<PAGE>
The Achievement Funds
Retail Shares
Class A and Class B Shares
PROSPECTUS
JUNE 1, 2000
--------------------
Equity Fund
Balanced Fund
Intermediate Term
Bond Fund
Short Term Bond Fund
Municipal Bond Fund
Idaho Municipal
Bond Fund
--------------------
INVESTMENT ADVISER
First Security Investment
Management, Inc.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
----------------------------------
[GRAPHIC]
THE ACHIEVEMENT FUNDS-Registered
Trademark-
For Your Life's Journey-Registered
Trademark-
----------------------------------
<PAGE>
PROSPECTUS
[LOGO] 1
--------------------------------------------------------------------------------
ABOUT THIS PROSPECTUS
The Achievement Funds Trust (the "Trust") is a mutual fund that offers different
classes of shares in separate investment portfolios (Portfolios). The Portfolios
have individual investment goals and strategies. This prospectus gives you
important information about the Class A and Class B Shares of the Portfolios
that you should know before investing. Only the Equity, Balanced, Municipal Bond
and Idaho Municipal Bond Funds offer Class B Shares. Please read this prospectus
and keep it for future reference.
Class A and Class B Shares have different expenses and other characteristics,
allowing you to choose the class that best suits your needs. You should consider
the amount you want to invest, how long you plan to have it invested, and
whether you plan to make additional investments.
CLASS A SHARES
- Front-end sales charge
- 12b-1 fee
- $1,000 minimum initial investment
CLASS B SHARES
- Contingent deferred sales charge
- Higher 12b-1 fee
- $1,000 minimum initial investment
- Convert automatically to Class A Shares after 8 years
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THIS PAGE THERE IS SOME GENERAL
INFORMATION ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE PORTFOLIOS. FOR
MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO, PLEASE SEE:
Page
EQUITY FUND ...................................................................2
BALANCED FUND .................................................................5
INTERMEDIATE TERM BOND FUND ...................................................9
SHORT TERM BOND FUND .........................................................12
MUNICIPAL BOND FUND ..........................................................15
IDAHO MUNICIPAL BOND FUND ....................................................18
MORE INFORMATION ABOUT RISK ..................................................21
MORE INFORMATION ABOUT
PORTFOLIO INVESTMENTS ........................................................22
THE INVESTMENT ADVISER
AND PORTFOLIO MANAGERS .......................................................22
PURCHASING, SELLING AND
EXCHANGING PORTFOLIO SHARES ..................................................23
DISTRIBUTION OF PORTFOLIO SHARES .............................................29
DIVIDENDS AND DISTRIBUTIONS ..................................................30
TAXES ........................................................................30
FINANCIAL HIGHLIGHTS .........................................................31
HOW TO OBTAIN MORE
INFORMATION ABOUT
THE ACHIEVEMENT FUNDS ................................................Back Cover
RISK/RETURN INFORMATION COMMON TO THE PORTFOLIOS
Each Portfolio operates as a separate mutual fund. A mutual fund pools
shareholders' money and, using professional investment managers, invests it in
securities.
Each Portfolio has its own investment goal and strategies for reaching that
goal. The investment manager invests the assets of each Portfolio in a way that
it believes will help the Portfolio achieve its goal. Still, investing in a
Portfolio involves risk, as there is no guarantee that a Portfolio will achieve
its goal. An investment manager's judgments about the markets, the economy, or
companies may not anticipate actual market movements, economic conditions or
company performance, and these judgments may affect the return on your
investment. IN FACT, NO MATTER HOW GOOD A JOB AN INVESTMENT MANAGER DOES, YOU
COULD LOSE MONEY ON YOUR INVESTMENT IN A PORTFOLIO, JUST AS YOU COULD WITH OTHER
INVESTMENTS. A PORTFOLIO SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR
GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY.
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices can change daily due to economic
and other events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Portfolio owns and the markets in which they trade.
The effect on a Portfolio of a change in the value of a single security will
depend on how widely the Portfolio diversifies its holdings.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
2 EQUITY FUND
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital appreciation with current income as a secondary consideration
in selecting securities
SHARE PRICE VOLATILITY
High
PRINCIPAL INVESTMENT STRATEGY
Investing in a diversified portfolio of U.S. equity securities
INVESTOR PROFILE
Investors seeking long-term capital appreciation, who are willing to accept the
risk of share price volatility
[ICON]
INVESTMENT STRATEGY
The Equity Fund invests primarily in common stocks and other equity securities.
The Adviser applies an investment approach that is often referred to as "Growth
at a Price," which emphasizes investment in securities of companies that are
experiencing growth in earnings and whose securities appear attractively priced
based on proprietary valuation methods.
Generally, the Portfolio invests in exchange-traded securities of companies with
market capitalizations in excess of $500 million. The Portfolio is diversified
as to issuers and industries, and emphasizes investments in companies that have
medium and large market capitalizations.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach is intended to provide long-term capital
appreciation, which carries with it the potential for price volatility
associated with owning equity securities. The performance of the Portfolio may
differ from the performance of funds that follow a different investment
approach. Examples of different investment approaches include indexing, applying
a different style-specific strategy (e.g., momentum investing), or investing in
different asset classes.
Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Portfolio's securities
may fluctuate from day to day. Individual companies may report poor results or
be negatively affected by industry and/or economic trends and developments. The
prices of securities issued by such companies may suffer a decline in response
which could result in a decline in the value of the Portfolio's shares. These
factors contribute to price volatility, which is the principal risk of investing
in the Portfolio. In addition, during periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
The Portfolio is subject to the risk that mid and large cap equity securities
may underperform other segments of the equity market or the equity markets as a
whole. The Adviser also may not be able to match the performance of the index
which is compared to the Portfolio's total return.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 3
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
The performance of Class A and Class B Shares will differ due to differences in
expenses.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S CLASS A
SHARES FROM YEAR TO YEAR.
THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN THOSE SHOWN BELOW.
[Edgar Representation of Data Points Used in Printed Graphic]
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
16.14% 27.39% 18.06% 23.45%
</TABLE>
BEST QUARTER WORST QUARTER
23.04% -14.32%
(12/31/1998) (09/30/1998)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 5.11%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR CLASS A
SHARES AND CLASS B SHARES, WHICH REFLECTS PAYMENT OF MAXIMUM SALES CHARGES, FOR
THE PERIODS ENDED DECEMBER 31, 1999, TO THOSE OF THE S&P 500 COMPOSITE INDEX.
<TABLE>
<CAPTION>
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
EQUITY FUND 17.90% 21.74%*
--------------------------------------------------------------
S&P 500 COMPOSITE INDEX(1) 21.04% 27.74%**
--------------------------------------------------------------
</TABLE>
* SINCE 3/6/95
** SINCE 3/31/95
<TABLE>
<CAPTION>
CLASS B SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
EQUITY FUND 17.41% 14.08%*
--------------------------------------------------------------
S&P 500 COMPOSITE INDEX(1) 21.04% 22.34%**
--------------------------------------------------------------
</TABLE>
* SINCE 5/8/98
** SINCE 5/31/98
(1) THE S&P 500 COMPOSITE INDEX IS A WIDELY RECOGNIZED, MARKET
CAPITALIZATION-WEIGHTED INDEX (NUMBER OF SHARES OUTSTANDING MULTIPLIED BY
STOCK PRICE) OF 500 STOCKS THAT ARE TRADED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND NASDAQ NATIONAL MARKET. THE INDEX IS DESIGNED
TO MEASURE PERFORMANCE OF THE BROAD DOMESTIC ECONOMY THROUGH CHANGES IN THE
AGGREGATE MARKET VALUE OF 500 STOCKS REPRESENTING ALL MAJOR INDUSTRIES.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
4 EQUITY FUND (continued)
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees that you may pay if you purchase or sell Portfolio
shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY
FROM YOUR INVESTMENT) CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.50% None
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%
</TABLE>
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 0.74% 0.74%
Distribution and Service
(12b-1) Fees 0.25% 1.00%
Other Expenses 0.29% 0.29%
----- -----
Total Annual Portfolio
Operating Expenses 1.28% 2.03%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES ARE AS FOLLOWS:
Equity Fund - Class A 1.15%
Equity Fund - Class B 1.90%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF PORTFOLIO SHARES."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
If you sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $575 $838 $1,121 $1,926
Class B Shares $706 $1,037 $1,293 $2,169
</TABLE>
If you do not sell you shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B Shares $206 $637 $1,093 $2,169
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
BALANCED FUND [LOGO] 5
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Total return consisting of capital appreciation and current income consistent
with prudent investment risk
SHARE PRICE VOLATILITY
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in a diversified portfolio of U.S. equity securities and investment
grade fixed income securities
INVESTOR PROFILE
Investors seeking total return, who are willing to accept a moderate level of
share price volatility
[ICON]
INVESTMENT STRATEGY
The Balanced Fund invests in a combination of equity and fixed income
securities. The Adviser employs an investment strategy intended to provide
long-term capital appreciation with some current income. The Portfolio's fixed
income security holdings should make the value of its shares less volatile than
those of the Equity Fund, but may produce a lower total return than if the
Portfolio were fully invested in equity securities.
CONTINUED ON NEXT PAGE
[ICON]
PRINCIPAL RISKS OF INVESTING
The performance of the Portfolio will reflect the Adviser's success in selecting
particular equity, fixed income and money market securities, as well as the
Adviser's success in allocating Portfolio investments between these asset
classes. The performance of the Portfolio's equity investments may differ from
the performance of funds that follow a different investment approach. Examples
of different investment approaches include indexing and applying a different
style-specific strategy (e.g., momentum investing). The Portfolio's fixed income
approach, with its emphasis on fixed income securities of intermediate maturity,
may experience greater price volatility in response to interest rate changes
than Portfolios that own similar securities with shorter maturities.
Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Portfolio's securities
may fluctuate from day to day. Individual companies may report poor results or
be negatively affected by industry and/or economic trends and developments. The
prices of securities issued by such companies may suffer a decline in response
which could result in a decline in the value of the Portfolio's shares. These
factors contribute to price volatility, which is the principal risk of investing
in the Portfolio.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower-rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
There may be economic or industry changes that impact the ability of bond
issuers to repay principal and make interest payments on their bonds. Changes in
the financial condition or credit ratings of individual issuers may also
adversely affect the value of the Portfolio's fixed income securities.
The Portfolio is subject to the risk that intermediate term fixed income and mid
and large cap equity securities may underperform other segments of the equity or
fixed income market or the equity or fixed income markets as a whole. The
Adviser may also not be able to match the performance of the index which is
compared to the Portfolio's total return.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
6 BALANCED FUND (continued)
--------------------------------------------------------------------------------
(INVESTMENT STRATEGY CONTINUED)
Over time, the Portfolio ordinarily will invest approximately 60% of its assets
in equity securities, although the percentage of assets invested in such
securities may be as low as 25% or as high as 75%. When acquiring equity
securities for the Portfolio, the Adviser will focus on exchange-traded
securities of companies with market capitalizations in excess of $500 million.
The Adviser will apply an investment approach in selecting equity securities
that is often referred to as "Growth at a Price," which emphasizes investments
in securities of companies experiencing growth in earnings and whose securities
appear attractively priced based upon proprietary valuation methods.
Over time, the Portfolio will ordinarily invest approximately 40% of its assets
in investment grade fixed income securities, including mortgage-backed
securities, although the percentage of assets invested in such securities may be
as low as 25% or as high as 75%. In selecting fixed income securities for the
Portfolio, the Adviser focuses principally on intermediate maturity obligations
having a weighted average maturity between three and ten years. Investment grade
fixed income securities are those rated at the time of investment in one of the
four highest rating categories by a major rating agency, or determined by the
Adviser to be of equivalent quality. The Portfolio will not invest more than 20%
of its assets allocated to fixed income securities in securities rated in the
lowest category of investment grade ratings.
The Portfolio will also invest in money market instruments for asset allocation
and cash management purposes. Money market instruments include short term
securities issued by the United States, commercial paper and certificates of
deposit.
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
The performance of Class A and Class B Shares will differ due to differences in
expenses.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S CLASS A
SHARES FROM YEAR TO YEAR.
THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN THOSE SHOWN BELOW.
[Edgar Representation of Data Points Used in Printed Graphic]
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
9.90% 19.59% 13.27% 15.61%
</TABLE>
BEST QUARTER WORST QUARTER
14.19% -8.61%
(12/31/1998) (09/30/1998)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 3.89%.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 7
--------------------------------------------------------------------------------
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR CLASS A
SHARES AND CLASS B SHARES, WHICH REFLECTS PAYMENT OF MAXIMUM SALES CHARGES, FOR
THE PERIODS ENDED DECEMBER 31, 1999, TO THOSE OF THE S&P 500 COMPOSITE INDEX,
THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX, AND A COMPOSITE OF
THESE TWO INDICES.
<TABLE>
<CAPTION>
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
BALANCED FUND 10.43% 14.95%*
--------------------------------------------------------------
COMPOSITE INDEX(1) 12.54% 19.10%**
--------------------------------------------------------------
S&P 500 COMPOSITE INDEX(2) 21.04% 27.74%**
--------------------------------------------------------------
LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX(3) 0.39% 6.51%**
--------------------------------------------------------------
</TABLE>
* SINCE 3/6/95
** SINCE 3/31/95
<TABLE>
<CAPTION>
CLASS B SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
BALANCED FUND 9.80% 8.84%*
--------------------------------------------------------------
COMPOSITE INDEX(1) 12.54% 15.03%**
--------------------------------------------------------------
S&P 500 COMPOSITE INDEX(2) 21.04% 22.34%**
--------------------------------------------------------------
LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX(3) 0.39% 3.67%**
--------------------------------------------------------------
</TABLE>
* SINCE 5/8/98
** SINCE 5/31/98
(1) COMPOSITE INDEX IS COMPRISED OF 60% S&P 500 COMPOSITE INDEX AND 40% LEHMAN
INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX.
(2) THE S&P 500 COMPOSITE INDEX IS A WIDELY RECOGNIZED, MARKET
CAPITALIZATION-WEIGHTED INDEX (NUMBER OF SHARES OUTSTANDING MULTIPLIED BY
STOCK PRICE) OF 500 STOCKS THAT ARE TRADED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND NASDAQ NATIONAL MARKET. THE INDEX IS DESIGNED
TO MEASURE PERFORMANCE OF THE BROAD DOMESTIC ECONOMY THROUGH CHANGES IN THE
AGGREGATE MARKET VALUE OF 500 STOCKS REPRESENTING ALL MAJOR INDUSTRIES.
(3) THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX IS A WIDELY
RECOGNIZED, MARKET VALUE-WEIGHTED (HIGHER MARKET VALUE SECURITIES HAVE MORE
INFLUENCE THAN LOWER MARKET VALUE SECURITIES) INDEX OF GOVERNMENT AND
CORPORATE FIXED-RATE DEBT SECURITIES RATED INVESTMENT GRADE (BBB OR
HIGHER), WITH MATURITIES BETWEEN ONE AND 10 YEARS.
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees that you may pay if you purchase or sell Portfolio
shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY
FROM YOUR INVESTMENT) CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.50% None
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%
</TABLE>
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 0.74% 0.74%
Distribution and Service
(12b-1) Fees 0.25% 1.00%
Other Expenses 0.31% 0.31%
----- -----
Total Annual Portfolio
Operating Expenses 1.30% 2.05%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES ARE AS FOLLOWS:
Balanced Fund - Class A 1.15%
Balanced Fund - Class B 1.90%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF PORTFOLIO SHARES."
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
8 BALANCED FUND (continued)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
If you sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $576 $884 $1,131 $1,947
Class B Shares $708 $1,043 $1,303 $2,190
</TABLE>
If you do not sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B Shares $208 $643 $1,103 $2,190
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
INTERMEDIATE TERM BOND FUND [LOGO] 9
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income consistent with prudent investment risk and liquidity
SHARE PRICE VOLATILITY
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in a portfolio of investment grade fixed income securities, while
maintaining a dollar-weighted average maturity of between three and ten years
INVESTOR PROFILE
Investors seeking current income, who are willing to accept the risks of
investing in fixed income securities
[ICON]
INVESTMENT STRATEGY
The Intermediate Term Bond Fund invests primarily in investment grade fixed
income securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities, and corporate issuers. The Portfolio may invest up to 40% of
its assets in a combination of U.S. dollar denominated bonds of foreign issuers,
mortgage-backed securities, asset-backed securities and floating or variable
rate corporate debt instruments. The Portfolio maintains a dollar-weighted
average maturity between three and ten years; however, there is no limit on the
maximum maturity for a particular investment.
Investment grade fixed income securities are those rated at the time of
investment in one of the four highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality. The Portfolio
will not invest more than 20% of its assets in fixed income securities rated in
the lowest category of investment grade securities.
The Adviser's strategy for the Portfolio is intended to provide relatively
stable current income, a competitive current yield and reasonable principal
volatility. The fixed income securities held by the Portfolio may also have the
potential for moderate price appreciation.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach, with its emphasis on fixed income
securities of intermediate maturity, may experience greater price volatility
than funds that invest in similar quality securities with shorter maturities.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
The Portfolio is subject to the risk that intermediate-term fixed income
securities may underperform other segments of the fixed income market or the
fixed income markets as a whole. The Adviser also may not be able to match the
performance of the index which is compared to the Portfolio's total return.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
10 INTERMEDIATE TERM BOND FUND (continued)
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S CLASS A
SHARES FROM YEAR TO YEAR.
THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN THOSE SHOWN BELOW.
[Edgar Representation of Data Points Used in Printed Graphic]
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
2.27% 7.28% 7.96% -1.94%
</TABLE>
BEST QUARTER WORST QUARTER
4.60% -1.69%
(09/30/1998) (03/31/1996)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 1.63%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR CLASS A
SHARES, WHICH REFLECTS PAYMENT OF MAXIMUM SALES CHARGES, FOR THE PERIODS ENDED
DECEMBER 31, 1999, TO THOSE OF THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND
INDEX.
<TABLE>
<CAPTION>
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE TERM
BOND FUND -5.36% 4.71%*
--------------------------------------------------------------
LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX(1) 0.39% 6.51%**
</TABLE>
* SINCE 3/6/95
** SINCE 3/31/95
(1) THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX IS A WIDELY
RECOGNIZED, MARKET VALUE-WEIGHTED (HIGHER MARKET VALUE SECURITIES HAVE MORE
INFLUENCE THAN LOWER MARKET VALUE SECURITIES) INDEX OF GOVERNMENT AND
CORPORATE FIXED-RATE DEBT SECURITIES RATED INVESTMENT GRADE (BBB OR
HIGHER), WITH MATURITIES BETWEEN ONE AND 10 YEARS.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 11
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees that you may pay if you purchase or sell Portfolio
shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY
FROM YOUR INVESTMENT) CLASS A SHARES
--------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 3.50%
</TABLE>
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* CLASS A SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.60%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.33%
-----
Total Annual Portfolio Operating Expenses 1.18%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES WERE 1.00%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF PORTFOLIO SHARES."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $466 $712 $976 $1,732
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
12 SHORT TERM BOND FUND
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income with preservation of principal and liquidity
SHARE PRICE VOLATILITY
Low
PRINCIPAL INVESTMENT STRATEGY
Investing in a portfolio of high quality fixed income securities, while
maintaining a dollar-weighted average maturity of less than two years
INVESTOR PROFILE
Investors seeking to preserve principal and earn current income
[ICON]
INVESTMENT STRATEGY
The Short Term Bond Fund invests primarily in fixed income securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities, and
corporate issuers. The Portfolio may invest up to 30% of its assets in a
combination of U.S. dollar denominated bonds of foreign issuers, mortgage-backed
securities, asset-backed securities, and floating or variable rate corporate
debt instruments. The Portfolio maintains a dollar-weighted average maturity of
less than two years and individual Portfolio investments will have a maximum
maturity of five years.
The Portfolio invests only in fixed income securities rated at the time of
investment in one of the three highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach, with its emphasis on short term, high
quality fixed income securities, is expected to preserve principal and produce
current income. The Portfolio's investments should experience less price
volatility in response to interest rate changes than funds that invest in
similar securities with longer maturities, but will have less potential for
greater income or price appreciation.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
The Portfolio is subject to the risk that short term fixed income securities may
underperform other segments of the fixed income markets or the fixed income
markets as a whole. The Adviser also may not be able to match the performance of
the index which is compared to the Portfolio's total return.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 13
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S CLASS A
SHARES FROM YEAR TO YEAR.
THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN THOSE SHOWN BELOW.
[Edgar Representation of Data Points Used in Printed Graphic]
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
4.36% 5.55% 5.47% 3.18%
</TABLE>
BEST QUARTER WORST QUARTER
2.13% 0.58%
(09/30/1998) (06/30/1999)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 1.11%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR CLASS A
SHARES, WHICH REFLECTS PAYMENT OF MAXIMUM SALES CHARGES, FOR THE PERIODS ENDED
DECEMBER 31, 1999, TO THOSE OF THE SALOMON 1 YEAR TREASURY BENCHMARK-ON-THE-RUN
INDEX AND TO THOSE OF THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT
SPONSORED/CORPORATE INDEX.
<TABLE>
<CAPTION>
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
SHORT TERM BOND FUND 1.66% 4.79%*
--------------------------------------------------------------
SALOMON 1 YEAR TREASURY
BENCHMARK ON-THE-RUN INDEX(1) 4.04% 5.72%**
--------------------------------------------------------------
SALOMON 1-3 YEAR TREASURY/
GOVERNMENT SPONSORED/
CORPORATE INDEX(2) 3.29% 6.18%**
--------------------------------------------------------------
</TABLE>
* SINCE 3/6/95
** SINCE 3/31/95
(1) THE SALOMON 1 YEAR TREASURY BENCHMARK-ON-THE-RUN INDEX IS AN UNMANAGED
INDEX GENERALLY REPRESENTATIVE OF THE AVERAGE YIELD OF ONE-YEAR TREASURY
BILLS.
(2) THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT SPONSORED/CORPORATE INDEX IS A
WIDELY RECOGNIZED INDEX OF U.S. TREASURY, GOVERNMENT AGENCY AND INVESTMENT
GRADE CORPORATE SECURITIES WITH MATURITIES GREATER THAN 1 YEAR AND LESS
THAN 3 YEARS.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
14 SHORT TERM BOND FUND (continued)
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees that you may pay if you purchase or sell Portfolio
shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY
FROM YOUR INVESTMENT) CLASS A SHARES
--------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 1.50%
</TABLE>
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* CLASS A SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.60%
Distribution and Service
(12b-1) Fees 0.25%
Other Expenses 0.47%
-----
Total Annual Portfolio
Operating Expenses 1.32%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES WERE 1.00%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF PORTFOLIO SHARES."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES $282 $562 $863 $1,716
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
MUNICIPAL BOND FUND [LOGO] 15
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
As high a level of current income exempt from Federal income taxes as is
consistent with preservation of capital
SHARE PRICE VOLATILITY
Moderate
PRINCIPAL INVESTMENT STRATEGY
Investing in a diversified portfolio of investment grade municipal obligations
INVESTOR PROFILE
Investors seeking tax-exempt current income, who are willing to accept moderate
share price volatility
[ICON]
INVESTMENT
STRATEGY
The Municipal Bond Fund invests primarily in municipal securities issued by U.S.
states, territories, possessions and political subdivisions, the interest from
which is exempt from Federal income taxes. The Portfolio will not invest more
than 20% of its assets in securities which pay interest subject to the
alternative minimum tax.
The Portfolio invests only in municipal securities that are investment grade.
Investment grade municipal bonds are those rated at the time of investment in
one of the four highest rating categories by a major rating agency, or
determined by the Adviser to be of equivalent quality. The Portfolio will not
invest more than 20% of its assets in municipal bonds rated in the lowest
category of investment grade ratings. The Portfolio will not invest more than
15% of its assets in obligations of issuers located in any single state,
territory or possession. The Adviser's approach in selecting municipal
securities for the Portfolio is to obtain as high a level of income as is
consistent with moderate share price volatility. There is no restriction on the
Portfolio's average weighted maturity or on the maturity of any single security
held by the Portfolio.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach is expected to provide current tax-exempt
income with moderate price volatility. The Portfolio is not expected to perform
as well as a taxable bond portfolio, but return to shareholders may be as good
or better on an after-tax basis.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
The Portfolio is subject to the risk that its emphasis on current income and
moderate price volatility may cause it to underperform other fixed income funds
that pursue other objectives or the fixed income markets as a whole. The Adviser
also may not be able to match the performance of the index which is compared to
the Portfolio's total return.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
16 MUNICIPAL BOND FUND (continued)
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
The performance of Class A and Class B Shares will differ due to differences in
expenses.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S CLASS A
SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES
CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN BELOW.
[Edgar Representation of Data Points Used in Printed Graphic]
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C>
8.74% 5.58% -4.25%
</TABLE>
BEST QUARTER WORST QUARTER
3.47% -2.25%
(06/30/1997) (12/31/1999)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 2.78%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR CLASS A
SHARES AND CLASS B SHARES, WHICH REFLECTS PAYMENT OF MAXIMUM SALES CHARGES, FOR
THE PERIODS ENDED DECEMBER 31, 1999, TO THOSE OF THE LEHMAN MUNICIPAL BOND
INDEX.
<TABLE>
<CAPTION>
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BOND FUND -8.11% 2.18%*
--------------------------------------------------------------
LEHMAN MUNICIPAL
BOND INDEX(1) -2.07% 4.16%**
--------------------------------------------------------------
</TABLE>
* SINCE 11/4/96
** SINCE 11/30/96
<TABLE>
<CAPTION>
CLASS B SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BOND FUND -9.46% -2.94%*
--------------------------------------------------------------
LEHMAN MUNICIPAL
BOND INDEX(1) -2.07% 1.23%**
--------------------------------------------------------------
</TABLE>
* SINCE 5/8/98
** SINCE 5/31/98
(1) THE LEHMAN MUNICIPAL BOND INDEX IS A WIDELY RECOGNIZED, BROAD BASED TOTAL
RETURN INDEX COMPRISED OF INVESTMENT GRADE, FIXED RATE MUNICIPAL BONDS WITH
MATURITIES OF AT LEAST ONE YEAR. THE BONDS ARE SELECTED FROM ISSUES LARGER
THAN $50 MILLION SINCE JANUARY 1984.
WHAT IS AN INDEX?
An Index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 17
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees that you may pay if you purchase or sell Portfolio
shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY
FROM YOUR INVESTMENT) CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.00% None
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%
</TABLE>
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 0.60% 0.60%
Distribution and Service
(12b-1) Fees 0.25% 1.00%
Other Expenses 0.33% 0.33%
----- -----
Total Annual Portfolio
Operating Expenses 1.18% 1.93%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES ARE AS FOLLOWS:
Municipal Bond Fund - Class A 1.00%
Municipal Bond Fund - Class B 1.65%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF PORTFOLIO SHARES."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
If you sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES $515 $760 $1,023 $1,775
CLASS B SHARES $696 $1,006 $1,242 $2,062
</TABLE>
If you do not sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS B SHARES $196 $606 $1,042 $2,062
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
18 IDAHO MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
High current income exempt from Federal and Idaho income taxes
SHARE PRICE VOLATILITY
Moderate
PRINCIPAL INVESTMENT STRATEGY
Investing in a focused portfolio of investment grade municipal bonds
INVESTOR PROFILE
Investors seeking tax-exempt current income, who are willing to accept some
degree of share price volatility
[ICON]
INVESTMENT
STRATEGY
The Idaho Municipal Bond Fund invests primarily in municipal securities issued
by the State of Idaho and its cities, counties and political subdivisions, the
interest from which is exempt from Federal and Idaho income taxes. The Portfolio
may also invest in the municipal bonds of other U.S. states, territories and
possessions and their political subdivisions. The Portfolio will not invest more
than 20% of its assets in securities which pay interest subject to the
alternative minimum tax.
The Portfolio invests only in municipal bonds that are investment grade.
Investment grade municipal bonds are those rated at the time of investment in
one of the four highest rating categories by a major rating agency, or
determined by the Adviser to be of equivalent quality. The Portfolio will not
invest more than 20% of its assets in municipal bonds rated in the lowest
category of investment grade ratings. There is no restriction on the Portfolio's
average weighted maturity or on the maturity of any single security held by the
Portfolio.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach, with its emphasis on municipal bonds, is
expected to provide current tax-exempt income with moderate risk to principal.
The Portfolio is not expected to perform as well as a taxable bond Portfolio,
but return to shareholders may be as good or better on an after-tax basis.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
The Portfolio's concentration of investments in securities of issuers located in
a single state subjects the Portfolio to economic and government policies of
that state. In addition, the Portfolio is non-diversified, which means that it
may invest in the securities of relatively few issuers. As a result, the
Portfolio may be more susceptible to a single adverse economic, political or
regulatory occurrence affecting one or more of these issuers, and may experience
increased volatility due to its investments in those securities.
The Portfolio is subject to the risk that its market segment, Idaho municipal
securities, may underperform the municipal securities of issuers in other states
or the fixed income markets as a whole. The Adviser also may not be able to
match the performance of the index which is compared to the Portfolio's total
return.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 19
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
The performance of Class A and Class B Shares will differ due to differences in
expenses from year to year.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S CLASS A
SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES
CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN BELOW.
[Edgar Representation of Data Points Used in Printed Graphic]
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
1.79% 7.93% 5.16% -3.62%
</TABLE>
BEST QUARTER WORST QUARTER
3.44% -2.14%
(06/30/1997) (06/30/1999)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 3.15%.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR CLASS A
SHARES AND CLASS B SHARES, WHICH REFLECTS PAYMENT OF MAXIMUM SALES CHARGES, FOR
THE PERIODS ENDED DECEMBER 31, 1999, TO THOSE OF THE LEHMAN 10 YEAR MUNICIPAL
BOND INDEX, TO THOSE OF THE LEHMAN 5 YEAR MUNICIPAL BOND INDEX AND TO THOSE OF
THE LEHMAN MUNICIPAL BOND INDEX.
<TABLE>
<CAPTION>
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
IDAHO MUNICIPAL BOND FUND -7.47% 3.49%*
--------------------------------------------------------------
LEHMAN 10 YEAR MUNICIPAL
BOND INDEX(1) -1.24% 6.01%**
--------------------------------------------------------------
LEHMAN 5 YEAR MUNICIPAL
BOND INDEX(2) 0.74% 5.14%**
--------------------------------------------------------------
LEHMAN MUNICIPAL
BOND INDEX(3) -2.07% 5.91%**
--------------------------------------------------------------
</TABLE>
* SINCE 3/6/95
** SINCE 3/31/95
<TABLE>
<CAPTION>
CLASS B SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
IDAHO MUNICIPAL BOND FUND -8.86% -2.42%*
--------------------------------------------------------------
LEHMAN 10 YEAR MUNICIPAL
BOND INDEX(1) -1.24% 2.00%**
--------------------------------------------------------------
LEHMAN 5 YEAR MUNICIPAL
BOND INDEX(2) 0.74% 2.88%**
--------------------------------------------------------------
LEHMAN MUNICIPAL
BOND INDEX(3) -2.07% 2.12%**
--------------------------------------------------------------
</TABLE>
* SINCE 5/8/98
** SINCE 5/31/98
(1) THE LEHMAN 10 YEAR MUNICIPAL BOND INDEX IS A WIDELY-RECOGNIZED BROAD BASED
TOTAL RETURN INDEX OF LONG-TERM INTERMEDIATE INVESTMENT GRADE TAX-EXEMPT
BONDS. THE INDEX INCLUDES GENERAL OBLIGATION BONDS, REVENUE BONDS, INSURED
BONDS, AND PRE-FUNDED BONDS WITH MATURITIES BETWEEN 9 AND 12 YEARS AND ARE
SELECTED FROM ISSUES LARGER THAN $50 MILLION SINCE JANUARY 1984.
(2) THE LEHMAN 5 YEAR MUNICIPAL BOND INDEX IS A WIDELY-RECOGNIZED INDEX OF
INTERMEDIATE-TERM INVESTMENT GRADE TAX-EXEMPT BONDS. THE INDEX INCLUDES
GENERAL OBLIGATION BONDS, REVENUE BONDS, INSURED BONDS AND PRE-FUNDED BONDS
WITH MATURITIES BETWEEN 4 AND 6 YEARS.
(3) THE LEHMAN MUNICIPAL BOND INDEX IS A WIDELY RECOGNIZED, BROAD BASED TOTAL
RETURN INDEX COMPRISED OF INVESTMENT GRADE, FIXED RATE MUNICIPAL BONDS WITH
MATURITIES OF AT LEAST ONE YEAR. THE BONDS ARE SELECTED FROM ISSUES LARGER
THAN $50 MILLION SINCE JANUARY 1984.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
20 IDAHO MUNICIPAL BOND FUND (continued)
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees that you may pay if you purchase or sell Portfolio
shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY
FROM YOUR INVESTMENT) CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.00% None
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%
</TABLE>
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* CLASS A SHARES CLASS B SHARES
--------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 0.60% 0.60%
Distribution and Service
(12b-1) Fees 0.25% 1.00%
Other Expenses 0.45% 0.45%
----- -----
Total Annual Portfolio
Operating Expenses 1.30% 2.05%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND
ADMINISTRATOR ARE WAIVING A PORTION OF THEIR FEES. THE ADVISER OR
ADMINISTRATOR MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT ANY TIME. WITH
THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES ARE AS
FOLLOWS:
IDAHO MUNICIPAL BOND FUND - CLASS A 1.00%
IDAHO MUNICIPAL BOND FUND - CLASS B 1.65%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF PORTFOLIO SHARES."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
If you sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES $527 $796 $1,084 $1,905
CLASS B SHARES $708 $1,043 $1,303 $2,190
</TABLE>
If you do not sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS B SHARES $208 $643 $1,103 $2,190
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 21
--------------------------------------------------------------------------------
MORE INFORMATION ABOUT RISK
--------------------------------------------------------------------------------
EQUITY RISK
EQUITY FUND
BALANCED FUND
--------------------------------------------------------------------------------
Investments in equity securities and equity derivatives in general are subject
to market risks that may cause their prices to fluctuate over time. The value of
securities of individual companies may fluctuate based upon performance of the
company and industry as well as economic trends and developments. Fluctuations
in the value of equity securities in which a mutual fund invests will cause a
Portfolio's net asset value to fluctuate. An investment in a portfolio of equity
securities may be more suitable for long-term investors who can bear the risk of
these share price fluctuations.
--------------------------------------------------------------------------------
FIXED INCOME RISK
BALANCED FUND
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
MUNICIPAL BOND FUND
IDAHO MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
The market value of fixed income investments changes in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise and during periods
of rising interest rates, the value of those securities falls. While securities
with longer maturities tend to produce higher yields, the prices of longer
maturity securities are also subject to greater market fluctuations as a result
of changes in interest rates. In addition to these fundamental risks, different
types of fixed income securities may be subject to the following additional
risks:
CALL RISK
During periods of falling interest rates, certain debt obligations with
high interest rates may be prepaid (or "called") by the issuer prior to
maturity. This may cause a Portfolio's average weighted maturity to
fluctuate, and may require a Portfolio to invest the resulting proceeds at
lower interest rates.
CREDIT RISK
The possibility that an issuer will be unable to make timely payments of
either principal or interest.
EVENT RISK
Securities may suffer declines in credit quality and market value due to
issuer restructurings or other factors. This risk should be reduced because
of the Portfolio's multiple holdings.
--------------------------------------------------------------------------------
MUNICIPAL ISSUER RISK
MUNICIPAL BOND FUND
IDAHO MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes to the financial condition or credit rating of municipal
issuers may also adversely affect the value of the Portfolio's municipal
securities. Constitutional or legislative limits on borrowing by municipal
issuers may result in reduced supplies of municipal securities. Moreover,
certain municipal securities are backed only by a municipal issuer's ability to
levy and collect taxes.
In addition, for the Idaho Muinicipal Bond Fund, concentration of investments in
issuers located in a single state makes the Portfolio more susceptible to
adverse political or economic developments affecting that state.
--------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
BALANCED FUND
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
--------------------------------------------------------------------------------
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
22
--------------------------------------------------------------------------------
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of a portfolio of
mortgage-backed securities and, therefore, to assess the volatility risk of that
portfolio.
--------------------------------------------------------------------------------
U.S. GOVERNMENT
SECURITIES RISK
BALANCED FUND
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
--------------------------------------------------------------------------------
Although a Portfolio's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued or guaranteed by some U.S.
government agencies are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.
--------------------------------------------------------------------------------
ASSET-BACKED
SECURITIES RISK
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
--------------------------------------------------------------------------------
Asset-backed securities are fixed income securities representing an interest in
a pool of shorter-term loans such as automobile loans, home equity loans,
equipment or computer leases or credit card receivables. The payments from the
loans are passed through to the security holder. The loans underlying
asset-backed securities tend to have prepayment rates that do not vary with
interest rates. In addition, the short-term nature of the loans reduces the
impact of any change in prepayment level. However, it is possible that
prepayments will alter the cash flow on asset-backed securities and it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayment will
lengthen it, affecting the price volatility of the security. However, it is
possible to determine what the range of that movement could be and to calculate
the effect that it will have on the price of the security.
MORE INFORMATION ABOUT PORTFOLIO INVESTMENTS
In addition to the investments and strategies described in this prospectus, each
Portfolio also may invest in other securities, use other strategies and engage
in other investment practices. These investments and strategies, as well as
those described in this prospectus, are described in detail in our Statement of
Additional Information.
The investments and strategies described in this prospectus are those used under
normal conditions. During unusual economic or market conditions, or for
temporary defensive or liquidity purposes, each Portfolio may invest up to 100%
of its assets in fixed income securities, money market instruments and other
securities that would not ordinarily be consistent with the Portfolio's
objectives. Of course, the Trust cannot guarantee that any Portfolio will
achieve its investment goal.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Portfolios and
continuously reviews, supervises and administers each Portfolio's investment
program. The Board of Trustees supervises the Adviser and establishes policies
that the Adviser must follow in its management activities.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 23
--------------------------------------------------------------------------------
First Security Investment Management, Inc. serves as the Adviser to the
Portfolios. As of January 31, 2000, the Adviser had approximately $7.3 billion
in assets under management. For the fiscal year ended January 31, 2000, First
Security Investment Management, Inc. received advisory fees, expressed as a
percentage of assets under management, of:
<TABLE>
<S> <C>
Equity Fund 0.61%
Balanced Fund 0.59%
Intermediate Term Bond Fund 0.42%
Short Term Bond Fund 0.28%
Municipal Bond Fund 0.42%
Idaho Municipal Bond Fund 0.36%
</TABLE>
The Adviser may use its affiliates as brokers for Portfolio transactions.
PORTFOLIO MANAGERS
EQUITY FUND AND BALANCED FUND
Sterling K. Jenson, CFA, is President of the Adviser and has been responsible
for the Equity Fund since its inception in December of 1994 and he assumed
responsibility for the Balanced Fund in January 2000. Before joining the Adviser
in 1990 as a Vice President and Senior Portfolio Manager, Mr. Jenson held
investment positions with First Interstate Bank of Nevada, Moore Trust Company,
and Smoot, Miller, Cheney & Co. His combined experience in the investment
business spans nearly 25 years. He was designated a Chartered Financial Analyst
(CFA) and Chartered Investment Counselor (CIC) in 1984 and earned a Bachelor of
Science, Economics in 1975 and a Master of Business Administration (MBA) in
1977, both from Brigham Young University.
INTERMEDIATE TERM BOND FUND AND SHORT TERM BOND FUND
Mark L. Anderson brings 15 years of financial experience to his management of
the Intermediate Term Bond Fund and Short Term Bond Fund. Currently a Senior
Vice President, Mr. Anderson has been responsible for the portfolios since their
inception in 1995. Since joining the Adviser in 1985, Mr. Anderson has managed
bond, balanced, equity and money market accounts and held positions of
increasing responsibility and leadership. Mr. Anderson attended Brigham Young
University earning a Bachelor of Science in Finance in 1981 and a Master of
Public Administration in 1984.
MUNICIPAL BOND FUND AND
IDAHO MUNICIPAL BOND FUND
John B. Tousley, CFA, is Vice President and Senior Portfolio Manager of the
Adviser and has been responsible for the Idaho Municipal Bond Fund since 1997
and the Municipal Bond Fund since 1999. With nine years experience in the
financial industry, Mr. Tousley has held investment-related positions at Dean
Witter and West One Trust. Mr. Tousley earned a Bachelor of Arts in Economics in
1991 from Brigham Young University and became a Chartered Financial Analyst
(CFA) in 1998.
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange Class A and Class B Shares of the Portfolios.
The classes have different expenses and other characteristics.
CLASS A SHARES
- Front-end sales charge
- 12b-1 fee
- $1,000 minimum initial investment
CLASS B SHARES
- Contingent deferred sales charge
- Higher 12b-1 fee
- $1,000 minimum initial investment
- Convert automatically to Class A Shares after 8 years
For some investors the minimum initial investment for Class A and Class B Shares
may be lower.
The amount of purchase and the length of time the investor expects to hold the
shares will be factors in determining the best class of shares to be purchased.
Investors should consider, over the time they expect to maintain their
investment, whether the
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
24
--------------------------------------------------------------------------------
accumulated distribution and service fees and contingent deferred sales charges
on Class B Shares prior to conversion would be less than the initial sales
charge on Class A Shares, and to what extent such differential would be offset
by the expected higher yield of Class A Shares. Class A Shares will normally be
more beneficial if the investor qualifies for reduced sales charges as described
below.
HOW TO PURCHASE PORTFOLIO SHARES
You may purchase shares directly by:
- Mail
- Telephone
- Wire, or
- Direct Deposit
To purchase shares directly from us, complete and send in an application. If you
need an application or have questions, please refer to our website at
www.achievementfunds.com or call 1-800-472-0577. Unless you arrange to pay by
wire, write your check, payable in U.S. dollars, to "Achievement Funds" and
include the name of the appropriate Portfolio(s) on the check. A Portfolio
cannot accept third-party checks, credit cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Portfolio shares for their customers. If
you invest through an authorized institution, you will have to follow its
procedures which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Portfolio. You will also generally have to address your
correspondence or questions regarding a Portfolio to your institution.
GENERAL INFORMATION
A Portfolio may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Portfolio or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Portfolio receives your purchase order plus, in
the case of Class A Shares, the applicable front-end sales charge.
Each Portfolio calculates its NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(NYSE) (normally, 4:00 p.m. Eastern time). So, for you to receive the current
Business Day's NAV, generally a Portfolio must receive your purchase order
before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
NAV for one Portfolio share is the value of that share's portion of the net
assets of the Portfolio.
In calculating NAV, a Portfolio generally values its investment portfolio at
market price. If market prices are unavailable or a Portfolio thinks that they
are unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase Class A Shares or Class B Shares for the first time, you must invest
at least $1,000 in any Portfolio.
Your subsequent investments in any Portfolio must be made in amounts of at least
$100.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with certain banks, you may purchase
Class A or Class B Shares automatically through regular deductions from your
account in amounts of at least $100.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 25
--------------------------------------------------------------------------------
SALES CHARGES
FRONT-END SALES CHARGES -- CLASS A SHARES
The offering price of Class A Shares is the NAV next calculated after a
Portfolio receives your request, plus the front-end sales load.
The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
EQUITY FUND AND BALANCED FUND
--------------------------------------------------------------------------------
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
PURCHASE A PERCENTAGE OF A PERCENTAGE OF
INVESTED OFFERING PRICE NET AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C>
less than $25,000 4.50% 4.71%
$25,000 but less
than $50,000 4.00% 4.17%
$50,000 but less
than $100,000 3.50% 3.63%
$100,000 but less
than $250,000 3.00% 3.09%
$250,000 but less
than $500,000 2.50% 2.56%
$500,000 but less
than $1,000,000 2.00% 2.04%
$1,000,000 and
over (1) -- --
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
INTERMEDIATE TERM BOND FUND
--------------------------------------------------------------------------------
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
PURCHASE A PERCENTAGE OF A PERCENTAGE OF
INVESTED OFFERING PRICE NET AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C>
less than $50,000 3.50% 3.63%
$50,000 but less
than $100,000 3.00% 3.09%
$100,000 but less
than $250,000 2.50% 2.56%
$250,000 but less
than $500,000 2.00% 2.04%
$500,000 but less
than $1,000,000 1.50% 1.52%
$1,000,000 and
over (1) -- --
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SHORT TERM BOND FUND
--------------------------------------------------------------------------------
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
PURCHASE A PERCENTAGE OF A PERCENTAGE OF
INVESTED OFFERING PRICE NET AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C>
less than $100,000 1.50% 1.52%
$100,000 but less
than $250,000 1.00% 1.01%
$250,000 but less
than $500,000 0.75% 0.76%
$500,000 but less
than $1,000,000 0.50% 0.50%
$1,000,000 and
over (1) -- --
</TABLE>
(1) Although no sales charge is paid by a Customer investing amounts over
$1,000,000, a brokerage commission may be paid in connection with such
transactions.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
26
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MUNICIPAL BOND FUND AND IDAHO MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
PURCHASE A PERCENTAGE OF A PERCENTAGE OF
INVESTED OFFERING PRICE NET AMOUNT
<S> <C> <C>
less than $50,000 4.00% 4.17%
$50,000 but less
than $100,000 3.50% 3.63%
$100,000 but less
than $250,000 3.00% 3.09%
$250,000 but less
than $500,000 2.50% 2.56%
$500,000 but less
than $1,000,000 2.00% 2.04%
$1,000,000 and
over (1) -- --
</TABLE>
(1) Although no sales charge is paid by a Customer investing amounts over
$1,000,000, a brokerage commission may be paid in connection with such
transactions.
WAIVER OF FRONT-END SALES CHARGE - CLASS A SHARES
The front-end sales charge will be waived on Class A Shares purchased:
- through reinvestment of dividends and distributions;
- through certain programs offered by bank affiliates of First Security
Corporation;
- by persons repurchasing shares they redeemed within the last 30 days (see
Repurchase of Class A Shares);
- by investors who purchase shares with redemption proceeds (but only to the
extent of such redemption proceeds) from another investment company within
30 days of such redemption, provided that the investors paid either a front-end
or contingent deferred sales charge on the original shares redeemed;
- by employees, and members of their immediate family, of First Security
Corporation and its affiliates;
- by employees and retirees of the Administrator or Distributor;
- by Trustees and officers of the Trust;
- by persons investing an amount less than or equal to the value of an account
distribution when an account for which a bank affiliated with First Security
Corporation acted in a fiduciary, administrative, custodial or investment
advisory capacity is closed; or
- through dealers, retirement plans, asset allocation programs and financial
institutions that, under their dealer agreements with the Distributor or
otherwise, do not receive any portion of the front-end sales charge.
REPURCHASE OF CLASS A SHARES
You may repurchase any amount of Class A Shares of any Portfolio at NAV (without
the normal front-end sales charge), up to the limit of the value of any amount
of Class A Shares (other than those which were purchased with reinvested
dividends and distributions) that you redeemed within the past 30 days. In
effect, this allows you to reacquire shares that you may have had to redeem,
without re-paying the front-end sales charge. To exercise this privilege, the
Portfolio must receive your purchase order within 30 days of your redemption. In
addition, you must notify the Portfolio when you send in your purchase order
that you are repurchasing shares.
REDUCED SALES CHARGES - CLASS A SHARES
RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. The Portfolio will combine the value
of your current purchases with the current value of any Class A Shares you
purchased previously for your account. A fiduciary purchasing shares for the
same fiduciary
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 27
--------------------------------------------------------------------------------
account, trust or estate may also use this right of accumulation. The Portfolio
will only consider the value of Class A Shares purchased previously that were
sold subject to a sales charge. To be entitled to a reduced sales charge based
on shares already owned, you must ask us for the reduction at the time of
purchase. You must provide the Portfolio with your account number(s). The
Portfolio may amend or terminate this right of accumulation at any time.
LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. Class A Shares purchased with dividends or distributions will
not be included in the calculation. To be entitled to a reduced sales charge
based on shares you intend to purchase over the 13-month period, you must send
the Portfolio a Letter of Intent. In calculating the total amount of purchases
you may include in your letter purchases made up to 90 days before the date of
the Letter. The 13-month period begins on the date of the first purchase,
including those purchases made in the 90-day period before the date of the
Letter.
You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
the Portfolio to hold in escrow 5% of the total amount you intend to purchase.
If you do not complete the total intended purchase at the end of the 13-month
period, the Portfolio's transfer agent will redeem the necessary portion of the
escrowed shares to make up the difference between the reduced rate sales charge
(based on the amount you intended to purchase) and the sales charge that would
normally apply (based on the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Portfolio will combine same day purchases of Class A
Shares (that are subject to a sales charge) made by you, your spouse and your
minor children (under age 21). This combination also applies to Class A Shares
you purchase with a Letter of Intent.
CONTINGENT DEFERRED SALES CHARGES - CLASS B SHARES
You do not pay a sales charge when you purchase Class B Shares. The offering
price of Class B Shares is simply the next calculated NAV. But if you sell your
shares within 6 years after your purchase, you will pay a contingent deferred
sales charge as described in the table below for either (1) the NAV of the
shares at the time of purchase, or (2) NAV of the shares next calculated after
the Portfolio receives your sale request, whichever is less. The sales charge
does not apply to shares you purchase through reinvestment of dividends or
distributions. So, you never pay a deferred sales charge on any increase in your
investment above the initial offering price. This sales charge does not apply to
exchanges of Class B Shares of one Portfolio for Class B Shares of another
Portfolio.
<TABLE>
<CAPTION>
YEAR SINCE CONTINGENT DEFERRED SALES CHARGE
PURCHASE MADE AS A PERCENTAGE OF DOLLAR AMOUNT
----------------------------------------------------
<S> <C>
First 5%
Second 4%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following None
</TABLE>
The contingent deferred sales charge will be waived if you sell your Class B
Shares for the following reasons:
- to make certain withdrawals from a retirement plan (not including IRAs); or
- because of death or disability.
From time to time, some financial institutions, including brokerage firms
affiliated with the Adviser, may be reallowed up to the entire sales charge.
Firms that receive a reallowance of the entire sales charge may be considered
underwriters for the purpose of federal securities law.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
28
--------------------------------------------------------------------------------
HOW TO SELL YOUR PORTFOLIO SHARES
Holders of Class A and Class B Shares may sell shares by following the
procedures established when they opened their account or accounts. If you have
questions, call 1-800-472-0577. If you own your shares through an account with a
broker or other institution, contact that broker or institution to sell your
shares.
If you own your shares directly, you may sell your shares on any Business Day by
contacting a Portfolio directly by mail or telephone at 1-800-472-0577.
If you would like to sell $5,000 or more of your shares, please notify the
Portfolio in writing and include a signature guarantee by a bank or other
financial institution (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Portfolio
receives your request less, in the case of Class B Shares, any applicable
deferred sales charge.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $10,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from any Portfolio. The
proceeds of each withdrawal will be mailed to you by check or, if you have a
checking or savings account with a bank, electronically transferred to your
account.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $15 fee) or sent to you by check. If you recently purchased your shares by
check, redemption proceeds may not be available until your check has cleared
(which may take up to 15 days from your date of purchase).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Portfolio's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $1,000 because of redemptions you may be
required to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
A Portfolio may suspend your right to sell your shares if the NYSE restricts
trading, the Securities and Exchange Commission (SEC) declares an emergency or
for other reasons. More information about this is in our Statement of Additional
Information.
HOW TO EXCHANGE YOUR SHARES
You may exchange your shares on any Business Day by contacting us directly by
mail or telephone. You may exchange shares through your financial institution by
mail or telephone.
When you exchange shares, you are really selling your shares and buying other
Portfolio shares which may produce a gain or loss for tax purposes. Your sale
price and purchase price will be based on the NAV next calculated after the
Portfolio receives your exchange request.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 29
--------------------------------------------------------------------------------
CLASS A SHARES
You may exchange Class A Shares of any Portfolio for Class A Shares of any other
Portfolio. If you exchange shares that you purchased without a sales charge or
with a lower sales charge into a Portfolio with a sales charge or with a higher
sales charge, the exchange is subject to an incremental sales charge (e.g., the
difference between the lower and higher applicable sales charges). If you
exchange shares into a Portfolio with the same, lower or no sales charge there
is no incremental sales charge for the exchange.
CLASS B SHARES
You may exchange Class B Shares of any Portfolio for Class B Shares of any other
Portfolio without incurring a contingent deferred sales charge. No contingent
deferred sales charge is imposed on redemptions of shares you acquire in an
exchange, provided you hold your shares for at least 6 years from your initial
purchase.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although the Trust has certain
safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, the Trust is not responsible for any losses or
costs incurred by following telephone instructions we reasonably believe to be
genuine. If you or your financial institution transact with the Trust over the
telephone, you will generally bear the risk of any loss.
DISTRIBUTION OF PORTFOLIO SHARES
Each Portfolio has adopted a distribution plan that allows the Portfolio to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to shareholders. Because these fees are paid out of a
Portfolio's assets continuously, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
Distribution and service fees, as a percentage of average daily net assets are
as follows:
<TABLE>
<CAPTION>
FOR CLASS A SHARES
<S> <C>
Equity Fund 0.25%
Balanced Fund 0.25%
Intermediate Term Bond Fund 0.25%
Short Term Bond Fund 0.25%
Municipal Bond Fund 0.25%
Idaho Municipal Bond Fund 0.25%
<CAPTION>
For Class B Shares
<S> <C>
Equity Fund 1.00%
Balanced Fund 1.00%
Municipal Bond Fund* 0.90%
Idaho Municipal Bond Fund* 0.90%
</TABLE>
* The Distributor has voluntarily agreed to waive a portion of the distribution
fee payable to it from this Portfolio. Absent this waiver, the distribution
and servicing fee would be 1.00%. The Distributor may terminate its waiver at
any time.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it receives or from any other source available
to it. Under any such program, the Distributor may provide cash or non-cash
compensation as recognition for past sales or encouragement for future sales
that may include the following: merchandise, travel expenses, prizes, meals, and
lodgings, and gifts that do not exceed $100 per year, per individual.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
30
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio distributes its income as follows:
Equity Fund Declared and paid quarterly
Balanced Fund Declared and paid monthly
Intermediate Term Declared daily and
Bond Fund paid monthly
Short Term Bond Fund Declared daily and paid monthly
Municipal Bond Fund Declared daily and paid monthly
Idaho Municipal Declared daily and
Bond Fund paid monthly
Each Portfolio makes distributions of capital gains, if any, at least annually.
If you own Portfolio shares on the last day of the month or quarter, you will be
entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Trust in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Trust
receives your written notice. To cancel your election, simply send the Trust
written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Portfolios and their shareholders. This summary is based on
current tax laws, which may change.
Each Portfolio will distribute substantially all of its income and capital
gains, if any. The dividends and distributions you receive may be subject to
Federal, state and local taxation, depending upon your tax situation.
Distributions you receive from a Portfolio may be taxable whether or not you
reinvest them. Income distributions are generally taxable at ordinary income tax
rates. Capital gains distributions are generally taxable at the rates applicable
to long-term capital gains. EACH SALE OR EXCHANGE OF SHARES IS A TAXABLE EVENT.
The Municipal Bond Fund and the Idaho Municipal Bond Fund intend to distribute
Federally tax-exempt income. The Idaho Municipal Bond Fund also intends to
distribute state tax-exempt income. Each Portfolio may invest a portion of its
assets in securities that generate taxable income for Federal or state income
taxes. Income exempt from Federal tax may be subject to state and local taxes.
Any capital gains distributed by these Portfolios are taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
FINANCIAL HIGHLIGHTS [LOGO] 31
--------------------------------------------------------------------------------
The tables that follow present performance information about Class A and Class B
Shares of each Portfolio. This information is intended to help you understand
each Portfolio's financial performance for the past five years, or, if shorter,
the period of the Portfolio's operations. Some of this information reflects
financial information for a single Portfolio share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in a Portfolio, assuming you reinvested all of your dividends and distributions.
This information has been audited by Deloitte & Touche, LLP, independent
accountants. Their report, along with each Portfolio's financial statements,
appears in the annual report that accompanies the Statement of Additional
Information. You can obtain the annual report, which contains more performance
information, at no charge by accessing our website at www.achievementfunds.com
or by calling 1-800-472-0577.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD OR YEAR
<TABLE>
<CAPTION>
NET NET
ASSET DISTRIBUTIONS DISTRIBUTIONS REALIZED AND ASSET
VALUE, NET FROM NET FROM UNREALIZED VALUE,
BEGINNING INVESTMENT INVESTMENT CAPITAL GAINS (LOSSES) END
OF PERIOD INCOME INCOME GAINS ON INVESTMENTS OF PERIOD
--------------------------------------------------------------------------------------------------------------------------------
EQUITY FUND
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Retail Class A:
For the years ended
January 31, 2000*** $18.01 (0.05) -- (1.51) 1.81 $18.26
January 31, 1999 $15.34 0.02 (0.03) (0.72) 3.40 $18.01
January 31, 1998 $14.04 0.06 (0.06) (1.68) 2.98 $15.34
January 31, 1997 $12.65 0.08 (0.08) (0.94) 2.33 $14.04
For the period ended
January 31, 1996(1)** $10.52 0.14 (0.15) (0.72) 2.86 $12.65
Retail Class B:
For the period ended
January 31, 2000*** $17.93 (0.18) -- (1.51) 1.77 $18.01
January 31, 1999(2)** $17.26 (0.07) (0.01) (0.72) 1.47 $17.93
--------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
--------------------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** $13.97 0.22 (0.22) (0.74) 0.61 $13.84
January 31, 1999 $13.08 0.25 (0.26) (0.86) 1.76 $13.97
January 31, 1998 $12.00 0.28 (0.27) (0.64) 1.71 $13.08
January 31, 1997 $11.78 0.31 (0.32) (0.78) 1.01 $12.00
For the period ended
January 31, 1996(1)** $10.34 0.32 (0.31) (0.42) 1.85 $11.78
Retail Class B:
For the period ended
January 31, 2000*** $13.95 0.12 (0.12) (0.74) 0.60 $13.81
January 31, 1999(2)** $14.09 0.11 (0.12) (0.87) 0.74 $13.95
--------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE TERM BOND FUND
--------------------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** $10.79 0.56 (0.57) -- (0.85) $ 9.93
January 31, 1999 $10.66 0.58 (0.59) -- 0.14 $10.79
January 31, 1998 $10.40 0.60 (0.60) -- 0.26 $10.66
January 31, 1997 $10.82 0.60 (0.60) -- (0.42) $10.40
For the period ended
January 31, 1996(1)** $10.16 0.56 (0.55) -- 0.65 $10.82
<CAPTION>
RATIO
OF EXPENSES
NET RATIO TO AVERAGE RATIO OF
ASSETS, END OF EXPENSES NET ASSETS NET INCOME
TOTAL OF PERIOD TO AVERAGE (EXCLUDING TO AVERAGE
RETURN+ (000) NET ASSETS WAIVERS) NET ASSETS
-----------------------------------------------------------------------------------------------------------------------
EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Retail Class A:
For the years ended
January 31, 2000*** 9.73% $12,959 1.15% 1.28% (0.25)%
January 31, 1999 23.64% $12,064 1.15% 1.31% 0.12%
January 31, 1998 21.78% $9,756 1.15% 1.28% 0.33%
January 31, 1997 19.72% $4,099 1.15% 1.31% 0.52%
For the period ended
January 31, 1996(1)** 32.34%* $1,769 1.15% 1.37% 0.99%
Retail Class B:
For the period ended
January 31, 2000*** 8.82% $2,958 1.90% 2.03% (1.00)%
January 31, 1999(2)** 10.97% $2,185 1.90% 2.10% (0.85)%
-----------------------------------------------------------------------------------------------------------------------
BALANCED FUND
-----------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** 5.91% $4,047 1.15% 1.30% 1.59%
January 31, 1999 16.50% $4,339 1.15% 1.30% 1.90%
January 31, 1998 16.92% $3,869 1.15% 1.27% 2.23%
January 31, 1997 11.81% $2,875 1.15% 1.32% 2.64%
For the period ended
January 31, 1996(1)** 23.88%* $1,664 1.15% 1.38% 3.06%
Retail Class B:
For the period ended
January 31, 2000*** 5.07% $2,049 1.90% 2.05% 0.84%
January 31, 1999(2)** 7.99%* $1,481 1.90% 2.07% 1.00%
-----------------------------------------------------------------------------------------------------------------------
INTERMEDIATE TERM BOND FUND
-----------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** (2.78)% $1,198 1.00% 1.18% 5.49%
January 31, 1999 6.91% $1,743 1.00% 1.15% 5.48%
January 31, 1998 8.60% $2,776 1.00% 1.11% 5.75%
January 31, 1997 1.80% $2,730 1.00% 1.18% 5.76%
For the period ended
January 31, 1996(1)** 13.49%* $963 1.00% 1.26% 5.74%
<CAPTION>
RATIO OF
NET INCOME
TO AVERAGE
NET ASSETS PORTFOLIO
(EXCLUDING TURNOVER
WAIVERS) RATE
-----------------------------------------------------------------------------------
EQUITY FUND
-----------------------------------------------------------------------------------
<S> <C> <C>
Retail Class A:
For the years ended
January 31, 2000*** (0.38)% 40.22%
January 31, 1999 (0.04)% 74.99%
January 31, 1998 0.20% 36.68%
January 31, 1997 0.36% 97.14%
For the period ended
January 31, 1996(1)** 0.77% 103.85%
Retail Class B:
For the period ended
January 31, 2000*** (1.13)% 40.22%
January 31, 1999(2)** (1.05)% 74.99%
-----------------------------------------------------------------------------------
BALANCED FUND
-----------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** 1.44% 33.27%
January 31, 1999 1.75% 54.88%
January 31, 1998 2.11% 30.91%
January 31, 1997 2.47% 68.11%
For the period ended
January 31, 1996(1)** 2.83% 59.74%
Retail Class B:
For the period ended
January 31, 2000*** 0.69% 33.27%
January 31, 1999(2)** 0.83% 54.88%
-----------------------------------------------------------------------------------
INTERMEDIATE TERM BOND FUND
-----------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** 5.31% 21.46%
January 31, 1999 5.34% 28.03%
January 31, 1998 5.64% 20.91%
January 31, 1997 5.58% 21.23%
For the period ended
January 31, 1996(1)** 5.48% 85.16%
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
32 [LOGO]
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD OR YEAR
<TABLE>
<CAPTION>
NET NET
ASSET DISTRIBUTIONS DISTRIBUTIONS REALIZED AND ASSET
VALUE, NET FROM NET FROM UNREALIZED VALUE,
BEGINNING INVESTMENT INVESTMENT CAPITAL GAINS (LOSSES) END
OF PERIOD INCOME INCOME GAINS ON INVESTMENTS OF PERIOD
---------------------------------------------------------------------------------------------------------------------------------
SHORT TERM BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Retail Class A:
For the years ended
January 31, 2000*** $10.00 0.51 (0.51) -- (0.23) $9.77
January 31, 1999 $10.04 0.52 (0.52) -- (0.04) $10.00
January 31, 1998 $10.00 0.55 (0.55) -- 0.04 $10.04
January 31, 1997 $10.18 0.57 (0.58) -- (0.17) $10.00
For the period ended
January 31, 1996(1)** $10.03 0.53 (0.52) -- 0.14 $10.18
---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** $10.29 0.46 (0.47) (0.02) (1.06) $9.20
January 31, 1999 $10.38 0.47 (0.47) (0.18) 0.09 $10.29
January 31, 1998 $10.01 0.46 (0.46) (0.12) 0.49 $10.38
For the period ended
January 31, 1997(3)** $10.01 0.15 (0.15) -- -- $10.01
Retail Class B:
For the period ended
January 31, 2000*** $10.30 0.40 (0.40) (0.02) (1.08) $9.20
January 31, 1999(2)** $10.27 0.30 (0.30) (0.18) 0.21 $10.30
---------------------------------------------------------------------------------------------------------------------------------
IDAHO MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** $10.93 0.44 (0.45) (0.08) (0.99) $9.85
January 31, 1999 $10.85 0.45 (0.45) (0.05) 0.13 $10.93
January 31, 1998 $10.44 0.45 (0.45) (0.04) 0.45 $10.85
January 31, 1997 $10.83 0.44 (0.44) (0.06) (0.33) $10.44
For the period ended
January 31, 1996(1)** $10.21 0.41 (0.40) (0.12) 0.73 $10.83
Retail Class B:
For the period ended
January 31, 2000*** $10.94 0.37 (0.37) (0.08) (1.00) $9.86
January 31, 1999(2)** $10.69 0.27 (0.27) (0.05) 0.30 $10.94
<CAPTION>
RATIO
OF EXPENSES
NET RATIO TO AVERAGE RATIO OF
ASSETS, END OF EXPENSES NET ASSETS NET INCOME
TOTAL OF PERIOD TO AVERAGE (EXCLUDING TO AVERAGE
RETURN+ (000) NET ASSETS WAIVERS) NET ASSETS
----------------------------------------------------------------------------------------------------------------------
SHORT TERM BOND FUND
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Retail Class A:
For the years ended
January 31, 2000*** 2.87% $159 1.00% 1.32% 5.16%
January 31, 1999 4.94% $148 1.00% 1.25% 5.25%
January 31, 1998 6.04% $204 1.00% 1.18% 5.43%
January 31, 1997 4.04% $443 1.00% 1.20% 5.74%
For the period ended
January 31, 1996(1)** 7.55%* $39 1.00% 1.23% 5.75%
----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
----------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** (6.10)% $4,814 1.00% 1.18% 4.69%
January 31, 1999 5.48% $7,226 1.00% 1.19% 4.53%
January 31, 1998 9.78% $9,943 1.00% 1.32% 4.48%
For the period ended
January 31, 1997(3)** 1.48%* $4,895 1.00% 1.29% 4.35%
Retail Class B:
For the period ended
January 31, 2000*** (6.81)% $2,759 1.65% 1.93% 4.08%
January 31, 1999(2)** 4.87%* $2,235 1.75% 1.98% 3.84%
----------------------------------------------------------------------------------------------------------------------
IDAHO MUNICIPAL BOND FUND
----------------------------------------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** (5.24)% $8,790 1.00% 1.30% 4.26%
January 31, 1999 5.43% $11,695 1.00% 1.32% 4.10%
January 31, 1998 8.84% $9,281 1.00% 1.37% 4.22%
January 31, 1997 1.05% $5,475 1.00% 1.47% 4.15%
For the period ended
January 31, 1996(1)** 12.60%* $3,109 1.00% 1.58% 4.18%
Retail Class B:
For the period ended
January 31, 2000*** (5.87)% $1,903 1.65% 2.05% 3.64%
January 31, 1999(2)** 5.37%* $1,346 1.75% 2.07% 3.32%
<CAPTION>
RATIO OF
NET INCOME
TO AVERAGE
NET ASSETS PORTFOLIO
(EXCLUDING TURNOVER
WAIVERS) RATE
------------------------------------------------------------------------------------
SHORT TERM BOND FUND
------------------------------------------------------------------------------------
<S> <C> <C>
Retail Class A:
For the years ended
January 31, 2000*** 4.84% 57.49%
January 31, 1999 5.00% 26.51%
January 31, 1998 5.25% 48.90%
January 31, 1997 5.54% 40.80%
For the period ended
January 31, 1996(1)** 5.52% 83.64%
------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** 4.51% 15.96%
January 31, 1999 4.34% 46.00%
January 31, 1998 4.16% 93.18%
For the period ended
January 31, 1997(3)** 4.06% 19.21%
Retail Class B:
For the period ended
January 31, 2000*** 3.80% 15.96%
January 31, 1999(2)** 3.61% 46.00%
------------------------------------------------------------------------------------
IDAHO MUNICIPAL BOND FUND
------------------------------------------------------------------------------------
Retail Class A:
For the years ended
January 31, 2000*** 3.96% 16.35%
January 31, 1999 3.78% 12.90%
January 31, 1998 3.85% 17.64%
January 31, 1997 3.68% 29.13%
For the period ended
January 31, 1996(1)** 3.60% 58.94%
Retail Class B:
For the period ended
January 31, 2000*** 3.24% 16.35%
January 31, 1999(2)** 3.00% 12.90%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for the period have been annualized.
*** Per share amounts for the period are based on average outstanding shares.
+ Returns do not reflect any sales load that may be applicable.
(1) Commenced operations on March 6, 1995.
(2) Commenced operations on May 8, 1998.
(3) Commenced operations on November 4, 1996.
Amounts designated as "--" are either $0 or have been rounded to $0.
--------------------------------------------------------------------------------
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
[GRAPHIC]
<PAGE>
THE ACHIEVEMENT FUNDS
Retail Shares
Class A and Class B Shares
INVESTMENT ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Ballard Spahr Andrews & Ingersoll, LLP
1225 17th Street
Suite 2300
Denver, Colorado 80202
More information about each Portfolio is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated June 1, 2000, includes detailed information about the Trust. The
SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Portfolio's holdings and contain information from the
Portfolio's managers about strategies, and recent market conditions and trends
and their impact on Portfolio performance. The reports also contain detailed
financial information about the Portfolios.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
By Telephone: Call 1-800-472-0577
By Mail: The Achievement Funds
One Freedom Valley Drive
Oaks, Pennsylvania 19456
By Internet: www.achievementfunds.com
[LOGO]
[SIDEBAR]
--------------------------------------------------------------------------------
From the SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about the Trust, from the EDGAR Database on the
SEC's website ("http://www.sec.gov"). You may review and copy documents at the
SEC Public Reference Room in Washington, DC (for information on the operation of
the Public Reference Room, call 202-942-8090). You may request documents by mail
from the SEC, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You
may also obtain this information, upon payment of a duplicating fee, by
e-mailing the SEC at the following address: [email protected]. The Trust's
Investment Company Act registration number is 811-5712.
--------------------------------------------------------------------------------
ACH-F-009-07
<PAGE>
THE ACHIEVEMENT FUNDS
INSTITUTIONAL CLASS SHARES
PROSPECTUS
JUNE 1, 2000
------------------------
Equity Fund
Balanced Fund
Intermediate Term
Bond Fund
Short Term Bond Fund
Municipal Bond Fund
Idaho Municipal
Bond Fund
------------------------
INVESTMENT ADVISER
First Security Investment
Management, Inc.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
-------------------------------------------------------------
[GRAPHIC] THE
ACHIEVEMENT
FUNDS-Registered Trademark-
For Your Life's Journey-Registered Trademark-
-------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 1
--------------------------------------------------------------------------------
ABOUT THIS PROSPECTUS
The Achievement Funds Trust (the "Trust") is a mutual fund that offers different
classes of shares in separate investment portfolios (Portfolios). The Portfolios
have individual investment goals and strategies. This prospectus gives you
important information about the Institutional Class Shares of the Portfolios
that you should know before investing. Please read this prospectus and keep it
for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THIS PAGE THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE
PORTFOLIOS. FOR MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO, PLEASE SEE:
Page
EQUITY FUND ................................................................ 2
BALANCED FUND .............................................................. 5
INTERMEDIATE TERM BOND FUND ................................................ 8
SHORT TERM BOND FUND ....................................................... 11
MUNICIPAL BOND FUND ........................................................ 14
IDAHO MUNICIPAL BOND FUND .................................................. 17
MORE INFORMATION ABOUT RISK ................................................ 20
MORE INFORMATION ABOUT
PORTFOLIO INVESTMENTS ...................................................... 21
THE INVESTMENT ADVISER
AND PORTFOLIO MANAGERS ..................................................... 21
PURCHASING, SELLING AND
EXCHANGING PORTFOLIO SHARES ................................................ 22
DIVIDENDS AND DISTRIBUTIONS ................................................ 24
TAXES ...................................................................... 25
FINANCIAL HIGHLIGHTS ....................................................... 26
HOW TO OBTAIN MORE
INFORMATION ABOUT
THE ACHIEVEMENT FUNDS ...............................................Back Cover
RISK/RETURN INFORMATION
COMMON TO THE PORTFOLIOS
Each Portfolio operates as a separate mutual fund. A mutual fund pools
shareholders' money and, using professional investment managers, invests it in
securities.
Each Portfolio has its own investment goal and strategies for reaching that
goal. The investment manager invests the assets of each Portfolio in a way that
it believes will help the Portfolio achieve its goal. Still, investing in a
Portfolio involves risk, as there is no guarantee that a Portfolio will achieve
its goal. An investment manager's judgments about the markets, the economy, or
companies may not anticipate actual market movements, economic conditions or
company performance, and these judgments may affect the return on your
investment. IN FACT, NO MATTER HOW GOOD A JOB AN INVESTMENT MANAGER DOES, YOU
COULD LOSE MONEY ON YOUR INVESTMENT IN A PORTFOLIO, JUST AS YOU COULD WITH OTHER
INVESTMENTS. A PORTFOLIO SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR
GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY.
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices can change daily due to economic
and other events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Portfolio owns and the markets in which they trade.
The effect on a Portfolio of a change in the value of a single security will
depend on how widely the Portfolio diversifies its holdings.
<PAGE>
PROSPECTUS
2 EQUITY FUND
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital appreciation with current income as a secondary consideration
in selecting securities
SHARE PRICE VOLATILITY
High
PRINCIPAL INVESTMENT STRATEGY
Investing in a diversified portfolio of U.S. equity securities
INVESTOR PROFILE
Investors seeking long-term capital appreciation, who are willing to accept the
risk of share price volatility
[ICON]
INVESTMENT STRATEGY
The Equity Fund invests primarily in common stocks and other equity securities.
The Adviser applies an investment approach that is often referred to as "Growth
at a Price," which emphasizes investment in securities of companies that are
experiencing growth in earnings and whose securities appear attractively priced
based on proprietary valuation methods.
Generally, the Portfolio invests in exchange-traded securities of companies with
market capitalizations in excess of $500 million. The Portfolio is diversified
as to issuers and industries, and emphasizes investments in companies that have
medium and large market capitalizations.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach is intended to provide long-term capital
appreciation, which carries with it the potential for price volatility
associated with owning equity securities. The performance of the Portfolio may
differ from the performance of funds that follow a different investment
approach. Examples of different investment approaches include indexing, applying
a different style-specific strategy (e.g., momentum investing), or investing in
different asset classes.
Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Portfolio's securities
may fluctuate from day to day.
Individual companies may report poor results or be negatively affected by
industry and/or economic trends and developments. The prices of securities
issued by such companies may suffer a decline in response which could result in
a decline in the value of the Portfolio's shares. These factors contribute to
price volatility, which is the principal risk of investing in the Portfolio. In
addition, during periods of particularly volatile market conditions, the
Portfolio may not be able to buy or sell securities at favorable prices, and the
Portfolio may experience losses.
The Portfolio is subject to the risk that mid and large cap equity securities
may underperform other segments of the equity market or the equity markets as a
whole. The Adviser also may not be able to match the performance of the index
which is compared to the Portfolio's total return.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 3
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S INSTITUTIONAL
CLASS SHARES FROM YEAR TO YEAR.
ANNUAL TOTAL RETURNS
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C>
32.75% 16.48% 27.77% 18.46% 23.70%
</TABLE>
BEST QUARTER WORST QUARTER
23.25% -14.21%
(12/31/1998) (09/30/1998)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 5.19%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE S&P 500 COMPOSITE INDEX.
<TABLE>
<CAPTION>
SINCE
INSTITUTIONAL CLASS SHARES 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY FUND 23.70% 23.69% 23.51%*
--------------------------------------------------------------------------------
S&P 500
COMPOSITE INDEX(1) 21.04% 28.55% 28.55%**
--------------------------------------------------------------------------------
</TABLE>
* SINCE 12/28/94
** SINCE 12/31/94
(1) THE S&P 500 COMPOSITE INDEX IS A WIDELY RECOGNIZED, MARKET
CAPITALIZATION-WEIGHTED INDEX (NUMBER OF SHARES OUTSTANDING MULTIPLIED BY
STOCK PRICE) OF 500 STOCKS THAT ARE TRADED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND NASDAQ NATIONAL MARKET. THE INDEX IS DESIGNED TO
MEASURE PERFORMANCE OF THE BROAD DOMESTIC ECONOMY THROUGH CHANGES IN THE
AGGREGATE MARKET VALUE OF 500 STOCKS REPRESENTING ALL MAJOR INDUSTRIES.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
4 EQUITY FUND (continued)
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* INSTITUTIONAL CLASS SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.74%
Other Expenses 0.29%
-----
Total Annual Portfolio Operating Expenses 1.03%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES WERE 0.90%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
INSTITUTIONAL
CLASS SHARES $105 $328 $569 $1,259
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
BALANCED FUND [LOGO] 5
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Total return consisting of capital appreciation and current income consistent
with prudent investment risk
SHARE PRICE VOLATILITY
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in a diversified portfolio of U.S. equity securities and investment
grade fixed income securities
INVESTOR PROFILE
Investors seeking total return, who are willing to accept a moderate level of
share price volatility
[ICON]
INVESTMENT STRATEGY
The Balanced Fund invests in a combination of equity and fixed income
securities. The Adviser employs an investment strategy intended to provide
long-term capital appreciation with some current income. The Portfolio's fixed
income security holdings should make the value of its shares less volatile than
those of the Equity Fund, but may produce a lower total return than if the
Portfolio were fully invested in equity securities.
CONTINUED ON NEXT PAGE
[ICON]
PRINCIPAL RISKS OF INVESTING
The performance of the Portfolio will reflect the Adviser's success in selecting
particular equity, fixed income and money market securities, as well as the
Adviser's success in allocating Portfolio investments between these asset
classes. The performance of the Portfolio's equity investments may differ from
the performance of funds that follow a different investment approach. Examples
of different investment approaches include indexing and applying a different
style-specific strategy (e.g., momentum investing). The Portfolio's fixed income
approach, with its emphasis on fixed income securities of intermediate maturity,
may experience greater price volatility in response to interest rate changes
than Portfolios that own similar securities with shorter maturities.
Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Portfolio's securities
may fluctuate from day to day. Individual companies may report poor results or
be negatively affected by industry and/or economic trends and developments. The
prices of securities issued by such companies may suffer a decline in response
which could result in a decline in the value of the Portfolio's shares. These
factors contribute to price volatility, which is the principal risk of investing
in the Portfolio.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower-rated
securities is often greater than that of higher rated securities. Longer-term
securities are generally more volatile, so the average maturity or duration
of these securities affects risk. During periods of particularly volatile
market conditions, the Portfolio may not be able to buy or sell securities at
favorable prices, and the Portfolio may experience losses.
There may be economic or industry changes that impact the ability of bond
issuers to repay principal and make interest payments on their bonds. Changes in
the financial condition or credit ratings of individual issuers may also
adversely affect the value of the Portfolio's fixed income securities.
The Portfolio is subject to the risk that intermediate term fixed income and mid
and large cap equity securities may underperform other segments of the equity or
fixed income market or the equity or fixed income markets as a whole. The
Adviser may also not be able to match the performance of the index which is
compared to the Portfolio's total return.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
6 BALANCED FUND (continued)
--------------------------------------------------------------------------------
(INVESTMENT STRATEGY CONTINUED)
Over time, the Portfolio ordinarily will invest approximately 60% of its assets
in equity securities, although the percentage of assets invested in such
securities may be as low as 25% or as high as 75%. When acquiring equity
securities for the Portfolio, the Adviser will focus on exchange-traded
securities of companies with market capitalizations in excess of $500 million.
The Adviser will apply an investment approach in selecting equity securities
that is often referred to as "Growth at a Price," which emphasizes investments
in securities of companies experiencing growth in earning and whose securities
appear attractively priced based upon proprietary valuation methods.
Over time, the Portfolio will ordinarily invest approximately 40% of its assets
in investment grade fixed income securities, including mortgage-backed
securities, although the percentage of assets invested in such securities may be
as low as 25% or as high as 75%. In selecting fixed income securities for the
Portfolio, the Adviser focuses principally on intermediate maturity obligations
having a weighted average maturity between three and ten years. Investment grade
fixed income securities are those rated at the time of investment in one of the
four highest rating categories by a major rating agency, or determined by the
Adviser to be of equivalent quality. The Portfolio will not invest more than 20%
of its assets allocated to fixed income securities in securities rated in the
lowest category of investment grade ratings.
The Portfolio will also invest in money market instruments for asset allocation
and cash management purposes. Money market instruments include short term
securities issued by the United States, commercial paper and certificates of
deposit.
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S INSTITUTIONAL
CLASS SHARES FROM YEAR TO YEAR.
ANNUAL TOTAL RETURNS
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C>
24.63% 10.11% 19.98% 13.51% 15.87%
</TABLE>
BEST QUARTER WORST QUARTER
14.24% -8.48%
(12/31/1998) (09/30/1998)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 3.95%.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 7
--------------------------------------------------------------------------------
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE S&P 500 COMPOSITE INDEX, THE LEHMAN
INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX AND A COMPOSITE OF THESE TWO
INDICES.
<TABLE>
<CAPTION>
SINCE
INSTITUTIONAL CLASS SHARES 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED FUND 15.87% 16.71% 16.60%*
--------------------------------------------------------------------------------
COMPOSITE INDEX(1) 12.54% 19.80% 19.80%**
--------------------------------------------------------------------------------
S&P 500 COMPOSITE
INDEX(2) 21.04% 28.55% 28.55%**
--------------------------------------------------------------------------------
LEHMAN
INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX(3) 0.39% 7.09% 7.09%**
--------------------------------------------------------------------------------
</TABLE>
* SINCE 12/28/94
** SINCE 12/31/94
(1) COMPOSITE INDEX IS COMPRISED OF 60% S&P 500 COMPOSITE INDEX AND 40% LEHMAN
INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX.
(2) THE S&P 500 COMPOSITE INDEX IS A WIDELY RECOGNIZED, CAPITALIZATION-WEIGHTED
INDEX (NUMBER OF SHARES OUTSTANDING MULTIPLIED BY STOCK PRICE) OF 500 STOCKS
THAT ARE TRADED ON THE NEW YORK STOCK EXCHANGE, AMERICAN STOCK EXCHANGE AND
NASDAQ NATIONAL MARKET. THE INDEX IS DESIGNED TO MEASURE PERFORMANCE OF THE
BROAD DOMESTIC ECONOMY THROUGH CHANGES IN THE AGGREGATE MARKET VALUE OF 500
STOCKS REPRESENTING ALL MAJOR INDUSTRIES.
(3) THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX IS A WIDELY
RECOGNIZED, MARKET VALUE-WEIGHTED (HIGHER MARKET VALUE SECURITIES HAVE MORE
INFLUENCE THAN LOWER MARKET VALUE SECURITIES) INDEX OF GOVERNMENT AND
CORPORATE FIXED-RATE DEBT SECURITIES RATED INVESTMENT GRADE (BBB OR HIGHER),
WITH MATURITIES BETWEEN ONE AND 10 YEARS.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* INSTITUTIONAL CLASS SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.74%
Other Expenses 0.31%
-----
Total Annual Portfolio Operating Expenses 1.05%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES WERE 0.90%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
INSTITUTIONAL
CLASS SHARES $107 $334 $579 $1,283
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
8 INTERMEDIATE TERM BOND FUND
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income consistent with prudent investment risk and liquidity
SHARE PRICE VOLATILITY
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in a portfolio of investment grade fixed income securities, while
maintaining a dollar-weighted average maturity of between three and ten years
INVESTOR PROFILE
Investors seeking current income, who are willing to accept the risks of
investing in fixed income securities
[ICON]
INVESTMENT STRATEGY
The Intermediate Term Bond Fund invests primarily in investment grade fixed
income securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities, and corporate issuers. The Portfolio may invest up to 40% of
its assets in a combination of U.S. dollar denominated bonds of foreign issuers,
mortgage-backed securities, asset-backed securities and floating or variable
rate corporate debt instruments. The Portfolio maintains a dollar-weighted
average maturity between three and ten years; however, there is no limit on the
maximum maturity for a particular investment.
Investment grade fixed income securities are those rated at the time of
investment in one of the four highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality. The Portfolio
will not invest more than 20% of its assets in fixed income securities rated in
the lowest category of investment grade securities.
The Adviser's strategy for the Portfolio is intended to provide relatively
stable current income, a competitive current yield and reasonable principal
volatility. The fixed income securities held by the Portfolio may also have the
potential for moderate price appreciation.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach, with its emphasis on fixed income
securities of intermediate maturity, may experience greater price volatility
than funds that invest in similar quality securities with shorter maturities.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
The Portfolio is subject to the risk that intermediate-term fixed income
securities may underperform other segments of the fixed income market or the
fixed income markets as a whole. The Adviser also may not be able to match the
performance of the index which is compared to the Portfolio's total return.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 9
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S INSTITUTIONAL
CLASS SHARES FROM YEAR TO YEAR.
ANNUAL TOTAL RETURNS
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C>
14.50% 2.43% 7.61% 8.30% -1.69%
</TABLE>
BEST QUARTER WORST QUARTER
4.78% -1.63%
(06/30/1995) (03/31/1996)
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 1.69%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX.
<TABLE>
<CAPTION>
SINCE
INSTITUTIONAL CLASS SHARES 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
INTERMEDIATE TERM
BOND FUND -1.69% 6.09% 6.09%*
--------------------------------------------------------------------------------
LEHMAN
INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX(1) 0.39% 7.09% 7.09%**
--------------------------------------------------------------------------------
</TABLE>
* SINCE 12/28/94
** SINCE 12/31/94
(1) THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX IS A WIDELY
RECOGNIZED, MARKET VALUE-WEIGHTED (HIGHER MARKET VALUE SECURITIES HAVE MORE
INFLUENCE THAN LOWER MARKET VALUE SECURITIES) INDEX OF GOVERNMENT AND
CORPORATE FIXED-RATE DEBT SECURITIES RATED INVESTMENT GRADE (BBB OR HIGHER),
WITH MATURITIES BETWEEN ONE AND 10 YEARS.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
10 INTERMEDIATE TERM BOND FUND (CONTINUED)
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* INSTITUTIONAL CLASS SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.60%
Other Expenses 0.33%
-----
Total Annual Portfolio Operating Expenses 0.93%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES WERE 0.75%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends
and distributions. Although your actual costs and returns might be different,
your approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
INSTITUTIONAL
CLASS SHARES $95 $296 $515 $1,143
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
SHORT TERM BOND FUND [LOGO] 11
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income with preservation of principal and liquidity
SHARE PRICE VOLATILITY
Low
PRINCIPAL INVESTMENT STRATEGY
Investing in a portfolio of high quality fixed income securities, while
maintaining a dollar-weighted average maturity of less than two years
INVESTOR PROFILE
Investors seeking to preserve principal and earn current income
[ICON]
INVESTMENT STRATEGY
The Short Term Bond Fund invests primarily in fixed income securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities, and
corporate issuers. The Portfolio may invest up to 30% of its assets in a
combination of U.S. dollar denominated bonds of foreign issuers, mortgage-backed
securities, asset-backed securities, and floating or variable rate corporate
debt instruments. The Portfolio maintains a dollar-weighted average maturity of
less than two years and individual Portfolio investments will have a maximum
maturity of five years.
The Portfolio invests only in fixed income securities rated at the time of
investment in one of the three highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach, with its emphasis on short term, high
quality fixed income securities, is expected to preserve principal and produce
current income. The Portfolio's investments should experience less price
volatility in response to interest rate changes than funds that invest in
similar securities with longer maturities, but will have less potential for
greater income or price appreciation.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
The Portfolio is subject to the risk that short term fixed income securities may
underperform other segments of the fixed income market or the fixed income
markets as a whole. The Adviser also may not be able to match the performance of
the index which is compared to the Portfolio's total return.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
12 SHORT TERM BOND FUND (CONTINUED)
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S INSTITUTIONAL
CLASS SHARES FROM YEAR TO YEAR.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
<S> <C>
1995 7.82%
1996 4.51%
1997 5.86%
1998 5.75%
1999 3.44%
</TABLE>
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
2.42% 0.61%
(06/30/1995) (03/31/1996)
</TABLE>
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 1.17%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE SALOMON 1 YEAR TREASURY BENCHMARK
ON-THE-RUN INDEX AND TO THOSE OF THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT
SPONSORED/CORPORATE INDEX.
<TABLE>
<CAPTION>
SINCE
INSTITUTIONAL CLASS SHARES 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM BOND FUND 3.44% 5.47% 5.49%*
--------------------------------------------------------------------------------
SALOMON 1 YEAR
TREASURY BENCHMARK -
ON-THE-RUN INDEX(1) 4.04% 5.95% 5.95%**
--------------------------------------------------------------------------------
SALOMON 1-3 YEAR
TREASURY/GOVERNMENT
SPONSORED/CORPORATE
INDEX(2) 3.29% 6.56% 6.56%**
--------------------------------------------------------------------------------
</TABLE>
* SINCE 12/28/94
** SINCE 12/31/94
(1)THE SALOMON 1 YEAR TREASURY BENCHMARK-ON-THE-RUN INDEX IS AN UNMANAGED INDEX
GENERALLY REPRESENTATIVE OF THE AVERAGE YIELD OF ONE-YEAR TREASURY BILLS.
(2)THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT SPONSORED/CORPORATE INDEX IS A
WIDELY RECOGNIZED INDEX OF U.S. TREASURY, GOVERNMENT AGENCY AND INVESTMENT
GRADE CORPORATE SECURITIES WITH MATURITIES GREATER THAN 1 YEAR AND LESS THAN
3 YEARS.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
SHORT TERM BOND FUND (CONTINUED) [LOGO] 13
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* INSTITUTIONAL CLASS SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.60%
Other Expenses 0.47%
-----
Total Annual Portfolio Operating Expenses 1.07%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT
A SPECIFIED LEVEL. THE ADVISOR MAY DISCONTINUE ALL OR PART OF THESE WAIVERS
AT ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES WERE 0.75%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
INSTITUTIONAL
CLASS SHARES $109 $340 $590 $1,306
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
14 MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
As high a level of current income exempt from Federal income taxes as is
consistent with preservation of capital
SHARE PRICE VOLATILITY
Moderate
PRINCIPAL INVESTMENT STRATEGY
Investing in a diversified portfolio of investment grade municipal obligations
INVESTOR PROFILE
Investors seeking tax-exempt current income, who are willing to accept moderate
share price volatility
[ICON]
INVESTMENT STRATEGY
The Municipal Bond Fund invests primarily in municipal securities issued by U.S.
states, territories, possessions and political subdivisions, the interest from
which is exempt from Federal income taxes. The Portfolio will not invest more
than 20% of its assets in securities which pay interest subject to the
alternative minimum tax.
The Portfolio invests only in municipal securities that are investment grade.
Investment grade municipal bonds are those rated at the time of investment in
one of the four highest rating categories by a major rating agency, or
determined by the Adviser to be of equivalent quality. The Portfolio will not
invest more than 20% of its assets in municipal bonds rated in the lowest
category of investment grade ratings. The Portfolio will not invest more than
15% of its assets in obligations of issuers located in any single state,
territory or possession. The Adviser's approach in selecting municipal
securities for the Portfolio is to obtain as high a level of income as is
consistent with moderate share price volatility. There is no restriction on the
Portfolio's average weighted maturity or on the maturity of any single security
held by the Portfolio.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach is expected to provide current tax-exempt
income with moderate price volatility. The Portfolio is not expected to perform
as well as a taxable bond portfolio, but return to shareholders may be as good
or better on an after-tax basis.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
The Portfolio is subject to the risk that its emphasis on current income and
moderate price volatility may cause it to underperform other fixed income funds
that pursue other objectives or the fixed income markets as a whole. The Adviser
also may not be able to match the performance of the index which is compared to
the Portfolio's total return.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 15
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S INSTITUTIONAL
CLASS SHARES FROM YEAR TO YEAR.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
<S> <C>
1997 8.81%
1998 5.97%
1999 -4.09%
</TABLE>
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
3.64% -2.18%
(06/30/1997) (12/31/1999)
</TABLE>
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 2.96%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE LEHMAN MUNICIPAL BOND INDEX.
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BOND FUND -4.09% 3.67%*
--------------------------------------------------------------------------------
LEHMAN MUNICIPAL
BOND INDEX(1) -2.07% 4.65%*
--------------------------------------------------------------------------------
</TABLE>
* SINCE 10/31/96
(1)THE LEHMAN MUNICIPAL BOND INDEX IS A WIDELY RECOGNIZED, BROAD BASED TOTAL
RETURN INDEX COMPRISED OF INVESTMENT GRADE, FIXED RATE MUNICIPAL BONDS WITH
MATURITIES OF AT LEAST ONE YEAR. THE BONDS ARE SELECTED FROM ISSUES LARGER
THAN $50 MILLION SINCE JANUARY 1984.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
16 MUNICIPAL BOND FUND (CONTINUED)
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* INSTITUTIONAL CLASS SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.60%
Other Expenses 0.33%
-----
Total Annual Portfolio Operating Expenses 0.93%
</TABLE>
* THE PORTFOLIO'S TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING A PORTION OF ITS FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A
SPECIFIED LEVEL. THE ADVISER MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT
ANY TIME. WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING
EXPENSES WERE 0.75%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
INSTITUTIONAL CLASS SHARES $95 $296 $515 $1,143
</TABLE>
<PAGE>
PROSPECTUS
IDAHO MUNICIPAL BOND FUND [LOGO] 17
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO SUMMARY
INVESTMENT GOAL
High current income exempt from Federal and Idaho income taxes
SHARE PRICE VOLATILITY
Moderate
PRINCIPAL INVESTMENT STRATEGY
Investing in a focused portfolio of investment grade municipal bonds
INVESTOR PROFILE
Investors seeking tax-exempt current income, who are willing to accept some
degree of share price volatility
[ICON]
INVESTMENT STRATEGY
The Idaho Municipal Bond Fund invests primarily in municipal securities issued
by the State of Idaho and its cities, counties and political subdivisions, the
interest from which is exempt from Federal and Idaho income taxes. The Portfolio
may also invest in the municipal bonds of other U.S. states, territories and
possessions and their political subdivisions. The Portfolio will not invest more
than 20% of its assets in securities which pay interest subject to the
alternative minimum tax.
The Portfolio invests only in municipal bonds that are investment grade.
Investment grade municipal bonds are those rated at the time of investment in
one of the four highest rating categories by a major rating agency, or
determined by the Adviser to be of equivalent quality. The Portfolio will not
invest more than 20% of its assets in municipal bonds rated in the lowest
category of investment grade ratings. There is no restriction on the Portfolio's
average weighted maturity or on the maturity of any single security held by the
Portfolio.
[ICON]
PRINCIPAL RISKS OF INVESTING
The Portfolio's investment approach, with its emphasis on municipal bonds, is
expected to provide current tax-exempt income with moderate risk to principal.
The Portfolio is not expected to perform as well as a taxable bond Portfolio,
but return to shareholders may be as good or better on an after-tax basis.
The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is often greater than that of higher rated securities. Longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk. During periods of particularly volatile market
conditions, the Portfolio may not be able to buy or sell securities at favorable
prices, and the Portfolio may experience losses.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
The Portfolio's concentration of investments in securities of issuers located in
a single state subjects the Portfolio to economic and government policies of
that state. In addition, the Portfolio is non-diversified, which means that it
may invest in the securities of relatively few issuers. As a result, the
Portfolio may be more susceptible to a single adverse economic, political or
regulatory occurrence affecting one or more of these issuers, and may experience
increased volatility due to its investments in those securities.
The Portfolio is subject to the risk that its market segment, Idaho municipal
securities, may underperform the municipal securities of issuers in other states
or the fixed income markets as a whole. The Adviser also may not be able to
match the performance of the index which is compared to the Portfolio's total
return.
--------------------------------------------------------------------------------
CONTINUED ON NEXT PAGE
<PAGE>
PROSPECTUS
18 IDAHO MUNICIPAL BOND FUND (CONTINUED)
--------------------------------------------------------------------------------
[ICON]
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the variability of the
Portfolio's returns and provide some indication of the risks of an investment in
the Portfolio. Of course, past performance does not necessarily indicate how the
Portfolio will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE PORTFOLIO'S INSTITUTIONAL
CLASS SHARES FROM YEAR TO YEAR.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
<S> <C>
1995 13.86%
1996 1.96%
1997 8.16%
1998 5.47%
1999 -3.39%
</TABLE>
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
4.55% -2.09%
(09/30/1995) (06/30/1999)
</TABLE>
THE PORTFOLIO'S PERFORMANCE FROM 1/1/2000 TO 3/31/2000 WAS 3.23%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE LEHMAN 10 YEAR MUNICIPAL BOND INDEX, TO
THOSE OF THE LEHMAN 5 YEAR MUNICIPAL BOND INDEX AND TO THOSE OF THE LEHMAN
MUNICIPAL BOND INDEX.
<TABLE>
<CAPTION>
SINCE
INSTITUTIONAL CLASS SHARES 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
IDAHO MUNICIPAL
BOND FUND -3.39% 5.05% 5.03%*
--------------------------------------------------------------------------------
LEHMAN 10 YEAR
MUNICIPAL BOND INDEX(1) -1.24% 7.12% 7.12%**
--------------------------------------------------------------------------------
LEHMAN 5 YEAR
MUNICIPAL BOND INDEX(2) 0.74% 5.71% 5.71%**
--------------------------------------------------------------------------------
LEHMAN MUNICIPAL
BOND INDEX(3) -2.07% 6.91% 6.91%**
--------------------------------------------------------------------------------
</TABLE>
* SINCE 12/28/94
** SINCE 12/31/94
(1)THE LEHMAN 10 YEAR MUNICIPAL BOND INDEX IS A WIDELY-RECOGNIZED BROAD BASED
TOTAL RETURN INDEX OF LONG-TERM INTERMEDIATE INVESTMENT GRADE TAX-EXEMPT
BONDS. THE INDEX INCLUDES GENERAL OBLIGATION BONDS, REVENUE BONDS, INSURED
BONDS, AND PRE-FUNDED BONDS WITH MATURITIES BETWEEN 9 AND 12 YEARS AND ARE
SELECTED FROM ISSUES LARGER THAN $50 MILLION SINCE JANUARY 1984.
(2)THE LEHMAN 5 YEAR MUNICIPAL BOND INDEX IS A WIDELY-RECOGNIZED INDEX OF
INTERMEDIATE-TERM INVESTMENT GRADE TAX-EXEMPT BONDS. THE INDEX INCLUDES
GENERAL OBLIGATION BONDS, REVENUE BONDS, INSURED BONDS AND PRE-FUNDED BONDS
WITH MATURITIES BETWEEN 4 AND 6 YEARS.
(3)THE LEHMAN MUNICIPAL BOND INDEX IS A WIDELY RECOGNIZED, BROAD BASED TOTAL
RETURN INDEX COMPRISED OF INVESTMENT GRADE, FIXED RATE MUNICIPAL BONDS WITH
MATURITIES OF AT LEAST ONE YEAR. THE BONDS ARE SELECTED FROM ISSUES LARGER
THAN $50 MILLION SINCE JANUARY 1984.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. Unlike a mutual fund, an
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 19
--------------------------------------------------------------------------------
[ICON]
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Portfolio shares.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
12
(EXPENSES DEDUCTED
FROM PORTFOLIO ASSETS)* INSTITUTIONAL CLASS SHARES
--------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.60%
Other Expenses 0.45%
-----
Total Annual Portfolio Operating Expenses 1.05%
</TABLE>
* THE PORTFOLIO'S TOTAL ANNUAL OPERATING EXPENSES FOR THE MOST RECENT FISCAL
YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND
ADMINISTRATOR ARE WAIVING A PORTION OF THEIR FEES. THE ADVISER OR
ADMINISTRATOR MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT ANY TIME.
WITH THESE FEE WAIVERS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE
0.75%.
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- ---------
<S> <C> <C> <C> <C>
INSTITUITIONAL CLASS SHARES $107 $334 $579 $1,283
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
20
--------------------------------------------------------------------------------
MORE INFORMATION ABOUT RISK
--------------------------------------------------------------------------------
EQUITY RISK
EQUITY FUND
BALANCED FUND
--------------------------------------------------------------------------------
Investments in equity securities and equity derivatives in general are subject
to market risks that may cause their prices to fluctuate over time. The value of
securities of individual companies may fluctuate based upon performance of the
company and industry as well as economic trends and developments. Fluctuations
in the value of equity securities in which a mutual fund invests will cause a
Portfolio's net asset value to fluctuate. An investment in a portfolio of equity
securities may be more suitable for long-term investors who can bear the risk of
these share price fluctuations.
--------------------------------------------------------------------------------
FIXED INCOME RISK
BALANCED FUND
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
MUNICIPAL BOND FUND
IDAHO MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
The market value of fixed income investments changes in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise and
during periods of rising interest rates, the value of those securities falls.
While securities with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. In addition to these
fundamental risks, different types of fixed income securities may be subject to
the following additional risks:
CALL RISK
During periods of falling interest rates, certain debt obligations with high
interest rates may be prepaid (or "called") by the issuer prior to maturity.
This may cause a Portfolio's average weighted maturity to fluctuate, and may
require a Portfolio to invest the resulting proceeds at lower interest rates.
CREDIT RISK
The possibility that an issuer will be unable to make timely payments of
either principal or interest.
EVENT RISK
Securities may suffer declines in credit quality and market value due to
issuer restructurings or other factors. This risk should be reduced because
of the Portfolio's multiple holdings.
--------------------------------------------------------------------------------
MUNICIPAL ISSUER RISK
MUNICIPAL BOND FUND
IDAHO MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes to the financial condition or credit rating of municipal
issuers may also adversely affect the value of the Portfolio's municipal
securities. Constitutional or legislative limits on borrowing by municipal
issuers may result in reduced supplies of municipal securities. Moreover,
certain municipal securities are backed only by a municipal issuer's ability to
levy and collect taxes.
In addition, for the Idaho Municipal Bond Fund, concentration of investments in
issuers located in a single state makes the Portfolio more susceptible to
adverse political or economic developments affecting that state.
--------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
BALANCED FUND
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
--------------------------------------------------------------------------------
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 21
--------------------------------------------------------------------------------
mortgage loans. They are sensitive to changes in interest rates, but may respond
to these changes differently from other fixed income securities due to the
possibility of prepayment of the underlying mortgage loans. As a result, it may
not be possible to determine in advance the actual maturity date or average life
of a mortgage-backed security. Rising interest rates tend to discourage
refinancings, with the result that the average life and volatility of the
security will increase exacerbating its decrease in market price. When interest
rates fall, however, mortgage-backed securities may not gain as much in market
value because of the expectation of additional mortgage prepayments that must be
reinvested at lower interest rates. Prepayment risk may make it difficult to
calculate the average maturity of a portfolio of mortgage-backed securities and,
therefore, to assess the volatility risk of that portfolio.
--------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES RISK
BALANCED FUND
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
--------------------------------------------------------------------------------
Although a Portfolio's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued or guaranteed by some U.S.
government agencies are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.
--------------------------------------------------------------------------------
ASSET-BACKED SECURITIES RISK
INTERMEDIATE TERM BOND FUND
SHORT TERM BOND FUND
--------------------------------------------------------------------------------
Asset-backed securities are fixed income securities representing an interest in
a pool of shorter-term loans such as automobile loans, home equity loans,
equipment or computer leases or credit card receivables. The payments from the
loans are passed through to the security holder. The loans underlying
asset-backed securities tend to have prepayment rates that do not vary with
interest rates. In addition, the short-term nature of the loans reduces the
impact of any change in prepayment level. However, it is possible that
prepayments will alter the cash flow on asset-backed securities and it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayment will
lengthen it, affecting the price volatility of the security. However, it is
possible to determine what the range of that movement could be and to calculate
the effect that it will have on the price of the security.
MORE INFORMATION ABOUT PORTFOLIO INVESTMENTS
In addition to the investments and strategies described in this prospectus, each
Portfolio also may invest in other securities, use other strategies and engage
in other investment practices. These investments and strategies, as well as
those described in this prospectus, are described in detail in our Statement of
Additional Information.
The investments and strategies described in this prospectus are those used under
normal conditions. During unusual economic or market conditions, or for
temporary defensive or liquidity purposes, each Portfolio may invest up to 100%
of its assets in fixed income securities, money market instruments and other
securities that would not ordinarily be consistent with the Portfolio's
objectives. Of course, the Trust cannot guarantee that any Portfolio will
achieve its investment goal.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Portfolios and
continuously reviews, supervises and administers each Portfolio's investment
program. The Board of Trustees supervises the Adviser and establishes policies
that the Adviser must follow in its management activities.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
22
--------------------------------------------------------------------------------
First Security Investment Management, Inc. serves as the Adviser to the
Portfolios. As of January 31, 2000, the Adviser had approximately $7.3 billion
in assets under management. For the fiscal year ended January 31, 2000, First
Security Investment Management, Inc. received advisory fees, expressed as a
percentage of assets under management, of:
<TABLE>
<CAPTION>
<S> <C>
Equity Fund 0.61%
Balanced Fund 0.59%
Intermediate Term Bond Fund 0.42%
Short Term Bond Fund 0.28%
Municipal Bond Fund 0.42%
Idaho Municipal Bond Fund 0.36%
</TABLE>
The Adviser may use its affiliates as brokers for Portfolio transactions.
PORTFOLIO MANAGERS
EQUITY FUND AND BALANCED FUND
Sterling K. Jenson, CFA, is President of the Adviser and has been
responsible for the Equity Fund since its inception in December of 1994 and he
assumed responsibility for the Balanced Fund in January 2000. Before joining the
Adviser in 1990 as a Vice President and Senior Portfolio Manager, Mr. Jenson
held investment positions with First Interstate Bank of Nevada, Moore Trust
Company, and Smoot, Miller, Cheney & Co. His combined experience in the
investment business spans nearly 25 years. He was designated a Chartered
Financial Analyst (CFA) and Chartered Investment Counselor (CIC) in 1984 and
earned a Bachelor of Science, Economics in 1975 and earned a Master of Business
Administration (MBA) in 1977, both from Brigham Young University.
INTERMEDIATE TERM BOND FUND AND SHORT TERM BOND FUND
Mark L. Anderson brings 15 years of financial experience to his management of
the Intermediate Term Bond Fund and Short Term Bond Fund. Currently a Senior
Vice President, Mr. Anderson has been responsible for the portfolios since their
inception in 1995. Since joining the Adviser in 1985, Mr. Anderson has managed
bond, balanced, equity and money market accounts and held positions of
increasing responsibility and leadership. Mr. Anderson attended Brigham Young
University earning a Bachelor of Science in Finance in 1981 and a Master of
Public Administration in 1984.
MUNICIPAL BOND FUND AND IDAHO MUNICIPAL BOND FUND
John B. Tousley, CFA, is Vice President and Senior Portfolio Manager of the
Adviser and has been responsible for the Idaho Municipal Bond Fund since 1997
and the Municipal Bond Fund since 1999. With nine years experience in the
financial industry, Mr. Tousley has held investment-related positions at Dean
Witter and West One Trust. Mr. Tousley earned a Bachelor of Arts in Economics in
1991 from Brigham Young University and became a Chartered Financial Analyst
(CFA) in 1998.
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange Institutional Class Shares of the Portfolios.
HOW TO PURCHASE PORTFOLIO SHARES
You may purchase shares directly by:
- Mail
- Telephone, or
- Wire
To purchase shares directly from us, complete and send in an application. If you
need an application or have questions, please refer to our website at
www.achievementfunds.com or call 1-800-472-0577. Unless you arrange to pay by
wire, write your check, payable in U.S. dollars, to "Achievement Funds" and
include the name of the appropriate Portfolio(s) on the check. A Portfolio
cannot accept third-party checks, credit cards, credit card checks or cash.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 23
--------------------------------------------------------------------------------
GENERAL INFORMATION
A Portfolio may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Portfolio or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Portfolio receives your purchase order.
Each Portfolio calculates its NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(NYSE) (normally, 4:00 p.m. Eastern time). So, for you to receive the current
Business Day's NAV, generally a Portfolio must receive your purchase order
before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
NAV for one Portfolio share is the value of that share's portion of the net
assets of the Portfolio.
In calculating NAV, a Portfolio generally values its investment portfolio at
market price. If market prices are unavailable or a Portfolio thinks that they
are unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase Institutional Class Shares for the first time, you must invest at
least $500,000 in any Portfolio; however, the minimum investment may be waived
at the Distributor's discretion.
No minimum amount is required for subsequent investments in any Portfolio.
HOW TO SELL YOUR PORTFOLIO SHARES
Holders of Institutional Class Shares may sell shares by following the
procedures established when they opened their account or accounts. If you have
questions, call 1-800-472-0577. If you own your shares through an account with a
broker or other institution, contact that broker or institution to sell your
shares. If you own your shares directly, you may sell your shares on any
Business Day by contacting a Portfolio directly by mail or telephone at
1-800-472-0577.
The sale price of each share will be the next NAV determined
after the Portfolio receives your request.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $15 fee) or sent to you by check. If you recently purchased your shares by
check, redemption proceeds may not be available until your check has cleared
(which may take up to 15 days from your date of purchase).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Portfolio's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
A Portfolio may suspend your right to sell your shares if the NYSE restricts
trading, the Securities and Exchange Commission (SEC) declares an emergency or
for other reasons. More information about this is in our Statement of Additional
Information.
HOW TO EXCHANGE YOUR SHARES
You may exchange your shares on any Business Day by contacting us directly by
mail or telephone. You may exchange shares through your financial institution by
mail or telephone.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
24
--------------------------------------------------------------------------------
When you exchange shares, you are really selling your shares
and buying other Portfolio shares which may produce a gain or loss for tax
purposes. Your sale price and purchase price will be based on the NAV next
calculated after the Portfolio receives your exchange request.
You may not exchange between Institutional Class Shares and the Retail Class
A Shares or Retail Class B Shares of any Portfolio. However, Institutional
Class Shares will be converted to Retail Class A Shares automatically should
an investor in the Institutional Class become ineligible to purchase
additional Institutional Class Shares. For example, an automatic conversion
would occur if an Institutional Class investor receives a distribution from a
trust, and such investor would be investing individually (and becomes a
shareholder of record) rather than through a qualified account. A conversion
from the Institutional Class Shares to the Retail Class A Shares of a
Portfolio will occur automatically when an Institutional Class shareholder's
account falls below the $500,000 minimum balance. The Trust will provide
thirty days' notice of any such conversion. The conversion will take place at
net asset value, without the imposition of a sales load, fee or other charge.
After the conversion, the converted shares will be subject to all fees
applicable to Retail Class A Shares. In the event that a shareholder declines
to accept an automatic conversion, and if the shareholder does not meet the
requirements for investing in Institutional Class Shares, the Trust reserves
the right to redeem the shares upon expiration of the thirty-day period. The
Trust reserves the right to require shareholders to complete an application
or other documentation in connection with the conversion.
Retail Class A Shares of a Portfolio may be exchanged for Institutional Class
Shares of the same Portfolio should the shareholder establish a trust,
custodial or money management relationship with a qualified institution.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although the Trust has certain
safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, the Trust is not responsible for any losses or
costs incurred by following telephone instructions we reasonably believe to be
genuine. If you or your financial institution transact with the Trust over the
telephone, you will generally bear the risk of any loss.
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio distributes its income as follows:
Equity Fund Declared and paid quarterly
Balanced Fund Declared and paid monthly
Intermediate Term Declared daily and paid monthly
Bond Fund
Short Term Bond Fund Declared daily and paid monthly
Municipal Bond Fund Declared daily and paid monthly
Idaho Municipal Declared daily and paid monthly
Bond Fund
Each Portfolio makes distributions of capital gains, if any, at least annually.
If you own Portfolio shares on the last day of the month or quarter, you will be
entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Trust in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Trust
receives your written notice. To cancel your election, simply send the Trust
written notice.
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] 25
--------------------------------------------------------------------------------
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Portfolios and their shareholders. This summary is based on
current tax laws, which may change.
Each Portfolio will distribute substantially all of its income and capital
gains, if any. The dividends and distributions you receive may be subject to
Federal, state and local taxation, depending upon your tax situation.
Distributions you receive from a Portfolio may be taxable whether or not you
reinvest them. Income distributions are generally taxable at ordinary income tax
rates. Capital gains distributions are generally taxable at the rates applicable
to long-term capital gains. EACH SALE OR EXCHANGE OF SHARES IS A TAXABLE EVENT.
The Municipal Bond Fund and the Idaho Municipal Bond Fund intend to distribute
Federally tax-exempt income. The Idaho Municipal Bond Fund also intends to
distribute state tax-exempt income. Each Portfolio may invest a portion of its
assets in securities that generate taxable income for Federal or state income
taxes. Income exempt from Federal tax may be subject to state and local taxes.
Any capital gains distributed by these Portfolios are taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
<PAGE>
PROSPECTUS
26 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The tables that follow present performance information about Institutional Class
Shares of each Portfolio. This information is intended to help you understand
each Portfolio's financial performance for the past five years, or, if shorter,
the period of the Portfolio's operations. Some of this information reflects
financial information for a single Portfolio share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in a Portfolio, assuming you reinvested all of your dividends and distributions.
This information has been audited by Deloitte & Touche LLP, independent
accountants. Their report, along with each Portfolio's financial statements,
appears in the annual report that accompanies the Statement of Additional
Information. You can obtain the annual report, which contains more performance
information, at no charge by accessing our website at www.achievementfunds.com
or by calling 1-800-472-0577.
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD OR YEAR
NET NET
ASSET DISTRIBUTIONS DISTRIBUTIONS REALIZED AND ASSET
VALUE, NET FROM NET FROM UNREALIZED VALUE,
BEGINNING INVESTMENT INVESTMENT CAPITAL GAINS (LOSSES) END
OF PERIOD INCOME INCOME GAINS ON INVESTMENTS OF PERIOD
---------------------------------------------------------------------------------------------------------------------------------
EQUITY FUND
---------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
<S> <C> <C> <C> <C> <C> <C>
January 31, 2000*** $18.03 -- -- (1.51) 1.82 $18.34
January 31, 1999 $15.34 0.06 (0.07) (0.72) 3.42 $18.03
January 31, 1998 $14.03 0.10 (0.10) (1.68) 2.99 $15.34
January 31, 1997 $12.64 0.11 (0.11) (0.94) 2.33 $14.03
January 31, 1996 $10.24 0.17 (0.17) (0.72) 3.12 $12.64
---------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
---------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** $13.99 0.26 (0.26) (0.74) 0.61 $13.86
January 31, 1999 $13.10 0.29 (0.29) (0.86) 1.75 $13.99
January 31, 1998 $12.01 0.32 (0.30) (0.64) 1.71 $13.10
January 31, 1997 $11.79 0.34 (0.35) (0.78) 1.01 $12.01
January 31, 1996 $10.20 0.39 (0.39) (0.42) 2.01 $11.79
---------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE TERM BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** $10.77 0.59 (0.59) -- (0.86) $9.91
January 31, 1999 $10.63 0.61 (0.61) -- 0.14 $10.77
January 31, 1998 $10.37 0.62 (0.62) -- 0.26 $10.63
January 31, 1997 $10.79 0.62 (0.62) -- (0.42) $10.37
January 31, 1996 $10.09 0.71 (0.70) -- 0.69 $10.79
---------------------------------------------------------------------------------------------------------------------------------
SHORT TERM BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** $10.02 0.54 (0.54) -- (0.24) $9.78
January 31, 1999 $10.05 0.55 (0.55) -- (0.03) $10.02
January 31, 1998 $10.01 0.57 (0.57) -- 0.04 $10.05
January 31, 1997 $10.18 0.60 (0.60) -- (0.17) $10.01
January 31, 1996 $10.02 0.67 (0.65) -- 0.14 $10.18
<CAPTION>
RATIO RATIO OF
OF EXPENSES NET INCOME
NET RATIO TO AVERAGE RATIO OF TO AVERAGE
ASSETS, END OF EXPENSES NET ASSETS NET INCOME NET ASSETS PORTFOLIO
TOTAL OF PERIOD TO AVERAGE (EXCLUDING TO AVERAGE (EXCLUDING TURNOVER
RETURN+ (000) NET ASSETS WAIVERS) NET ASSETS WAIVERS) RATE
----------------------------------------------------------------------------------------------------------------------------------
EQUITY FUND
----------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
<S> <C> <C> <C> <C> <C> <C> <C>
January 31, 2000*** 10.06% $282,407 0.90% 1.03% -- (0.13)% 40.22%
January 31, 1999 24.06% $270,397 0.90% 1.06% 0.36% 0.20% 74.99%
January 31, 1998 22.14% $195,500 0.90% 1.00% 0.63% 0.53% 36.68%
January 31, 1997 20.00% $177,234 0.90% 1.07% 0.81% 0.64% 97.14%
January 31, 1996 32.55% $150,957 0.90% 1.14% 1.43% 1.19% 103.85%
----------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
----------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** 6.15% $213,251 0.90% 1.05% 1.84% 1.69% 33.27%
January 31, 1999 16.75% $214,939 0.90% 1.05% 2.14% 1.99% 54.88%
January 31, 1998 17.28% $175,751 0.90% 1.02% 2.49% 2.37% 30.91%
January 31, 1997 12.03% $156,315 0.90% 1.07% 2.90% 2.73% 68.11%
January 31, 1996 24.15% $147,357 0.90% 1.14% 3.48% 3.24% 59.74%
----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE TERM BOND FUND
----------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** (2.54)% $159,564 0.75% 0.93% 5.75% 5.57% 21.46%
January 31, 1999 7.25% $168,545 0.75% 0.91% 5.72% 5.55% 28.03%
January 31, 1998 8.82% $161,742 0.75% 0.87% 5.99% 5.87% 20.91%
January 31, 1997 2.06% $134,645 0.75% 0.95% 6.02% 5.82% 21.23%
January 31, 1996 13.62% $115,307 0.75% 1.02% 6.14% 5.87% 85.16%
----------------------------------------------------------------------------------------------------------------------------------
SHORT TERM BOND FUND
----------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** 3.02% $31,879 0.75% 1.07% 5.41% 5.09% 57.49%
January 31, 1999 5.33% $37,951 0.75% 1.01% 5.50% 5.24% 26.51%
January 31, 1998 6.25% $50,853 0.75% 0.95% 5.68% 5.48% 48.90%
January 31, 1997 4.40% $65,328 0.75% 0.96% 6.00% 5.79% 40.80%
January 31, 1996 7.80% $75,632 0.75% 0.99% 6.11% 5.87% 83.64%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
[LOGO] 27
--------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD OR YEAR
<TABLE>
<CAPTION>
NET NET
ASSET DISTRIBUTIONS DISTRIBUTIONS REALIZED AND ASSET
VALUE, NET FROM NET FROM UNREALIZED VALUE,
BEGINNING INVESTMENT INVESTMENT CAPITAL GAINS (LOSSES) END
OF PERIOD INCOME INCOME GAINS ON INVESTMENTS OF PERIOD
---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
<S> <C> <C> <C> <C> <C> <C>
January 31, 2000*** $10.30 0.49 (0.49) (0.02) (1.08) $9.20
January 31, 1999 $10.38 0.49 (0.49) (0.18) 0.10 $10.30
January 31, 1998 $10.02 0.48 (0.48) (0.12) 0.48 $10.38
For the period ended
January 31, 1997(1)** $10.00 0.12 (0.12) -- 0.02 $10.02
---------------------------------------------------------------------------------------------------------------------------------
IDAHO MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** $10.91 0.47 (0.47) (0.08) (1.01) $9.82
January 31, 1999 $10.82 0.47 (0.47) (0.05) 0.14 $10.91
January 31, 1998 $10.41 0.47 (0.47) (0.04) 0.45 $10.82
January 31, 1997 $10.80 0.46 (0.46) (0.06) (0.33) $10.41
January 31, 1996 $10.13 0.52 (0.51) (0.12) 0.78 $10.80
<CAPTION>
RATIO RATIO OF
OF EXPENSES NET INCOME
NET RATIO TO AVERAGE RATIO OF TO AVERAGE
ASSETS, END OF EXPENSES NET ASSETS NET INCOME NET ASSETS PORTFOLIO
TOTAL OF PERIOD TO AVERAGE (EXCLUDING TO AVERAGE (EXCLUDING TURNOVER
RETURN+ (000) NET ASSETS WAIVERS) NET ASSETS WAIVERS) RATE
-----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
-----------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
<S> <C> <C> <C> <C> <C> <C> <C>
January 31, 2000*** (5.94)% $63,982 0.75% 0.93% 4.97% 4.79% 15.96%
January 31, 1999 5.88% $68,239 0.75% 0.95% 4.79% 4.59% 46.00%
January 31, 1998 9.90% $63,028 0.75% 1.05% 4.72% 4.42% 93.18%
For the period ended
January 31, 1997(1)** 1.34%* $53,067 0.75% 1.07% 4.58% 4.26% 19.21%
-----------------------------------------------------------------------------------------------------------------------------------
IDAHO MUNICIPAL BOND FUND
-----------------------------------------------------------------------------------------------------------------------------------
Institutional Class:
For the years ended
January 31, 2000*** (5.11)% $21,396 0.75% 1.05% 4.51% 4.21% 16.35%
January 31, 1999 5.76% $26,961 0.75% 1.07% 4.35% 4.03% 12.90%
January 31, 1998 9.06% $26,093 0.75% 1.10% 4.47% 4.12% 17.64%
January 31, 1997 1.31% $27,487 0.75% 1.24% 4.40% 3.91% 29.13%
January 31, 1996 12.68% $25,873 0.75% 1.35% 4.52% 3.92% 58.94%
</TABLE>
* Returns are for the period indicated and have not been annualized.
** Ratios for the period have been annualized.
*** Per share amounts for the period are based on average outstanding shares.
+ Returns do not reflect any sales load that may be applicable.
(1) Commenced operations on October 31, 1996.
Amounts designated as "--" are either $0 or have been rounded to $0.
--------------------------------------------------------------------------------
<PAGE>
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[GRAPHIC]
<PAGE>
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[GRAPHIC]
<PAGE>
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[GRAPHIC]
<PAGE>
THE ACHIEVEMENT FUNDS
INSTITUTIONAL CLASS SHARES
INVESTMENT ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Ballard Spahr Andrews & Ingersoll, LLP
1225 17th Street
Suite 2300
Denver, Colorado 80202
More information about each Portfolio is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated June 1, 2000, includes detailed information about the Trust. The
SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNAL REPORTS
These reports list each Portfolio's holdings and contain information from the
Portfolio's managers about strategies, and recent market conditions and
trends and their impact on Portfolio performance. The reports also contain
detailed financial information about the Portfolios.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
By Telephone: Call 1-800-472-0577
By Mail: The Achievement Funds
One Freedom Valley Drive
Oaks, Pennsylvania 19456
By Internet: www.achievementfunds.com
--------------------------------------------------------------------------------
From the SEC: You can also obtain the SAI or the Annual and Semi-Annual
reports, as well as other information about the Trust, from the EDGAR
Database on the SEC's website ("http://www.sec.gov").You may review and copy
documents at the SEC Public Reference Room in Washington, DC (for information
on the operation of the Public Reference Room, call 202-942-8090). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section,
Washington DC 20549-0102. You may also obtain this information, upon payment
of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Trust's Investment Company Act registration number is
811-5712.
--------------------------------------------------------------------------------
[LOGO]
THE
ACHIEVEMENT
FUNDS-Registered Trademark-
For Your Life's Journey-Registered Trademark-
ACH-F-009-07
<PAGE>
THE ACHIEVEMENT FUNDS TRUST
- EQUITY FUND
- BALANCED FUND
- INTERMEDIATE TERM BOND FUND
- SHORT TERM BOND FUND
- MUNICIPAL BOND FUND
- IDAHO MUNICIPAL BOND FUND
THIS STATEMENT OF ADDITIONAL INFORMATION is not a prospectus. It is intended to
provide additional information regarding activities and operations of The
Achievement Funds Trust (the "Trust"), and should be read in conjunction with
the Trust's Prospectuses dated June 1, 2000, for the Institutional and Retail
Classes of shares of the Trust's investment portfolios described above
(collectively the "Portfolios," and each a "Portfolio"). The Trust's Annual
Report to Shareholders for fiscal year ended January 31, 2000, is incorporated
into this Statement of Additional Information by reference. The Prospectuses and
Annual Report may be obtained, without charge, by written request to SEI
Investments Distribution Co., Oaks, PA 19456 or by calling 1-800-472-0577.
TABLE OF CONTENTS
Page
INVESTMENT STRATEGIES AND RISKS ........................................... S-3
INVESTMENT POLICIES AND LIMITATIONS .......................................S-12
THE ADVISER ...............................................................S-14
THE ADMINISTRATOR .........................................................S-16
DISTRIBUTION ..............................................................S-18
TRUSTEES AND OFFICERS OF THE TRUST ........................................S-25
PERFORMANCE ...............................................................S-28
PURCHASE, AND REDEMPTION OF SHARES ........................................S-32
DETERMINATION OF NET ASSET VALUE ..........................................S-34
TAXES .....................................................................S-35
PORTFOLIO TRANSACTIONS ....................................................S-43
LIMITATION OF TRUSTEE'S LIABILITY .........................................S-45
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES .......................S-45
THE TRANSFER AGENT ........................................................S-54
COUNSEL TO THE TRUST ......................................................S-54
INDEPENDENT ACCOUNTANTS ...................................................S-54
CUSTODIAN .................................................................S-55
FINANCIAL STATEMENTS ......................................................S-55
<PAGE>
APPENDIX A - PERMITTED INVESTMENTS ........................................S-56
APPENDIX B - RATINGS ......................................................S-62
June 1, 2000
[ACH-F-018-04]
S-2
<PAGE>
THE TRUST AND DESCRIPTION OF SHARES
The Achievement Funds Trust is an open-end management, series, investment
company. Each of the Portfolios is diversified, except for the Idaho Municipal
Bond Fund, which is a non-diversified portfolio of securities. The Achievement
Funds Trust (formerly known as The FSB Funds) was organized as an unincorporated
business trust under the laws of the Commonwealth of Massachusetts pursuant to a
Master Trust Agreement dated December 16, 1988, which agreement was amended and
restated on October 7, 1994 and was further amended on December 1, 1994 (as
further amended from time to time, the "Trust Agreement"). Each of the
Portfolios is a series of the shares of the Trust, and the shares of each
Portfolio are divided into Institutional and Retail Class A classes. The shares
of the Trust's Equity Fund, Balanced Fund, Municipal Bond Fund and Idaho
Municipal Bond Fund have been further divided into Retail Class B shares
(collectively with the Institutional and Retail Class A Shares, the "shares").
All classes of shares of a Portfolio have a common investment objective and
investment limitations and policies.
The Trust may issue an unlimited number of shares of each of its Portfolios.
Each share is entitled to dividends and distributions out of income earned on
the assets of its Portfolio as may be declared in the discretion of the Trust's
Board of Trustees. When issued and paid for, shares are fully paid and
non-assessable by the Trust and will have no preference, conversion or
preemptive rights. The Board of Trustees can divide any shares of the Trust to
create one or more other Portfolios and to create classes in such Portfolios.
At the end of an eight-year period beginning on the first day of the month in
which the shares were purchased, Class B shares will automatically convert to
Class A shares and will no longer be subject to Class B share distribution and
service fees. Such conversion will be on the basis of the relative net asset
value of the two classes.
All shares of the Trust have equal voting rights and will be voted in the
aggregate, and not by Portfolio or class, except where voting by Portfolio or
class is required by law or where the matter involved affects only one Portfolio
or class. Class B shareholders of any Portfolio must approve any material
increase in fees payable with respect to the Portfolio's Class A shares so long
as Class B shares are convertible into Class A shares. The Trust is not required
under Massachusetts law to hold annual meetings of shareholders, but will hold
shareholder meetings if required to do so by the Investment Company Act of 1940.
Special meetings may be called for a specific Portfolio for purposes such as
changing fundamental policies or approving certain contracts. Shareholders will
be permitted to call a meeting of shareholders, and will receive assistance in
communicating with other shareholders, for the purpose of voting upon the
removal of any Trustee, as long as such shareholder request is in writing and is
signed by shareholders of record of no less than 10% of the Trust's outstanding
shares.
S-3
<PAGE>
The shares do not have cumulative voting rights, which means that holders of
more than 50% of the shares voting for the election of Trustees can elect all
Trustees. Shares are transferable but have no preemptive, conversion or
subscription rights.
The Trust may be terminated at any time by a majority of the Trustees subject to
a favorable vote of a majority of the outstanding voting securities, as defined
in the 1940 Act, of each Portfolio or any class thereof voting separately by
Portfolio or class. The liquidation of any particular Portfolio or any class
thereof may be authorized by vote of a majority of the Trustees subject to the
approval of a majority of the outstanding voting shares of that Portfolio or
such class, as defined in the 1940 Act. The term "majority of the outstanding
shares" of a Portfolio as used in this Statement of Additional Information means
the vote of (i) 67% or more of the Portfolio's or classes shares present at a
meeting, if the holders of more than 50% of the outstanding shares of the
Portfolio or class are present or represented by proxy, or (ii) more than 50% of
the Portfolio's or classes outstanding shares, whichever is less.
The management and affairs of the Trust are supervised by the Trustees under the
laws of Massachusetts. The Trustees supervise the business activities of the
Trust and have approved contracts under which other entities provide essential
management services to the Trust.
The Trustees of the Trust were re-elected at a special meeting of
shareholders held on October 29, 1999. The Trustees serve during the lifetime
of the Trust, or until they die, resign or are removed. The Trustees may
elect their own successors. Under the Trust Agreement, shareholders of record
of the outstanding shares of the Trust may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting
called for that purpose.
Massachusetts law provides that shareholders, under certain circumstances, could
be held personally liable for the obligations of the Trust. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of the disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust. The Trust
Agreement provides for indemnification from the Trust's property for all losses
and expenses of any shareholder held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust would be
unable to meet its obligations, a possibility that the Trust's management
believes is remote. Upon payment of any liability incurred by the Trust, the
shareholder paying the liability will be entitled to reimbursement from the
general assets of the Trust. The Trustees intend to conduct the operations of
the Trust in such a way so as to avoid, as far as possible, liability of the
shareholders for liabilities of the Trust.
S-4
<PAGE>
INVESTMENT STRATEGIES AND RISKS
STRATEGIES
EQUITY FUND - Under normal market conditions, the Equity Fund invests in a
diversified portfolio of common stocks, including American Depository Receipts
("ADRs") and securities convertible into or exchangeable for common stock,
traded on U.S. national securities exchanges (including The NASDAQ Stock
Market). Under normal conditions, the Equity Fund will invest at least 80% of
its total assets in common stocks. The Equity Fund will not invest more than 20%
of its total assets in securities convertible into or exchangeable for common
stock. The Equity Fund may invest only in convertible debentures that have
received a rating of A or higher by Standard & Poor's Corporation ("S&P") or A
or higher by Moody's Investors Service ("Moody's") or are determined to be of
comparable quality by First Security Investment Management, Inc., the Trust's
investment adviser (the "Adviser") at time of purchase.
The Equity Fund may purchase securities on a "when-issued" basis and may engage
in securities repurchase transactions. The Equity Fund may also write (sell)
covered call options.
In addition, under normal market conditions, the Equity Fund may invest up to
10% of its total assets in money market and U.S. equity index mutual funds.
BALANCED FUND - The Balanced Fund invests primarily in equity securities,
intermediate maturity fixed income securities and money market instruments.
Under normal market conditions, the Balanced Fund invests between 25-75% of its
total assets in a diversified portfolio of common stocks, including ADRs and
securities convertible into or exchangeable for common stock, traded on U.S.
national securities exchanges (including The NASDAQ Stock Market).
The Balanced Fund will, under normal market conditions, invest a minimum of 25%
of its total assets in fixed income securities, including obligations issued by
the U.S. Government and its agencies and instrumentalities, zero coupon receipts
involving U.S. Treasury obligations and corporate bonds and debentures,
asset-backed securities, floating or variable rate corporate notes and U.S.
dollar denominated debt securities of foreign issuers. The Portfolio may also
invest in mortgage-backed securities (including collateralized mortgage
obligations), which are securities issued by government sponsored entities, such
as the Government National Mortgage Association, or by private issuers that
entitle the holder to a share of all interest and principal payments from a pool
of mortgage loans underlying the security. The Portfolio's investment in
mortgage-backed securities, asset-backed securities, floating or variable rate
corporate notes and U.S. dollar denominated debt securities of foreign issuers
will not exceed 40% of the fixed income portion of the Portfolio.
All of the fixed income securities and any convertible securities purchased by
the Balanced Fund will be rated BBB or higher by S&P or Baa or higher by Moody's
at the time of purchase, or will
S-5
<PAGE>
be determined to be of comparable quality by the Adviser at the time of
purchase. However, not more than 20% of the assets of the Balanced Fund that are
invested in fixed income securities and convertible securities may be invested
in bonds or other securities that are rated BBB by S&P or Baa by Moody's or are
determined to be of comparable quality by the Adviser. In the event the credit
quality of bonds or other securities purchased by the Balanced Fund declines
below the applicable criteria, the Adviser may consider selling such securities.
The Balanced Fund may invest in U.S. equity index mutual funds and in money
market instruments, including money market mutual funds, securities issued or
guaranteed by the United States Government and its agencies or
instrumentalities, repurchase agreements, certificates of deposit or bankers'
acceptances issued by domestic banks or savings institutions with assets
exceeding $2.5 billion at the end of their most recent fiscal year and
commercial paper rated, at the time of purchase, in the top two categories by a
national rating agency or determined to be of comparable quality by the Adviser
at time of purchase.
The Balanced Fund may purchase securities on a "when-issued" basis and may
engage in securities repurchase transactions. The Balanced Fund may also write
(sell) covered call options.
INTERMEDIATE TERM BOND FUND - The Intermediate Term Bond Fund may invest in the
following debt securities:
- fixed income securities,
- obligations issued by the U.S. Government and its agencies and
instrumentalities,
- zero coupon receipts involving U.S. Treasury obligations and corporate
bonds and debentures,
- asset-backed securities,
- floating or variable rate corporate notes, and
- U.S. dollar denominated debt securities of foreign issuers.
The Portfolio may also invest in mortgage-backed securities (including
collateralized mortgage obligations), which are securities issued by government
sponsored entities, such as the Government National Mortgage Association, or by
private issuers that entitle the holder to a share of all interest and principal
payments from a pool of mortgage loans underlying the security. All of the
foregoing investment securities are considered by the Trust to be bonds and will
be rated BBB or higher by S&P or Baa or higher by Moody's at the time of
purchase, or will be determined to be of comparable quality by the Adviser at
the time of purchase. However, the Intermediate Term Bond Fund may not invest
more than 20% of its assets in bonds that are rated BBB by S&P or Baa by Moody's
or are determined to be of comparable quality by the Adviser. In the event the
credit quality of bonds purchased by the Intermediate Term Bond Fund declines
below the applicable criteria, the Adviser may consider selling such securities.
The Portfolio's investment in mortgage-backed securities, asset-backed
securities, floating or variable rate
S-6
<PAGE>
corporate notes and U.S. dollar denominated debt securities of foreign issuers
will not exceed 40% of its total assets.
The Intermediate Term Bond Fund may invest in money market instruments,
including:
- securities issued or guaranteed by the United States Government and
its agencies or instrumentalities,
- repurchase agreements,
- certificates of deposit or bankers' acceptances issued by domestic
banks or savings institutions with assets exceeding $2.5 billion at
the end of their most recent fiscal year, and
- commercial paper rated, at the time of purchase, in the top two
categories by a national rating agency or determined to be of
comparable quality by the Adviser at time of purchase.
The Intermediate Term Bond Fund may also invest up to 10% of its total assets in
money market mutual funds.
The Intermediate Term Bond Fund may purchase securities on a "when-issued" basis
and reserves the right to engage in transactions involving standby commitments.
SHORT TERM BOND FUND - The Short Term Bond Fund's permitted investments consist
of the following debt securities:
- fixed income securities,
- obligations issued by the U.S. Government and its agencies and
instrumentalities,
- zero coupon receipts involving U.S. Treasury obligations and corporate
bonds and debentures,
- asset-backed securities,
- floating or variable rate corporate notes, and
- U.S. dollar denominated debt securities of foreign issuers.
The Portfolio may also invest in mortgage-backed securities (including
collateralized mortgage obligations), which are securities issued by government
sponsored entities, such as the Government National Mortgage Association, or by
private issuers that entitle the holder to a share of all principal and interest
payments from a pool of mortgage loans underlying the security. All of the
foregoing investment securities will be rated A or higher by S&P or by Moody's
at the time of purchase or determined to be of comparable quality by the Adviser
at the time of purchase, and are considered by the Trust to be bonds. In the
event the credit quality of the bonds purchased by the Short Term Bond Fund
declines below the applicable criteria, the Adviser will consider selling such
securities.
S-7
<PAGE>
The Short Term Bond Fund may invest in money market instruments, including:
- securities issued or guaranteed by the United States Government and
its agencies or instrumentalities,
- repurchase agreements,
- certificates of deposit or bankers' acceptances issued by domestic
banks or savings institutions with assets exceeding $2.5 billion at
the end of their most recent fiscal year, and
- commercial paper rated, at the time of purchase, in the top two
categories by a national rating agency or determined to be of
comparable quality by the Adviser at the time of purchase.
The Short Term Bond Fund may also invest up to 10% of its total assets in money
market mutual funds.
The Short Term Bond Fund may purchase securities on a "when-issued" basis and
reserves the right to engage in transactions involving standby commitments.
MUNICIPAL BOND FUND - The issuers of municipal securities purchased by the
Municipal Bond Fund can be located in all fifty states, the District of
Columbia, Puerto Rico and other U.S. territories and possessions. The Municipal
Bond Fund will not invest more than 15% of its assets in municipal securities of
issuers located in any single state, territory or possession. Although the
Adviser intends to invest solely in municipal securities, up to 20% of all of
the assets of the Municipal Bond Fund can be invested in U.S. Treasury
obligations when suitable municipal securities are not available.
The Municipal Bond Fund may purchase the following types of municipal
securities, but only if such securities, at the time of purchase, have the
requisite ratings set forth below or are of comparable quality as determined by
the Adviser:
- Municipal bonds rated BBB or better by S&P or Baa or better by
Moody's, provided, that municipal bonds held by the Portfolio will, on
a dollar-weighted basis, have a rating of A or better, and the
Portfolio may not invest more than 20% of its assets in municipal
bonds rated BBB by S&P or Baa by Moody's;
- Municipal notes rated at least SP-1 by S&P or MIG-1 by Moody's;
- Tax-exempt commercial paper rated at least A-1 by S&P or Prime-1 by
Moody's;
- Municipal lease obligations that have the ratings specified above or
that are of comparable quality as determined by the Adviser upon
consideration of relevant
S-8
<PAGE>
factors specified by the board of trustees of the Trust (the
"Trustees"), including the likelihood that the lease related to the
obligation will be canceled or that funds will not be appropriated for
payment thereof. Municipal lease obligations that are subject to an
annual appropriation by the issuer may be purchased by the Portfolio
only if the security in question is insured by an approved municipal
insurance company (e.g. AMBAC Indemnity Corporation, Municipal Bond
Investors Assurance Corporation, Financial Guaranty Insurance
Company); and
- Shares of mutual funds that invest primarily in municipal bonds,
municipal notes, tax-exempt commercial paper or municipal lease
obligations that have the ratings specified above. Up to 10% of the
assets of the Portfolio may be invested in such mutual fund shares.
In the event the credit quality of municipal securities owned by the Municipal
Bond Fund declines below the applicable criteria outlined above, the Adviser may
consider selling such securities.
The Municipal Bond Fund may invest in variable and floating rate obligations,
municipal zero coupon securities, may purchase securities on a "when-issued"
basis and reserves the right to engage in transactions involving standby
commitments.
IDAHO MUNICIPAL BOND FUND - The Idaho Municipal Bond Fund may purchase the
following types of municipal securities of issuers located in Idaho, but only if
such securities, at the time of purchase, have the requisite ratings set forth
below or are of comparable quality as determined by the Adviser at the time of
purchase:
- municipal bonds rated BBB or higher by S&P or Baa or higher by
Moody's, provided, however, that the Portfolio may not invest more
than 20% of its assets in bonds rated BBB by S&P or Baa by Moody's;
- municipal notes rated at least SP-1 by S&P or MIG-1 or VMIG-1 by
Moody's; and
- tax-exempt commercial paper rated at least A-1 by S&P or Prime-1 by
Moody's.
The Adviser will consider selling municipal securities owned by the Portfolio if
their credit quality declines below the applicable criteria outlined above.
Up to 20% of the Portfolio's total assets may be invested in tax-exempt money
market funds and other municipal securities, the interest on which is exempt
from Federal income taxes, but not from Idaho income tax, based upon opinions
from bond counsel for the issuers. Such investments will be of the same credit
quality discussed above.
S-9
<PAGE>
The Idaho Municipal Bond Fund may invest in variable and floating rate
obligations, may purchase securities on a "when-issued" basis, and reserves the
right to engage in transactions involving standby commitments.
GENERAL INVESTMENT POLICIES - For temporary defensive purposes, when the Adviser
determines that market conditions warrant, the Equity Fund, the Balanced Fund,
the Intermediate Term Bond Fund and the Short Term Bond Fund each may invest up
to 100% of its assets in:
- money market instruments consisting of securities issued or guaranteed
by the United States Government, its agencies or instrumentalities,
repurchase agreements,
- certificates of deposit and bankers' acceptances issued by domestic
banks or savings and loan associations having net assets of at least
$2.5 billion as of the end of their most recent fiscal year, and
- commercial paper rated, at the time of purchase, in the top two
categories by a national rating agency or determined to be of
comparable quality by the Adviser at the time of purchase,
- other long- and short-term debt instruments which are rated A or
higher by S&P or Moody's at the time of purchase, and
- cash reserves.
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, the Municipal Bond Fund and the Idaho Municipal Bond Fund
may each invest up to 100% of its assets in:
- tax-exempt money market mutual funds,
- U.S. Treasury obligations, and
- cash reserves.
To the extent that any Portfolio is engaged in temporary defensive investments,
it will not be pursuing its investment objective.
The Equity Fund and Balanced Fund may write (sell) covered call options as a
means of increasing the yield on its portfolio and as a means of providing
limited protection against decreases in its market value. When a Portfolio sells
an option, if the underlying securities do not increase or decrease to a price
level that would make the exercise of the option profitable to
S-10
<PAGE>
the holder thereof, the option generally will expire without being exercised and
the Portfolio will realize as profit the premium received for such option. When
a call option of which the Portfolio is the writer is exercised, the Portfolio
will be required to sell the underlying securities to the option holder at the
strike price, and will not participate in any increase in the price of such
securities above the strike price. The Portfolios may write options on an
exchange or over-the-counter.
In order to generate additional income, the Portfolios may lend securities which
they own pursuant to agreements requiring that the loan be continuously secured
by collateral consisting of cash or securities of the U.S. Government or its
agencies equal to at least 100% of the market value of the securities lent. The
Portfolios continue to receive interest on the securities lent while
simultaneously earning interest on the investment of cash collateral. Collateral
is marked to market daily. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially or become insolvent.
For additional information regarding permitted investments see APPENDIX A -
PERMITTED INVESTMENTS. For a description of ratings, see APPENDIX B - RATINGS.
RISK FACTORS
ASSET-BACKED SECURITIES - Asset-backed securities are not issued or guaranteed
by the U.S. Government or its agencies or instrumentalities; however, the
payment of principal and interest on such obligations may be guaranteed up to
certain amounts and for a certain period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. The purchase of asset-backed securities raises
risk considerations peculiar to the financing of the instruments underlying such
securities. For example, there is a risk that another party could acquire an
interest in the obligations superior to that of the holders of the asset-backed
securities. There also is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on those
securities. In addition, credit card receivables are unsecured obligations of
the card holder. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities.
COVERED CALL OPTIONS (Equity Fund and Balanced Fund) - Risks associated with
covered call option transactions include:
- the success of a hedging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in
markets and movements in interest rates;
- there may be an imperfect correlation between the movement in prices
of options and the securities underlying them;
S-11
<PAGE>
- there may not be a liquid secondary market for options; and
- while the Portfolios will receive a premium when it writes covered
call options, they may not participate fully in a rise in the market
value of the underlying security.
MORTGAGE-BACKED SECURITIES - There are particular risk factors underlying
investments in mortgage-backed securities. Due to the possibility of prepayments
of the underlying mortgage instruments, market participants generally refer to
an estimated average life for mortgage-backed securities that is shorter than
their stated maturity. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. Thus,
the estimated average life may be different than a security's actual average
life.
MUNICIPAL SECURITIES - Economic, business or political developments might affect
all municipal securities of a similar type. To the extent that a significant
portion of the assets of the Municipal Bond Fund or Idaho Municipal Bond Fund
are invested in municipal securities payable from revenue on similar projects,
those Portfolios will be subject to the particular risks presented by such
projects. For example, certain municipal securities may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue and legislation may have the effect of limiting ad valorem
taxes on real property or restricting the ability of taxing entities to increase
real property tax revenues. Municipal securities that are payable only from the
revenues derived from a particular facility, such as a utility or housing
project, may be adversely affected by laws or regulations that make it more
difficult for the particular facility to generate revenues sufficient to pay
such interest and principal, including laws and regulations that limit the
amount of fees, rates or other charges that may be imposed for use of the
facility or that increase competition among facilities of that type or that
limit or otherwise have the effect of reducing the use of such facilities
generally, thereby reducing the revenues generated by the particular facility.
If the payment of interest and principal on municipal securities are insured in
whole or in part by a government created fund, the municipal securities may be
adversely affected by laws or regulations that restrict the aggregate insurance
proceeds available for payment of principal and interest in the event of a
default on such securities. State and local tax revenues generally mirror
economic conditions and may be adversely affected by regional or national
recessions.
LOWER RATED SECURITIES (Balanced Fund, Intermediate Term Bond Fund, Municipal
Bond Fund and Idaho Bond Fund) - The Balanced Fund, the Intermediate Term
Bond Fund, the Municipal Bond Fund and the Idaho Municipal Bond Fund may
invest in securities rated as investment grade by either S&P or Moody's. Up
to 20% of the assets of the Balanced Fund that are invested in fixed income
securities and convertible securities, and up to 20% of the assets of the
S-12
<PAGE>
Intermediate Term Bond Fund, the Municipal Bond Fund and the Idaho Municipal
Bond Fund, may be invested in bonds in the lowest investment grade debt category
(i.e., bonds rated BBB by S&P or Baa by Moody's), which have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity on the part of the issuer of such bonds to
make principal and interest payments than is the case with higher grade bonds.
The Portfolios may retain a security which was rated as investment grade at the
time of purchase but whose rating is subsequently downgraded below investment
grade.
YANKEE-BONDS - U.S. dollar denominated debt securities of foreign issuers are
referred to as "Yankee Bonds." Investing in the securities of issuers based in
any foreign country involves special risks and considerations not typically
associated with investing in U.S. companies. These include risks resulting from
differences in accounting, auditing and financial reporting standards, lower
liquidity than U.S. fixed income or debt securities, the possibility of
nationalization, expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations and political instability. There may
be less publicly available information concerning foreign issuers of securities
held by a Portfolio than is available concerning U.S. issuers. Purchases and
sales of foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes and taxes may be withheld from
dividend and interest payments on those securities. Foreign securities often
trade with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility and a greater risk of liquidity.
SPECIAL CONSIDERATIONS RELATING TO IDAHO MUNICIPAL SECURITIES
Certain risks are inherent in the Idaho Municipal Bond Fund's investments in
Idaho municipal securities. The State of Idaho currently has no outstanding
general obligation debt. In the past, tax anticipation notes have been issued by
the State of Idaho that are backed by the full faith and credit of the State of
Idaho. Other securities issued by Idaho state agencies are secured only by a
pledge of revenues generated by investment of bond proceeds in assets such as
low-income housing loans or loans for the construction of hospital facilities,
and of reserve funds and other funds created from bond proceeds. Timely payment
of general obligation bonds issued by political subdivisions of the State of
Idaho is dependent upon the ability of those entities to collect anticipated tax
revenues, which may be affected by general economic conditions and political
changes. Timely payment of revenue bonds issued by political subdivisions of the
State of Idaho is dependent upon collection of revenues from investments made
with bond proceeds.
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise expressly noted, whenever an investment policy or
limitation states a maximum percentage of a Portfolio's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such percentage or standard will be determined immediately
S-13
<PAGE>
after and as a result of the Portfolio's acquisition of such security or other
asset. Accordingly, any subsequent change in values, net assets or other
circumstances will not be considered when determining whether the investment
complies with the Portfolio's investment policies and limitations.
Unless otherwise expressly noted, a Portfolio's limitations and policies are
non-fundamental. A Portfolio's investment goal is a fundamental investment
policy. Fundamental investment policies and limitations cannot be changed
without approval by a majority of the outstanding voting securities of a
Portfolio as defined in the Investment Company Act.
FUNDAMENTAL POLICIES
No Portfolio may:
1. Make loans, including securities lending, if, as a result, more than
33 1/3% of its total assets would be lent to other parties, except that a
Portfolio may purchase or hold debt instruments, and a Portfolio may enter
into repurchase agreements as described in the Prospectus or Statement of
Additional Information.
2. Invest in companies for the purpose of exercising control.
3. With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result (i) more than
5% of the Portfolio's total assets would be invested in the securities of
that issuer, or (ii) the Portfolio would hold more than 10% of the
outstanding voting securities of that issuer, except that this limitation
shall not be applicable to the Idaho Municipal Bond Fund.
4. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Portfolio's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.
5. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts (including commodities future
contracts), unless acquired as a result of ownership of other securities or
instruments. However, a Portfolio (other than the Municipal Bond Fund and
Idaho Municipal Bond Fund) may purchase obligations issued by companies
which invest in real estate, commodities or commodities contracts if the
obligations of such companies are permitted investments.
6. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
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<PAGE>
7. Issue senior securities (as defined in the Investment Company Act)
except in connection with permitted borrowing as described in the
Prospectus and this Statement of Additional Information or as permitted
by rule, regulation, order or interpretation of the Securities and
Exchange Commission (the "SEC").
8. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 5% of the value of the total assets of the Portfolio.
All borrowings will be repaid before making additional investments and any
interest paid on such borrowings will reduce the income of the Portfolio.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
No Portfolio may:
1. Pledge, mortgage or hypothecate assets , except to secure temporary
borrowings as permitted and described in its Prospectus or Statement of
Additional Information.
2. Sell securities short, unless the Portfolio undertaking such transaction
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short.
3. Purchase securities of other investment companies, except for the purchase
of shares of money market, U.S. equity index or tax-exempt investment
companies as described in the Prospectus or Statement of Additional
Information.
4. Purchase securities on margin, except that a Portfolio may obtain such
short term credits as are necessary for the clearance of transactions.
5. Purchase securities of any company which has (with its predecessors) a
record of less than three years continuing operations if, as a result, more
than 5% of the total assets of such Portfolio (taken at fair market value)
would be invested in such securities.
6. Invest in interests in oil, gas or other mineral exploration or development
programs or oil, gas or mineral leases.
7. Purchase warrants, puts, calls, straddles, spreads or combinations thereof,
except that the Intermediate Term Bond Fund, the Short Term Bond Fund and
the Idaho Municipal Bond Fund may invest in standby commitments and the
Equity Fund and the Balanced Fund may write (sell) covered call options.
8. Invest in illiquid securities, except that the Municipal Bond Fund and
Idaho Municipal Bond may invest up to 15% of their total assets in illiquid
securities.
S-15
<PAGE>
THE ADVISER
The Trust and First Security Investment Management, Inc. (the "Adviser") have
entered into an advisory agreement dated as of February 1, 1989 and amendments
to the advisory agreement dated as of December 27, 1994 and November 1, 1995 (as
further amended from time to time, the "Advisory Agreement"). The Advisory
Agreement provides that the Adviser shall not be protected against any liability
to the Trust or its shareholders by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the expenses of
any Portfolio (including amounts payable to the Adviser but excluding interest,
taxes, brokerage, litigation, and other extraordinary expenses) exceed
limitations established by any applicable statute or regulatory authority of any
jurisdiction in which the shares are qualified for offer and sale, the Adviser
will bear the amount of such excess. The Adviser will not be required to bear
expenses of the Trust to an extent which would result in a Portfolio's inability
to qualify as a regulated investment company under provisions of the Internal
Revenue Code.
The continuance of the Advisory Agreement must be specifically approved at least
annually (i) by the vote of the Trustees or by vote of a majority of the
outstanding voting securities of each Portfolio, and (ii) by the vote of a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement will terminate
automatically in the event of its assignment, and is terminable at any time
without penalty by the Trustees of the Trust or, with respect to a Portfolio by
a majority of the outstanding shares of that Portfolio, on not less than 30 days
nor more than 60 days written notice to the Adviser, or by the Adviser on 90
days written notice to the Trust.
The Adviser is an indirect wholly-owned subsidiary of First Security
Corporation, a financial services organization and registered financial holding
company with headquarters in Salt Lake City, Utah.
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<PAGE>
For the fiscal years ended January 31, 2000, January 31, 1999 and January 31,
1998, the Portfolios paid the Adviser the following fees:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Equity Fund $1,759,983 $1,371,071 $1,240,547
Balanced Fund 1,293,111 1,103,136 1,039,727
Intermediate Term Bond Fund 703,658 725,043 708,954
Short Term Bond Fund 98,414 158,011 227,276
Municipal Bond Fund 316,174 291,720 201,286
Idaho Municipal Bond Fund 138,665 127,298 106,646
</TABLE>
The advisory fees paid by the Portfolios for periods indicated were allocated
between the Institutional, Class A and Class B classes of shares based upon the
total assets of the respective classes.
Under the Advisory Agreement, the Adviser is entitled to receive a fee for the
services it provides, which is calculated daily and paid monthly, at an annual
rate of 0.74% of the average daily net assets of the Equity Fund and the
Balanced Fund, and at an annual rate of 0.60% of the average daily net assets of
the Intermediate Term Bond Fund, the Short Term Bond Fund, the Municipal Bond
Fund, and the Idaho Municipal Bond Fund. The Adviser has voluntarily waived a
portion of its fee for the Trust's current fiscal year so that total operating
expenses for the Equity Fund and the Balanced Fund (excluding 12b-1 fees) will
not exceed 0.90%, and the total operating expenses for the Intermediate Term
bond Fund, the Short Term Bond Fund, the Municipal Bond Fund, and the Idaho
Municipal Bond Fund (excluding 12b-1 fees) will not exceed 0.75%. The Adviser
may revoke its fee waivers at any time at its sole discretion without notice to
any current or prospective shareholder. For the fiscal year ended January 31,
2000, the Adviser received advisory fees in amounts equal to the following
annual percentage rates applied to the average daily net assets of the
Portfolios indicated:
- 0.61% for the Equity Fund;
- 0.59% for the Balanced Fund;
- 0.42% for the Intermediate Term Bond Fund;
- 0.28% for the Short Term Bond Fund;
- 0.42% for the Municipal Bond Fund;
- 0.36% for the Idaho Municipal Bond Fund.
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<PAGE>
For the fiscal years ended January 31, 2000, January 31, 1999 and January 31,
1998, the Adviser waived advisory fees for each Portfolio as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Equity Fund $386,420 $371,735 $198,551
Balanced Fund 337,389 282,755 212,761
Intermediate Term Bond Fund 295,235 272,430 179,395
Short Term Bond Fund 111,102 117,254 115,375
Municipal Bond Fund 138,826 141,103 204,756
Idaho Municipal Bond Fund 91,972 95,170 100,062
</TABLE>
THE ADMINISTRATOR
The Trust and SEI Financial Management Corporation entered into an
administration agreement (the "Administration Agreement") dated December 27,
1994. On June 1, 1996 SEI Investments Mutual Funds Services (formerly SEI Fund
Resources) (the "Administrator") assumed the responsibilities of SEI Financial
Management Corporation under the Administration Agreement. The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Administrator in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder.
The Administration Agreement was in effect for an initial three year term and
will continue in effect for successive two-year periods unless terminated by
either party on not less than 90 days prior written notice to the other party.
The Portfolios paid the Administrator the following fees pursuant to the
Administration Agreement for the fiscal years ended January 31, 2000, January
31, 1999 and January 31, 1998.
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<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Equity Fund $580,113 $471,030 $389,080
Balanced Fund 440,679 374,566 338,610
Intermediate Term Bond Fund 332,967 332,492 296,141
Short Term Bond Fund 69,839 93,548 114,208
Municipal Bond Fund 151,668 144,275 135,369
Idaho Municipal Bond Fund 76,880 74,156 68,903
</TABLE>
For the fiscal years ended January 31, 2000, January 31,1999 and January 31,
1998, the Administrator waived fees for the following Portfolios:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Idaho Municipal Bond Fund 23,121 25,844 31,097
</TABLE>
The Administrator is a wholly owned subsidiary of SEI Investments Management
Corporation, which is a wholly-owned subsidiary of SEI Investments Company
("SEI"). The Administrator has its principal business offices at Oaks, PA 19456.
SEI and its subsidiaries are leading providers of funds evaluation services,
trust accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers.
The Administrator also serves as administrator or sub-administrator to the
following other mutual funds:
SEI Institutional International Trust
SEI Liquid Asset Trust
SEI Tax Exempt Trust
SEI Asset Allocation Trust
SEI Index Funds
SEI Institutional Managed Trust
SEI Daily Income Trust
The Advisor's Inner Circle Fund
The Pillar Funds
CUFUND
STI Classic Funds
First American Funds, Inc.
First American Strategy Funds, Inc.
First American Investment Funds, Inc.
The Expedition Funds
Amerindo Funds, Inc.
CNI Charter Funds
Friends Ivory Funds
Huntington VA Funds
S-19
<PAGE>
The Nexis Fund, Inc.
The PBHG Funds, Inc.
PBHG Advisor Funds, Inc.
The Arbor Fund
Armada Funds
STI Classic Variable Trust
ARK Funds
Huntington Funds
HighMark Funds
Bishop Street Funds
TIP Funds
SEI Institutional Investments Trust
Alpha Select Funds
Oak Associates Funds
The Armada Advantage Fund
The Parkstone Group of Funds
UAM Funds Trust
UAM Funds Inc.
UAM Funds Inc., II
DISTRIBUTION
SEI Investments Distribution Co., Oaks, PA 19456 (the "Distributor"), a
wholly-owned subsidiary of SEI, and the Trust are parties to a distribution
agreement dated December 27, 1994 for the Institutional and Class A shares and a
distribution agreement dated February 6, 1998 for the Class B shares
(collectively, the "Distribution Agreements"). The Distribution Agreements have
an initial term of 1 year and continue in force and effect from year to year if
such continuance is approved (i) by the Trust's Trustees or by the vote of a
majority of the outstanding shares of the Trust, and (ii) by the vote of a
majority of the Trustees of the Trust who are not parties to the Distribution
Agreements or interested persons (as defined in the Investment Company Act) of
any party to the Distribution Agreements, cast in person at a meeting called for
the purpose of voting on such approval. The Distribution Agreements will
terminate in the event of any assignment, as defined in the Investment Company
Act, and are terminable with respect to a particular Portfolio on not less than
sixty days' notice by the Trust's Trustees, by vote of a majority of the
outstanding shares of such Portfolio or by the Distributor.
DISTRIBUTION PLANS
The Trust has adopted a Distribution Plan for the Retail Class A shares of each
Portfolio (the "Class A Plan") and for the Retail Class B shares of the Equity
Fund, Balanced Fund, Municipal Bond Fund and Idaho Municipal Bond Fund (the
"Class B Plan" and collectively with the Class
S-20
<PAGE>
A Plan, the "Plans") in accordance with the provisions of Rule 12b-1 under the
Investment Company Act which regulates circumstances under which an investment
company may directly or indirectly bear expenses relating to the distribution of
its shares. In this regard, the Board of Trustees has determined that the Plans
and the Distribution Agreements are in the best interests of the Retail Class A
and Retail Class B shareholders. Continuance of the Plans must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Trustees who are not "interested persons" of the Trust as that term is defined
in the Investment Company Act and who have no direct or indirect financial
interest in the operation of the Distribution Plan or in any agreements related
thereto ("Qualified Trustees"). The Plans require that quarterly written reports
of amounts spent under the Plans and the purposes of such expenditures be
furnished to and reviewed by the Trustees. The Plans may not be amended to
increase materially the amount which may be spent thereunder without approval by
a majority of the outstanding Class A shares or the Class B shares of the
Portfolio affected. All material amendments of the Plans will require approval
by a majority of the Trustees of the Trust and of the Qualified Trustees. Except
to the extent that the Administrator and Adviser benefitted through increased
fees from an increase in the net assets of the Trust which may have resulted in
part from the expenditures, no interested person of the Trust nor any Trustee of
the Trust who is not an interested person of the Trust had a direct or indirect
financial interest in the operation of the Plans or related agreements.
THE CLASS A PLAN
The Distribution Agreement and Class A Plan provide for payment to the
Distributor of a total fee in connection with the servicing of shareholder
accounts of the Class A shares, calculated and payable monthly, at the annual
rate of 0.25% of the value of the average daily net assets of such class. All or
any portion of such total fee may be payable as a Shareholder Servicing Fee, and
all or any portion of such total fee may be payable as a Distribution Fee, as
determined from time to time by the Trustees of the Trust. All such fees are
currently designated and payable as a Shareholder Servicing Fee.
The Shareholder Servicing Fee may be used by the Distributor to provide
compensation for ongoing servicing or maintenance of shareholder accounts with
respect to the Class A shares of the Portfolios of the Trust. Compensation may
be paid by the Distributor to persons, including employees of the Distributor,
and institutions who respond to inquiries of holders of Class A shares regarding
their ownership of shares or their accounts with the Trust or who provide other
administrative or accounting services not otherwise provided by the Adviser,
transfer agent or other agent of the Trust.
Payments under the Class A Plan are not tied exclusively to the expenses for
shareholder servicing activities actually incurred by the Distributor, so that
such payments may exceed expenses actually incurred by the Distributor. The
Trust's Board of Trustees will evaluate the appropriateness of the Class A Plan
and its payment terms on a continuing basis and in doing so
S-21
<PAGE>
will consider all relevant factors, including expenses borne by the Distributor
and amounts it receives under the plan.
The Trust's Adviser and the Distributor may, at their option and in their
sole discretion, make payments from their own resources to cover costs of
additional shareholder servicing activities.
For the fiscal years ended January 31, 2000, January 31, 1999 and January 31,
1998, the Class A share classes of the Portfolios paid the Distributor the
following amounts.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Equity Fund $31,288 $27,258 $15,416
Balanced Fund $10,447 $10,370 $ 8,122
Intermediate Term Bond Fund $ 3,616 $ 5,823 $ 6,289
Short Term Bond Fund $ 396 $ 362 $ 627
Municipal Bond Fund $16,315 $21,582 $23,004
Idaho Municipal Bond Fund $26,750 $25,622 $22,554
</TABLE>
THE CLASS B PLAN
The Distribution Agreement and Class B Plan provide for payment to the
Distributor of a distribution fee, calculated and payable monthly, at an annual
rate of up to and including 0.75% of the value of the average daily net assets
of the Class B Shares, or such lesser amount as may be determined from time to
time by the Trustees of the Trust, and a shareholder servicing fee, calculated
and payable monthly, at an annual rate of up to and including 0.25% of the value
of the average daily net assets of the Class B shares, or such lesser amount as
may be established from time to time by the Trustees of the Trust. The
Distributor has elected to collect a distribution fee for the Class B shares of
the Municipal Bond Fund and Idaho Municipal Bond Fund of 0.65% per annum, but
reserves the right to collect the full distribution fee payable under the Class
B Plan at any time.
The shareholder servicing fee may be used by the Distributor to provide
compensation for ongoing servicing and maintenance of shareholder accounts with
respect to Class B shares. Compensation may be paid by the Distributor to
persons, including employees of the Distributor, and institutions that respond
to inquiries of holders of Class B shares regarding their ownership of such
shares or their accounts with the Trust or who provide administrative or
accounting services not otherwise required to be provided by the Trust's
investment adviser, transfer agent or other agent of the Trust.
S-22
<PAGE>
The distribution fee may be used by the Distributor to provide initial and
ongoing sales compensation to its employees and to other broker-dealers in
respect of sales of Class B shares of the applicable Portfolios of the Trust and
to pay for other advertising and promotional expenses in connection with the
distribution of the Class B shares. These advertising and promotional expenses
include, by way of example but not by way of limitation, costs of printing and
mailing prospectuses, statements of additional information and shareholder
reports to prospective investors; preparation and distribution of sales
literature; advertising of any type; an allocation of overhead and other
expenses of the Distributor related to the distribution of such shares; and
payments to, and expenses of, officers, employees or representatives of the
Distributor, of other broker-dealers, banks or other financial institutions, and
of any other person who provides support service in connection with the
distribution of such shares, including travel, entertainment and telephone
expenses.
Payments under the Class B Plan are not tied exclusively to the expenses for
shareholder servicing and distribution related activities actually incurred by
the Distributor, so that such payments may exceed expenses actually incurred by
the Distributor. The Trust's Board of Trustees will evaluate the appropriateness
of the Class B Plan and its payment terms on a continuing basis and in doing so
will consider all relevant factors, including expenses borne by the Distributor
and amounts it receives under the Class B Plan.
The Trust's investment adviser and the Distributor may, at their option and in
their sole discretion, make payments from their own resources to cover costs of
additional distribution and shareholder servicing activities.
For the fiscal year ended January 31, 2000 and the period from May 8, 1998
through January 31, 1999 the Class B share classes of the Portfolios paid the
Distributors the following amounts.
<TABLE>
<CAPTION>
Fiscal Year Ended Period Ended
January 31, 2000 January 31, 1999
---------------- ----------------
<S> <C> <C>
Equity Fund $26,394 $10,900
Balanced Fund 17,988 4,955
Municipal Bond Fund 22,808 8,853
Idaho Municipal Bond Fund 19,590 6,275
</TABLE>
SALES CHARGE AND CONTINGENT DEFERRED SALES CHARGE.
Class A shares of the Portfolios are offered for sale to the public at net asset
value of each Class A share plus the applicable sales charge. The following
chart reflects the total sales charges paid
S-23
<PAGE>
in connection with the sale of Class A shares of each Portfolio and the amount
retained by the Distributor for the fiscal years ended January 31, 2000, January
31, 1999, and January 31, 1998.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
Sales Amount Sales Amount Sales Amount
Charge Retained Charge Retained Charge Retained
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund 44,465 4,930 $82,076 $6,221 $189,578 $19,045
Balanced Fund 9,053 1,017 24,842 2,505 34,610 3,413
Intermediate Term Bond Fund 1,099 133 18,999 1,649 25,164 2,427
Short Term Bond Fund 47 5 133 12 367 32
Municipal Bond Fund 10,558 1,210 24,063 2,341 19,198 1,926
Idaho Municipal Bond Fund 7,875 936 21,908 2,213 12,766 1,310
</TABLE>
The Distributor may reallow to dealers selling Portfolio shares a portion of the
sales charge collected by the Distributor in connection with those sales. The
table below shows the sales charge and the amounts of such reallowances
expressed as a percentage of the offering price of each Portfolio's Class A
shares. The amount of the reallowance is reduced as the front-end sales charge
is reduced on large purchases of Class A Shares.
S-24
<PAGE>
EQUITY FUND AND
BALANCED FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Reallowance and
Sales Charge as Brokerage Commissions
a Percentage of as a Percentage
Amount of Purchase Offering Price of Offering Price
--------------------------------------------- -------------------------------- -------------------------------------
<S> <C> <C>
less than $25,000 4.50% 4.05%
$25,000 but less than $50,000 4.00% 3.60%
$50,000 but less than $100,000 3.50% 3.15%
$100,000 but less than $250,000 3.00% 2.70%
$250,000 but less than $500,000 2.50% 2.25%
$500,000 but less than $1,000,000 2.00% 1.80%
$1,000,000 and over(1) - -
--------------------------------------------- -------------------------------- -------------------------------------
</TABLE>
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Reallowance and
Sales Charge as Brokerage Commissions
a Percentage of as a Percentage
Amount of Purchase Offering Price of Offering Price
--------------------------------------------- -------------------------------- -------------------------------------
<S> <C> <C>
less than $50,000 3.50% 3.15%
$50,000 but less than $100,000 3.00% 2.70%
$100,000 but less than $250,000 2.50% 2.25%
$250,000 but less than $500,000 2.00% 1.80%
$500,000 but less than $1,000,000 1.50% 1.35%
$1,000,000 and over(1) - -
--------------------------------------------- -------------------------------- -------------------------------------
</TABLE>
S-25
<PAGE>
SHORT TERM BOND FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Reallowance and
Sales Charge as Brokerage Commissions
a Percentage of as a Percentage
Amount of Purchase Offering Price of Offering Price
--------------------------------------------- -------------------------------- -------------------------------------
<S> <C> <C>
less than $100,000 1.50% 1.35%
$100,000 but less than $250,000 1.00% 0.90%
$250,000 but less than $500,000 0.75% 0.68%
$500,000 but less than $1,000,000 0.50% 0.45%
$1,000,000 and over(1) - -
--------------------------------------------- -------------------------------- -------------------------------------
</TABLE>
MUNICIPAL BOND FUND AND IDAHO MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Reallowance and
Sales Charge as Brokerage Commissions
a Percentage of as a Percentage
Amount of Purchase Offering Price of Offering Price
--------------------------------------------- -------------------------------- -------------------------------------
<S> <C> <C>
less than $50,000 4.00% 3.60%
$50,000 but less than $100,000 3.50% 3.15%
$100,000 but less than $250,000 3.00% 2.70%
$250,000 but less than $500,000 2.50% 2.25%
$500,000 but less than $1,000,000 2.00% 1.80%
$1,000,000 and over(1) - -
--------------------------------------------- -------------------------------- -------------------------------------
</TABLE>
Class B shares of the Equity Fund, Balanced Fund, Municipal Bond Fund and Idaho
Municipal Bond Fund are offered for sale at net asset value of each Class B
share. Class B shares are redeemed at a price equal to the net asset value of
such shares less the applicable contingent deferred sales charge. The following
chart reflects the contingent deferred sales charges paid by
S-26
<PAGE>
Class B shareholders for the fiscal year ended January 31, 2000 and the period
from May 8, 1998 through January 31, 1999:
<TABLE>
<CAPTION>
Fiscal Year
Ended Period Ended
January 31, 2000 January 31, 1999
---------------- ----------------
<S> <C> <C>
Equity Fund 18,939 $660
Balanced Fund 7,308 839
Municipal Bond Fund 11,305 755
Idaho Municipal Bond Fund 16,099 5,000
</TABLE>
S-27
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The principal occupations of the Trustees and officers of the Trust for the past
five years are listed below. Trustees deemed to be "interested persons" of the
Trust for purposes of the Investment Company Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Position Principal
Held With Occupation(s)
Name and Address Registrant During Past 5 Years
---------------- ---------- -------------------
<S> <C> <C>
Frederick A. Moreton, Jr.* Trustee and Senior Vice President,
170 South Main, Suite 625 Chairman PaineWebber, Incorporated
Salt Lake City, UT 84145-0170
Age: 60
Robert G. Love Trustee Consultant, Harris & Love
2275 Dallin Street Advertising, Inc.
Salt Lake City, UT 84109 (retired 1998)
Age: 76
August Glissmeyer, Jr. Trustee Retired
4458 Camille Street
Salt Lake City, UT 84124
Age: 74
Carl S. Minden Trustee Retired
314 Federal Height Circle
Salt Lake City, UT 84103
Age: 77
George L. Denton, Jr.* Trustee Retired
2915 Sherwood Drive
Salt Lake City, UT 84108
Age: 79
James H. Gardner Trustee Professor, University of Utah,
1616 Arlington Drive retired 1996; Director, Steiner
Salt Lake City, UT 84103 Corp. (industrial services);
Age: 76 Adviser, American Stores
(retail) 1995-1999; Director,
Marion Laboratories (and
successors) (pharmaceuticals)
1976-1996.
S-28
<PAGE>
<CAPTION>
Position Principal
Held With Occupation(s)
Name and Address Registrant During Past 5 Years
---------------- ---------- -------------------
<S> <C> <C>
Blaine Huntsman Trustee Principal, Teton Creek
136 South Main Street, Suite 421 Management Co. (consulting)
Salt Lake City, UT 84111 1995-present. Chairman &
Age: 64 CEO, Director, Jore Corporation
Director, J.P. Realty, Inc.
Kent H. Murdock Trustee President and CEO, O.C. Tanner
3015 E. Craig Drive Company (corporate recognition
Salt Lake City, UT 84109 awards) 1991-present.
Age: 53
John L. Rudisill* Trustee; Executive Senior Vice President and
First Security Corporation Vice President Manager, First Security
61 South Main, 6th Floor Corporation (bank holding
Salt Lake City, UT 84111 company) 1994 - present.
Age: 44 Director, First Security
Investor Services (broker-
dealer) 1997-1999.
Robert Nesher President President and Chief Executive
SEI Investments Management Corporation Officer of SEI, the
Oaks, PA 19456 Administrator and Distributor
Age 52 since 1995. Director and
Executive Vice President of SEI
1986 - 1994. Chairman, SEI
Mutual Funds since 1989.
Lydia A. Gavalis Vice President and Vice President and Assistant
SEI Investments Management Assistant Secretary Secretary of SEI, the
Corporation Administrator and
Oaks, PA 19456 Distributor since 1998.
Age: 35 Assistant General Counsel
and Director of Arbitration,
Philadelphia Stock Exchange
1989-1998.
S-29
<PAGE>
<CAPTION>
Position Principal
Held With Occupation(s)
Name and Address Registrant During Past 5 Years
---------------- ---------- -------------------
<S> <C> <C>
Todd Cipperman Vice President and Vice President and Assistant
SEI Investments Management Assistant Secretary Secretary of SEI, the
Corporation Administrator and the
Oaks, PA 19456 Distributor since 1995.
Age: 34 Associate, Dewey Ballantine
(law firm) 1994-1995.
Associate, Winston & Strawn
(law firm) 1991-1994.
Timothy D. Barto Vice President and Vice President and Assistant
SEI Investments Management Assistant Secretary Secretary of SEI, the
Corporation Administrator and Distributor
Oak, PA 19456 since November 1999.
Age: 32 Associate at Dechert Price &
Rhoads 1997-1999. Associate
at Richter, Miller & Finn
1994-1997.
Christine M. McCullough Vice President and Vice President and Assistant
SEI Investments Management Assistant Secretary Secretary of SEI, the
Corporation Administrator and Distributor
Oak, PA 19456 since November 1999.
Age: 39 Associate at White and
Williams LLP 1991-1999.
Associate at Montgomery,
McCracken, Walker &
Rhoads 1990-1991.
S-30
<PAGE>
<CAPTION>
Position Principal
Held With Occupation(s)
Name and Address Registrant During Past 5 Years
---------------- ---------- -------------------
<S> <C> <C>
James R. Foggo Vice President and Vice President and Assistant
SEI Investments Management Secretary Secretary of SEI, the
Corporation Administrator and Distributor
Oak, PA 19456 since 1998. Associate, Paul
Age: 38 Weiss, Rifkind, Wharton &
Garrison (1998). Associate,
Baker & McKenzie (1995 -
1998). Associate, Battle
Fowler L.L.P. (1993 - 1995).
Operations Manager, The
Shareholder Services Group,
Inc. (1986 - 1990).
Jeffrey Fries Treasurer and Director, Fund Accounting
SEI Investments Management Principal Financial and Administration - SEI
Corporation Officer Fund Resources since 1997.
Oaks, PA 19456 Vice President - Smith
Age: 38 Barney Corporate Trust
Company, Trust Operations
Unit - 1991-1997.
</TABLE>
Trustees and officers of the Trust owned less than 1% of the outstanding shares
of the Trust as of January 31, 2000.
Trustees receive from the Trust an annual fee and are reimbursed for all
out-of-pocket expenses relating to attendance of meetings. The fees paid to
Trustees for the fiscal year ended January 31, 2000, are shown below. Officers
of the Trust do not receive compensation from the Trust for serving as officers.
No person who is a director, officer or employee of the Adviser serves as a
Trustee, officer or employee of the Trust.
S-31
<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated from Trust
Compensation from as Part of Annual Benefits and Fund
Trustee(1) the Trust Trust Expenses upon Retirement Complex(2)
----------- --------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Frederick A. Moreton, Jr. $8,500 $0 $0 $8,500
Robert G. Love 8,500 0 0 8,500
August Glissmeyer, Jr. 9,000 0 0 9,000
Carl S. Minden 8,500 0 0 8,500
George L. Denton, Jr. 9,000 0 0 9,000
James H. Gardner 9,000 0 0 9,000
Blaine Huntsman 9,000 0 0 9,000
Kent H. Murdock 8,500 0 0 8,500
</TABLE>
(1) One of the Trustees, John Rudisill receives no compensation from the Trust.
(2) The Trust is not part of a Fund Complex.
PERFORMANCE
From time to time, each Portfolio may advertise yield or total return. These
figures will be based on historical earnings and are not intended to indicate
future performance.
A Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual funds rating services (such as Lipper Analytical
Services, Inc.), financial and business publications and periodicals, broad
groups of comparable mutual funds or unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs. A Portfolio may quote a service that ranks
mutual funds on the basis of risk-adjusted performance (such as Morningstar,
Inc.). A Portfolio may use long-term performance of appropriate capital markets
to demonstrate general long-term risk versus reward scenarios and could include
the value of a hypothetical investment in the appropriate capital markets. A
Portfolio may also quote financial and business publications and periodicals as
they relate to fund management, investment philosophy and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
S-32
<PAGE>
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
Because the Class A and Class B shares of a Portfolio have different sales
charge structures and differing distribution and shareholder servicing fees, the
performance of each class will differ.
The yield of a Portfolio refers to the annualized income generated by an
investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during
that period is generated in each such period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated
according to the following formula:
Yield = 2[(a-b)/cd) + 1) to the power of 6-1], where a = dividends and interest
earned during the period; b= expenses accrued for the period (net of
waivers/reimbursement); c= the current daily number of shares outstanding
during the period that were entitled to receive dividends; and d= maximum
offering price per share on the last day of period.
For the 30 day period ended January 31, 2000, the yield of shares of each
Portfolio was:
<TABLE>
<CAPTION>
Institutional Class Retail Class A Retail Class B
Shares Shares Shares
<S> <C> <C> <C>
Equity Fund 0.01% (0.23)% (1.03)%
Balanced Fund 1.87 1.54 0.84
Intermediate Term Bond Fund 6.44 5.97 N/A
Short Term Bond Fund 6.18 5.84 N/A
Municipal Bond Fund 5.64 5.17 4.73
Idaho Municipal Bond Fund 4.97 4.53 4.06
</TABLE>
The Municipal Bond Fund and Idaho Municipal Bond Fund may from time to time
advertise a taxable equivalent yield. The taxable equivalent yield for those
Portfolios is the rate an investor would have to earn from a fully taxable
investment in order to equal it's yield after taxes. Taxable equivalent yields
are calculated by dividing the Portfolio's yield by one minus the stated federal
tax rate and one minus the stated federal tax rate plus the state tax rate for
state specific funds (if only a portion of the Portfolio's yield was tax-exempt,
only that portion is adjusted in the calculation).
S-33
<PAGE>
For the 30 day period ended January 31, 2000, the tax equivalent yield for
shares of each Portfolio was:
<TABLE>
<CAPTION>
Institutional Class Retail Class A Retail Class B
Share Shares Shares
<S> <C> <C> <C>
Municipal Bond Fund 8.17% 7.49% 6.86%
Idaho Municipal Bond Fund 8.17% 7.43% 6.68%
</TABLE>
The total return of a Portfolio refers to the average compounded rate of
return to a hypothetical investment for designated time periods (including,
but not limited to, the period from which the Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed
at the end of each period. In particular, total return will be calculated
according to the following formula: P(1+T) to the power of n=ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period.
S-34
<PAGE>
Shown below for each of the Portfolios is the annual total return for the one
year and five year periods year ended January 31, 2000 and the average annual
total return for the life of each Portfolio.
Institutional Class Shares
<TABLE>
<CAPTION>
One Five Since
Year Years Inception(1)
------ ------- --------------
<S> <C> <C> <C>
Equity Fund 10.06% 21.54% 21.66%
Balanced Fund 6.15 15.12 15.26
Intermediate Term Bond Fund (2.54) 5.69 5.90
Short Term Bond Fund 3.02 5.35 5.41
Municipal Bond Fund (5.94) N/A 3.24
Idaho Municipal Bond Fund (5.11) 4.55 4.82
</TABLE>
1. The Institutional Class of shares of all Portfolios commenced operations on
December 28, 1994, except for the Municipal Bond Fund, which commenced
operations on November 1, 1996.
---------------------
Retail Class A Shares
<TABLE>
<CAPTION>
One Five Since
Year Years Inception(1)
------ ------- --------------
<S> <C> <C> <C>
Equity Fund 4.78% N/A 19.87%
Balanced Fund 1.13 N/A 13.60
Intermediate Term Bond Fund (6.17) N/A 4.54
Short Term Bond Fund 1.35 N/A 4.71
Municipal Bond Fund (9.86) N/A 1.79
Idaho Municipal Bond Fund (9.07) N/A 3.32
</TABLE>
1. The Retail Class A shares of all Portfolios commenced operations on March 6,
1995, except for the Municipal Bond Fund, which commenced operations on November
1, 1996.
---------------------
S-35
<PAGE>
Retail Class B Shares
<TABLE>
<CAPTION>
One Five Since
Year Years Inception(1)
------ ------- --------------
<S> <C> <C> <C>
Equity Fund 3.82% N/A 9.34%
Balanced Fund 0.12 N/A 5.37
Municipal Bond Fund (11.28) N/A (3.42)
Idaho Municipal Bond Fund (10.38) N/A (2.63)
</TABLE>
1. Class B shares were first offered for sale to the public on May 8, 1998.
---------------------
PURCHASE, AND REDEMPTION OF SHARES
PARTICIPATING DEALERS
Retail Class A and Class B Shares ("Retail Shares") of the Portfolios may be
purchased, exchanged or redeemed through a financial intermediary, such as a
broker-dealer, bank or other financial institution or organization, which has
entered into an agreement with the Distributor to sell Retail Shares (a
"Participating Dealer"). Participating Dealers may impose a cut-off time earlier
than those described below for receipt of purchase, exchange or redemption
orders directed through them to allow for processing and transmittal of those
orders to the Transfer Agent for effectiveness the same day. Retail Shares
purchased by Customers through Participating Dealers may be held of record by
the Participating Dealer. Customers who desire to transfer the registration of
Retail Shares beneficially owned by them but held of record by a Participating
Dealer should contact their Participating Dealer to accomplish such change.
Depending upon the terms of a particular Customer account, a Participating
Dealer may charge a Customer account fees. Information concerning these services
and any charges should be obtained by the Customer from the Participating
Dealer.
GENERAL INFORMATION ON PURCHASES
The purchase price of Institutional shares is the net asset value next
determined after receipt of the purchase order by the Distributor. Purchase
Orders for Class A shares will be executed at a price per share equal to the net
asset value next determined after the receipt of the purchase order by the
Distributor plus any applicable sales charge. Purchase orders for Class B shares
will be executed at a price per share equal to the net asset value next
determined after receipt of the purchase order by the Distributor, without an
initial sales charge, but Class B shares will be subject to a contingent
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deferred sales charge if they are redeemed within six years after purchase as
described in the Prospectus.
The minimum initial investment in Institutional Shares is $500,000. The minimum
initial investment in Retail Shares is $1,000. However, the minimum investment
may be waived at the Distributor's discretion. All subsequent purchases of
Retail Shares must be in amounts of at least $100 (including purchases through
payroll deductions authorized pursuant to pre-approved payroll deduction plans);
however, the subsequent purchase amount may be waived at the Distributor's
discretion. Purchase orders for Class B shares may not exceed $500,000. Shares
may be purchased on days on which the New York Stock Exchange is open for
business ("Business Days"). Orders for the purchase of Shares must be received
before 4:00 p.m. Eastern Time on any Business Day for the order to be accepted
on that Business Day. Purchase or redemption orders received after the net asset
value has been determined will be priced at the next Business Day's net asset
value. The Trust reserves the right to reject a purchase order when the
Distributor determines that it is not in the best interest of the Trust or
shareholders to accept such purchase order.
DISTRIBUTION INVESTMENT OPTION
If directed by the Customer, distributions of dividends and capital gains made
by a Portfolio may be invested in shares of the same class of one of the other
Portfolios, if such shares are available for sale. Investments of distributions
in shares of one of the other Portfolios must meet the applicable initial
investment minimum, or be made in an existing account and meet the applicable
additional purchase minimum. Such investments will not be subject to sales
charges. A Customer considering the Distribution Investment Option should
consider the differences in objectives and policies of another Portfolio before
making any investment in such Portfolio. The Trust reserves the right to
terminate this Distribution Investment Option without further notice to
shareholders.
ALTERNATIVE SALES CHARGE OPTIONS
Investors may purchase Retail Shares of the Portfolios at a price equal to their
net asset value per share plus a sales charge which, at the investor's election,
may be imposed either (i) at the time of the purchase (the Class A "initial
sales charge alternative"), or (ii) on a contingent deferred basis (the Class B
"deferred sales charge alternative"). Each class represents a Portfolio's
interest in a portfolio of investments. The classes have the same rights and are
identical in all respects except that ( i) Class B shares bear the expenses of
the deferred sales charge arrangement and distribution and service fees
resulting from such sales arrangement, (ii) each class has exclusive voting
rights with respect to approvals of any Rule 12b-1 distribution plan related to
that specific class (although Class B shareholders must approve any material
increase in distribution fees imposed on Class A shares so long as Class B
shares convert into Class A shares), (iii) only Class B shares carry a
conversion feature and (iv) each class has different exchange privileges. Sales
personnel of broker-dealers distributing the Trust's shares, and other persons
entitled to receive compensation for selling such shares, may receive differing
compensation for selling Class A or Class B shares.
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The alternative purchase arrangement permits investors to choose the method of
purchasing shares that is more beneficial to them. The amount of purchase and
the length of time the investor expects to hold the shares will be factors in
determining the best sales charge option, Investors should consider, over the
time they expect to maintain their investment, whether the accumulated
distribution and service fees and contingent deferred sales charges on Class B
shares prior to conversion would be less than the initial sales charge on Class
A shares, and to what extent such differential would be offset by the expected
higher yield of Class A shares. Class A shares will normally be more beneficial
if the investor qualifies for reduced sales charges as described in the
Prospectus.
REDEMPTIONS
The redemption price of the Institutional shares is the net asset value of each
Institutional share. Class A shares will be redeemed at a price equal to the net
asset value of such Class A shares. Shareholders may at any time redeem all or a
portion of their Class A shares at net asset value without charge. Class B
shares will be redeemed at a price equal to the net asset value of such Class B
shares less the applicable contingent deferred sales charge, if any, described
in the Prospectus. The investor's price for redemption will be determined by the
net asset value of the applicable Portfolio's shares next determined following
the receipt of a request to redeem such shares.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in kind of readily marketable securities held
by a Portfolio in lieu of cash. Shareholders may incur brokerage charges on the
sale of any such securities so received in payment of redemptions.
A gain or loss for federal income tax purposes may be realized by a taxable
shareholder upon an in-kind redemption depending upon the shareholder's basis in
the shares of the Trust redeemed.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment upon redemption for any period during which trading on the
New York Stock Exchange is restricted, or during the existence of an emergency
(as determined by the SEC by rule or regulation) as a result of which disposal
or evaluation of the portfolio securities is not reasonably practicable, or for
such other periods as the SEC may by order permit. The Trust also reserves the
right to suspend sales of shares of the Portfolio's for any period during which
the New York Stock Exchange, the Administrator, the Distributor, the Adviser or
the Custodian is not open for business.
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DETERMINATION OF NET ASSET VALUE
In accordance with the current rules and regulations of the SEC, the net asset
value of a share of each Portfolio is determined once daily as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on any business day for the Portfolios. The net asset values per share of the
Institutional, Class A and Class B classes of the Portfolios will differ because
of different expenses attributable to each class. The income or loss and the
expenses common to the classes of a Portfolio are allocated to each class on the
basis of the net assets of each class of a Portfolio, calculated as of the close
of business on the previous business day of the Portfolio in relation to the
total net assets in the Portfolio as of such date. In addition to certain common
expenses which are allocated the classes of a Portfolio, certain expenses, such
as those related to the distribution of shares of a class, are allocated only to
the class to which such expenses relate. The net asset value per share of a
class is determined by subtracting the liabilities (e.g., the expenses)
allocated to the class from the assets allocated to the class and dividing the
result by the total number of shares outstanding of such class. Determination of
each Portfolio's net asset value per share is made in accordance with generally
accepted accounting principles.
A Portfolio's securities are valued by the Administrator pursuant to valuations
provided by an independent pricing service. Securities listed on a securities
exchange or an automated quotation system for which quotations are readily
available, including securities traded over the counter, are valued at the last
quoted sales price on the exchange where the security is principally traded or,
lacking any sales on a particular day, the security is valued at the most
recently quoted bid price. Debt and fixed income investments may be priced by
independent, third-party pricing agents. Those third-party pricing agents may
use a matrix system to determine valuations. This system considers such factors
as security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the Trust's officers in a manner
specifically authorized by the Trustees of the Trust. Short-term obligations
having 60 days or less to maturity are valued at amortized cost, which
approximates fair market value.
Because net asset value per share of each Portfolio is determined only on
business days of the Portfolio, the net asset value per share of a Portfolio may
be significantly affected on days when an investor can not exchange or redeem
shares of the Portfolio.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Portfolios 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 Portfolios or their shareholders, and the
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discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
QUALIFICATION AS A RIC
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other portfolios. Each Portfolio intends to
qualify for the special tax treatment afforded regulated investment companies
("RICs") under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), so as to be relieved of federal income tax on investment company
taxable income and net capital gains (the excess of net long-term capital gains
over net short-term capital losses) distributed to Shareholders.
In order to qualify for treatment as an RIC under Subchapter M of the Code, a
Portfolio must distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, net investment income plus the
excess of net short-term capital gain over net long-term capital loss)
("Distribution Requirement") and must meet several additional requirements.
Among these requirements are the following (i) at least 90% of a Portfolio's
gross income each taxable year must be derived from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the RIC's principal business of investing
in stock or securities), and other income derived with respect to its business
of investing in such stock, securities or currencies (the "Income Requirement");
(ii) at the close of each quarter of a Portfolio's taxable year, at least 50% of
the value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other securities, with such
other securities limited, in respect of any one issuer, to an amount that does
not exceed 5% of the value of a Portfolio's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of a Portfolio's taxable year, not more than 25% of
the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer or of
two or more issuers which the Portfolio controls and which are engaged in the
same, similar or related trades or businesses. (The requirements described in
clauses (ii) and (iii) will collectively be referred to in the following
discussion as the "Asset Diversification Requirement".)
Income derived by a RIC from a partnership or trust will satisfy the Income
Requirement only to the extent such income is attributable to items of income of
the partnership or trust that would satisfy the Income Requirement if they were
realized by a RIC in the same manner as realized by the partnership or trust.
FEDERAL INCOME TAX CONSEQUENCES OF PORTFOLIO DISTRIBUTIONS
Although the Portfolios are not required by the Distribution Requirement to
distribute long-term capital gains, the Portfolios intend to distribute any net
realized long-term capital gains annually.
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The aggregate amount of distributions designated by a Portfolio as capital gain
dividends may not exceed the net capital gain of such Portfolio for any taxable
year, determined by excluding any net capital loss or net long-term loss
attributable to transactions occurring after October 31 of such year and by
treating any such loss as if it arose on the first day of the following taxable
year. Such distributions will be designated as a capital gains dividend in a
written notice mailed by the Trust to shareholders not later than 60 days after
the close of each Portfolio's respective taxable year.
In the case of corporate shareholders (other than corporations, such as "S"
corporations, which are not eligible for the deduction because of their
special characteristics), distributions (other than capital gain dividends)
of a RIC for any taxable year generally qualify for the 70%
dividends-received deduction to the extent of the gross amount of "qualifying
dividends" received by such RIC for the year (other than for purposes of
special taxes such as the accumulated earnings tax and personal holding
company tax). Generally, a dividend will be treated as a "qualifying
dividend" if it has been received from a domestic corporation. However, a
dividend received by a taxpayer will not be treated as a "qualifying
dividend" if (1) it has been received with respect to any share of stock that
the taxpayer has held for 45 days (90 days in the case of certain preferred
stock) or less during the 90-day period beginning on the day which is 45 days
before the date on which the stock becomes ex-dividend (during the 180-day
period beginning on the date which is 90 days before such date, in the case
of certain preferred stock); provided, however that such holding period shall
be reduced for any period during which the Portfolio has an option to sell,
is under a contractual obligation to sell, has made and not closed a short
sale of, has granted certain options to buy or has otherwise diminished its
risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the taxpayer is under
an obligation (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related
property; or (3) to the extent the stock on which the dividend is paid is
treated as debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (1) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Portfolio, or (2) by
application of Code Section 246(b), which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain
other items). The Trust will designate the portion, if any, of the
distribution made by a Portfolio that qualifies for the dividends-received
deduction in a written notice mailed by the Portfolio to shareholders not
later than 60 days after the close of the Portfolio's taxable year. Only the
Equity Fund and the Balanced Fund are expected to have any portion of their
dividends so designated.
Investors should note that changes made to the Code by the Taxpayer Relief Act
of 1997 have increased the tax rate distinctions between capital gain and
ordinary income distributions. The nominal maximum marginal rate on ordinary
income for individuals, trusts and estates is now 39.6%, but for individual
taxpayers whose adjusted gross income exceeds certain threshold amounts (that
differ depending on the taxpayer's filing status), provisions phasing out
personal exemptions and limiting itemized deductions may cause the actual
marginal rate to exceed 39.6%. The maximum rate on the net capital gain of
individuals, trusts and estates, however, is 20% if the
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property sold has been held for more than one year. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate that in some cases
may be 19.6% lower than the maximum rate applicable to ordinary income. Capital
gains and ordinary income of corporate taxpayers are taxed at a nominal maximum
rate of 35% (an effective marginal rate of 39% applies in the case of
corporations having taxable income between $100,000 and $335,000 and an
effective marginal rate of 38% applies in the case of corporations having
taxable income between $15,000,000 and $18,333,333).
Corporate as well as non-corporate taxpayers may be liable for alternative
minimum tax, which is imposed at the maximum rate of 28% in the case of
non-corporate taxpayers and 20% in the case of corporate taxpayers of
"alternative minimum taxable income" (less an applicable "exemption amount") in
lieu of the regular corporate or non-corporate income tax. "Alternative minimum
taxable income" is equal to "taxable income" (as determined for regular
corporate income tax purposes) with certain adjustments. Although corporate
taxpayers in determining "alternative minimum taxable income" are allowed to
exclude exempt-interest dividends (other than exempt-interest dividends derived
from certain private activity bonds, as explained below) and to utilize the 70%
dividends-received deduction at the first level of computation, the Code
requires (as a second computational step) that corporate "alternative minimum
taxable income" be increased by 75% of the excess of "adjusted current earnings"
over other "alternative minimum taxable income." In determining their "adjusted
current earnings," corporate shareholders must take into account (1) all
exempt-interest dividends and (2) the full amount of all dividends from a
Portfolio that are treated as "qualifying dividends" for purposes of the
dividends-received deduction. As much as 75% of any exempt-interest dividend and
82.5% of any "qualifying dividend" received by a corporate shareholder could, as
a consequence, be subject to alternative minimum tax. For tax years beginning
after 1997, however, certain small corporations are wholly exempt from the
alternative minimum tax.
If for any taxable year any Portfolio does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and all distributions will be
taxable as ordinary dividends (including amounts derived from interest on
municipal securities in the case of the Municipal Bond Fund and the Idaho
Municipal Bond Fund) to the extent of such Portfolio's current and accumulated
earning and profits. Such distributions will be eligible for the
dividends-received deduction in the case of corporate shareholders.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL BOND FUND AND IDAHO MUNICIPAL BOND
FUND
Each Portfolio intends to distribute substantially all of its net investment
income (including net short-term capital gains and realized market discounts) to
shareholders. If, at the close of each quarter of its taxable year, at least 50%
of the value of a Portfolio's total assets consists of obligations the interest
on which is excludable from gross income, that Portfolio may distribute its net
tax-exempt interest income as "exempt-interest dividends" to its shareholders.
Exempt-interest dividends are excludable from a shareholder's gross income for
federal income tax purposes but
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may have certain collateral federal tax consequences including alternative
minimum tax consequences. In addition, the receipt of exempt-interest dividends
may cause persons receiving Social Security or Railroad Retirement benefits to
be taxable on a portion of such benefits.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of a Portfolio to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of exempt-interest dividends.
Any dividends paid out of net short-term capital gains and realized market
discount or out of any income realized by a Portfolio on taxable securities will
be taxable to shareholders as ordinary income (whether received in cash or in
additional shares) to the extent of the Portfolio's earnings and profits and
will not qualify for the dividends-received deduction for corporate
shareholders. Distributions to shareholders of net capital gains of a Portfolio
also will not qualify for the corporate dividends-received deduction and will be
taxable to shareholders as long-term capital gain, whether received in cash or
additional shares, and regardless of how long a shareholder has held the shares.
Each of these Portfolios is designed to provide investors with current
tax-exempt interest income in the form of exempt-interest dividends. Investors
in these Portfolios should note, however, that taxpayers are required to report
the receipt of tax-exempt interest and exempt-interest dividends in their
Federal income tax returns. Furthermore, distributions made by the Portfolios
out of realized capital gain or realized market discount will be taxable.
Although the Portfolios generally do not expect to receive net investment income
other than interest on municipal securities, up to 20% of the net assets of each
Portfolio may be invested in securities that do not pay tax-exempt interest. Any
taxable income recognized by the Portfolios will be distributed and taxed to
their shareholders in accordance with the rules described in the Prospectus with
respect to the other Portfolios of the Trust.
Investors should also note that in two circumstances exempt-interest dividends,
while exempt from regular Federal income tax, are subject to alternative minimum
tax at a maximum rate of 28%, in the case of individuals, trusts and estates,
and 20% in the case of corporate taxpayers (other than certain small
corporations). First, tax-exempt interest and exempt-interest dividends derived
from certain private activity bonds issued after August 7, 1986, will generally
constitute an item of tax preference for corporate and non-corporate taxpayers
in determining alternative minimum tax liability. The Municipal Bond Fund may
invest in such private activity bonds if consistent with the credit quality
standards and other investment policies of those Portfolios. Although it does
not currently intend to do so, the Idaho Municipal Bond Fund may invest up to
100% of its net assets in such private activity bonds. Secondly (as discussed
above), tax-exempt interest and exempt-interest dividends derived from all
municipal securities must be taken into account by corporate taxpayers in
determining their adjusted current earnings adjustment for alternative minimum
tax purposes and may as a consequence be subject to tax at an effective rate of
15%.
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The Portfolios will report annually to shareholders the percentages of their net
investment income which are exempt from the regular federal income tax, which
constitute items of tax preference for purposes of the federal alternative
minimum tax, and which are fully taxable. In addition, the Idaho Municipal Bond
Fund will report annually to shareholders the percentages of its net investment
income which are exempt from Idaho corporate and personal income tax (discussed
below). The Portfolios will apply such percentages uniformly to all
distributions declared from net investment income during each report year. These
percentages may differ significantly from the actual percentages for any
particular day.
An investment in the Municipal Bond Fund or the Idaho Municipal Bond Fund is not
intended to constitute a balanced investment program. Shares of those Portfolios
would not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts since such plans and accounts generally qualify
for deferral of taxes on income or gains and, therefore, not only would not gain
any additional benefit from the dividends of those Portfolios being tax-exempt,
but also such dividends would be taxable when distributed to the beneficiary.
Receipt of exempt-interest dividends may also result in collateral Federal
income tax consequences to certain taxpayers, including S corporations,
financial institutions, property and casualty insurance companies, individual
recipients of Social Security or Railroad Retirement benefits, and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisors as to such consequences.
The Portfolios may also not be an appropriate investment for entities which are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations
to include a nonexempt person who regularly uses a part of such facilities in
his trade or business and (1) whose gross revenues derived with respect to the
facilities financed by the issuance of the bonds are more than 5% of the total
revenue derived by all users of such facilities, (2) who occupies more than 5%
of the entire usable area of such facilities, or (3) 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 of the Portfolios reserves the right to acquire standby commitments with
respect to municipal securities held in its portfolio and will treat any
interest received on municipal securities subject to such standby commitments as
tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the Internal Revenue
Service held that a mutual fund acquired ownership of municipal obligations for
Federal income tax purposes, even though the fund simultaneously purchased "put"
agreements with respect to the same municipal obligations from the seller of the
obligations. The Portfolios will not engage in transactions involving the use of
standby commitments that differ materially from the transaction described in
Rev. Rul. 82-144 without first obtaining a private letter ruling from the
Internal Revenue Service or the opinion of counsel.
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Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Portfolios is not deductible for income tax purposes if (as
expected) the Portfolios distribute exempt-interest dividends during the
shareholder's taxable year. Any dividends that are declared in October,
November or December and payable to Shareholders of record on a specified
date in any of those three months could be treated as received by the
shareholders on December 31 of that year if paid by the Portfolio at any time
during the following January.
SPECIAL CONSIDERATIONS RELATING TO THE EQUITY FUND, BALANCED FUND, INTERMEDIATE
TERM BOND FUND AND SHORT TERM BOND FUND
Each Portfolio intends to distribute substantially all of its net investment
income (including net short-term capital gains and realized market discounts)
and net capital gains to shareholders. Dividends from a Portfolio's investment
company taxable income are taxable to its shareholders as ordinary income
(whether received in cash or in additional shares) to the extent of the
Portfolio's earnings and profits. Dividends paid by a Portfolio to corporate
shareholders may qualify for the deduction for dividends received by
corporations to the extent of the dividends received by the Portfolio from
domestic corporations. However, the full amount of such dividends will be taken
into account in determining liability (if any) for corporate alternative minimum
tax. Distributions of net capital gains do not qualify for the corporate
dividends received deduction and are taxable to shareholders as long-term
capital gains, regardless of how long shareholders have held their shares and
regardless of whether the distributions are received in cash or in additional
shares. Except to the extent otherwise provided in future Treasury regulations,
any long-term capital gain recognized by a non-corporate shareholder will be
subject to tax at a maximum rate of 20%. The Portfolios provide annual reports
to shareholders of the federal income tax status of all distributions.
The sale, exchange or redemption of Portfolio shares is a taxable transaction to
the shareholder.
SPECIAL TAX CONSIDERATIONS RELATING TO THE EQUITY FUND AND THE BALANCED FUND
The following discussion relates to the particular Federal income tax
consequences of the investment policies of the Equity Fund and the Balanced
Fund. The ability of these Portfolios to engage in options and short sale
activities will be somewhat limited by the requirements for their continued
qualification as RICs under the Code, in particular the Distribution Requirement
and the Asset Diversification Requirement.
The options transactions that the Equity Fund and Balanced Fund enter into may
result in "straddles" for Federal income tax purposes. The straddle rules of the
Code may affect the character of gains and losses realized by the Portfolios. In
addition, losses realized by the Portfolios on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the investment company taxable income and net capital
gain of the Portfolios for the taxable year in which such losses are realized.
Losses realized prior to October 31 of any year may be similarly deferred under
the straddle rules in determining the "required distribution" that the
Portfolios must make in order to avoid Federal excise tax. Furthermore, in
determining their investment company taxable income and ordinary income, the
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Portfolios may be required to capitalize, rather than deduct currently, any
interest expense on indebtedness incurred or continued to purchase or carry any
positions that are part of a straddle. The tax consequences to the Portfolios of
holding straddle positions may be further affected by various annual and
transactional elections provided under the Code and Treasury regulations that
the Portfolios may make.
Because only a few regulations implementing the straddle rules have been
promulgated by the U.S. Treasury, the tax consequences to the Equity Fund and
Balanced Fund of engaging in options transactions are not entirely clear.
Nevertheless, it is evident that application of the straddle rules may
substantially increase or decrease the amount which must be distributed to
shareholders in satisfaction of the Distribution Requirement (or to avoid
Federal excise tax liability) for any taxable year in comparison to a fund that
did not engage in options transactions.
The writer of a covered call option generally does not recognize income upon
receipt of the option premium. If the option expires unexercised or is closed on
an exchange, the writer generally recognizes short-term capital gain. If the
option is exercised, the premium is included in the consideration received by
the writer in determining the capital gain or loss recognized in the resultant
sale.
For purposes of the Asset Diversification Requirement, the issuer of a call
option on a security (including an option written on an exchange) will be deemed
to be the issuer of the underlying security. The Internal Revenue Service has
informally ruled, however, that a call option that is written by a fund need not
be counted for purposes of the Asset Diversification Requirement where the fund
holds the underlying security. Under the Code, a fund may not rely on informal
rulings of the Internal Revenue Service issued to other taxpayers. Consequently,
the Equity Fund and Balanced Fund may find it necessary to seek a ruling from
the Internal Revenue Service on this issue or to curtail their writing of
covered call options in order to stay within the limits of the Asset
Diversification Requirement.
ADDITIONAL FEDERAL TAX CONSIDERATIONS
The Code imposes a non-deductible 4% excise tax on RICs that do not distribute
with respect to each calendar year an amount equal to 98 percent of their
ordinary income for the calendar year plus 98 percent of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a company is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year. Because each Portfolio intends to distribute all of its taxable income
currently, none of the Portfolios anticipates incurring any liability for this
excise tax.
Investors should be aware that any loss realized on a sale of shares of a
Portfolio will be disallowed to the extent an investor repurchases shares of the
same Portfolio within a period of 61
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days (beginning 30 days before and ending 30 days after the day of disposition
of the shares). Dividends paid by a Portfolio in the form of shares within the
61-day period would be treated as a purchase for this purpose.
A shareholder will recognize gain or loss upon an exchange of shares of a
Portfolio for shares of another Portfolio upon exercise of an exchange
privilege. Shareholders may not include the initial sales charge in the tax
basis of shares exchanged for shares of another Portfolio for the purpose of
determining gain or loss on the exchange, where the shares exchanged have been
held 90 days or less. The sales charge that was imposed on the exchanged shares
will instead increase the basis of the shares acquired through exercise of the
exchange privilege (unless the shares acquired are also exchanged for shares of
another Portfolio within 90 days after the first exchange).
The Portfolios will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends (other than exempt-interest dividends)
paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Portfolio that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
STATE AND LOCAL TAX CONSIDERATIONS
Exempt-interest dividends that are paid by the Idaho Municipal Bond Fund will
not be subject to Idaho corporate and personal income taxes to the extent that
they are attributable to interest earned on municipal securities that is exempt
from Idaho state income taxes in the opinion of bond counsel for their issuers.
Although each Portfolio expects to qualify as a RIC and to be relieved of all or
substantially all Federal income taxes, depending upon the extent of its
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, each Portfolio may be subject to the
tax laws of such states or localities.
S-47
<PAGE>
PORTFOLIO TRANSACTIONS
The Portfolios have no obligation to deal with any dealer or group of dealers in
the execution of transactions in securities. Subject to policies established by
the Trustees, the Adviser is responsible for placing orders to execute portfolio
transactions. In placing orders, it is the policy of each Portfolio to seek to
obtain the best net results taking into account such factors as price (including
the applicable dealer spread), size, type and difficulty of the transaction
involved, the firm's general execution and operational facilities, and the
firm's risk in positioning the securities involved. While the Adviser generally
seeks reasonably competitive spreads or commissions, the Portfolios will not
necessarily be paying the lowest spread or commissions available. A Portfolio
will not purchase securities from any affiliated person acting as principal
except in conformity with the regulations of the SEC.
The Portfolios may execute brokerage or other agency transactions through the
Distributor, a registered broker-dealer, for a commission, in conformity with
the Investment Company Act, the Securities Exchange Act of 1934, as amended, and
rules of the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for a
Portfolio on an exchange if a written contract is in effect between the
Distributor and the Trust expressly permitting the Distributor to receive and
retain such compensation. The Portfolios may also execute brokerage or other
agency transactions with affiliates of the Adviser in compliance with those
provisions.
Commissions paid to the Distributor by the Trust for exchange transactions may
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
It is not the Trust's practice to allocate brokerage or principal business on
the basis of sales of its shares which may be made through brokers or dealers.
However, the Adviser may place portfolio orders with qualified broker-dealers
who recommend the Trust to clients, and may, when a number of brokers and
dealers can provide best price and execution on a particular transaction,
consider such recommendations by a broker or dealer in selecting among
broker-dealers.
The Adviser may, consistent with the interests of the Portfolios, select brokers
on the basis of the research services they provide to the Adviser. Such services
may include analysis of the business or prospects of a company, industry or
economic sector or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. Research services
S-48
<PAGE>
furnished by brokers through whom the Trust effects securities transactions may
be used by the Adviser in the servicing of its other accounts and not all such
services may be used by the Adviser in connection with the Portfolios. If in the
judgment of the Adviser the Portfolios, or other accounts managed by the
Adviser, will be benefitted by supplemental research services, the Adviser is
authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. The expenses of an Adviser will not necessarily
be reduced as a result of the receipt of such supplemental information.
For the fiscal years ended January 31, 2000, January 31, 1999, January 31, 1998,
the following Portfolios paid brokerage commissions in the following amounts.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Equity Fund $179,214 $451,932 $152,647
Balanced Fund 65,041 242,130 88,559
</TABLE>
The Adviser allocated certain of the Equity Fund's and the Balanced Fund's
brokerage transactions to certain broker-dealers that provided the Adviser with
certain research, statistical and other information. For the fiscal year ended
January 31, 2000, such transactions amounts and related brokerage commissions
were:
<TABLE>
<CAPTION>
Related Brokerage
Transactions Amounts Commissions
-------------------- -----------------
<S> <C> <C>
Equity Fund $96,303,947 $99,776
Balanced Fund 38,327,683 37,254
</TABLE>
The following Portfolios paid brokerage commissions directed by SEI Investments
to Pershing, a broker affiliated with the Administrator and Distributor, during
the Trust's fiscal years ended January 31, 2000 and January 31, 1999.
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Equity Fund 14,003 $29,296
Balanced Fund 6,459 14,107
</TABLE>
For the fiscal year ended January 31, 2000, 7.8% of the brokerage commissions
paid by the Equity Fund, and 9.9% of the brokerage commissions paid by the
Balanced Fund, were paid to the
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<PAGE>
affiliated broker. During that same period 7.3% of the Equity Fund's
transactions and 8.4% of the Balanced Fund's transactions were effected through
the affiliated broker.
The Trust is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act) which the Trust has acquired
during its most recent fiscal year. As of January 31, 2000, the following
Portfolios held the securities described below.
<TABLE>
<CAPTION>
Value
-----
<S> <C> <C>
Intermediate Term Bond Fund Lehman Bros. Debt $5,052,000
Short-Term Bond Fund Morgan Stanley Debt $1,006,000
</TABLE>
LIMITATION OF TRUSTEES LIABILITY
The Trust Agreement provides indemnities and waivers of liability to Trustees
based on certain actions or failures to act while serving as a Trustee.
Insurance has also been obtained by the Trust on behalf of the Trustees to cover
losses arising from certain errors or omissions of a Trustee.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
PRINCIPAL HOLDERS OF SECURITIES
EQUITY FUND
-----------
To the best of the knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Institutional, Class A and Class B
shares of the Equity Fund as of May 4, 2000, and the amount of the outstanding
shares held of record by such holders are set forth below. The Company has no
knowledge of whether all or any portion of the shares owned are also owned
beneficially.
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY BENEFICIALLY
--------------- ----------- ------------
<S> <C> <C>
INSTITUTIONAL CLASS SHARES
S-50
<PAGE>
First Security Corporation 69.69% 0%
Trust Groups - Cash Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
First Security Corporation 16.79% 0%
Trust Groups - Reinvest Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
First Security Bank N.A. TR 11.75% 0%
For the First Security Incentive
Savings Plan
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
RETAIL CLASS A SHARES
BHC Securities Inc. 76.39% 0%
Trade House Acct.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
RETAIL CLASS B SHARES
Fiserv Securities Inc. 7.32% 0%
FAO 18915437
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19105-7084
</TABLE>
S-51
<PAGE>
BALANCED FUND
To the best of the knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Institutional, Class A and Class B
shares of the Balanced Fund as of May 4, 2000, and the amount of the outstanding
shares held of record and beneficially owned by such holders are set forth
below. The Company has no knowledge of whether all or any portion of the shares
owned of record are also owned beneficially.
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY BENEFICIALLY
--------------- ----------- ------------
<S> <C> <C>
INSTITUTIONAL CLASS SHARES
First Security Corporation 69.64% 0%
Trust Groups-Reinvest Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
First Security Bank N.A. TR 28.28% 0%
For the First Security Incentive
Savings Plan
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
RETAIL CLASS A SHARES
BHC Securities Inc. 79.74% 0%
Trade House Acct.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
RETAIL CLASS B SHARES
Fiserv Securities Inc. 5.16% 0%
FAO 18939711
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
</TABLE>
S-52
<PAGE>
S-53
<PAGE>
INTERMEDIATE TERM BOND FUND
To the best of the knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Institutional and Class A shares of the
Intermediate Term Bond Fund as of May 4, 2000, and the amount of the outstanding
shares held of record by such holders are set forth below. The Company has no
knowledge of whether all or any portion of the shares owned of record are also
owned beneficially.
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY BENEFICIALLY
--------------- ----------- ------------
<S> <C> <C>
INSTITUTIONAL CLASS SHARES
First Security Corporation 84.05% 0%
Trust Groups-Cash Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
First Security Corporation 15.52% 0%
Trust Groups - Reinvest Account
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
RETAIL CLASS A SHARES
BHC Securities Inc. 75.12% 0%
Trade House Acct.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
S-54
<PAGE>
Marcella Dupler Henkels 9.72% 0%
7540 NE Pettibone Drive
Corvallis, OR 97330-9641
Keith W. Slater & Gwen S. 6.19% 0%
Rhodes & Myrl L. Slater TR
U/A 01/12/1981
Nevada W. Slater Trust
4554 West 2350 W.
Roy, UT 84067-1964
</TABLE>
S-55
<PAGE>
SHORT TERM BOND FUND
To the best of the knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Institutional and Class A shares of
Short Term as of May 4, 2000, and the amount of the outstanding shares held of
record by such holders are set forth below. The Company has no knowledge of
whether all or any portion of the shares owned of record are also owned
beneficially.
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY BENEFICIALLY
--------------- ----------- ------------
<S> <C> <C>
INSTITUTIONAL CLASS SHARES
First Security Corporation 34.22% 0%
Trust Groups-Cash Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
First Security Corporation 31.46% 0%
Trust Groups-Reinvest Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
First Security Bank N.A. TR 31.60% 0%
For the First Security Incentive
Savings Plan
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
RETAIL CLASS A SHARES
BHC Securities Inc. 29.43% 0%
Trade House Acct.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
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<PAGE>
Keith W. Slater & Gwen S. 22.17% 0%
Rhodes & Myrl L. Slater TR
U/A 01/12/1981
Nevada W. Slater Trust
4554 S. 2350 W.
Roy, UT 84067-1964
Honey J. Larson 23.95% 0%
1798 Millbrook Road
Salt Lake City, UT 84106-3227
Marilee A. Kohtz 20.15% 0%
3614 Wilson Lane
Nampa, ID 83686-8665
</TABLE>
MUNICIPAL BOND FUND
To the best of the knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Institutional, Class A and Class B
shares of the Municipal Bond Fund as of May 4, 2000, and the amount of the
outstanding shares held of record by such holders are set forth below. The
Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY BENEFICIALLY
--------------- ----------- ------------
<S> <C> <C>
INSTITUTIONAL CLASS SHARES
First Security Corporation 94.55% 0%
Trust Groups-Cash Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
First Security Corporation 5.45% 0%
Trust Groups-Reinvest Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
S-57
<PAGE>
RETAIL CLASS A SHARES
BHC Securities Inc. 99.96% 0%
Trade House Acct.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
RETAIL CLASS B SHARES
Fiserv Securities, Inc. 7.23% 0%
FAO 18279705
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 7.83% 0%
FAO 18279885
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 11.29% 0%
FAO 18117949
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 6.98% 0%
FAO 18360866
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 9.09% 0%
FAO 18050840
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
S-58
<PAGE>
Fiserv Securities, Inc. 18.21% 0%
FAO 18477687
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 7.68% 0%
FAO 18486470
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
</TABLE>
IDAHO MUNICIPAL BOND FUND
To the best of the knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Institutional, Class A and Class B
shares of the Idaho Municipal Bond Fund as of May 4, 2000, and the amount of the
outstanding shares held of record by such holders are set forth below. The
Company has no knowledge of whether all or any portion of the shares owed of
record are also owned beneficially.
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY BENEFICIALLY
--------------- ----------- ------------
<S> <C> <C>
INSTITUTIONAL CLASS SHARES
First Security Corporation 98.97% 0%
Trust Groups-Cash Account
First Security Bank of Utah N.A.
Trust Securities Admin. Dept.
P.O. Box 25297
Salt Lake City, UT 84125-0297
RETAIL CLASS A SHARES
BHC Securities Inc. 93.75% 0%
Trade House Acct.
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
S-59
<PAGE>
RETAIL CLASS B SHARES
Fiserv Securities, Inc. 20.68% 0%
FAO 18432161
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 6.35% 0%
FAO 18042685
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 11.29% 0%
FAO 18209519
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 10.70% 0%
FAO 18513647
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
Fiserv Securities, Inc. 5.34% 0%
FAO 18316251
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
</TABLE>
THE TRANSFER AGENT
DST Systems, Inc., P.O. Box 419448, Kansas City, Missouri 64141-6448 (the
"Transfer Agent") acts as the transfer agent and dividend disbursing agent for
the Portfolios under a transfer agency agreement with the Trust.
S-60
<PAGE>
COUNSEL TO THE TRUST
Ballard Spahr Andrews & Ingersoll, L.L.P. serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP serves as independent accountants of the Trust.
CUSTODIAN
First Union Corporation, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, PA 19101 (the "Custodian"), acts as custodian of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the 1940 Act.
FINANCIAL STATEMENTS
Audited financial statements of the Trust for the fiscal year ended January 31,
2000 and the Independent Auditors' Report of Deloitte & Touche LLP dated March
5, 2000 are contained in the Trust's Annual Report to Shareholders for its
fiscal year ended January 31, 2000 and are incorporated in this Statement of
Additional Information by reference. A copy of the Trust's Annual Report to
Shareholders shall be provided along with this Statement of Additional
Information to each person to whom the Statement of Additional Information is
sent, unless such person then holds securities issued by the Trust, in which
case a copy of the Trust's Annual Report to Shareholders will be furnished to
such person without charge upon request made to SEI Investments Distribution
Co., by written request addressed to Oaks, PA 19456 or by calling
1-800-472-0577.
S-61
<PAGE>
APPENDIX A - PERMITTED INVESTMENTS
A Portfolio may make the following investments if, and to the extent, such
investments are covered by the Portfolio's investment policies described in the
Prospectus or this Statement of Additional Information.
AMERICAN DEPOSITARY RECEIPTS ("ADRS") ADRs are securities, typically issued by a
U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipts and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security. Holders of unsponsored depositary receipts generally
bear all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through, to the holders of the receipts, voting rights with respect to the
deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debts.
BANKERS' ACCEPTANCES - Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT - Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER - Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES - Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
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<PAGE>
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
COVERED CALL OPTIONS -- A call option gives the purchaser of the option the
right to buy, and the writer of the option the obligation to sell, the
underlying security at any time during the option period. In a covered call
option, the writer of the option owns a sufficient amount of the underlying
security to "cover" the option. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. The
initial sale of an option contract is an "opening transaction." In order to
close out an option position, the Portfolio may enter into a "closing
transaction," which is simply the purchase of an option contract on the same
security with the same exercise price and expiration date as the option contract
originally opened.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker.
EQUITY INDEX MUTUAL FUNDS - Equity index mutual funds are open-end investment
companies that structure their securities investments so that the performance of
the portfolio approximates the performance of a target equity securities index.
EQUITY SECURITIES - Equity securities include common stock, preferred stock and
other securities that are convertible to or grant the right to acquire common
stock or preferred stock.
FIXED INCOME SECURITIES - Fixed income securities are debt obligations bearing a
specified rate of interest during their term that are issued by the United
States government and its agencies and instrumentalities, corporations,
municipalities and other borrowers.
ILLIQUID INVESTMENTS -- Illiquid investments are investments that cannot be sold
or disposed of in the ordinary course of business at approximately the price at
which they are valued. The Municipal Bond Fund and Idaho Municipal Bond Fund are
permitted to invest in illiquid securities. Under the supervision of the
Trustees, the Adviser, determines the liquidity of each Portfolio's investments
and, through reports from the Adviser, the Trustees monitor investments in
illiquid instruments. In determining the liquidity of a Portfolio's investments,
the Adviser may consider various factors including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features); (5) the nature of the
marketplace for trades (including the ability to assign or offset a Portfolio's
rights and obligations relating to the investment); and (6) general credit
quality. Investments currently considered by the Trust to be illiquid include
repurchase agreements not entitling the holder to payment of principal
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<PAGE>
and interest within seven days, non-government stripped fixed-rate
mortgage-backed securities and government stripped fixed-rate mortgage-backed
securities, loans and other direct debt instruments, over the counter options
and swap agreements. Although restricted securities and municipal lease
obligations are sometimes considered illiquid, the Adviser may determine certain
restricted securities and municipal lease obligations to be liquid. In the
absence of market quotations, illiquid investments are priced at fair value as
determined in good faith by the Adviser pursuant to guidelines established by
the Board of Trustees. If, as a result of a change in values, net assets or
other circumstances, a Portfolio were in a position where more than 15% of its
assets were invested in illiquid securities it would seek to take appropriate
steps to protect liquidity.
MONEY MARKET FUNDS - Money market funds are open-end investment companies that
are continuously engaged in the issuance of shares. In connection with
management of their daily cash positions, a Portfolio may invest in money market
fund shares having investment objectives and policies consistent with those of
the Portfolio. Investments by a money market fund are subject to limitations
imposed under regulations adopted by the Securities and Exchange Commission.
Under these regulations, money market funds may only acquire obligations that
present minimal credit risk and that are "eligible securities," which means they
are (i) rated, at the time of investment, by at least two nationally recognized
security rating organizations (one if it is the only organization rating such
obligation) in the highest rating category or, if unrated, determined to be of
comparable quality (a "first tier security"), or (ii) rated according to the
foregoing criteria in the second highest rating category or, if unrated,
determined to be of comparable quality ("second tier security"). A security is
not considered to be unrated if the issuer has outstanding obligations of
comparable priority and security that have a short-term rating. In the case of
taxable money market funds, investments in second tier securities are subject to
the further constraints in that (i) no more than 5% of a Fund's assets may be
invested in second tier securities and (ii) any investment in securities of any
one such issuer is limited to the greater of 1% of the Fund's total assets or $1
million. A taxable money market fund may also hold up to 25% of its assets in
first tier securities of a single issuer for three "business days" (that is, any
day other than a Saturday, Sunday or customary business holiday).
MUNICIPAL SECURITIES - Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, mass transportation, schools, streets and
water and sewer works, the refunding of outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes and participation interests in
S-64
<PAGE>
municipal notes. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, private activity and industrial development bonds and
participation interests in municipal bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. Private activity bonds are bonds that
are issued by municipalities, the proceeds of which are used in an activity
considered a nonessential government function under the Internal Revenue Code,
which may include activities such as construction and operation of airports,
convention centers, auditoriums, hospitals and mass commuting facilities. The
payment of principal and interest on private activity and industrial development
bonds generally is dependent solely on the ability of a facility's user to meet
its financial obligations and the pledge, if any, of real and personal property
as security for such payment.
RECEIPTS - Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. The amount of this
discount accretes over the life of the security, and such accretion will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, such securities may be subject to greater
interest rate volatility than interest paying investments.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which a
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The custodian will hold the security as
collateral for the repurchase agreement. A Portfolio bears a risk of loss in the
event the other party defaults on its obligations and the Portfolio is delayed
or prevented from exercising its right to dispose of the collateral or if the
Portfolio realizes a loss on the sale of the collateral. A Portfolio will enter
into repurchase agreements only with financial institutions deemed to present
minimal risk of bankruptcy during the term of the agreement based on established
guidelines. Repurchase agreements are considered loans under the 1940 Act.
STANDBY COMMITMENTS - Securities subject to standby commitments permit the
holder thereof to sell the securities at a fixed price prior to maturity.
Securities subject to a standby commitment may be sold at any time at the
current market price. However, unless the standby commitment was an integral
part of the security as originally issued, it may not be marketable or
assignable; therefore, the standby commitment would only have value to the
Portfolio owning the security to which it relates. In certain cases, a premium
may be paid for a standby commitment, which premium will have the effect of
reducing the yield otherwise payable on the underlying security. The Portfolios
will limit standby commitment transactions to institutions believed to present
minimal credit risk.
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U.S. GOVERNMENT AGENCIES - U.S. Government agency obligations are obligations
issued or guaranteed by agencies of the U.S. Government, including, among
others, the Federal Farm Credit Bank, the Federal Housing Administration and the
Small Business Administration, and obligations issued or guaranteed by
instrumentalities of the U.S. Government, including, among others, the Federal
Home Loan Mortgage Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., Government National Mortgage Association), others are
supported by the right of the issuer to borrow from the Treasury (e.g., Federal
Farm Credit Bank), while still others are supported only by the credit of the
instrumentality (e.g., Federal National Mortgage Association). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing on the obligation prior to maturity. Guarantees as to the timely
payment of principal and interest do not extend to the value or yield of these
securities nor to the value of a Portfolio's shares.
U.S. TREASURY OBLIGATIONS - U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Collateralized Mortgage Obligations ("CMOs") are a type of mortgage-backed
security. CMOs are debt obligations or multiclass pass-through certificates
issued by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
a CMO in a variety of ways. Each class of a CMO, often referred to as a
"tranche", is issued with a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal payments on the underlying
mortgage assets may cause CMOs to be retired substantially earlier then their
stated maturities or final distribution dates, resulting in a loss of all or
part of any premium paid.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments
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bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices. The interest rates on these securities may be
reset daily, weekly, quarterly or some other reset period, and may have a floor
or ceiling on interest rate changes. There is a risk that the current interest
rate on such obligations may not accurately reflect existing market interest
rates. A demand instrument with a demand notice exceeding seven days may be
considered illiquid if there is no secondary market for such security.
YANKEE BONDS -- Yankee Bonds are U.S. dollar-denominated instruments of foreign
issuers who either register with the Securities and Exchange Commission or issue
securities under Rule 144A. These instruments consist of debt securities
(including preferred or preference stock of non-governmental issuers),
certificates of deposit, fixed time deposits and bankers' acceptances issued by
foreign banks, and debt obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities. Some securities issued by foreign governments or their
subdivisions, agencies and instrumentalities may not be backed by the full faith
and credit of the foreign government.
The Yankee Bonds selected for a Portfolio will adhere to the same quality
standards as those utilized for the selection of domestic debt obligations.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Portfolio will maintain with the custodian a separate account with liquid,
high-grade debt securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to a Portfolio before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates and it is possible that the market value at the time of settlement could
be higher or lower than the purchase price if the general level of interest
rates has changed. Although a Portfolio generally purchases securities on a
when-issued or forward commitment basis with the intention of actually acquiring
securities, it may dispose of a when-issued security or forward commitment prior
to settlement if it deems appropriate.
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APPENDIX B - RATINGS
DESCRIPTION OF CORPORATE AND MUNICIPAL BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degrees.
Debt rated A by S&P has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories. Debt
rated BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits 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.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, 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.
Bonds which are rated A by Moody's 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.
Bonds which are rated Baa by Moody's are considered as 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.
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DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1, 2 and 3 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1 reflect a "very strong" degree of safety regarding timely payment. Those
rated A-2 reflect a safety regarding timely payment but not as high as A-1.
Commercial paper issuers rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to be of the two highest quality ratings on the basis of relative
repayment capacity.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
Source of Payment (the more dependent the issue is on the market for its
refinancing the more likely it will be treated as a note).
The note rating symbol SP-1 reflects very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) description.
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both.
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