and the Tax-Exempt Fund was charged $188,796 and $198,481,
of which $188,791 and $19,269 was paid to the prior administrator.
For the same periods or fiscal year, pursuant to the respective
shareholder service plans for Class B Shares then in effect, 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. No Class B
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Shares of the Equity Value and International Equity Funds were offered during
fiscal year or period indicated.
MATTERS PERTAINING TO COMBINED DISTRIBUTION AND SERVICE PLAN FOR RETAIL SHARES
Payments for distribution expenses (but not shareholder liaison
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"). Any amendment that increased materially the
costs which Retail Shares may bear for distribution must be approved by a vote
of a majority of the outstanding Retail Shares of the Fund involved.
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
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bank were prohibited from acting as a Service Organization, changes in the
operation of the Funds might occur and a shareholder serviced by such bank might
no longer be able to avail itself of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of these occurrences.
As long as the Combined Distribution and Service Plan 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
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215, has
been selected as independent accountants for Emerald Funds for the fiscal year
ending November 30, 1997. For fiscal years ended on or before November 30,
1996, The financial statements dated November 30, 1996 which are incorporated by
reference into this Statement of Additional Information have been included in
reliance on the report of Emerald Funds' former independent accountants 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-
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<PAGE>
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 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
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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
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
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instead of the yield to maturity. In the case of tax-exempt obligations that
are issued with original issue discount but which have discounts based on
current market value that exceed the then-remaining portion of the original
issue discount (market discount), the yield to maturity is the imputed rate
based on the original issue discount calculation. On the other hand, in the
case of tax-exempt obligations that are issued with original issue discount but
which have the discounts based on current market value that are less than the
then-remaining portion of the original issue discount (market premium), the
yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Fund may elect either (i) to amortize the discount and premium on the remaining
security, based on the cost of the security, to the weighted average maturity
date, if such information is available, or to the remaining term of the
security, if any, if the weighted average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter.
The Florida Tax-Exempt Fund's "tax-equivalent" yield for a particular
share class is computed by (a) dividing the portion of the Fund's yield for a
particular class (calculated as above) that is exempt from federal income taxes
by one minus a stated federal income tax rate; and (b) adding the quotient to
that portion, if any, of such yield that is not exempt from federal income tax.
Based on the foregoing calculations, the yields for Retail Shares and
Institutional 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, 1996 were as follows:
5.36% and 5.66%, respectively, for the Short-Term Fixed Income Fund; 5.88% and
6.33%, respectively, for the U.S. Government Securities Fund; 5.49% and 5.94%,
respectively, for the Managed Bond Fund; and 4.64% and 4.94%, respectively, for
the Florida Tax-Exempt Fund.
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<PAGE>
The yields for Retail Shares and Institutional Shares for the same
period before fee waivers and expense reimbursements were 3.87% and 5.65%,
respectively, for the Short-Term Fixed Income Fund; 5.88% and 6.33%,
respectively, for the U.S. Government Securities Fund; 4.13% and 5.94%,
respectively, for the Managed Bond Fund; and 4.57% and 4.94% for the Florida
Tax-Exempt Fund.
The Florida Tax-Exempt Fund's "tax-equivalent" yields for its Retail
Shares and Institutional Shares were 7.25% and 7.72%, respectively, after fee
waivers and expense reimbursements, and 7.14% and 7.72%, respectively, before
fee waivers and expense reimbursements, for the 30-day period ended November 30,
1996 based on a federal tax rate of 36%.
TOTAL RETURN CALCULATIONS. The Equity and Fixed Income Funds compute
their average annual total returns separately for their separate share classes
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested in a particular share class to
the ending redeemable value of such investment in the class. This is done by
dividing the ending redeemable value of a hypothetical $1,000 initial payment by
$1,000 and raising the quotient to a power equal to one divided by the number of
years (or fractional portion thereof) covered by the computation and subtracting
one from the result. This calculation can be expressed as follows:
ERV
T = [(-----) 1/n - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Equity and Fixed Income Funds compute their aggregate total
returns separately for their separate share classes by determining the aggregate
rates of return during specified periods that likewise equate the initial amount
invested in a particular share class to the ending redeemable value of such
investment in the class. The formula for calculating aggregate total return is
as follows:
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ERV
aggregate total return = [(----- - 1)]
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
Based on the foregoing calculations, the average annual total returns
for Retail Shares for the twelve months ended November 30, 1996 and the period
from their respective commencement dates to November 30, 1996 were as follows:
Balanced Fund -- 14.23% and 15.09%, respectively; U.S. Government Securities
Fund -- 5.24% and 7.77%, respectively; and the Florida Tax-Exempt Fund -- 4.69%
and 7.80%, respectively. The average annual total return for Retail Shares of
the U.S. Government Fund and the Florida Tax-Exempt Fund for the five year
period ended November 30, 1996 was 6.80% and 7.61%, respectively. The aggregate
total returns for Retail Shares of the Balanced, U.S. Government Securities, and
Florida Tax-Exempt Funds, for the period from their respective commencement
dates to November 30, 1996 were 45.00%, 49.13%, and 49.33%, respectively. The
commencement dates for Retail Shares of the respective Funds were as follows:
Balanced Fund - April 11, 1994; U.S. Government Securities Fund - July 31, 1991;
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, 1996 and the
period from their respective commencement dates to November 30, 1996 were as
follows: Balanced Fund -- 14.73% and 15.20%, respectively; U.S. Government
Securities Fund -- 5.69% and 5.92%, respectively; and the Florida Tax-Exempt
Fund -- 5.09% and 5.46%, respectively. The aggregate total returns for
Institutional Shares of the Balanced, U.S. Government Securities, and Florida
Tax-Exempt Funds, for the period from their respective commencement dates to
November 30, 1996 were 45.36%, 17.18% and 15.79%, respectively. The
commencement dates for Institutional Shares of the respective Funds were as
follows: Balanced Fund - April 11, 1994; U.S. Government Securities Fund -
March 1, 1994; and Florida Tax-Exempt Fund - March 1, 1994.
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 BBTC for employee
benefit plan accounts. The Prospectuses set forth certain performance
information under
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the heading "Other 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. As of November 30, 1996, such performance was as
follows:
RETAIL SHARES
Average Annual Total Return
For the Periods Ended November 30, 1996
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Equity Fund 22.66% 17.09% 13.86% 12.04%
Small Capitalization Fund 13.83% 15.14% 19.12% N/A
Managed Bond Fund 5.51% 6.43% 7.98% N/A
Short-Term Fixed Income Fund 5.23% 5.00% 5.49% 6.77%
INSTITUTIONAL SHARES
Average Annual Total Return
For the Periods Ended November 30, 1996
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Equity Fund 23.33% 17.69% 14.21% 12.21%
Small Capitalization Fund 14.49% 15.63% 19.51% N/A
Managed Bond Fund 5.96% 6.73% 8.33% N/A
Short-Term Fixed Income Fund 5.47% 5.40% 5.90% 7.19%
The aggregate total returns of the Retail Shares and Institutional
Shares of the Equity Value Fund and International Equity Fund for the period
from their commencement of operations on December 27, 1995 to November 30, 1996
were 24.84% and 24.93%, and 13.54% and 13.47, respectively.
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.
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PERFORMANCE 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, 1996, the annualized
yields (after fee waivers) of Retail Shares in the Treasury Fund, Prime Fund and
Tax-Exempt Fund were 4.51%, 4.61% and 2.85%, respectively, the effective yields
(after fee waivers) of Retail Shares in such Funds were 4.62%, 4.72% and 2.89%,
respectively, and the tax-equivalent yield (after fee waivers) of Retail Shares
in the Tax-Exempt Fund was 4.45% (assuming a Federal income tax rate of 36%).
In addition, each Money Market Fund may quote from time to time its total return
in accordance with SEC regulations.
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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,
with respect to the approval of a Fund's Advisory or Sub-Advisory Agreement or a
change in a fundamental investment limitation, or with respect to a material
increase in the distribution costs borne by a class of Retail Shares under the
Combined Distribution and Services Plan, 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 March 5, 1997, the Adviser and its affiliated banks owned of
record substantially all of the outstanding shares of the Treasury Advantage
Institutional Fund and Prime Advantage Institutional 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 also the
beneficial owners of the following percentages of shares that were outstanding
on such date because the Adviser and its affiliates possessed voting or
investment discretion with respect to such shares: Treasury Advantage
Institutional Fund -Institutional Shares (100%), Prime Advantage Institutional
Fund -Institutional Shares (100%), Treasury Fund - Institutional Shares(93.78%),
Treasury Fund - Service Shares(100%), Prime Fund -Institutional Shares(56.66%),
Prime Fund - Service Shares(99.96%), Tax-Exempt Fund - Institutional
Shares(100%), Tax-Exempt Fund - Service Shares(80.71%), Equity Fund -
Institutional Shares(99.89%), Equity Value Fund - Institutional Shares (100%);
Small Capitalization Fund - Institutional Shares (99.97%), Balanced Fund -
Institutional Shares(98.60%), U.S. Government Securities Fund - Institutional
Shares(98.23%), Managed Bond Fund - Institutional Shares (98.79%), International
Equity Fund - Institutional Shares (100%); Short-Term Fixed Income Fund -
Institutional Shares (100%); and Florida Tax-Exempt Fund - Institutional Shares
(95.04%).
As of March 5, 1997, 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 class of a
Fund of the Trust were as follows:
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Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- --------------------------------------------------------------------------------
Equity Fund Retail University of West Florida 5.37%
Foundation
11000 University Parkway
Pensacola, FL 32514-5750
Equity Value Fund Institutional First Union National Bank 7.39%
Trst J. Ball Dupont
401 S. Tyron St.
Charlotte, NC 28288
Equity Value Fund Retail National Financial Services 67.42%
Corporation for the Exclusive
Benefit of Our Customers
200 Liberty Street
New York, NY 10281-1003
Willis E. Alford and 30.81%
Jewel D. Alford JTWROS
1676 Nassau Circle
Tavares, FL 32778
International Retail National Financial Services 5.91%
Equity Fund Corporation for the Exclusive
Benefit of Our Customers
Kendall Goodrich
2871 N. Ocean Blvd 412
Boca Raton, FL 33431
International Retail National Financial Services 7.65%
Equity Fund Corporation for the Exclusive
Benefit of Our Customers
Edward A. Fernandez and
Marguerite P. Fernandez
Ten Ent. 61112 No.
Florida Avenue
Tampa, FL 33604
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Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- --------------------------------------------------------------------------------
International Retail Harvey R. Holding 13.80%
Equity Fund 189 Laurel Ln.
Ponte Verde Beach,
FL 32082
Short-Term Fixed Retail National Financial Services 6.74%
Income Fund Corporation for the Exclusive
Benefit of Our Customers/FBO
John W. Selby
2888 La Concha Dr.
Clearwater, FL 34622
Short-Term Fixed Retail National Financial Services 20.74%
Income Fund Corporation for the Exclusive
Benefit of Our Customers/
Barbara Owens Hart
415 Eunice
Lakeland, FL 33803
National Financial Services 9.58%
Corporation for the Exclusive
Benefit of Our Customers/FBO
George A. Zellner
530 Park St.
Jacksonville, FL 32204
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Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- --------------------------------------------------------------------------------
U.S. Government Retail Barnett Bank & Trust Company 12.63%
Securities Fund N.A.
Customer Capital Network
Services
P.O. Box 40200
Jacksonville, FL 32203-0200
National Financial Services 53.29%
Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
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Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- --------------------------------------------------------------------------------
Managed Bond Fund Retail National Financial Services 5.11%
Corporation for the Exclusive
Benefit of Our Customers and
Susan A. Fairbank
Fairbank Rev. Trust
85 N. Pizarro Pt.
Lecanto, FL 34461
National Financial Services 6.58%
Corporation for the Exclusive
Benefit of Our Customers/FBO
Robert White
3101 Riverview Blvd.
Bradenton, FL 34205
National Financial Services 5.13%
Corporation for the Exclusive
Benefit of Our Customers/
Charles A. and Lillian K. Berls
Rev. Tr.
17371 SW 25th Terr Rd.
Ocala, FL 34473
Florida Tax-Exempt Retail National Financial Services 62.27%
Fund Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Prime Fund Retail National Financial Services 99.34%
Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
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Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- --------------------------------------------------------------------------------
Treasury Fund Retail National Financial Services 99.90%
Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Tax-Exempt Fund Retail National Financial Services 99.36%
Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Treasury Fund Institutional Wilmington Trust Company 6.17%
Attn: Margaret Wilhelm
Mutual Funds
1100 N. Market St.
Wilmington, DE 19890
Treasury Fund Service Hare & Co. _____%
Attn: Frank Nataro
Attn: STIF/Master Note
One Wall Street, 5th Floor
New York, NY 10286
Prime Fund Institutional Wilmington Trust Company 43.20%
Attn: Margaret Wilhelm
Mutual Funds
1100 N. Market St.
Wilmington, DE 19890
Tax-Exempt Fund Service Capital Network Services 17.60%
Attn: Donna M. Howell
One Bush Street, 11th Floor
San Francisco, CA 94104-4425
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.
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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, the former independent auditors for Emerald Funds, contained in
the Funds' annual report to shareholders for the fiscal year ended November 30,
1996 (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 43218-2697 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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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.
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"Prime-2" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty 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.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
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factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-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 generally 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" ratings.
"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
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year or less which are 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 which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - 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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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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"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" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating 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. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that 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.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
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
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principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
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Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the 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
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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.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to"BBB" 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, such that 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.
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<PAGE>
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" 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 extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to 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
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characteristics regarding the likelihood of timely payment of principal and
interest. "BB" indicates the lowest degree of speculation and "CC" the highest
degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades.
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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.
Fitch and Duff & Phelps use 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 securities markets pending investment of purchase orders or while
maintaining liquidity to meet potential shareholder redemptions and for other
hedging and investment 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 might 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 might engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term 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 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 might engage in an
interest rate futures contract purchase when it is not fully invested in long-
term bonds but wishes to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter-
term securities whose yields are greater than those available on long-term
bonds. 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 a
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 Fund pays for the long-term bond would be
offset
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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
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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).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Equity Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is,
market value decreased and a Fund had entered into an anticipatory purchase
hedge, or market value increased and a Fund had hedged its stock portfolio, the
results of the Fund's transactions in stock index futures would be as set forth
below.
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<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 a 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
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Fund's custodian an amount of liquid assets, 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. 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 a hedge. The price of the future may move more than or less than
the price of the securities being hedged. If the price of the future moves less
than the price of the securities which are the subject of the hedge, the hedge
will not be fully effective but, if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, this advantage will be partially offset by the
loss on the future. If the price of the future moves more than the price of the
hedged securities, the Fund will experience either a loss or gain on the future
which will not be completely offset by movements in the price of the securities
which are the subject of the hedge. To compensate for the imperfect correlation
of movements in the price of
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<PAGE>
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 liquid assets, 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 any
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the
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<PAGE>
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 normally not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of fluctuation
in a futures contract price during a single trading day. Once the daily limit
has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund is also subject to the adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to
sell securities at a time when it may be disadvantageous to do so.
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<PAGE>
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 TRANSACTIONS
A Fund is authorized to enter into 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 and other investment strategies if, in the judgment of the
adviser, transactions therein are necessary or advisable.
VIII. ACCOUNTING AND TAX TREATMENT.
Accounting for futures contracts and related options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by
a Fund at the close of the Fund's taxable year will be treated for federal
income tax purposes as sold for their
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<PAGE>
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 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
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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 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
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<PAGE>
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, increases and
decreases in the value of a Fund's futures contracts and other investments that
qualify as part of a "designated hedge," as defined in the Code, may be netted.
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<PAGE>
EMERALD FUNDS
Statement of Additional Information
for the
*Treasury Advantage Institutional Fund*
*Prime Advantage Institutional Fund*
(Previously called the "Treasury Trust Fund" and
"Prime Trust Fund")
April 1, 1997
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ADDITIONAL INFORMATION ON PERFORMANCE. . . . . . . . . . . . . . . . . . . . 31
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
This Statement of Additional Information is meant to be read in
conjunction with Emerald Funds' Prospectus dated April 1, 1997 for the Treasury
Advantage Institutional Fund and Prime Advantage Institutional 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 either 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 Advantage Institutional Fund and the Prime Advantage Institutional 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 Advantage Institutional Fund and the Prime Advantage Institutional 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, Barnett
Capital Advisors, Inc. (the "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 Adviser will normally deal
directly with dealers who make a market in the instruments involved except in
those circumstances where more favorable prices and execution are available
elsewhere.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage
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<PAGE>
in this practice, however, only when the 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 Advisory Agreement with respect to the Funds, the 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 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 Advisory Agreement authorizes the 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
Adviser determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Adviser to the 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 Adviser and does not
reduce the sub-advisory fees payable to it by the Funds. The Trustees will
periodically review the commissions paid by the Funds to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Funds. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
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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 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 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, to take into account the
sale of Fund shares if the 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 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.
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 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 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 pursuant to
guidelines established by the Board, 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 Commission. In addition, it is possible that
unregistered securities purchased by a Fund in reliance upon Rule 144A under the
Securities Act of
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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.
7. Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in
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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 Advantage Institutional 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 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
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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.
As stated in the Prospectus under "Investment Principles and
Policies," securities subject to unconditional demand features acquired by the
Prime Advantage Institutional Fund must satisfy special SEC diversification
requirements. In particular, a security that has an unconditional demand
feature (as defined by SEC regulations) which is issued by a person that,
directly or indirectly, does not control, and is not controlled by or under
common control with, the issuer of the security (an "Unconditional Demand
Feature") is subject to the following diversification requirements: Immediately
after the acquisition of the security, the Prime Advantage Institutional Fund
may not have invested more than 10% of its total assets in securities issued by
or subject to Unconditional Demand Features from the same person, except that
the Prime Advantage Institutional Fund may invest up to 25% of its total assets
in securities subject to
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Unconditional Demand Features of persons that are rated in the highest rating
category as determined by two NRSROs (or one NRSRO if the security is rated
by only one NRSRO).
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 having a value equal to or greater than the repurchase
price (including accrued interest), and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by a Fund may decline below
the price of the securities it is obligated to repurchase. Reverse repurchase
agreements are considered to be borrowings under the Investment Company Act of
1940. Each Fund intends to limit its borrowings (including reverse repurchase
agreements), during the next 12 months to not more than 5% of its net assets.
VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that may be
acquired by the Funds as described in the Prospectus, the 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 are U.S. Government
obligations or carry demand features that comply with conditions established by
the Securities and Exchange Commission. These demand features 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.
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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.
LENDING SECURITIES
When the Treasury Advantage Institutional Fund or the Prime Advantage
Institutional 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 obligations or additionally, in the case of the Prime
Advantage Institutional Fund, an irrevocable letter of credit issued by a bank
that meets the credit standards of the Prime Advantage Institutional Fund.
Collateral for the Treasury Advantage Institutional Fund is limited to cash and
U.S. Government obligations. 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
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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 Advantage Institutional Fund include, in addition to U.S. Treasury
bonds, notes and bills, the obligations of Federal Home Loan Banks, Federal Farm
Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Federal National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Resolution Funding Corporation and Maritime Administration. U.S. Government
obligations also include U.S. Government-backed trusts that hold obligations of
foreign governments and are guaranteed or backed by the full faith and credit of
the United States. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the Government National Mortgage Association,
are supported by the full faith and credit of the U.S. Treasury; others, such as
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
ASSET-BACKED SECURITIES
The Prime Advantage Institutional 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.
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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.
MUNICIPAL OBLIGATIONS
Assets of the Prime Advantage Institutional 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
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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.
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 Advantage Institutional 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. The
Adviser, 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 Advantage
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Institutional 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 Advantage Institutional 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 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.
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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
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 Advantage Institutional Fund and Prime Advantage
Institutional 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
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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.
PARTICIPATION INTERESTS AND TRUST RECEIPTS
The Prime Advantage Institutional 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
Advantage Institutional Fund may invest pursuant to guidelines approved by the
Board of Trustees. For certain participation interests or trust receipts the
Prime Advantage Institutional 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 Advantage Institutional Fund will not purchase any such annuities. GICs
acquired by the Prime Advantage Institutional 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 Advantage
Institutional 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 Advantage Institutional 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,
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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 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,
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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 Prospectus, except as noted below,
shares of the Treasury Advantage Institutional Fund and the Prime Advantage
Institutional Fund are sold only to Barnett Bank, N.A. and its affiliates
("Barnett") acting on their own behalf or on behalf of their customer accounts
(except employee benefit plan accounts) that invest at least $1 million in a
Fund. This minimum investment amount does not apply to customer accounts that
owned Fund shares on November 30, 1996. In addition, Fund shares are sold to
institutional investors, other than Barnett, that invest at least $1 million in
a Fund.
-16-
<PAGE>
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 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 twenty-nine classes of shares. Two of these classes represent
interests in the Treasury Advantage Institutional Fund and the Prime Advantage
Institutional 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 Advantage Institutional Fund and the Prime
Advantage Institutional Fund has a par value of $.001, represents an equal
proportionate interest in the
-17-
<PAGE>
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.
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
-18-
<PAGE>
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 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 Advantage
Institutional Fund or the Prime Advantage Institutional 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,
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<PAGE>
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. 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.
-20-
<PAGE>
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 back-up 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:
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- -----------------------------
Marshall M. Criser* Chairman of the Chairman of the law firm of
3400 Barnett Center Board of Trustees Mahoney Adams & Criser, P.A.,
50 N. Laura Street 1989 to date; Director of
Jacksonville, FL 32201 BellSouth Corp., Barnett
Age 68 Banks, Inc., FPL Group, Inc.,
Perini Corp., Flagler System,
Inc., and Shands Hospital;
Chairman and Director of CSR
America Inc; Trustee,
University of Florida
Foundation.
Raynor E. Bowditch Trustee President, Bowditch
4811 Beach Blvd. Insurance Corporation (a
Suite 105 general lines independent
Jacksonville, FL 33207 agency); Director, General
Age 63 Truck Equipment and Trailer Sales;
Director, Greater Jacksonville Fair
Association.
-21-
<PAGE>
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
Law School to present; Dean in Residence,
1311 Miller Drive Association of American Law
Coral Gables, FL 33124 Schools, 1994 to 1995; Dean,
Age 53 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 66 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 Grimsley Marker & Iseley,
Suite 3300 P.A., 1996 to date; Member
Jacksonville, FL 32202 of the law firm of Mahoney
Age 58 Adams & Criser, P.A., from
1966 to 1996.
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 58 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.
-22-
<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- -----------------------------
Hugh Fanning Vice President Vice President, Emerald
BISYS Fund Services Asset Management, Inc.,
3435 Stelzer Road October 1996 to present;
Columbus, OH 43219-3035 Employee of BISYS Fund
Age 43 Services, Inc., August 1992 to
present; Director of Marketing,
Ketchum 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 50
Martin R. Dean Vice President 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 LLP prior
Age 33 thereto.
Thomas E. Line Treasurer Employee of BISYS Fund
BISYS Fund Services Services, Inc., December 1996
3435 Stelzer Road to present; Senior Manager at
Columbus, OH 43219-3035 KPMG Peat Marwick LLP
Age 29 prior thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
Philadelphia National Reath (law firm).
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 46
George O. 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 37 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 37
-23-
<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- -----------------------------
Robert L. 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 45 August 1995 to present; Vice
President and Associate General
Counsel with National
Securities Research Corp., July
1990 to June 1991.
Alaina V. 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 29 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.
------------------------------
Effective March 1, 1997, each Trustee receives an annual fee of
$15,000 plus $2,000 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 $5,000 for service in such
capacities. On a case-by-case basis, the Board of Trustees also may approve
additional compensation for any Trustee who serves on a special committee
appointed by the Board or the Chairman or for any Trustee who is assigned to a
special project approved by the Board or the Chairman.
Remuneration for services rendered during Emerald Funds' fiscal year
ended November 30, 1996 and distributed to all Trustees and officers as a group
was $131,500. Drinker Biddle & Reath, of which Mr. Dalke is a partner, receives
legal fees as counsel to Emerald Funds. As of March 5, 1997, 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 the fiscal year ended November 30,
1996 for their services as members of the Board of Trustees and Committees
thereof.
-24-
<PAGE>
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM
PENSION OR EMERALD
AGGREGATE RETIREMENT ESTIMATED FUNDS
COMPENSATION BENEFITS ANNUAL AND FUND
FROM THE ACCRUED AS BENEFITS COMPLEX* PAID
NAME OF PERSON EMERALD PART OF FUND UPON TO
AND POSITION FUNDS EXPENSES RETIREMENT TRUSTEES
------------- -------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Chesterfield H. Smith $25,000 N/A N/A $25,000
Former Chairman of
the Board of
Trustees**
Marshall M. Criser N/A N/A N/A N/A
Chairman of the
Board of
Trustees***
John G. Grimsley $25,000 N/A N/A $25,000
President and Trustee
Raynor E. Bowditch $21,500 N/A N/A $21,500
Trustee
Mary Doyle $26,500 N/A N/A $26,500
Trustee
Albert D. Ernest $23,500 N/A N/A $23,500
Trustee
Harvey R.Holding**** $10,000 N/A N/A $10,000
Trustee
</TABLE>
______________________________
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Smith resigned as a member of the Board of Trustees of Emerald Funds,
effective February 15, 1997.
*** Mr. Criser was appointed Trustee and Chairman of the Board of Emerald Funds
effective upon the resignation of Mr. Smith on February 15, 1997.
**** 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
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<PAGE>
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 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. As of December 1, 1996, the Adviser assumed
sole advisory responsibility for the Funds under a new agreement, and Rodney
Square Management Corporation ("Rodney Square"), a wholly-owned subsidiary of
Wilmington Trust Company, which served as the Funds' former sub-investment
adviser, ceased to provide sub-investment advisory services to the Funds.
In its Investment Advisory Agreement, the Adviser has agreed to
provide the services described in the Prospectus and to pay all expenses it
incurs in connection with its 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.
-26-
<PAGE>
For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, Emerald Funds has agreed to pay the Adviser fees,
computed daily and paid monthly, at the annual rate of .10% of the average net
assets of each Fund. The fees payable to the Adviser are not subject to
reduction as the value of each Fund's net assets increases. From time to time,
however, the Adviser may waive fees or reimburse the Funds for expenses
voluntarily. 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 with respect to the Funds. For the
fiscal years ended November 30, 1996, 1995 and 1994 Rodney Square was entitled
to receive sub-advisory fees from the Funds at the contractual annual rate of
.15% of the average net assets of each Fund. During these three fiscal years
Rodney Square received (net of waivers and reimbursements) sub-advisory fees
totalling $214,144, $212,078 and $194,762, respectively, for the Treasury
Advantage Institutional Fund and $192,134, $173,413 and $162,403, respectively,
for the Prime Advantage Institutional Fund. For the fiscal years ended
November 30, 1996 and 1995, Rodney Square reimbursed sub-advisory fees totalling
$1,488 and $32,074 for the Prime Advantage Institutional Fund and $2,446 and
$32,055 for the Treasury Advantage Institutional Fund. For the fiscal years
ended November 30, 1994, Rodney Square waived sub-advisory fees totalling
$28,256 for the Treasury Advantage Institutional Fund and $25,863 for the Prime
Advantage Institutional Fund.
Under the Investment Advisory Agreement, the Adviser is 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 the Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser in the performance of its duties
or from its reckless disregard of its duties and obligations under the
Agreement.
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
-27-
<PAGE>
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 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 may 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 that future changes in either federal or state statutes and
regulations relating to the permissible activities of banks and 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 from continuing to perform such services
for the Funds. If the Adviser were prohibited from continuing to perform
advisory services for the Funds, it is expected that the Board of Trustees would
recommend that the Funds enter into another agreement or would consider the
possible termination of the Funds. Any new advisory agreement would be subject
to shareholder approval.
On the other hand, as described herein, Emerald Funds is 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
-28-
<PAGE>
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 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
voluntarily.
Prior to April 1, 1996, Concord Holding Corporation, the Trust's prior
administrator which was acquired by The BISYS Group, Inc. in 1995, received
administration fees under administration agreements then in effect for the Funds
which
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<PAGE>
provided for different administration fee rates than those currently in
effect.
For the fiscal years ended November 30, 1996, 1995 and 1994, the
Administrator and prior administrator received (net of waivers and
reimbursements) administration fees totalling $147,230, $212,078 and $194,762,
respectively, for the Treasury Advantage Institutional Fund and $127,899,
$173,413 and $162,403, respectively, for the Prime Advantage Institutional Fund.
For the fiscal year ended November 30, 1996, the Administrator and prior
administrator reimbursed no administration fees for the Funds. For the fiscal
years ended November 30, 1995 and 1994, the prior administrator reimbursed
administration fees totalling $32,055 and $28,256 respectively, for the Treasury
Advantage Institutional Fund and $32,074 and $25,863, respectively, for the
Prime Advantage Institutional Fund.
The administration agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
Emerald Funds in connection with the performance of the administration
agreement, except a loss resulting from willful misfeasance, bad faith or
negligence in the performance of its duties or from the reckless disregard by it
of its obligations and duties thereunder.
CUSTODIAN AND TRANSFER AGENT
Emerald Funds has appointed The Bank of New York, 90 Washington
Street, New York, New York 10286 as custodian for the Funds. BISYS Fund
Services, Inc., 100 First Avenue, Suite 300, Pittsburgh, PA 15222 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, the Administrator or any of their affiliates; Securities and Exchange
Commission fees; state securities 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
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
has been selected as independent accountants for Emerald Funds for the fiscal
year ending November 30, 1997. The financial statements dated November 30, 1996
which are incorporated by reference into this Statement of Additional
Information have been included in reliance on the report of Emerald Funds'
former independent accountants given on the authority of said firm as experts in
auditing and accounting.
COUNSEL
Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107, are counsel to Emerald Funds
and will pass upon the legality of the shares offered by the Prospectus.
ADDITIONAL INFORMATION ON PERFORMANCE
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 or other
financial intermediaries on their customers for cash management services are not
reflected in Emerald Funds' calculations of yields for the Funds.
-31-
<PAGE>
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, 1996,
the annualized yields of the Treasury Advantage Institutional Fund and Prime
Advantage Institutional Fund were 5.09% and 5.22%, respectively, and the
effective yields of such Funds were 5.22% and 5.35%, respectively.
In addition, each of the Funds may quote from time to time its total
return in accordance with SEC regulations. From time to time, the Funds may
also 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, with
respect to the approval of an investment advisory agreement or a change in a
fundamental policy, 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 March 5, 1997, the Adviser and its affiliated banks owned of
record substantially all of the outstanding shares of the Treasury Advantage
Institutional Fund and Prime Advantage Institutional 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 also the
beneficial owners of the following percentages of shares that were
outstanding on such date because the Adviser and its affiliates possessed
voting or investment discretion with respect to such shares: Treasury
Advantage Institutional Fund - Institutional Shares (100%), Prime Advantage
Institutional Fund - Institutional Shares (100%), Treasury Fund -
Institutional Shares (93.78%), Treasury Fund - Service Shares (100%), Prime
Fund - Institutional Shares (56.66%), Prime Fund - Service Shares (99.96%),
Tax-Exempt Fund - Institutional Shares (100%), Tax-Exempt Fund - Service
Shares (80.71%), Equity Fund -
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<PAGE>
Institutional Shares (99.89%), Equity Value Fund - Institutional Shares
(100%); Small Capitalization Fund - Institutional Shares (99.97%), Balanced
Fund -Institutional Shares (98.60%), U.S. Government Securities Fund -
Institutional Shares (98.23%), Managed Bond Fund - Institutional Shares
(98.79%), International Equity Fund - Institutional Shares (100%); Short-Term
Fixed Income Fund - Institutional Shares (100%); and Florida Tax-Exempt Fund
- - Institutional Shares (95.04%).
As of March 5, 1997, 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 class of a
Fund of the Trust were as follows:
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ----------
Equity Fund Retail University of West Florida 5.37%
Foundation
11000 University Parkway
Pensacola, FL 32514-5750
Equity Value Institutional First Union National Bank 7.39%
Fund Trst J. Ball Dupont
401 S. Tyron St.
Charlotte, NC 28288
Equity Value Retail National Financial Services 67.42%
Fund Corporation for the Exclusive
Benefit of Our Customers
200 Liberty Street
New York, NY 10281-1003
Willis E. Alford and 30.81%
Jewel D. Alford JTWROS
1676 Nassau Circle
Tavares, FL 32778
International Retail National FinancialServices 5.91%
Equity Corporation for the Exclusive
Fund Benefit of Our Customers
Kendall Goodrich
2871 N. Ocean Blvd 412
Boca Raton, FL 33431
International Retail National Financial Services 7.65%
Equity Corporation for the Exclusive
Fund Benefit of Our Customers
Edward A. Fernandez and
Marguerite P. Fernandez
Ten Ent.
61112 No. Florida Avenue
Tampa, FL 33604
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ----------
International Retail Harvey R. Holding 13.80%
Equity 189 Laurel Ln.
Fund Ponte Verde Beach, FL 32082
Short-Term Retail National Financial Services 6.74%
Fixed Corporation for the Exclusive
Income Fund Benefit of Our Customers/FBO
John W. Selby
2888 La Concha Dr.
Clearwater, FL 34622
Short-Term Retail National Financial Services 20.74%
Fixed Corporation for the Exclusive
Income Fund Benefit of Our Customers/
Barbara Owens Hart
415 Eunice
Lakeland, FL 33803
National Financial Services 9.58%
Corporation for the Exclusive
Benefit of Our Customers/FBO
George A. Zellner
530 Park St.
Jacksonville, FL 32204
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<PAGE>
U.S. Retail Barnett Bank & Trust Company 12.63%
Government N.A.
Securities Fund Customer Capital Network
Services
P.O. Box 40200
Jacksonville, FL 32203-0200
National Financial Services 53.29%
Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
-36-
<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ----------
Managed Bond Retail National Financial Services 5.11%
Fund Corporation for the
Exclusive
Benefit of Our Customers and
Susan A. Fairbank
Fairbank Rev. Trust
85 N. Pizarro Pt.
Lecanto, FL 34461
National Financial Services 6.58%
Corporation for the
Exclusive
Benefit of Our Customers/FBO
Robert White
3101 Riverview Blvd.
Bradenton, FL 34205
National Financial Services 5.13%
Corporation for the
Exclusive
Benefit of Our Customers/
Charles A. and Lillian K. Berls
Rev. Tr.
17371 SW 25th Terr Rd.
Ocala, FL 34473
Florida Retail National Financial Services 62.27%
Tax-Exempt Corporation for the
Fund Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Prime Fund Retail National Financial Services 99.34%
Corporation for the
Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ----------
Treasury Retail National Financial Services 99.90%
Fund Corporation for the
Exclusive Benefit of
Our Customers
P.O. Box 3908
Chruch Street Station
New York, NY 10008
Tax-Exempt Retail National Financial Services 99.36%
Fund Corporation for the
Exclusive Benefit of
Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Treasury Institutional Wilmington Trust Company 6.17%
Fund Attn: Margaret Wilhelm
Mutual Funds
1100 N. Market St.
Wilmington, DE 19890
Prime Fund Institutional Wilmington Trust Company 43.20%
Attn: Margaret Wilhelm
Mutual Funds
1100 N. Market St.
Wilmington, DE 19890
Tax-Exempt Service Capital Network Services 17.60%
Fund Attn: Donna M. Howell
One Bush Street, 11th Floor
San Francisco, CA
94104-4425
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.
-38-
<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, the former independent auditors for Emerald Funds, contained in
the Funds' annual report to shareholders for the fiscal year ended November 30,
1996 (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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are"D-1,""D-2" and"D-3." Duff & Phelps
employs three designations, "D-1+,""D-1" and"D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty 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.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
"D-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.
"D-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 generally 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" ratings.
"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
A-3
<PAGE>
year or less which are 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 which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - 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.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating 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. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that 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.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
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
A-6
<PAGE>
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the 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
A-8
<PAGE>
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.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to"BBB" 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, such that 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.
A-9
<PAGE>
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" 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 extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to 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
A-10
<PAGE>
characteristics regarding the likelihood of timely payment of principal and
interest. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades.
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<PAGE>
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.
Fitch and Duff & Phelps use 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, 1997
TABLE OF CONTENTS
Page
----
EMERALD FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . 1
NET ASSET VALUE AND DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . 18
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . . 23
MANAGEMENT OF EMERALD FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 26
INDEPENDENT ACCOUNTANTS/EXPERTS. . . . . . . . . . . . . . . . . . . . . . . 38
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ADDITIONAL INFORMATION ON PERFORMANCE. . . . . . . . . . . . . . . . . . . . 38
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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, 1997 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 the Sub-Adviser for the Tax-Exempt Fund, will normally deal
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<PAGE>
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 performed by the Adviser (and
Sub-Adviser) and does not reduce the advisory fees payable to the Adviser by
the Funds. The Trustees
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<PAGE>
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 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
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<PAGE>
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 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
-4-
<PAGE>
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 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)
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<PAGE>
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.
In addition, as summarized in to Prospectus, the Tax-Exempt Fund must:
12. Invest at least 80% of its net assets in securities the interest
on which is exempt from federal income tax, except during defensive periods or
during periods of unusual market conditions. For the purposes of this
fundamental policy, municipal obligations that are treated as a specific tax
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<PAGE>
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.
As stated in the Prospectus under "Investment Principles and
Policies," securities subject to unconditional demand features acquired by the
Prime Fund must satisfy special SEC diversification requirements. In
particular, a security that has an unconditional demand feature (as defined by
SEC regulations) which is issued by a person that, directly or indirectly, does
not control, and is not controlled by or under common control with, the issuer
of the security (an "Unconditional Demand Feature") is subject to the following
diversification requirements: Immediately after the acquisition of the
security, the Prime Fund may not have invested more than 10% of its total assets
in securities issued by or subject to Unconditional Demand Features from the
same person, except that the Prime Fund may invest up to 25% of its total assets
in securities subject to Unconditional Demand Features of persons that are rated
in the highest rating category as determined by two NRSROs (or one NRSRO if the
security is rated by only one NRSRO).
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 having a value equal to or greater
than the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price of the securities it is
obligated to repurchase. Reverse repurchase agreements are considered to be
borrowings under the Investment Company Act of 1940. Each Fund intends to
limit its borrowings (including reverse repurchase agreements), during the
next 12 months to not more than 5% of its net assets.
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<PAGE>
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.
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
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<PAGE>
the investment is to occur. Portfolio loans will be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may
include cash or U.S. Government Securities or additionally, in the case of
the Prime Fund, securities of U.S. Government agencies or instrumentalities
or an irrevocable letter of credit issued by a bank that meets the credit
standards of the Prime Fund. Collateral for the Treasury Fund is limited to
cash and U.S. Government Securities. There maybe risks of delay in
recovering additional collateral or in recovering the securities loaned or
even a loss of rights in the collateral should the borrower of the securities
fail financially.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may invest
in securities issued by other investment companies within the limits prescribed
by the Investment Company Act of 1940. Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
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,
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,
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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 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
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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.
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
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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.
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
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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 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
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
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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
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
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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. 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
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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 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.
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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 attributed to a class, subtracting the Fund's
liabilities attributed 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 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
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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 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
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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 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 twenty-nine 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
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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 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
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than 50% of Emerald Funds' outstanding shares (irrespective of Fund or class)
may elect all Trustees.
Shares have no preemptive rights and only such conversion and exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
nonassessable by Emerald Funds.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. If such should
occur, the Trustees then in office will call a shareholders meeting for the
election of Trustees. Except as set forth above, the Trustees shall continue to
hold office and may appoint successor Trustees. The Agreement and Declaration
of Trust provides that meetings of the shareholders of Emerald Funds shall be
called by the Trustees upon the written request of shareholders owning at least
10% of the outstanding shares entitled to vote.
Emerald Funds' Agreement and Declaration of Trust authorizes the Board
of Trustees, without shareholder approval (unless otherwise required by
applicable law), to: (a) sell and convey the assets belonging to a Fund to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of such Fund to be redeemed at a price which is equal to
their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the 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
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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,
1996, 1995 and 1994, payments to Service Organizations pursuant to the
Service Plan totalled $2,071,921, $1,898,193 and $1,678,991, respectively,
with respect to Service Shares of the Treasury Fund; $3,099,982, $2,814,354
and $2,409,889, respectively, with respect to Service Shares of the Prime
Fund; and $9,856, $10,478 and $9,468, 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 $2,071,921; $0 $0 and $1,898,193; and $0, $0 and
$1,678,991, respectively, for the fiscal years ended November 30, 1996, 1995
and 1994 with respect to Service Shares of the Treasury Fund; $0, $0 and
$3,099,982; $0, $0 and $2,814,354; $0, $0 and $2,409,889, respectively, for
the fiscal years ended November 30, 1996, 1995 and 1994 with respect to
Service Shares of the Prime Fund; and $0, $0 and $0; $9,856, $0 and $0; and
$0, $0 and $0, respectively, for the fiscal years ended November 30, 1996,
1995 and 1994 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; (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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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.
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
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<PAGE>
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 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:
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
Marshall M. Criser* Chairman of Chairman of the law firm of
3400 Barnett Center the Board Mahoney Adams & Criser, P.A.
50 N. Laura Street of Trustees 1989 to date; Director of
Jacksonville, FL 32201 BellSouth Corp., Barnett
Age 68 Banks, Inc., FPL Group Inc.,
Perini Corp., Flagler System,
Inc., and Shands Hospital;
Chairman and Director of CSR
America Inc.; Trustee,
University of Florida
Foundation.
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<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
Raynor E. Bowditch Trustee President, Bowditch
4811 Beach Blvd. Insurance Corporation (a
Suite 105 general lines independent
Jacksonville, FL 33207 agency); Director, General
Age 63 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 1995; Dean,
Age 53 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 66 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 Grimsley Marker & Iseley,
Suite 3300 P.A., 1996 to date; Member
Jacksonville, FL 32202 of the law firm of Mahoney
Age 58 Adams & Criser, P.A. from
1966 to 1996.
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 58 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 Vice President, Emerald
BISYS Fund Services Asset Management, Inc.,
3435 Stelzer Road October 1996 to present;
Columbus, OH 43219-3035 Employee of BISYS Fund
Age 43 Services, Inc., August 1992
to present; Director of
Marketing, Ketchum
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 50
Martin R. Dean Vice President 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 LLP
Age 33 prior thereto.
Thomas E. Line Treasurer Employee of BISYS Fund
BISYS Fund Services Services, Inc., December
3435 Stelzer Road 1996 to present; Senior
Columbus, OH 43219-3035 Manager at KPMG Peat
Age 29 Marwick LLP prior thereto.
Jeffrey A. Dalke Secretary Partner, Drinker Biddle &
Philadelphia National Reath (law firm).
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 46
George O. 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 37 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 37
Robert L. Tuch Assistant Employee of BISYS Fund
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<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
BISYS Fund Services Secretary Services, Inc., June 1991 to
3435 Stelzer Road present; Assistant Secretary,
Columbus, OH 43219-3035 Emerald Asset Management,
Age 45 Inc., August 1995 to present;
Vice President and Associate
General Counsel with National
Securities Research Corp.,
July 1990 to June 1991.
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<PAGE>
Principal
Position with Occupations During Past 5
Name and Address Emerald Funds Years and Other Affiliations
- ---------------- ------------- ----------------------------
Alaina V. 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 29 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.
----------------------------------
Effective March 1, 1997, each Trustee receives an annual fee of $15,000
plus $2,000 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 $5,000 for service in such capacities.
On a case-by-case basis, the Board of Trustees also may approve additional
compensation for any Trustee who serves on a special committee appointed by the
Board of the Chairman or for any Trustee who is assigned to a special project
approved by the Board or the Chairman.
Remuneration for services rendered during Emerald Funds' most recent
fiscal year ended November 30, 1996, and distributed to all Trustees and
officers as a group was $131,500. Drinker Biddle & Reath, of which Mr. Dalke
is a partner, receives legal fees as counsel to Emerald Funds. As of March 5,
1997, 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 for the fiscal year ended November 30,
1996.
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<PAGE>
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM
PENSION OR EMERALD
AGGREGATE RETIREMENT ESTIMATED FUNDS
COMPENSATION BENEFITS ANNUAL AND FUND
FROM THE ACCRUED AS BENEFITS COMPLEX* PAID
EMERALD PART OF FUND UPON TO
NAME OF PERSON POSITION FUNDS EXPENSES RETUREMENT TRUSTEES
<S> <C> <C> <C> <C>
Chesterfield H. Smith $25,000 N/A N/A $25,000
Former Chairman of
the Board of
Trustees**
Marshall M. Criser N/A N/A N/A N/A
Chairman of the
Board of
Trustees***
John G. Grimsley $25,000 N/A N/A $25,000
President and
Trustee
Raynor E. Bowditch $21,500 N/A N/A $21,500
Trustee
Mary Doyle $26,500 N/A N/A $26,500
Trustee
Albert D. Ernest $23,500 N/A N/A $23,500
Trustee
Harvey R. Holding**** $10,000 N/A N/A $10,000
</TABLE>
- ----------------------------
* The "Fund Complex" consists solely of Emerald Funds.
** Mr. Smith resigned as a member of the Board of Trustees of Emerald Funds,
effective February 15, 1997.
*** Mr. Criser was appointed Trustee and Chairman of the Board of Emerald Funds
effective upon the resignation of Mr. Smith on February 15, 1997.
*** 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
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<PAGE>
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 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
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<PAGE>
the services provided and expenses assumed pursuant to the advisory
agreements, Emerald Funds has agreed to pay the Adviser fees, computed daily
and paid monthly, at the annual rate of .25% of the average net assets of
each Fund. Under the terms of the agreements, the fees payable to the
Adviser are not subject to reduction as the value of each Fund's net assets
increases; however, the Adviser has informed Emerald Funds of its intention
to reduce the annual rate of its advisory fees with respect to the Treasury
Fund and the Prime Fund to the following rates: .25% of the first $600
million of each Fund's net assets; .23% of 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 year ended November 30,
1996, the Adviser and BBTC received (net of waivers) advisory fees totalling
$2,164,868 for the Treasury Fund; $4,226,587 for the Prime Fund; and $292,524
for the Tax-Exempt Fund. Of the advisory fee received by the Adviser and BBTC
with respect to the Tax-Exempt Fund for the fiscal year ended November 30, 1996,
the entire fee was paid to the Sub-Adviser, Rodney Square. In addition, the
Adviser and BBTC waived advisory fees and reimbursed expenses in the amount of
$195,132 and Rodney Square waived advisory fees and reimbursed expenses in the
amount of $26,640 with respect to the Tax-Exempt Fund for the fiscal year ended
November 30, 1996. For the fiscal year ended November 30, 1996, the Adviser and
BBTC waived advisory fees and reimbursed expenses in the amount of $963,441 and
$97,600 for the Prime Fund and Treasury Fund, respectively. For the fiscal
years ended November 30, 1995 and 1994, BBTC received (net of waivers) advisory
fees totalling $1,914,250 and $2,231,677, respectively, for the Treasury Fund;
$3,677,324 and $3,243,600, respectively, for the Prime Fund; and $506,689 and
$222,183, respectively, for the Tax-Exempt Fund. In fiscal years ended November
30, 1995 and 1994 the entire advisory fee received by BBTC with respect to the
Tax-Exempt Fund was paid to the Sub-Adviser. BBTC waived $202,676 and $186,758
in advisory fees with respect to the Tax-Exempt Fund for the same fiscal
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<PAGE>
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 year ended November 1994, BBTC did not waive any
advisory fees for the Treasury Fund or the Prime Fund. For the fiscal years
ended November 30, 1995 and 1994, the Sub-Adviser waived sub-advisory fees
totalling $53,487 and $55,868 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 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
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<PAGE>
Statement of Additional Information, that, if the question were properly
presented, a court should hold that the Adviser or Sub-Adviser, as the case
may be, may each perform such activities without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. It
should be noted, however, that there have been no cases deciding whether
banks may perform services comparable to those performed by the Adviser and
Sub-Adviser and that future changes in either federal or state statutes and
regulations relating to permissible activities of banks or trust companies
and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present and future statutes
and regulations, could prevent the Adviser and Sub-Adviser from continuing to
perform such services for the Funds. If the Adviser or Sub-Adviser were
prohibited from continuing to perform advisory and sub-advisory services for
the Funds, it is expected that the Board of Trustees would recommend that the
Funds enter into a new agreement or would consider the possible termination
of the Funds. Any new advisory or sub-advisory agreement would be subject to
shareholder approval.
On the other hand, as described herein, Emerald Funds are currently
distributed by Emerald Asset Management, Inc., and 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")
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<PAGE>
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, 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.
Prior to April 1, 1996, Concord Holding Corporation, the Trust's prior
administrator which was acquired by The BISYS Group, Inc. in 1995, received
administration fees under administration agreements then in effect for the Funds
which provided for different administration fee rates than those currently in
effect.
For the fiscal year ended November 30, 1996, the Administrator and the
prior administrator received administration fees (net of waivers) totalling
$2,071,918 for the Prime Fund; $772,967 for the Treasury Fund; and $197,123 for
the Tax-Exempt Fund. For the same period, the Administrator and the prior
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<PAGE>
administrator waived administration fees and reimbursed expenses totalling
$90,143 for the Prime Fund; $42,738 for the Treasury Fund; and $0 for the
Tax-Exempt Fund.
For the fiscal years ended November 30, 1995 and 1994, the prior
administrator received administration fees (net of waivers) totalling
$1,451,222, and $1,273,698, respectively, for the Prime Fund; $797,128, and
$885,278, respectively, for the Treasury Fund; and $304,013, and $211,853,
respectively, for the Tax-Exempt Fund. For the same time periods, the prior
administrator waived administration fees and reimbursed expenses totalling
$53,487, and $55,868 for the Tax-Exempt Fund. During these periods, the prior
administrator did not waive any administration fees or reimburse any expenses
for the Prime and Treasury Funds.
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., 100 First Avenue, Suite 300 Pittsburgh, PA
15222 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
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
has been selected as independent accountants for Emerald Funds for the fiscal
year ending November 30, 1997. The financial statements dated November 30, 1996
which are incorporated by reference into this Statement of Additional
Information have been included in reliance on the report of Emerald Funds'
former independent accountants 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 PERFORMANCE
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-equivalent yield" of each
of its classes of shares, which is
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<PAGE>
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,
1996, the annualized yields (after fee waivers) of Institutional Shares in the
Treasury Fund, Prime Fund and Tax-Exempt Fund were 5.01%, 5.13% and 3.37%,
respectively, the effective yields (after fee waivers) of such Shares were
5.14%, 5.26% and 3.43%, respectively, and the tax-equivalent yield (after fee
waivers) of Institutional Shares in the Tax-Exempt Fund was 5.27% (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 4.68%, 4.79% and 2.90%, respectively, the effective
yields (after fee waivers) of such Shares were 4.79%, 4.90% and 2.74%,
respectively, and the tax-equivalent yield (after fee waivers) of Service Shares
in the Tax-Exempt Fund was 4.53% (assuming a federal income tax rate of 36%).
During this seven-day period, fee waivers amounted to 0.01%, 0.03% and 0.10% of
the average daily net assets of the Treasury Fund, Prime Fund and Tax-Exempt
Fund, respectively.
In addition, each of the Funds may quote from time to time its total
return in accordance with SEC regulations. From time to time, the Funds may
also 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
with respect to the approval of a Fund's Investment Advisory or Sub-Advisory
Agreement or a change in a
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<PAGE>
Fundamental Investment limitation 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 March 5, 1997, the Adviser and its affiliated banks owned of
record substantially all of the outstanding shares of the Treasury Advantage
Institutional Fund and Prime Advantage Institutional 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 also the
beneficial owners of the following percentages of shares that were outstanding
on such date because the Adviser and its affiliates possessed voting or
investment discretion with respect to such shares: Treasury Advantage
Institutional Fund - Institutional Shares (100%), Prime Advantage Institutional
Fund -Institutional Shares (100%), Treasury Fund - Institutional Shares(93.78%),
Treasury Fund - Service Shares(100%), Prime Fund -Institutional Shares(56.66%),
Prime Fund - Service Shares (99.96%), Tax-Exempt Fund - Institutional
Shares(100%), Tax-Exempt Fund - Service Shares(80.71%), Equity Fund -
Institutional Shares (99.89%), Equity Value Fund - Institutional Shares (100%);
Small Capitalization Fund -Institutional Shares (99.97%), Balanced Fund -
Institutional Shares(98.60%), U.S. Government Securities Fund - Institutional
Shares(98.23%), Managed Bond Fund - Institutional Shares(98.79%), International
Equity Fund - Institutional Shares (100%); Short-Term Fixed Income Fund -
Institutional Shares (100%); and Florida Tax-Exempt Fund - Institutional
Shares(95.04%).
As of March 5, 1997, 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 class of a
Fund of the Trust were as follows:
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ---------
Equity Fund Retail University of West 5.37%
Florida Foundation
11000 University Parkway
Pensacola, FL 32514-5750
Equity Value Fund Institutional First Union National Bank 7.39%
Trst J. Ball Dupont
401 S. Tyron St.
Charlotte, NC 28288
Equity Value Fund Retail National Financial 67.42%
Services Corporation for
the Exclusive Benefit of
Our Customers
200 Liberty Street
New York, NY 10281-1003
Willis E. Alford and 30.81%
Jewel D. Alford JTWROS
1676 Nassau Circle
Tavares, FL 32778
International
Equity Fund Retail National Financial 5.91%
Services Corporation for
the Exclusive Benefit of
Our Customers
Kendall Goodrich
2871 N. Ocean Blvd 412
Boca Raton, FL 33431
International
Equity Fund Retail National Financial 7.65%
Services Corporation for
the Exclusive Benefit of
Our Customers
Edward A. Fernandez and
Marguerite P. Fernandez
Ten Ent.
61112 No. Florida Avenue
Tampa, FL 33604
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ---------
International
Equity Fund Retail Harvey R. Holding 13.80%
189 Laurel Ln.
Ponte Verde Beach, FL
32082
Short-Term Fixed
Income Fund Retail National Financial 6.74%
Services Corporation for
the Exclusive Benefit of
Our Customers/FBO
John W. Selby
2888 La Concha Dr.
Clearwater, FL 34622
Short-Term Fixed
Income Fund Retail National Financial 20.74%
Services Corporation for
the Exclusive Benefit of Our
Customers/
Barbara Owens Hart
415 Eunice
Lakeland, FL 33803
National Financial 9.58%
Services Corporation for
the Exclusive Benefit of Our
Customers/FBO
George A. Zellner
530 Park St.
Jacksonville, FL 32204
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ---------
U.S. Government
Securities Fund Retail Barnett Bank & Trust 12.63%
Company N.A.
Customer Capital Network
Services
P.O. Box 40200
Jacksonville, FL 32203-0200
National Financial 53.29%
Services Corporation for the
Exclusive Benefit of Our
Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Managed Bond
Fund Retail National Financial 5.11%
Services Corporation for the
Exclusive Benefit of Our
Customers and
Susan A. Fairbank
Fairbank Rev. Trust
85 N. Pizarro Pt.
Lecanto, FL 34461
National Financial 6.58%
Services Corporation for the
Exclusive Benefit of Our
Customers/FBO
Robert White
3101 Riverview Blvd.
Bradenton, FL 34205
National Financial 5.13%
Services Corporation for the
Exclusive Benefit of Our
Customers/
Charles A. and Lillian K.
Berls
Rev. Tr.
17371 SW 25th Terr Rd.
Ocala, FL 34473
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ---------
Florida Tax-Exempt
Fund Retail National Financial 62.27%
Services Corporation for the
Exclusive Benefit of Our
Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Prime Fund Retail National Financial 99.34%
Services Corporation for the
Exclusive Benefit of Our
Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Treasury Fund Retail National Financial 99.90%
Services Corporation for
the Exclusive Benefit of
Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Tax-Exempt Fund Retail National Financial 99.36%
Services Corporation for the
Exclusive Benefit of Our
Customers
P.O. Box 3908
Church Street Station
New York, NY 10008
Treasury Fund Institutional Wilmington Trust Company 6.17%
Attn: Margaret Wilhelm
Mutual Funds
1100 N. Market St.
Wilmington, DE 19890
Prime Fund Institutional Wilmington Trust Company 43.20%
Attn: Margaret Wilhelm
Mutual Funds
1100 N. Market St.
Wilmington, DE 19890
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<PAGE>
Percentage
Name of Class of of
Fund Shares Name and Address Ownership
- ------- -------- ---------------- ---------
Tax-Exempt Fund Service Capital Network Services 17.60%
Attn: Donna M. Howell
One Bush Street, 11th
Floor
San Francisco, CA 94104-4425
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, the former independent auditors for Emerald Funds, contained in
the Funds' annual report to shareholders for the fiscal year ended November 30,
1996 (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 43218-2697 or by calling toll-free at 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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty 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.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
"D-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.
"D-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 generally 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" ratings.
"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
A-3
<PAGE>
year or less which are 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 which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - 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.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating 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. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that 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.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
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
A-6
<PAGE>
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the 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
A-6
<PAGE>
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.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to"BBB" 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, such that 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.
A-9
<PAGE>
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating below
"AAA" 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 extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to 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
A-10
<PAGE>
characteristics regarding the likelihood of timely payment of principal and
interest. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades.
A-11
<PAGE>
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.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in the Prospectuses or Incorporated by Reference
into the Statements of Additional Information:
(1) Financial Highlights for the fiscal year or period ended
November 30, 1996 - Treasury Advantage Institutional Fund
(formerly the Treasury Trust Fund), Prime Advantage
Institutional Fund (formerly the Prime Trust Fund), Treasury
Fund, Prime Fund, Tax-Exempt Fund, Equity Fund, Equity Value
Fund, International 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, 1996 -
Treasury Advantage Institutional Fund (formerly the Treasury
Trust Fund), Prime Advantage Institutional Fund (formerly
the Prime Trust Fund), Treasury Fund, Prime Fund, Tax-Exempt
Fund, Equity Fund, Equity Value Fund, International 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.
Portfolios of Investments - November 30, 1996 - Treasury
Advantage Institutional Fund (formerly the Treasury Trust
Fund), Prime Advantage Institutional Fund (formerly the
Prime Trust Fund), Treasury Fund, Prime Fund, Tax-Exempt
Fund, Equity Fund, Equity Value Fund, International 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 or period
ended November 30, 1996 - Treasury Advantage Institutional
Fund (formerly the Treasury Trust Fund), Prime Advantage
Institutional Fund (formerly the Prime Trust Fund), Treasury
Fund, Prime Fund,
<PAGE>
Tax-Exempt Fund, Equity Fund, Equity Value Fund,
International 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 or
period ended November 30, 1996 - Treasury Advantage
Institutional Fund (formerly the Treasury Trust Fund), Prime
Advantage Institutional Fund (formerly the Prime Trust
Fund), Treasury Fund, Prime Fund,
<PAGE>
Tax-Exempt Fund, Equity Fund, Equity Value Fund,
International 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, 1996 -
Treasury Advantage Institutional Fund (formerly the Treasury
Trust Fund), Prime Advantage Institutional Fund (formerly
the Prime Trust Fund), Tax-Exempt Fund, Treasury Fund, Prime
Fund, Equity Fund, Equity Value Fund, International 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 22, 1997 -
Treasury Advantage Institutional Fund (formerly the Treasury
Trust Fund), Prime Advantage Institutional Fund (formerly
the Prime Trust Fund), Treasury Fund, Prime Fund, Tax-Exempt
Fund, Equity Fund, Equity Value Fund, International 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.
(2) All required financial statements are included in Parts A
and B hereof, or incorporated by reference. All other
financial statements and schedules are inapplicable.
(b) Exhibits:
C-2
<PAGE>
(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.
(c) Amendment No. 2 to Registrant's Code of Regulations
is incorporated by reference to Exhibit (2)(c) to
Registrant's Post-Effective Amendment No. 20 to
Registration Statement on Form N-1A, filed on
October 1, 1996.
(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
Advantage Institutional Fund and Prime Advantage
Institutional Fund) is incorporated by reference to
Exhibit (5) (a) to Registrant's Post-Effective
Amendment No. 17 to Registration Statement on Form
N-1A ("PEA No. 17"), filed on February 1, 1996.
(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 PEA No. 17, filed on February 1, 1996.
C-3
<PAGE>
(c) Investment Advisory Agreement between Registrant and
Barnett Banks Trust Company, N.A. (Treasury Fund and
Prime Fund) is incorporated by reference to Exhibit
(5)(c) to PEA No. 17, filed on February 1, 1996.
(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)(d) to PEA
No. 17, filed on February 1, 1996.
(e) Amended Investment Advisory Agreement between
Registrant and Barnett Banks Trust Company, N.A.
(Tax-Exempt Fund) is incorporated by reference to
Exhibit (5)(e) to PEA No. 17, filed on February 1,
1996.
(f) Sub-Investment Advisory Agreement between Barnett
Banks Trust Company, N.A. and Rodney Square
Management Corporation (Treasury Advantage
Institutional Fund and Prime Advantage Institutional
Fund) is incorporated by reference to Exhibit (5)(f)
to PEA No. 17, filed on February 1, 1996.
(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)(g) to PEA
No. 17, filed on February 1, 1996.
(h) Sub-Investment Advisory Agreement between Barnett
Capital Advisors, Inc. and Brandes Investment
Partners, L.P. (International Equity Fund) is
incorporated herein by reference to Exhibit (5)(h)
to Registrant's Post-Effective Amendment No. 19 to
C-4
<PAGE>
Registration Statement on Form N-1A, filed on
August 26, 1996.
(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 PEA No. 17, filed on
February 1, 1996.
(j) Revised Amendment No. 2 to Investment Advisory
Agreement between Registrant and Barnett Capital
Advisors, Inc. is incorporated herein by reference
to Exhibit (5)(j) to Registrant's Post-Effective
Amendment No. 19 to Registration Statement on Form
N-1A, filed on August 26, 1996.
(k) Amendment No. 3 to Investment Advisory Agreement
between Registrant and Barnett Capital Advisors,
Inc.
(l) Assumption Agreement between Barnett Banks Trust
Company, N.A. and Barnett Capital Advisors, Inc.
dated June 28, 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 PEA
No. 17, 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.
C-5
<PAGE>
(b) Amendment to Custody Agreement with respect to the
addition of global custody with respect to the
International Equity Fund is incorporated herein by
reference to Exhibit (8)(b) to Registrant's
Post-Effective Amendment No. 19 to Registration
Statement on Form N-1A, filed on August 26, 1996.
(9) (a) Administration Agreement between Registrant and
BISYS Fund Services Limited Partnership is
incorporated by reference to Exhibit (9)(a) to
Registrant's Post-Effective Amendment No. 18 to
Registration Statement on Form N-1A, filed on
June 28, 1996.
(b) Shareholder Processing and Services Plan and Form of
Servicing Agreement for Emerald Service Shares is
incorporated by reference to Exhibit (9)(a) to PEA
No. 17, filed on February 1, 1996.
(c) Shareholder Processing Plan and Form of Servicing
Agreement for Retail Shares is incorporated by
reference to Exhibit (9)(c) 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. is incorporated by
reference to Exhibit(9)(b) to Registrant's
Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A filed on June 28, 1996.
(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
C-6
<PAGE>
May 20, 1996 is incorporated by reference to Exhibit
(9)(f) to Registrant's Post-Effective Amendment No.
18 to Registration Statement on Form N-1A filed on
June 28, 1996.
(g) Fund Accounting Agreement between BISYS Fund
Services 0Limited Partnership and BISYS Fund
Services, Inc is incorporated by reference to
Exhibit (9)(g) to Registrant's Post-Effective
Amendment No. 18 to Registration Statement on Form
N-1A filed on June 28, 1996.
(10) (a)(1) Opinion and consent of counsel that shares are
validly issued, fully paid and non-assessable.
(11) (a) Consent of Price Waterhouse LLP.
(b) Consent of Drinker Biddle & Reath.
(12) None.
(13) Purchase Agreement between Registrant and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit (13) to
Registrant's Post-Effective Amendment No. 1 to Registration
Statement on Form N-1A, filed on June 7, 1989.
(14) Individual Retirement Account Custodial Agreement and
accompanying Disclosure Statement is incorporated by
reference to Exhibit (14) to Registrant's Post-Effective
Amendment No. 4 to Registration Statement on Form N-1A,
filed on January 31, 1991.
(15) (a) Form of Broker-Dealer Agreement between Emerald
Asset Management, Inc. and financial intermediaries
(Equity Fund, Equity Income Fund, Short-Term Fixed
Income Fund, U.S. Government Securities Fund,
Florida Tax-Exempt Fund, Tax-Exempt Target Fund
(Maturity: 1995), Tax-Exempt Target Fund (Maturity:
2000) and Tax-Exempt Target Fund (Maturity: 2005))
is incorporated by reference to Exhibit (15) (c) to
Registrant's Post-
- --------------------
(1) Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
C-7
<PAGE>
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 PEA No. 17, filed on February 1,
1996.
(16) (a) Schedule for Computation of Performance Quotations -
Treasury Advantage Institutional 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.
(b) Schedule for Computation of Performance Quotations -
Prime Advantage Institutional 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 -
Institutional 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 -
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 -
Retail 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
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<PAGE>
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 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
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<PAGE>
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 is incorporated by reference to
Exhibit (16)(c) to Registrant's Post-Effective
Amendment No. 18 to Registration Statement on Form
N-1A filed on June 28, 1996.
(n) Schedules for Computation of Performance Quotations
- International Equity Fund is incorporated by
reference to Exhibit (16)(d) to Registrant's
Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A filed on June 28, 1996.
(18) (a) Revised Plan pursuant to Rule 18f-3 for operation of
a Multi-Class System is incorporated by reference to
Exhibit (18)(a) to Registrant's Post-Effective
Amendment No. 18 to Registration Statement on Form
N-1A filed on June 28, 1996.
(27) Financial Data Schedules.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
Item 26. NUMBER OF HOLDERS OF SECURITIES
As of March 7, 1997:
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 3
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<PAGE>
Title of Class of Holders Number of Record Holders
------------------------- ------------------------
Class D-2 Shares 4
Class D-3 Shares 6
Class E-1 Shares 10
Class E-2 Shares 6
Class E-3 Shares 445
Class F-1 Shares 1
Class F-2 Shares 3
Class F-3 Shares 16
Class G-1 Shares 2,949
Class G-3 Shares 692
Class H-1 Shares 677
Class H-3 Shares 376
Class I-1 Shares 867
Class I-3 Shares 352
Class J-1 Shares 1,255
Class J-3 Shares 1,782
Class K-1 Shares 75
Class K-3 Shares 1,742
Class L-1 Shares 112
Class L-3 Shares 372
Class M-1 Shares 534
Class M-3 Shares 145
Class N-1 Shares 87
Class N-3 Shares 1,230
Class O-1 Shares 3
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<PAGE>
Title of Class of Holders Number of Record Holders
------------------------- ------------------------
Class O-3 Shares 121
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). 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 incorporated herein by reference 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 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
C-12
<PAGE>
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 (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.
C-13
<PAGE>
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.
Position with Other
Barnett Capital Business Type of
Name Advisors, Inc. Connections Business
- ---- --------------- ----------- --------
Donna L. Terry President/Chief Former Vice President Investment Advisor
Executive of The Boston Company
officer Advisors, Inc., Boston
MA; Former Vice
President of The
Boston Company Asset
Management, Inc.,
Boston MA
Scott E. Alexander Director Director of Barnett Bank
Bank, N.A.,
Jacksonville, FL
Former Managing Financial Services
Director of
Fleet Investment
Services Providence, RI
C-14
<PAGE>
Position with Other
Barnett Capital Business Type of
Name Advisors, Inc. Connections Business
- ---- --------------- ----------- --------
Richard A. Director Regional Banking Bank
Anderson Executive, North
Region of Barnett
Banks, Inc.,
Jacksonville, FL
Former President and Bank
Chief Executive
Officer of Barnett
Bank of Broward, Ft.
Lauderdale, FL
James E. Loskill Director President and Chief Bank
Executive Officer of
Barnett Bank N.A.,
Naples, FL
Jeffrey J. Wirth Director Director of Barnett Bank
Bank, N.A.,
Jacksonville, FL
Former Senior Vice Financial Services
President of Fleet
Investment Services,
Providence, RI
Robert L. Nellson Director Executive Director of Bank Holding
Deposits and Company
Insurance, Barnett
Banks, Inc.,
Jacksonville, FL
Former Senior Vice Mutual Insurance
President of The New Company
England, Boston MA
Former Corporate Vice Bank Holding
President of Fleet Company
Financial Group,
Providence, RI
(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
C-15
<PAGE>
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.
Position with
Rodney Square Other
Management Business Type of
Name Corporation Connections Business
- ---- --------------- ----------- --------
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
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 Adminis- N/A N/A
tration Officer
C-16
<PAGE>
Position with
Rodney Square Other
Management Business Type of
Name Corporation Connections Business
- ---- --------------- ----------- --------
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 broker/
Square Distributors, dealer
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 Vice President, since Asst. Vice Pres. Mutual
Morgan November, 1995 PFPC Inc. June, 1984 Fund
to November, 1995 Services
Lynette Lucille Operations Officer N/A N/A
Becker
Jo Michelle Ray Operations Officer N/A N/A
Connie L. Meyers Regulatory Compliance N/A N/A
Officer
James John Palermo Investment Officer N/A N/A
David A. Fischer Accounting Officer Fund Accountant Mutual
PFPC Inc. Fund
November, 1991 to Services
December, 1993
Jeffrey A. Wirosloff Operations Officer Transfer Agent Mutual
Supervisor Fund
PFPC Inc. Services
September, 1992 to
September, 1994
John C. McDonnell Accounting Officer
Tracie A. Martinelli Accounting Officer
C-17
<PAGE>
Position with
Rodney Square Other
Management Business Type of
Name Corporation Connections Business
- ---- --------------- ----------- --------
* 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.
(c) Brandes Investment Partners, L.P. is a California Limited
Partnership with principal offices in San Diego, California.
The list generated by this Item 28 of officers and directors of
Brandes, together with information as to any business profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years is incorporated herein by reference to Schedule A and
D of Form ADV filed by Brandes pursuant to the Investment Advisers Act of 1940
(SEC File No. 801-24896).
Item 29. PRINCIPAL UNDERWRITER
(a) None.
(b) To the best of Registrant's knowledge, the directors and
executive officers of Emerald Asset Management, Inc., distributor for
Registrant, are as follows:
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<PAGE>
Name and Positions and
Principal Offices with Positions and
Business Emerald Asset Offices with
Address Management, Inc. Registrant
- --------- ---------------- ----------
Lynn J. Mangum Chairman/CEO None
3435 Stelzer Road
Columbus, OH 43219-3035
William J. Tomko President Vice President
3435 Stelzer Road
Columbus, OH 43219-3035
Robert J. McMullan Executive Vice President/ None
3435 Stelzer Road Treasurer
Columbus, OH 43219-3035
Hugh Fanning Vice President Vice President
3435 Stelzer Road
Columbus, OH 43219-3035
Stephen G. Mintos Executive Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
Kevin J. Dell Vice President/General Counsel/ None
3435 Stelzer Road Secretary
Columbus, OH 43219-3035
Dennis Sheehan Senior Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
Kevin J. Dell Vice President/General Counsel/ None
3435 Stelzer Road Secretary
Columbus, OH 43219-3035
Mark J. Rybarczyk Senior Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
George Martinez Senior Vice President Assistant Secretary
3435 Stelzer Road
Columbus, OH 43219-3035
Michael Burns Vice President/Compliance None
3435 Stelzer Road
Columbus, OH 43219-3035
Annamaria Porcaro Assistant Secretary None
3435 Stelzer Road
Columbus, OH 43219-3035
Robert Tuch Assistant Secretary Assistant Secretary
3435 Stelzer Road
Columbus, OH 43219-3035
Dale Smith Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
C-19
<PAGE>
Name and Positions and
Principal Offices with Positions and
Business Emerald Asset Offices with
Address Management, Inc. Registrant
- --------- ---------------- ----------
John Gilliam Vice President None
3435 Stelzer Road
Columbus, OH 43219-3035
(c) None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Barnett Capital 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 - Tax-Exempt Fund and prior
functions as sub-adviser to Treasury Advantage
Institutional Fund and Prime Advantage Institutional Fund,
formerly known as Treasury Trust Fund and Prime Trust Fund,
respectively).
(4) Brandes Investment Partners, L.P., 12750 High Bluff Drive,
San Diego, California 92130 (records relating to its
functions as sub-adviser - International Equity Fund).
(5) 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).
(6) Emerald Asset Management, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219-3035 (records
C-20
<PAGE>
relating to its functions as distributor -all portfolios).
(7) The Bank of New York, 90 Washington Street, 24th Floor, New
York, New York 10286 (records relating to its functions as
custodian for the Funds - all portfolios).
(8) 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).
(9) 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-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment No. 21 to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 21 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 31st day of March, 1997.
EMERALD FUNDS
(Registrant)
By /s/ John G. Grimsley
-----------------------------
John G. Grimsley
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 21 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
* Marshall M. Criser Chairman of the March 31, 1997
- --------------------- Board of Trustees
Marshall M. Criser
/s/ John G. Grimsley President (Chief March 31, 1997
- --------------------- Executive Officer)
John G. Grimsley and Trustee
* Thomas E. Line Treasurer March 31, 1997
- --------------------- (Principal Financial
Thomas E. Line and Accounting Officer)
*Raynor E. Bowditch Trustee March 31, 1997
- ---------------------
Raynor E. Bowditch
*Albert D. Ernest Trustee March 31, 1997
- ---------------------
Albert D. Ernest
*Mary Doyle Trustee March 31, 1997
- ---------------------
Mary Doyle
*Harvey R. Holding Trustee March 31, 1997
- ---------------------
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 by written consent on March 18, 1997 and remains in effect on the
date hereof:
FURTHER RESOLVED, that the trustees and officers of the Trust who
may be required to execute any amendments to the Trust's Registration
Statement be, and each of them hereby is, authorized to execute a
power of attorney appointing John G. Grimsley and William B. Blundin,
and either of them, their true and lawful attorney or attorneys, to
execute in their name, place and stead, in their capacity as trustee
or officer, or both, of the Trust any and all amendments to the
Registration Statement, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and
Exchange Commission; and either of said attorneys shall have the power
to act thereunder with or without the other of said attorneys and
shall have full power of substitution and resubstitution; and either
of said attorneys shall have full power and authority to do in the
name and on behalf of said trustees and officers, or any or all of
them, in any and all capacities, every act whatsoever requisite or
necessary to be done in 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: March 25, 1997
<PAGE>
EMERALD FUNDS
POWER OF ATTORNEY
-----------------
Marshall M. Criser, 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: March 18, 1997 /s/ Marshall M. Criser
---------------------------------------------
Marshall M. Criser
<PAGE>
EMERALD FUNDS
POWER OF ATTORNEY
-----------------
Thomas E. Line, 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.
March 18, 1997 /s/ Thomas E. Line
---------------------------------------------
Thomas E. Line
<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
-----------------
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
-----------------
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
EXHIBITS
5(k) Amendment No. 3 to Investment Advisory Agreement (Prime
Advantage Institutional and Treasury Advantage Institutional
Funds)
5(l) Assumption Agreement between Barnett Banks Trust Company, N.A.
and Barnett Capital Advisors, Inc. dated June 28, 1996.
11(a) Consent of Price Waterhouse LLP
11(b) Consent of Drinker Biddle & Reath.
27 Financial Data Schedules.
<PAGE>
AMENDMENT NO. 3 TO INVESTMENT ADVISORY AGREEMENT
(PRIME TRUST AND TREASURY TRUST FUNDS)
This Amendment, dated as of the 1st day of December, 1996, is entered
into between EMERALD FUNDS (the "Trust"), a Massachusetts business trust, and
BARNETT CAPITAL ADVISORS, INC. (the "Investment Adviser").
WHEREAS, the Trust and Barnett Banks Trust Company, N.A. ("BBTC")
entered into an Investment Advisory Agreement dated as of June 28, 1991 (the
"Advisory Agreement"), providing for investment advisory services for certain of
the Trust's portfolios, including its Equity Fund, U.S. Government Securities
Fund, Florida Tax-Exempt Fund, Small Capitalization Fund, Balanced Fund, Managed
Bond Fund and Short-Term Fixed Income Fund; and
WHEREAS, the Investment Adviser has assumed the rights and obligations
of BBTC under the Advisory Agreement pursuant to an Assumption Agreement dated
as of June 28, 1996; and
WHEREAS, Section 1(b) of the Advisory Agreement provides that in the
event the Trust establishes one or more additional investment portfolios with
respect to which it desires to retain the Investment Adviser to act as
investment adviser under the Advisory Agreement, the Trust shall so notify the
Investment Adviser in writing and if the Investment Adviser is willing to render
such services it shall notify the Trust in writing, and the compensation to be
paid to the Investment Adviser shall be that which is agreed to in writing by
the Trust and the Investment Adviser; and
WHEREAS, pursuant to Section 1(b) of the Advisory Agreement, the Trust
has notified the Investment Adviser that it desires to retain the Investment
Adviser to act as the investment adviser for its Prime Trust Fund and Treasury
Trust Fund (the "Additional Funds") under the Advisory Agreement, and the
Investment Adviser has notified the Trust that it is willing to so serve as
investment adviser for the Additional Funds; and
WHEREAS, Section 1(b) of the Advisory Agreement provides that said
Additional Funds will be subject to the provisions of the Advisory Agreement to
the same extent as the Funds named in subparagraph (a) thereof except to the
extent said provisions are modified with respect to an Additional Fund in
writing by the Trust and the Investment Adviser;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
<PAGE>
1. APPOINTMENT. The Trust hereby appoints the Investment Adviser to
act as investment adviser to the Trust for the Additional Funds for the period
and on the terms set forth in the Advisory Agreement. The Investment Adviser
hereby accepts such appointment and agrees to render the services set forth in
the Advisory Agreement for the compensation herein provided.
2. SUBCONTRACTORS. It is understood that the Investment Adviser may
from time to time employ or associate with such person or persons as the
Investment Adviser may believe to be particularly fitted to assist it in the
performance of this Agreement with respect to the Additional Funds; provided,
however, that the compensation of such person or persons shall be paid by the
Investment Adviser. In addition, notwithstanding any such employment or
association, the Investment Adviser shall itself (a) establish and monitor
general investment criteria and policies for the Additional Funds, (b) review
and analyze on a periodic basis the Additional Funds' portfolio holdings and
transactions in order to determine their appropriateness in light of the
Additional Funds' shareholder base, and (c) review and analyze on a periodic
basis the policies established by any sub-adviser for the Additional Funds with
respect to the placement of orders for the purchase and sale of portfolio
securities. Subject to the foregoing, it is agreed that investment advisory
services to an Additional Fund may be provided by a sub-investment adviser (the
"Sub-Adviser") pursuant to a sub-advisory agreement agreeable to the Trust and
approved in accordance with the provisions of the 1940 Act (the "Sub-Advisory
Agreement").
3. COMPENSATION. For the services provided and the expenses assumed
pursuant to the Advisory Agreement, the Trust will pay the Investment Adviser,
and the Investment Adviser will accept as full compensation therefor from the
Trust, a fee, computed daily and payable monthly, at the following annual rates:
.10% of the average daily net assets of the Prime Trust Fund, and .10% of the
average daily net assets of the Treasury Trust Fund.
Such fee as is attributable to each Additional Fund shall be the
several (and not joint or joint and several) obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Additional Fund
(as defined under the securities regulations of any state having jurisdiction
over such Fund) exceed the expense limitations of any such state, the Trust may
deduct from the fees to be paid hereunder, or the Investment Adviser will bear,
to the extent required by state law, that portion of the excess which bears the
same relation to the total of such excess as the Investment Adviser's fee
hereunder with respect to such Fund bears to the total fees otherwise payable
with respect to such Fund for the fiscal year by the Trust hereunder and under
the
-2-
<PAGE>
administration agreement between the Trust and its administrator. The
Investment Adviser's obligation is not limited to the amount of its fees
hereunder. Such deduction or payment, if any, will be estimated and accrued
daily and paid on a monthly basis.
4. AMENDMENTS. The last sentence of Section 11 of the Advisory
Agreement is amended and restated in its entirety to read: "With respect to
each Additional Fund, to the extent required by the 1940 Act, no amendment of
the Advisory Agreement shall be effective as to a particular Additional Fund
until approved by vote of a majority of the outstanding voting securities of
such Additional Fund."
5. CAPITALIZED TERMS. From and after the date hereof, the term
"Funds" as used in the Advisory Agreement shall be deemed to include the
Additional Funds. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Advisory Agreement.
6. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the date and year first above written.
EMERALD FUNDS
By: John G. Grimsley
-----------------------------------------
Title: President
BARNETT CAPITAL ADVISORS, INC.
By: Donna L. Terry
-----------------------------------------
Title: President
-3-
<PAGE>
EXHIBIT 5(1)
ASSUMPTION AGREEMENT
AGREEMENT made as of June 28, 1996 between BARNETT BANKS TRUST
COMPANY, N.A., a nationally chartered banking institution ("BBTC"), and BARNETT
CAPITAL ADVISORS, INC. ("BCA"), a wholly-owned, indirect subsidiary of Barnett
Banks, Inc.
WHEREAS, Emerald Funds is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, BBTC has been previously appointed as investment adviser to
Emerald Funds pursuant to Investment Advisory Agreements between BBTC and
Emerald Funds dated (a) December 7, 1988 with respect to the Treasury Trust and
Prime Trust Funds, (b) December 7, 1988 with respect to the Treasury and Prime
Funds, (c) April 22, 1992 with respect to the Tax-Exempt Fund and (d) June 28,
1991 (as subsequently amended) with respect to Emerald Funds' several equity and
fixed income portfolios (the "Investment Advisory Agreements"); and
WHEREAS, BBTC has entered into two Sub-Investment Advisory Agreements
with Rodney Square Management Corporation each dated April 22, 1992 (a) with
respect to the Treasury Trust and Prime Trust Funds and (b) with respect to the
Tax-Exempt Fund (the "Sub-Investment Advisory Agreements"); and
WHEREAS, BBTC and BCA desire to have BCA be the investment adviser
with respect to the each portfolio of Emerald Funds pursuant to the Investment
Advisory Agreements and Sub-Investment Advisory Agreements.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
1. BCA hereby assumes all rights and obligations of BBTC under the
Investment Advisory Agreements and Sub-Investment Advisory Agreements.
2. BBTC hereby represents that (i) the management personnel of BBTC
responsible for providing investment advisory services to Emerald Funds under
the Investment Advisory Agreements and Sub-Investment Advisory Agreements,
including the portfolio managers and the supervisory personnel, are employees of
BCA where they will continue to provide such services for Emerald Funds, and
(ii) both BBTC and BCA remain wholly-owned subsidiaries of Barnett Banks, Inc.
Consequently, BBTC believes
<PAGE>
that the proposed assumption does not involve a change in actual control or
actual management with respect to the investment adviser or Emerald Funds.
3. Both parties hereby agree that this Assumption Agreement shall be
attached to and made a part of the Investment Advisory Agreements and Sub-
Investment Advisory Agreements.
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.
Attest: BARNETT BANKS TRUST COMPANY, N.A.
/s/ Rusty Creighton By /s/ Rebecca S. Allen
- -------------------- ----------------------
(Authorized Officer)
Attest: BARNETT CAPITAL ADVISORS, INC.
/s/ Rusty Creighton By /s/ Donna L. Terry
- -------------------- ----------------------
(Authorized Officer)
<PAGE>
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses Statements of Additional Information constituting part of this
Post-Effective Amendment No. 21 to the registration statement on Form N-1A
(the "Registration Statement") of our report dated January 22, 1997, relating
to the financial statements and financial highlights appearing in the
November 30, 1996 Annual Report to Shareholders of 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 Prospectuses and under the heading "Financial Statements" in the
Statements of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
March 26, 1997
<PAGE>
EXHIBIT 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the caption "Counsel" in the Statement of Additional Information that
is included in Post-Effective Amendment No. 21 to the Registration Statement
(File No. 33-20658) on Form N-1A of Emerald Funds under the Securities Act of
1933 and the Investment Company Act of 1940, respectively. This consent does
not constitute a consent under Section 7 of the Securities Act of 1933, and in
consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
Section 7 or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ Drinker Biddle & Reath
---------------------------
Drinker Biddle & Reath
Philadelphia, Pennsylvania
March __, 1997
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<SERIES>
<NUMBER> 031
<NAME> EMERALD TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 195294308
<INVESTMENTS-AT-VALUE> 195294308
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<REALIZED-GAINS-CURRENT> (20046)
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<DISTRIBUTIONS-OF-INCOME> 4780788<F1>
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<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 393508000<F1>
<NUMBER-OF-SHARES-REDEEMED> 404255000<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> (1846205)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 31645
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1126300
<AVERAGE-NET-ASSETS> 148040931<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .032<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .032<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
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<EXPENSE-RATIO> .34<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL SHARE CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 032
<NAME> EMERALD TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 195294308
<INVESTMENTS-AT-VALUE> 195294308
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<OTHER-ITEMS-LIABILITIES> 663199
<TOTAL-LIABILITIES> 663199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 195649837
<SHARES-COMMON-STOCK> 2861862<F1>
<SHARES-COMMON-PRIOR> 2855359<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 51691
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 195598146
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6964003
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<EXPENSES-NET> 903391
<NET-INVESTMENT-INCOME> 6060612
<REALIZED-GAINS-CURRENT> (20046)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6040566
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 80005<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 536000<F1>
<NUMBER-OF-SHARES-REDEEMED> 543000<F1>
<SHARES-REINVESTED> 14000<F1>
<NET-CHANGE-IN-ASSETS> (1846205)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 31645
<GROSS-ADVISORY-FEES> 487656
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1126300
<AVERAGE-NET-ASSETS> 2826086<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .028<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .028<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .75<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>SERVICE SHARE CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 033
<NAME> EMERALD TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 195294308
<INVESTMENTS-AT-VALUE> 195294308
<RECEIVABLES> 872062
<ASSETS-OTHER> 94975
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<TOTAL-ASSETS> 196261345
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<TOTAL-LIABILITIES> 663199
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<PAID-IN-CAPITAL-COMMON> 195649837
<SHARES-COMMON-STOCK> 47157289<F1>
<SHARES-COMMON-PRIOR> 38242869<F1>
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 51691
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6964003
<OTHER-INCOME> 0
<EXPENSES-NET> 903391
<NET-INVESTMENT-INCOME> 6060612
<REALIZED-GAINS-CURRENT> (20046)
<APPREC-INCREASE-CURRENT> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1199819<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 137081000<F1>
<NUMBER-OF-SHARES-REDEEMED> 129263000<F1>
<SHARES-REINVESTED> 1096000<F1>
<NET-CHANGE-IN-ASSETS> (1846205)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 31645
<GROSS-ADVISORY-FEES> 487656
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1126300
<AVERAGE-NET-ASSETS> 44264773<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .027<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .027<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .85<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>RETAIL SHARE CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 041
<NAME> EMERALD PRIME ADVANTAGE INSTITUTIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 133433178
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<RECEIVABLES> 224303
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<PAID-IN-CAPITAL-COMMON> 133053376
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<SHARES-COMMON-PRIOR> 131098672
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<OVERDISTRIBUTION-GAINS> 9772
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<NET-ASSETS> 133043604
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 445658
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<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 9804
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<GROSS-EXPENSE> 448366
<AVERAGE-NET-ASSETS> 128365686
<PER-SHARE-NAV-BEGIN> .999
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<PER-SHARE-NAV-END> .999
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<FN>
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 051
<NAME> EMERALD TREASURY ADVANTAGE INSTITUTIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 147203943
<INVESTMENTS-AT-VALUE> 147203943
<RECEIVABLES> 341768
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 147549477
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<OTHER-ITEMS-LIABILITIES> 690894
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 146913574
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<DIVIDEND-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 288670400
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<ACCUMULATED-GAINS-PRIOR> (5683)
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<PER-SHARE-NII> .050
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<PER-SHARE-DIVIDEND> .050
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .37
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 071
<NAME> EMERALD EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
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<TOTAL-ASSETS> 250800758
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<TOTAL-LIABILITIES> 439686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159023415
<SHARES-COMMON-STOCK> 13276564<F1>
<SHARES-COMMON-PRIOR> 11877849<F1>
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<ACCUMULATED-NET-GAINS> 23505831
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 67874435
<NET-ASSETS> 250361072
<DIVIDEND-INCOME> 2708638
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<DISTRIBUTIONS-OF-INCOME> 823969<F1>
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<SHARES-REINVESTED> 1057000<F1>
<NET-CHANGE-IN-ASSETS> 52065687
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<GROSS-EXPENSE> 1906736
<AVERAGE-NET-ASSETS> 192559751<F1>
<PER-SHARE-NAV-BEGIN> 14.63<F1>
<PER-SHARE-NII> .06<F1>
<PER-SHARE-GAIN-APPREC> 3.02<F1>
<PER-SHARE-DIVIDEND> .06<F1>
<PER-SHARE-DISTRIBUTIONS> 1.29<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 16.36<F1>
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL SHARE CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 072
<NAME> EMERALD EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
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<TOTAL-LIABILITIES> 439686
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<PAID-IN-CAPITAL-COMMON> 159023415
<SHARES-COMMON-STOCK> 0<F1><F2>
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<DISTRIBUTIONS-OF-INCOME> 1075<F1>
<DISTRIBUTIONS-OF-GAINS> 15246479<F1>
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<NUMBER-OF-SHARES-REDEEMED> 192000<F1>
<SHARES-REINVESTED> 13000<F1>
<NET-CHANGE-IN-ASSETS> 52065687
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<GROSS-EXPENSE> 1906736
<AVERAGE-NET-ASSETS> 0<F1><F2>
<PER-SHARE-NAV-BEGIN> 14.40<F1>
<PER-SHARE-NII> (.01)<F1>
<PER-SHARE-GAIN-APPREC> 0.38<F1>
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<EXPENSE-RATIO> 2.08<F1>
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS B SHARE CLASS
<F2>CLASS B SHARES MERGED INTO RETAIL CLASS SHARES ON MARCH 11, 1996
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 073
<NAME> EMERALD EQUITY FUND
<S> <C>
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<NUMBER-OF-SHARES-REDEEMED> 406000<F1>
<SHARES-REINVESTED> 137000<F1>
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<GROSS-EXPENSE> 1906736
<AVERAGE-NET-ASSETS> 28286820<F1>
<PER-SHARE-NAV-BEGIN> 14.62<F1>
<PER-SHARE-NII> (.01)<F1>
<PER-SHARE-GAIN-APPREC> 3.01<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 1.31<F1>
<RETURNS-OF-CAPITAL> 0<F1>
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<EXPENSE-RATIO> 1.27<F1>
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>RETAIL SHARE CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 081
<NAME> FLORIDA TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
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<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 590567
<TOTAL-LIABILITIES> 590567
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119275557
<SHARES-COMMON-STOCK> 3150818<F1>
<SHARES-COMMON-PRIOR> 3062950<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 57867
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4008197
<ACCUM-APPREC-OR-DEPREC> 7117431
<NET-ASSETS> 122326924
<DIVIDEND-INCOME> 34718
<INTEREST-INCOME> 7262599
<OTHER-INCOME> 0
<EXPENSES-NET> 1103830
<NET-INVESTMENT-INCOME> 6193487
<REALIZED-GAINS-CURRENT> 676108
<APPREC-INCREASE-CURRENT> (1493725)
<NET-CHANGE-FROM-OPS> 5375870
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1740957<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 855000<F1>
<NUMBER-OF-SHARES-REDEEMED> 791000<F1>
<SHARES-REINVESTED> 23000<F1>
<NET-CHANGE-IN-ASSETS> (15368540)
<ACCUMULATED-NII-PRIOR> 269978
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 5039962
<GROSS-ADVISORY-FEES> 500722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1246157
<AVERAGE-NET-ASSETS> 33681166<F1>
<PER-SHARE-NAV-BEGIN> 11.09<F1>
<PER-SHARE-NII> .56<F1>
<PER-SHARE-GAIN-APPREC> (.02)<F1>
<PER-SHARE-DIVIDEND> .56<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 11.07<F1>
<EXPENSE-RATIO> .69<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 082
<NAME> FLORIDA TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 113599057
<INVESTMENTS-AT-VALUE> 120716488
<RECEIVABLES> 2194389
<ASSETS-OTHER> 6614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122917491
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 590567
<TOTAL-LIABILITIES> 590567
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119275557
<SHARES-COMMON-STOCK> 0<F1><F2>
<SHARES-COMMON-PRIOR> 876199<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 57867
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4008197
<ACCUM-APPREC-OR-DEPREC> 7117431
<NET-ASSETS> 122326924
<DIVIDEND-INCOME> 34718
<INTEREST-INCOME> 7262599
<OTHER-INCOME> 0
<EXPENSES-NET> 1103830
<NET-INVESTMENT-INCOME> 6193487
<REALIZED-GAINS-CURRENT> 676108
<APPREC-INCREASE-CURRENT> (1493725)
<NET-CHANGE-FROM-OPS> 5375870
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 117234<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 9313126<F1>
<NUMBER-OF-SHARES-SOLD> 21000<F1>
<NUMBER-OF-SHARES-REDEEMED> 903000<F1>
<SHARES-REINVESTED> 6000<F1>
<NET-CHANGE-IN-ASSETS> (15368540)
<ACCUMULATED-NII-PRIOR> 269978
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 5039962
<GROSS-ADVISORY-FEES> 500722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1246157
<AVERAGE-NET-ASSETS> 0<F1>
<PER-SHARE-NAV-BEGIN> 11.07<F1>
<PER-SHARE-NII> .12<F1>
<PER-SHARE-GAIN-APPREC> (.32)<F1>
<PER-SHARE-DIVIDEND> .12<F1>
<PER-SHARE-DISTRIBUTIONS> 10.75<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 0<F1><F2>
<EXPENSE-RATIO> 1.47<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares Class
<F2>Class B Shares merged with Retail Class shares on March 11, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 083
<NAME> FLORIDA TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 113599057
<INVESTMENTS-AT-VALUE> 120716488
<RECEIVABLES> 2194389
<ASSETS-OTHER> 6614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122917491
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 590567
<TOTAL-LIABILITIES> 590567
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119275557
<SHARES-COMMON-STOCK> 7909345<F1>
<SHARES-COMMON-PRIOR> 8476731<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 57867
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4008197
<ACCUM-APPREC-OR-DEPREC> 7117431
<NET-ASSETS> 122326924
<DIVIDEND-INCOME> 34718
<INTEREST-INCOME> 7262599
<OTHER-INCOME> 0
<EXPENSES-NET> 1103830
<NET-INVESTMENT-INCOME> 6193487
<REALIZED-GAINS-CURRENT> 676108
<APPREC-INCREASE-CURRENT> (1493725)
<NET-CHANGE-FROM-OPS> 5375870
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4335296<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1879000<F1>
<NUMBER-OF-SHARES-REDEEMED> 2743000<F1>
<SHARES-REINVESTED> 296000<F1>
<NET-CHANGE-IN-ASSETS> (15368540)
<ACCUMULATED-NII-PRIOR> 269978
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 5039962
<GROSS-ADVISORY-FEES> 500722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1246157
<AVERAGE-NET-ASSETS> 91488968<F1>
<PER-SHARE-NAV-BEGIN> 11.09<F1>
<PER-SHARE-NII> .53<F1>
<PER-SHARE-GAIN-APPREC> (.03)<F1>
<PER-SHARE-DIVIDEND> .53<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 11.06<F1>
<EXPENSE-RATIO> .92<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Retail Shares Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 091
<NAME> EMERALD U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 57987180
<INVESTMENTS-AT-VALUE> 59790589
<RECEIVABLES> 691334
<ASSETS-OTHER> 4263
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60486186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 386360
<TOTAL-LIABILITIES> 386360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61941113
<SHARES-COMMON-STOCK> 3647459<F1>
<SHARES-COMMON-PRIOR> 7213553<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7547
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3637149
<ACCUM-APPREC-OR-DEPREC> 1803409
<NET-ASSETS> 60099826
<DIVIDEND-INCOME> 69482
<INTEREST-INCOME> 4712582
<OTHER-INCOME> 0
<EXPENSES-NET> 568777
<NET-INVESTMENT-INCOME> 4213287
<REALIZED-GAINS-CURRENT> 664448
<APPREC-INCREASE-CURRENT> (1517543)
<NET-CHANGE-FROM-OPS> 3360192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2726113<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1581000<F1>
<NUMBER-OF-SHARES-REDEEMED> 5289000<F1>
<SHARES-REINVESTED> 142000<F1>
<NET-CHANGE-IN-ASSETS> (42987281)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 6533
<OVERDIST-NET-GAINS-PRIOR> 4301597
<GROSS-ADVISORY-FEES> 270222
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 582829
<AVERAGE-NET-ASSETS> 42643658<F1>
<PER-SHARE-NAV-BEGIN> 10.36<F1>
<PER-SHARE-NII> .65<F1>
<PER-SHARE-GAIN-APPREC> (.09)<F1>
<PER-SHARE-DIVIDEND> .65<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.27<F1>
<EXPENSE-RATIO> .69<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 092
<NAME> EMERALD U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 57987180
<INVESTMENTS-AT-VALUE> 59790589
<RECEIVABLES> 691334
<ASSETS-OTHER> 4263
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60486186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 386360
<TOTAL-LIABILITIES> 386360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61941113
<SHARES-COMMON-STOCK> 0<F1><F2>
<SHARES-COMMON-PRIOR> 136973<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7547
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3637149
<ACCUM-APPREC-OR-DEPREC> 1803409
<NET-ASSETS> 60099826
<DIVIDEND-INCOME> 69482
<INTEREST-INCOME> 4712582
<OTHER-INCOME> 0
<EXPENSES-NET> 568777
<NET-INVESTMENT-INCOME> 4213287
<REALIZED-GAINS-CURRENT> 664448
<APPREC-INCREASE-CURRENT> (1517543)
<NET-CHANGE-FROM-OPS> 3360192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21601<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 1352111<F1>
<NUMBER-OF-SHARES-SOLD> 0<F1>
<NUMBER-OF-SHARES-REDEEMED> 137000<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> (42987281)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 6533
<OVERDIST-NET-GAINS-PRIOR> 4301597
<GROSS-ADVISORY-FEES> 270222
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 582829
<AVERAGE-NET-ASSETS> 0<F1><F2>
<PER-SHARE-NAV-BEGIN> 10.38<F1>
<PER-SHARE-NII> .15<F1>
<PER-SHARE-GAIN-APPREC> (.23)<F1>
<PER-SHARE-DIVIDEND> .14<F1>
<PER-SHARE-DISTRIBUTIONS> 10.16<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 0<F1>
<EXPENSE-RATIO> 1.58<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Share Class
<F2>Class B Shares merged with Retail Class on March 11, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 093
<NAME> EMERALD U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 57987180
<INVESTMENTS-AT-VALUE> 59790589
<RECEIVABLES> 691334
<ASSETS-OTHER> 4263
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60486186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 386360
<TOTAL-LIABILITIES> 386360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61941113
<SHARES-COMMON-STOCK> 2197169<F1>
<SHARES-COMMON-PRIOR> 2590933<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7547
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3637149
<ACCUM-APPREC-OR-DEPREC> 1803409
<NET-ASSETS> 60099826
<DIVIDEND-INCOME> 69482
<INTEREST-INCOME> 4712582
<OTHER-INCOME> 0
<EXPENSES-NET> 568777
<NET-INVESTMENT-INCOME> 4213287
<REALIZED-GAINS-CURRENT> 664448
<APPREC-INCREASE-CURRENT> (1517543)
<NET-CHANGE-FROM-OPS> 3360192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1466587<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 377000<F1>
<NUMBER-OF-SHARES-REDEEMED> 886000<F1>
<SHARES-REINVESTED> 115000<F1>
<NET-CHANGE-IN-ASSETS> (42987281)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 6533
<OVERDIST-NET-GAINS-PRIOR> 4301597
<GROSS-ADVISORY-FEES> 270222
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 582829
<AVERAGE-NET-ASSETS> 24908329<F1>
<PER-SHARE-NAV-BEGIN> 10.39<F1>
<PER-SHARE-NII> .61<F1>
<PER-SHARE-GAIN-APPREC> (.09)<F1>
<PER-SHARE-DIVIDEND> .61<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.30<F1>
<EXPENSE-RATIO> 1.09<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Retail Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 101
<NAME> SMALL CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 143528614
<INVESTMENTS-AT-VALUE> 150912132
<RECEIVABLES> 3830985
<ASSETS-OTHER> 34408
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154777525
<PAYABLE-FOR-SECURITIES> 7057038
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 222267
<TOTAL-LIABILITIES> 7279305
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121183169
<SHARES-COMMON-STOCK> 10209424<F1>
<SHARES-COMMON-PRIOR> 6927590<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18931533
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7383518
<NET-ASSETS> 147498220
<DIVIDEND-INCOME> 677952
<INTEREST-INCOME> 52278
<OTHER-INCOME> 0
<EXPENSES-NET> 1505231
<NET-INVESTMENT-INCOME> (775001)
<REALIZED-GAINS-CURRENT> 19900908
<APPREC-INCREASE-CURRENT> (4469248)
<NET-CHANGE-FROM-OPS> 14656659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 6891681<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3933000<F1>
<NUMBER-OF-SHARES-REDEEMED> 1158000<F1>
<SHARES-REINVESTED> 507000<F1>
<NET-CHANGE-IN-ASSETS> 53722490
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7115045
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1187772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1542792
<AVERAGE-NET-ASSETS> 111178713<F1>
<PER-SHARE-NAV-BEGIN> 12.78<F1>
<PER-SHARE-NII> (.07)<F1>
<PER-SHARE-GAIN-APPREC> 1.81<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 1.00<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.52<F1>
<EXPENSE-RATIO> 1.22<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 102
<NAME> SMALL CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 143528614
<INVESTMENTS-AT-VALUE> 150912132
<RECEIVABLES> 3830985
<ASSETS-OTHER> 34408
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154777525
<PAYABLE-FOR-SECURITIES> 7057038
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 222267
<TOTAL-LIABILITIES> 7279305
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121183169
<SHARES-COMMON-STOCK> 0<F1><F2>
<SHARES-COMMON-PRIOR> 203830<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18931533
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7383518
<NET-ASSETS> 147498220
<DIVIDEND-INCOME> 677952
<INTEREST-INCOME> 52278
<OTHER-INCOME> 0
<EXPENSES-NET> 1505231
<NET-INVESTMENT-INCOME> (775001)
<REALIZED-GAINS-CURRENT> 19900908
<APPREC-INCREASE-CURRENT> (4469248)
<NET-CHANGE-FROM-OPS> 14656659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 206488<F1>
<DISTRIBUTIONS-OTHER> 2593468<F1>
<NUMBER-OF-SHARES-SOLD> 12000<F1>
<NUMBER-OF-SHARES-REDEEMED> 230000<F1>
<SHARES-REINVESTED> 14000<F1>
<NET-CHANGE-IN-ASSETS> 53722490
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7115045
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1187772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1542792
<AVERAGE-NET-ASSETS> 0<F1><F2>
<PER-SHARE-NAV-BEGIN> 12.55<F1>
<PER-SHARE-NII> (.06)<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 12.49<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 0<F1><F2>
<EXPENSE-RATIO> 2.38<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Share Class
<F2>Class B Shares merged into the Retail Shares on March 11, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 103
<NAME> SMALL CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 143528614
<INVESTMENTS-AT-VALUE> 150912132
<RECEIVABLES> 3830985
<ASSETS-OTHER> 34408
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154777525
<PAYABLE-FOR-SECURITIES> 7057038
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 222267
<TOTAL-LIABILITIES> 7279305
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121183169
<SHARES-COMMON-STOCK> 706882<F1>
<SHARES-COMMON-PRIOR> 208049<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18931533
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7383518
<NET-ASSETS> 147498220
<DIVIDEND-INCOME> 677952
<INTEREST-INCOME> 52278
<OTHER-INCOME> 0
<EXPENSES-NET> 1505231
<NET-INVESTMENT-INCOME> (775001)
<REALIZED-GAINS-CURRENT> 19900908
<APPREC-INCREASE-CURRENT> (4469248)
<NET-CHANGE-FROM-OPS> 14656659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 211250<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 678000<F1>
<NUMBER-OF-SHARES-REDEEMED> 195000<F1>
<SHARES-REINVESTED> 16000<F1>
<NET-CHANGE-IN-ASSETS> 53722490
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7115045
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1187772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1542792
<AVERAGE-NET-ASSETS> 7658976<F1>
<PER-SHARE-NAV-BEGIN> 12.77<F1>
<PER-SHARE-NII> (.11)<F1>
<PER-SHARE-GAIN-APPREC> 1.77<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 1.00<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.43<F1>
<EXPENSE-RATIO> 1.59<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Retail Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 111
<NAME> BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 82695215
<INVESTMENTS-AT-VALUE> 96464600
<RECEIVABLES> 816304
<ASSETS-OTHER> 36818
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97317722
<PAYABLE-FOR-SECURITIES> 372040
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 751653
<TOTAL-LIABILITIES> 1123693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77529082
<SHARES-COMMON-STOCK> 6955495<F1>
<SHARES-COMMON-PRIOR> 6198209<F1>
<ACCUMULATED-NII-CURRENT> 4062
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4891500
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13769385
<NET-ASSETS> 96194029
<DIVIDEND-INCOME> 600320
<INTEREST-INCOME> 2433041
<OTHER-INCOME> 0
<EXPENSES-NET> 598721
<NET-INVESTMENT-INCOME> 2434640
<REALIZED-GAINS-CURRENT> 4997685
<APPREC-INCREASE-CURRENT> 4435765
<NET-CHANGE-FROM-OPS> 11868090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2310316<F1>
<DISTRIBUTIONS-OF-GAINS> 1363343<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2360000<F1>
<NUMBER-OF-SHARES-REDEEMED> 1859000<F1>
<SHARES-REINVESTED> 256000<F1>
<NET-CHANGE-IN-ASSETS> 18979193
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1318359
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 497924
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 776126
<AVERAGE-NET-ASSETS> 78368515<F1>
<PER-SHARE-NAV-BEGIN> 11.91<F1>
<PER-SHARE-NII> .35<F1>
<PER-SHARE-GAIN-APPREC> 1.34<F1>
<PER-SHARE-DIVIDEND> .35<F1>
<PER-SHARE-DISTRIBUTIONS> .22<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.03<F1>
<EXPENSE-RATIO> .69<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 112
<NAME> BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 82695215
<INVESTMENTS-AT-VALUE> 96464600
<RECEIVABLES> 816304
<ASSETS-OTHER> 36818
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97317722
<PAYABLE-FOR-SECURITIES> 372040
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 751653
<TOTAL-LIABILITIES> 1123693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77529082
<SHARES-COMMON-STOCK> 0<F1><F2>
<SHARES-COMMON-PRIOR> 193593<F1>
<ACCUMULATED-NII-CURRENT> 4062
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4891500
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13769385
<NET-ASSETS> 96194029
<DIVIDEND-INCOME> 600320
<INTEREST-INCOME> 2433041
<OTHER-INCOME> 0
<EXPENSES-NET> 598721
<NET-INVESTMENT-INCOME> 2434640
<REALIZED-GAINS-CURRENT> 4997685
<APPREC-INCREASE-CURRENT> 4435765
<NET-CHANGE-FROM-OPS> 11868090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13670<F1>
<DISTRIBUTIONS-OF-GAINS> 45345<F1>
<DISTRIBUTIONS-OTHER> 2460266<F1>
<NUMBER-OF-SHARES-SOLD> 29000<F1>
<NUMBER-OF-SHARES-REDEEMED> 227000<F1>
<SHARES-REINVESTED> 4000<F1>
<NET-CHANGE-IN-ASSETS> 18979193
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1318359
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 497924
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 776126
<AVERAGE-NET-ASSETS> 0<F1><F2>
<PER-SHARE-NAV-BEGIN> 11.90<F1>
<PER-SHARE-NII> .08<F1>
<PER-SHARE-GAIN-APPREC> (.01)<F1>
<PER-SHARE-DIVIDEND> .07<F1>
<PER-SHARE-DISTRIBUTIONS> 11.90<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 0<F1><F2>
<EXPENSE-RATIO> 1.48<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Share Class
<F2>Class B Shares have merged with Retail shares on March 11, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 113
<NAME> BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 82695215
<INVESTMENTS-AT-VALUE> 96464600
<RECEIVABLES> 816304
<ASSETS-OTHER> 36818
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97317722
<PAYABLE-FOR-SECURITIES> 372040
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 751653
<TOTAL-LIABILITIES> 1123693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77529082
<SHARES-COMMON-STOCK> 425405<F1>
<SHARES-COMMON-PRIOR> 90005<F1>
<ACCUMULATED-NII-CURRENT> 4062
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4891500
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13769385
<NET-ASSETS> 96194029
<DIVIDEND-INCOME> 600320
<INTEREST-INCOME> 2433041
<OTHER-INCOME> 0
<EXPENSES-NET> 598721
<NET-INVESTMENT-INCOME> 2434640
<REALIZED-GAINS-CURRENT> 4997685
<APPREC-INCREASE-CURRENT> 4435765
<NET-CHANGE-FROM-OPS> 11868090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 99865<F1>
<DISTRIBUTIONS-OF-GAINS> 22583<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 428000<F1>
<NUMBER-OF-SHARES-REDEEMED> 99000<F1>
<SHARES-REINVESTED> 6000<F1>
<NET-CHANGE-IN-ASSETS> 18979193
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1318359
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 497924
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 776126
<AVERAGE-NET-ASSETS> 4667766<F1>
<PER-SHARE-NAV-BEGIN> 12.02<F1>
<PER-SHARE-NII> .30<F1>
<PER-SHARE-GAIN-APPREC> 1.36<F1>
<PER-SHARE-DIVIDEND> .31<F1>
<PER-SHARE-DISTRIBUTIONS> .22<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.15<F1>
<EXPENSE-RATIO> 1.06<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Retail Share Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 121
<NAME> MANAGED BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 74772000
<INVESTMENTS-AT-VALUE> 76584902
<RECEIVABLES> 1157339
<ASSETS-OTHER> 37025
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77779266
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 563657
<TOTAL-LIABILITIES> 563657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74834566
<SHARES-COMMON-STOCK> 7284823<F1>
<SHARES-COMMON-PRIOR> 6532701<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 568141
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1812902
<NET-ASSETS> 77215609
<DIVIDEND-INCOME> 82066
<INTEREST-INCOME> 4772502
<OTHER-INCOME> 0
<EXPENSES-NET> 392823
<NET-INVESTMENT-INCOME> 4461745
<REALIZED-GAINS-CURRENT> 759127
<APPREC-INCREASE-CURRENT> (969641)
<NET-CHANGE-FROM-OPS> 4251231
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4360653<F1>
<DISTRIBUTIONS-OF-GAINS> 815999<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2969000<F1>
<NUMBER-OF-SHARES-REDEEMED> 2626000<F1>
<SHARES-REINVESTED> 409000<F1>
<NET-CHANGE-IN-ASSETS> 6817676
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 644589
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 282877
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 495312
<AVERAGE-NET-ASSETS> 68962664<F1>
<PER-SHARE-NAV-BEGIN> 10.55<F1>
<PER-SHARE-NII> .65<F1>
<PER-SHARE-GAIN-APPREC> (.06)<F1>
<PER-SHARE-DIVIDEND> .65<F1>
<PER-SHARE-DISTRIBUTIONS> .12<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.37<F1>
<EXPENSE-RATIO> .55<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 122
<NAME> MANAGED BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 74772000
<INVESTMENTS-AT-VALUE> 76584902
<RECEIVABLES> 1157339
<ASSETS-OTHER> 37025
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77779266
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 563657
<TOTAL-LIABILITIES> 563657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74834566
<SHARES-COMMON-STOCK> 0<F1><F2>
<SHARES-COMMON-PRIOR> 62205<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 568141
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1812902
<NET-ASSETS> 77215609
<DIVIDEND-INCOME> 82066
<INTEREST-INCOME> 4772502
<OTHER-INCOME> 0
<EXPENSES-NET> 392823
<NET-INVESTMENT-INCOME> 4461745
<REALIZED-GAINS-CURRENT> 759127
<APPREC-INCREASE-CURRENT> (969641)
<NET-CHANGE-FROM-OPS> 4251231
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8459<F1>
<DISTRIBUTIONS-OF-GAINS> 5665<F1>
<DISTRIBUTIONS-OTHER> 508467<F1>
<NUMBER-OF-SHARES-SOLD> 0<F1>
<NUMBER-OF-SHARES-REDEEMED> 63000<F1>
<SHARES-REINVESTED> 1000<F1>
<NET-CHANGE-IN-ASSETS> 6817676
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 644589
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 282877
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 495312
<AVERAGE-NET-ASSETS> 0<F1><F2>
<PER-SHARE-NAV-BEGIN> 10.53<F1>
<PER-SHARE-NII> .14<F1>
<PER-SHARE-GAIN-APPREC> (.29)<F1>
<PER-SHARE-DIVIDEND> .14<F1>
<PER-SHARE-DISTRIBUTIONS> 10.24<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 0<F1><F2>
<EXPENSE-RATIO> 1.48<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Share Class
<F2>Class B Shares merged into Retail Class shares on March 11, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 123
<NAME> MANAGED BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 74772000
<INVESTMENTS-AT-VALUE> 76584902
<RECEIVABLES> 1157339
<ASSETS-OTHER> 37025
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77779266
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 563657
<TOTAL-LIABILITIES> 563657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74834566
<SHARES-COMMON-STOCK> 162938<F1>
<SHARES-COMMON-PRIOR> 77444<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 568141
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1812902
<NET-ASSETS> 77215609
<DIVIDEND-INCOME> 82066
<INTEREST-INCOME> 4772502
<OTHER-INCOME> 0
<EXPENSES-NET> 392823
<NET-INVESTMENT-INCOME> 4461745
<REALIZED-GAINS-CURRENT> 759127
<APPREC-INCREASE-CURRENT> (969641)
<NET-CHANGE-FROM-OPS> 4251231
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 92633<F1>
<DISTRIBUTIONS-OF-GAINS> 13911<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 165000<F1>
<NUMBER-OF-SHARES-REDEEMED> 85000<F1>
<SHARES-REINVESTED> 6000<F1>
<NET-CHANGE-IN-ASSETS> 6817676
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 644589
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 282877
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 495312
<AVERAGE-NET-ASSETS> 1735742<F1>
<PER-SHARE-NAV-BEGIN> 10.59<F1>
<PER-SHARE-NII> .61<F1>
<PER-SHARE-GAIN-APPREC> (.06)<F1>
<PER-SHARE-DIVIDEND> .61<F1>
<PER-SHARE-DISTRIBUTIONS> .12<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.41<F1>
<EXPENSE-RATIO> .91<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Retail Shares Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 131
<NAME> SHORT-TERM FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 53226665
<INVESTMENTS-AT-VALUE> 53715958
<RECEIVABLES> 737351
<ASSETS-OTHER> 35737
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54489046
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 304394
<TOTAL-LIABILITIES> 304394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53634540
<SHARES-COMMON-STOCK> 5282359<F1>
<SHARES-COMMON-PRIOR> 1383426<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 60819
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 489293
<NET-ASSETS> 54184652
<DIVIDEND-INCOME> 70484
<INTEREST-INCOME> 1449947
<OTHER-INCOME> 0
<EXPENSES-NET> 131047
<NET-INVESTMENT-INCOME> 1389384
<REALIZED-GAINS-CURRENT> 57368
<APPREC-INCREASE-CURRENT> 238110
<NET-CHANGE-FROM-OPS> 1684862
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1344515<F1>
<DISTRIBUTIONS-OF-GAINS> 46651<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 4602000<F1>
<NUMBER-OF-SHARES-REDEEMED> 745000<F1>
<SHARES-REINVESTED> 42000<F1>
<NET-CHANGE-IN-ASSETS> 39649592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 51616
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95921
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 230594
<AVERAGE-NET-ASSETS> 23233402<F1>
<PER-SHARE-NAV-BEGIN> 10.15<F1>
<PER-SHARE-NII> .58<F1>
<PER-SHARE-GAIN-APPREC> (.05)<F1>
<PER-SHARE-DIVIDEND> .58<F1>
<PER-SHARE-DISTRIBUTIONS> .03<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.07<F1>
<EXPENSE-RATIO> .53<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 132
<NAME> SHORT-TERM FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 53226665
<INVESTMENTS-AT-VALUE> 53715958
<RECEIVABLES> 737351
<ASSETS-OTHER> 35737
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54489046
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 304394
<TOTAL-LIABILITIES> 304394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53634540
<SHARES-COMMON-STOCK> 0<F1><F2>
<SHARES-COMMON-PRIOR> 15484<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 60819
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 489293
<NET-ASSETS> 54184652
<DIVIDEND-INCOME> 70484
<INTEREST-INCOME> 1449947
<OTHER-INCOME> 0
<EXPENSES-NET> 131047
<NET-INVESTMENT-INCOME> 1389384
<REALIZED-GAINS-CURRENT> 57368
<APPREC-INCREASE-CURRENT> 238110
<NET-CHANGE-FROM-OPS> 1684862
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2024<F1>
<DISTRIBUTIONS-OF-GAINS> 531<F1>
<DISTRIBUTIONS-OTHER> 61388<F1>
<NUMBER-OF-SHARES-SOLD> 4000<F1>
<NUMBER-OF-SHARES-REDEEMED> 20000<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 39649592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 51616
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95921
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 230594
<AVERAGE-NET-ASSETS> 0<F1><F2>
<PER-SHARE-NAV-BEGIN> 10.07<F1>
<PER-SHARE-NII> .12<F1>
<PER-SHARE-GAIN-APPREC> (.10)<F1>
<PER-SHARE-DIVIDEND> .12<F1>
<PER-SHARE-DISTRIBUTIONS> 9.97<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0<F1><F2>
<EXPENSE-RATIO> 1.48<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares Class
<F2>Class B Shares merged into Class A shares on March 11, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 133
<NAME> SHORT-TERM FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 53226665
<INVESTMENTS-AT-VALUE> 53715958
<RECEIVABLES> 737351
<ASSETS-OTHER> 35737
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54489046
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 304394
<TOTAL-LIABILITIES> 304394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53634540
<SHARES-COMMON-STOCK> 97811<F1>
<SHARES-COMMON-PRIOR> 33770<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 60819
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 489293
<NET-ASSETS> 54184652
<DIVIDEND-INCOME> 70484
<INTEREST-INCOME> 1449947
<OTHER-INCOME> 0
<EXPENSES-NET> 131047
<NET-INVESTMENT-INCOME> 1389384
<REALIZED-GAINS-CURRENT> 57368
<APPREC-INCREASE-CURRENT> 238110
<NET-CHANGE-FROM-OPS> 1684862
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 42845<F1>
<DISTRIBUTIONS-OF-GAINS> 983<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 111000<F1>
<NUMBER-OF-SHARES-REDEEMED> 50000<F1>
<SHARES-REINVESTED> 3000<F1>
<NET-CHANGE-IN-ASSETS> 39649592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 51616
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95921
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 230594
<AVERAGE-NET-ASSETS> 828264<F1>
<PER-SHARE-NAV-BEGIN> 10.14<F1>
<PER-SHARE-NII> .55<F1>
<PER-SHARE-GAIN-APPREC> (.04)<F1>
<PER-SHARE-DIVIDEND> .55<F1>
<PER-SHARE-DISTRIBUTIONS> .03<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.07<F1>
<EXPENSE-RATIO> .80<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Retail Shares Class
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 141
<NAME> EQUITY VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-27-1995<F2>
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 3462377
<INVESTMENTS-AT-VALUE> 4019630
<RECEIVABLES> 11276
<ASSETS-OTHER> 10288
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4041194
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 73519
<TOTAL-LIABILITIES> 73519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3384800
<SHARES-COMMON-STOCK> 1873<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 73
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25549
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 557253
<NET-ASSETS> 3967675
<DIVIDEND-INCOME> 60999
<INTEREST-INCOME> 5366
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 66365
<REALIZED-GAINS-CURRENT> 25549
<APPREC-INCREASE-CURRENT> 557253
<NET-CHANGE-FROM-OPS> 649167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 150<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2000<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 3967675
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13675
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110681
<AVERAGE-NET-ASSETS> 4058<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .27<F1>
<PER-SHARE-GAIN-APPREC> 2.18<F1>
<PER-SHARE-DIVIDEND> .27<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.18<F1>
<EXPENSE-RATIO> .00<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Retail Share Class
<F2>Date of Inception
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 142
<NAME> EQUITY VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-27-1995<F2>
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 3462377
<INVESTMENTS-AT-VALUE> 4019630
<RECEIVABLES> 11276
<ASSETS-OTHER> 10288
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4041194
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 73519
<TOTAL-LIABILITIES> 73519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3384800
<SHARES-COMMON-STOCK> 324005<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 73
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25549
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 557253
<NET-ASSETS> 3967675
<DIVIDEND-INCOME> 60999
<INTEREST-INCOME> 5366
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 66365
<REALIZED-GAINS-CURRENT> 25549
<APPREC-INCREASE-CURRENT> 557253
<NET-CHANGE-FROM-OPS> 649167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 66142<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 473000<F1>
<NUMBER-OF-SHARES-REDEEMED> 149000<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 3967675
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13675
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110681
<AVERAGE-NET-ASSETS> 2474822<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .28<F1>
<PER-SHARE-GAIN-APPREC> 2.18<F1>
<PER-SHARE-DIVIDEND> .28<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.18<F1>
<EXPENSE-RATIO> .00<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Institutional Share Class
<F2>Date of Inception
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 151
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-27-1995<F2>
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 17710303
<INVESTMENTS-AT-VALUE> 18644221
<RECEIVABLES> 25855
<ASSETS-OTHER> 11253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18681329
<PAYABLE-FOR-SECURITIES> 909272
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 129534
<TOTAL-LIABILITIES> 1038806
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16562573
<SHARES-COMMON-STOCK> 10149<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 2556
<ACCUMULATED-NET-GAINS> 149235
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 933271
<NET-ASSETS> 17642523
<DIVIDEND-INCOME> 54476
<INTEREST-INCOME> 23368
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 77844
<REALIZED-GAINS-CURRENT> 149235
<APPREC-INCREASE-CURRENT> 933271
<NET-CHANGE-FROM-OPS> 1160350
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 585<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 10000<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 17642523
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38789
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146708
<AVERAGE-NET-ASSETS> 22803<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .04<F1>
<PER-SHARE-GAIN-APPREC> 1.31<F1>
<PER-SHARE-DIVIDEND> .04<F1>
<PER-SHARE-DISTRIBUTIONS> .02<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 11.29<F1>
<EXPENSE-RATIO> .00<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Retail Share Class
<F2>Date of Inception
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000831101
<NAME> EMERALD FUNDS
<SERIES>
<NUMBER> 152
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-27-1995<F2>
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 17710303
<INVESTMENTS-AT-VALUE> 18644221
<RECEIVABLES> 25855
<ASSETS-OTHER> 11253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18681329
<PAYABLE-FOR-SECURITIES> 909272
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 129534
<TOTAL-LIABILITIES> 1038806
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16562573
<SHARES-COMMON-STOCK> 1552465<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 2556
<ACCUMULATED-NET-GAINS> 149235
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 933271
<NET-ASSETS> 17642523
<DIVIDEND-INCOME> 54476
<INTEREST-INCOME> 23368
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 77844
<REALIZED-GAINS-CURRENT> 149235
<APPREC-INCREASE-CURRENT> 933271
<NET-CHANGE-FROM-OPS> 1160350
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 79815<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1580000<F1>
<NUMBER-OF-SHARES-REDEEMED> 27000<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 17642523
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38789
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146708
<AVERAGE-NET-ASSETS> 4204313<F1>
<PER-SHARE-NAV-BEGIN> 10.00<F1>
<PER-SHARE-NII> .06<F1>
<PER-SHARE-GAIN-APPREC> 1.29<F1>
<PER-SHARE-DIVIDEND> .06<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 11.29<F1>
<EXPENSE-RATIO> .00<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Institutional Share Class
<F2>Date of Inception
</FN>
</TABLE>
