<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS ___________, 1998
ISG FUNDS
The ISG Funds (the "Portfolios") are separate series of The Infinity
Mutual Funds, Inc. (the "Fund"), an open-end, management investment company. By
this Prospectus, the Fund is offering shares of five Portfolios, each of which
seeks to achieve its investment objective by investing in other mutual funds
(the "Underlying Portfolios"). A general description of each Portfolio is set
forth on the following page.
Each Portfolio's investment adviser is First American National Bank (the
"Adviser"). The Adviser or its affiliate, ParkSouth Corporation ("ParkSouth"),
serves as investment adviser to each Underlying Portfolio.
BISYS Fund Services Limited Partnership ("BISYS") serves as each
Portfolio's administrator and distributor.
By this Prospectus, Trust Shares, Class A Shares and Class B Shares of
each Portfolio are being offered.
-----------------------------------
PORTFOLIO SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, THE ADVISER OR ANY OTHER BANK, AND ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. PORTFOLIO SHARES INVOLVE CERTAIN RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. FOR EACH PORTFOLIO, SHARE PRICE AND INVESTMENT
RETURN FLUCTUATE AND ARE NOT GUARANTEED.
-----------------------------------
This Prospectus sets forth concisely information about the Fund and the
Portfolios that an investor should know before investing. It should be read and
retained for future reference.
The Statement of Additional Information, dated __________, 1998 which
may be revised from time to time, provides a further discussion of certain areas
in this Prospectus and other matters which may be of interest to some investors.
It has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Securities and Exchange Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding the Fund and Portfolios. For a free copy of the Statement
of Additional Information, write to the Fund at 3435 Stelzer Road, Columbus,
Ohio 43219-3035, or call 1-800-852-0045.
- -------------------------------------------------------------------------------
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>
o The AGGRESSIVE GROWTH PORTFOLIO seeks to provide investors with capital
growth. This Portfolio will invest substantially all of its assets in
Underlying Portfolios that invest primarily in equity securities.
o The GROWTH PORTFOLIO seeks to provide investors with long-term capital
growth. This Portfolio will invest substantially all of its assets in
Underlying Portfolios that invest primarily in equity securities.
o The GROWTH & INCOME PORTFOLIO seeks to provide investors with long-term
capital growth and a moderate level of current income. This Portfolio
will invest substantially all of its assets in Underlying Portfolios
that invest primarily in equity securities and fixed-income securities.
o The MODERATE GROWTH & INCOME PORTFOLIO seeks to provide investors with
current income and a moderate level of capital growth. This Portfolio
will invest substantially all of its assets in Underlying Portfolios
that invest primarily in fixed-income securities and equity
securities.
o The CURRENT INCOME PORTFOLIO seeks to provide investors with current
income. This Portfolio will invest substantially all of its assets in
Underlying Portfolios that invest primarily in fixed-income securities.
<PAGE>
TABLE OF CONTENTS
PAGE
Fee Table.................................................................4
Description of the Portfolios.............................................8
Management of the Portfolios.............................................21
How to Buy Shares........................................................24
How to Redeem Shares.....................................................31
Shareholder Privileges...................................................35
Dividends, Distributions and Taxes.......................................38
Performance Information..................................................40
General Information......................................................42
Appendix.................................................................A-1
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DISTRIBUTED BY: INVESTMENT ADVISER:
BISYS Fund Services Limited Partnership First American National
3435 Stelzer Road Bank
Columbus, Ohio 43219-3035 315 Deaderick Street
Nashville, Tennessee 37237
o For information about opening an account and other Fund services call:
(800) 824-3741.
For voice recorded price and yield information call: (800)852-0045.
o To execute purchases, redemptions and exchanges and for information
about the status of your account call: (800)852-0045.
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
AGGRESSIVE GROWTH PORTFOLIO GROWTH PORTFOLIO GROWTH & INCOME PORTFOLIO
------------------------------ ----------------------------- -----------------------------
TRUST CLASS A CLASS B TRUST CLASS A CLASS B TRUST CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------ ------- ------- ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price)............. None 4.75% None None 4.75% None None 4.75% None
Maximum Deferred Sales Load
(as a percentage of the
amount subject to
charge)..................... None None+ 4.00% None None+ 4.00% None None+ 4.00%
ANNUAL OPERATING EXPENSES
(as a percentage of average
daily net assets)
Management Fees (after fee waivers) .10% .10% .10% .10% .10% .10% .10% .10% .10%
12b-1 Fees..................... None .25% .75% None .25% .75% None .25% .75%
Other Expenses................. .39% .39% .39% .39% .39% .39% .39% .39% .39%
Total Portfolio Operating
Expenses (after fee waivers)... .49% .74% 1.24% .49% .74% 1.24% .49% .74% 1.24%
</TABLE>
- -----------------
+ A contingent deferred sales charge of 1.00% may be assessed on certain
redemptions of Class A Shares purchased without an initial sales charge
as part of an investment of $1 million or more.
- -----------------
In addition to the expenses shown above, investors in a Portfolio will
indirectly bear their pro rata share of fees and expenses incurred by the
Underlying Portfolios in which the Portfolio invests, so that the investment
returns of the Portfolio will be net of the expenses of the Underlying
Portfolios. The following chart provides the expense ratio for each Underlying
Portfolio (based on its current prospectus). These expense ratios do not reflect
any fee waivers or expense reimbursement arrangements that may be in effect.
EXPENSE
RATIO
-------
ISG Capital Growth Portfolio............................................. .99%
ISG Core Income Portfolio................................................ .92%
ISG Dividend Growth Portfolio............................................ 1.09%
DG Equity Fund........................................................... 1.04%
DG International Equity Fund............................................. 2.53%
ISG Limited Duration Income Portfolio.................................... .87%
DG Opportunity Fund...................................................... 1.33%
ISG Prime Money Market Portfolio......................................... .62%
After combining the total operating expenses of each Portfolio with
those of the Underlying Portfolios in which the Portfolio invests (see
"Description of the Portfolios"), the estimated average weighted expense ratio
for Trust Shares, Class A Shares and Class B Shares of each indicated Portfolio
is as follows:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO GROWTH PORTFOLIO GROWTH & INCOME PORTFOLIO
--------------------------------------- ----------------------------------- -----------------------------------
TRUST CLASS A CLASS B TRUST CLASS A CLASS B TRUST CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.67% 1.92% 2.42% 1.62% 1.87% 2.37% 1.46% 1.71% 2.21%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return
and (2) redemption at
the end of each time period:
1 Year...................... $17 $ 66 $65 $16 $ 66 $64 $15 $64 $62
3 Years..................... $ 53 $105 $105 $ 51 $103 $104 $46 $99 $99
An investor would pay the following
expenses on the same investment,
assuming no redemption:
1 Year...................... $ 17 $ 66 $25 $ 16 $ 66 $24 $15 $64 $22
3 Years..................... $ 53 $105 $75 $ 51 $103 $74 $46 $99 $69
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MODERATE GROWTH & INCOME PORTFOLIO CURRENT INCOME PORTFOLIO
------------------------------ -----------------------------
TRUST CLASS A CLASS B TRUST CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price)............. None 4.75% None None 3.00% None
Maximum Deferred Sales Load
(as a percentage of the
amount subject to
charge)..................... None None+ 4.00% None None+ 4.00%
ANNUAL OPERATING EXPENSES
(as a percentage of average
daily net assets)
Management Fees (after fee waivers) .10% .10% .10% .10% .10% .10%
12b-1 Fees..................... None .25% .75% None .25% .75%
Other Expenses................. .39% .39% .39% .39% .39% .39%
Total Portfolio Operating
Expenses (after fee waivers) .49% .74% 1.24% .49% .74% 1.24%
- ---------------
+ A contingent deferred sales charge of 1.00% may be assessed on certain redemptions of Class A Shares
purchased without an initial sales charge as part of an investment of $1 million or more.
- ---------------
In addition to the expenses shown above, investors in a Portfolio will indirectly bear
their pro rata share of fees and expenses incurred by the Underlying Portfolios in which the Portfolio
invests, so that the investment returns of the Portfolio will be net of the expenses of the Underlying
Portfolios. The following chart provides the expense ratio for each Underlying Portfolio (based on its
current prospectus). These expense ratios do not reflect any fee waivers or expenses reimbursement
arrangements that may be in effect.
</TABLE>
EXPENSE
RATIO
---------
ISG Capital Growth Portfolio...................................... .99%
ISG Core Income Portfolio......................................... .92%
ISG Dividend Growth Portfolio..................................... 1.09%
DG Equity Fund.................................................... 1.04%
DG International Equity Fund...................................... 2.53%
ISG Limited Duration Income Portfolio............................. .87%
DG Opportunity Fund............................................... 1.33%
ISG Prime Money Market Portfolio.................................. .62%
After combining the total operating expenses of each Portfolio with
those of the Underlying Portfolios in which the Portfolio invests (see
"Description of the Portfolios"), the estimated average weighted expense ratio
for Trust Shares, Class A Shares and Class B Shares of each indicated Portfolio
is as follows:
<TABLE>
<CAPTION>
MODERATE GROWTH & INCOME PORTFOLIO CURRENT INCOME PORTFOLIO
-------------------------------------------- -----------------------------------------------
TRUST CLASS A CLASS B TRUST CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
1.41% 1.66% 2.16% 1.37% 1.62% 2.12%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return
and (2) redemption at
the end of each time period:
1 Year........................ $14 $64 $62 $14 $46 $62
3 Years....................... $45 $97 $98 $43 $80 $96
An investor would pay the following
expenses on the same investment,
assuming no redemption:
1 Year........................ $14 $64 $22 $14 $46 $22
3 Years....................... $45 $97 $68 $43 $80 $66
</TABLE>
- -------------------------------------------------------------------------------
The amounts listed in the example should not be considered as
representative of future expenses and actual expenses may be greater or less
than those indicated. Moreover, while the example assumes a 5% annual return,
each Portfolio's actual performance will vary and may result in an actual return
greater or less than 5%.
- -------------------------------------------------------------------------------
The purpose of the foregoing table is to assist investors in
understanding the costs and expenses borne by the Portfolios and investors, the
payment of which will reduce investors' annual return. Other Expenses are
estimated based on amounts for the current fiscal year. Long-term investors in
Class A Shares or Class B Shares could pay more in aggregate 12b-1 fees and
sales charges than the economic equivalent of the maximum initial sales charge
permitted by the National Association of Securities Dealers, Inc. The expenses
noted above for the Portfolios, without fee waivers, would be: Management Fees,
.20% for each Portfolio, and Total Portfolio Operating Expenses, .59%, .84% and
1.34% for Trust Shares, Class A Shares and Class B Shares, respectively, for
each Portfolio. The expenses noted above do not reflect any other fee waiver or
expense reimbursement arrangements that may be in effect. Certain Service
Organizations (as defined below) and other institutions also may charge their
clients direct fees for effecting transactions in Portfolio shares and the
Adviser, its affiliates and certain other institutions may charge customary
account and account transaction fees, which are not Fund related, with respect
to accounts through which or for which Portfolio shares are purchased or
redeemed; such fees are not reflected in the foregoing table. For a further
description of the various costs and expenses incurred in a Portfolio's
operation, as well as expense reimbursement or waiver arrangements, see
"Management of the Portfolios."
<PAGE>
DESCRIPTION OF THE PORTFOLIOS
GENERAL
Each Portfolio offers Trust Shares, Class A Shares and Class B Shares.
Each Trust Share, Class A Share and Class B Share represents an identical pro
rata interest in the relevant Portfolio's investment portfolio. The Portfolios
will invest in Trust Shares of the Underlying Portfolios. See "How to Buy
Shares--Alternative Purchase Methods."
INVESTMENT OBJECTIVES
Each Portfolio's investment objective is set forth on the cover page of
this Prospectus. The differences in objectives and policies among the Portfolios
determine the Underlying Portfolios in which each Portfolio invests and can be
expected to affect the degree of risk to which each Portfolio is subject and
each Portfolio's yield or return. Each Portfolio's investment objective cannot
be changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of such Portfolio's
outstanding voting shares. There can be no assurance that each Portfolio's
investment objective will be achieved.
MANAGEMENT POLICIES
Each Portfolio seeks to achieve its investment objective by allocating
its assets among the Underlying Portfolios within predetermined strategy ranges,
as set forth below. The Adviser will make allocation decisions according to its
outlook for the economy, financial markets and relative market valuation of the
Underlying Portfolios. Each Portfolio has a "benchmark percentage" representing
the asset class mix of the Underlying Portfolios the Adviser expects to maintain
when its assessment of economic conditions and other factors indicate that the
financial markets are fairly valued relative to each other. The Adviser
anticipates that each Portfolio's asset class benchmark percentage will be as
follows:
<TABLE>
<CAPTION>
BENCHMARK PERCENTAGES
--------------------------------------------------------------------------------------
MODERATE
AGGRESSIVE GROWTH & GROWTH & CURRENT
UNDERLYING PORTFOLIO GROWTH GROWTH INCOME INCOME INCOME
ASSET CLASS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Equity 95% 80% 60% 30% 0%
Fixed Income 0% 15% 35% 65% 95%
Money Market
Instruments 5% 5% 5% 5% 5%
</TABLE>
Under normal market conditions, the Adviser expects to adhere to the
benchmark percentages set forth above and the strategy ranges set forth below;
however, the Adviser reserves the right to vary such percentages and ranges as
the risk/return characteristics of the financial markets or Underlying Portfolio
asset classes, as assessed by the Adviser, vary over time.
AGGRESSIVE GROWTH PORTFOLIO--The Aggressive Growth Portfolio will invest
65% to 100% of the value its total assets in four Underlying Portfolios which
invest primarily in equity securities and up to 30% of the value of its total
assets in one Underlying Portfolio which invests in money market instruments.
The Portfolio will invest its assets in the following Underlying Portfolios
within the strategy ranges (expressed as a percentage of the Portfolio's assets)
indicated below:
UNDERLYING PORTFOLIO STRATEGY RANGE
-------------------- --------------
DG Equity Fund 30-50%
ISG Capital Growth Portfolio 25-45%
DG Opportunity Fund 5-15%
DG International Equity Fund 5-15%
ISG Prime Money Market Portfolio 0-30%
* * *
GROWTH PORTFOLIO--The Growth Portfolio will invest 65% to 100% of the
value of its total assets in five Underlying Portfolios which invest primarily
in equity securities, 10% to 20% of the value of its total assets in one
Underlying Portfolio which invests primarily in fixed-income securities and up
to 20% of the value of its total assets in one Underlying Portfolio which
invests in money market instruments. The Portfolio will invest its assets in the
following Underlying Portfolios within the strategy ranges (expressed as a
percentage of the Portfolio's assets) indicated below:
UNDERLYING PORTFOLIO STRATEGY RANGE
-------------------- ---------------
DG Equity Fund 15-30%
ISG Capital Growth Portfolio 15-30%
ISG Dividend Growth Portfolio 15-25%
DG Opportunity Fund 5-10%
DG International Equity Fund 5-10%
ISG Core Income Portfolio 10-20%
ISG Prime Money Market Portfolio 0-20%
* * *
GROWTH & INCOME PORTFOLIO--The Growth & Income Portfolio will invest 45%
to 75% of the value of its total assets in three Underlying Portfolios which
invest primarily in equity securities, 25% to 45% of the value of its net assets
in two Underlying Portfolios which invest primarily in fixed-income securities
and up to 20% of the value of its total assets in one Underlying Portfolio which
invests in money market instruments. The Portfolio will invest its assets in the
following Underlying Portfolios within the strategy ranges (expressed as a
percentage of the Portfolio's assets) indicated below:
UNDERLYING PORTFOLIO STRATEGY RANGE
-------------------- ----------------
DG Equity Fund 15-25%
ISG Capital Growth Portfolio 15-25%
ISG Dividend Growth Portfolio 15-25%
ISG Core Income Portfolio 15-25%
ISG Limited Duration Income Portfolio 10-20%
ISG Prime Money Market Portfolio 0-20%
* * *
MODERATE GROWTH & INCOME PORTFOLIO--The Moderate Growth & Income
Portfolio will invest 15% to 45% of the value of its total assets in three
Underlying Portfolios which invest primarily in equity securities, 45% to 85% of
the value of its total assets in two Underlying Portfolios which invest
primarily in fixed-income securities and up to 20% of the value of its total
assets in one Underlying Portfolio which invests in money market instruments.
The Portfolio will invest its assets in the following Underlying Portfolios
within the strategy ranges (expressed as a percentage of the Portfolio's assets)
indicated below:
UNDERLYING PORTFOLIO STRATEGY RANGE
--------------------- ---------------
ISG Limited Duration Income Portfolio 25-45%
ISG Core Income Portfolio 20-40%
DG Equity Fund 5-15%
ISG Capital Growth Portfolio 5-15%
ISG Dividend Growth Portfolio 5-15%
ISG Prime Money Market Portfolio 0-20%
* * *
CURRENT INCOME PORTFOLIO--The Current Income Portfolio will invest 75%
to 100% of the value its total assets in two Underlying Portfolios which invest
primarily in fixed-income securities and up to 30% of the value of its total
assets in one Underlying Portfolio which invests in money market instruments.
The Portfolio will invest its assets in the following Underlying Portfolios
within the strategy ranges (expressed as a percentage of the Portfolio's assets)
indicated below:
UNDERLYING PORTFOLIO STRATEGY RANGE
-------------------- ----------------
ISG Limited Duration Income Portfolio 40-60%
ISG Core Income Portfolio 35-55%
ISG Prime Money Market Portfolio 0-30%
* * *
Each Portfolio may invest, in anticipation of otherwise investing cash
positions, directly in money market instruments of the type in which the Prime
Money Market Portfolio invests (collectively, "Money Market Instruments"), as
described below. See "Description of the Underlying Portfolios--Prime Money
Market Portfolio." Under normal market conditions, none of the Portfolios
expects to have a substantial portion of its assets invested in Money Market
Instruments. However, when the Adviser determines that adverse market conditions
exist, the Portfolio may adopt a temporary defensive posture and invest entirely
in Money Market Instruments.
* * *
DESCRIPTION OF THE UNDERLYING PORTFOLIOS
The following is a description of the investment objectives and
management policies of the Underlying Portfolios. Additional information
regarding the portfolio securities and investment practices of the Underlying
Portfolios is set forth under "Appendix" below, the Statement of Additional
Information and the prospectus for the relevant Underlying Portfolio.
ISG CAPITAL GROWTH PORTFOLIO--The Capital Growth Portfolio seeks to
provide investors with capital growth. The Capital Growth Portfolio will invest
primarily in the equity securities of domestic issuers. The Capital Growth
Portfolio, under normal circumstances, will invest primarily in securities of
companies with relatively large capitalizations (generally greater than $500
million) that the Adviser believes offer opportunities for capital appreciation
and growth of earnings. Market capitalization of a company's stock is its market
price per share times the number of shares outstanding. The equity securities in
which the Capital Growth Portfolio may invest consist of common stocks,
preferred stocks and convertible securities, including those in the form of
American Depositary Receipts and Standard & Poor's Depositary Receipts, as well
as warrants to purchase such securities. The Capital Growth Portfolio also may
invest in debt securities of domestic and foreign issuers when the Adviser
believes that such securities offer opportunities on capital growth. The Capital
Growth Portfolio may invest up to 10% of the value of its total assets in
foreign securities which are not publicly traded in the United States. See
"Appendix--Portfolio Securities."
At least 65% of the value of the Capital Growth Portfolio's total assets
invested in debt securities must consist of debt securities which are rated no
lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard
& Poor's Ratings Group ("S&P"), Fitch IBCA, Inc. ("Fitch") or Duff & Phelps
Credit Rating Co. ("Duff") or, if unrated, deemed to be of comparable quality by
the Adviser. The remainder of such assets may be invested in debt securities
which are rated no lower than Ba by Moody's and BB by S&P, Fitch and Duff or, if
unrated, deemed to be of comparable quality by the Adviser. Debt securities
rated Ba by Moody's and BB by S&P, Fitch and Duff are considered speculative
grade debt and the payment of principal and interest may be affected at any time
by adverse economic changes. See "Investment Considerations and Risk
Factors--Lower Rated Securities Risk" below, and "Appendix" in the Statement of
Additional Information.
The Capital Growth Portfolio may invest, in anticipation of otherwise
investing cash positions, in Money Market Instruments. Under normal market
conditions, the Portfolio does not expect to have a substantial portion of its
assets invested in Money Market Instruments. However, when the Adviser
determines that adverse market conditions exist, the Capital Growth Portfolio
may adopt a temporary defensive posture and invest entirely in Money Market
Instruments. See "Appendix--Certain Portfolio Securities--Money Market
Instruments."
The Capital Growth Portfolio also may engage in various investment
techniques such as options and futures transactions and lending portfolio
securities, each of which involves risk. For a discussion of these investment
techniques and their related risks, see "Investment Considerations and Risk
Factors" below, and "Appendix--Investment Techniques." The Capital Growth
Portfolio also may invest, to a limited extent, in securities issued by other
investment companies which principally invest in securities of the type in which
the Portfolio invests.
ISG DIVIDEND GROWTH PORTFOLIO--The Dividend Growth Portfolio seeks to
provide investors with current income and capital appreciation. The Dividend
Growth Portfolio will invest primarily in the equity securities of domestic
issuers which are expected to provide reasonable income and which may have
capital appreciation potential. The Dividend Growth Portfolio will invest at
least 65% of the value of its total assets (except when maintaining a temporary
defensive position) in dividend-paying equity securities of issuers that the
Adviser believes have the capacity to increase dividend payments in the future.
Equity securities include common stocks, preferred stocks and securities that
are convertible into common stocks. The Dividend Growth Portfolio will invest in
the equity securities of issuers believed by the Adviser to be financially sound
and which pay above-average dividends. The Adviser intends to take into account
factors, including price-earnings ratios, cash flow and relationship of asset
value to market price of the securities. Investments may be made in securities
of companies of any size depending on the relative attractiveness of the company
and the economic sector in which it operates. The Adviser anticipates investing
approximately 25% of the Dividend Growth Portfolio's total assets in convertible
securities and preferred stock. In all other respects, the Dividend Growth
Portfolio's management policies are identical to those of the Capital Growth
Portfolio.
DG EQUITY FUND--The Equity Fund seeks to provide investors with
long-term capital appreciation and, as a secondary objective, current income.
The Equity Fund will invest at least 70% of the value of its total assets in
equity securities of companies with market capitalizations of over $1 billion.
The Equity Fund will invest in securities that ParkSouth, the Equity Fund's
investment adviser, believes have the potential to provide capital appreciation
and current income. The equity securities in which the Equity Fund may invest
consist of common stocks, preferred stocks and convertible securities, including
depositary receipts, as well as warrants to purchase such securities. The Equity
Fund also may invest in debt securities of domestic issuers rated no lower than
investment grade (Baa/BBB) by a credit rating agency, such as Moody's, S&P,
Fitch or Duff, or, if unrated, deemed to be of comparable quality by ParkSouth.
In all other respects, the Equity Fund's management policies are identical to
those of the Capital Growth Portfolio.
DG OPPORTUNITY FUND--The Opportunity Fund seeks to provide investors
with capital appreciation. The Opportunity Fund will invest at least 65% of the
value of its total assets in equity securities of companies with market
capitalizations of less than $1 billion. Womack Asset Management, Inc. ("Womack
Management"), the Opportunity Fund's sub-investment adviser, will employ a
fundamental growth-oriented approach with technical analysis to select
investments for the Opportunity Fund. The Opportunity Fund will invest primarily
in the securities of small- to medium-sized domestic issuers, while attempting
to maintain volatility and diversification similar to that of the small
capitalization sector of the United States equity market. The securities of
smaller capitalization companies may be subject to more abrupt or erratic market
movements than larger, more established companies, because these securities
typically are traded in lower volume and the issuers typically are more subject
to changes in earnings and prospects. ParkSouth serves as investment adviser to
the Opportunity Fund. In all other respects, the Opportunity Fund's management
policies are identical to those of the Capital Growth Portfolio.
DG INTERNATIONAL EQUITY FUND--The International Equity Fund seeks to
provide investors with capital appreciation. The International Equity Fund will
invest at least 65% of the value of its total assets in equity securities of
non-United States companies (i.e., incorporated or organized outside the United
States). The International Equity Fund will invest primarily in equity
securities of established companies in economically developed countries that
Lazard Asset Management ("Lazard"), the International Equity Fund's
sub-investment adviser, considers inexpensively priced relative to the return on
total capital or equity. The International Equity Fund also may invest up to 25%
of the value of its total assets in equity securities of issuers located, or
doing significant business, in emerging markets. The International Equity Fund
will engage primarily in a value-oriented search for equity securities before
they have attracted wide investor interest. Lazard will attempt to identify
undervalued securities through traditional measures of value, including low
price to earnings ratio, high yield, unrecognized assets, potential for
management change and/or the potential to improve profitability. Lazard's global
investment specialists apply both quantitative and qualitative analysis to
securities selection. Lazard will focus on individual stock selection (a
"bottom-up" approach) rather than on forecasting stock market trends (a
"top-down" approach).
Under normal market conditions, the International Equity Fund will
invest at least 80% of the value of its total assets in the equity securities of
companies within not less than three different countries (not including the
United States). The percentage of the International Equity Fund's assets
invested in particular geographic sectors may shift from time to time in
accordance with the judgment of ParkSouth, the International Equity Fund's
investment adviser, and Lazard. In addition, the International Equity Fund may
engage in various investment techniques, such as foreign currency transactions,
short-selling and such other investment techniques as the Capital Growth
Portfolio may engage in, as described above. For a description of the risks
associated with investing in foreign securities, see "Investment Considerations
and Risks--Foreign Securities Risk."
Lazard recognizes that some of the best opportunities are in securities
not generally followed by investment professionals. Thus, Lazard relies on its
research capability and maintains a dialogue with foreign brokers and with the
management of foreign companies in an effort to gather the type of "local
knowledge" that it believes is critical to successful investment abroad. To this
end, Lazard communicates with its affiliates, Lazard Freres Gestion Banque in
Paris, Lazard Asset Management Ltd. in London and Lazard Japan Asset Management
K.K. in Tokyo, for information concerning current business trends, as well as
for a better understanding of the management of local businesses.
The International Equity Fund is not required to invest exclusively in
common stocks or other equity securities, and, if deemed advisable, it may
invest in fixed-income securities and Money Market Instruments. The
International Equity Fund will not invest in fixed-income securities rated lower
than A by Moody's, S&P, Fitch or Duff, or, if unrated, deemed to be of
comparable quality by ParkSouth. In addition, the International Equity Fund may
have substantial investments in American and Global Depositary Receipts and in
convertible bonds and other convertible securities.
When, in ParkSouth's or Lazard's judgment, business or financial
conditions warrant, the International Equity Fund may assume a temporary
defensive position and invest without limit in the equity securities of U.S.
companies or Money Market Instruments of the types described in
"Appendix--Certain Portfolio Securities--Money Market Instruments" or hold its
assets in cash.
LIMITED DURATION INCOME PORTFOLIO--The Limited Duration Income Portfolio
seeks to provide investors with current income without assuming undue risk. The
Limited Duration Income Portfolio invests at least 65% of the value of its total
assets (except when maintaining a temporary defensive position) in bonds,
debentures and other debt instruments. The Limited Duration Income Portfolio
invests in a broad range of investment grade, U.S. dollar denominated
fixed-income securities of domestic and foreign issuers. These debt securities
include bonds, debentures, notes, money market instruments (including foreign
bank obligations, such as time deposits, certificates of deposit and bankers'
acceptances, commercial paper and other short-term corporate debt obligations,
and repurchase agreements), mortgage-related securities (including interest-only
and principal-only stripped mortgage-backed securities), asset-backed
securities, municipal obligations and convertible debt obligations. The issuers
may include foreign corporations, partnerships, trusts or similar entities, and
governments or their political subdivisions, agencies or instrumentalities Under
normal market conditions, the Limited Duration Income Portfolio will invest in a
portfolio of securities that has a duration of under four years.
The maturity of any single instrument held by the Limited Duration
Income Portfolio is not limited. The duration of the Limited Duration Income
Portfolio, however, under normal circumstances, will not exceed four years. The
Adviser will seek to maintain a duration ranging between one year and four years
depending upon market conditions. Under normal circumstances, the
dollar-weighted average life of the Limited Duration Income Portfolio's
investment securities will be longer than one year and less than five years. As
a measure of a fixed-income security's cash flow, duration is an alternative to
the concept of "term to maturity" in assessing the price volatility associated
with changes in interest rates. Generally, the longer the duration, the more
volatility an investor should expect. For example, the market price of a bond
with a duration of two years would be expected to decline 2% if interest rates
rose 1%. Conversely, the market price of the same bond would be expected to
increase 2% if interest rates fell 1%. The market price of a bond with a
duration of four years would be expected to increase or decline twice as much as
the market price of a bond with a two-year duration. Duration is a way of
measuring a security's maturity in terms of the average time required to receive
the present value of all interest and principal payments as opposed to its term
to maturity. The maturity of a security measures only the time until final
payment is due; it does not take account of the pattern of a security's cash
flows over time, which would include how cash flow is affected by prepayments
and by changes in interest rates. Incorporating a security's yield, coupon
interest payments, final maturity and option features into one measure, duration
is computed by determining the weighted average maturity of a bond's cash flows,
where the present values of the cash flows serve as weights. In computing the
duration of the Limited Duration Income Portfolio, the Adviser will estimate the
duration of obligations that are subject to prepayment or redemption by the
issuer, taking into account the influence of interest rates on prepayments and
coupon flows. This method of computing duration is known as option-adjusted
duration.
The securities in which the Limited Duration Income Portfolio will
invest will consist only of those which, at the time of purchase, are rated no
lower than Baa by Moody's or BBB by S&P, Fitch or Duff, or, if unrated, deemed
to be of comparable quality by the Adviser. Obligations rated BBB by S&P and
Fitch and Baa by Moody's are considered investment grade obligations; those
rated BBB by S&P and Fitch are regarded as having an adequate capacity to pay
principal and interest, while those rated Baa by Moody's are considered medium
grade obligations which lack outstanding investment characteristics and have
speculative characteristics. See "Investment Considerations and Risk
Factors--Fixed-Income Securities Risk" below, and "Appendix" in the Statement of
Additional Information.
When management believes it advisable for temporary defensive purposes,
the Limited Duration Income Portfolio may invest in Money Market Instruments.
The Limited Duration Income Portfolio also may lend securities from its
portfolio as described under "Appendix--Investment Techniques--Lending Portfolio
Securities." The Limited Duration Income Portfolio also may invest, to a limited
extent, in securities issued by other investment companies which principally
invest in securities of the type in which the Limited Duration Income Portfolio
invests.
CORE INCOME PORTFOLIO--The Core Income Portfolio seeks to provide
investors with current income without assuming undue risk. The Core Income
Portfolio's management policies are identical to those of the Limited Duration
Income Portfolio, except that, under normal market conditions, the Core Income
Portfolio will invest in a portfolio of securities that has an effective
duration of 50% to 150% of that of the Merrill Lynch Corporate Government Master
Index. For a discussion of duration, see "Limited Duration Income Portfolio"
above. The Adviser serves as investment adviser to the Core Income Portfolio.
The Merrill Lynch Corporate Government Master Index is comprised of
government and investment grade corporate fixed-rate couponbearing securities
with an outstanding par value of $25 million or more, with maturities equal to
or greater than one year. As of December 31, 1997, the securities comprising the
Merrill Lynch Corporate Government Master Index had an effective duration of
approximately 5.246 years.
PRIME MONEY MARKET PORTFOLIO--The Prime Money Market Portfolio seeks to
provide investors with as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. The Prime Money
Market Portfolio will invest in U.S. dollar denominated short-term money market
obligations, including securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, certificates of deposit, time deposits and
bankers' acceptances issued by domestic banks, foreign branches of domestic
banks, foreign subsidiaries of domestic banks, and domestic and foreign branches
of foreign banks, loan participation agreements, guaranteed investment
contracts, municipal obligations, repurchase agreements, asset-backed
securities, and high quality domestic and foreign commercial paper and other
high quality short-term corporate obligations, such as floating or variable rate
U.S. dollar denominated demand notes and bonds. The Prime Money Market Portfolio
will invest in U.S. dollar denominated obligations issued or guaranteed by one
or more foreign governments or any of their political subdivisions, agencies or
instrumentalities, including obligations of supranational entities. The Prime
Money Market Portfolio will not invest more than 35% of the value of its total
assets in foreign securities. Securities in which the Prime Money Market
Portfolio will invest may not earn as high a level of current income as
long-term or lower quality securities which generally have less liquidity,
greater market risk and more fluctuation in market value. See
"Appendix--Portfolio Securities." The Prime Money Market Portfolio also may lend
its portfolio securities, enter into reverse repurchase agreements and purchase
restricted securities pursuant to Rule 144A under the Securities Act of 1933, as
amended. See "Appendix--Investment Practices." During normal market conditions,
at least 25% of the Prime Money Market Portfolio's total assets will be invested
in domestic and/or foreign bank obligations. See "Investment Considerations and
Risk Factors--Bank Securities Risk" below. The Adviser serves as investment
adviser to the Prime Money Market Portfolio.
The Prime Money Market Portfolio seeks to maintain a net asset value of
$1.00 per share for purchases and redemptions. To do so, the Prime Money Market
Portfolio uses the amortized cost method of valuing its securities pursuant to
Rule 2a-7 under the 1940 Act, which includes various maturity, quality and
diversification requirements, certain of which are summarized below.
In accordance with Rule 2a-7, the Prime Money Market Portfolio is
required to maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining maturities of 397 days or less
and invest only in U.S. dollar denominated securities determined in accordance
with procedures established by the Fund's Board of Directors to present minimal
credit risks and which are rated in one of the two highest rating categories for
debt obligations by at least two nationally recognized statistical rating
organizations ("NRSRO") (or one NRSRO if the instrument was rated by only one
such organization) or, if unrated, are of comparable quality as determined in
accordance with procedures established by the Fund's Board of Directors. The
NRSROs currently rating instruments of the type the Prime Money Market Portfolio
may purchase are Moody's, S&P, Duff, Fitch and Thomson BankWatch, Inc. and their
rating criteria are described in the "Appendix" to the Statement of Additional
Information. For further information regarding the amortized cost method of
valuing securities, see "Determination of Net Asset Value" in the Statement of
Additional Information. There can be no assurance that the Prime Money Market
Portfolio will be able to maintain a stable net asset value of $1.00 per share.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
GENERAL RISK--Each Portfolio's investments are concentrated in the
UnderlyingPortfolios, so each Portfolio's investment performance is directly
related to the performance of the Underlying Portfolios in which it invests.
Each Portfolio's net asset value will fluctuate with changes in the securities
markets and the value of the Underlying Portfolios in which it invests. In
addition, since each Portfolio must allocate its investments among the
Underlying Portfolios, none of the Portfolios has the same flexibility to invest
as a mutual fund without such constraints.
Before selecting a Portfolio in which to invest, the investor should
assess the risks associated with the Underlying Portfolios in which the
Portfolio invests and the types of investments made by the Underlying
Portfolios. Generally, if the securities owned by an Underlying Portfolio in
which a Portfolio invests increase in value, the value of the shares of the
Underlying Portfolio and, thus, the Portfolio's shares, will increase.
Similarly, if the securities owned by the Underlying Portfolio decrease in
value, the value of the Underlying Portfolio's shares and, thus, the Portfolio's
shares, will also decline. In this way, investors participate in any change in
the value of the securities owned the Underlying Portfolios in which their
Portfolio invests. Investors could lose money by investing in a Portfolio.
Investors should consider each Portfolio as a supplement to an overall
investment program and should invest only if they are willing to undertake the
risks involved. See also "Appendix--Investment Techniques."
EQUITY SECURITIES RISK--(Capital Growth Portfolio, Dividend Growth
Portfolio, Equity Fund, Opportunity Fund and International Equity Fund) While
stocks and other securities have historically been a leading choice of long-term
investors, they do fluctuate in value, often based on factors unrelated to the
value of the issuer of the securities, and such fluctuations can be pronounced.
Changes in the value of investment securities will result in changes in the
value of the Underlying Portfolio's shares and thus its total return to
investors.
Because different types of stocks tend to shift in and out of favor
depending on market and economic conditions, the performance of an Underlying
Portfolio investing primarily in large capitalization stocks (such as the Equity
Fund) may be lower or higher than that of a Portfolio investing primarily in
smaller capitalization stocks (such as Opportunity Fund). Moreover, the
investment returns of an Underlying Portfolio investing in stocks that emphasize
particular investment characteristics, such as "value" or "growth," may
fluctuate independently from the broad stock market as represented by the S&P
500 Index, and may demonstrate greater volatility over short or extended periods
relative to the broad market.
Opportunity Fund invests primarily in small cap companies, which carry
additional risks because their earnings tend to be less predictable, their share
prices more volatile and their securities less liquid than larger, more
established companies. They may be dependent on management for one or a few key
persons, and can be more susceptible to losses and the risk of bankruptcy. In
addition, some of these investments may rise and fall based on investor
perception rather than economics.
FIXED-INCOME SECURITIES RISK--(All Underlying Portfolios) An Underlying
Portfolio's investments in fixed-income securities will be subject primarily to
interest rate and credit risk. Interest rate risk is the potential for a
decline in bond prices due to rising interest rates. In general, even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. The change in price depends on several factors, including the
security's maturity date; generally, bonds with longer maturities are more
sensitive to changes in interest rates than bonds with shorter maturities.
Each Underlying Portfolio's investment in fixed-income securities also
is subject to credit risk, which is the possibility that the issuer of the
security will fail to make timely payments of interest or principal to the
Underlying Portfolio. The credit risk of an Underlying Portfolio depends on the
quality of its investments. Certain securities purchased by an Underlying
Portfolio, such as those rated Baa by Moody's and BBB by S&P, Fitch and Duff,
may be subject to such risk with respect to the issuing entity and to greater
market fluctuations than certain lower yielding, higher rated fixed-income
securities. Once the rating of a security purchased by an Underlying Portfolio
has been adversely changed, such Underlying Portfolio will consider all
circumstances deemed relevant in determining whether to continue to hold the
security. See "Appendix--Portfolio Securities--Ratings" below, and "Appendix" in
the Statement of Additional Information.
Mortgage-related securities in which the Capital Growth Portfolio,
Dividend Growth Portfolio, Limited Duration Income Portfolio and Core Income
Portfolio may invest are complex derivative instruments, subject to both credit
and prepayment risk, and may be more volatile and less liquid than more
traditional debt securities. Some mortgage-related securities have structures
that make their reactions to interest rate changes and other factors difficult
to predict, making their value highly volatile. No assurance can be given as to
the liquidity of the market for certain mortgage-backed securities, such as
collateralized mortgage obligations and stripped mortgage-backed securities.
Determination as to the liquidity of interest-only and principal-only fixed
mortgage-backed securities issued by the U.S. Government or its agencies and
instrumentalities will be made in accordance with guidelines established by the
Fund's Board of Directors. In accordance with such guidelines, the Portfolio's
adviser will monitor investments in such securities with particular regard to
trading activity, availability of reliable price information and other relevant
information. The Fund intends to treat other stripped mortgage-backed securities
as illiquid securities. See "Appendix--Portfolio Securities--Mortgage-Related
Securities" and "--Illiquid Securities."
Federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. An Underlying Portfolio investing in such
securities may be required to distribute such income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
FOREIGN SECURITIES RISK--(Capital Growth Portfolio, Dividend
Growth Portfolio, International Equity Fund, Limited Duration Income Portfolio,
Core Income Portfolio, and, to a limited extent, Equity Fund, and Prime Money
Market Portfolio) The value of foreign securities also is affected by general
economic conditions and individual company and industry earning prospects.
While foreign securities may offer opportunities for gain, they also involve
additional risks that can increase the potential for losses in the Underlying
Portfolio. These risks can be significantly greater for investments in emerging
markets.
Foreign securities market generally are not as developed or efficient
as those in the United States. Securities of some foreign issuers are less
liquid and more volatile than securities of comparable U.S. issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. In some foreign countries, there is also less information
available about foreign issuers and markets because of less rigorous accounting
and regulatory standards than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, an Underlying Portfolio's investment in foreign
securities will be subject to additional risks which include possible adverse
political and economic developments, seizure or nationalization of foreign
deposits and adoption of governmental restrictions that might adversely affect
or restrict the payment of principal, interest and dividends on the foreign
securities to investors located otuside the county of the issuers, whether from
currency blockage or otherwise. The Underlying Portfolio may have greater
difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to domestic issuers in U.S. courts.
Emerging market countries have economic structures that generally are
less diverse and mature, and political systems that are less stable, than those
of developed countries. Emerging markets may be more volatile than the markets
of more mature economies; however, such markets may provide higher rates of
return to investors. Many emerging market countries providing investment
opportunities for the International Equity Fund have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securites markets of certain of these
countries.
Since foreign securities may be purchased by the Capital Growth
Portfolio, Dividend Growth Portfolio and International Equity Fund with and be
payable in currencies of foreign countries, the value of these assets as
measured in U.S. dollars, and thus the price of the Underlying Portfolio's
shares, may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations. Some currency exchange costs may be incurred
when the Underlying Portfolio changes investments from one country to another.
DERIVATIVE SECURITIES RISK--Each Underlying Portfolio, other than the
Prime Money Market Portfolio, may invest in, or enter into, derivatives
("Derivatives"). These are financial instruments which derive their performance,
at least in part, from the performance of an underlying asset, index or interest
rate. The Derivatives an Underlying Portfolio may use include, with respect to
the Capital Growth Portfolio, Dividend Growth Portfolio, Equity Fund,
Opportunity Fund, International Equity Fund, options and futures, and, with
respect to the Capital Growth Portfolio, Dividend Growth Portfolio, Limited
Duration Income Portfolio and Core Income Portfolio, mortgage-related securities
and asset-backed securities. While Derivatives can be used effectively in
furtherance of the Underlying Portfolio's investment objective, under certain
market conditions, they can increase the volatility of the Underlying
Portfolio's net asset value, decrease the liquidity of the Underlying
Portfolio's investments and make more difficult the accurate pricing of the
Underlying Portfolio's investments.
LOWER RATED SECURITIES RISK--(Capital Growth Portfolio and Dividend
Growth Portfolio) The Capital Growth Portfolio and Dividend Growth Portfolio may
invest, to a limited extent, in higher yielding (and, therefore, higher risk)
debt securities rated Ba by Moody's or BB by S&P, Fitch or Duff (commonly known
as junk bonds). They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated fixed-income securities. The retail secondary market for these securities
may be less liquid than that of higher rated securities; adverse conditions
could make it difficult at times for the Underlying Portfolio to sell certain
securities or could result in lower prices than those used in calculating the
Underlying Portfolio's net asset value. See "Appendix--Portfolio Securities--
Ratings."
BANK SECURITIES RISK--(Prime Money Market Portfolio only) To the extent
the Prime Money Market Portfolio's investments are concentrated in the banking
industry, it will have correspondingly greater exposure to the risk factors
which are characteristic of such investments. Sustained increases in interest
rates can adversely affect the availability or liquidity and cost of capital
funds for a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. In addition, the value
of and the investment return on the Prime Money Market Portfolio's shares will
be affected by economic or regulatory developments in or related to the banking
industry, and competition within the banking industry as well as with other
types of financial institutions. The Prime Money Market Portfolio, however, will
seek to minimize its exposure to such risks by investing only in debt securities
which are determined to be of high quality.
NON-DIVERSIFIED STATUS--(Each Portfolio, and Capital Growth Portfolio,
Dividend Growth Portfolio, International Equity Fund, Limited Duration Income
Portfolio and Core Income Portfolio) Each of the Portfolios and Capital Growth
Portfolio, Dividend Growth Portfolio, International Equity Fund, Limited
Duration Income Portfolio and Core Income Portfolio is classified as a
"non-diversified" investment company, which means that the proportion of the
Portfolio's assets that may be invested in the securities of a single issuer is
not limited by the 1940 Act. A "diversified" investment company is required by
the 1940 Act generally, with respect to 75% of its total assets, to invest not
more than 5% of such assets in the securities of a single issuer. Since a
relatively high percentage of a non-diversified Underlying Portfolio's assets
may be invested in the securities of a limited number of issuers, some of which
may be within the same industry, such Underlying Portfolio's investments, and
its investment return, may be more sensitive to changes in the market value of a
single issuer or industry. However, to meet Federal tax requirements, at the
close of each quarter no Underlying Portfolio may have more than 25% of its
total assets invested in any one issuer and, with respect to 50% of total
assets, more than 5% of its total assets invested in any one issuer. These
limitations do not apply to U.S. Government securities or the securities of
other regulated investment companies.
SIMULTANEOUS INVESTMENTS--Investment decisions for each Underlying
Portfolio are made independently from those of the other investment companies,
investment advisory accounts, custodial accounts, individual trust accounts and
commingled funds that may be advised by the Underlying Portfolio's adviser or,
if applicable, sub-investment adviser. However, if such other investment
companies or managed accounts desire to invest in, or dispose of, the same
securities as the Underlying Portfolio, available investments or opportunities
for sales will be allocated equitably to each of them. In some cases, this
procedure may adversely affect the size of the position obtained for or disposed
of by an Underlying Portfolio or the price paid or received by an Underlying
Portfolio.
MANAGEMENT OF THE PORTFOLIOS
BOARD OF DIRECTORS
The business affairs of the Fund are managed under the general
supervision of its Board of Directors. The Statement of Additional Information
contains the name and general business experience of each Director.
INVESTMENT ADVISER
First American National Bank, located at First American Center, 315
Deaderick Street, Nashville, Tennessee 37237, serves as each Portfolio's
investment adviser. The Adviser is a wholly-owned subsidiary of First American
Corporation, a registered bank holding company having assets as of May 1, 1998
of approximately $18 billion. On April 30, 1998, Deposit Guaranty Corp., located
in Jackson, Mississippi, merged with First American Corporation. First American
National Bank and its affiliates, including Deposit Guaranty National Bank,
provide personal trust, estate, employee benefit trust, corporate trust and
custody services to over 7,000 accounts and investment advisory services. The
Adviser, and its affiliates, as of May 1, 1998, had approximately $11 billion
under trust and approximately $6 billion under management.
The Adviser and its affiliates deal, trade and invest for their own
accounts and for the accounts of clients which they manage in the types of
securities in which the Underlying Portfolios may invest and may have deposit,
loan and commercial banking relationships with the issuers of securities
purchased by an Underlying Portfolio. The Adviser has informed the Fund that in
making its investment decisions it does not obtain or use material inside
information in its or its affiliates' possession. The Adviser also provides
research services for the Portfolios and Underlying Portfolios through a
professional staff of portfolio managers and securities analysts. All activities
of the Adviser are conducted by persons who are also officers of one or more of
the Adviser's affiliates.
The Adviser also is responsible for the selection of brokers to effect
securities transactions and the negotiation of brokerage commissions, if any.
Purchases and sale of securities on a securities exchange are effected through
brokers who charge a negotiated commission for their services. Brokerage
commissions may be paid to affiliates of the Adviser for executing securities
transactions if the use of such affiliates is likely to result in price and
execution at least as favorable as those of other qualified brokers. The
allocation of brokerage transactions also may take into account a broker's sales
of Fund shares. See "Portfolio Transactions" in the Statement of Additional
Information.
The Adviser supervises and assists in the overall management of each
Portfolio's affairs under an Investment Advisory Agreement between the Adviser
and the Fund, subject to the authority of the Fund's Board of Directors in
accordance with Maryland law. Investment decisions for each Portfolio are made
by a team of the Adviser's portfolio managers, and no person is primarily
responsible for making recommendations to the team.
Under the terms of the Investment Advisory Agreement, the Fund has
agreed to pay the Adviser a monthly fee at the annual rate of .20% of the value
of each Portfolio's average daily net assets. From time to time, the Adviser may
waive receipt of its fees and/or voluntarily assume certain expenses of a
Portfolio, which would have the effect of lowering the overall expense ratio of
that Portfolio and increasing yield to its investors. The Portfolio will not pay
the Adviser at a later time for any amounts it may waive, nor will the Portfolio
reimburse the Adviser for any amounts it may assume.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership, located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as each Portfolio's administrator and
distributor. BISYS currently provides administrative services or
sub-administrative services to, and distributes the shares of, other investment
companies with over $200 billion in assets. BISYS is a wholly-owned subsidiary
of The BISYS Group, Inc.
Under its Administration Agreement with the Fund, BISYS generally
assists in all aspects of the Fund's operations, other than providing investment
advice, subject to the overall authority of the Fund's Board of Directors in
accordance with Maryland law. In connection therewith, BISYS provides the Fund
with office facilities, personnel, and certain clerical and bookkeeping services
(e.g., preparation of reports to shareholders and the Securities and Exchange
Commission and filing of Federal, state and local income tax returns) that are
not being furnished by The Bank of New York, the Fund's Custodian.
Under the terms of the Administration Agreement, the Fund has agreed to
pay BISYS a monthly fee at the annual rate of .15% of the value of each
Portfolio's average daily net assets.
BISYS, as distributor, makes a continuous offering of each Portfolio's
shares and bears the costs and expenses of printing and distributing to
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of each Portfolio (after such items
have been prepared and set in type by the Fund) which are used in connection
with the offering of shares, and the costs and expenses of preparing, printing
and distributing any other literature used by BISYS in connection with the
offering of such Portfolio's shares for sale to the public.
DISTRIBUTION PLAN
Under a plan adopted by the Fund's Board of Directors pursuant to Rule
12b-1 under the 1940 Act (the "Distribution Plan"), each Portfolio pays BISYS
for advertising, marketing and distributing Class A Shares and Class B Shares at
an annual rate of .25% of the value of the average daily net assets represented
by Class A Shares and .75% of the value of the average daily net assets
represented by Class B Shares. Under the Distribution Plan, BISYS may make
payments to certain financial institutions, securities dealers and other
industry professionals that have entered into agreements with BISYS ("Service
Organizations") in respect of these services. BISYS determines the amounts to be
paid to Service Organizations. Service Organizations receive such fees in
respect of the average daily value of Class A Shares or Class B Shares owned by
their clients. From time to time, BISYS may defer or waive receipt of fees under
the Distribution Plan while retaining the ability to be paid by the Fund under
the Distribution Plan thereafter. The fees payable to BISYS under the
Distribution Plan for advertising, marketing and distributing are payable
without regard to actual expenses incurred.
SHAREHOLDER SERVICES PLAN
Under a shareholder services plan adopted by the Fund's Board of
Directors (the "Shareholder Services Plan"), each Portfolio pays BISYS for the
provision of certain services at an annual rate of .15% of the value of the
average daily net assets represented by Trust Shares and Class A Shares and at
an annual rate of .25% of the value of the average daily net assets represented
by Class B Shares. The services provided may include personal services relating
to shareholder accounts, such as answering shareholder inquiries regarding a
Portfolio and providing reports and other information, and services related to
the maintenance of such shareholder accounts. The fee payable for such services
is intended to be a "service fee" as defined in the NASD Conduct Rules. Under
the Shareholder Services Plan, BISYS may make payments to certain Service
Organizations in respect of these services. BISYS determines the amounts to be
paid to Service Organizations. Service Organizations receive such fees in
respect of the average daily value of the relevant Class of shares owned by
their clients. From time to time, BISYS may defer or waive receipt of fees under
the Shareholder Services Plan while retaining the ability to be paid by the Fund
under the Plan thereafter. The fees payable to BISYS under the Shareholder
Services Plan are payable without regard to actual expenses incurred.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 90 Washington Street, New York, New York 10286, is
the Portfolio's Custodian. BISYS Fund Services Ohio, Inc., an affiliate of
BISYS, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is the Fund's
Transfer and Dividend Disbursing Agent (the "Transfer Agent").
EXPENSES
All expenses incurred in the operation of the Fund are borne by the
Fund, except to the extent specifically assumed by others. The expenses borne by
the Fund include: organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS, any sub-investment adviser, or any of their affiliates,
Securities and Exchange Commission fees, state Blue Sky qualification fees,
advisory and administration fees, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, industry association fees,
auditing and legal expenses, costs of maintaining corporate existence, costs of
independent pricing services, costs of calculating the net asset value of each
Portfolio's shares, costs of shareholders' reports and corporate meetings, costs
of preparing and printing certain prospectuses and statements of additional
information, and any extraordinary expenses. Expenses attributable to a
particular Portfolio are charged against the assets of that Portfolio; other
expenses of the Fund are allocated among the portfolios on the basis determined
by the Board of Directors, including, but not limited to, proportionately in
relation to the net assets of each portfolio.
HOW TO BUY SHARES
ALTERNATIVE PURCHASE METHODS
This Prospectus offers investors three methods of purchasing Portfolio
shares. Orders for purchases of Trust Shares, however, may be placed only for
certain eligible investors as described below. An investor who is not eligible
to purchase Trust Shares may choose from Class A Shares and Class B Shares the
Class of shares that best suits the investor's needs, given the amount of
purchase, the length of time the investor expects to hold the shares and any
other relevant circumstances. Each Class A, Class B and Trust Share represents
an identical pro rata interest in a Portfolio's investment portfolio.
Class A Shares are sold at net asset value per share plus, for each
Portfolio an initial sales charge imposed at the time of purchase, which may be
reduced or waived for certain purchases, as described below.
Class B Shares are sold at net asset value per share with no initial
sales charge at the time of purchase; as a result, the entire purchase price is
immediately invested in the Portfolio. Class B Shares are subject to a
contingent deferred sales charge ("CDSC"), which is assessed only if Class B
Shares are redeemed within six years of purchase. Approximately seven years
after the date of purchase, Class B Shares automatically will convert to Class A
Shares, based on the relative net asset values for shares of each such Class.
See "How to Redeem Shares--Class B Shares."
Trust Shares are sold at net asset value with no sales charge. Trust
Shares are sold exclusively to clients of the Adviser for their qualified trust,
custody and/or agency accounts and to clients of the Adviser's affiliated and
correspondent banks and certain other affiliated and non-affiliated institutions
for their similar accounts maintained at such affiliates or institutions. These
accounts are referred to herein as "Fiduciary Accounts."
Class B Shares will receive lower per share dividends and at any given
time the performance of Class B should be expected to be lower than for shares
of each other Class because of the higher expenses borne by Class B. Similarly,
Class A Shares will receive lower per share dividends and the performance of
Class A should be expected to be lower than Trust Shares because of the higher
expenses borne by Class A. See "Fee Table."
An investor who is not eligible to purchase Trust Shares should consider
whether, during the anticipated life of the investor's investment in the
Portfolio, the accumulated distribution and service fees and CDSC on Class B
Shares prior to conversion would be less than the initial sales charge, if any,
on Class A Shares purchased at the same time, and to what extent, if any, such
differential would be offset by the return of Class A. Additionally, investors
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time might consider purchasing Class A
Shares because the accumulated continuing distribution fees on Class B Shares
may exceed the initial sales charge on Class A Shares during the life of the
investment.
GENERAL PURCHASE INFORMATION
Class A Shares and Class B Shares may be purchased through a number of
institutions, including the Adviser and its affiliates, Service Organizations,
and directly from BISYS. Orders for purchases of Trust Shares may be placed only
for clients of the Adviser, its affiliated and correspondent banks and other
affiliated and non-affiliated institutions (collectively, "Institutions") for
their Fiduciary Accounts maintained at such Institutions. When purchasing
Portfolio shares, you must specify the Portfolio and Class of shares being
purchased. The Adviser, its affiliates and Service Organizations may receive
different levels of compensation for selling different Classes of Portfolio
shares. Stock certificates will not be issued. The Fund reserves the right to
reject any purchase order in whole or in part, including purchases made with
foreign checks and third party checks not originally made payable to the order
of the investor.
The minimum initial investment for Trust Shares of each Portfolio is
$100,000, with no subsequent minimum investment. The Institution through which
Trust Shares are purchased may impose initial or subsequent investment minimums
which are higher or lower than those specified above and may impose different
minimums for different types of accounts or purchase arrangements.
Investors may purchase Trust Shares through procedures established by
their Institution and an investor should contact such entity directly for
appropriate instructions, as well as for information about conditions pertaining
to the account and any related fees. The investor's Institution will transmit an
investor's payment to the Fund and will supply the Fund with the required
information. It is the Institution's responsibility to transmit the order
properly on a timely basis.
The minimum initial investment for Class A Shares or Class B Shares of
each Portfolio is $1,000, and subsequent investments must be at least $100. The
minimum initial investment is $100 for IRAs, and subsequent investments for IRAs
must be at least $50. For full-time or part-time employees of the Adviser or
any of its affiliates, the minimum initial investment is $500, and subsequent
investments must be at least $50. For full-time or part-time employees of the
Adviser or any of its affiliates who elect to have a portion of their pay
directly deposited into their ISG Fund accounts, the minimum initial or
subsequent investment must be at least $25. The Adviser, its affiliates and
Service Organizations may impose initial or subsequent investment minimums which
are higher or lower than those specified above and may impose different minimums
for different types of accounts or purchase arrangements. In addition, purchases
of shares made in connection with certain shareholder privileges may have
different minimum investment requirements. See "Shareholder Privileges."
You may purchase Class A Shares or Class B Shares by check or wire, or
through TeleTrade. Investors purchasing shares through the Adviser, its
affiliates or Service Organizations should contact such entity directly for
appropriate instructions, as well as for information about conditions pertaining
to the account and any related fees.
For written orders for Class A Shares or Class B Shares, you may send
your initial or subsequent purchase order, together with the Fund's Account
Application for initial orders and your check or money order payable to: The ISG
Funds (Portfolio Name), to The ISG Funds, c/o BISYS Fund Services, Inc.,
Department L-1686, Columbus, Ohio 43260-1686. For subsequent investments, your
Fund account number should appear on the check or money order. All payments
should be made in U.S. dollars and, to avoid fees and delays, should be drawn
only on U.S. banks. A charge will be imposed if a check used for investment in
your account does not clear.
For wire orders for Class A Shares or Class B Shares, you must call the
Transfer Agent at 1-800-852-0045. If a subsequent payment is being made, your
Fund account number should be included. Information on remitting funds in this
manner, including any related fees, may be obtained from your bank.
Subsequent investments also may be made by electronic transfer of funds
from an account maintained in a bank or other domestic financial institution
that is an Automated Clearing House member. For information on purchasing shares
through the Automated Clearing House, you must call the Transfer Agent at
1-800-852-0045.
Management understands that the Adviser, its affiliates and some Service
Organizations may impose certain conditions on their clients which are different
from those described in this Prospectus, and, to the extent permitted by
applicable regulatory authority, may charge their clients a direct fee for
effecting transactions in Portfolio shares. You should consult the Adviser, its
affiliates or your Service Organization in this regard.
The Fund determines net asset value per share for each Portfolio as of
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m., Eastern time), on each business day (which, as used herein, shall include
each day the New York Stock Exchange is open for business, except Columbus Day
and Veterans' Day), except on days where there are not sufficient changes in the
value of a Portfolio's investment securities to materially affect the
Portfolio's net asset value and no purchase orders or redemption requests have
been received. The New York Stock Exchange currently is closed on the following
holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share of each class is computed by dividing
the value of the Portfolio's net assets attributable to such class (i.e., the
value of its assets less liabilities) by the total number of Portfolio shares of
such class outstanding. Each Portfolio's investments are valued each business
day generally by using available market quotations or at fair value which may be
determined by one or more pricing services approved by the Board of Directors.
Each pricing service's procedures are reviewed under the general supervision of
the Board of Directors. For further information regarding the methods employed
in valuing the Portfolios' investments, see "Determination of Net Asset Value"
in the Statement of Additional Information.
Federal regulations require that an investor provide a certified Tax
Identification Number ("TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes" and the Fund's Account Application for
further information concerning this requirement. Failure to furnish a certified
TIN to the Fund could subject the investor to a $50 penalty imposed by the
Internal Revenue Service ("IRS").
TERMS OF PURCHASE
Portfolio shares are sold on a continuous basis at the public offering
price (i.e., net asset value plus the applicable sales load, if any, set forth
below) per share next determined after an order in proper form is received by
the Transfer Agent or other entity authorized to receive orders on behalf of the
Fund. Orders for the purchase of Class A or Class B Shares received by dealers
by the close of trading on the floor of the New York Stock Exchange on any
business day and transmitted to the Transfer Agent by the close of its business
day (normally 5:15 p.m., Eastern time) will be based on the public offering
price per share determined as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, the orders will be based on the next
determined public offering price. It is the dealer's responsibility to transmit
orders so that they will be received by the Transfer Agent before the close of
its business day.
TELETRADE--CLASS A AND CLASS B SHARES ONLY--You may purchase Class A or
Class B Shares (minimum purchase $500, maximum $50,000 per transaction) by
telephone for an existing Fund account if you have checked the appropriate box
and supplied the necessary information on the Account Application. The proceeds
will be transferred between the bank account designated on the Account
Application and your Fund account. Only a bank account maintained in a domestic
financial institution which is an Automated Clearing House member may be so
designated. TeleTrade purchases are effected at the net asset value (plus the
applicable sales load) next determined after receipt of an order in proper form
by the Transfer Agent. TeleTrade may not be available to certain clients of the
Adviser, its affiliates and certain Service Organizations. The Fund may modify
or terminate TeleTrade at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated. If you have selected
TeleTrade, you may request such a purchase of shares by telephoning the Transfer
Agent at 1-800-852-0045.
PURCHASE PRICE
CLASS A SHARES--The public offering price of Class A Shares of the
Aggressive Growth Portfolio, Growth Portfolio, Growth & Income Portfolio and
Moderate Growth & Income Portfolio is the net asset value per share of that
Class, plus a sales load shown below:
<PAGE>
TOTAL SALES LOAD
---------------------------------
DEALERS' REALLOWANCE
AMOUNT OF AS A % OF AS A % OF NET AS A % OF OFFERING
TRANSACTION OFFERING PRICE ASSET VALUE PRICE
- ----------- -------------- ------------- --------------------
Less than $50,000..... 4.75% 4.99% 4.28%
$50,000 to less than
$100,000......... 4.00% 4.17% 3.60%
$100,000 to less than
$250,000......... 3.25% 3.36% 2.93%
$250,000 to less than
$500,000......... 2.50% 2.56% 2.25%
$500,000 to less than
$1,000,000....... 1.75% 1.78% 1.58%
$1,000,000 or more.... -0- -0- -0-
The public offering price of Class A Shares of the Current Income Portfolio is
the net asset value per share of that Class, plus a sales load as shown below:
TOTAL SALES LOAD
------------------------------
AS A % OF AS A % OF DEALERS' REALLOWANCE
AMOUNT OF OFFERING NET ASSET AS A % OF OFFERING
TRANSACTION PRICE VALUE PRICE
- ----------------- ----------- -------------- ----------------------
Less than $50,000...... 3.00% 3.09% 2.70%
$50,000 to less than
$100,000........... 2.50% 2.56% 2.25%
$100,000 to less than
$250,000........... 2.00% 2.04% 1.80%
$250,000 to less than
$500,000........... 1.50% 1.52% 1.35%
$500,000 to less than
$1,000,000......... 1.00% 1.01% 0.90%
$1,000,000 or more..... -0- -0- -0-
A CDSC of 1% will be assessed at the time of redemption of Class A
Shares purchased without an initial sales charge as part of an investment of at
least $1,000,000 and redeemed within one year after purchase. BISYS may pay
Service Organizations an amount up to 1% of the net asset value of Class A
Shares purchased by their clients that are subject to a CDSC. The terms
contained in the section of the Prospectus entitled "How to Redeem
Shares--Contingent Deferred Sales Charge" (other than the amount of the CDSC and
time periods) are applicable to the Class A Shares subject to a CDSC. Letter of
Intent and Right of Accumulation apply to such purchases of Class A Shares.
The dealer reallowance may be changed from time to time but will remain
the same for all dealers. From time to time, BISYS may make or allow additional
payments or promotional incentives in the form of cash or other compensation to
dealers that sell Portfolio shares. Such compensation may include financial
assistance to dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising campaigns regarding
the Portfolios, and/or other dealer-sponsored special events. Compensation may
include payment for travel expenses, including lodging, to various locations for
meetings or seminars of a business nature. Compensation also may include the
following types of non-cash compensation offered through promotional contests:
(1) travel and lodging at vacation locations; (2) tickets for entertainment
events; and (3) merchandise. In some instances, these incentives may be offered
only to certain dealers who have sold or may sell significant amounts of
Portfolio shares. None of the aforementioned compensation is paid for by the
Fund, any Portfolio or its shareholders.
NO SALES LOAD--CLASS A SHARES--Class A Shares will be offered at net
asset value without a sales load to registered representatives of NASD member
firms which have entered into an agreement with BISYS pertaining to the sale of
Portfolio shares, full-time employees of the Adviser or BISYS, their spouses and
minor children, current and retired directors of the Adviser or Deposit Guaranty
National Bank or any of their affiliates, and accounts opened by a bank, trust
company or thrift institution which is acting as a fiduciary and has entered
into an agreement with BISYS pertaining to the sale of Portfolio shares,
provided that they have furnished BISYS appropriate notification of such status
at the time of the investment and with such information as BISYS may request
from time to time in order to verify eligibility for this privilege. This
privilege also applies to the Fund's Directors, fee-based financial planners and
registered investment advisers not affiliated with or clearing purchases through
full service broker/dealers, investment advisers regulated by Federal or state
governmental authority when such investment advisers purchase shares for their
own accounts or for accounts for which they are authorized to make investment
decisions (i.e., discretionary accounts), asset allocation programs offered by
the Adviser for its clients, and corporate/business retirement plans (such as
401(k), 403(b)(7), 457 and Keogh plans) sponsored by the Adviser, BISYS or their
affiliates or subsidiaries or pursuant to a payroll deduction system which makes
direct investments in a Portfolio by means of electronic data transmission in a
form acceptable to the Fund. The sales load is not charged on shares acquired
through the reinvestment of dividends or distributions or pursuant to the
Directed Distribution Plan or Reinstatement Privilege, described below.
RIGHT OF ACCUMULATION--CLASS A SHARES--Reduced sales loads apply to any
purchase of Class A Shares by you and any related "purchaser" as defined in the
Statement of Additional Information, where the aggregate investment in Class A
Shares among any of the Portfolios offered with a sales load, including such
purchase, is $50,000 or more. If, for example, you previously purchased and
still hold Class A Shares of the Current Income Portfolio, with an aggregate
current market value of $40,000 and subsequently purchase Class A Shares of the
Current Income Portfolio having a current value of $20,000, the sales load
applicable to the subsequent purchase would be reduced to 2.50% of the offering
price (2.56% of the net asset value). Class A Shares of the other Portfolios are
subject to different sales load schedules, as described above under "Purchase
Price--Class A Shares." All present holdings of Class A Shares may be combined
to determine the current offering price of the aggregate investment in
ascertaining the sales load applicable to each subsequent purchase. To qualify
for reduced sales loads, at the time of a purchase an investor or his Service
Organization must notify the Transfer Agent. The reduced sales load is subject
to confirmation of an investor's holdings through a check of appropriate
records.
CLASS B SHARES--The public offering price for Class B Shares is the net
asset value per share of that Class. No initial sales charge is imposed at the
time of purchase. A CDSC is imposed, however, on certain redemptions of Class B
Shares as described under "How to Redeem Shares." BISYS compensates certain
Service Organizations for selling Class B Shares at the time of purchase from
BISYS' own assets. The proceeds of the CDSC and the distribution fee, in part,
are used to defray these expenses.
TRUST SHARES--The public offering price for Trust Shares is the net
asset value per share of that Class.
HOW TO REDEEM SHARES
GENERAL
An investor who has purchased Class A or Class B Shares through an
account with the Adviser, its affiliates or a Service Organization, or Trust
Shares through a Fiduciary Account, must redeem shares by following instructions
pertaining to such account. With respect to Class A and Class B Shares, if such
investor also is the shareholder of record of the account on the books of the
Transfer Agent, the investor may redeem shares as described below under
"Procedures." Such investors wishing to use the other redemption methods
described below must arrange with the Adviser, its affiliates or the Service
Organization for delivery of the required application(s), to the Transfer Agent.
It is the responsibility of the Adviser, its affiliates, or the Service
Organization, as the case may be, to transmit the redemption order to the
Transfer Agent and credit the investor's account with the redemption proceeds on
a timely basis. Other investors may redeem all or part of their Class A or Class
B Shares in accordance with the procedures described below.
When a request is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund, the Fund will redeem
the shares at the next determined net asset value as described below. If you
hold Portfolio shares of more than one Class, any request for redemption must
specify the Class of shares being redeemed. If you fail to specify the Class of
shares to be redeemed or if you own fewer shares of the Class than specified to
be redeemed, the redemption request may be delayed until the Transfer Agent
receives further instructions from you or your Service Organization. The Fund
ordinarily will make payment for all shares redeemed within seven days after
receipt by the Transfer Agent of a redemption request in proper form, except as
provided by the rules of the Securities and Exchange Commission. HOWEVER, IF YOU
HAVE PURCHASED SHARES BY CHECK OR BY TELETRADE AND SUBSEQUENTLY SUBMIT A
REDEMPTION REQUEST BY MAIL, THE REDEMPTION PROCEEDS WILL NOT BE TRANSMITTED TO
YOU UNTIL BANK CLEARANCE OF THE CHECK OR TELETRADE PAYMENT USED FOR INVESTMENT
WHICH MAY TAKE UP TO SEVEN BUSINESS DAYS. THE FUND WILL NOT TRANSMIT REDEMPTION
PROCEEDS PURSUANT TO A REQUEST TO REDEEM SHARES BY WIRE FOR A PERIOD OF UP TO
SEVEN BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK OR
TELETRADE ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THIS PROCEDURE DOES
NOT APPLY TO SHARES PURCHASED BY WIRE PAYMENT.
The Fund imposes no charges when shares are redeemed. Class B Shares
and, in certain cases, Class A Shares, however, are subject to a CDSC. The
Adviser, its affiliates, Service Organizations and Institutions may charge their
clients a fee for effecting redemptions of Portfolio shares. The value of
Portfolio shares redeemed may be more or less than their original cost,
depending upon the Portfolio's then-current net asset value.
The Fund reserves the right to redeem an investor's account at its
option upon not less than 45 days' written notice if the net asset value of the
investor's account is $500 or less, for reasons other than market conditions,
and remains so during the notice period.
CONTINGENT DEFERRED SALES CHARGE
CLASS B SHARES--A CDSC payable to BISYS, as the Fund's distributor, is
imposed on any redemption of Class B Shares which reduces the current net asset
value of the investor's Class B Shares to an amount which is lower than the
dollar amount of all payments by the investor for the purchase of Class B Shares
of the relevant Portfolio held by the investor at the time of redemption. No
CDSC will be imposed to the extent that the net asset value of the Class B
Shares redeemed does not exceed (i) the current net asset value of Class B
Shares acquired through reinvestment of dividends or capital gain distributions,
plus (ii) increases in the net asset value of the investor's Class B Shares
above the dollar amount of all payments for the purchase of Class B Shares of
the Portfolio held by the investor at the time of redemption.
If the aggregate value of the Class B Shares redeemed has declined below
their original cost as a result of the Portfolio's performance, a CDSC may be
applied to the then-current net asset value rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge
will depend on the number of years from the time the investor purchased the
Class B Shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of Class B Shares, all payments during a month will be aggregated and deemed to
have been made on the first day of the month.
The following table sets forth the rates of the CDSC for Class B
Shares:
CDSC AS A % OF
YEAR SINCE AMOUNT INVESTED
PURCHASE PAYMENT OR REDEMPTION
WAS MADE PROCEEDS
- ---------------- ---------------
First........................................................ 4.00
Second....................................................... 3.00
Third........................................................ 3.00
Fourth....................................................... 2.00
Fifth........................................................ 2.00
Sixth........................................................ 1.00
Seventh...................................................... 0.00
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
Therefore, it will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value of
Class B Shares above the total amount of payments for the purchase of Class B
Shares made during the preceding six years; then of amounts representing the
cost of shares purchased six years prior to the redemption; and finally, of
amounts representing the cost of shares held for the longest period of time
within the applicable six-year period.
For example, assume an investor purchased 100 shares at $10 per share
for a cost of $1,000. Subsequently, the shareholder acquired 5 additional shares
through dividend reinvestment. During the second year after the purchase the
investor decided to redeem $500 of his or her investment. Assuming at the time
of the redemption the net asset value had appreciated to $12 per share, the
value of the investor's shares would be $1,260 (105 shares at $12 per share).
The CDSC would not be applied to the value of the reinvested dividend shares and
the amount which represents appreciation ($260). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 3% (the
applicable rate in the second year after purchase) for a total CDSC of $7.20.
BISYS compensates certain Service Organizations for selling Class B
Shares at the time of purchase from BISYS' own assets. The proceeds of the CDSC
and distribution fee, in part, are used to defray these expenses.
WAIVER OF CDSC--The CDSC may be waived in connection with (a)
redemptions made within one year after the death or disability, as defined in
Section 72(m)(7) of the Code, of the shareholder, (b) redemptions by
participants in qualified or non-qualified employee benefit plans or other
programs (such as 401(k), 403(b)(7), 457 and Keogh plans) sponsored by the
Adviser, BISYS or their affiliates or subsidiaries or which make direct
investments in the Portfolio by means of electronic data transmission, (c)
redemptions as a result of a combination of any investment company with the
Portfolio by merger, acquisition of assets or otherwise, (d) a distribution
following retirement under a tax-deferred retirement plan or upon attaining age
70-1/2 in the case of an IRA or Keogh plan or custodial account pursuant to
Section 403(b) of the Code, and (e) redemptions pursuant to the Automatic
Withdrawal Plan, as described in the Portfolios' Prospectus. Any Portfolio
shares subject to a CDSC which were purchased prior to the termination of such
waiver will have the CDSC waived as provided in the Portfolios' Prospectus at
the time of the purchase of such shares.
CONVERSION OF CLASS B SHARES--Approximately seven years after the date
of purchase, Class B Shares automatically will convert to Class A Shares, based
on the relative net asset values for shares of each such Class, and will no
longer be subject to the distribution fee and shareholder services fee charged
Class B Shares, but will be subject to the distribution fee charged Class A
Shares. At that time, Class B Shares that have been acquired through the
reinvestment of dividends and distributions ("Dividend Shares") will be
converted in the proportion that a shareholder's Class B Shares (other than
Dividend Shares) converting to Class A Shares bears to the total Class B Shares
then held by the shareholder which were not acquired through the reinvestment of
dividends and distributions.
PROCEDURES
WRITTEN ORDERS--CLASS A AND CLASS B SHARES--Written requests for
redemption, indicating the name of the Portfolio and that Class A or Class B
Shares are being redeemed, with signature appropriately guaranteed, if required,
and otherwise in accordance with the requirements listed below, should be mailed
to The ISG Funds, c/o BISYS Fund Services, Inc., Department L-1686, Columbus,
Ohio 43260-1686.
WIRE REDEMPTION PRIVILEGE--CLASS A AND CLASS B Shares--After appropriate
prior authorization, you may request by telephone or in writing that redemption
proceeds be transmitted by the Transfer Agent via Federal Funds wire transfer to
your bank account. Redemption requests must be in an amount of at least $1,000.
The Fund reserves the right to refuse any request for a wire transfer and may
limit the amount involved or the number of telephone redemption requests. This
Privilege may be modified or terminated at any time by the Transfer Agent or the
Fund.
TELETRADE--CLASS A AND CLASS B SHARES--You may redeem shares (minimum
$500, maximum $50,000 per transaction) by telephone if you have checked the
appropriate box and supplied the necessary information on the Fund's Account
Application. The proceeds will be transferred between your Fund account and the
bank account designated on the Account Application. Only a bank account
maintained in a domestic financial institution which is an Automated Clearing
House member may be so designated. Redemption proceeds will be on deposit in
your account at an Automated Clearing House member bank ordinarily two days
after receipt of the redemption request. The Fund may modify or terminate
TeleTrade at any time or charge a service fee upon notice to shareholders. No
such fee currently is contemplated. If you have selected TeleTrade, you may
request such a redemption of shares by telephoning the Transfer Agent at
1-800-852-0045.
REDEMPTION REQUIREMENTS
Written redemption instructions, indicating the name of the Portfolio
and that Class A or Class B Shares are being redeemed, must be received by the
Transfer Agent in proper form and signed exactly as the shares are registered.
Except as noted below, all signatures must be guaranteed. The Transfer Agent has
adopted standards and procedures pursuant to which signature-guarantees in
proper form generally will be accepted from domestic banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program, the
Securities Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges
Medallion Program. Signature-guarantees may not be provided by notaries public.
The signature guarantee requirement will be waived if the following conditions
apply: (1) the redemption check is payable to the shareholder(s) of record; and
(2) the redemption check is mailed to the shareholder(s) at the address of
record or the proceeds are either mailed or wired to a financial institution
account previously designated. Redemption requests by corporate and fiduciary
shareholders must be accompanied by appropriate documentation establishing the
authority of the person seeking to act on behalf of the account. You may obtain
from the Fund or the Transfer Agent forms of resolutions and other documentation
which have been prepared in advance to assist compliance with the Fund's
procedures.
You may redeem or exchange Portfolio shares by telephone if you have
checked the appropriate box on the Fund's Account Application. By selecting a
telephone redemption or exchange privilege, an investor authorizes the Transfer
Agent to act on telephone instructions from any person representing himself or
herself to be the investor, or a representative of the investor's Service
Organization or Institution, and reasonably believed by the Transfer Agent to be
genuine. The Fund will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, the Fund or
the Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions. Neither the Fund nor the Transfer Agent will be liable
for following telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, investors may
experience difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the investor's redemption request
being processed at a later time than it would have been if telephone redemption
had been used. During the delay, the Portfolio's net asset value may fluctuate.
SHAREHOLDER PRIVILEGES
The services and privileges described under this heading may not be
available to certain clients of the Adviser, its affiliates, certain Service
Organizations and Institutions, and the Adviser, its affiliates, some Service
Organizations and Institutions may impose certain conditions on their clients
which are different from those described in this Prospectus. Such investors
should consult the Adviser, its affiliates, their Service Organization or
Institution in this regard.
EXCHANGE PRIVILEGE
The Exchange Privilege enables you to purchase, in exchange for shares
of a Portfolio, shares of the same class of another mutual fund advised by the
Adviser or ParkSouth, to the extent such shares are offered for sale in your
state of residence. If you desire to use this Privilege, you should consult the
Adviser, its affiliate or Institution where you maintain your account, your
Service Organization or BISYS to determine if it is available and whether any
conditions are imposed on its use.
To use the Exchange Privilege, you or your Service Organization or
Institution acting on your behalf must give exchange instructions to the
Transfer Agent in writing or by telephone, or in accordance with the
instructions pertaining to your account at the Adviser or its affiliates. If you
previously established the Telephone Exchange Privilege, you may telephone
exchange instructions by calling 1-800-852-0045. See "How to Redeem
Shares--Redemption Requirements." Before any exchange into a fund offered by
another prospectus, you must obtain and should review a copy of the current
prospectus of the fund into which the exchange is being made. Prospectuses may
be obtained from the Adviser, its affiliates, certain Service Organizations, the
investor's Institution or BISYS. The shares being exchanged must have a current
value of at least $500; furthermore, when establishing a new account by
exchange, the shares being exchanged must have a value of at least the minimum
initial investment required for the Portfolio into which the exchange is being
made.
Shares will be exchanged at the next determined net asset value;
however, a sales load, which may be waived or reduced as described below, may be
charged with respect to exchanges of Class A Shares. No CDSC will be imposed on
Class B Shares at the time of an exchange; however, shares acquired through an
exchange will be subject to the CDSC applicable to the exchanged or acquired
shares. The CDSC applicable on redemption of the acquired shares will be
calculated from the date of the initial purchase of the Class B Shares
exchanged. If you are exchanging Class A Shares into a Portfolio that charges a
sales load, you may qualify for share prices which do not include the sales load
or which reflect a reduced sales load, if the shares you are exchanging were:
(a) purchased with a sales load, (b) acquired by a previous exchange from shares
purchased with a sales load, or (c) acquired through reinvestment of dividends
or distributions paid with respect to the foregoing categories of shares. No
fees currently are charged shareholders directly in connection with exchanges
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal administrative fee in accordance with
rules promulgated by the Securities and Exchange Commission. The Fund reserves
the right to reject any exchange request in whole or in part. The Exchange
Privilege may be modified or terminated at any time upon notice to shareholders.
The exchange of shares of one Portfolio for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan permits you to purchase Class A or Class B
Shares (minimum initial investment of $1,000 and minimum subsequent investments
of $100 per transaction) at regular intervals selected by you. Provided your
bank or other financial institution allows automatic withdrawals, Class A or
Class B Shares may be purchased by transferring funds from the bank account
designated by you. At your option, the account designated will be debited in the
specified amount, and Class A or Class B Shares will be purchased, once a month,
on either the first or fifteenth day, or twice a month, on both days. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. This service enables you to make
regularly scheduled investments and may provide you with a convenient way to
invest for long-term financial goals. You should be aware, however, that
periodic investment plans do not guarantee a profit and will not protect an
investor against loss in a declining market. To establish an Automatic
Investment Plan account, you must check the appropriate box and supply the
necessary information on the Account Application. You may obtain the necessary
applications from BISYS. You may cancel your participation in the Automatic
Investment Plan or change the amount of purchase at any time by mailing written
notification to The ISG Funds, c/o BISYS Fund Services, Inc., Department L-1686,
Columbus, Ohio 43260-1686, and such notification will be effective three
business days following receipt. The Fund may modify or terminate the Automatic
Investment Plan at any time or charge a service fee. No such fee currently is
contemplated.
DIRECTED DISTRIBUTION PLAN
The Directed Distribution Plan enables you to invest automatically
dividends and capital gain distributions, if any, paid by a Portfolio in Class A
or Class B Shares of another Portfolio of which you are a shareholder. Class A
or Class B Shares of the other Portfolio will be purchased at the then-current
net asset value. Minimum subsequent investments do not apply. Investors desiring
to participate in the Directed Distribution Plan should check the appropriate
box and supply the necessary information on the Account Application. The Plan is
available only for existing accounts and may not be used to open new accounts.
The Fund may modify or terminate the Directed Distribution Plan at any time or
charge a service fee. No such fee currently is contemplated.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50), with respect to Class A or Class B
Shares, on either a monthly, quarterly, semi-annual or annual basis if you have
a $5,000 minimum account. The automatic withdrawal will be made on the first or
fifteenth day, at your option, of the period selected. To participate in the
Automatic Withdrawal Plan, you must check the appropriate box and supply the
necessary information on the Account Application. The Automatic Withdrawal Plan
may be ended at any time by the investor, the Fund or the Transfer Agent.
No CDSC with respect to Class B Shares will be imposed on withdrawals
made under the Automatic Withdrawal Plan, provided that the amounts withdrawn
under the plan do not exceed on an annual basis 10% of the account value at the
time the shareholder elects to participate in the Automatic Withdrawal Plan.
Withdrawals with respect to Class B Shares under the Automatic Withdrawal Plan
that exceed on an annual basis 10% of the value of the shareholder's account
will be subject to a CDSC on the amounts exceeding 10% of the initial account
value. Purchases of additional Class A Shares where the sales load is imposed
concurrently with withdrawals of Class A Shares generally are undesirable.
REINSTATEMENT PRIVILEGE
The Reinstatement Privilege enables investors who have redeemed Class A
or Class B Shares to repurchase, within 90 days of such redemption, Class A or
Class B Shares of a Portfolio in an amount not to exceed the redemption proceeds
received at a purchase price equal to the then-current net asset value
determined after a reinstatement request and payment are received by the
Transfer Agent. This privilege also enables such investors to reinstate their
account for the purpose of exercising the Exchange Privilege. Upon reinstatement
for Class B Shares, the investor's account will be credited with an amount equal
to the CDSC previously paid upon redemption of the Class B Shares reinvested. To
use the Reinstatement Privilege, you must submit a written reinstatement request
to the Transfer Agent. The reinstatement request and payment must be received
within 90 days of the trade date of the redemption. There currently are no
restrictions on the number of times an investor may use this privilege.
LETTER OF INTENT
By signing a Letter of Intent form, available from BISYS or certain
Service Organizations, you become eligible for the reduced sales load applicable
to the total number of Class A Shares purchased in a 13-month period (beginning
up to 90 days prior to the date of execution of the Letter of Intent) pursuant
to the terms and conditions set forth in the Letter of Intent. A minimum initial
purchase of $5,000 is required. To compute the applicable sales load, the
offering price of shares you hold (on the date of submission of the Letter of
Intent) in any Portfolio that may be used toward "Right of Accumulation"
benefits described above may be used as a credit toward completion of the Letter
of Intent.
The Transfer Agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if the investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when the investor fulfills the terms of the Letter of Intent by
purchasing the specified amount. Assuming completion of the total minimum
investment specified under a Letter of Intent, an adjustment will be made to
reflect any reduced sales load applicable to shares purchased during the 90-day
period prior to the submission of the Letter of Intent. In addition, if the
investor's purchases qualify for a further sales load reduction, the sales load
will be adjusted to reflect the investor's total purchase at the end of 13
months.
If total purchases are less than the amount specified, the investor will
be requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A Shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind the investor to purchase, or the Fund
to sell, the full amount indicated at the sales load in effect at the time of
signing, but the investor must complete the intended purchase to obtain the
reduced sales load. At the time you purchase Class A Shares, you must indicate
your intention to do so under a Letter of Intent. Purchases pursuant to a Letter
of Intent will be made at the then-current net asset value plus the applicable
sales load in effect at the time such Letter of Intent was executed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
AGGRESSIVE GROWTH, GROWTH, GROWTH & INCOME AND MODERATE GROWTH & INCOME
PORTFOLIOS--Declare and pay dividends from net investment income quarterly and
distribute any net capital gain annually.
CURRENT INCOME PORTFOLIO--Declares and pays dividends from net
investment income monthly and distributes any net capital gain annually.
APPLICABLE TO ALL PORTFOLIOS--Each Portfolio will make distributions
from net realized securities gains, if any, once a year, but may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act. No Portfolio will make distributions from net
realized securities gains unless capital loss carryovers, if any, have been
utilized or have expired. Dividends are automatically reinvested in additional
Portfolio shares of the same class from which they were paid at net asset value,
unless payment in cash is requested. If all shares in an account are redeemed at
any time, all dividends to which the shareholder is entitled will be paid along
with the proceeds of the redemption. Dividends paid by each class of shares of a
Portfolio will be calculated at the same time and in the same manner and will be
of the same amount, except that the expenses attributable solely to a class will
be borne exclusively by such class.
If you elect to receive distributions in cash and your distribution
checks (1) are returned to the Fund marked "undeliverable" or (2) remain
uncashed for six months, your cash election will be changed automatically and
your future dividend and capital gains distributions will be reinvested in
Portfolio shares at the net asset value determined as of the date of payment of
the distribution. In addition, any such undeliverable checks or checks that
remain uncashed for six months will be canceled and will be reinvested in
Portfolio shares at the net asset value determined as of the date of
cancellation.
Dividends paid by each Portfolio derived from interest generally are
taxable to U.S. investors as ordinary income for Federal income tax purposes,
whether received in cash or reinvested in additional Portfolio shares.
Distributions from net realized long-term securities gains, if any, generally
are taxable to U.S. investors as long-term capital gains for Federal income tax
purposes, regardless of how long shareholders have held their shares and whether
such distributions are received in cash or reinvested in additional Portfolio
shares. The Code provides that an individual generally will be taxed on his or
her net capital gain at a maximum rate of 20% with respect to capital gains from
securities held for more than 12 months. Dividends and distributions may be
subject to state and local taxes.
Dividends derived from net investment income paid by a Portfolio to a
foreign investor generally are subject to U.S. nonresident withholding taxes at
the rate of 30%, unless the foreign investor claims the benefits of a lower rate
specified in a tax treaty. Distributions from net realized long-term securities
gains paid by a Portfolio to a foreign investor, as well as the proceeds of any
redemptions from a foreign investor's account, regardless of the extent to which
gain or loss may be realized, will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
The Code provides for the "carryover" of some or all of the sales load
imposed on Class A Shares if an investor exchanges his or her Class A Shares for
shares of another Portfolio within 91 days of purchase and such other Portfolio
reduces or eliminates its otherwise applicable sales load charge for the purpose
of the exchange. In this case, the amount of the sales load charged the investor
for Class A Shares, up to the amount of the reduction of the sales load charged
on the exchange, is not included in the basis of the investor's Class A Shares
for purposes of computing gain or loss on the exchange, and instead is added to
the basis of the shares received on the exchange.
Notice as to the tax status of your dividends and distributions will be
mailed to you annually. You also will receive periodic summaries of your account
which will include information as to dividends and distributions from securities
gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
Federal income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or if
a shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return.
A TIN is either the Social Security number, IRS individual taxpayer
identification number, or employer identification number of the record owner of
the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account, and may
be claimed as a credit on the record owner's Federal income tax return.
The Adviser expects that each Portfolio will qualify as a "regulated
investment company" under the Code so long as such qualification is in the best
interests of its shareholders. Qualification as a regulated investment company
relieves the Portfolio of any liability for Federal income tax to the extent its
earnings are distributed in accordance with applicable provisions of the Code.
Each Portfolio is subject to a non-deductible 4% excise tax, measured with
respect to certain undistributed amounts of taxable investment income and
capital gains.
You should consult your tax adviser regarding specific questions as to
Federal, state or local taxes.
PERFORMANCE INFORMATION
AGGRESSIVE GROWTH AND GROWTH PORTFOLIOS--For purposes of advertising,
performance will be calculated on the bases of average annual total return
and/or total return. Average annual total return is calculated pursuant to a
standardized formula which assumes that an investment in the Portfolio was
purchased with an initial payment of $1,000 and that the investment was redeemed
at the end of a stated period of time, after giving effect to the reinvestment
of dividends and distributions during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would result in
the redeemable value of the investment at the end of the period. Advertisements
of a Portfolio's performance will include the Portfolio's average annual total
return for one, five and ten year periods, or for shorter time periods depending
upon the length of time the Portfolio has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is expressed
as a percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the net asset value (or maximum
offering price in the case of Class A Shares) per share at the beginning of the
period. Advertisements may include the percentage rate of total return or may
include the value of a hypothetical investment at the end of the period which
assumes the application of the percentage rate of total return. Total return
also may be calculated by using the net asset value per share at the beginning
of the period instead of the maximum offering price per share at the beginning
of the period for Class A Shares or without giving effect to any applicable CDSC
at the end of the period for Class B Shares. Calculations based on the net asset
value per share do not reflect the deduction of the applicable sales charge,
which, if reflected, would reduce the performance quoted.
GROWTH & INCOME, MODERATE GROWTH & INCOME AND CURRENT INCOME
PORTFOLIOS--For purposes of advertising, performance will be calculated on
several bases, including current yield, average annual total return and/or total
return. Current yield refers to the Portfolio's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset value
per share at the end of the period. For purposes of calculating current yield,
the amount of net investment income per share during that 30-day period,
computed in accordance with regulatory requirements, is compounded by assuming
that it is reinvested at a constant rate over a six-month period. An identical
result is then assumed to have occurred during a second six-month period which,
when added to the result for the first six months, provides an "annualized"
yield for an entire one-year period.
Average annual total return and total return will be calculated as
described above.
APPLICABLE TO ALL PORTFOLIOS--Performance will vary from time to time
and past results are not necessarily representative of future results. Investors
should remember that performance is a function of portfolio management in
selecting the type and quality of portfolio securities and is affected by
operating expenses. The fees payable by Class B Shares, absent fee waivers or
expense reimbursement, are higher than those payable by Class A Shares which, in
turn, are higher than those payable by Trust Shares. As a result, at any given
time, the performance of Class B Shares should be expected to be lower than that
of Class A Shares and the performance of Class A Shares and Class B Shares
should be expected to be lower than that of Trust Shares. Performance
information, such as that described above, may not provide a basis for
comparison with other investments or other investment companies using a
different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing each Portfolio's shares, including data from Lipper
Analytical Services, Inc., Morningstar, Inc., Lehman Brothers Aggregate Bond
Index and components thereof, S&P 500 Index, Russell 2000 Index, the Dow Jones
Industrial Average, CDA/Wiesenberger Investment Companies Service, Mutual Fund
Values; Mutual Fund Forecaster, Mutual Fund Investing and other industry
publications.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 6, 1990, and
commenced operations on August 28, 1990.
The Fund is authorized to issue 25 billion shares of Common Stock (with
750 million shares allocated to each Portfolio), par value $.001 per share. Each
Portfolio's shares are classified into Class A Shares (250 million), Class B
Shares (250 million) and Trust Shares (250 million). Each share has one vote and
shareholders will vote in the aggregate and not by Class except as otherwise
required by law.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Directors or the
appointment of auditors. However, the holders of at least 10% of the shares
outstanding and entitled to vote may require the Fund to hold a special meeting
of shareholders for purposes of removing a Director from office. Shareholders
may remove a Director by the affirmative vote of a majority of the Fund's
outstanding voting shares. In addition, the Board of Directors will call a
meeting of shareholders for the purpose of electing Directors if, at any time,
less than a majority of the Directors then holding office have been elected by
shareholders.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for certain
matters under the 1940 Act and for other purposes. A shareholder of one
portfolio is not deemed to be a shareholder of any other portfolio. For certain
matters Fund shareholders vote together as a group; as to others they vote
separately by portfolio. From time to time, other portfolios may be established
and sold pursuant to other offering documents. The Fund's corporate Charter
established the Portfolios under the name AmeriStar.
To date, 25 portfolios have been authorized. The other portfolios are
not being offered by this Prospectus. All consideration received by the Fund for
shares of one of the portfolios, and all assets in which such consideration is
invested, belong to that portfolio (subject only to the rights of creditors of
the Fund) and will be subject to the liabilities related thereto. The income
attributable to, and expenses of, one portfolio are treated separately from
those of the other portfolios.
The Transfer Agent maintains a record of each investor's ownership and
sends confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
<PAGE>
APPENDIX
PORTFOLIO SECURITIES
To the extent set forth in this Prospectus, each Underlying Portfolio
may invest in the securities described below. For purposes of this Appendix
only, the term "Portfolio" shall mean an Underlying Portfolio.
MONEY MARKET INSTRUMENTS
U.S. TREASURY SECURITIES--Each Portfolio may invest in U.S. Treasury
securities which include Treasury Bills, Treasury Notes and Treasury Bonds that
differ in their interest rates, maturities and times of issuance. Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of greater than ten years.
U.S. GOVERNMENT SECURITIES--In addition to U.S. Treasury securities,
each Portfolio may invest in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, by the right of the issuer to borrow from
the Treasury; others, such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of the
agency or instrumentality. These securities bear fixed, floating or variable
rates of interest. Principal and interest may fluctuate based on generally
recognized reference rates or the relationship of rates. While the U.S.
Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law. Each Portfolio will invest in such
securities only when it is satisfied that the credit risk with respect to the
issuer is minimal.
BANK OBLIGATIONS--Each Portfolio may invest in bank obligations (other
than those issued by the Adviser or its affiliates), including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries or foreign branches of domestic banks, and
domestic branches of foreign banks, domestic savings and loan associations and
other banking institutions. With respect to such securities issued by foreign
subsidiaries or foreign branches of domestic banks, and domestic branches of
foreign banks, a Portfolio may be subject to additional investment risks that
are different in some respects from those incurred by a fund which invests only
in debt obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities, the possible seizure or nationalization of foreign deposits
and the possible subordination of deposits in foreign branches to receivership
expenses and U.S. office deposits in the event of insolvency. See "Description
of the Portfolios--Investment Considerations and Risk Factors--Foreign
Securities Risk."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Portfolio will not benefit from insurance from
the Bank Insurance Fund or the Savings Association Insurance Fund administered
by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of
a bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE Obligations--Each
Portfolio may invest in commercial paper, which consists of short-term,
unsecured promissory notes issued to finance short-term credit needs. The
commercial paper purchased by the Portfolios will consist only of direct
obligations which, at the time of their purchase, are (a) rated not lower than
Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, or (b) issued by
companies having an outstanding unsecured debt issue currently rated not lower
than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated, determined
by the Portfolio's adviser to be of comparable quality to those rated
obligations which may be purchased by such Portfolio.
REPURCHASE AGREEMENTS--Each Portfolio may enter into repurchase
agreements, which involve the acquisition by a Portfolio of an underlying debt
instrument, subject to an obligation of the seller to repurchase, and such
Portfolio to resell, the instrument at a fixed price usually not more than one
week after its purchase. Certain costs may be incurred by a Portfolio in
connection with the sale of the securities if the seller does not repurchase
them in accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by a Portfolio may be delayed or limited. Each
Portfolio will consider on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase agreements.
ZERO COUPON AND STRIPPED SECURITIES--Each Portfolio may invest in zero
coupon U.S. Treasury securities, which are Treasury Notes and Bonds that have
been stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Each Portfolio, except the Prime Money Market
Portfolio, also may invest in zero coupon securities issued by corporations and
financial institutions which constitute a proportionate ownership of the
issuer's pool of underlying U.S. Treasury securities. A zero coupon security
pays no interest to its holder during its life and is sold at a discount to its
face value at maturity. The amount of the discount fluctuates with the market
price of the security. The market prices of zero coupon securities generally are
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL
ENTITIES--Each Portfolio may invest in obligations issued or guaranteed by one
or more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Portfolio's adviser to be of
comparable quality to the other obligations in which the Portfolio may invest.
Such securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of a
Portfolio's assets invested in securities issued by foreign governments will
vary depending on the relative yields of such securities, the economic and
financial markets of the countries in which the investments are made and the
interest rate climate of such countries.
FLOATING AND VARIABLE RATE OBLIGATIONS--Each Portfolio may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 397 days, but which permit the
holder to demand payment of principal at any time, or at specified intervals.
Variable rate demand notes include master demand notes which are obligations
that permit the Portfolio to invest fluctuating amounts, at varying rates of
interest, pursuant to direct arrangements between the Portfolio, as lender, and
the borrower. These obligations permit daily changes in the amount borrowed.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and a Portfolio may invest in obligations which are not
so rated only if the Portfolio's adviser determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which the Portfolio may invest. The Portfolio's adviser, on behalf of the
Portfolio, will consider on an ongoing basis the creditworthiness of the issuers
of the floating and variable rate demand obligations purchased by such
Portfolio.
NOTES--Each Portfolio may purchase unsecured promissory notes ("Notes")
which are not readily marketable and have not been registered under the
Securities Act of 1933, as amended, provided such investments are consistent
with its investment objective.
PARTICIPATION INTERESTS AND TRUST RECEIPTS--Each Portfolio may purchase
from financial institutions and trusts created by such institutions
participation interests and trust receipts in securities in which it may invest
and may enter into loan participation agreements. A participation interest or
receipt gives the Portfolio an undivided interest in the security in the
proportion that the Portfolio's participation interest or receipt bears to the
total principal amount of the security. These instruments may have fixed,
floating or variable rates of interest with remaining maturities of 397 days or
less. If the instrument is unrated, or has been given a rating below that which
is permissible for purchase by the Portfolio, the instrument will be backed by
an irrevocable letter of credit or guarantee of a bank or other entity the debt
securities of which are rated high quality, or the payment obligation otherwise
will be collateralized by U.S. Government securities, or, in the case of unrated
instruments, the Portfolio's adviser, acting upon delegated authority from the
Fund's Board of Directors, must have determined that the instrument is of
comparable quality to those instruments in which the Portfolio may invest.
Participation interests or trust receipts with a rating below high quality that
are backed by an irrevocable letter of credit or guarantee as described above
will be purchased only if the Portfolio's adviser, acting as described above,
determines after an analysis of, among other factors, the creditworthiness of
the guarantor that such instrument is high quality, and if the rating agency did
not include the letter of credit or guarantee in its determination of the
instrument's rating. If the rating of a participation interest or trust receipt
is reduced subsequent to its purchase by the Portfolio, the Portfolio's adviser
will consider, in accordance with procedures established by the Board of
Directors, all circumstances deemed relevant in determining whether the
Portfolio should continue to hold the instrument. The guarantor of a
participation interest or trust receipt will be treated as a separate issuer.
For certain participation interests and trust receipts, the Portfolio will have
the unconditional right to demand payment, on not more than seven days' notice,
for all or any part of the Portfolio's interest in the security, plus accrued
interest. As to these instruments, the Portfolio intends to exercise its right
to demand payment only upon a default under the terms of the security, as needed
to provide liquidity to meet redemptions, or to maintain or improve the quality
of its investment portfolio.
GUARANTEED INVESTMENT CONTRACTS--Each Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Pursuant to such a contract, the Portfolio would make
cash contributions to a deposit fund of the insurance company's general account.
The insurance company would then credit to the Portfolio on a monthly basis
interest which is based on an index (in most cases the Salomon Smith Barney CD
Index), but is guaranteed not to be less than a certain minimum rate. The Prime
Money Market Portfolio currently does not expect to invest more than 5% of its
net assets in GICs.
ILLIQUID SECURITIES--(All Portfolios) The Equity Fund, Opportunity Fund and
International Equity Fund each may invest up to 15%, and the Capital Growth
Portfolio, Dividend Growth Portfolio, Limited Duration Income Portfolio, Core
Income Portfolio and Prime Money Market Portfolio each may invest up to 10%, of
the value of its net assets in securities as to which a liquid trading market
does not exist, provided such investments are consistent with its investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or contractual
restrictions on resale, certain privately negotiated, non-exchange traded
options and securities used to cover such options, certain mortgage-backed
securities, floating and variable rate demand obligations as to which the
Portfolio cannot exercise the related demand feature described above on not more
than seven days' notice and as to which there is no secondary market and
repurchase agreements providing for settlement in more than seven days after
notice. As to these securities, the Portfolio is subject to a risk that should
the Portfolio desire to sell them when a ready buyer is not available at a price
the Portfolio deems representative of their value, the value of the Portfolio's
net assets could be adversely affected.
MORTGAGE-RELATED SECURITIES--(Capital Growth Portfolio, Dividend Growth
Portfolio, Limited Duration Income Portfolio and Core Income Portfolio)
Mortgage-related securities are a form of Derivative collateralized by pools of
commercial or residential mortgages. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related
and private organizations. These securities may include complex instruments such
as collateralized mortgage obligations, stripped mortgage-backed securities,
mortgage pass-through securities, interests in real estate mortgage investment
conduits ("REMICs"), adjustable rate mortgages, real estate investment trusts
("REITs"), including debt and preferred stock issued by REITs, as well as other
real estate-related securities. The mortgage-related securities in which the
Portfolio may invest include those with fixed, floating or variable interest
rates, those with interest rates that change based on multiples of changes in a
specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest. Stripped mortgage-backed securities usually are structured with two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage-backed securities or whole loans. A common
type of stripped mortgage-backed security will have one class receiving some of
the interest and most of the principal from the mortgage collateral, while the
other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the interest
(the interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class).
Mortgage-related securities are subject to credit risks associated with
the performance of the underlying mortgage properties. Adverse changes in
economic conditions and circumstances are more likely to have an adverse impact
on mortgage-related securities secured by loans on certain types of commercial
properties than on those secured by loans on residential properties. In
addition, these securities are subject to prepayment risk, although commercial
mortgages typically have shorter maturities than residential mortgages and
prepayment protection features. In certain instances, the credit risk associated
with mortgage-related securities can be reduced by third party guarantees or
other forms of credit support. Improved credit risk does not reduce prepayment
risk which is unrelated to the rating assigned to the mortgage-related security.
Prepayment risk can lead to fluctuations in value of the mortgage-related
security which may be pronounced. If a mortgage-related security is purchased at
a premium, all or part of the premium may be lost if there is a decline in the
market value of the security, whether resulting from changes in interest rates
or prepayments in the underlying mortgage collateral. Certain mortgage-related
securities that may be purchased by these Portfolios, such as inverse floating
rate collateralized mortgage obligations, have coupons that move inversely to a
multiple of a specific index which may result in a form of leverage. As with
other interest-bearing securities, the prices of certain mortgage-related
securities are inversely affected by changes in interest rates. However, though
the value of a mortgage-related security may decline when interest rates rise,
the converse is not necessarily true, since in periods of declining interest
rates the mortgages underlying the security are more likely to be prepaid. For
this and other reasons, a mortgage-related security's stated maturity may be
shortened by unscheduled prepayments on the underlying mortgages, and,
therefore, it is not possible to predict accurately the security's return to the
Portfolio. Moreover, with respect to certain stripped mortgage-backed
securities, if the underlying mortgage securities experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment in these securities even if the securities are rated in the
highest rating category by a nationally recognized statistical rating
organization. During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity which generally would cause the value of such security to fluctuate
more widely in response to changes in interest rates. Were the prepayments on
the Portfolio's mortgage-related securities to decrease broadly, the Portfolio's
effective duration, and thus sensitivity to interest rate fluctuations, would
increase. For further discussion concerning the investment considerations
involved, see "Description of the Portfolios--Investment Considerations and Risk
Factors--Fixed-Income Securities" and "Illiquid Securities" above and
"Investment Objectives and Management Policies--Portfolio
Securities--Mortgage-Related Securities" in the Statement of Additional
Information.
ASSET-BACKED SECURITIES--(Capital Growth Portfolio, Dividend Growth Portfolio,
Limited Duration Income Portfolio, Core Income Portfolio and Prime Money Market
Portfolio) Asset-backed securities are a form of Derivative. The securitization
techniques used for asset-backed securities are similar to those used for
mortgage-related securities. These securities include debt securities and
securities with debt-like characteristics. The collateral for these securities
has included home equity loans, automobile and credit card receivables, boat
loans, computer leases, airplane leases, mobile home loans, recreational vehicle
loans and hospital account receivables. Each of these Portfolios may invest in
these and other types of asset-backed securities that may be developed in the
future.
The Prime Money Market Portfolio may purchase asset-backed securities
issued by special purpose entities whose primary assets consist of a pool of
mortgages, loans, receivables or other assets. Payment of principal and interest
may depend largely on the cash flows generated by the assets backing the
securities and, in certain cases, supported by letters of credit, surety bonds
or other forms of credit or liquidity enhancements. The value of asset-backed
securities also may be affected by the creditworthiness of the servicing agent
for the pool of assets, the originator of the loans or receivables or the
financial institution providing the credit support.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may provide the
Portfolio with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available to
support payments on these securities.
AMERICAN DEPOSITARY RECEIPTS--(Capital Growth Portfolio, Dividend Growth
Portfolio, Equity Fund, Opportunity Fund and International Equity Fund) Each of
these Portfolios' assets may be invested in the securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"). These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. Generally, ADRs in registered form are designed for
use in the United States securities markets. Each of these Portfolios may invest
in ADRs through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the underlying security and a depositary,
whereas a depositary may establish an unsponsored facility without participation
by the issuer of the deposited security. Holders of unsponsored depositary
receipts generally bear all the costs of such facilities and 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 voting rights to the holders of such receipts in respect of the
deposited securities.
CONVERTIBLE SECURITIES--(Capital Growth Portfolio, Dividend Growth Portfolio,
Equity Fund, Opportunity Fund, International Equity Fund, Limited Duration
Income Portfolio and Core Income Portfolio) Convertible securities may be
converted at a stated price within a specified period of time into a specified
number of shares of common stock of the same or a different issuer. Convertible
securities are senior to common stock in a corporation's capital structure, but
usually are subordinated to non-convertible debt securities. While providing a
fixed-income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible debt security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible.
WARRANTS--(Capital Growth Portfolio, Dividend Growth Portfolio, Equity Fund,
Opportunity Fund and International Equity Portfolio) Each of these Portfolios
may invest up to 5% of its net assets in warrants, except that this limitation
does not apply to warrants acquired in units or attached to securities. A
warrant is an instrument issued by a corporation which gives the holder the
right to subscribe to a specified amount of the corporation's capital stock at a
set price for a specified period of time.
MUNICIPAL OBLIGATIONS--(Limited Duration Income Portfolio, Core Income Portfolio
and, to a limited extent, Prime Money Market Portfolio) Municipal Obligations
are debt obligations issued by states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, or multistate agencies or authorities. While in general,
Municipal Obligations are tax exempt securities having relatively low yields as
compared to taxable, non-municipal obligations of similar quality, certain
issues of Municipal Obligations, both taxable and non-taxable, offer yields
comparable and in some cases greater than the yields available on other
permissible investments. Municipal Obligations generally include debt
obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities. Municipal Obligations are classified as general obligation bonds,
revenue bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general taxing
power. Industrial development bonds, in most cases, are revenue bonds and
generally do not carry the pledge of the credit of the issuing municipality, but
generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations include
municipal lease/purchase agreements which are similar to installment purchase
contracts for property or equipment issued by municipalities. Municipal
Obligations bear fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the Municipal Obligation's
interest rate will change directly or inversely to changes in interest rates or
an index, or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from the
related Municipal Obligation and purchased and sold separately. Dividends
received by shareholders of the Limited Duration Income Portfolio, Core Income
Portfolio or Prime Money Market Portfolio which are attributable to interest
income received by it from Municipal Obligations generally will be subject to
Federal income tax. The Limited Duration Income Portfolio and Core Income
Portfolio currently intend to invest no more than 25% and the Prime Money Market
Portfolio currently intends to invest no more than 5% of their respective assets
in Municipal Obligations. However, these percentages may be varied from time to
time without shareholder approval.
RATINGS--Debt securities which are rated Baa by Moody's are considered medium
grade obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Debt securities rated
BBB by S&P are regarded as having adequate capacity to pay interest and repay
principal, and while such debt securities ordinarily exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt securities in this category than in higher rated categories. Fitch
considers the obligor's ability to pay interest and repay principal on debt
securities rated BBB to be adequate; adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these debt
securities and, therefore, impair timely payment. Debt securities rated BBB by
Duff are considered to have below average protection factors but still
considered sufficient for prudent investment.
Securities rated Ba by Moody's are judged to have speculative elements;
their future cannot be considered as well assured and often the protection of
interest and principal payments may be very moderate. Securities rated BB by
S&P, Fitch or Duff are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability to
default than other speculative grade debt, they face major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions as
to the quality of the obligations which they undertake to rate. Ratings are
relative and subjective and, although ratings may be useful in evaluating the
safety of interest and principal payments, they do not evaluate the market value
risk of such obligations. Although these ratings may be an initial criterion for
selection of portfolio investments, the Portfolio's adviser also will evaluate
such obligations and the ability of their issuers to pay interest and principal.
The Portfolios will rely on the Portfolio adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In this evaluation,
the Portfolio adviser will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
the quality of the issuer's management and regulatory matters.
INVESTMENT COMPANY SECURITIES--Each Portfolio may invest in securities issued by
other investment companies which principally invest in securities of the type in
which such Portfolio invests. Under the 1940 Act, a Portfolio's investment in
such securities currently is limited to, subject to certain exceptions, (i) 3%
of the total voting stock of any one investment company, (ii) 5% of such
Portfolio's total assets with respect to any one investment company and (iii)
10% of such Portfolio's total assets in the aggregate. Investments in the
securities of other investment companies will involve duplication of advisory
fees and certain other expenses.
INVESTMENT TECHNIQUES
INVESTMENT TECHNIQUES AND PORTFOLIO TURNOVER RATES--The net asset value
per share of each Portfolio will fluctuate in response to changes in the share
price of one or more Underlying Portfolios, which are permitted to engage in a
wide range of investment techniques. Using these techniques may produce higher
than normal portfolio turnover for an Underlying Portfolio and ultimately may
affect the degree to which the Portfolio's net asset value fluctuates.
Portfolio turnover among the Underlying Portfolios may vary from year
to year, as well as within a year. No Underlying Portfolio will consider
portfolio turnover to be a limiting factor in making investment decisions. Under
normal market conditions, the portfolio turnover rate for the current fiscal
year is anticipated to be less than 200% for the Capital Growth Portfolio,
Opportunity Fund, and International Equity Fund, and is anticipated to be less
than 100% for the Dividend Growth Portfolio, Equity Fund, Limited Duration
Income Portfolio and Core Income Portfolio. The portfolio turnover rate for the
current fiscal year is anticipated to be less than 100% for each Portfolio. A
portfolio turnover rate of 100% is equivalent to the Portfolio buying and
selling all of the securities in its portfolio once in the course of a year.
Higher portfolio turnover rates are likely to result in comparatively greater
brokerage commissions or transaction costs. In addition, short-term gains
realized from portfolio transactions are taxable to shareholders as ordinary
income. The Prime Money Market Portfolio will have a high portfolio turnover,
but that should not adversely affect the Prime Money Market Portfolio since it
usually does not pay brokerage commissions when it purchases short-term debt
obligations.
CALL AND PUT OPTIONS ON SPECIFIED SECURITIES--(Capital Growth Portfolio,
Dividend Growth Portfolio, Equity Fund, Opportunity Fund and International
Equity Fund) Each of these Portfolios may purchase call and put options in
respect of specific securities in which the Portfolio may invest and write
covered call and put option contracts. A call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, the underlying
security at the exercise price at any time during the option period. Conversely,
a put option gives the purchaser of the option the right to sell, and obligates
the writer to buy, the underlying security at the exercise price at any time
during the option period. A covered call option sold by the Portfolio, which is
a call option with respect to which the Portfolio owns the underlying security,
exposes the Portfolio during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or to possible continued holding of a security which might otherwise
have been sold to protect against depreciation in the market price of the
security. A covered put option sold by the Portfolio exposes the Portfolio
during the term of the option to a decline in price of the underlying security.
A put option sold by the Portfolio is covered when, among other things,
permissible liquid assets are placed in a segregated account to fulfill the
obligation undertaken.
To close out a position when writing covered options, the Portfolio may
make a "closing purchase transaction," which involves purchasing an option on
the same security with the same exercise price and expiration date as the option
which it has previously written on the security. To close out a position as a
purchaser of an option, the Portfolio may make a "closing sale transaction,"
which involves liquidating its position by selling the option previously
purchased. The Portfolio will realize a profit or loss from a closing purchase
or sale transaction depending upon the difference between the amount paid to
purchase an option and the amount received from the sale thereof.
STOCK INDEX OPTIONS--(Capital Growth Portfolio, Dividend Growth Portfolio,
Equity Fund, Opportunity Fund and International Equity Fund) Each of these
Portfolios may purchase and write put and call options on stock indexes listed
on national securities exchanges or traded in the over-the-counter market to the
extent of 15% of the value of its net assets. A stock index fluctuates with
changes in the market values of the stocks included in the index.
The effectiveness of the Portfolio's purchasing or writing stock index
options will depend upon the extent to which price movements in its portfolio
correlate with price movements of the stock index selected. Because the value of
an index option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Portfolio will realize a gain or loss
from the purchase or writing of options on an index depends upon movements in
the level of stock prices in the stock market generally or, in the case of
certain indexes, in an industry or market segment, rather than movements in the
price of a particular stock. Accordingly, successful use by the Portfolio of
options on stock indexes will be subject to the Adviser's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
When the Portfolio writes an option on a stock index, it will place in a
segregated account permissible liquid assets in an amount at least equal to the
market value of the underlying stock index and will maintain the account while
the option is open or will otherwise cover the transaction.
FUTURES TRANSACTIONS--IN GENERAL--(Capital Growth Portfolio, Dividend Growth
Portfolio, Equity Fund, Opportunity Fund and International Equity Fund) None of
these Portfolios will be a commodity pool. However, as a substitute for a
comparable market position in the underlying securities or for hedging purposes,
each of these Portfolios may engage in futures and options on futures
transactions, as described below.
The commodities transactions of each of these Portfolios must constitute
bona fide hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, none of
these Portfolios may engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity options, other
than for bona fide hedging transactions, would exceed 5% of the liquidation
value of the Portfolio's total assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, each of these Portfolios may be required to segregate
permissible liquid assets in connection with its commodities transactions in an
amount at least equal to the value of the underlying commodity.
Initially, when purchasing or selling futures contracts a Portfolio will
be required to deposit with the Fund's custodian in the broker's name an amount
of cash or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Portfolio upon termination of the futures position, assuming
all contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, the Portfolio may elect to close the position by taking an
opposite position, at the then prevailing price, which will operate to terminate
its existing position in the contract.
Although each of these Portfolios intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the relevant Portfolio to substantial losses. If it is not possible,
or the Portfolio determines not, to close a futures position in anticipation of
adverse price movements, it will be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may offset partially or completely losses
on the futures contract. However, no assurance can be given that the price of
the securities being hedged will correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures contract.
To the extent a Portfolio is engaging in a futures transaction as a
hedging device, because of the risk of an imperfect correlation between
securities in a portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective if, for example, losses on the portfolio securities
exceed gains on the futures contract or losses on the futures contract exceed
gains on the portfolio securities. For futures contracts based on indexes, the
risk of imperfect correlation increases as the composition of a Portfolio's
investments varies from the composition of the index. In an effort to compensate
for the imperfect correlation of movements in the price of the securities being
hedged and movements in the price of futures contracts, the Portfolio may buy or
sell futures contracts in a greater or lesser dollar amount than the dollar
amount of the securities being hedged if the historical volatility of the
futures contract has been less or greater than that of the securities. Such
"over hedging" or "under hedging" may adversely affect the Portfolio's net
investment results if market movements are not as anticipated when the hedge is
established.
Successful use of futures by a Portfolio also is subject to the
Adviser's ability to predict correctly movements in the direction of the market
or interest rates. For example, if a Portfolio has hedged against the
possibility of a decline in the market adversely affecting the value of
securities held in its portfolio and prices increase instead, such Portfolio
will lose part or all of the benefit of the increased value of securities which
it has hedged because it will have offsetting losses in its futures positions.
Furthermore, if in such circumstances the Portfolio has insufficient cash, it
may have to sell securities to meet daily variation margin requirements. The
Portfolio may have to sell such securities at a time when it may be
disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin account
which represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
Call options sold by a Portfolio with respect to futures contracts will
be covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of which are
expected to move relatively consistently with, the instruments underlying the
futures contract. Put options sold by a Portfolio with respect to futures
contracts will be covered in the same manner as put options on specific
securities as described above.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES--(Capital Growth
Portfolio, Dividend Growth Portfolio, Equity Fund, Opportunity Fund and
International Equity Fund) Each of these Portfolios may purchase and sell stock
index futures contracts and options on stock index futures contracts to the
extent of 15% of the value of its net assets.
A stock index future obligates the seller to deliver (and the purchaser
to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indexes that are permitted investments, each of these Portfolios intends
to purchase and sell futures contracts on the stock index for which it can
obtain the best price with consideration also given to liquidity.
Each of these Portfolios may use index futures as a substitute for a
comparable market position in the underlying securities.
LENDING PORTFOLIO SECURITIES--(All Portfolios) From time to time, each Portfolio
may lend securities from its investment portfolio to brokers, dealers and other
financial institutions needing to borrow securities to complete certain
transactions. Such loans may not exceed 33-1/3% of the value of the relevant
Portfolio's total assets. In connection with such loans, each Portfolio will
receive collateral consisting of cash or U.S. Government securities which will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Each Portfolio can increase its income
through the investment of such collateral. Each Portfolio continues to be
entitled to payments in amounts equal to the dividends, interest and other
distributions payable on the loaned security and receives interest on the amount
of the loan. Such loans will be terminable at any time upon specified notice. A
Portfolio might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with such
Portfolio.
FOREIGN CURRENCY TRANSACTIONS--(International Equity Fund) Foreign currency
transactions may be entered into for a variety of purposes, including: to fix in
U.S. dollars, between trade and settlement date, the value of a security the
Portfolio has agreed to buy or sell; to hedge the U.S. dollar value of
securities the Portfolio already owns, particularly if it expects a decrease in
the value of the currency in which the foreign security is denominated; or to
gain exposure to the foreign currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Portfolio's purchase
of foreign currencies for U.S. dollars or the maintenance of short positions in
foreign currencies, which would involve the Portfolio agreeing to exchange an
amount of a currency it did not currently own for another currency at a future
date in anticipation of a decline in the value of the currency sold relative to
the currency the Portfolio contracted to receive in the exchange. The
Portfolio's success in these transactions will depend principally on LAM's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar.
SHORT-SELLING--(International Equity Fund and, to a limited extent, the Capital
Growth Portfolio, Dividend Growth Portfolio, Limited Duration Income Portfolio
and Core Income Portfolio) The International Equity Fund may engage in short
sales of securities. In these transactions, the Portfolio sells a security it
does not own in anticipation of a decline in the market value of the security.
To complete the transaction, the Portfolio must borrow the security to make
delivery to the buyer. The Portfolio is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Portfolio, which would result in a loss or gain,
respectively. Each of these other Portfolios will limit short sales to those
that are "against the box," a transaction in which the Portfolio enters into a
short sale of a security it owns. Securities will not be sold short if, after
effect is given to any such short sale, the total market value of all securities
sold short would exceed 25% (15% in the case of the Capital Growth Portfolio,
Dividend Growth Portfolio, Limited Duration Income Portfolio and Core Income
Portfolio) of the value of the Portfolio's net assets.
FORWARD COMMITMENTS--(All Portfolios) Each Portfolio may purchase securities on
a when-issued or forward commitment basis, which means that the price is fixed
at the time of commitment, but delivery and payment ordinarily take place a
number of days after the date of the commitment to purchase. Each Portfolio will
make commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Portfolio may sell these securities before the
settlement date if it is deemed advisable. The Portfolio will not accrue income
in respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
BORROWING MONEY--(All Portfolios) As a fundamental policy, each Portfolio is
permitted to borrow money in an amount up to 33-1/3% of the value of its total
assets. However, each Portfolio currently intends to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 33-1/3% of
the value of its total assets (including the amount borrowed) valued at the
lesser of cost or market, less liabilities (not including the amount borrowed)
at the time the borrowing is made. While borrowings exceed 5% of a Portfolio's
total assets, such Portfolio will not make any investments.
REVERSE REPURCHASE AGREEMENTS--(Prime Money Market Portfolio) The Prime Money
Market Portfolio may enter into reverse repurchase agreements with banks,
brokers or dealers. Reverse repurchase agreements involve the transfer by the
Portfolio of an underlying debt instrument in return for cash proceeds based on
a percentage of the value of the security. The Portfolio retains the right to
receive interest and principal payments on the security. The Portfolio will use
the proceeds of reverse repurchase agreements only to make investments which
generally either mature or have a demand feature to resell to the issuer at a
date simultaneous with or prior to the expiration of the reverse repurchase
agreement. At an agreed upon future date, the Portfolio repurchases the security
at principal plus accrued interest. In certain types of agreements, there is no
agreed upon repurchase date and interest payments are calculated daily, often
based on the prevailing overnight repurchase rate. As a result of these
transactions, the Portfolio may be exposed to greater potential fluctuations in
the value of its assets and its net asset value per share. Interest costs on the
money borrowed may exceed the return received on the securities purchased. The
Fund's Directors have considered the risks to the Prime Money Market Portfolio
and its shareholders which may result from the entry into reverse repurchase
agreements and have determined that the entry into such agreements is consistent
with the Portfolio's investment objective and management policies.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUND'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
