<PAGE>
M.S.D. & T. FUNDS, INC.
PROSPECTUS
FOR THE
DIVERSIFIED REAL ESTATE FUND
June 1, 1997
M.S.D. & T. Funds, Inc. (the "Company") is a no-load, open-end management
investment company offering in this Prospectus shares of its Diversified Real
Estate Fund (the "Fund"). The Fund's investment objective is to seek current
income and capital growth. The Fund attempts to achieve this objective through
investments primarily in securities of companies principally engaged in the
real estate business.
SHARES OF THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY,
ITS PARENT COMPANY OR ITS AFFILIATES, AND SUCH SHARES ARE NOT FEDERALLY
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL. IN ADDITION, THE DIVIDENDS PAID BY THE FUND WILL GO UP AND DOWN.
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY SERVES AS INVESTMENT ADVISER AND
ADMINISTRATOR TO THE FUND, IS PAID FEES FOR ITS SERVICES, AND IS NOT
AFFILIATED WITH BISYS FUND SERVICES, THE FUND'S DISTRIBUTOR.
This Prospectus describes concisely the information about the Fund that
you should know before investing. Please read and keep it for future
reference. More information about the Fund is contained in a Statement of
Additional Information dated June 1, 1997 that has been filed with the
Securities and Exchange Commission ("SEC"). The Statement of Additional
Information, which can be obtained free of charge upon request by writing to
the Company at Two Hopkins Plaza, Baltimore, Maryland 21201 or by calling 1-
800-551-2145, is incorporated by reference into (considered a part of) this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY............................................................ 1
INVESTMENT OBJECTIVE, POLICIES AND RISKS................................... 2
FUNDAMENTAL LIMITATIONS.................................................... 6
INVESTING IN THE FUND...................................................... 7
SHAREHOLDER SERVICES....................................................... 11
DIVIDENDS AND DISTRIBUTIONS................................................ 12
TAX INFORMATION............................................................ 12
MANAGEMENT OF THE COMPANY.................................................. 13
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES.................... 14
PERFORMANCE REPORTING...................................................... 15
MISCELLANEOUS.............................................................. 15
</TABLE>
IF YOU HAVE QUESTIONS
For current yield, purchase and redemption information, call 1-800-551-2145.
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the
Fund. Shareholder Transaction Expenses are charges an investor pays when
buying or selling shares of the Fund. Annual Fund Operating Expenses are paid
out of the Fund's assets and include fees for portfolio management,
maintenance of shareholder accounts, general Fund administration, accounting,
custody and other services.
Below is information regarding the shareholder transaction expenses
charged by the Fund and the operating expenses which the Fund expects to incur
during the current fiscal year. An example based on this information is also
provided.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase.......................................... None
Sales Charge Imposed on Reinvested Dividends.............................. None
Sales Charge Imposed on Redemptions....................................... None
Deferred Sales Charge..................................................... None
Redemption Fees........................................................... None
Exchange Fees............................................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after fee waivers)....................................... .43%
Other Expenses (includes administration,
custody and transfer agency, and miscellaneous
other charges)........................................................... .57%
----
Total Fund Operating Expenses (after fee waivers)......................... 1.00%
====
</TABLE>
EXAMPLE:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return (a hypothetical return required by SEC
regulations for this calculation) and (2) redemption at the end of the
following time periods:
<TABLE>
<S> <C>
1 Year...................................................................... $10
3 Years..................................................................... $32
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
OR RATES OF RETURN. THE FUND IS NEW AND ACTUAL EXPENSES OR RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN.
The purpose of this Expense Summary is to assist investors in
understanding the various costs and expenses that investors in the Fund will
bear directly or indirectly as shareholders. The Expense Summary reflects
operating expenses which the Fund expects to incur during the current fiscal
year. Absent fee waivers, Management Fees and Total Fund Operating Expenses,
stated as a percentage of the Fund's average daily net assets, would be .80%
and 1.37%, respectively.
The investment adviser is under no obligation to waive fees or reimburse
expenses, but has informed the Company that it presently intends to waive fees
and/or reimburse expenses during the Fund's first twelve months of operations.
Any fees that are charged by the investment adviser, its affiliates or other
institutions directly to their customer accounts for services related to an
investment in the Fund are in addition to, and are not reflected in, the fees
and expenses described above.
For more complete descriptions of the Fund's operating expenses, see
"Management of the Company" in this Prospectus.
1
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund's investment adviser (the "Adviser") uses a range of different
investments and investment techniques in seeking to achieve the Fund's
investment objective. These investments and investment techniques, which
involve various risks, are described in the following sections. The Adviser
will use its best efforts to achieve the Fund's investment objective, although
its achievement cannot be assured. An investor should not consider an
investment in the Fund to be a complete investment program.
GENERAL
The Fund's investment objective is to seek current income and capital
growth. The Fund attempts to achieve this objective through investments
primarily in domestic equity securities of companies principally engaged in
the real estate business. Under normal market and economic conditions,
substantially all, but no less than 65%, of the Fund's total assets will be
invested in such securities. Companies principally engaged in the real estate
business include real estate investment trusts ("REITs"), real estate
operating companies, real estate developers, mortgage lenders and servicers,
construction companies and building material suppliers. A company is
"principally engaged" in the real estate business if, at the time of
investment, the company derives at least 50% of its revenues from the
ownership, construction, financing, management or sale of commercial,
industrial or residential real estate, or such company has at least 50% of its
assets in such real estate.
It is expected that the Fund will invest a majority of its assets in
shares of REITs during normal market and economic conditions. REITs pool
investors' funds for investment primarily in income-producing real estate or
real estate related loans or interests. Unlike corporations, REITs do not have
to pay income taxes if they meet certain requirements of the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify, a REIT must distribute at
least 95% of its taxable income to its shareholders and receive at least 75%
of that income from rents, mortgages and sales of property. For additional tax
information, see "Tax Information" below.
REITs can generally be classified as equity REITs, mortgage REITs and
hybrid REITs. Equity REITs invest the majority of their assets directly in
various types of real property such as shopping malls, office buildings and
residential apartments, and derive their income primarily from rental and
lease payments. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs make loans to
commercial real estate developers and derive their income primarily from
interest payments on such loans. Hybrid REITs combine the characteristics of
both equity and mortgage REITs. The Fund expects that a substantial portion of
its investments in REITs will be in equity and hybrid REITs.
Although the Fund expects to invest primarily in equity securities of
companies principally engaged in the real estate business, it may also invest
in preferred stocks, investment grade debt obligations (i.e., obligations
rated in one of the four highest rating categories assigned by a nationally
recognized statistical rating organization ("NRSRO") or deemed by the Adviser
to be of comparable quality), convertible securities (including investment
grade bonds and preferred stocks) and warrants.
During temporary defensive periods, the Fund may invest without limit in
money market instruments, high quality corporate debt securities and debt
securities issued by the U.S. Government, its agencies or instrumentalities,
without regard to whether the issuer is principally engaged in the real estate
business.
RISK FACTORS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual
funds that invest primarily in equity securities, the Fund is subject to
market risk. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and equity markets tend to be
cyclical, experiencing both periods when stock prices generally increase and
periods when stock prices generally decrease. Therefore, the Fund's net asset
value may fluctuate with movements in the equity markets. See "Investing in
the Fund--How to Buy Fund Shares" below for an explanation of net asset value.
2
<PAGE>
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and other debt
securities fluctuate inversely to interest rate changes.
REAL ESTATE INDUSTRY RISK
Although the Fund will not invest in real estate directly, it is subject
to the same risks that are associated with the direct ownership of real
estate. In general, real estate values are affected by a variety of factors,
including: supply and demand for properties; the economic health of the
country, different regions and local markets; and the strength of specific
industries renting properties. An equity REIT's performance ultimately depends
on the types and locations of the properties it owns and on how well it
manages its properties. For instance, rental income could decline because of
extended vacancies, increased competition from nearby properties, tenants'
failure to pay rent, or incompetent management. Property values could decrease
because of overbuilding, environmental liabilities, uninsured damages caused
by natural disasters, a general decline in the neighborhood, rent controls,
losses due to casualty or condemnation, increases in property taxes and/or
operating expenses, or changes in zoning laws.
Changes in interest rates could affect the performance of REITs. In
general, during periods of high interest rates, REITs may lose some of their
appeal to investors who may be able to obtain higher yields from other income-
producing investments, such as long-term bonds. Higher interest rates may also
mean that it is more expensive to finance property purchases, renovations and
improvements, which could hinder a REIT's performance.
While equity REITs are affected by changes in the value of the underlying
properties they own, mortgage REITs are affected by changes in the value of
the properties to which they have extended credit. REITs may not be
diversified and are subject to the risks involved with financing projects.
REITs may also be subject to substantial cash flow dependency and self-
liquidation. In addition, REITs could possibly fail to qualify for tax-free
pass-through of income under the Code or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the
"Investment Company Act").
Such factors may also adversely affect a borrower's or a lessee's ability
to meet its obligations to a REIT. In the event of a default by a borrower or
lessee, a REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.
Under certain circumstances the Fund could own real estate directly as a
result of a default on debt securities it owns. If the Fund has rental income
or income from the direct disposition of real property, the receipt of such
income may adversely affect its ability to retain its tax status as a
regulated investment company. See "Tax Information" below.
RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS
The Fund may purchase certain "derivative" instruments as described below
under various headings. Derivative instruments are instruments that derive
value from the performance of underlying assets, interest rates or indices,
and include, but are not limited to, structured debt obligations (including
collateralized mortgage obligations and other types of mortgage-related
securities, "stripped" securities and various floating rate instruments).
Derivative instruments present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative instrument will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative instrument when it
wants because of lack of market depth or market disruption; pricing risk that
the value of a derivative instrument will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and
operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative instruments are more
complex than
3
<PAGE>
others, and for those instruments that have been developed recently, data is
lacking regarding their actual performance over complete market cycles.
The Adviser will evaluate the risks presented by the derivative
instruments purchased by the Fund, and will determine, in connection with its
day-to-day management of the Fund, how they will be used in furtherance of the
Fund's investment objective. It is possible, however, that the Adviser's
evaluations will prove to be inaccurate or incomplete and, even when accurate
and complete, it is possible that the Fund will, because of the risks
discussed above, incur loss as a result of its investments in derivative
instruments.
OTHER INVESTMENT POLICIES AND RELATED RISKS
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may invest in securities issued or guaranteed by the U.S.
Government, as well as in obligations issued or guaranteed by U.S. Government
agencies and instrumentalities. Obligations of certain agencies and
instrumentalities, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export-Import Bank, are supported by the issuer's right to borrow
from the Treasury; others, such as the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to
purchase the entity's obligations; still others, such as the Student Loan
Marketing Association, are backed solely by the issuer's credit. There is no
assurance that the U.S. Government would provide support to a U.S. Government-
sponsored entity were it not required to do so by law.
The Fund may from time to time invest in money market instruments,
including bank obligations, commercial paper and corporate bonds with
remaining maturities of thirteen months or less. Bank obligations include
bankers' acceptances, negotiable certificates of deposit and non-negotiable
time deposits issued or supported by U.S. or foreign banks that have total
assets of more than $1 billion at the time of purchase. The Fund may invest in
obligations of foreign banks or foreign branches of U.S. banks when the
Adviser determines that the instrument presents minimal credit risks.
Investments in the obligations of foreign banks and foreign branches of U.S.
banks will not exceed 25% of the Fund's total assets at the time of purchase.
Taxable commercial paper purchased by the Fund will be rated at the time of
purchase within the highest rating category assigned by an unaffiliated
national statistical rating organization ("Rating Agency"). In addition, the
Fund may acquire unrated commercial paper and corporate bonds that are
determined by the Adviser at the time of purchase to be of comparable quality.
Commercial paper may include variable and floating rate instruments.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Fund may purchase variable and floating rate instruments. Because of
the absence of a market in which to resell a variable or floating rate
instrument, the Fund might have trouble selling an instrument should the
issuer default or during periods when the Fund is not permitted by agreement
to demand payment of the instrument, and for this and other reasons a loss
could occur with respect to the instrument.
MORTGAGE-RELATED SECURITIES
The Fund may invest in investment grade mortgage-backed securities issued
or guaranteed by U.S. Government agencies and private issuers for defensive
purposes. They may include collateralized mortgage obligations ("CMOs") and
U.S. Government stripped mortgage-backed securities ("SMBS").
CMOs are a type of bond issued by non-governmental entities which provide
the holder with a specified interest in the cash flow of a pool of underlying
mortgages or other mortgage-backed securities. Issuers of CMOs frequently
elect to be taxed as a pass-through entity known as a real estate mortgage
investment conduit or REMIC. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date.
SMBS represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only")
on mortgage-backed certificates issued by a U.S. Government agency and
representing interests in pools of mortgage loans. These principal-only or
interest-only distributions are stripped from the underlying mortgage-backed
security by private entities or by the agency that issued the mortgage-backed
certificate.
4
<PAGE>
The yield characteristics of mortgage-related securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e., mortgage loans) generally may be prepaid at any time. The prepayment
rate is primarily a function of current market rates and conditions. In
periods of rising interest rates, the rate of prepayment tends to increase.
During periods of falling interest rates, the reinvestment of prepayment
proceeds by the Fund will generally be at a lower rate than the rate on the
prepaid obligation. Prepayments may also result in some loss of the Fund's
principal investment if any premiums were paid. As a result of these yield
characteristics, some high-yielding mortgage-related securities may have less
potential for growth in value than conventional bonds with comparable
maturities. These characteristics may result in a higher level of price
volatility for these securities under certain market conditions. In addition,
SMBS may exhibit greater price volatility and interest rate risk than other
types of mortgage-related securities because of the manner in which their
principal and interest are returned to investors.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
The Fund may buy portfolio securities subject to the seller's agreement to
repurchase them at an agreed upon date and price. These transactions are known
as repurchase agreements. Repurchase agreements involve the risk that the
seller will fail to repurchase the securities as agreed. In that event, the
Fund would bear the risk of possible loss due to adverse market action or
delays in liquidating the underlying obligations. Repurchase agreements are
considered to be loans under the Investment Company Act.
The Fund may borrow money for temporary purposes by entering into reverse
repurchase agreements. Under these agreements, the Fund sells portfolio
securities to a financial institution and agrees to buy them back at an agreed
upon date and price. Reverse repurchase agreements may be used to meet
redemption requests without selling portfolio securities. Reverse repurchase
agreements involve the risk of counterparty default and possible loss of
collateral held by the counterparty. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
The Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. These transactions, which
involve a commitment by the Fund to purchase or to sell particular securities
with payment and delivery taking place at a future date, permit the Fund to
lock in a price or yield on a security it intends to purchase or sell,
regardless of future changes in interest rates. The Fund will bear the risk,
however, that the price or yield obtained in a transaction may be less
favorable than the price or yield available in the market when the delivery
takes place. When-issued and forward commitment transactions are not expected
to exceed 25% of the value of the Fund's total assets under normal
circumstances. Because the Fund is required to set aside cash or liquid high
grade debt obligations to satisfy these purchase commitments, the Fund's
liquidity and ability to manage its portfolio might be affected during periods
in which its commitments exceed 25% of the value of its assets. The Fund does
not intend to engage in when-issued and forward commitment transactions for
speculative purposes.
SECURITIES LENDING
The Fund may lend its portfolio securities to broker-dealers and other
institutions as a means of earning additional income. Although securities
loans will be fully collateralized, such loans present risks of delay in
receiving additional collateral or in recovering the securities loaned or even
a loss of rights in the collateral if the borrower of the securities fails
financially. However, securities loans will be made only to parties the
Adviser deems to be of good standing and will only be made if the Adviser
believes the income to be earned from the loans justifies the risks.
OTHER INVESTMENT COMPANIES
The Fund may invest in securities issued by other investment companies
which invest in eligible quality, short-term debt securities, whether taxable
or tax-exempt, and which seek to maintain a $1.00 net asset value per share,
i.e., "money market" funds. Such investments will be made by the Fund in
connection with the management of its daily cash position and will be subject
to the requirements of applicable securities laws. When
5
<PAGE>
the Fund invests in another investment company, it pays a pro rata portion of
the advisory and other expenses of that company as one of its shareholders.
These expenses are in addition to the Fund's own expenses.
MANAGING LIQUIDITY
Disposing of illiquid investments may involve time-consuming negotiations
and legal expenses, and it may be difficult or impossible to dispose of such
investments promptly at an acceptable price. Additionally, the absence of a
trading market can make it difficult to value a security. For these and other
reasons, the Fund will not knowingly invest more than 15% of the value of its
net assets in illiquid securities. Illiquid securities include repurchase
agreements and time deposits that do not permit the Fund to terminate them
after seven days' notice, restricted securities and other securities for which
market quotations are not readily available. Certain securities that might
otherwise be considered illiquid, however, such as some issues of commercial
paper and variable amount master demand notes with maturities of nine months
or less and securities for which the Adviser has determined pursuant to
guidelines adopted by the Company's Board of Directors that a liquid trading
market exists (including certain securities that may be purchased by
institutional investors under SEC Rule 144A) are not subject to this
limitation. This investment practice could have the effect of increasing the
level of illiquidity in the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these restricted
securities.
PORTFOLIO TURNOVER
The Fund may sell a portfolio security soon after it is purchased if the
Adviser believes that a sale is consistent with the Fund's investment
objective. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses, tax consequences (including the possible
realization of additional taxable capital gains and income) and other
transaction costs, which must be borne directly by the Fund and ultimately by
its shareholders. Although the Fund cannot accurately predict its annual
portfolio turnover rate, it is not expected to exceed 75%.
FUNDAMENTAL LIMITATIONS
The Fund's investment objective discussed above is "fundamental," which
means that it may not be changed without the approval of a majority of the
Fund's outstanding shares. The Fund's investment policies discussed above are
not fundamental and may be changed by the Company's Board of Directors without
shareholder approval. However, the Fund also has in place certain
"fundamental" limitations that also cannot be changed without the approval of
a majority of the Fund's outstanding shares. Some of these fundamental
limitations are summarized below, and all of the Fund's fundamental
limitations are set out in full in the Statement of Additional Information.
1. The Fund may not purchase securities (with certain exceptions,
including U.S. Government securities) if more than 5% of its total assets
will be invested in the securities of any one issuer, except that up to
25% of the total assets of the Fund can be invested without regard to this
5% limitation.
2. The Fund may not invest 25% or more of its total assets in one or
more issuers conducting their principal business activities in any one
industry, provided that the Fund will concentrate its investments in the
securities of issuers principally engaged in the real estate business.
3. The Fund may not borrow money except for temporary purposes in
amounts up to 10% of its total assets at the time of such borrowing.
Whenever borrowings exceed 5% of the Fund's total assets, the Fund will
not make any further investments.
If a percentage limitation is met at the time an investment is made, a
subsequent change in that percentage resulting from a change in value of the
Fund's portfolio securities does not mean that the limitation has been
violated.
6
<PAGE>
INVESTING IN THE FUND
GETTING YOUR INVESTMENT STARTED
Investing in the Fund is quick and convenient. Shares of the Fund may be
purchased either through the account you maintain with certain financial
institutions or directly through the Company. Fund shares are distributed by
BISYS Fund Services (called the "Distributor"). The Distributor's principal
offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Customers of Mercantile-Safe Deposit and Trust Company and its affiliated
and correspondent banks and customers of affiliates of State Street Bank and
Trust Company (referred to as the "Banks") may purchase Fund shares through
their qualified accounts at such Banks and should contact the Banks directly
for appropriate purchase instructions. Should you wish to establish an account
directly through the Company, please refer to the purchase options described
under "Opening and Adding to Your Fund Account."
Payments for Fund shares must be in U.S. dollars and should be drawn on a
U.S. bank. Please remember that the Company reserves the right to reject any
purchase order, including purchase orders accompanied by foreign or third
party checks or drafts.
HOW TO BUY FUND SHARES
MINIMUM INVESTMENTS
The Company generally requires a $50,000 minimum initial investment.
Subsequent investments must be a minimum of $100. The minimum investment
requirements do not apply to purchases by Banks acting on behalf of their
customers and the Banks do not impose a minimum initial or subsequent
investment requirement for shares purchased on behalf of their customers. The
Company reserves the right to waive these minimums in other instances.
OPENING AND ADDING TO YOUR FUND ACCOUNT
Direct investments in the Fund may be made in a number of different ways,
as shown in the following chart. Simply choose the method that is most
convenient for you. Any questions you have may be answered by calling 1-800-
551-2145. As described above under "Getting Your Investment Started," you may
also purchase Fund shares through the Banks.
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY MAIL . Complete a Purchase . Make your check payable to
Application and mail it the Fund and mail it to
along with a check payable the address at left.
to the Fund to: M.S.D. &
T. Funds, Inc., P.O. Box
8515, Boston, MA 02266-
8515.
. Please include your
account number on your
check.
To obtain a Purchase
Application, call 1-800-
551-2145
- -------------------------------------------------------------------------------
BY WIRE. . Before wiring funds, . Instruct your bank to wire
please call 1-800-551-2145 Federal funds to: State
for complete wiring Street Bank and Trust
instructions. Company, Boston,
Massachusetts, Bank
Routing No. 011-0000-28,
M.S.D. & T. Deposit A/C
No. 99046435.
. Promptly complete a
Purchase Application and
forward it to M.S.D. & T.
Funds, Inc., P.O. Box
8515, Boston, MA 02266-
8515.
. Be sure to include your
name and your Fund account
number.
7
<PAGE>
. The wire should indicate
that you are making a
subsequent purchase as
opposed to opening a new
account.
Consult your bank for information on remitting funds by wire
and associated bank charges.
YOU MAY USE OTHER INVESTMENT OPTIONS, INCLUDING AUTOMATIC
INVESTMENTS, EXCHANGES AND DIRECT REINVESTMENTS, TO INVEST
IN YOUR FUND ACCOUNT. PLEASE REFER TO THE SECTION ENTITLED
"SHAREHOLDER SERVICES" FOR MORE INFORMATION.
- -------------------------------------------------------------------------------
EXPLANATION OF SALES PRICE
The public offering price for shares of the Fund is based upon net asset
value per share. The Fund will calculate its net asset value per share by
adding the value of the Fund's investments, cash and other assets, subtracting
the Fund's liabilities, and then dividing the result by the number of shares
that are outstanding. This process is sometimes referred to as "pricing" the
Fund's shares.
The assets of the Fund are valued at market value or, if market quotes
cannot be readily obtained, at fair value as determined by the Adviser under
the supervision of the Company's Board of Directors. Debt securities held by
the Fund that have sixty days or less until they mature are valued at
amortized cost, which generally approximates market value. More information
about valuation can be found in the Fund's Statement of Additional
Information, which you may request by calling 1-800-551-2145.
Net asset value is computed as of the close of regular trading hours on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
Time) each weekday, with the exception of those holidays on which the Federal
Reserve Bank of Cleveland, the purchasing Bank (if applicable), the Fund's
Adviser, transfer agent or custodian or the Exchange is closed. The Fund
currently observes the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Thanksgiving Day and Christmas Day.
Shares of the Fund are sold at the public offering price per share next
computed after receipt of a purchase order by State Street Bank and Trust
Company, the transfer agent for the Fund's shares (the "Transfer Agent").
Purchase orders will be accepted by the Transfer Agent only on a day on which
the shares of the Fund are priced ("Business Day").
If you purchase shares of the Fund through a Bank, the Bank is responsible
for transmitting your purchase order and required funds to the Transfer Agent
on a timely basis. If the Transfer Agent receives your purchase order from a
Bank on a Business Day prior to the close of regular trading (currently 4:00
P.M. Eastern Time) on the Exchange, your Fund shares will be purchased at the
public offering price calculated at the close of regular trading on that day
provided that the Fund's custodian receives payment on the next Business Day
in immediately available funds. If such payment is not received on the next
Business Day, the Bank which submitted the order will be notified that the
order has not been accepted.
If you purchase shares of the Fund directly from the Company and if your
purchase order, in proper form and accompanied by payment, is received by the
Transfer Agent on a Business Day prior to the close of regular trading on the
Exchange, your Fund shares will be purchased at the public offering price
calculated at the close of regular trading on that day. Otherwise, your Fund
shares will be purchased at the public offering price next calculated after
the Transfer Agent receives your purchase order in proper form with the
required payment.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Company reserves the right to advance the times at which
purchase orders must be received in order to be processed on that Business
Day.
8
<PAGE>
HOW TO SELL FUND SHARES
You can arrange to get money out of your Fund account by selling some or
all of your shares. This process is known as "redeeming" your shares. If you
purchased your shares through an account at a Bank, you may redeem shares in
accordance with the instructions pertaining to that account. If you purchased
your shares directly from the Company, you have the ability to redeem shares
by any of the methods described below.
TO REDEEM SHARES
BY MAIL . Send a written request to M.S.D. & T. Funds,
Inc., P.O. Box 8515, Boston, MA 02266-8515.
. Your written request must:
--be signed by each account holder;
--state the number or dollar amount of shares
to be redeemed and identify the Fund;
--include your account number.
. Signature guarantees are required
--for all redemption requests over $100,000;
--for any redemption request where the
proceeds are to be sent to someone other
than the shareholder of record or to an
address other than the address of record.
- -------------------------------------------------------------------------------
BY WIRE . Call 1-800-551-2145. You will need to provide
(available only the account name, account number, name of
if you checked Fund and amount of redemption ($1,000 minimum
the appropriate per transaction)
box on the
Purchase
Application)
. If you have already opened your account and
would like to have the wire redemption
feature, send a written request to:
M.S.D. & T. Funds, Inc., P.O. Box 8515,
Boston, MA 02266-8515. The request must be
signed (and signatures guaranteed) by each
account owner.
. To change bank instructions, send a written
request to the above address. The request
must be signed (and signatures guaranteed) by
each account owner.
- -------------------------------------------------------------------------------
BY TELEPHONE . Call 1-800-551-2145. You will need to provide
(available only the account name, account number, name of
if you checked Fund and amount of redemption.
the appropriate
box on the
Purchase
Application)
. If you have already opened your account and
would like to add the telephone redemption
feature, send a written request to: M.S.D. &
T. Funds, Inc., P.O. Box 8515, Boston, MA
02266-8515. The request must be signed (and
signatures guaranteed) by each account owner.
OTHER REDEMPTION OPTIONS, INCLUDING EXCHANGES AND
SYSTEMATIC WITHDRAWALS, ARE ALSO AVAILABLE. PLEASE REFER
TO THE SECTION ENTITLED "SHAREHOLDER SERVICES" FOR MORE
INFORMATION.
- -------------------------------------------------------------------------------
9
<PAGE>
EXPLANATION OF REDEMPTION PRICE
Redemption orders received in proper form by the Transfer Agent are
processed at their net asset value per share next determined after receipt. On
a Business Day when the Exchange closes early due to a partial holiday or
otherwise, the Company reserves the right to advance the time at which
redemption orders must be received in order to be processed on that Business
Day.
Redemption proceeds generally will be wired or sent to the shareholder(s)
of record within three Business Days after receipt of the redemption order.
However, the Company reserves the right to wire or send redemption proceeds
within seven days after receiving the redemption order if the Adviser believes
that earlier payment would adversely affect the Company. If you purchased your
shares directly through the Company, your redemption proceeds will be sent by
check unless you otherwise direct the Company or the Transfer Agent. The
Automated Clearing House ("ACH") system may also be utilized for payment of
redemption proceeds. In unusual circumstances, the Company may pay redemption
proceeds in readily marketable portfolio securities having a market value
equal to the redemption price.
Banks are responsible for transmitting their customer's redemption orders
to the Transfer Agent and crediting their customers' accounts with redemption
proceeds on a timely basis. No charge is imposed by the Company for wiring
redemption proceeds, although the Banks may charge their customers' accounts
directly for redemption and other services. In addition, if a customer has
agreed with a Bank to maintain a minimum cash balance in his or her account
maintained with the Bank and the balance falls below that minimum, the
customer may be obliged to redeem some or all of the Fund shares held in the
account in order to maintain the required minimum balance.
The Company imposes no charge when you redeem shares. The value of the
shares you redeem may be more or less than your cost, depending on the Fund's
current net asset value.
OTHER PURCHASE AND REDEMPTION INFORMATION
Federal regulations require that you provide a certified taxpayer
identification number whenever you open or reopen an account.
Shareholders who purchased Fund shares directly through the Company should
note that if an account balance falls below $500 as a result of redemptions
and is not increased to at least $500 within 60 days after notice, the account
may be closed and the proceeds sent to the shareholder.
If you purchased shares by wire, you must file a Purchase Application with
the Transfer Agent before any of those shares can be redeemed. You should
contact your bank for information about sending and receiving funds by wire,
including any charges by your bank for these services. The Company may decide
at any time to change the minimum amount per transaction for redemption of
shares by wire or to no longer permit wire redemptions.
You may choose to initiate certain transactions by telephone. The Company
and its agents will not be responsible for any losses resulting from
unauthorized transactions when reasonable procedures to verify the identity of
the caller are followed. To the extent that the Company does not follow such
procedures, it and/or its agents may be responsible for any unauthorized
transactions.
The Company reserves the right to refuse a telephone redemption if it
believes it is advisable to do so. Procedures for redeeming shares by
telephone may be modified or terminated by the Company at any time. It may be
difficult to reach the Company by telephone during periods of unusual market
activity. If this happens, you may redeem your shares by mail as described
above.
The Company may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend the recordation of the transfer of
its shares) for such periods as permitted under the Investment Company Act.
10
<PAGE>
Certain redemption requests and other communications with the Company
require a signature guarantee. Signature guarantees are designed to protect
both you and the Company from fraud. To obtain a signature guarantee you
should visit a financial institution that participates in the Stock Transfer
Agency Medallion Program ("STAMP"). Guarantees must be signed by an authorized
person at one of these institutions and be accompanied by the words "Signature
Guaranteed." A notary public cannot provide a signature guarantee.
SHAREHOLDER SERVICES
The Company provides a variety of ways to make managing your investments
more convenient. Some of these options require you to request them on the
Purchase Application or you may request them after opening an account by
calling 1-800-551-2145. Except for Retirement Plans, these options are
available only to shareholders who purchase their Fund shares directly through
the Company.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with certain tax-
sheltered retirement plans, including individual retirement accounts. Shares
may also be purchased in connection with profit-sharing plans, section 401(k)
plans, money purchase pension plans and target benefit plans. Further
information about how to participate in these plans, the fees charged, the
limits on contributions and the services available to participants in such
plans can be obtained from the Company. To invest through any tax-sheltered
retirement plans, please call the Company at 1-800-551-2145 for information
and the required separate application. You should consult with a tax adviser
to determine whether a tax-sheltered retirement plan is available and/or
appropriate for you.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of another fund or
investment portfolio offered by the Company. You may exchange shares by mail
at the address provided under "How To Buy Shares--Opening and Adding to your
Fund Account" or by telephone at 1-800-551-2145. If you are opening a new
account in a different fund or portfolio by exchange, the exchanged shares
must be at least equal in value to the minimum investment for the fund or
portfolio in which the account is being opened.
You should read the prospectus for the fund or portfolio into which you
are exchanging. Exchanges will be processed only when the shares being offered
can legally be sold in your state. Exchanges may have tax consequences for
you. Consult your tax adviser for further information.
To elect the exchange privilege after you have opened a Fund account, or
for further information about the exchange privilege, call 1-800-551-2145. The
Company reserves the right to reject any exchange request. The Company may
modify or terminate the exchange privilege, but will not materially modify or
terminate it without giving shareholders 60 days' notice.
AUTOMATIC INVESTMENT PLAN
One easy way to pursue your financial goals is to invest money regularly.
The Company offers an Automatic Investment Plan--a convenient service that
lets you transfer money from your bank account into your Fund account
automatically on a regular basis. At your option, your bank account will be
debited in a particular amount ($100 minimum) that you have specified, and
Fund shares will automatically be purchased on the 15th day of each month or,
if that day is not a Business Day, on the preceding Business Day. Your bank
account must be maintained at a domestic financial institution that is an ACH
member. You will be responsible for any loss or expense to the Fund if an ACH
transfer is rejected. To select this option, or for more information, please
call 1-800-551-2145.
The Automatic Investment Plan is one means by which investors may use
"Dollar Cost Averaging" in making investments. Dollar Cost Averaging can be
useful in investing in portfolios such as the Fund whose price per share
fluctuates. Instead of trying to time market performance, a fixed dollar
amount is invested in Fund shares at predetermined intervals. This may help
investors to reduce their average cost per share because the
11
<PAGE>
agreed upon fixed investment amount allows more shares to be purchased during
periods of lower share prices and fewer shares during periods of higher
prices. In order to be effective, Dollar Cost Averaging should usually be
followed on a sustained, consistent basis. Investors should be aware, however,
that shares bought using Dollar Cost Averaging are made without regard to
their price on the day of investment or to market trends. In addition, while
investors may find Dollar Cost Averaging to be beneficial, it will not prevent
a loss if an investor ultimately redeems his or her shares at a price which is
lower than their purchase price.
SYSTEMATIC WITHDRAWALS
The Company offers a convenient way of withdrawing money from your Fund
account. You may request regular monthly, quarterly, semi-annual or annual
withdrawals in any amount of $100 or more. The withdrawal will be made on the
last business day of the period you select and distributed in cash or
reinvested in shares of another fund or portfolio offered by the Company. To
elect this option, or for more information, please call 1-800-551-2145.
DIRECTED REINVESTMENTS
Generally, dividends and capital gains distributions from the Fund are
automatically reinvested in shares of the Fund. You may elect, however, to
have your dividends and capital gains distributions automatically reinvested
in shares of another fund or portfolio offered by the Company. To elect this
option, or for more information, please call 1-800-551-2145.
DIVIDENDS AND DISTRIBUTIONS
Shareholders receive dividends and net capital gain distributions.
Dividends are derived from the Fund's net investment income and are declared
and paid quarterly. The Fund realizes capital gains whenever it sells
securities for a higher price than it paid for them. Distributions of such
capital gains are generally declared and paid annually.
Shares of the Fund begin earning dividends on the day a purchase order is
processed and continue earning dividends through and including the day before
the shares are redeemed. If you purchased your Fund shares through a Bank,
your dividends and distributions will be paid in cash and wired to your Bank.
If you purchased your shares directly from the Company, your dividends and
distributions will be automatically reinvested in additional shares of the
Fund unless you notify the Company in writing that you wish to receive
dividends and distributions in cash.
TAX INFORMATION
As with any investment, you should consider the tax implications of an
investment in the Fund. The following briefly summarizes some of the important
tax considerations generally affecting the Fund and its shareholders. You
should consult your tax adviser with specific reference to your own tax
situation, including the applicability of any state and local taxes. You will
be advised at least annually regarding the Federal tax treatment of dividends
and distributions paid to you.
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. If the Fund qualifies, it generally will be relieved
of Federal income tax on amounts distributed to shareholders, but
shareholders, unless otherwise exempt, will pay income or capital gains taxes
on distributions (except distributions that are treated as a return of
capital), regardless of whether the distributions are paid in cash or
reinvested in additional shares.
Distributions paid out of the Fund's "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, will be
taxed to shareholders as long-term capital gain, regardless of the length of
time a shareholder holds the shares. (However, if a shareholder subsequently
recognizes a loss on a sale of shares held for one year or less, that loss
will be reclassified as a long-term, rather than a short-term, capital loss to
the
12
<PAGE>
extent of any capital gain distribution received on those shares.) All other
distributions, to the extent taxable, are taxed to shareholders as ordinary
income.
Dividends paid by the Fund will be eligible for the dividends received
deduction allowed to certain corporations only to the extent of the total
qualifying dividends received by the Fund from domestic corporations for a
taxable year. Corporate shareholders will have to take into account the entire
amount of any dividend received in making certain adjustments for Federal
alternative minimum and environmental tax purposes.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital, and is generally
not taxable to shareholders. However, when shareholders receive a return of
capital, the cost basis of their shares is decreased by the amount of such
return of capital. This, in turn, affects the capital gain or loss realized
when shares of the Fund are exchanged or sold. Therefore, a shareholder's
original investment in the Fund will be reduced by the amount of the return of
capital and capital gains included in a distribution if such shareholder
elects to receive distributions in cash (as opposed to having them reinvested
in additional shares of the Fund). Once a shareholder's cost basis is reduced
to zero, any return of capital is taxable as a capital gain.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in those months will be deemed to
have been received by the shareholders on December 31 of such year, if the
dividends are paid during the following January.
An investor considering buying shares on or just before a dividend record
date should be aware that the amount of the forthcoming dividend payment,
although in effect a return of capital, will be taxable.
A taxable gain or loss may be recognized by a shareholder upon the
redemption, exchange or transfer of shares depending upon their tax basis and
their price at the time of redemption, exchange or transfer.
This is not an exhaustive discussion of applicable tax consequences, and
investors may wish to contact their tax advisers concerning investments in the
Fund. Dividends paid by the Fund may be taxable to investors under state or
local law as dividend income even though all or a portion of the dividends may
be derived from interest on obligations which, if realized directly, would be
exempt from such income taxes. In addition, future legislative or
administrative changes or court decisions may materially affect the tax
consequences of investing in the Fund. Shareholders who are non-resident alien
individuals, foreign trusts or estates, foreign corporations or foreign
partnerships may be subject to different U.S. Federal income tax treatment.
MANAGEMENT OF THE COMPANY
The business of the Company is managed under the general supervision of
the Company's Board of Directors. The Statement of Additional Information
contains information about the Board of Directors.
The Company has also employed a number of professionals to provide
investment management and other important services to the Fund. Mercantile-
Safe Deposit and Trust Company ("Mercantile") serves as the Fund's investment
adviser and administrator and has its principal offices at Two Hopkins Plaza,
Baltimore, Maryland 21201. BISYS Fund Services, a wholly-owned subsidiary of
The BISYS Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-
3035, is the registered broker-dealer that sells the Fund's shares as its
distributor, and BISYS Fund Services Ohio, Inc., also a wholly-owned
subsidiary of The BISYS Group, Inc. and located at the same address, provides
fund accounting services to the Fund. The Fund's custodian is The Fifth Third
Bank, located at 38 Fountain Square Plaza, Cincinnati, Ohio 45263. State
Street Bank and Trust Company, located at Two Heritage Drive, North Quincy,
Massachusetts 02171, serves as transfer and dividend disbursing agent for
shares of the Fund.
13
<PAGE>
INVESTMENT ADVISER
Mercantile is the lead bank of Mercantile Bankshares Corporation, a multi-
bank holding company organized in Maryland in 1969. Mercantile manages the
Fund's portfolio and is responsible for all purchases and sales of its
portfolio securities. Mercantile and its predecessors have been in the
business of managing the investments of fiduciary and other accounts in the
Baltimore area since 1864. As of December 31, 1996, Mercantile had
approximately $27 billion in assets under active management, of which
approximately $460 million represented the assets of an institutional real
estate pension fund.
The Fund's portfolio manager is primarily responsible for the day-to-day
management of the Fund's investments. Robert M. Law is the Fund's portfolio
manager. Mr. Law oversees Mercantile's Institutional Real Estate Department
and is Chairman of Mercantile's Trust Real Estate Committee. Before joining
Mercantile in 1994, Mr. Law was a Senior Vice President at Maryland National
Bank, where he served as Division Manager of the bank's Real Estate Finance
Division.
ADMINISTRATOR
Mercantile also serves as the Fund's administrator and generally assists
in all aspects of its operation and administration, including maintaining the
Fund's offices, coordinating the preparation of reports to shareholders,
preparing filings with state securities commissions, coordinating federal and
state tax returns, and performing other administrative functions.
EXPENSES
The Fund incurs certain expenses in order to support the services
described above, as well as other matters essential to the operation of the
Fund. Expenses are paid out of the Fund's assets and thus are reflected in the
Fund's dividends and net asset value, but they are not billed directly to you
or deducted from your account.
In its capacity as investment adviser, Mercantile is entitled to an
advisory fee, computed daily and paid monthly at the annual rate of .80% of
the Fund's average daily net assets.
In its capacity as administrator, Mercantile is also entitled to an
administration fee, computed daily and paid monthly at the annual rate of
.125% of the Fund's average daily net assets.
The Fund also bears other operating expenses which are described in more
detail in the Statement of Additional Information.
FEE WAIVERS
Expenses can be reduced by voluntary fee waivers and expense
reimbursements by Mercantile and the Fund's other service providers. The
amount of the fee waivers may be changed at any time at the sole discretion of
Mercantile with respect to advisory and administration fees, and by the Fund's
other service providers, with respect to all other fees. As to any amounts
voluntarily waived or reimbursed, the service providers retain the ability to
be reimbursed by the Fund for such amounts prior to fiscal year-end. Such
waivers and reimbursements would increase the return to investors when made
but would decrease the return if the Fund were required to reimburse a service
provider.
OTHER INFORMATION CONCERNING THE COMPANY AND ITS SHARES
The Company was incorporated in Maryland on March 7, 1989 and is an open-
end management investment company (i.e., a "mutual fund"). The Company's
charter authorizes the Board of Directors to issue up to 10,000,000,000 full
and fractional shares of capital stock ($.001 par value per share) and to
classify or reclassify any unissued shares into one or more classes of shares.
Pursuant to this authority, the Board of Directors has authorized the issuance
of one class of shares in the Fund. The Board of Directors has also authorized
the
14
<PAGE>
issuance of additional classes of shares representing interests in other
investment portfolios of the Company. For information regarding these other
portfolios and share classes, call 1-800-551-2145.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held. Shares of all
portfolios of the Company vote together and not by portfolio or class, unless
otherwise required by law or permitted by the Board of Directors. The Company
does not currently intend to hold annual shareholder meetings unless it is
required to do so by the Investment Company Act or other applicable law.
PERFORMANCE REPORTING
Performance information provides you with a method of measuring and
monitoring your investments. This section will help you to understand the
various terms that are commonly used to describe the Fund's performance. You
may see references to these terms in newsletters, advertisements and
shareholder communications. These publications may also include comparisons of
the Fund's performance to the performance of various indices and investments
for which reliable performance data are available and to averages, performance
rankings or other information compiled by recognized mutual fund statistical
services.
. Aggregate total return reflects the total percentage change in the
value of an investment in the Fund over a specified measuring
period.
. Average annual total return represents the average annual percentage
change in the value of an investment in the Fund over a specified
measuring period. It is calculated by taking the aggregate total
return for the measuring period and determining what constant annual
return would have produced the same aggregate return. Average annual
returns for more than one year tend to smooth out variations in the
Fund's return and are not the same as actual annual results.
Both methods of calculating total return assume that during the
period you have reinvested Fund dividends and distributions in
additional Fund shares.
. Yield shows the rate of income the Fund earns on its investments as
a percentage of its share price. It is calculated by dividing the
Fund's net investment income for a 30-day period by the product of
the average daily number of shares entitled to receive dividends and
the Fund's net asset value per share at the end of the 30-day
period. The result is then annualized. This represents the amount
you would earn if you remained invested in the Fund for a year and
the Fund continued to have the same yield for the year. Yield does
not include changes in net asset value.
Any fees charged by a Bank directly to your account in connection with an
investment in the Fund will not be included in the Fund's calculations of
yield and/or total return.
Performance quotations of the Fund represent its past performance, and you
should not consider them representative of future results. The investment
return and principal value of an investment in the Fund will fluctuate so that
your shares, when redeemed, may be worth more or less than their original
cost. Since performance will fluctuate, you cannot necessarily compare an
investment in Fund shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time.
MISCELLANEOUS
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) 50%
or more of the outstanding shares of the Fund or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
15
<PAGE>
The Company or your Bank will send you a statement of your account
quarterly and a confirmation after every transaction that affects your share
balance or your account registration. A statement with tax information will be
mailed to you by January 31 of each year and filed with the Internal Revenue
Service. At least twice a year, you will receive financial statements in the
form of Annual and Semi-Annual Reports of the Fund.
If you have any questions concerning the Company or the Fund, please call
1-800-551-2145.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE COMPANY, THE FUND OR ITS DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
16
