Securities Act File No. 33-34080
Investment Company Act File No. 811-6076
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ____ / /
Post-Effective Amendment No. 40 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 40 /X/
(Check appropriate box or boxes)
THE INFINITY MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (614) 470-8000
Robert L. Tuch, Esq.
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
It is proposed that this filing will become effective (check appropriate
box)
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(i)
___ on (date) pursuant to paragraph (a)(i)
X 75 days after filing pursuant to paragraph (a)(ii)
___ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
ISG Portfolios
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
Form N-1A Caption
Aggressive Growth, Growth,
Growth & Income, Moderate
Growth & Income and Current
Income Portfolios
1 Cover Page 1
2 Synopsis 3
3 Condensed Financial Information 5
4 General Description of Registrant 7
5 Management of the Fund 14
5(a) Management Discussion of Fund's *
Performance
6 Capital Stock and Other Securities 29
7 Purchase of Securities Being Offered 17
8 Redemption or Repurchase
9 Pending Legal Proceedings *
Items in
Part B of
Form N-1A
20 Cover Page B-1
11 Table of Contents B-1
12 General Information and History *
13 Investment Objectives and Policies B-2
14 Management of the Fund B-18
15 Control Persons and Principal Holders B-21, B-35
of Securities
16 Investment Advisory and Other Services B-21
17 Brokerage Allocation B-33
18 Capital Stock and Other Securities B-34
19 Purchase, Redemption and Pricing B-25
of Securities Being Offered
20 Tax Status B-31
21 Underwriters *
22 Calculations of Performance Data B-29
23 Financial Statements B-43
Items in
Part C of
Form N-1A
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under C-5
Common Control with Registrant
26 Number of Holders of Securities C-5
27 Indemnification C-5
28 Business and Other Connections C-6
of Investment Adviser
29 Principal Underwriters C-10
30 Location of Accounts and Records C-10
31 Management Services C-11
32 Undertakings C-11
<PAGE>
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").
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.
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.
<PAGE>
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
Fee Table..................................................................
Description of the Portfolios..............................................
Management of the Portfolios...............................................
How to Buy Shares..........................................................
How to Redeem Shares.......................................................
Shareholder Privileges.....................................................
Dividends, Distributions and Taxes.........................................
Performance Information....................................................
General Information........................................................
Appendix...................................................................A-1
- ------------------------------------------------------------------------------
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) ___________.
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................ __% __% __% __% __% __% __% __% __%
12b-1 Fees..................... None .25% .75% None .25% .75% None .25% .75%
Other Expenses................. __% __% __% __% __% __% __% __% __%
Total Portfolio Operating
Expenses.................... __% __% __% __% __% __% __% __% __%
</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>
___% ___% ___% ___% ___% ___% ___% ___% ___%
</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...................... $ $ $ $ $ $ $ $ $
3 Years..................... $ $ $ $ $ $ $ $ $
An investor would pay the following
expenses on the same investment,
assuming no redemption:
1 Year...................... $ $ $ $ $ $ $ $ $
3 Years..................... $ $ $ $ $ $ $ $ $
</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................ __% __% __% __% __% __%
12b-1 Fees..................... None .25% .75% None .25% .75%
Other Expenses................. __% __% __% __% __% __%
Total Portfolio Operating
Expenses.................... __% __% __% __% __% __%
- ---------------
+ 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>
___% ___% ___% ___% ___% ___%
</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........................ $ $ $ $ $ $
3 Years....................... $ $ $ $ $ $
An investor would pay the following
expenses on the same investment,
assuming no redemption:
1 Year........................ $ $ $ $ $ $
3 Years....................... $ $ $ $ $ $
</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 do not reflect any 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" 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."
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" 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" 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--Each Portfolio's investments are concentrated in the Underlying
Portfolios, 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. 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.
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. See "Appendix--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 exceed 100% 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.
EQUITY SECURITIES--(Capital Growth Portfolio, Dividend Growth Portfolio,
Equity Fund, Opportunity Fund and International Equity Fund) Equity securities
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.
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.
The securities of smaller capitalization companies may be more volatile
than, and may fluctuate independently of, broad stock market indexes such as the
S&P 500. Smaller capitalization companies often have limited product lines,
markets or financial resources. 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, securities of the small capitalization sector may be
thinly traded (and therefore have to be sold at a discount from current market
prices or sold in small lots over an extended period of time), may be followed
by fewer investment research analysts and may be subject to wider price swings,
and thus may create a greater chance of loss than by investing in securities of
larger capitalization companies.
FIXED-INCOME SECURITIES--(All Underlying Portfolios) 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 values of fixed-income securities also may be affected by changes in
the credit rating or financial condition of the issuing entities. Once the
rating of a security purchased by a Portfolio has been adversely changed, such
Portfolio will consider all circumstances deemed relevant in determining whether
to continue to hold the security. With respect to the Limited Duration Income
Portfolio and Core Income Portfolio, not more than 10% of the value of either of
these Underlying Portfolios' total assets may consist of securities which have
been downgraded below investment grade by Moody's, S&P and Fitch. 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. 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.
INVESTING IN FOREIGN SECURITIES--(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) Foreign securities markets 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.
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 outside the country of the issuers, whether from
currency blockage or otherwise.
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 securities 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 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.
USE OF DERIVATIVES--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--(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--(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 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 set forth below as a
percentage of the relevant Portfolio's average daily net assets.
<PAGE>
ANNUAL RATE OF
INVESTMENT
NAME OF PORTFOLIO ADVISORY FEE PAYABLE
----------------- --------------------
Aggressive Growth Portfolio .__%
Growth Portfolio .__%
Growth & Income Portfolio .__%
Moderate Growth & Income Portfolio .__%
Current Income Portfolio .__%
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 .__% 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 __ 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, __ 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--Investing in
Foreign Securities."
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
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.
<PAGE>
- -------------------------------------------------------------------------------
ISG FUNDS AGGRESSIVE GROWTH PORTFOLIO
GROWTH PORTFOLIO
GROWTH & INCOME PORTFOLIO
MODERATE GROWTH & INCOME PORTFOLIO
CURRENT INCOME PORTFOLIO
CLASS A SHARES, CLASS B SHARES AND TRUST SHARES
STATEMENT OF ADDITIONAL INFORMATION
_________, 1998
- -------------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus for
the ISG Funds listed above (each, a "Portfolio" and collectively, the
"Portfolios") of The Infinity Mutual Funds, Inc. (the "Fund"), dated __________,
1998, as each may be revised from time to time. To obtain a copy of the relevant
Prospectus, please write to the Fund at 3435 Stelzer Road, Columbus, Ohio
43219-3035. This Statement of Additional Information relates only to the
Portfolios and not to any of the Fund's other portfolios.
First American National Bank (the "Adviser") serves as each
Portfolio's investment adviser.
BISYS Fund Services Limited Partnership ("BISYS") serves as each
Portfolio's administrator and distributor.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Investment Objectives and Management Policies........................... B-3
Management of the Fund.................................................. B-20
Management Arrangements................................................. B-23
Purchase and Redemption of Shares....................................... B-28
Determination of Net Asset Value........................................ B-30
Performance Information................................................. B-32
Dividends, Distributions and Taxes...................................... B-34
Portfolio Transactions.................................................. B-35
Information About the Portfolios........................................ B-37
Custodian, Transfer and Dividend Disbursing
Agent, Counsel and Independent Auditors............................... B-37
Financial Statements.................................................... B-38
Appendix................................................................ B-39
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTIONS IN THE PROSPECTUS ENTITLED "DESCRIPTION OF THE
PORTFOLIOS" AND "APPENDIX."
Each Portfolio seeks to achieve its investment objective by allocating
its assets among other mutual funds ("Underlying Portfolios") advised by the
Adviser or its affiliate, ParkSouth Corporation ("ParkSouth"), 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 will invest its assets in the following Underlying
Portfolios within the strategy ranges (expressed as a percentage of the
Portfolio's assets) indicated below:
<TABLE>
<CAPTION>
Strategy Ranges
--------------------------------------------------------------------------------------------------
Underlying Portfolio MODERATE
- --------------------- AGGRESSIVE GROWTH & GROWTH & CURRENT
GROWTH GROWTH INCOME INCOME INCOME
PORTFOLIO Portfolio PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
DG Equity Fund 35-50% 15-30% 15-25% 5-15% 0%
ISG Capital Growth Portfolio 25-45% 15-30% 15-25% 5-15% 0%
ISG Dividend Growth Portfolio 0% 15-25% 15-25% 5-15% 0%
DG Opportunity Fund 5-15% 5-10% 0% 0% 0%
DG International Equity Fund 5-15% 5-10% 0% 0% 0%
ISG Core Income Portfolio 0% 10-20% 15-25% 20-40% 35-55%
Limited Duration Income Portfolio 0% 0% 10-20% 25-45% 40-60%
ISG Prime Money Market Portfolio 0-30% 0-20% 0-20% 0-20% 0-30%
</TABLE>
The selection of the Underlying Portfolios for investing by a
Portfolio, as well as the percentage of a Portfolio's assets which can be
invested in each Underlying Portfolio, are not fundamental investment policies
and can be changed without the approval of shareholders.
Changes in the net asset value of the Underlying Portfolios may affect
cash income, if any, derived from these investments and will affect a
Portfolio's net asset value. Because each Portfolio invests primarily in other
mutual funds, which fluctuate in value, the Portfolio's shares will
correspondingly fluctuate in value. Although the Portfolios normally seek to
remain substantially fully invested in the Underlying Portfolios, a Portfolio
may invest temporarily in certain short-term obligations. Such obligation may be
used to invest uncommitted cash balances or to maintain liquidity to meet
shareholder redemptions. Each Portfolio also may borrow money for temporary or
emergency purposes.
The Investment Company Act of 1940, as amended (the "1940 Act"),
permits the Portfolios to invest without limitation in other investment
companies that are part of the same "group of investment companies" (as defined
in the 1940 Act), such as the Portfolios and Underlying Portfolios, provided
that the Portfolios observe certain limitations on the amount of sales loads and
distribution-related fees that are borne by shareholders and do not invest in
other funds of funds.
The following is additional information about the investment
objectives and management policies of the Underlying Portfolios.
PORTFOLIO SECURITIES
BANK OBLIGATIONS. (All Underlying Portfolios) Domestic commercial
banks organized under Federal law are supervised and examined by the Comptroller
of the Currency and are required to be members of the Federal Reserve System and
to have their deposits insured by the Federal Deposit Insurance Corporation (the
"FDIC"). Domestic banks organized under state law are supervised and examined by
state banking authorities but are members of the Federal Reserve System only if
they elect to join. In addition, state banks whose certificates of deposit
("CDs") may be purchased by the Portfolio are insured by the Bank Insurance Fund
administered by the FDIC (although such insurance may not be of material benefit
to the Underlying Portfolio, depending upon the principal amount of the CDs of
each bank held by the Underlying Portfolio) and are subject to Federal
examination and to a substantial body of Federal law and regulation. As a result
of Federal and state laws and regulations, domestic branches of domestic banks,
among other things, are generally required to maintain specified levels of
reserves, and are subject to other supervision and regulation designed to
promote financial soundness.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation or governmental regulation. Such obligations are subject to different
risks than are those of domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest income. Foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank. If a domestic bank with deposits insured by the FDIC
becomes insolvent, unsecured deposits and other general obligations of such
bank's foreign branches will be subordinated to the receivership expenses of the
FDIC and such bank's domestic deposits and would be subject to the loss of
principal to a greater extent than such bank's domestic branch deposits.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. In addition, Federal branches licensed by the
Comptroller of the Currency and branches licensed by certain states ("State
Branches") may be required to: (1) pledge to the regulator, by depositing assets
with a designated bank within the state, a certain percentage of their assets as
fixed from time to time by the appropriate regulatory authority; and (2)
maintain assets within the state in an amount equal to a specified percentage of
the aggregate amount of liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The deposits of Federal and
State Branches generally must be insured by the FDIC if such branches take
deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, or by domestic branches of foreign banks, the Adviser carefully
evaluates such investments on a case-by-case basis.
Each Underlying Portfolio may purchase CDs issued by banks, savings
and loan associations and similar thrift institutions with less than $1 billion
in assets, which are members of the FDIC, provided the Underlying Portfolio
purchases any such CD in a principal amount of not more than $100,000, which
amount would be fully insured by the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the FDIC. Interest payments on such a
CD are not insured by the FDIC. No Underlying Portfolio will own more than one
such CD per such issuer.
Each Underlying Portfolio may invest in short-term U.S. dollar
denominated corporate obligations that are originated, negotiated and structured
by a syndicate of lenders ("Co- Lenders") consisting of commercial banks, thrift
institutions, insurance companies, finance companies or other financial
institutions one or more of which administers the security on behalf of the
syndicate (the "Agent Bank"). Co-Lenders may sell such securities to third
parties called "Participants." The Underlying Portfolio may invest in such
securities either by participating as a Co-Lender at origination or by acquiring
an interest in the security from a Co-Lender or a Participant (collectively,
"participation interests"). Co-Lenders and Participants interposed between the
Fund and the corporate borrower (the "Borrower"), together with Agent Banks, are
referred herein as "Intermediate Participants." The Underlying Portfolio also
may purchase a participation interest in a portion of the rights of an
Intermediate Participant, which would not establish any direct relationship
between the Underlying Portfolio and the Borrower. In such cases, the Underlying
Portfolio would be required to rely on the Intermediate Participant that sold
the participation interest not only for the enforcement of the Underlying
Portfolio's rights against the Borrower but also for the receipt and processing
of payments due to the Underlying Portfolio under the security. Because it may
be necessary to assert through an Intermediate Participant such rights as may
exist against the Borrower, in the event the Borrower fails to pay principal and
interest when due, the Underlying Portfolio may be subject to delays, expenses
and risks that are greater than those that would be involved if the Underlying
Portfolio could enforce its rights directly against the Borrower. Moreover,
under the terms of a participation interest, the Underlying Portfolio may be
regarded as a creditor of the Intermediate Participant (rather than of the
Borrower), so that the Underlying Portfolio also may be subject to the risk that
the Intermediate Participant may become insolvent. Similar risks may arise with
respect to the Agent Bank if, for example, assets held by the Agent Bank for the
benefit of the Underlying Portfolio were determined by the appropriate
regulatory authority or court to be subject to the claims of the Agent Bank's
creditors. In such cases, the Underlying Portfolio might incur certain costs and
delays in realizing payment in connection with the participation interest or
suffer a loss of principal and/or interest. Further, in the event of the
bankruptcy or insolvency of the Borrower, the obligation of the Borrower to
repay the loan may be subject to certain defenses that can be asserted by such
Borrower as a result of improper conduct by the Agent Bank or Intermediate
Participant.
REPURCHASE AGREEMENTS. (All Underlying Portfolios) Each Underlying
Portfolio may enter into repurchase agreements. The Fund's custodian or
sub-custodian employed in connection with third-party repurchase transactions
will have custody of, and will hold in a segregated account, securities acquired
by an Underlying Portfolio under a repurchase agreement. In connection with its
third-party repurchase transactions, the Fund will employ only eligible
sub-custodians that meet the requirements set forth in Section 17(f) of the 1940
Act. Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Portfolio entering into them. In an
attempt to reduce the risk of incurring a loss on a repurchase agreement, each
Underlying Portfolio will enter into repurchase agreements only with registered
or unregistered securities dealers or banks with total assets in excess of one
billion dollars or primary government securities dealers reporting to the
Federal Reserve Bank of New York, with respect to securities of the type in
which such Underlying Portfolio may invest or government securities regardless
of their remaining maturities, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease below
resale price. The Underlying Portfolio's adviser will monitor on an ongoing
basis the value of the collateral to assure that it always equals or exceeds the
repurchase price. Each Underlying Portfolio will consider on an ongoing basis
the creditworthiness of the institutions with which it enters into repurchase
agreements.
ILLIQUID SECURITIES. (All Underlying Portfolios) Each Underlying
Portfolio may invest up to 10% (15% in the case of DG Equity Fund, DG
International Equity Fund and DG Opportunity Fund) of the value of its net
assets in illiquid securities. The term "illiquid securities" for this purpose
means securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Underlying Portfolio
has valued the securities and includes, among other things, restricted
securities other than those the Underlying Portfolio's adviser has determined to
be liquid pursuant to guidelines established by the Fund's Board and repurchase
agreements maturing in more than seven days. Commercial paper issues include
securities issued by major corporations without registration under the
Securities Act of 1933, as amended ("1933 Act"), in reliance on the exemption
from such registration afforded by Section 3(a)(3) thereof and commercial paper
and medium term notes issued in reliance on the so-called "private placement"
exemption from registration which is afforded by Section 4(2) of the 1933 Act
("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition under
the Federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) paper ordinarily is resold to other
institutional investors through or with the assistance of investment dealers who
make a market in Section 4(2) paper, thus providing liquidity.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
To facilitate the increased size and liquidity of the institutional
markets for unregistered securities, the Securities and Exchange Commission
adopted Rule 144A under the 1933 Act. Rule 144A establishes a "safe harbor" from
the registration requirements of the 1933 Act for resales of certain securities
to qualified institutional buyers. Section 4(2) paper that is issued by a
company that files reports under the Securities Exchange Act of 1934, as
amended, generally is eligible to be sold in reliance on the safe harbor of Rule
144A. Pursuant to Rule 144A, the institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. Where a substantial market of qualified institutional buyers
has developed for certain restricted securities purchased by the Underlying
Portfolio pursuant to Rule 144A under the Securities Act of 1933, as amended,
the Underlying Portfolio intends to treat such securities as liquid securities
in accordance with procedures approved by the Board. Because it is not possible
to predict with assurance how the market for specific restricted securities sold
pursuant to Rule 144A will develop, the Underlying Portfolio's adviser will
monitor carefully the Underlying Portfolio's investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. To the extent that, for a period of
time, qualified institutional buyers cease purchasing restricted securities
pursuant to Rule 144A, an Underlying Portfolio's investing in such securities
may have the effect of increasing the level of illiquidity in its investment
portfolio during such period.
FORWARD COMMITMENTS. (All Underlying Portfolios) Securities purchased
on a forward commitment or when-issued basis are subject to changes in value
(generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a forward
commitment or when-issued basis may expose the Underlying Portfolio to risks
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued basis can involve the additional risk
that the yield available in the market when the delivery takes place actually
may be higher than that obtained in the transaction itself. Purchasing
securities on a forward commitment or when-issued basis when the Underlying
Portfolio is fully or almost fully invested may result in greater potential
fluctuation in the value of the Underlying Portfolio's net assets and its net
asset value per share.
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 and stripped mortgage-backed securities,
mortgage pass-through securities, interests in REMICs or other kinds of
mortgage-backed securities, including those with fixed, floating and 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.
GOVERNMENT AGENCY SECURITIES--Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
GOVERNMENT RELATED SECURITIES--Mortgage-related securities issued by the Federal
National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the Untied States. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). The FHLMC is a corporate instrumentality of
the United States created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Bank and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When the FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
PRIVATE ENTITY SECURITIES--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely payment
of principal and interest on mortgage-related securities backed by pools created
by non-governmental issuers often is supported partially by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance. The insurance and guarantees are issued by government entities,
private insurers and the mortgage poolers. There can be no assurance that the
private insurers or mortgage poolers can meet their obligations under the
policies, so that if the issuers default on their obligations the holders of the
security could sustain a loss. No insurance or guarantee covers the Portfolio or
the price of the Portfolio's shares. Mortgage-related securities issued by non-
governmental issuers generally offer a higher rate of interest than
government-agency and government-related securities because there are no direct
or indirect government guarantees of payment.
COMMERCIAL MORTGAGE-RELATED SECURITIES--Commercial mortgage-related securities
generally are multi-class debt or pass-through certificates secured by mortgage
loans on commercial properties. These mortgage-related securities generally are
structured to provide protection to the senior classes investors against
potential losses on the underlying mortgage loans. This protection generally is
provided by having the holders of subordinated classes of securities
("Subordinated Securities") take the first loss if there are defaults on the
underlying commercial mortgage loans. Other protection, which may benefit all of
the classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and
over-collateralization.
Each of these Underlying Portfolios may invest in Subordinated
Securities issued or sponsored by commercial banks, savings and loan
institutions, mortgage bankers, private mortgage insurance companies and other
non-governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner as to the payment of principal
and/or interest to the holders of more senior mortgage-related securities
arising out of the same pool of mortgages. The holders of Subordinated
Securities typically are compensated with a higher stated yield than are the
holders of more senior mortgage-related securities. On the other hand,
Subordinated Securities typically subject the holder to greater risk than senior
mortgage-related securities and tend to be rated in a lower rating category, and
frequently a substantially lower rating category, than the senior
mortgage-related securities issued in respect of the same pool of mortgage.
Subordinated Securities generally are likely to be more sensitive to changes in
prepayment and interest rates and the market for such securities may be less
liquid than is the case for traditional fixed-income securities and senior
mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending generally is viewed
as exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves larger
loans to single borrowers or groups of related borrowers than residential one-
to four-family mortgage loans. In addition, the repayment of loans secured by
income producing properties typically is dependent upon the successful operation
of the related real estate project and the cash flow generated therefrom.
Consequently, adverse changes in economic conditions and circumstances are more
likely to have an adverse impact on mortgage-related securities secured by loans
on commercial properties than on those secured by loans on residential
properties.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")--A CMO is a multiclass bond backed
by a pool of mortgage pass-through certificates or mortgage loans. CMOs may be
collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through
certificates, (b) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, (d) other mortgage-related securities, or
(e) any combination thereof. Each class of CMOs, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral underlying a CMO
may cause it to be retired substantially earlier than the stated maturities or
final distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically at
a specified increment over an index, such as the London Interbank Offered Rate
("LIBOR") (or sometimes more than one index). These floating rate CMOs typically
are issued with lifetime caps on the coupon rate thereon. Each of these
Portfolios also may invest in inverse floating rate CMOs. Inverse floating rate
CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse
direction to an applicable index such a LIBOR. Accordingly, the coupon rate
thereon will increase as interest rates decrease. Inverse floating rate CMOs are
typically more volatile than fixed or floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying inversely
to a multiple of an applicable index creates a leverage factor. Inverse floaters
based on multiples of a stated index are designed to be highly sensitive to
changes in interest rates and can subject the holders thereof to extreme
reductions of yield and loss of principal. The markets for inverse floating rate
CMOs with highly leveraged characteristics at times may be very thin. The
Underlying Portfolio's ability to dispose of its positions in such securities
will depend on the degree of liquidity in the markets for such securities. It is
impossible to predict the amount of trading interest that may exist in such
securities, and therefore the future degree of liquidity.
STRIPPED MORTGAGE-BACKED SECURITIES--Each of these Underlying Portfolios also
may invest in stripped mortgage-backed securities. Stripped mortgage-backed
securities are created by segregating the cash flows from underlying mortgage
loans or mortgage securities to create two or more new securities, each with a
specified percentage of the underlying security's principal or interest
payments. Mortgage securities may be partially stripped so that each investor
class receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type of
security, known as an interest-only security, or IO, and all of the principal is
distributed to holders of another type of security known as a principal-only
security, or PO. Strips can be created in a pass-through structure or as
tranches of a CMO. The yields to maturity on IOs and POs are very sensitive to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Underlying Portfolio may not fully
recoup its initial investment in IOs. Conversely, if the underlying mortgage
assets experience less than anticipated prepayments of principal, the yield on
POs could be materially and adversely affected.
REAL ESTATE INVESTMENT TRUSTS--A REIT is a corporation, or a business trust that
would otherwise be taxed as a corporation, which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The
Code permits a qualifying REIT to deduct dividends paid, thereby effectively
eliminating corporate level Federal income tax and making the REIT a
pass-through vehicle for Federal income tax purposes. To meet the definitional
requirements of the Code, a REIT must, among other things, invest substantially
all of its assets in interests in real estate (including mortgages and other
REITs) or cash and government securities, derive most of its income from rents
from real property or interest on loans secured by mortgages on real property,
and distribute to shareholders annually a substantial portion of its otherwise
taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid
REITs. Equity REITs, which may include operating or finance companies, own real
estate directly and the value of, and income earned by, the REITs depends upon
the income of the underlying properties and the rental income they earn. Equity
REITs also can realize capital gains (or losses) by selling properties that have
appreciated (or depreciated) in value. Mortgage REITs can make construction,
development or long-term mortgage loans and are sensitive to the credit quality
of the borrower. Mortgage REITs derive their income from interest payments on
such loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs, generally by holding both ownership interests and mortgage interests in
real estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. They also are
subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation and the possibility of failing to qualify for tax-free status
under the Code or to maintain exemption from the 1940 Act.
ADJUSTABLE-RATE MORTGAGE LOANS ("ARMS")--ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest rate
for a specified period of time, generally for either the first three, six,
twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter,
the interest rates are subject to periodic adjustment based on changes in an
index. ARMs typically have minimum and maximum rates beyond which the mortgage
interest rate may not vary over the lifetime of the loans. Certain ARMs provide
for additional limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Negatively amortizing ARMs may
provide limitations on changes in the required monthly payment. Limitations on
monthly payments can result in monthly payments that are greater or less than
the amount necessary to amortize a negatively amortizing ARM by its maturity at
the interest rate in effect during any particular month.
OTHER MORTGAGE-RELATED SECURITIES--Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals. Other mortgage-related securities may
be equity or debt securities issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.
STANDARD & POOR'S DEPOSITARY RECEIPTS. (Capital Growth Portfolio,
Dividend Growth Portfolio, Equity Fund and Opportunity Fund) These securities,
commonly referred to as "spiders," represent an interest in a fixed portfolio of
common stocks designed to track the price and dividend yield performance of the
Standard & Poor's 500 Index or the Standard & Poor's MidCap 400 Index, as the
case may be.
MANAGEMENT POLICIES
OPTIONS TRANSACTIONS. (Capital Growth Portfolio, Dividend Growth
Portfolio, Equity Fund, International Equity Fund and Opportunity Portfolio)
Each of these Underlying Portfolios may engage in options transactions, such as
purchasing or writing covered call or put options. The principal reason for the
Underlying Portfolio writing covered call options is to realize, through the
receipt of premiums, a greater return than would be realized on its portfolio
securities alone. In return for a premium, the writer of a covered call option
forfeits the right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer retains the risk of
a decline in the price of the underlying security. Similarly, the principal
reason for writing covered put options is to realize income in the form of
premiums. The writer of a covered put option accepts the risk of a decline in
the price of the underlying security. The size of the premiums that the
Underlying Portfolio may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase their
option-writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
time the options are written. In the case of call options, these exercise prices
are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. The Underlying Portfolio may write (a) in-the-money call options
when its adviser expects that the price of the underlying security will remain
stable or decline moderately during the option period, (b) at-the-money call
options when the Underlying Portfolio's adviser expects that the price of the
underlying security will remain stable or advance moderately during the option
period and (c) out-of-the-money call options when the Underlying Portfolio's
adviser expects that the premiums received from writing the call option plus the
appreciation in market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the underlying security
alone. In these circumstances, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of
call options as to the relation of exercise price to market price) may be
utilized in the same market environments that such call options are used in
equivalent transactions.
So long as the Underlying Portfolio's obligation as the writer of an
option continues, it may be assigned an exercise notice by the broker-dealer
through which the option was sold, requiring it to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates when the option
expires or the Underlying Portfolio effects a closing purchase transaction. The
Underlying Portfolio can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
While it may choose to do otherwise, the Underlying Portfolio
generally will purchase or write only those options for which the Underlying
Portfolio's adviser believes there is an active secondary market so as to
facilitate closing transactions. There is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will exist
for any particular option or at any particular time, and for some options no
such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, at times
have rendered certain clearing facilities inadequate and resulted in the
institution of special procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or suspensions in one or more options.
There can be no assurance that similar events, or events that otherwise may
interfere with the timely execution of customers' orders, will not recur. In
such event, it might not be possible to effect closing transactions in
particular options. If, as a covered call option writer, the Underlying
Portfolio is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise or it otherwise
covers its position.
The Underlying Portfolio intends to treat options in respect of
specific securities that are not traded on a national securities exchange and
the securities underlying covered call options written by the Portfolio as
illiquid securities.
Each of these Underlying Portfolios will purchase options only to the
extent permitted by the policies of state securities authorities in states where
shares of the Underlying Portfolio are qualified for offer and sale.
STOCK INDEX OPTIONS. (Capital Growth Portfolio, Dividend Growth
Portfolio, Equity Fund, Opportunity Fund, and International Equity Fund) Each of
these Underlying Portfolios may purchase and write put and call options on stock
indexes to the extent of 15% of the value of its net assets. Options on stock
indexes are similar to options on stock except that (a) the expiration cycles of
stock index options are monthly, while those of stock options are currently
quarterly, and (b) the delivery requirements are different. Instead of giving
the right to take or make delivery of a stock at a specified price, an option on
a stock index gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise,
multiplied by (ii) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the exercise price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or it may let
the option expire unexercised.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. (Capital Growth
Portfolio, Dividend Growth Portfolio, Equity Fund, Opportunity Fund, and
International Equity Fund) Upon exercise of an option, the writer of the option
delivers to the holder of the option the futures position and the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract 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. The potential loss related to the purchase of options on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the time of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the Underlying Portfolio.
FUTURE DEVELOPMENTS. Each Underlying Portfolio may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Underlying Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with its investment objective and legally permissible for the
Underlying Portfolio. Before entering into such transactions or making any such
investment, the Underlying Portfolio will provide appropriate disclosure in its
prospectus.
LENDING PORTFOLIO SECURITIES. To a limited extent, each Underlying
Portfolio may lend its portfolio securities to brokers, dealers and other
financial institutions, provided it receives cash collateral which at all times
is maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, an Underlying
Portfolio can increase its income through the investment of the cash collateral.
For purposes of this policy, each Underlying Portfolio considers collateral
consisting of U.S. Government securities to be the equivalent of cash. From time
to time, an Underlying Portfolio may return to the borrower or a third party
which is unaffiliated with the Underlying Portfolio, and which is acting as a
"placing broker," a part of the interest earned from the investment of
collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Underlying Portfolio must receive at least 100% cash collateral from the
borrower; (2) the borrower must increase such collateral whenever the market
value of the securities rises above the level of such collateral; (3) the
Underlying Portfolio must be able to terminate the loan at any time; (4) the
Underlying Portfolio must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions payable on the loaned securities,
and any increase in market value; (5) the Underlying Portfolio may pay only
reasonable custodian fees in connection with the loan; and (6) while voting
rights on the loaned securities may pass to the borrower, the Underlying
Portfolio must terminate the loan and regain the right to vote the securities if
a material event adversely affecting the investment occurs.
REVERSE REPURCHASE AGREEMENTS. (Money Market Portfolio) The Money
Market Portfolio may enter into reverse repurchase agreements. The Money Market
Portfolio will maintain in a segregated account permissible liquid assets equal
to the aggregate amount of its reverse repurchase obligations, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission.
PORTFOLIO INVESTMENT RESTRICTIONS
Each Portfolio has adopted investment restrictions numbered 1 through
7 as fundamental policies, which cannot be changed, as to a Portfolio, without
approval by the holders of a majority (as defined in the 1940 Act) of such
Portfolio's outstanding voting securities. Investment restrictions numbered 8
through 12 are not fundamental policies and may be changed by vote of a majority
of the Fund's Directors at any time. No Portfolio may:
1. Invest in commodities, except that each Portfolio may purchase and
sell options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
2. Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but each Portfolio may purchase
and sell securities that are secured by real estate or issued by companies that
invest or deal in real estate.
3. Borrow money, except that each Portfolio may borrow up to 33-1/3%
of the value of its total assets. For purposes of this investment restriction, a
Portfolio's entry into options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes shall not
constitute borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Portfolio
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
and the Fund's Board of Directors.
5. Act as an underwriter of securities of other issuers, except to the
extent the Portfolio may be deemed an underwriter under the 1933 Act by virtue
of disposing of portfolio securities.
6. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act). A Portfolio's investments permitted under Investment
Restriction Nos. 1, 3 and 9 are not considered senior securities for purposes of
this Investment Restriction.
7. Purchase securities on margin, but each Portfolio may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those relating to indexes, and options on futures contracts
or indexes.
8. Invest in the securities of a company for the purpose of exercising
management or control, but each Portfolio will vote (as provided in the Fund's
Charter) the securities it owns as a shareholder in accordance with its views.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
10. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of the Portfolio's net assets would be
so invested.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of shares of a Portfolio in certain
states. Should the Fund determine that a commitment is no longer in the best
interest of the Portfolio, and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of such Portfolio's shares in the
state involved.
In addition, the Underlying Portfolios in which the Portfolios may
invest have adopted certain investment restrictions which may be more or less
restrictive than those listed above, thereby allowing a Portfolio to participate
in certain investment strategies indirectly. The investment restrictions of
these Underlying Portfolios are set forth in their respective statements of
additional information.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below. Each Director who is an "interested person" of the Fund, as defined
in the 1940 Act, is indicated by an asterisk.
DIRECTORS OF THE FUND
*WILLIAM B. BLUNDIN, PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS. An
employee of BISYS Fund Services, Inc., BISYS' general partner. Mr.
Blundin also is an officer of other investment companies administered
by BISYS or its affiliates. He is 60 years old and his address is 90
Park Avenue, New York, New York 10016.
NORMA A. COLDWELL, DIRECTOR. International Economist and Consultant;
Executive Vice President of Coldwell Financial Consultants; Trustee
and Treasurer of Meridian House International (International Education
and Cultural Group); Member of the Board of Advisors of Meridian
International Center and Emerging Capital Markets, S.A. (Montevideo,
Uruguay); formerly, Chief International Economist of Riggs National
Bank, Washington, D.C. She is 72 years old and her address is 3330
Southwestern Boulevard, Dallas, Texas 75225.
RICHARD H. FRANCIS, DIRECTOR. Former Executive Vice President and Chief
Financial Officer of Pan American World Airways, Inc. (currently,
debtor-in-possession under the U.S. Bankruptcy Code), March 1988 to
October 1991; Senior Vice President and Chief Financial Officer of
American Standard Inc., 1960 to March 1988. Mr. Francis is a director
of Allendale Mutual Insurance and The Indonesia Fund, Inc. He is 66
years old and his address is 40 Grosvenor Road, Short Hills, New
Jersey 07078.
WILLIAM W. McINNES, DIRECTOR. Private investor. From July 1978 to February
1993, he was Vice-President--Finance and Treasurer of Hospital Corp.
of America. He is also a director of Gulf South Medical Supply and
Diversified Trust Co. He is 48 years old and his address is 116 30th
Avenue South, Nashville, Tennessee 37212.
ROBERT A. ROBINSON, DIRECTOR. Private investor. Since 1991, President
Emeritus, and from 1968 to 1991, President of The Church Pension
Group, NYC. From 1956 to 1966, Senior Vice President of Colonial Bank
& Trust Co. He is also a director of Mariner Institutional Funds,
Inc., Mariner Tax-Free Institutional Funds, Inc., UST Master Funds,
UST Master Tax Exempt Funds, H.B. and F.H. Bugher Foundation,
Morehouse-Barlow Co. Publishers, The Canterbury Cathedral Trust in
America, The Living Church Foundation and Hoosac School. He is 71
years old and his address is 2 Hathaway Common, New Canaan,
Connecticut 06840.
OFFICERS OF THE FUND
JEFFREY C. CUSICK, VICE PRESIDENT AND ASSISTANT SECRETARY. An employee of
BISYS Fund Services, Inc. since July 1995, and an officer of other
investment companies administered by BISYS or its affiliates. From
September 1993 to July 1995, he was Assistant Vice President and, from
1989 to September 1993, he was Manager--Client Services, of Federated
Administrative Services. He is 38 years old and his address is 3435
Stelzer Road, Columbus, Ohio 43219.
WILLIAM TOMKO, VICE PRESIDENT. An employee of BISYS Fund Services, Inc. and an
officer of other investment companies administered by BISYS or its
affiliates. He is 38 years old and his address is 3435 Stelzer Road,
Columbus, Ohio 43219.
GARY R. TENKMAN, TREASURER. An employee of BISYS Fund Services, Inc. since
April, 1998, and an officer of other investment companies administered
by BISYS or its affiliates. For more than five years prior thereto, he
was an audit manager with Ernst & Young LLP. He is __ years old and
his address is 3435 Stelzer Road, Columbus, Ohio 43219.
ROBERT L. TUCH, ASSISTANT SECRETARY. An employee of BISYS Fund Services, Inc.
since June 1991, and an officer of other investment companies
administered by BISYS or its affiliates. From July 1990 to June 1991,
he was Vice President and Associate General Counsel with National
Securities Research Corp. Prior thereto, he was an Attorney with the
Securities and Exchange Commission. He is 45 years old and his address
is 3435 Stelzer Road, Columbus, Ohio 43219.
ALAINA METZ, ASSISTANT SECRETARY. An employee of BISYS Fund Services, Inc.
and an officer of other investment companies administered by BISYS or
its affiliates. She is 29 years old and her address is 3435 Stelzer
Road, Columbus, Ohio 43219.
For so long as the Distribution Plan described in the section
captioned "Management Arrangements--Distribution Plan" remains in effect, the
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the 1940 Act, will be selected and nominated by the Directors who are not
"interested persons" of the Fund.
Directors and officers of the Fund, as a group, owned less than 1% of
any Portfolio's shares of common stock outstanding on September 22, 1998.
The Fund does not pay any remuneration to its officers and Directors
other than fees and expenses to those Directors who are not directors, officers
or employees of the Adviser or BISYS or any of their affiliates. The aggregate
amount of compensation paid to each such Director by the Fund for year ended
December 31, 1997 was as follows:
Total Compensation
Aggregate from Fund and
Name of Board Compensation from Fund Complex Paid
Member Fund* to Board Member
- ------------- -------------------- ------------------
Norma A. Coldwell $18,000 $18,000
Richard H. Francis $18,000 $18,000
William W. McInnes $18,000 $18,000
Robert A. Robinson $18,000 $18,000
- -------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $13,422 for all Directors as a group.
MANAGEMENT ARRANGEMENTS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PROSPECTUS ENTITLED "MANAGEMENT OF THE
PORTFOLIOS."
INVESTMENT ADVISORY AGREEMENT. The Adviser provides investment
advisory services pursuant to the Investment Advisory Agreement (the
"Agreement") dated February 15, 1994 with the Fund. As to each Portfolio, the
Agreement is subject to annual approval by (i) the Fund's Board of Directors or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Portfolio, provided that in either event the continuance also
is approved by a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Adviser, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Agreement was
last approved by the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons" of any party to the Agreement, at a
meeting held on August 12, 1998. As to each Portfolio, the Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board of Directors
or by vote of the holders of a majority of such Portfolio's shares, or, on not
less than 90 days' notice, by the Adviser. The Agreement will terminate
automatically, as to the relevant Portfolio, in the event of its assignment (as
defined in the 1940 Act).
As compensation for the Adviser's services, the Fund has agreed to pay
the Adviser a monthly investment advisory fee at the annual rate set forth in
the Portfolios' Prospectus.
MANAGEMENT OF THE UNDERLYING PORTFOLIOS. The Adviser or its affiliate,
ParkSouth, supervises and assists in the overall management of the Underlying
Portfolios' affairs subject to the authority of the Underlying Portfolio's Board
in accordance with applicable law. The primary portfolio manager for each
Underlying Portfolio, other than the Money Market Portfolios, is as follows:
CAPITAL GROWTH PORTFOLIO--Charles E. Winger, Jr. Mr. Winger has been the Capital
Growth Portfolio's primary portfolio manager since its inception and has been a
Trust Officer with the Adviser since 1988.
DIVIDEND GROWTH PORTFOLIO--Jay D. Baumgardner. Mr. Baumgardner has been the
Dividend Growth Portfolio's primary portfolio manager since its inception and
has been a portfolio manager with the Adviser since April 1995. Prior thereto,
he was a financial consultant with Smith Barney, Inc.
EQUITY FUND--Ronald E. Lindquist. Mr. Lindquist, who has over 30 years'
experience as a portfolio manager, has been the Equity Fund's primary portfolio
manager since its inception and has been employed by the Adviser since May 1998.
Since 1978, he was employed by Deposit Guaranty National Bank and Commercial
National Bank, wholly-owned subsidiaries of Deposit Guaranty Corp. which merged
with First American Corporation, the Adviser's parent, on May 1, 1998.
OPPORTUNITY FUND--William A. Womack. He has been the Opportunity Fund's primary
portfolio manager since its inception. Mr. Womack formed Womack Management in
February 1997. For more than 12 years prior thereto, he was a Senior Vice
President and Trust Investment Officer of Deposit Guaranty National Bank.
INTERNATIONAL EQUITY FUND--Herbert W. Gullquist and John R. Reinsberg. Messers.
Gullquist and Reinsberg have been the International Equity Fund's primary
portfolio managers since its inception, and have been Managing Directors of LAM
for over five years.
CORE INCOME PORTFOLIO--Sharon S. Brown. She has been the Core Income Portfolio's
primary portfolio manager since its inception and has been a Trust Officer of
the Adviser since 1988.
LIMITED DURATION INCOME PORTFOLIO--Donald F. Turk. He has been the Limited
Duration Income Portfolio's primary portfolio manager since its inception and
has been a Trust Officer of the Adviser since 1980.
Under the terms of the Investment Advisory Agreement, each Underlying
Portfolio has agreed to pay the Adviser or Park South, as the case may be, a
monthly fee at the annual rate set forth below as a percentage of the relevant
Underlying Portfolio's average daily net assets.
<PAGE>
Annual Rate of
Investment
NAME OF Advisory
UNDERLYING PORTFOLIO FEE PAYABLE
-------------------- ----------------
Capital Growth Portfolio .65%
Dividend Growth Portfolio .65%
Equity Fund .75%
Opportunity Fund .95%
International Equity Fund 1.00%
Core Income Portfolio .60%
Limited Duration Income Portfolio .60%
Prime Money Market Portfolio .25%*
- ----------------
* For the fiscal year ended December 31, 1997, the Fund paid the Prime
Money Market Portfolio's former sub-adviser .15% and the Adviser .10%
of the value of the Underlying Portfolio's average daily net assets.
SUB-INVESTMENT ADVISERS TO UNDERLYING PORTFOLIOS. Lazard Asset Management
("Lazard"), located at 30 Rockefeller Plaza, New York, New York 10020, serves as
the sub-investment adviser to the International Equity Fund. Lazard, a division
of Lazard Freres & Co. LLC, provides investment management services to client
discretionary accounts with assets totaling approximately $67 billion as of June
30, 1998. Under the terms of the sub-investment advisory agreement with Lazard,
ParkSouth has agreed to pay Lazard a monthly fee at the annual rate of .50% of
the value of the average daily net assets of the International Equity Fund.
Womack Asset Management, Inc. ("Womack Management"), located at 2120
DG Plaza, Jackson, Mississippi 39201, serves as the sub-investment adviser to
the Opportunity Fund. Womack Management provides investment management services
to client discretionary accounts with assets totaling approximately $300 million
as of June 30, 1998. Under the terms of the sub-investment advisory agreement
with Womack Management, ParkSouth has agreed to pay Womack Management a monthly
fee at the annual rate of the sum of .32% of the value of the Opportunity Fund's
average daily net assets up to $50 million, .075% of the value of such assets
from $50 million to $70 million and .25% of the value of such assets in excess
of $70 million.
ADMINISTRATION AGREEMENT. BISYS provides certain administrative
services pursuant to the Administration Agreement (the "Administration
Agreement") dated April 25, 1996 with the Fund. As to each Portfolio, the
Administration Agreement will continue until April 25, 2001 and thereafter is
subject to annual approval by (i) the Fund's Board of Directors or (ii) vote of
a majority (as defined in the 1940 Act) of the outstanding voting securities of
such Portfolio, provided that in either event the continuance also is approved
by a majority of the Directors who are not "interested persons" (as defined in
the 1940 Act) of the Fund or BISYS, by vote cast in person at a meeting called
for the purpose of voting such approval. The Administration Agreement was last
approved by the Fund's Board of Directors, including a majority of the Directors
who are not "interested persons" of any party to the Administration Agreement,
at a meeting held on May 14, 1998. As to each Portfolio, the Administration
Agreement is terminable without penalty, at any time if for cause, by the Fund's
Board of Directors or by vote of the holders of a majority of such Portfolio's
outstanding voting securities, or, on not less than 90 days' notice, by BISYS.
The Administration Agreement will terminate automatically, as to the relevant
Portfolio, in the event of its assignment (as defined in the 1940 Act).
As compensation for BISYS' services, the Fund has agreed to pay BISYS
a monthly administration fee at the annual rate set forth in the Portfolios'
Prospectus.
DISTRIBUTION AGREEMENT. BISYS acts as the exclusive distributor of
each Portfolio's shares on a best efforts basis pursuant to a Distribution
Agreement (the "Distribution Agreement") dated November 11, 1997, with the Fund.
Shares are sold on a continuous basis by BISYS as agent, although BISYS is not
obliged to sell any particular amount of shares. No compensation is payable by
the Fund to BISYS for its distribution services.
DISTRIBUTION PLAN. (Applicable to Class A Shares and Class B Shares
only) Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission
under the 1940 Act provides, among other things, that an investment company may
bear expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Fund's Directors have adopted such a plan (the
"Distribution Plan") with respect to Class A Shares and Class B Shares of each
Portfolio pursuant to which each Portfolio pays BISYS for advertising, marketing
and distributing Class A Shares and Class B Shares. The Fund's Directors believe
that there is a reasonable likelihood that the Distribution Plan will benefit
each Portfolio and the holders of its Class A Shares and Class B Shares.
A quarterly report of the amounts expended under the Distribution
Plan, and the purposes for which such expenditures were incurred, must be made
to the Directors for their review. In addition, the Distribution Plan provides
that it may not be amended to increase materially the costs which holders of the
Class A Shares and Class B Shares may bear for distribution pursuant to the
Distribution Plan without approval of such shareholders and that other material
amendments of the Distribution Plan must be approved by the Board of Directors,
and by the Directors who are neither "interested persons" (as defined in the
1940 Act) of the Fund nor have any direct or indirect financial interest in the
operation of the Distribution Plan or in the related Distribution Plan
agreements, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Distribution Plan and related agreements are
subject to annual approval by such vote of the Directors cast in person at a
meeting called for the purpose of voting on the Distribution Plan. The
Distribution Plan was last so approved on August 12, 1998. As to each Class, the
Distribution Plan is terminable at any time by vote of a majority of the
Directors who are not "interested persons" and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in the
Distribution Plan agreements or by vote of the holders of a majority of Class A
Shares or Class B Shares, as the case may be, voting separately as a Class. A
Distribution Plan agreement is terminable without penalty, at any time, by such
vote of the Directors, upon not more than 60 days' written notice to the parties
to such agreement or by vote of the holders of a majority of the Portfolio's
Class A Shares or Class B Shares, as the case may be, voting separately as a
Class. A Distribution Plan agreement will terminate automatically, as to the
relevant Class, in the event of its assignment (as defined in the 1940 Act).
SHAREHOLDER SERVICES PLAN. (Applicable to each Class) The Fund's
Directors have adopted a shareholder services plan (the "Shareholder Services
Plan") with respect to each Class of each Portfolio pursuant to which each
Portfolio pays BISYS for the provision of certain services to the holders of
such shares. The Fund's Directors believe that there is a reasonable likelihood
that the Shareholder Services Plan will benefit each Portfolio and its
shareholders.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred, must
be made to the Directors for their review. In addition, the Shareholder Services
Plan provides that material amendments of the Plan must be approved by the Board
of Directors, and by the Directors who are neither "interested persons" (as
defined in the 1940 Act) of the Fund nor have any direct or indirect financial
interest in the operation of the Shareholder Services Plan or in the related
Shareholder Services Plan agreements, by vote cast in person at a meeting called
for the purpose of considering such amendments. The Shareholder Services Plan
and related agreements are subject to annual approval by such vote of the
Directors cast in person at a meeting called for the purpose of voting on the
Shareholder Services Plan. The Shareholder Services Plan was last so approved on
August 12, 1998. The Shareholder Services Plan is terminable at any time by vote
of a majority of the Directors who are not "interested persons" and who have no
direct or indirect financial interest in the operation of the Shareholder
Services Plan or in the Shareholder Services Plan agreements. A Shareholder
Services Plan agreement is terminable without penalty, at any time, by such vote
of the Directors. A Shareholder Services Plan agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
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 attributable to investor services
(including, without limitation, telephone and personnel expenses), 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 Portfolio are charged against
the assets of that Portfolio; other expenses of the Fund are allocated among the
Fund's 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.
PURCHASE AND REDEMPTION OF SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTIONS IN THE PROSPECTUS ENTITLED "HOW TO BUY SHARES" AND
"HOW TO REDEEM SHARES."
TERMS OF PURCHASE. The Fund reserves the right to reject any purchase
order and to change the amount of the minimum investment and subsequent
purchases in the Portfolios.
SALES LOADS. (Applicable to Class A Shares) The scale of sales loads
applies to purchases of Class A Shares of each Portfolio made by any
"purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children, or a trustee or other fiduciary purchasing securities for a single
trust estate or a single fiduciary account trust estate or a single fiduciary
account (including a pension, profit-sharing or other employee benefit trust
created pursuant to a plan qualified under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code")) although more than one beneficiary is
involved; or a group of accounts established by or on behalf of the employees of
an employer or affiliated employers pursuant to an employee benefit plan or
other program (including accounts established pursuant to Sections 403(b),
408(k) and 457 of the Code); or an organized group which has been in existence
for more than six months, provided that it is not organized for the purpose of
buying redeemable securities of a registered investment company and provided
that the purchases are made through a central administration or a single dealer,
or by other means which result in economy of sales effort or expense.
REOPENING AN ACCOUNT. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the calendar
year the account is closed or during the following calendar year, provided the
information on the old Account Application is still applicable.
STOCK CERTIFICATES; SIGNATURES. Any certificate representing Portfolio
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder of
a joint account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Fund's
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-guaranties may not be provided by
notaries public. If the signature is guaranteed by a broker or dealer, such
broker or dealer must be a member of a clearing corporation and maintain net
capital of at least $100,000. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature-Guaranteed" must appear with the
signature.
REDEMPTION COMMITMENT. Each Portfolio has committed itself to pay in
cash all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of such
Portfolio's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such amount, the
Board of Directors reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency or any time a cash
distribution would impair the liquidity of the Portfolio to the detriment of the
existing shareholders. In this event, the securities would be valued in the same
manner as the Portfolio is valued.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closing), (b) when
trading in the markets the Underlying Portfolios normally utilize is restricted,
or when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Underlying Portfolio's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the Securities and Exchange Commission by order may permit
to protect the Portfolio's shareholders.
DETERMINATION OF NET ASSET VALUE
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PROSPECTUS ENTITLED "HOW TO BUY SHARES."
GENERAL. 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. Each Underlying 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 its Board. Each pricing
service's procedures are reviewed under the general supervision of the Board.
Set forth below is further information regarding the methods employed in valuing
the Underlying Portfolio's investments.
CAPITAL GROWTH PORTFOLIO, DIVIDEND GROWTH PORTFOLIO, EQUITY FUND,
OPPORTUNITY FUND, AND INTERNATIONAL EQUITY FUND. Each of these Underlying
Portfolios' securities, including covered call options written by the Underlying
Portfolio, are valued at the last sale price on the securities exchange or
national securities market on which such securities primarily are traded.
Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of the
most recent bid and asked prices, except in the case of open short positions
where the asked price is used for valuation purposes. Bid price is used when no
asked price is available. Any assets or liabilities initially expressed in terms
of foreign currency will be translated into dollars at the midpoint of the New
York interbank market spot exchange rate as quoted on the day of such
translation by the Federal Reserve Bank of New York or if no such rate is quoted
on such date, at the exchange rate previously quoted by the Federal Reserve Bank
of New York or at such other quoted market exchange rate as may be determined to
be appropriate by the Underlying Portfolio's adviser. Forward currency contracts
will be valued at the current cost of offsetting the contract. Since the
International Equity Fund has to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of net asset value may
not take place contemporaneously with the determination of prices of certain of
the Underlying Portfolio's securities. Debt securities maturing in 60 days or
less are carried at amortized cost, which approximates value, except where to do
so would not reflect accurately their fair value, in which case such securities
would be valued at their fair value as determined under the supervision of the
Underlying Portfolio's Board. Any securities or other assets for which recent
market quotations are not readily available may be valued at fair value as
determined in good faith by the Underlying Portfolio's Board.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Underlying Portfolio's Board, are valued at fair value
as determined in good faith by the Board. The Board will review the method of
valuation on a current basis. In making their good faith valuation of restricted
securities, the Board members generally will take the following factors into
consideration: restricted securities which are, or are convertible into,
securities of the same class of securities for which a public market exists
usually will be valued at market value less the same percentage discount at
which purchased. This discount will be revised periodically by the Board if the
Board members believe that it no longer reflects the value of the restricted
securities. Restricted securities not of the same class as securities for which
a public market exists usually will be valued initially at cost. Any subsequent
adjustment from cost will be based upon considerations deemed relevant by the
Board.
CORE INCOME PORTFOLIO AND LIMITED DURATION INCOME PORTFOLIO. Each of
these Underlying Portfolios' investments are valued each business day using
available market quotations or at fair value as determined by one or more
independent pricing services (collectively, the "Service") approved by the
Board. The Service may use available market quotations, employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by the Fund's officers under the general
supervision of the Board.
PRIME MONEY MARKET PORTFOLIO. The valuation of the Prime Money Market
Portfolio's investment securities is based upon their amortized cost which does
not take into account unrealized capital gains or losses. This involves valuing
an instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Underlying
Portfolio would receive if it sold the instrument.
The Board of Directors has agreed, as a particular responsibility
within the overall duty of care owed to the Prime Money Market Portfolio's
investors, to establish procedures reasonably designed to stabilize such
Underlying Portfolio's price per share as computed for the purpose of purchases
and redemptions at $1.00. Such procedures include review of the Underlying
Portfolio's investment holdings by the Board, at such intervals as it deems
appropriate, to determine whether such Underlying Portfolio's net asset value
calculated by using available market quotations or market equivalents deviates
from $1.00 per share based on amortized cost. In such review, investments for
which market quotations are readily available will be valued at the most recent
bid price or yield data for such securities or for securities of comparable
maturity, quality and type, as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets will be
valued at fair value as determined in good faith by the Board.
The extent of any deviation between the Prime Money Market Portfolio's
net asset value based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost will be examined by the Board. If such
deviation exceeds 1/2 of 1%, the Board promptly will consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists which may result in material dilution or other unfair results to
investors or existing Prime Money Market Portfolio shareholders, it has agreed
to take such corrective action as it regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends
or paying distributions from capital or capital gains; redeeming shares in kind;
or establishing a net asset value per share by using available market quotations
or market equivalents.
PERFORMANCE INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE PROSPECTUS ENTITLED "PERFORMANCE INFORMATION."
Current yield is computed pursuant to a formula which operates as
follows: The amount of the Portfolio's expenses accrued for the 30-day period
(net of reimbursements) is subtracted from the amount of the dividends and
interest earned by the Portfolio during the period. That result is then divided
by the product of: (a) the average daily number of shares outstanding during the
period that were entitled to receive dividends, and (b) the maximum offering
price per share on the last day of the period less any undistributed earned
income per share reasonably expected to be declared as a dividend shortly
thereafter. The quotient is then added to 1, and that sum is raised to the 6th
power, after which 1 is subtracted. The current yield is then arrived at by
multiplying the result by 2.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result. A Class's average annual total return figures
calculated in accordance with such formula assume that in the case of Class A
the maximum sales load has been deducted from the hypothetical initial
investment at the time of purchase or, in the case of Class B, the maximum
applicable contingent deferred sales charge ("CDSC") has been paid upon
redemption at the end of the period.
Total return is calculated by subtracting the amount of the maximum
offering price per share at the beginning of a stated period from the net asset
value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period and any applicable
CDSC), and dividing the result by the maximum offering price per share at the
beginning of the period. Total return also may be calculated based on the net
asset value 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. In such cases, the calculation would not reflect the deduction of the
sales load with respect to Class A Shares or any applicable CDSC with respect to
Class B Shares, which, if reflected, would reduce the performance quoted.
From time to time, advertising materials for a Portfolio may refer to
or discuss current or past business, political, economic or financial
conditions, such as U.S. monetary or fiscal policies and actual or proposed tax
legislation. In addition, from time to time, advertising materials for a
Portfolio may include information concerning retirement and investing for
retirement, average life expectancy and pension and social security benefits.
DIVIDENDS, DISTRIBUTION AND TAXES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN EACH PROSPECTUS ENTITLED "DIVIDENDS,
DISTRIBUTIONS AND TAXES."
Each Portfolio intends to qualify as a "regulated investment company"
under the Code if such qualification is in the best interests of its
shareholders. To qualify as a regulated investment company, the Portfolio must
pay out to its shareholders at least 90% of its net income (consisting of net
investment income from tax exempt obligations and net short-term capital gain),
and must meet certain asset diversification and other requirements.
Qualification as a regulated investment company relieves the Portfolio from any
liability for Federal income taxes to the extent its earnings are distributed in
accordance with the applicable provisions of the Code. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense although taxable as stated in "Dividends,
Distributions and Taxes" in the Prospectus. In addition, the Code provides that
if a shareholder holds shares for six months or less and has received a capital
gain dividend with respect to such shares, any loss incurred on the sale of such
shares will be treated as a long-term capital loss to the extent of the capital
gain dividend received.
Depending upon the composition of an Underlying Portfolio's income,
the entire amount or a portion of the dividends paid by the Portfolio from net
investment income may qualify for the dividends received deduction allowable to
qualifying U.S. corporate shareholders ("dividends received deduction"). In
general, dividend income from a Portfolio distributed to qualifying corporate
shareholders will be eligible for the dividends received deduction only to the
extent that such Portfolio's income consists of dividends paid by U.S.
corporations. However, Section 246(c) of the Code generally provides that if a
qualifying corporate shareholder has disposed of Portfolio shares held for less
than 46 days, which 46 days generally must be during the 90-day period
commencing 45 days before the shares become ex-dividend, and has received a
dividend from net investment income with respect to such shares, the portion
designated by the Portfolio as qualifying for the dividends received deduction
will not be eligible for such shareholder's dividends received deduction. In
addition, the Code provides other limitations with respect to the ability of a
qualifying corporate shareholder to claim the dividends received deduction in
connection with holding Portfolio shares.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if a Portfolio or Underlying Portfolio either (1) holds an
appreciated financial position with respect to stock, certain debt obligations,
or partnership interests ("appreciated financial position") and then enters into
a short sale, futures, forward, or offsetting notional principal contract
(collectively, a "Contract") respecting the same or substantially identical
property or (2) holds an appreciated financial position that is a Contract and
then acquires property that is the same as or substantially identical to the
underlying property. In each instance, with certain exceptions, the Portfolio or
Underlying Portfolio generally will be taxed as if the appreciated financial
position were sold at its fair market value on the date Portfolio or Underlying
Portfolio enters into the financial position or acquires the property,
respectively. Transactions that are identified hedging or straddle transactions
under other provisions of the Code can be subject to the constructive sale
provisions.
PORTFOLIO TRANSACTIONS
GENERAL. A Portfolio may purchase or sell shares of the Underlying
Portfolios or other securities to: (a) accommodate purchases and sales of its
shares, (b) change the percentage of its assets invested in each of the
Underlying Portfolios in response to market conditions, and (c) reallocate and
rebalance its assets among the equity, bond and fixed-income securities, money
market funds, and cash, and among these Underlying Portfolios within the
percentage limits set forth in the Prospectus.
Transactions for the Underlying Portfolios are allocated to various
dealers by the Underlying Portfolios' investment personnel in their best
judgment. The primary consideration is prompt and effective execution of orders
at the most favorable price. Subject to that primary consideration, dealers may
be selected to act on an agency basis for research, statistical or other
services to enable the Adviser to supplement its own research and analysis with
the views and information of other securities firms.
To the extent research services are furnished by brokers through which
the Underlying Portfolio effects securities transactions, the Underlying
Portfolio's adviser may use such information in advising other funds or accounts
it advises and, conversely, to the extent research services are furnished to the
Underlying Portfolio's adviser by brokers in connection with other funds or
accounts it advises, the Adviser also may use such information in advising the
Portfolios. Although it is not possible to place a dollar value on these
services, if they are provided, it is the opinion of the Adviser that the
receipt and study of any such services should not reduce the overall expenses of
its research department.
CAPITAL GROWTH PORTFOLIO, DIVIDEND GROWTH PORTFOLIO, EQUITY FUND,
OPPORTUNITY FUND AND INTERNATIONAL EQUITY FUND. Brokers also are selected
because of their ability to handle special executions such as are involved in
large block trades or broad distributions, provided the primary consideration is
met. Large block trades may, in certain cases, result from two or more clients
the Underlying Portfolio's adviser might advise being engaged simultaneously in
the purchase or sale of the same security. Portfolio turnover may vary from year
to year, as well as within a year. Higher turnover rates are likely to result in
comparatively greater brokerage expenses. The overall reasonableness of
brokerage commissions paid is evaluated by the Adviser based upon its knowledge
of available information as to the general level of commissions paid by other
institutional investors for comparable services.
When transactions are executed in the over-the-counter market, the
Adviser will deal with the primary market makers unless a more favorable price
or execution otherwise is obtainable.
The Board has determined, in accordance with Section 17(e) of the 1940
Act and Rule 17e-1 thereunder, that any portfolio transaction for the Underlying
Portfolio may be executed by certain brokers that are affiliates of the Adviser
when such broker's charge for the transaction does not exceed the usual and
customary level.
CORE INCOME PORTFOLIO, LIMITED DURATION INCOME PORTFOLIO, AND PRIME
MONEY MARKET PORTFOLIO. Purchases and sales of portfolio securities usually are
principal transactions. Portfolio securities ordinarily are purchased directly
from the issuer or from an underwriter or market maker. Usually no brokerage
commissions are paid by the Underlying Portfolio for such purchases and sales.
The prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of securities
from market makers may include the spread between the bid and asked price.
INFORMATION ABOUT THE PORTFOLIOS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "GENERAL
INFORMATION."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive or subscription rights and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise, to the holders of the outstanding voting securities of an investment
company, such as the Fund, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by such matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of such portfolio. However, the Rule exempts the
election of directors from the separate voting requirements of the Rule.
Each Portfolio will send annual and semi-annual financial statements
to all its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT AUDITORS
The Bank of New York, 90 Washington Street, New York, New York 10286,
acts as custodian of each Portfolio's investments. The Bank of New York has no
part in determining the investment policies of any Portfolio or which securities
are to be purchased or sold by an Portfolio.
BISYS Fund Services Ohio, Inc., an affiliate of BISYS, 3435 Stelzer
Road, Columbus, Ohio 43219, acts as the Fund's transfer and dividend disbursing
agent. Under the transfer agency agreement with the Fund, the Transfer Agent
maintains shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and pays dividends and
distributions payable by the Fund. For these services, the Transfer Agent
receives a monthly fee compiled on the basis of the number of shareholder
accounts it maintains for the Fund during the month, and is reimbursed for
certain out-of-pocket expenses.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Fund, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
of Common Stock being sold pursuant to each Prospectus.
___________________________________, independent auditors, have been
selected as each Portfolio's auditors.
FINANCIAL STATEMENTS
The Portfolios' Annual Report to Shareholders for the fiscal year
ending December 31, 1998 will be supplied with this Statement of Additional
Information when it is available in February 1999.
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Ratings
Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch IBCA, Inc.
("Fitch"), Duff & Phelps Credit Rating Co. ("Duff") and Thomson BankWatch,
Inc.("BankWatch"):
S&P
BOND RATINGS
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
COMMERCIAL PAPER RATING
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus sign (+) designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's
BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category. The
modifier 1 indicates a ranking for the security in the higher end of a rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of a rating category.
COMMERCIAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
Duff
BOND RATINGS
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes. Overall
quality may move up or down frequently within the category.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating category.
COMMERCIAL PAPER RATING
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
BankWatch
COMMERCIAL PAPER AND SHORT-TERM OBLIGATIONS RATINGS
The rating TBW-1 is the highest short-term obligation rating assigned
by BankWatch. Obligations rated TBW-1 are regarded as having the strongest
capacity for timely repayment. Obligations rated TBW-2 are supported by a strong
capacity for timely repayment, although the degree of safety is not as high as
for issues rated TBW-1.
INTERNATIONAL AND U.S. BANK RATINGS
In addition to its ratings of short-term obligations, BankWatch
assigns a rating to each issuer it rates, in gradations of A through E.
BankWatch examines all segments of the organization, including, where
applicable, the holding company, member banks or associations, and other
subsidiaries. In those instances where financial disclosure is incomplete or
untimely, a qualified rating (QR) is assigned to the institution. BankWatch also
assigns, in the case of foreign banks, a country rating which represents an
assessment of the overall political and economic stability of the country in
which the bank is domiciled.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Not Applicable.
(b) Exhibits:
(1) (a) Articles of Incorporation are incorporated by
reference to Exhibit (1) of the Registration
Statement on Form N-1A, filed on March 29, 1990.
(b) Articles of Amendment are incorporated by
reference to Exhibit (1)(b) of Pre-Effective
Amendment No. 3 to the Registration Statement on
Form N-1A, filed on June 22, 1990.
(c) Articles Supplementary dated October 16,
1990 are incorporated by reference to
Exhibit(1)(c) of Post-Effective Amendment No. 3
to the Registration Statement on Form N-1A,
filed on October 25, 1990.
(d) Articles Supplementary dated January 9, 1992
are incorporated by reference to Exhibit (1)(d)
of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A, filed on
January 17, 1992.
(e) Articles Supplementary dated February 15,
1994 are incorporated by reference to Exhibit
(1)(e) of Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A, filed on
February 10, 1994.
(f) Articles of Amendment are incorporated by
reference to Exhibit (1)(f) of Post-Effective
Amendment No. 26 to the Registration Statement
on Form N-1A, filed on April 30, 1996.
(g) Articles Supplementary dated February 24,
1997 are incorporated by reference to Exhibit
(1)(g) of Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A, filed on
February 27, 1997.
(h) Articles of Amendment are incorporated by
reference to Post-Effective Amendment No. 36 to
the Registration Statement on Form N-1A, filed
March 31, 1998.
(i) Articles Supplementary are incorporated by
reference to Post-Effective Amendment No. 36 to
the Registration Statement on Form N-1A, filed
March 31, 1998.
(2) By-Laws are incorporated by reference to Exhibit (2) of
Pre-Effective Amendment No. 3 to the Registration Statement
on Form N-1A, filed on June 22, 1990.
(4) Specimen copies of stock certificates are incorporated by
reference to Exhibit (4) of Post-Effective Amendment No. 6
to the Registration Statement on Form N-1A, filed on June 7,
1991.
(5) (a)(i) Investment Advisory Agreement between
the Registrant and Mitchell Hutchins Asset
Management Inc. is incorporated by reference to
Exhibit (5)(b)(iii) of Post-Effective Amendment
No. 6 to the Registration Statement on Form
N-1A, filed on June 7, 1991.
(a)(ii) Investment Advisory Agreement between
Registrant and First American National Bank.
(b)(i) Sub-Investment Advisory Agreement between
First American National Bank and Lazard Asset
Management.
(b)(ii) Sub-Investment Advisory Agreement between First
American National Bank and Womack Asset
Management, Inc.
(c) Administration Agreement between Registrant
and BISYS Fund Services Limited Partnership
dated April 25, 1996, as revised August 12,
1998.
(6) (a) Distribution Agreement between Registrant
and BISYS Fund Services Limited Partnership
dated February 11, 1997, as revised August 12,
1998.
(b)(i) Form of Plan Agreement, with respect to
Registrant's Correspondent Cash Reserves Money
Market Portfolio and Correspondent Cash Reserves
Tax Free Money Market Portfolio, is incorporated
by reference to Exhibit (6)(b) of Post-
Effective Amendment No. 6 to the Registration
Statement on Form N-1A, filed on June 7, 1991.
(b)(ii) Distribution Plan Agreement, with respect to
Registrant's AmeriStar (a/k/a ISG) Portfolios.
(8) (a) Custody and Fund Accounting Agreement
with The Bank of New York is incorporated by
reference to Exhibit (8)(a) of Pre-Effective
Amendment No. 3 to the Registration Statement on
Form N-1A, filed on June 22, 1990.
(b ) Form of Foreign Sub-Custodian Agreement is
incorporated by reference to Post-Effective
Amendment No. 22 to the Registration Statement
on Form N-1A, filed on February 10, 1994.
(9) (a) Special Management Services Agreement
among the Registrant, Mitchell Hutchins Asset
Management Inc. and Concord Holding Corporation
is incorporated by reference to Exhibit (9) of
Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A, filed on
June 7, 1991.
(b) Form of Shareholder Services Agreement
is incorporated by reference to Exhibit (5)(e)
of Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, filed on
June 22, 1990.
(c) Shareholder Services Plan, with respect to
Registrant's AmeriStar (a/k/a ISG) Portfolios.
(11) Consent of Independent Auditors.*
(15) (a) Plan of Distribution pursuant to Rule
12b-1, with respect to Registrant's
Correspondent Cash Reserves Money Market
Portfolio and Correspondent Cash Reserves Tax
Free Money Market Portfolio, is incorporated by
reference to Exhibit (15) of Post-Effective
Amendment No. 6 to the Registration Statement on
Form N-1A, filed on June 7, 1991.
(b) Distribution Plan pursuant to Rule 12b-1,
with respect to Registrant's AmeriStar (a/k/a
ISG) Portfolios.
(16) Computations of Performance Information
are incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement
on Form N-1A, filed on May 1, 1995.
(17) Financial Data Schedules are incorporated
by reference to Registrant's Annual Report on
Form N-SAR filed on or about February 27, 1998
and Semi-Annual Report on Form N-SAR filed on or
about August 28, 1998.
(18) (a) Rule 18f-3 Plan for Registrant's
CCR Portfolios is incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A, filed on
May 1, 1995.
(b) Rule 18f-3 Plan for Registrant's AmeriStar
(a/k/a ISG) Non-Money Market Portfolios.
(c) Rule 18f-3 Plan for Registrant's AmeriStar
(a/k/a ISG) Money Market Portfolios.
Other Exhibit: (i) Certificate of Corporate Secretary is
incorporated by reference to Other Exhibit of
Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, filed on
June 22, 1990.
(ii) Powers of Attorney are incorporated by
reference to Pre-Effective Amendment No. 1 and
Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A, filed on
May 23, 1990 and November 15, 1991,
respectively.
_______________________
* To be filed by Amendment.
Item 25. Persons Controlled By or Under Common Control
with Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class July 27, 1998
Common Stock, par value
$.001 per share
Correspondent Cash Reserves
Money Market Portfolio 50,148
Correspondent Cash Reserves Tax
Free Money Market Portfolio 1,826
AmeriStar (a/k/a ISG) Prime Money
Market Portfolio
--Trust Shares 2
--Class A Shares 18
--Class B Shares 0
AmeriStar (a/k/a ISG) Capital
Growth Portfolio
--Trust Shares 7
--Class A Shares 6
--Class B Shares -
AmeriStar (a/k/a ISG) Core Income Portfolio
--Trust Shares 4
--Class A Shares 3
--Class B Shares -
AmeriStar (a/k/a ISG) Limited
Duration Income Portfolio
--Trust Shares 4
--Class A Shares 13
--Class B Shares --
AmeriStar (a/k/a ISG) Tennessee
Tax Exempt Bond Portfolio
--Trust Shares 4
--Class A Shares 24
--Class B Shares --
AmeriStar (a/k/a ISG) U.S.
Treasury Money Market Portfolio
--Trust Shares 2
--Class A Shares 11
AmeriStar (a/k/a ISG) Dividend Growth
Portfolio
--Trust Shares 4
--Class A Shares 29
--Class B Shares --
AmeriStar (a/k/a ISG) Limited Duration
U.S. Government Portfolio
--Trust Shares 0
--Class A Shares 4
--Class B Shares --
AmeriStar (a/k/a ISG) Limited Duration
Tennessee Tax Free Portfolio
--Trust Shares 0
--Class A Shares 4
--Class B Shares --
Item 27. Indemnification
Reference is made to Article SEVENTH of the Registrant's Articles of
Incorporation filed as Exhibit 1 to the Registration Statement, filed on March
29, 1990, and to Section 2-418 of the Maryland General Corporation Law. The
application of these provisions is limited by Article VIII of the Registrant's
By-Laws filed as Exhibit 2 to Pre-Effective Amendment No. 3 to the Registration
Statement, filed on June 22, 1990, and by the following undertaking set forth in
the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in such
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Reference also is made to the Distribution Agreement filed as Exhibit
6(a) hereto.
Item 28(a). Business and Other Connections of Investment Adviser
(i) Registrant is fulfilling the requirement of this Item 28(a) to
provide a list of the officers and directors of Mitchell Hutchins Asset
Management Inc., the investment adviser of the Registrant's Correspondent Cash
Reserves Money Market Portfolio, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by Mitchell Hutchins Asset Management Inc. or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by the Mitchell Hutchins Asset Management Inc.
(SEC File No. 801-13219).
(ii) First American National Bank, the investment adviser of the
Registrant's AmeriStar Portfolios, is a wholly-owned subsidiary of First
American Corporation, a registered bank holding company. To the knowledge of the
Registrant, none of the directors or executive officers of First American
National Bank, except those described below, are or have been, at any time
during the past two years, engaged in any other business, profession, vocation
or employment of a substantial nature, except that certain directors and
executive officers of First American National Bank also hold or have held
various positions with bank and non-bank affiliates of First American National
Bank, including First American Corporation.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
OTHER EMPLOYMENT OF A
POSITION WITH SUBSTANTIAL
NAME ADVISER NATURE
<S> <C> <C>
Dennis C. Bottorff Chairman and Chairman and Chief Executive
Chief Executive Officer of First American
Officer Corporation
Earnest W. Deavenport, Jr. Director Chairman and Chief Executive
Officer of Eastman Chemical
Company
Reginald D. Dickson Director President Emeritus of
INROADS, Inc.
James A. Haslam, II Director Chairman of the Board of
Pilot Corporation
Warren A. Hood, Jr. Director Chairman of Hood Industries, Inc.
Martha R. Ingram Director Chairman of the Board of
Ingram Industries, Inc.
Walter G. Knestrick Director Chairman of the Board of
Walter Knestrick
Contractor, Inc.
Gene C. Koonce Director Vice Chairman of United
Cities Gas Company
James R. Martin Director Chairman and Chief Executive
Officer of Plasti-Line, Inc.
Robert A. McCabe, Jr. Director Vice Chairman of First
American Corporation and
President of First American
Enterprises
Howard L. McMillan, Jr. Director Chairman of Deposit Guaranty
System
John N. Palmer Director Chairman and Chief Executive
Officer of SkyTel
Communications, Inc.
Dale W. Polley Director President and Principal
Financial Officer of First
American Corporation
E.B. Robinson, Jr. Director Vice Chairman and Chief
Operating Officer of First
American Corporation and
President of First American
National Bank
Roscoe R. Robinson Director Former Vice Chancellor for
Health Affairs of
Vanderbilt University
Medical Center
James F. Smith Director Former Chairman of the Board
of First American Corporation
Cal Turner, Jr. Director Chairman and Chief Executive
Officer of Dollar General
Corporation
Celia A. Wallace Director Chairman and Chief Executive
Officer of Southern Medical
Health Systems, Inc.
Ted H. Welch Director Real Estate Developer,
President and Chief
Executive Officer of Eagle
Communications
J. Kelley Williams, Sr. Director Chairman and Chief Executive
Officer of ChemFirst, Inc.
David K. Wilson Director Chairman of the Board of
Cherokee Equity Corporation
Toby S. Wilt Director President of TSW Investment Company
William S. Wire, II Director Former Chairman of the Board
of Genesco, Inc.
</TABLE>
<PAGE>
(iii) Registrant is fulfilling the requirement of this Item 28(a) to
provide a list of the officers and directors of Lazard Asset Management, the
investment adviser of the Registrant's ISG International Equity Portfolio,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by Lazard Asset Management or
those of its officers and directors during the past two years, by incorporating
by reference the information contained in the Form ADV filed with the SEC
pursuant to the Investment Advisers Act of 1940 by the Lazard Asset Management
(SEC File No. 801-50349).
(iv) Registrant is fulfilling the requirement of this Item 28(a) to
provide a list of the officers and directors of Womack Asset Management, Inc.,
the investment adviser of the Registrant's ISG Small Cap Opportunity Portfolio,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by Womack Asset Management, Inc.
or those of its officers and directors during the past two years, by
incorporating by reference the information contained in the Form ADV filed with
the SEC pursuant to the Investment Advisers Act of 1940 by the Womack Asset
Management, Inc. (SEC File No. 801-54327).
(v) Registrant is fulfilling the requirement of this Item 28(a) to
provide a list of the officers and directors of Bennett Lawrence Management LLC,
the investment adviser of the Registrant's ISG Mid Cap Portfolio, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by Bennett Lawrence Management, LLC or those of
its officers and directors during the past two years, by incorporating by
reference the information contained in the Form ADV filed with the SEC pursuant
to the Investment Advisers Act of 1940 by the Bennett Lawrence Management, LLC
(SEC File No. 801-49805).
Item 29. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
American Performance Funds
AmSouth Mutual Funds
The ARCH Fund, Inc.
The BB&T Mutual Funds Group
The Coventry Group
The Empire Builder Tax Free Bond Fund
ESC Strategic Funds, Inc.
The Eureka Funds
Fountain Square Funds
Hirtle Callaghan Trust
HSBC Family of Funds
The Infinity Mutual Funds, Inc.
INTRUST Funds Trust
The Kent Funds
Magna Funds
Meyers Investment Trust
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
Parkstone Group of Funds
The Parkstone Advantage Fund
Pegasus Funds
The Republic Funds Trust
The Republic Advisors Funds Trust
The Riverfront Funds, Inc.
SBSF Funds, Inc. dba Key Mutual Funds
Sefton Funds
The Sessions Group
Summit Investment Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Funds
Vintage Mutual Funds, Inc.
(b) The information required by this Item 29(b) regarding each director
or officer of BISYS Fund Services Limited Partnership is incorporated by
reference to Schedule A of Form BD filed pursuant to the Securities Exchange Act
of 1934 (SEC File No. 8-32480).
Item 30. Location of Accounts and Records
1. BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
2. The Bank of New York
90 Washington Street
New York, New York 10015
3. First American National Bank
315 Deaderick Street
Nashville, Tennessee 37238
4. Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(b) Registrant hereby undertakes
(1) to call a meeting of shareholders for the purpose of voting
upon the question of removal of a Director or Directors when requested in
writing to do so by the holders of at least 10% of the Registrant's outstanding
Common Stock and in connection with such meeting to comply with the provisions
of Section 16(c) of the Investment Company Act of 1940 relating to shareholders
communications;
(2) to furnish each person to whom a prospectus is delivered with
a copy of its most current annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 22nd day
of September, 1998.
THE INFINITY MUTUAL FUNDS, INC.
(Registrant)
By: /s/ William B. Blundin*
WILLIAM B. BLUNDIN President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/William B. Blundin* President (Principal
WILLIAM B. BLUNDIN Executive Officer) and
Chairman of the
Board of Directors
/s/Gary R. Tenkman* Treasurer (Chief
GARY R. TENKMAN Financial and
Accounting Officer)
/s/Richard H. Francis* Director
RICHARD H. FRANCIS
/s/Norma A. Coldwell* Director
NORMA A. COLDWELL
/s/William W. McInnes* Director
WILLIAM W. McINNES
/s/Robert A. Robinson* Director
ROBERT A. ROBINSON
*By:/s/Robert L. Tuch September 22, 1998
Robert L. Tuch
Attorney-in-fact
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
Post-Effective Amendment No. 40
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
--------------------------------------
EXHIBITS
--------------------------------------
<PAGE>
INDEX TO EXHIBITS
PAGE
-----
(5)(a)(ii) Investment Advisory Agreement between Registrant and
First American National Bank...............................
(5)(b)(i) Sub-Investment Advisory Agreement between First American
National Bank and Lazard Asset Management..................
(5)(b)(ii) Sub-Investment Advisory Agreement between First American
National Bank and Womack Asset Management, Inc.............
(5)(c) Administration Agreement between Registrant and BISYS
Fund Services Limited Partnership dated April 25, 1996,
as revised August 12, 1998.................................
(6)(a) Distribution Agreement between Registrant and BISYS
Fund Services Limited Partnership dated February 11,
1997, as revised August 12, 1998............................
(6)(b)(ii) Distribution Plan Agreement, with respect to
Registrant's AmeriStar (a/k/a ISG) Portfolios...............
(9)(c) Shareholder Services Plan, with respect to
Registrant's AmeriStar (a/k/a ISG) Portfolios...............
(15)(b) Distribution Plan pursuant to Rule 12b-1, with respect
to Registrant's AmeriStar (a/k/a ISG) Portfolios............
(17) Financial Data Schedules are incorporated by reference
to Registrant's Annual Report on Form N-SAR filed on or
about February 27, 1998 and Semi-Annual Report on
Form N-SAR filed on or about August 28, 1998................
(18)(b) Rule 18f-3 Plan for Registrant's AmeriStar (a/k/a ISG)
Non-Money Market Portfolios.................................
(18)(c) Rule 18f-3 Plan for Registrant's AmeriStar (a/k/a ISG)
Money Market Portfolios.....................................
EXHIBIT (5)(a)(ii)
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement made as of February 15, 1994, and revised
as of August 12, 1998, between THE INFINITY MUTUAL FUNDS, INC., a Maryland
corporation having its principal office and place of business at 3435 Stelzer
Road, Columbus, Ohio 43219-3035 (herein called the "Fund"), and FIRST AMERICAN
NATIONAL BANK, a national banking association having its principal office and
place of business at First American Center, 315 Deaderick Street, Nashville,
Tennessee 37238-0035 (herein called the "Adviser").
WHEREAS, the Fund is an open-end, management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund intends to employ BISYS Fund Services Limited
Partnership (the "Administrator") to act as the Fund's administrator; and
WHEREAS, the Fund desires to retain the Adviser to provide investment
advisory services and other services to the Fund's portfolios set forth on
Schedule 1 attached hereto, as such may be revised from time to time (each, a
"Series"; the provisions herein shall apply severally to each Series), and the
Adviser is willing to furnish such services upon the terms and conditions herein
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Fund hereby appoints the Adviser to act as investment adviser to
each Series for the period and on the terms set forth in this Agreement. The
Adviser accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
(b) In the event that the Fund establishes one or more portfolios, other
than those set forth on Schedule 1 hereto, and with respect to which the Fund
desires the Adviser to act as investment adviser hereunder, the Fund shall
notify the Adviser in writing. If the Adviser is willing to render such services
under this Agreement it shall notify the Fund in writing whereupon such
portfolio shall become a Series hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Series currently named in Schedule
1, except to the extent that said provisions (including those relating to the
compensation payable to the Adviser) are modified with respect to such Series in
writing by the Fund and the Adviser.
2. DELIVERY OF DOCUMENTS.
The Fund has furnished the Adviser with copies properly certified or
authenticated of each of the following:
(a) The Fund's Articles of Incorporation and any amendments and
supplements thereto (as presently in effect and as from time to time
amended or supplemented, herein called the "Charter");
(b) The Fund's By-laws and any amendments thereto;
(c) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Adviser and approving this Agreement;
(d) The Fund's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act"), and under the 1940 Act most
recently filed with the Securities and Exchange Commission (the
"Commission");
(e) The Fund's Notification of Registration on Form N-8A under the 1940
Act as filed with the Commission; and
(f) The Fund's current Prospectuses and Statements of Additional
Information of the Series (as presently in effect and as from time to time
amended and supplemented, herein called individually the "Prospectus" and
collectively the "Prospectuses").
The Fund promptly will furnish the Adviser with copies of all amendments of or
supplements to the foregoing, if any.
3. SERVICES OF ADVISER.
Subject to the supervision of the Fund's Board of Directors, the Adviser
will provide a continuous investment program for each Series, including
investment research and day-to-day management with respect to such Series'
assets. The Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Series. The Adviser will
provide the services rendered by it under this Agreement in accordance with the
investment criteria and policies established from time to time for a Series by
the Fund, such Series' investment objective, policies and restrictions as stated
in its Prospectus and resolutions of the Fund's Board of Directors. The Fund
wishes to be informed of important developments materially affecting a Series'
portfolio and the Adviser agrees to furnish to the Fund from time to time such
information as the Adviser may believe appropriate for this purpose. The Adviser
shall be permitted to employ one or more sub-investment advisers (each a
"Sub-Adviser") to provide the day-to-day management of the investments of the
Series.
4. OTHER COVENANTS.
The Adviser agrees that it will:
(a) comply with all applicable rules and regulations of the Securities
and Exchange Commission in performing its duties as investment adviser for
the Series and, in addition, will conduct its activities under this
Agreement in accordance with other applicable federal and state law;
(b) review and analyze on a periodic basis each Series' portfolio
holdings and transactions;
(c) provide, or cause to be provided, to the Board of Directors of the
Fund such reports, statistical data and economic information as may be
reasonably requested in connection with the Adviser's services hereunder;
(d) use the same skill and care in providing such services as it uses in
providing services to fiduciary accounts for which it has investment
responsibilities;
(e) place orders pursuant to its investment determinations for the
Series either directly with the issuer or with any broker or dealer. In
executing portfolio transactions and selecting brokers or dealers, the
Adviser will use its best efforts to seek on behalf of the Series the best
overall terms available. In assessing the best overall terms available for
any transaction, the Adviser shall consider all factors that it deems
relevant, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. In evaluating the
best overall terms available, and in selecting the broker-dealer to execute
a particular transaction, the Adviser also may consider the brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Series and other accounts
over which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized, subject to the prior approval of
the Fund's Board of Directors, to pay to a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for any of the Series which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer as viewed in terms of
that particular transaction or in terms of the overall responsibilities of
the Adviser to the Series. In addition, the Adviser is authorized to take
into account the sale of the Fund's Shares in allocating purchase and sale
orders for portfolio securities to brokers or dealers (including brokers
and dealers that are affiliated with the Adviser or the Fund's principal
underwriter), provided the Adviser believes that the quality of the
execution and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will portfolio securities
be purchased from or sold to the Adviser, the Fund's principal underwriter
or any affiliated person of either the Fund, the Adviser, or the principal
underwriter, acting as principal in the transaction, except to the extent
permitted by the Securities and Exchange Commission and other applicable
federal and state laws and regulations;
(f) maintain historical tax lots for each portfolio security held by the
Series;
(g) transmit trades to the Fund's custodian for proper settlement; and
(h) prepare a quarterly broker security transaction summary and monthly
security transaction listing for each Series.
5. SERVICES NOT EXCLUSIVE.
The services furnished by the Adviser hereunder are deemed not to be
exclusive, and the Adviser shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby. To the
extent that the purchase or sale of securities or other investments of the same
issuer may be deemed by the Adviser to be suitable for two or more Series,
investment companies or accounts managed by the Adviser, the available
securities or investments will be allocated in a manner believed by the Adviser
to be equitable to each of them. It is recognized and acknowledged by the Fund
that in some cases this procedure may adversely affect the price paid or
received by a Series or the size of the position obtained for or disposed of by
a Series.
<PAGE>
6. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Adviser hereby agrees that all records which it maintains for the Series are
the property of the Fund and further agrees to surrender promptly to the Fund
any of such records upon the Fund's request. The Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
7. EXPENSES.
Except as otherwise stated in this section 7, the Adviser shall pay all
expenses incurred by it in performing its services and duties as investment
adviser and shall pay all fees of each Sub-Adviser in connection with such
Sub-Adviser's duties in respect of the Fund. All other expenses incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by others. The expenses to be borne by the Fund include,
without limitation, the following: 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, any Sub-Adviser or the Administrator, or any of their
affiliates, 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 attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
calculating the net asset value of the Series' shares, costs of shareholders'
reports and corporate meetings, costs of preparing and printing certain
prospectuses and statements of additional information, and any extraordinary
expenses.
8. COMPENSATION.
In consideration of services rendered pursuant to this Agreement, the
Fund will pay the Adviser on the first business day of each month the fee at the
annual rate set forth opposite the Series' name on Schedule 1 attached hereto,
based upon the value of the Series' average daily net assets for the previous
month. Such fee as is attributable to a Series shall be a separate charge to
such Series and shall be the several (and not joint or joint and several)
obligation of the Series. Fees hereunder shall be payable with respect to a
Series commencing on the date of the initial public sale of such Series' shares.
The Adviser agrees to accept such fee from the Fund as full compensation for the
services provided and expenses assumed by it pursuant to this Agreement, and
acknowledges that it shall not be entitled to any further compensation from the
Fund in respect of the same.
Net asset value shall be computed on such days and at such time or times
as described in the Prospectus. Upon the commencement or any termination of this
Agreement after the first day or before the end of any month, as the case may
be, the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and, in the case
of any termination, shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to the Adviser, the value of
each Series' net assets shall be computed in the manner specified in the Charter
for the computation of the value of the Series' net assets.
Notwithstanding anything to the contrary herein, if in any fiscal year
the aggregate expenses of a Series, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including investment advisory and
administration fees, exceed the expense limitation of any such state having
jurisdiction over such Series, the Fund may deduct from the fees to be paid
hereunder, or the Adviser will bear, to the extent required by state law, that
portion of such excess which bears the same relation to the total of such excess
as the Adviser's fee hereunder bears to the total fee otherwise payable for the
fiscal year by the Series pursuant to this Agreement and the Fund's
Administration Agreement. Such deduction or payment, if any, will be estimated
daily, and reconciled and effected or paid, as the case may be, on a monthly
basis.
9. LIMITATION OF LIABILITY.
The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except that the Adviser shall be liable to the Fund for
any loss resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of the Adviser's duties or from its reckless
disregard of its obligations and duties under this Agreement. Any person, even
though also an officer, director, partner, employee or agent of the Adviser, who
may be or become an officer, Director, employee or agent of the Fund, shall be
deemed, when rendering services to the Fund or to a Series, or acting on any
business of the Fund or of a Series (other than services or business in
connection with the Adviser's duties as investment adviser hereunder) to be
rendering such services to or acting solely for the Fund or such Series and not
as an officer, director, partner, employee or agent or one under the control or
direction of the Adviser even though paid by the Adviser.
10. TERM.
As to each Series, this Agreement shall continue until the date set
forth opposite such Series' name on Schedule 1 attached hereto (the "Reapproval
Date"), and thereafter shall continue automatically for successive annual
periods ending on the day of each year set forth opposite the Series' name on
Schedule 1 attached hereto (the "Reapproval Day"), provided such continuance is
specifically approved as to a Series at least annually by (a) the Fund's Board
of Directors or (b) vote of a majority (as defined in the 1940 Act) of such
Series' outstanding voting securities, provided that in either event its
continuance also is approved by a majority of the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to each Series, this Agreement may be terminated without
penalty, on 60 days' written notice to the Adviser (which notice may be waived
in writing by the Adviser), by the Fund's Board of Directors or by vote of the
holders of a majority of such Series' shares or may be terminated without
penalty, upon not less than 90 days' written notice to the Fund (which notice
may be waived in writing by the Fund), by the Adviser. This Agreement also will
terminate automatically, as to the relevant Series, in the event of its
assignment (as defined in the 1940 Act).
11. USE OF NAME.
The parties hereto agree that (i) in the event of the termination of
this Agreement, the Adviser shall have the right to require the Fund, within 30
days of such termination, to delete from the Series and its name, the word "ISG"
and (ii) the Adviser or any affiliate of the Adviser shall have the right to
grant to other investment companies that it may sponsor or advise the use of the
word "ISG" in the name of such investment company.
<PAGE>
12. MISCELLANEOUS.
(a) AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the
party against whom an enforcement of the change, waiver, discharge or
termination is sought.
(b) CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. Subject to the provisions of Section 10 hereof,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by New
York law; PROVIDED, HOWEVER, that nothing herein shall be construed in a
manner inconsistent with the 1940 Act or any rule or regulation of the
Commission thereunder.
(c) NOTICE. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be effective upon
actual receipt by the Fund, or on the fourth day after the postmark if such
notice or other instrument is mailed via first class postage prepaid, at
its office at the address first above written, or at such other place as
the Fund may from time to time designate in writing. Any notice or other
instrument in writing, authorized or required by this Agreement to be given
to the Adviser shall be effective upon actual receipt by the Adviser, or on
the fourth day after the postmark if such notice or other instrument is
mailed via first class postage prepaid, at its office at the address first
above written, or at such other place as the Adviser may from time to time
designate in writing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE INFINITY MUTUAL FUNDS, INC.
By:___________________________
William B. Blundin,
President and Chairman
of the Board
Attest:____________________
FIRST AMERICAN NATIONAL BANK
By:__________________________
Attest:_______________________
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
ANNUAL FEE AS
A PERCENTAGE OF
AVERAGE DAILY REAPPROVAL REAPPROVAL
NAME OF SERIES NET ASSETS DATE DAY
- -------------- --------------- ---------- ----------
<S> <C> <C> <C>
ISG Aggressive Growth Portfolio .20 of 1% December 31, 1999 December 31
ISG Capital Growth Portfolio .65 of 1% December 31, 1998 December 31
ISG Core Income Portfolio .50 of 1% December 31, 1998 December 31
ISG Current Income Portfolio .20 of 1% December 31, 1999 December 31
ISG Dividend Growth Portfolio .65 of 1% December 31, 1998 December 31
ISG Equity Value Portfolio .75 of 1% December 31, 1999 December 31
ISG Government Income Portfolio .60 of 1% December 31, 1999 December 31
ISG Government Money Market Portfolio .25 of 1% December 31, 1999 December 31
ISG Growth Portfolio .20 of 1% December 31, 1999 December 31
ISG Growth and Income Portfolio .20 of 1% December 31, 1999 December 31
ISG International Equity Portfolio* 1.00% December 31, 1999 December 31
ISG Large Cap Equity Portfolio .75 of 1% December 31, 1999 December 31
- -------------------
* The Adviser has retained Lazard Asset Management as the Series' sub-investment adviser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FEE AS
A PERCENTAGE OF
AVERAGE DAILY REAPPROVAL REAPPROVAL
NAME OF SERIES NET ASSETS DATE DAY
- -------------- --------------- ---------- ----------
<S> <C> <C> <C>
ISG Limited Duration Income Portfolio .50 of 1% December 31, 1998 December 31
ISG Limited Duration Tennessee Tax Free Portfolio .50 of 1% December 31, 1998 December 31
ISG Limited Duration U.S. Government Portfolio .50 of 1% December 31, 1998 December 31
ISG Mid Cap Portfolio** 1.00% December 31, 1999 December 31
ISG Moderate Growth and Income Portfolio .20 of 1% December 31, 1999 December 31
ISG Municipal Income Portfolio .60 of 1% December 31, 1999 December 31
ISG Prime Money Market Portfolio .25 of 1% December 31, 1998 December 31
ISG Small Cap Opportunity Portfolio*** .95 of 1% December 31, 1999 December 31
ISG Tax Free Money Market Portfolio .35 of 1% December 31, 1999 December 31
ISG Tennessee Tax Exempt Bond Portfolio .50 of 1% December 31, 1998 December 31
ISG U.S. Treasury Money Market Portfolio .25 of 1% December 31, 1998 December 31
- ------------
** The Adviser has retained Bennett Lawrence Management, LLC as the Series' sub-investment adviser.
*** The Adviser has retained Womack Asset Management, Inc. as the Series' sub-investment adviser.
</TABLE>
EXHIBIT (5)(b)(i)
SUB-INVESTMENT ADVISORY AGREEMENT
Sub-Investment Advisory Agreement made as of the 14th day of May, l998,
between FIRST AMERICAN NATIONAL BANK, a national banking association having its
principal office and place of business at First American Center, 315 Deaderick
Street, Nashville, Tennessee 37238-0035 (herein called the "Adviser"), and
LAZARD ASSET MANAGEMENT, having its principal office and place of business at 30
Rockefeller Plaza, New York, New York 10020 (herein called the "Sub-Adviser").
WHEREAS, The Infinity Mutual Funds, Inc. (herein called the "Fund") is
an open-end, management investment company, registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund employs the Adviser to provide advisory services
pursuant to an Investment Advisory Agreement dated February 15, 1994 between the
Fund and the Adviser (the "Investment Advisory Agreement") with respect to the
Fund's portfolio or portfolios set forth on Schedule 1 attached hereto, as such
may be revised from time to time (the "Series"; if there are more than one
Series to which this Agreement applies, the provisions herein shall apply
severally to each such Series); and
WHEREAS, the Fund intends to employ BISYS Fund Services Limited
Partnership (the "Administrator") to act as the Fund's administrator; and
WHEREAS, the Adviser, in its capacity as investment adviser to the
Series, desires to retain the Sub-Adviser to provide the day-to-day management
of the Series' investments, the Fund consents to the Adviser retaining the
Sub-Adviser to provide such services, and the Sub-Adviser is willing to perform
such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
<PAGE>
1. APPOINTMENT.
The Adviser hereby retains the Sub-Adviser to act as sub-investment
adviser to the Series for the period and on the terms set forth in this
Agreement. The Sub-Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Adviser, the Sub-Adviser
will provide a continuous investment program for the Series, including
investment research and day-to-day management with respect to such Series'
assets. The Sub-Adviser will provide the services rendered by it under this
Agreement in accordance with the investment criteria and policies established
from time to time for the Series by the Adviser, the Series' investment
objective, policies and restrictions as stated in the Fund's Prospectus and
Statement of Additional Information for the Series, as from time to time in
effect, and resolutions of the Fund's Board of Directors. The Fund and the
Adviser wish to be informed of important developments materially affecting the
Series' portfolio and the Sub-Adviser agrees to furnish to the Fund and the
Adviser from time to time such information as may be appropriate for this
purpose.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it will:
(a) comply with all applicable rules and regulations of the
Securities and Exchange Commission in performance of its duties as
sub-investment adviser for the Series and, in addition, will conduct its
activities under this Agreement in accordance with other applicable federal and
state law;
(b) review and analyze on a periodic basis the Series' portfolio
holdings and transactions in order to determine their appropriateness in light
of such Series' shareholder base;
(c) provide, or cause to be provided, to the Board of Directors of
the Fund such reports, statistical data and economic information as may be
reasonably requested in connection with the Sub-Adviser's services hereunder;
(d) use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has investment
responsibilities;
(e) place orders pursuant to its investment determinations for the
Series either directly with the issuer or with any broker or dealer. In
executing portfolio transactions and selecting brokers or dealers, the Sub-
Adviser will use its best efforts to seek on behalf of the Series the best
overall terms available. In assessing the best overall terms available for any
transaction, the Sub-Adviser shall consider all factors that it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, both for the specific transaction
and on a continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction, the
Sub-Adviser may also consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934)
provided to the Series and other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser exercises investment discretion. The Sub-Adviser is
authorized, subject to the prior approval of the Adviser and the Fund's Board of
Directors, to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any of the
Series which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer as viewed in terms of that particular transaction or in terms
of the overall responsibilities of the Sub-Adviser to the Series. In addition,
the Sub-Adviser is authorized to take into account the sale of the Fund's shares
in allocating purchase and sale orders for portfolio securities to brokers or
dealers (including brokers and dealers that are affiliated with the Adviser,
Sub-Adviser or the Fund's principal underwriter), provided that the Sub-Adviser
believes that the quality of the execution and the commission are comparable to
what they would be with other qualified firms. In no instance, however, will
portfolio securities be purchased from or sold to the Adviser, Sub-Adviser, the
Fund's principal underwriter or any affiliated person of any of the Fund, the
Adviser, Sub-Adviser, or the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the Securities and Exchange
Commission and other applicable federal and state laws and regulations;
(f) maintain historical tax lots for each portfolio security held
by the Series;
(g) transmit trades to the Fund's custodian for proper settlement;
and
(h) prepare a quarterly broker security transaction summary and
monthly security transaction listing for each Series.
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not to be
exclusive, and the Sub-Adviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby. To
the extent that the purchase or sale of securities or other investments of the
same issuer may be deemed by the Sub-Adviser to be suitable for two or more
Series, investment companies or accounts managed by the Sub-Adviser, the
available securities or investments will be allocated in a manner believed by
the Sub-Adviser to be equitable to each of them. It is recognized and
acknowledged by the Adviser that in some cases this procedure may adversely
affect the price paid or received by the Series or the size of the position
obtained for or disposed of by Series.
5. BOOKS AND RECORDS.
In compliance with the requirements of Rule 3la-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the Series
are the property of the Fund and further agrees to surrender promptly to the
Fund any of such records upon the request of the Fund or the Adviser. The
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
6. EXPENSES.
Except as otherwise stated in this Section 6, the Sub-Adviser shall pay
all expenses incurred by it in performing its services and duties as
sub-investment adviser. The Adviser hereby agrees that all other expenses to be
incurred in the operation of the Fund shall not be borne by the Sub-Adviser. The
Adviser and the Fund have agreed that such other expenses will be borne by the
Fund, except to the extent specifically assumed by others. The expenses to be
borne by the Fund include, without limitation, the following: 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, Sub-Adviser or the
Administrator, 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 attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of calculating the net asset value of
the Series' shares, costs of shareholders' reports and corporate meetings, costs
of preparing and printing certain prospectuses and statements of additional
information, and any extraordinary expenses.
7. COMPENSATION.
In consideration of services rendered pursuant to this Agreement, the
Adviser will pay the Sub-Adviser on the first business day of each month the fee
at the annual rate set forth opposite the Series' name on Schedule l attached
hereto, based on the value of such Series' average daily net assets for the
previous month. The Sub-Adviser agrees to accept such fee from the Adviser as
full compensation for the services provided and expenses assumed by it pursuant
to this Agreement, and acknowledges that it shall not be entitled to any further
compensation from any other person in respect of the same.
Net asset value shall be computed on such days and at such time or times
as described in the Fund's current Prospectus for the Series. The fee for the
period from the date of the commencement of the initial public sale of the
Series' shares to the end of the month during which such sale shall have been
commenced shall be pro-rated according to the proportion which such period bears
to the full monthly period, and upon any termination of this Agreement before
the end of any month, the fee for such part of a month shall be pro-rated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to the Sub-Adviser, the
value of the Series' net assets shall be computed in the manner specified in the
Fund's Charter for the computation of the value of the Series' net assets.
8. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund or the Adviser in connection with
the matters to which this Agreement relates, except that the Sub-Adviser shall
be liable to the Fund for any loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of the Sub-Adviser's duties
or from its reckless disregard of its obligations and duties under this
Agreement. Any person, even though also an officer, director, partner, employee
or agent of the Sub-Adviser, who may be or become an officer, Director, employee
or agent of the Fund, shall be deemed, when rendering services to the Fund or to
the Series, or acting on any business of the Fund or of the Series (other than
services or business in connection with the Sub-Adviser's duties as
sub-investment adviser hereunder) to be rendering such services to or acting
solely for the Fund or the Series and not as an officer, director, partner,
employee or agent or one under the control or direction of the Sub-Adviser even
though paid by the Sub-Adviser.
9. TERM.
As to each Series, this Agreement shall continue until the date set
forth opposite such Series' name on Schedule 1 attached hereto (the "Reapproval
Date"), and thereafter shall continue automatically for successive annual
periods ending on the day of each year set forth opposite the Series' name on
Schedule 1 attached hereto (the "Reapproval Day"), provided such continuance is
specifically approved as to a Series at least annually by (a) the Fund's Board
of Directors or (b) vote of a majority (as defined in the 1940 Act) of such
Series' outstanding voting securities, provided that in either event its
continuance also is approved by a majority of the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to each Series, this Agreement may be terminated without
penalty (i) by the Fund's Board of Directors or by vote of the holders of a
majority of such Series' shares, upon written notice to the Sub-Adviser, (ii) by
the Adviser (but only upon the approval of the Fund's Board of Directors) upon
60 days' written notice to the Sub-Adviser (which notice may be waived in
writing by the Sub-Adviser), or (iii) by the Sub-Adviser upon not less than 90
days' written notice to the Fund and the Adviser (which notice may be waived in
writing by the Fund and the Adviser). This Agreement also will terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in the 1940 Act). In addition, notwithstanding anything herein to the
contrary, if the Investment Advisory Agreement is terminated for any reason
(whether by the Fund, by the Adviser or by operation of law), this Agreement
shall terminate with respect to the Series upon the effective date of such
termination of the Investment Advisory Agreement.
10. MISCELLANEOUS.
(a) AMENDMENTS. No provision of this Agreement may be changed,
waived, discharged or terminated, except by an instrument in writing signed by
the party or parties against whom an enforcement of the change, waiver,
discharge or termination is sought.
(b) CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section 10 hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; PROVIDED,
HOWEVER, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation of the Securities and Exchange Commission
thereunder.
(c) NOTICE. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Fund shall be effective upon
actual receipt by the Fund, or on the fourth day after the postmark if such
notice or other instrument is mailed via first class postage prepaid, at its
office at 3435 Stelzer Road, Columbus, Ohio 43219-3035, Attention: Compliance
Officer, or at such other place as the Fund may from time to time designate in
writing. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Adviser or Sub-Adviser, as the case may be,
shall be effective upon actual receipt by the Adviser or Sub-Adviser, as the
case may be, or on the fourth day after the postmark if such notice or other
instrument is mailed via first class postage prepaid, at its office at the
address first above written, or at such other place as the Adviser or Sub-
Adviser, as the case may be, may from time to time designate in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their officers designated below as of the day and year first
above written.
FIRST AMERICAN NATIONAL BANK
By:___________________________
Attest:___________________________
LAZARD ASSET MANAGEMENT
By:___________________________
Attest:___________________________
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
ANNUAL FEE AS
A PERCENTAGE
OF AVERAGE
NAME OF DAILY NET REAPPROVAL DATE REAPPROVAL DAY
SERIES ASSETS
- --------------------------- --------------- ------------------- ---------------
<S> <C> <C> <C>
ISG International .50 of 1% December 31, 1999 December 31
Equity Portfolio
</TABLE>
EXHIBIT (5)(b)(ii)
SUB-INVESTMENT ADVISORY AGREEMENT
Sub-Investment Advisory Agreement made as of the 12th day of August,
l998, between FIRST AMERICAN NATIONAL BANK, a national banking association
having its principal office and place of business at First American Center, 315
Deaderick Street, Nashville, Tennessee 37238-0035 (herein called the "Adviser"),
and WOMACK ASSET MANAGEMENT, INC., having its principal office and place of
business at 2120 DG Plaza, Jackson, Mississippi 39201 (herein called the "Sub-
Adviser").
WHEREAS, The Infinity Mutual Funds, Inc. (herein called the "Fund") is
an open-end, management investment company, registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund employs the Adviser to provide advisory services
pursuant to an Investment Advisory Agreement dated February 15, 1994 between the
Fund and the Adviser (the "Investment Advisory Agreement") with respect to the
Fund's portfolio or portfolios set forth on Schedule 1 attached hereto, as such
may be revised from time to time (the "Series"; if there are more than one
Series to which this Agreement applies, the provisions herein shall apply
severally to each such Series); and
WHEREAS, the Fund intends to employ BISYS Fund Services Limited
Partnership (the "Administrator") to act as the Fund's administrator; and
WHEREAS, the Adviser, in its capacity as investment adviser to the
Series, desires to retain the Sub-Adviser to provide the day-to-day management
of the Series' investments, the Fund consents to the Adviser retaining the
Sub-Adviser to provide such services, and the Sub-Adviser is willing to perform
such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
The Adviser hereby retains the Sub-Adviser to act as sub-investment
adviser to the Series for the period and on the terms set forth in this
Agreement. The Sub-Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Adviser, the Sub-Adviser
will provide a continuous investment program for the Series, including
investment research and day-to-day management with respect to such Series'
assets. The Sub-Adviser will provide the services rendered by it under this
Agreement in accordance with the investment criteria and policies established
from time to time for the Series by the Adviser, the Series' investment
objective, policies and restrictions as stated in the Fund's Prospectus and
Statement of Additional Information for the Series, as from time to time in
effect, and resolutions of the Fund's Board of Directors. The Fund and the
Adviser wish to be informed of important developments materially affecting the
Series' portfolio and the Sub-Adviser agrees to furnish to the Fund and the
Adviser from time to time such information as may be appropriate for this
purpose.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it will:
(a) comply with all applicable rules and regulations of the
Securities and Exchange Commission in performance of its duties as
sub-investment adviser for the Series and, in addition, will conduct its
activities under this Agreement in accordance with other applicable federal and
state law;
(b) review and analyze on a periodic basis the Series' portfolio
holdings and transactions in order to determine their appropriateness in light
of such Series' shareholder base;
(c) provide, or cause to be provided, to the Board of Directors of
the Fund such reports, statistical data and economic information as may be
reasonably requested in connection with the Sub-Adviser's services hereunder;
(d) use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has investment
responsibilities;
(e) place orders pursuant to its investment determinations for the
Series either directly with the issuer or with any broker or dealer. In
executing portfolio transactions and selecting brokers or dealers, the Sub-
Adviser will use its best efforts to seek on behalf of the Series the best
overall terms available. In assessing the best overall terms available for any
transaction, the Sub-Adviser shall consider all factors that it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, both for the specific transaction
and on a continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction, the
Sub-Adviser may also consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934)
provided to the Series and other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser exercises investment discretion. The Sub-Adviser is
authorized, subject to the prior approval of the Adviser and the Fund's Board of
Directors, to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any of the
Series which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer as viewed in terms of that particular transaction or in terms
of the overall responsibilities of the Sub-Adviser to the Series. In addition,
the Sub-Adviser is authorized to take into account the sale of the Fund's shares
in allocating purchase and sale orders for portfolio securities to brokers or
dealers (including brokers and dealers that are affiliated with the Adviser,
Sub-Adviser or the Fund's principal underwriter), provided that the Sub-Adviser
believes that the quality of the execution and the commission are comparable to
what they would be with other qualified firms. In no instance, however, will
portfolio securities be purchased from or sold to the Adviser, Sub-Adviser, the
Fund's principal underwriter or any affiliated person of any of the Fund, the
Adviser, Sub-Adviser, or the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the Securities and Exchange
Commission and other applicable federal and state laws and regulations;
(f) maintain historical tax lots for each portfolio security held
by the Series;
(g) transmit trades to the Fund's custodian for proper settlement;
and
(h) prepare a quarterly broker security transaction summary and
monthly security transaction listing for each Series.
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not to be
exclusive, and the Sub-Adviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby. To
the extent that the purchase or sale of securities or other investments of the
same issuer may be deemed by the Sub-Adviser to be suitable for two or more
Series, investment companies or accounts managed by the Sub-Adviser, the
available securities or investments will be allocated in a manner believed by
the Sub-Adviser to be equitable to each of them. It is recognized and
acknowledged by the Adviser that in some cases this procedure may adversely
affect the price paid or received by the Series or the size of the position
obtained for or disposed of by Series.
5. BOOKS AND RECORDS.
In compliance with the requirements of Rule 3la-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records which it maintains for the Series
are the property of the Fund and further agrees to surrender promptly to the
Fund any of such records upon the request of the Fund of the Adviser. The
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
6. EXPENSES.
Except as otherwise stated in this Section 6, the Sub-Adviser shall pay
all expenses incurred by it in performing its services and duties as
sub-investment adviser. The Adviser hereby agrees that all other expenses to be
incurred in the operation of the Fund shall not be borne by the Sub-Adviser. The
Adviser and the Fund have agreed that such other expenses will be borne by the
Fund, except to the extent specifically assumed by others. The expenses to be
borne by the Fund include, without limitation, the following: 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, Sub-Adviser or the
Administrator, 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 attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of calculating the net asset value of
the Series' shares, costs of shareholders' reports and corporate meetings, costs
of preparing and printing certain prospectuses and statements of additional
information, and any extraordinary expenses.
7. COMPENSATION.
In consideration of services rendered pursuant to this Agreement, the
Adviser will pay the Sub-Adviser on the first business day of each month the fee
at the annual rate set forth opposite the Series' name on Schedule l attached
hereto, based on the value of such Series' average daily net assets for the
previous month. The Sub-Adviser agrees to accept such fee from the Adviser as
full compensation for the services provided and expenses assumed by it pursuant
to this Agreement, and acknowledges that it shall not be entitled to any further
compensation from any other person in respect of the same.
Net asset value shall be computed on such days and at such time or times
as described in the Fund's current Prospectus for the Series. The fee for the
period from the date of the commencement of the initial public sale of the
Series' shares to the end of the month during which such sale shall have been
commenced shall be pro-rated according to the proportion which such period bears
to the full monthly period, and upon any termination of this Agreement before
the end of any month, the fee for such part of a month shall be pro-rated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to the Sub-Adviser, the
value of the Series' net assets shall be computed in the manner specified in the
Fund's Charter for the computation of the value of the Series' net assets.
8. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund or the Adviser in connection with
the matters to which this Agreement relates, except that the Sub-Adviser shall
be liable to the Fund for any loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of the Sub-Adviser's duties
or from its reckless disregard of its obligations and duties under this
Agreement. Any person, even though also an officer, director, partner, employee
or agent of the Sub-Adviser, who may be or become an officer, Director, employee
or agent of the Fund, shall be deemed, when rendering services to the Fund or to
the Series, or acting on any business of the Fund or of the Series (other than
services or business in connection with the Sub-Adviser's duties as
sub-investment adviser hereunder) to be rendering such services to or acting
solely for the Fund or the Series and not as an officer, director, partner,
employee or agent or one under the control or direction of the Sub-Adviser even
though paid by the Sub-Adviser.
9. TERM.
As to each Series, this Agreement shall continue until the date set
forth opposite such Series' name on Schedule 1 attached hereto (the "Reapproval
Date"), and thereafter shall continue automatically for successive annual
periods ending on the day of each year set forth opposite the Series' name on
Schedule 1 attached hereto (the "Reapproval Day"), provided such continuance is
specifically approved as to a Series at least annually by (a) the Fund's Board
of Directors or (b) vote of a majority (as defined in the 1940 Act) of such
Series' outstanding voting securities, provided that in either event its
continuance also is approved by a majority of the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to each Series, this Agreement may be terminated without
penalty (i) by the Fund's Board of Directors or by vote of the holders of a
majority of such Series' shares, upon written notice to the Sub-Adviser, (ii) by
the Adviser (but only upon the approval of the Fund's Board of Directors) upon
60 days' written notice to the Sub-Adviser (which notice may be waived in
writing by the Sub-Adviser), or (iii) by the Sub-Adviser upon not less than 90
days' written notice to the Fund and the Adviser (which notice may be waived in
writing by the Fund and the Adviser). This Agreement also will terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in the 1940 Act). In addition, notwithstanding anything herein to the
contrary, if the Investment Advisory Agreement is terminated for any reason
(whether by the Fund, by the Adviser or by operation of law), this Agreement
shall terminate with respect to the Series upon the effective date of such
termination of the Investment Advisory Agreement.
10. MISCELLANEOUS.
(a) AMENDMENTS. No provision of this Agreement may be changed,
waived, discharged or terminated, except by an instrument in writing signed by
the party or parties against whom an enforcement of the change, waiver,
discharge or termination is sought.
(b) CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section 10 hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; PROVIDED,
HOWEVER, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation of the Securities and Exchange Commission
thereunder.
(c) NOTICE. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Fund shall be effective upon
actual receipt by the Fund, or on the fourth day after the postmark if such
notice or other instrument is mailed via first class postage prepaid, at its
office at 3435 Stelzer Road, Columbus, Ohio 43219-3035, Attention: Compliance
Officer, or at such other place as the Fund may from time to time designate in
writing. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Adviser or Sub-Adviser, as the case may be,
shall be effective upon actual receipt by the Adviser or Sub-Adviser, as the
case may be, or on the fourth day after the postmark if such notice or other
instrument is mailed via first class postage prepaid, at its office at the
address first above written, or at such other place as the Adviser or Sub-
Adviser, as the case may be, may from time to time designate in writing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
FIRST AMERICAN NATIONAL BANK
By:_________________________
Attest:_________________________
WOMACK ASSET MANAGEMENT, INC.
By:_________________________
Attest:_________________________
<PAGE>
SCHEDULE 1
ANNUAL FEE AS
A PERCENTAGE
OF AVERAGE
NAME OF DAILY NET
SERIES ASSETS REAPPROVAL DATE REAPPROVAL DAY
- ---------- ---------------- ---------------- --------------
ISG Small Cap .35 of 1% December 31, 1999 December 31
Opportunity Portfolio
EXHIBIT (5)(c)
ADMINISTRATION AGREEMENT
Administration Agreement made as of April 25, 1996, and revised as of
August 12, 1998, between certain portfolios of THE INFINITY MUTUAL FUNDS, INC.,
a Maryland corporation having its principal office and place of business at 3435
Stelzer Road, Columbus, Ohio 43219-3035 (herein called the "Fund"), and BISYS
FUND SERVICES LIMITED PARTNERSHIP, an Ohio limited partnership having its
principal office and place of business at 3435 Stelzer Road, Columbus, Ohio
43219-3035 (herein called "BISYS").
WHEREAS, the Fund is an open-end, management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and consisting of, among others, the portfolios set forth on Schedule 1
hereto, as such Schedule may be revised from time to time (each, a "Series");
WHEREAS, the Fund intends from time to time to employ certain entities
(in addition to those named below), some of which may be affiliated with BISYS,
to provide services to one or more Series (each, a "Service Provider");
WHEREAS, the Fund employs BISYS to act as distributor for each Series'
shares of common stock, par value $.001 per share (the "Shares");
WHEREAS, the Fund, in respect of the Series, previously had employed an
affiliate of BISYS as its administrator; and
WHEREAS, the Fund desires to retain BISYS as its Administrator to
provide it with administrative services with respect to each Series, and BISYS
is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Fund has delivered to BISYS copies of each of the following
documents and will deliver to it all future amendments and supplements thereto,
if any:
(a) The Fund's Articles of Incorporation and all amendments and
supplements thereto (as presently in effect and as from time to time amended or
supplemented, herein called the "Charter");
(b) The Fund's By-laws (as presently in effect and as from time to
time amended, herein called the "By-laws");
(c) Resolutions of the Board of Directors of the Fund authorizing
the execution and delivery of this Agreement;
(d) The Fund's Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), and the 1940 Act on Form N-1A most recently
filed with the Securities and Exchange Commission (the "Commission") relating to
the Shares, and all subsequent amendments or supplements thereto (the
"Registration Statement");
(e) The Fund's Notification of Registration under the 1940 Act on
Form N-8A as filed with the Commission; and
(f) The Fund's current Prospectuses and Statements of Additional
Information pertaining to the Series (as presently in effect and as from time to
time amended and supplemented, herein called the "Prospectus").
II. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Fund hereby appoints BISYS as its
Administrator for each of the Series on the terms and for the period set forth
in this Agreement and BISYS hereby accepts such appointment and agrees to
perform the services and duties set forth in this Section II for the
compensation provided in this Section. The Fund understands that BISYS now acts,
and that from time to time hereafter BISYS may act, as administrator of various
investment companies or fiduciary for other managed accounts, and the Fund has
no objection to BISYS' so acting. In addition, it is understood that the persons
employed by BISYS to assist in the performance of its duties hereunder will not
devote their full time to such services and nothing herein contained shall be
deemed to limit or restrict the right of BISYS or any affiliate of BISYS to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
2. SERVICES AND DUTIES.
(a) As Administrator, and subject to the supervision and control of
the Fund's Board of Directors, BISYS will provide office facilities, equipment,
statistical and research data, clerical, accounting and bookkeeping services,
internal compliance services relating to accounting and legal matters, and
personnel to carry out all administrative services required for operation of the
business and affairs of the Series, other than those management, investment
advisory and sub-advisory functions which are to be performed by certain Service
Providers pursuant to their respective agreements with the Fund, the services
BISYS performs as distributor, those services to be performed by the Fund's
custodian and transfer agent, and those services normally performed by the
Fund's legal counsel and independent auditors. BISYS' responsibilities include
without limitation the following services:
(1) Providing a facility to receive purchase and redemption
orders via toll-free IN-WATTS telephone lines;
(2) Providing for the preparing, supervision and mailing of
confirmations for all purchase and redemption orders;
(3) Providing and supervising the operation of an automated
data processing system to process purchase and redemption orders received
by BISYS as distributor (BISYS assumes responsibility for the accuracy of
the data transmitted for processing or storage);
(4) Overseeing the performance of the Fund's custodian and
transfer agent;
(5) Making available information concerning each Series to its
shareholders; distributing written communications to each Series'
shareholders such as periodic listings of each Series' securities, annual
and semi-annual reports, and the Prospectus and supplements thereto; and
handling shareholder problems and calls relating to administrative matters;
and
(6) Providing and supervising the services of employees
("relationship coordinators") whose principal responsibility and function
shall be to preserve and strengthen each Series' relationships with its
shareholders.
(b) BISYS shall assure that persons are available to receive
redemption requests to the Fund's transfer agent as promptly as practicable.
(c) BISYS shall assure that persons are available to receive orders
accepted for the purchase of Shares to the transfer agent as promptly as
practicable.
(d) BISYS shall participate in the periodic updating of the
Prospectus and shall accumulate information for and, subject to approval by the
Fund's Treasurer and legal counsel, coordinate the preparation, filing, printing
and dissemination of reports to the Series' shareholders and the Commission,
including but not limited to annual reports and semi-annual reports on Form
N-SAR, notices pursuant to Rule 24f-2 and proxy materials.
(e) BISYS shall pay all costs and expenses of maintaining the
offices of the Fund, wherever located, and shall arrange for payment by the
Series of all expenses payable by the Series.
(f) BISYS, after consultation with legal counsel for the Fund,
shall determine the jurisdictions in which the Shares shall be registered or
qualified for sale and, in connection therewith, shall be responsible for the
maintenance of the registration or qualification of the Shares for sale under
the securities laws of any state. Payment of share registration fees and any
fees for qualifying or continuing the qualification of the Series shall be made
by the Series.
(g) BISYS shall provide the services of certain persons who may be
appointed as officers of the Fund by the Fund's Board of Directors.
(h) BISYS shall oversee the maintenance by the Fund's custodian and
transfer agent of the books and records of the Fund required under the 1940 Act
in connection with the performance of the Fund's agreements with such entities,
and shall maintain, or provide for the maintenance of, such other books and
records (other than those required to be maintained by the Service Providers) as
may be required by law or may be required for the proper operation of the
business and affairs of the Series. In compliance with the requirements of Rule
31a-3 under the 1940 Act, BISYS agrees that all such books and records which it
maintains, or is responsible for maintaining, for the Series are the property of
the Fund and further agrees to surrender promptly to the Fund any of such books
and records upon the Fund's request. BISYS further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act said books and records
required to be maintained by Rule 31a-1 under said Act.
(i) BISYS shall prepare the Series' federal, state and local income
tax returns.
(j) BISYS shall prepare and, subject to approval of the Fund's
Treasurer, disseminate to the Fund's Directors the Fund's and each Series'
quarterly financial statements and schedules of investments, and shall prepare
such other reports relating to the business and affairs of the Fund and each
Series (not otherwise appropriately prepared by the Service Providers, the
Fund's legal counsel or its independent auditors) as the officers and Directors
of the Fund may from time to time reasonably request in connection with the
performance of their duties.
(k) BISYS shall assist with the coordination of the provision of
investment management, advisory and sub-advisory services by the Service
Providers to the Series, and shall provide other administration assistance to
said entities as required to carry out the business and operations of the
Series.
(l) BISYS shall recommend, implement and monitor all specialized
services and programs that are necessary or appropriate in order for the Series
to serve properly the investment needs of the fiduciary accounts investing in
their Shares.
(m) In performing its duties as Administrator for the Series, BISYS
will act in conformity with the Charter, By-laws and Prospectus and with the
instructions and directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal or state laws and regulations.
3. SUBCONTRACTORS. It is understood that BISYS may from time to time
employ or associate with itself such person or persons as BISYS may believe to
be particularly fitted to assist in the performance of this Agreement; provided,
however, that the compensation of such person or persons shall be paid by BISYS
and that BISYS shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in
this subsection 4, BISYS shall pay all expenses incurred by it in performing its
services and duties as Administrator. All other expenses incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by others. The expenses to be borne by the Fund include,
without limitation, the following: 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 any Service Provider or BISYS, or any of their affiliates,
Commission fees, state Blue Sky qualification fees, management, advisory,
sub-advisory, administration and other shareholder services 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
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of calculating the net asset value of the Series'
shares, costs of shareholders' reports and corporate meetings, costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders (unless
otherwise provided pursuant to a plan adopted in accordance with Rule 12b-1
under the 1940 Act), and any extraordinary expenses.
5. COMPENSATION. In consideration of services rendered pursuant to
this Agreement, the Fund will pay BISYS on the first business day of each month
the fee at the annual rate set forth opposite each Series' name on Schedule 1
hereto, based upon the value of each Series' average daily net assets for the
previous month. Net asset value shall be computed on such days and at such time
or times as described in the Prospectus. The fee for the period from the date of
the commencement of the initial public sale of each Series' shares to the end of
the month during which such sale shall have been commenced shall be pro-rated
according to the proportion which such period bears to the full monthly period,
and upon any termination of this Agreement before the end of any month, the fee
for such part of a month shall be pro-rated according to the proportion which
such period bears to the full monthly period and shall be payable upon the date
of termination of this Agreement.
For the purpose of determining fees payable to BISYS, the value of
each Series' net assets shall be computed in the manner specified in the Charter
for the computation of the value of each Series' net assets.
Notwithstanding anything to the contrary herein, if in any fiscal year
the aggregate expenses of any Series, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management, investment
advisory, sub-advisory and administration fees, exceed the expense limitation of
any such state having jurisdiction over the Series, the Fund may deduct from the
fees to be paid hereunder, or BISYS will bear, to the extent required by state
law, that portion of such excess which bears the same relation to the total of
such excess as BISYS' fee hereunder bears to the total fee otherwise payable for
the fiscal year by the Series pursuant to this Agreement and the Fund's
management, investment advisory and sub-advisory or similar agreements. BISYS'
obligation is limited to the amount of its fees hereunder. Such deduction or
payment, if any, will be estimated daily, and reconciled and effected or paid,
as the case may be, on a monthly basis.
6. CONFIDENTIALITY. BISYS will treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund
and each Series' prior or present shareholders or those persons or entities who
respond to inquiries concerning investment in a Series and, except as provided
below, will not use such records or information for any other purpose other than
for the performance of its responsibilities and duties with regard to the Series
which now exist or which may be added in the future. Any other use by BISYS of
the records and information referred to above may be made only after prior
notification to and approval in writing by the Fund. Such approval shall not be
unreasonably withheld and may not be withheld where (i) BISYS may be exposed to
civil or criminal contempt proceedings for failure to divulge such information;
(ii) BISYS is requested to divulge such information by duly constituted
authorities; or (iii) BISYS is so requested by the Fund.
III. LIMITATION OF LIABILITY
BISYS shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of BISYS' duties or
from its reckless disregard of its obligations and duties under this Agreement.
Any person, even though also an officer, director, partner, employee or agent of
BISYS, who may be or become an officer, Director, employee or agent of the Fund,
shall be deemed, when rendering services to the Fund or to any Series, or acting
on any business of the Fund or of any Series (other than services or business in
connection with BISYS' duties as Administrator hereunder) to be rendering such
services to or acting solely for the Fund or Series and not as an officer,
director, partner, employee or agent or one under the control or direction of
BISYS even though paid by BISYS.
IV. TERM
As to each Series, this Agreement shall continue until the date set
forth opposite such Series' name on Schedule 1 hereto (the "Reapproval Date"),
and thereafter shall continue automatically for successive annual periods ending
on the day of each year set forth opposite the Series' name on Schedule 1 hereto
(the "Reapproval Day"), provided such continuance is specifically approved as to
the Series at least annually by (a) the Fund's Board of Directors or (b) vote of
a majority (as defined in the 1940 Act) of such Series' outstanding voting
securities, provided that in either event its continuance also is approved by a
majority of the Fund's Directors who are not "interested persons" (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. As to each Series,
this Agreement is terminable without penalty, at any time if for "cause," by the
Fund's Directors or by vote of holders of a majority of such Series' shares or,
upon not less than 90 days' written notice to the Fund, by BISYS. This Agreement
also will terminate automatically, as to the relevant Series, in the event of
its assignment (as defined in the 1940 Act). "Cause" shall mean a material
breach by BISYS of its obligations under this Agreement which shall not have
been cured within 30 days after the date on which BISYS shall have received
written notice setting forth in detail the facts alleged to give rise to the
breach.
V. MISCELLANEOUS
1. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
against whom an enforcement of the change, waiver, discharge or termination is
sought.
2. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Article IV hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; PROVIDED,
HOWEVER, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation of the Commission thereunder.
3. NOTICE. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at the
address first above written, or at such other place as the Fund may from time to
time designate in writing. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to BISYS shall be sufficiently given
if addressed to BISYS and mailed or delivered to it at its office at the address
first above written, or at such other place as BISYS may from time to time
designate in writing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and year first
above written.
THE INFINITY MUTUAL FUNDS, INC.
By:______________________________
William B. Blundin,
President and Chairman of the Board
Attest:________________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:___________________________
Attest: ________________________
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Annual Fee as
a Percentage of
Average Daily
Name of Series Net Assets Repproval Date Reapproval Day
<S> <C> <C> <C>
ISG Aggressive Growth Portfolio .15 of 1% April 25, 2001 April 25
ISG Capital Growth Portfolio .15 of 1% April 25, 2001 April 25
ISG Core Income Portfolio .15 of 1% April 25, 2001 April 25
ISG Current Income Portfolio .15 of 1% April 25, 2001 April 25
ISG Equity Value Portfolio .15 of 1% April 25, 2001 April 25
ISG Government Income Portfolio .15 of 1% April 25, 2001 April 25
ISG Government Money Market Portfolio .10 of 1% April 25, 2001 April 25
ISG Growth Portfolio .15 of 1% April 25, 2001 April 25
ISG Growth and Income Portfolio .15 of 1% April 25, 2001 April 25
ISG International Equity Portfolio .15 of 1% April 25, 2001 April 25
ISG Large Cap Equity Portfolio .15 of 1% April 25, 2001 April 25
ISG Limited Duration Income Portfolio .15 of 1% April 25, 2001 April 25
ISG Limited Duration Tennessee Tax Free Portfolio .15 of 1% April 25, 2001 April 25
ISG Limited Duration U.S. Government Portfolio .15 of 1% April 25, 2001 April 25
ISG Mid Cap Portfolio .15 of 1% April 25, 2001 April 25
ISG Moderate Growth and Income Portfolio .15 of 1% April 25, 2001 April 25
ISG Municipal Income Portfolio .15 of 1% April 25, 2001 April 25
ISG Prime Money Market Portfolio .10 of 1% April 25, 2001 April 25
ISG Small Cap Opportunity Portfolio .15 of 1% April 25, 2001 April 25
ISG Tax Free Money Market Portfolio .10 of 1% April 25, 2001 April 25
ISG Tennessee Tax Exempt Bond Portfolio .15 of 1% April 25, 2001 April 25
ISG U.S. Treasury Money Market Portfolio .10 of 1% April 25, 2001 April 25
Correspondent Cash Reserves Money Market Portfolio .10 of 1% December 31, 1999 December 31
Correspondent Cash Reserves Tax Free Money Market Portfolio .10 of 1% December 31, 1999 December 31
</TABLE>
As Revised: August 12, 1998
EXHIBIT (6)(a)
DISTRIBUTION AGREEMENT
Distribution Agreement made as of February 11, 1997, and revised as of
August 12, 1998, between THE INFINITY MUTUAL FUNDS, INC., a Maryland corporation
having its principal office and place of business at 3435 Stelzer Road,
Columbus, Ohio 43219-3035 (herein called the "Fund"), and BISYS FUND SERVICES
LIMITED PARTNERSHIP, an Ohio limited partnership having its principal office and
place of business at 3435 Stelzer Road, Columbus, Ohio 43219-3035 (herein called
the "Distributor").
WHEREAS, the Fund is an open-end, management investment company and is
so registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and consisting of the portfolios set forth on Schedule 1 hereto, as such
Schedule may be revised from time to time (each, a "Series"); and
WHEREAS, the Fund desires to retain the Distributor as distributor for
certain Series' shares of common stock, par value $.001 per share (the
"Shares"), and the Distributor is willing to render such services;
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Fund has delivered to the Distributor copies of the following
documents and will deliver to the Distributor all future amendments and
supplements thereto, if any:
(a) The Fund's Articles of Incorporation and all amendments and
supplements thereto (as presently in effect and as from time to time amended or
supplemented, herein called the "Charter");
(b) The Fund's By-laws (as presently in effect and as from time to
time amended, herein called the "By-laws");
(c) Resolutions of the Board of Directors of the Fund authorizing the
execution and delivery of this Agreement;
(d) The Fund's Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), and the 1940 Act on Form N-1A most recently
filed with the Securities and Exchange Commission (the "Commission") relating to
the Shares, and all subsequent amendments or supplements thereto (the
"Registration Statement");
(e) The Fund's Notification of Registration under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) The Fund's current Prospectuses and Statements of Additional
Information of the Series (as presently in effect and as from time to time
amended and supplemented, herein called individually the "Prospectus" and
collectively the "Prospectuses").
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Fund hereby appoints the
Distributor as principal distributor of the Series' Shares and the Distributor
hereby accepts such appointment and agrees to render the services and duties set
forth in this Section II.
2. SERVICES AND DUTIES.
(a) The Fund agrees to sell through the Distributor, as agent, from
time to time during the term of this Agreement, Shares of the Series (whether
authorized but unissued or treasury shares, in the Fund's sole discretion) upon
the terms and at the current offering price as described in the applicable
Prospectus. The Distributor will act only in its own behalf as principal in
making agreements with selected dealers or others for the sale and redemption of
Shares, and shall sell Shares only at the offering price thereof as set forth in
the applicable Prospectus. The Distributor shall devote its best efforts to
effect the sale of Shares of each Series, but shall not be obligated to sell any
certain number of Shares.
(b) In all matters relating to the sale and redemption of Shares,
the Distributor will act in conformity with the Fund's Charter, By-laws and
Prospectuses and with the instructions and directions of the Fund's Board of
Directors and will conform to and comply with the requirements of the 1933 Act,
the 1940 Act, the regulations of the National Association of Securities Dealers,
Inc. and all other applicable Federal or state laws and regulations. In
connection with the sale of Shares, the Distributor acknowledges and agrees that
it is not authorized to provide any information or make any representation other
than as contained in the Fund's Registration Statement or Prospectuses and any
sales literature specifically approved by the Fund.
(c) Unless the Fund has adopted with respect to the Series a plan
pursuant to Rule 12b-1 under the 1940 Act which provides otherwise, the
Distributor will bear the costs and expenses of (i) printing and distributing to
prospective investors copies of any Prospectus (including any supplement
thereto) and annual and interim reports of the Series (after such items have
been prepared and set in type by the Fund) which are used in connection with the
offering of Shares of a Series; and (ii) preparing, printing and distributing
any other literature used by the Distributor in connection with the sale of the
Shares; PROVIDED, HOWEVER, that the Distributor shall not be obligated to bear
the expenses incurred by the Fund in connection with the preparation and
printing Prospectuses used for regulatory purposes and for distribution to
existing shareholders.
(d) All Shares of the Series offered for sale by the Distributor
shall be offered for sale to the public at a price per Share (the "offering
price") equal to (i) their net asset value (determined in the manner set forth
in the Fund's Charter and then-current Prospectuses) plus, (ii) a sales charge
(if any) which shall be the percentage of the offering price of such Shares as
set forth in the Fund's then-current Prospectuses. The offering price, if not an
exact multiple of one cent, shall be adjusted to the nearest cent. If a sales
charge is in effect, the Distributor shall have the right to pay a portion of
the sales charge to broker-dealers and other persons who have sold shares of the
Series. Concessions by the Distributor to broker-dealers and other persons shall
be set forth in either the selling agreements between the Distributor and such
broker-dealers and persons or, if such concessions are described in the
then-current Prospectuses, shall be as so set forth. No broker-dealer or other
person who enters into a selling agreement with the Distributor shall be
authorized to act as agent for the Fund in connection with the offering or sale
of its Shares to the public or otherwise. The Fund reserves the right to reject
any order but will not do so without reasonable cause.
(e) If any Shares sold by the Distributor under the terms of this
Agreement are redeemed or repurchased by the Fund or by the Distributor as agent
or are tendered for redemption within seven business days after the date of
confirmation of the original purchase of said Shares, the Distributor shall
forfeit the amount (if any) above the net asset value received by it in respect
of such Shares, provided that the portion, if any, of such amount (if any)
re-allowed by the Distributor to broker-dealers or other persons shall be
repayable to the Fund only to the extent recovered by the Distributor from the
broker-dealer or other person concerned. The Distributor shall include in the
forms of agreement with such broker-dealers and persons a corresponding
provision for the forfeiture by them of their concession with respect to Shares
sold by them or their principals and redeemed or repurchased by the Fund or by
the Distributor as agent (or tendered for redemption) within seven business days
after the date of confirmation of such initial purchases.
3. SALES AND REDEMPTIONS.
(a) The Fund shall pay all costs and expenses in connection with
the registration of the Shares under the 1933 Act, and all expenses in
connection with maintaining facilities for the issue and transfer of the Shares
and for supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with preparing, printing and
distributing any Prospectus, except as set forth in subsection 2(c) of Section
II hereof.
(b) The Fund shall execute all documents, furnish all information
and otherwise take all actions which may be reasonably necessary in the
discretion of the Fund's officers in connection with the qualification of the
Shares for sale in such states as the Distributor may designate to the Fund and
the Fund may approve, and the Fund shall pay all fees which may be incurred in
connection with such qualification. The Distributor shall pay all expenses
connected with its qualification as a dealer under state or Federal laws and,
except as otherwise specifically provided in this Agreement, all other expenses
incurred by the Distributor in connection with the sale of the Shares as
contemplated in this Agreement. It is understood that certain advertising,
marketing, shareholder servicing, administration and/or distribution expenses to
be incurred in connection with the Shares may be paid as provided in any plan
which may be adopted by the Fund in accordance with Rule 12b-1 under the 1940
Act.
(c) The Fund shall have the right to suspend the sale of Shares of
any Series at any time in response to conditions in the securities markets or
otherwise, and to suspend the redemption of Shares of any Series at any time
permitted by the 1940 Act or the rules of the Commission.
(d) The Fund reserves the right to reject any order for Shares.
(e) No Shares shall be offered by either the Fund or the
Distributor under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Fund if and so
long as the effectiveness of the Registration Statement shall be suspended under
any of the provisions of the 1933 Act, or if and so long as a Prospectus as
required by Section 10 of the 1933 Act is not on file with the Commission;
provided, however, that nothing contained in this sub-paragraph shall in any way
restrict or have any application to or bearing upon the Fund's obligation to
repurchase any Shares from any shareholder in accordance with the provisions of
the Charter or Prospectuses.
4. CONFIDENTIALITY. The Distributor will treat confidentially and as
proprietary information of the Fund all records and other information relative
to the Fund and each Series' prior or present shareholders or those persons or
entities who respond to inquiries concerning investment in a Series and, except
as provided below, will not use such records or information for any other
purpose other than for the performance of its responsibilities and duties with
regard to the Series which now exist or which may be added in the future. Any
other use by the Distributor of the records and information referred to above
may be made only after prior notification to and approval in writing by the
Fund. Such approval shall not be unreasonably withheld and may not be withheld
where (i) the Distributor may be exposed to civil or criminal contempt
proceedings for failure to divulge such information; (ii) the Distributor is
requested to divulge such information by duly constituted authorities; or (iii)
the Distributor is so requested by the Fund.
III. LIMITATION OF LIABILITY
The Distributor shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund or any Series in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Distributor's part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, director, partner, employee or agent of the Distributor, who may be or
become an officer, director, employee or agent of the Fund, shall be deemed,
when rendering services to the Fund or to any Series, or acting on any business
of the Fund or of any Series (other than services or business in connection with
the Distributor's duties as distributor hereunder), to be rendering such
services to or acting solely for the Fund or a Series and not as an officer,
director, partner, employee or agent or one under the control or direction of
the Distributor even though paid by the Distributor.
IV. INDEMNIFICATION
1. FUND REPRESENTATIONS. The Fund represents and warrants to the
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 Act
and the rules and regulations thereunder and will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty in this subsection shall apply to statements or
omissions made in reliance upon and in conformity with written information
furnished to the Fund by, or on behalf of, and with respect to, the Distributor
expressly for use in the Registration Statement or Prospectuses.
2. DISTRIBUTOR'S REPRESENTATIONS. The Distributor represents and
warrants to the Fund that it is duly organized as a Delaware corporation and is
and at all times will remain duly authorized and licensed to carry out its
services as contemplated herein.
3. FUND INDEMNIFICATION. The Fund will indemnify, defend and hold
harmless the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act, from
and against any losses, claims, damages or liabilities, joint or several, to
which any of them may become subject under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, the Prospectuses or in any application or other document executed by
or on behalf of the Fund, or arise out of, or are based upon, information
furnished by or on behalf of the Fund filed in any state in order to qualify the
Shares under the securities or blue sky laws thereof ("Blue Sky Application"),
or arise out of, or are based upon, the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, for any legal or other
expenses reasonably incurred by any of them in investigating, defending or
preparing to defend any such action, proceeding or claim; PROVIDED, HOWEVER,
that the Fund shall not be liable in any case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, any untrue
statement, alleged untrue statement, or omission or alleged omission made in the
Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Fund in reliance
upon and in conformity with written information furnished to the Fund by or on
behalf of and with respect to the Distributor specifically for inclusion
therein.
The Fund shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties, or his reckless disregard of obligations and duties,
under this Agreement ("disabling conduct") or, in the absence of such a
decision, a reasonable determination (based upon a review of the facts) that
such person was not liable by reason of disabling conduct has been made by the
vote of a majority of a quorum of Directors of the Fund who are neither
"interested persons" of the Fund (as defined in the 1940 Act) nor parties to the
proceeding, or by an independent legal counsel in a written opinion.
The Fund shall advance attorneys' fees and other expenses incurred by
any person in defending any claim, demand, action or suit which is the subject
of a claim for indemnification pursuant to this subsection 3, so long as such
person shall: (i) undertake to repay all such advances unless it is ultimately
determined that he is entitled to indemnification hereunder; and (ii) provide
security for such undertaking, or the Series shall be insured against losses
arising by reason of any lawful advances, or a majority of a quorum of the
disinterested, non-party Directors of the Fund (or an independent legal counsel
in a written opinion) shall determine based on a review of readily available
facts (as opposed to a full trial-type inquiry) that there is reason to believe
that such person ultimately will be found entitled to indemnification hereunder.
4. DISTRIBUTOR'S INDEMNIFICATION. The Distributor will indemnify,
defend and hold harmless the Fund, each Series, the Fund's several officers and
Directors and any person who controls the Fund or any Series within the meaning
of Section 15 of the 1933 Act, from and against any losses, claims, damages or
liabilities, joint or several, to which any of them may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect hereof) arise out of, or are based upon,
any breach of its representations and warranties in subsection 2 hereof or its
agreements in subsection 2 of Section II of this Agreement, or which arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectuses, any
Blue Sky Application or any application or other document executed by or on
behalf of the Fund, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, which statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Fund or any of
its several officers and Directors by or on behalf of and with respect to the
Distributor specifically for inclusion therein, and will reimburse the Fund,
each Series, the Fund's several officers and Directors, and any person who
controls the Fund or any Series within the meaning of Section 15 of the 1933
Act, for any legal or other expenses reasonably incurred by any of them in
investigating, defending or preparing to defend any such action, proceeding or
claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party.
V. TERM
This Agreement shall continue automatically for successive annual
periods ending on December 31 of each year, provided such continuance is
specifically approved at least annually by (a) the Fund's Board of Directors or
(b) vote of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event its continuance also is
approved by a majority of the Fund's Directors who are not "interested persons"
(as defined in the 1940 Act) of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable without penalty, on 60 days' written notice to the Distributor, by
vote of a majority of the Fund's outstanding voting securities or, as to each
Series, by the Fund's Board of Directors or, on 90 days' written notice to the
Fund, by the Distributor. This Agreement will automatically terminate, as to the
relevant Series, in the event of its assignment (as defined in the 1940 Act).
VI. MISCELLANEOUS
1. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
2. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section IV hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; PROVIDED,
HOWEVER, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation thereunder.
3. NOTICE. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at the
address first above written, or at such other place as the Fund may from time to
time designate in writing. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Distributor shall be
sufficiently given if addressed to the Distributor and mailed or delivered to it
at its office at the address first above written, or at such other place as the
Distributor may from time to time designate in writing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and year first
above written.
THE INFINITY MUTUAL FUNDS, INC.
By:______________________________
William B. Blundin,
President and Chairman of the Board
Attest:________________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:___________________________
Attest: ________________________
<PAGE>
SCHEDULE 1
NAME OF SERIES DATE ESTABLISHED
- -------------- ----------------
ISG Aggressive Growth Portfolio August 12, 1998
ISG Capital Growth Portfolio February 15, 1994
ISG Core Income Portfolio February 15, 1994
ISG Current Income Portfolio August 12, 1998
ISG Dividend Growth Portfolio February 15, 1994
ISG Equity Value Portfolio May 14, 1998
ISG Government Income Portfolio May 14, 1998
ISG Government Money Market Portfolio May 14, 1998
ISG Growth Portfolio August 12, 1998
ISG Growth and Income Portfolio August 12, 1998
ISG International Equity Portfolio May 14, 1998
ISG Large Cap Equity Portfolio May 14, 1998
ISG Limited Duration Income Portfolio February 15, 1994
ISG Limited Duration Tennessee Tax Free Portfolio February 11, 1997
ISG Limited Duration U.S. Government Portfolio February 11, 1997
ISG Mid Cap Portfolio May 14, 1998
ISG Moderate Growth and Income Portfolio August 12, 1998
ISG Municipal Income Portfolio May 14, 1998
ISG Prime Money Market Portfolio February 15, 1994
ISG Small Cap Opportunity Portfolio May 14, 1998
ISG Tax Free Money Market Portfolio May 14, 1998
ISG Tennessee Tax Exempt Bond Portfolio February 15, 1994
ISG U.S. Treasury Money Market Portfolio February 15, 1994
Correspondent Cash Reserves Money Market Portfolio October 30, 1990
Correspondent Cash Reserves Tax Free Money Market
Portfolio October 30, 1990
EXHIBIT (6)(b)(ii)
DISTRIBUTION PLAN AGREEMENT
with respect to
the ISG Portfolios of
THE INFINITY MUTUAL FUNDS, INC.
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219-3035
Gentlemen:
We wish to enter into this Agreement with you for distribution
services with respect to shares of certain classes (each, a "Class") of the ISG
Portfolios (the "Portfolios"), set forth on Schedule 1 hereto, as such may be
revised from time to time, of The Infinity Mutual Funds, Inc. (the "Fund") of
which you are the principal underwriter as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), and the exclusive agent for the continuous
distribution of its shares.
The terms and conditions of this Agreement are as follows:
1. We agree to provide reasonable assistance in connection with the
sale of shares of each Class, which assistance may include distributing sales
literature, marketing and advertising. If we are restricted or unable to provide
the services contemplated above, we agree not to perform such services and not
to accept fees thereafter. Our acceptance of any fees hereunder shall constitute
our representation (which shall survive any payment of such fees and any
termination of this Agreement and shall be reaffirmed each time we accept a fee
hereunder) that our receipt of such fee is lawful.
2. We shall provide such office space and equipment, telephone
facilities and personnel (which may be all or any part of the space, equipment
and facilities currently used in our business, or all or any personnel employed
by us) as is necessary or beneficial for distributing, marketing or advertising
shares of each Class.
3. We agree that neither we nor any of our employees or agents are
authorized to make any representation concerning shares of any Class, except
those contained in the then current Prospectus and Statement of Additional
Information for the Portfolios, copies of which will be supplied by you to us,
or in such supplemental literature or advertising materials as may be authorized
by you in writing.
4. For all purposes of this Agreement we will be deemed to be an
independent contractor, and will have no authority to act as agent for you or
the Fund in any matter or in any respect. We and our employees will, upon
request, be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement.
5. In consideration of the services and facilities described herein,
we shall be entitled to receive from you, and you agree to pay to us, the fee
set forth in Exhibit A hereto. We understand that any payments pursuant to this
Agreement shall be paid only so long as this Agreement and the Distribution Plan
adopted by the Fund is in effect.
6. You reserve the right, at your discretion and without notice, to
suspend or withdraw the sale of any Class's shares.
7. We acknowledge that this Agreement shall become effective only when
approved by vote of a majority of (i) the Fund's Board of Directors, and (ii)
the Fund's Directors who are not "interested persons" (as defined in the 1940
Act) of the Fund and have no direct or indirect financial interest in this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval.
8. This Agreement shall continue until the last day of the calendar
year next following the date of execution, and thereafter shall continue
automatically for successive annual periods ending on the last day of each
calendar year, provided such continuance is approved specifically at least
annually by a vote of a majority of (i) the Fund's Board of Directors and (ii)
the Fund's Directors who are not "interested persons" (as defined in the 1940
Act) of the Fund and have no direct or indirect financial interest in this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to each Class, this Agreement is terminable without
penalty, at any time, by vote of a majority of the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) and have no direct or indirect
financial interest in this Agreement or, on not more than 60 days' written
notice, by vote of holders of a majority of the shares of such Class, or, upon
15 days' notice, by you. Notwithstanding anything contained herein, if the
Distribution Plan adopted by the Fund is terminated by the Fund's Board of
Directors, or the Distribution Plan, or any part thereof, is found invalid or is
ordered terminated by any regulatory or judicial authority, or we fail to
perform the distribution functions contemplated by the Fund or by you, this
Agreement shall be terminable effective upon receipt of notice thereof by us.
This Agreement also shall terminate automatically, as to the relevant Class, in
the event of its assignment (as defined in the 1940 Act).
9. We understand that the Fund's Board of Directors will review, at
least quarterly, a written report of the amounts expended pursuant to this
Agreement and the purposes for which such expenditures were made. In connection
with such reviews, we will furnish you or your designees with such information
as you or they may reasonably request and will otherwise cooperate with you and
your designees (including, without limitation, any auditors designated by you),
in connection with the preparation of reports to the Fund's Board of Directors
concerning this Agreement and the monies paid or payable by you pursuant hereto,
as well as any other reports or filings that may be required by law.
10. All communications to you shall be sent to you at the address set
forth above. Any notice to us shall be duly given if mailed or telegraphed to us
at the address set forth below.
11. This Agreement shall be construed in accordance with the internal
laws of the State of New York, without giving effect to principles of conflict
of laws.
Very truly yours,
-----------------------------------------
Please Print or Type Service
Organization's Name)
-----------------------------------------
Address
-----------------------------------------
City State Zip Code
Date------------------- By:--------------------------------------
Authorized Signature
NOTE: Please return both signed copies of this Agreement to BISYS Fund
Services Limited Partnership. Upon acceptance one countersigned copy
will be returned for your files.
Accepted:
BISYS FUND SERVICES LIMITED
PARTNERSHIP
BY: BISYS Fund Services, Inc.
General Partner
Date------------------- By:--------------------------------------
<PAGE>
EXHIBIT A
Distribution Plan Agreement
between
BISYS FUND SERVICES LIMITED PARTNERSHIP
and
---------------------------------------
Name of Service Organization
The Service Organization will be paid a monthly fee
based upon the average daily value of the shares of
the Class owned by shareholders for whom the Service
Organization is the holder of record or dealer of
record at the following annual rate:
.__ of 1% of Class A Shares
.__ of 1% of Class B Shares
For purposes of determining the fees payable
hereunder, the average daily net asset value of each
Class of shares shall be computed in the manner
specified in the Fund's Articles of Incorporation and
the Portfolios' then current Prospectus and Statement
of Additional Information.
Dated: _______________
<PAGE>
SCHEDULE 1
NAME OF PORTFOLIO AND CLASSES
- -----------------------------
ISG Aggressive Growth Portfolio
Class A Shares
Class B Shares
ISG Capital Growth Portfolio
Class A Shares
Class B Shares
ISG Core Income Portfolio
Class A Shares
Class B Shares
ISG Current Income Portfolio
Class A Shares
Class B Shares
ISG Dividend Growth Portfolio
Class A Shares
Class B Shares
ISG Equity Value Portfolio
Class A Shares
Class B Shares
ISG Government Income Portfolio
Class A Shares
Class B Shares
ISG Growth Portfolio
Class A Shares
Class B Shares
ISG Growth and Income Portfolio
Class A Shares
Class B Shares
ISG International Equity Portfolio
Class A Shares
Class B Shares
ISG Large Cap Equity Portfolio
Class A Shares
Class B Shares
ISG Limited Duration Income Portfolio
Class A Shares
Class B Shares
ISG Limited Duration Tennessee Tax Free Portfolio
Class A Shares
Class B Shares
ISG Limited Duration U.S. Government Portfolio
Class A Shares
Class B Shares
ISG Mid Cap Portfolio
Class A Shares
Class B Shares
ISG Moderate Growth and Income Portfolio
Class A Shares
Class B Shares
ISG Municipal Income Portfolio
Class A Shares
Class B Shares
ISG Small Cap Opportunity Portfolio
Class A Shares
Class B Shares
ISG Tennessee Tax Exempt Bond Portfolio
Class A Shares
Class B Shares
ISG Tax Free Money Market Portfolio
Class B Shares
ISG Government Money Market Portfolio
Class B Shares
ISG Prime Money Market Portfolio
Class B Shares
EXHIBIT (9)(c)
THE INFINITY MUTUAL FUNDS, INC.
SHAREHOLDER SERVICES PLAN
FOR THE
ISG PORTFOLIOS
WHEREAS, The Infinity Mutual Funds, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end, management investment company, and offers for public sale distinct
series of shares of common stock, each corresponding to a distinct portfolio;
and
WHEREAS, the Fund's Board of Directors (the "Board") has established
as separate portfolios of the Fund the ISG Portfolios set forth on Schedule 1
hereto, as such Schedule may be revised from time to time (each, a "Portfolio");
and
WHEREAS, the Fund desires to adopt a Shareholder Services Plan
("Plan") with respect to certain classes of shares of each Portfolio set forth
on Schedule 1 hereto (each, a "Class"); and
WHEREAS, the Fund intends to enter into agreements ("Plan Agreements")
with certain financial institutions, securities dealers and other industry
professionals ("Service Organizations") pursuant to which the Service
Organizations have agreed to perform certain services for the beneficial owners
of shares of each Class;
NOW, THEREFORE, the Fund hereby adopts this Plan with respect to each
Class.
Section 1. Pursuant to Plan Agreements, Service Organizations will
provide certain services as set forth therein to holders of shares of a Class in
consideration of a fee, computed monthly in the manner set forth in the Plan
Agreements, up to the annual rate set forth on Schedule 2 hereto. The services
provided by Service Organizations under their Plan Agreements may include
providing personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Portfolios and providing reports and other
information, and providing services related to the maintenance of shareholder
accounts. The Fund's administrator or distributor and the Portfolios' investment
adviser or sub-investment adviser and their affiliates are eligible to become
Service Organizations and to receive fees under this Plan. As to each Class, all
expenses incurred by such Class in connection with the Plan Agreements and the
implementation of this Plan shall be borne entirely by the holders of such
Class's shares.
Section 2. As to each Class, this Plan shall not take effect unless it
first has been approved, together with any related agreements, by votes of a
majority of both (a) the Board and (b) those Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect
financial interest in the operation of this Plan or any Plan Agreement
("Independent Directors"), cast in person at a meeting (or meetings) called for
the purpose of voting on such approval; and until the Directors who approve the
Plan's taking effect have reached the conclusion that there is a reasonable
likelihood that the Plan will benefit such Class and the holders of its shares.
Section 3. As to each Class, this Plan shall continue for a period of
one year from its effective date, unless earlier terminated in accordance with
its terms, and thereafter shall continue automatically for successive annual
periods, provided such continuance is approved at least annually in the manner
provided in Section 2 hereof.
Section 4. The Board shall be provided with and shall review, at least
quarterly, a written report of the amounts expended with respect to each Class
under this Plan and the purposes for which such expenditures were made. Such
report shall include any amounts paid to Service Organizations and the purposes
for which such payments were made.
Section 5. As to each Class, this Plan may be amended at any time by
the Board, provided that any material amendment of the terms of this Plan shall
become effective only upon the approvals set forth in Section 2.
Section 6. As to each Class, this Plan is terminable at any time by
vote of a majority of the Independent Directors.
Section 7. While this Plan is in effect, the selection and nomination
of those Directors who are not "interested persons" (as defined in the 1940 Act)
of the Fund shall be committed to the discretion of the Directors who are not
interested persons of the Fund.
Section 8. The Fund shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
Section 4 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
Dated: February 15, 1994
Amended: August 12, 1998
<PAGE>
SCHEDULE 1
NAME OF PORTFOLIO AND CLASS DATE ESTABLISHED
- --------------------------- ----------------
ISG Aggressive Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Capital Growth Portfolio February 15, 1994
Class A Shares
Class B Shares
Trust Shares
ISG Core Income Portfolio February 15, 1994
Class A Shares
Class B Shares
Trust Shares
ISG Current Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Dividend Growth Portfolio February 15, 1994
Class A Shares
Class B Shares
Trust Shares
ISG Equity Value Portfolio May 14, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Government Income Portfolio May 14, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Growth and Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Trust Shares
ISG International Equity Portfolio May 14, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Large Cap Equity Portfolio August 12, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Limited Duration Income Portfolio February 15, 1994
Class A Shares
Class B Shares
Trust Shares
ISG Limited Duration Tennessee Tax Free Portfolio February 15, 1994
Class A Shares
Class B Shares
Trust Shares
ISG Limited Duration U.S. Government Portfolio February 11, 1997
Class A Shares
Class B Shares
Trust Shares
ISG Mid Cap Portfolio May 14, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Moderate Growth and Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Municipal Income Portfolio May 14, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Small Cap Opportunity Portfolio May 14, 1998
Class A Shares
Class B Shares
Trust Shares
ISG Tennessee Tax Exempt Bond Portfolio February 11, 1997
Class A Shares
Class B Shares
Trust Shares
ISG Government Money Market Portfolio May 14, 1998
Class A Shares
Class B Shares
ISG Prime Money Market Portfolio February 15, 1994
Class A Shares
Class B Shares
ISG Tax Free Money Market Portfolio May 14, 1998
Class A Shares
Class B Shares
ISG U.S. Treasury Money Market Portfolio February 15, 1994
Class A Shares
<PAGE>
SCHEDULE 2
ANNUAL FEE AS A
PERCENTAGE OF AVERAGE
NAME OF PORTFOLIO AND CLASSES DAILY NET ASSETS
- ----------------------------- ---------------------
ISG Aggressive Growth Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Capital Growth Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Core Income Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Current Income Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Dividend Growth Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Equity Value Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Government Income Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Growth Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Growth and Income Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG International Equity Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Large Cap Equity Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Limited Duration Income Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Limited Duration Tennessee Tax Free Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Limited Duration U.S. Government Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Mid Cap Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Moderate Growth and Income Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Municipal Income Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Small Cap Opportunity Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Tennessee Tax Exempt Bond Portfolio
Class A Shares .15%
Class B Shares .25%
Trust Shares .15%
ISG Tax Free Money Market Portfolio
Class A Shares .25%
Class B Shares .25%
ISG Government Money Market Portfolio
Class A Shares .25%
Class B Shares .25%
ISG Prime Money Market Portfolio
Class A Shares .25%
Class B Shares .25%
EXHIBIT (15)(b)
THE INFINITY MUTUAL FUNDS, INC.
DISTRIBUTION PLAN PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
ISG Portfolios
WHEREAS, The Infinity Mutual Funds, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end, management investment company, and offers for public sale distinct
series of shares of common stock, each corresponding to a distinct portfolio;
and
WHEREAS, the Fund's Board of Directors (the "Board") has established
as separate portfolios of the Fund the ISG Portfolios set forth on Schedule 1
hereto, as such Schedule may be revised from time to time (each, a "Portfolio");
and
WHEREAS, the Fund currently employs BISYS Fund Services Limited
Partnership (the "Distributor") as distributor for the shares of common stock of
each Portfolio; and
WHEREAS, the Fund desires to adopt a Distribution Plan ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to each Portfolio and, in
particular, certain classes of shares of each Portfolio set forth on Schedule 1
hereto (each, a "Class"); and
WHEREAS, the Board, in considering whether the Fund should implement
this Plan, has requested and evaluated such information as it deemed necessary
to an informed determination as to whether a written plan should be implemented
and has considered such pertinent factors as it deemed necessary to form the
basis for a decision to use assets of each Class for the purposes set forth
below; and
WHEREAS, in voting to approve the implementation of this Plan, the
Directors have concluded, in the exercise of their reasonable business judgment
and in light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit each Class and the holders of its shares;
NOW, THEREFORE, the Fund hereby adopts this Plan with respect to each
Class in accordance with Rule 12b-1 under the 1940 Act.
Section 1. The Fund shall pay to the Distributor for advertising,
marketing and distributing a monthly fee in respect of each Class at the annual
rate set forth on Schedule 2 hereto. The Distributor may pay certain financial
institutions, securities dealers and other industry professionals ("Service
Organizations") in respect of these services pursuant to an agreement between
the Distributor and the Service Organization ("Plan Agreement"). The Fund's
administrator and the Portfolios' investment adviser or sub-investment adviser
and their affiliates are eligible to become Service Organizations and to receive
fees under this Plan. As to each Class, all expenses incurred by the Class in
connection with this Plan shall be borne entirely by the holders of such Class's
shares.
Section 2. Payments to Service Organizations under paragraph 1 hereof
shall be subject to compliance by the Service Organizations with the terms of
their respective Plan Agreement with the Distributor.
Section 3. As to each Class, this Plan shall not take effect with
respect to the Class unless it first has been approved by a vote of the then
sole holder of such Class's shares.
Section 4. As to each Class, this Plan shall become effective with
respect to the Class on the date the public offering of such Class's shares
commences, and shall continue for a period of one year from such effective date,
unless earlier terminated in accordance with the terms hereof. Thereafter, this
Plan shall continue automatically for successive annual periods, provided such
continuance is approved annually by the Board, including a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Fund and who have no direct or indirect financial interest in the operation of
this Plan or in any Plan Agreement (the "Independent Directors"), pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
continuance of this Plan.
Section 5. The Board shall be provided with and shall review, at least
quarterly, a written report of the amounts expended with respect to each Class
under this Plan and the purposes for which such expenditures were made. Such
report shall include any amounts paid to Service Organizations and the purposes
for which such payments were made.
Section 6. As to each Class, this Plan may be terminated at any time
by vote of the Board, by vote of a majority of the Independent Directors, or by
vote of the holders of a majority (as defined in the 1940 Act) of the
outstanding shares of such Class.
Section 7. As to any Class, this Plan may not be amended to increase
materially the payments provided for in paragraph 1 hereof unless such amendment
is approved by vote of the holders of a majority (as defined in the 1940 Act) of
such Class's shares, and no material amendment to this Plan affecting a Class
shall be made unless approved in the manner provided for approval and annual
renewal in Section 4 hereof.
Section 8. While this Plan is in effect, the selection and nomination
of those Directors who are not "interested persons" (as defined in the 1940 Act)
of the Fund shall be committed to the discretion of the Directors who are not
interested persons of the Fund.
Section 9. The Fund shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
Section 5 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
Dated: February 15, 1994
Revised: August 12, 1998
<PAGE>
SCHEDULE 1
NAME OF PORTFOLIO AND CLASSES DATE ESTABLISHED
- ----------------------------- ----------------
ISG Aggressive Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG Capital Growth Portfolio February 15, 1994
Class A Shares
Class B Shares
ISG Core Income Portfolio February 15, 1994
Class A Shares
Class B Shares
ISG Current Income Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG Dividend Growth Portfolio February 15, 1994
Class A Shares
Class B Shares
ISG Equity Value Portfolio May 14, 1998
Class A Shares
Class B Shares
ISG Government Income Portfolio May 14, 1998
Class A Shares
Class B Shares
ISG Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG Growth and Income Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG International Equity Portfolio May 14, 1998
Class A Shares
Class B Shares
ISG Large Cap Equity Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG Limited Duration Income Portfolio February 15, 1994
Class A Shares
Class B Shares
ISG Limited Duration Tennessee Tax Free Portfolio February 11, 1997
Class A Shares
Class B Shares
ISG Limited Duration U.S. Government Portfolio February 11, 1997
Class A Shares
Class B Shares
ISG Mid Cap Portfolio May 14, 1998
Class A Shares
Class B Shares
ISG Moderate Growth and Income Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG Municipal Income Portfolio May 14, 1988
Class A Shares
Class B Shares
ISG Small Cap Opportunity Portfolio May 14, 1998
Class A Shares
Class B Shares
ISG Tennessee Tax Exempt Bond Portfolio February 15, 1994
Class A Shares
Class B Shares
ISG Tax Free Money Market Portfolio May 14, 1998
Class B Shares
ISG Government Money Market Portfolio May 14, 1998
Class B Shares
ISG Prime Money Market Portfolio February 15, 1994
Class B Shares
<PAGE>
SCHEDULE 2
ANNUAL FEE AS A
PERCENTAGE OF AVERAGE
NAME OF PORTFOLIO AND CLASSES DAILY NET ASSETS
- ----------------------------- ---------------------
ISG Aggressive Growth Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Capital Growth Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Core Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Current Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Dividend Growth Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Equity Value Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Government Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Growth Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Growth and Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG International Equity Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Large Cap Equity Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Limited Duration Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Limited Duration Tennessee Tax Free Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Limited Duration U.S. Government Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Mid Cap Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Moderate Growth and Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Municipal Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Small Cap Opportunity Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Tennessee Tax Exempt Bond Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Tax Free Money Market Portfolio
Class B Shares .75%
ISG Government Money Market Portfolio
Class B Shares .75%
ISG Prime Money Market Portfolio
Class B Shares .75%
EXHIBIT (18)(b)
THE INFINITY MUTUAL FUNDS, INC.
ISG NON-MONEY MARKET FUNDS
RULE 18F-3 PLAN
Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), requires that the Board of an investment company desiring to offer
multiple classes pursuant to said Rule adopt a plan setting forth the separate
arrangement and expense allocation of each class, and any related conversion
features or exchange privileges.
The Board, including a majority of the non-interested Board members,
of The Infinity Mutual Funds, Inc. (the "Fund"), on behalf of each series of the
Fund listed on Schedule A attached hereto (each, a "Portfolio") which offers
multiple classes, has determined that the following plan is in the best
interests of each class individually and each Portfolio as a whole:
1. CLASS DESIGNATION: Portfolio shares shall be divided into Class A
Shares, Class B Shares and Trust Shares.
2. DIFFERENCES IN SERVICES: The services offered to shareholders of
each Class shall be substantially the same, except that TELETRADE, Automatic
Investment Plan, Directed Distribution Plan, Automatic Withdrawal Plan and
Reinstatement Privilege shall be available only to holders of Class A Shares or
Class B Shares, and Right of Accumulation and Letter of Intent shall be
available only to holders of Class A Shares.
3. DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Class A Shares of each
Portfolio shall be offered with a front-end sales charge, as such term is
defined in the Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"), and a contingent deferred sales charge (a "CDSC"), as such term
is defined in the Conduct Rules of the NASD, 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. Class A Shares also shall be charged an
annual distribution fee under a Distribution Plan adopted pursuant to Rule 12b-1
under the 1940 Act and an annual service fee under a Shareholder Services Plan.
The amount of the sales charge, the amount of and provisions relating to the
CDSC, and the amount of the fees under the Distribution Plan and Shareholder
Services Plan pertaining to the Class A Shares are set forth on Schedule B
hereto.
Class B Shares shall not be subject to a front-end sales charge, but
shall be subject to a CDSC, and shall be charged an annual distribution fee
under a Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act and
an annual service fee under a Shareholder Services Plan. The amount of and
provisions relating to the CDSC, and the amount of the fees under the
Distribution Plan and Shareholder Services Plan pertaining to the Class B
Shares, are set forth on Schedule C hereto.
Trust Shares shall be offered at net asset value with no front-end
sales charge or CDSC, and shall be charged an annual service fee of up to .15%
of the value of the average daily net assets attributed to the Trust Shares
pursuant to a Shareholder Services Plan. Trust Shares shall be offered
exclusively to clients of First American National Bank for their qualified
trust, custody and/or agency accounts and to clients of affiliated and
correspondent banks of First American National Bank or certain other
institutions for their similar accounts maintained at such affiliates or
institutions.
4. EXPENSE ALLOCATION: The following expenses shall be allocated, to
the extent practicable, on a Class-by-Class basis: (a) fees under the
Distribution Plan and Shareholder Services Plan; (b) printing and postage
expenses related to preparing and distributing materials, such as shareholder
reports, prospectuses and proxies, to current shareholders of a specific Class;
(c) Securities and Exchange Commission and Blue Sky registration fees incurred
by a specific Class; (d) the expense of administrative personnel and services as
required to support the shareholders of a specific Class; (e) litigation or
other legal expenses relating solely to a specific Class; (f) transfer agent
fees identified by the Fund's transfer agent as being attributable to a specific
Class; and (g) Board members' fees incurred as a result of issues relating to a
specific Class.
5. CONVERSION FEATURES: Class B Shares shall automatically convert to
Class A Shares after a specified period of time after the date of purchase,
based on the relative net asset value of each such Class without the imposition
of any sales charge, fee or other charge, as set forth on Schedule D hereto. No
other Class shall be subject to any automatic conversion feature.
6. EXCHANGE PRIVILEGES: Portfolio shares of a Class shall be
exchangeable only for (a) shares of the same Class of another Portfolio and (b)
shares of certain other investment companies specified from time to time.
Dated: April 26, 1995
Amended: May 14, 1998
Revised: August 12, 1998
<PAGE>
SCHEDULE A
ISG Aggressive Growth Portfolio
ISG Capital Growth Portfolio
ISG Core Income Portfolio
ISG Current Income Portfolio
ISG Dividend Growth Portfolio
ISG Equity Value Portfolio
ISG Government Income Portfolio
ISG Growth Portfolio
ISG Growth and Income Portfolio
ISG International Equity Portfolio
ISG Large Cap Equity Portfolio
ISG Limited Duration Income Portfolio
ISG Limited Duration Tennessee Tax Free Portfolio
ISG Limited Duration U.S. Government Portfolio
ISG Mid Cap Portfolio
ISG Moderate Growth and Income Portfolio
ISG Municipal Income Portfolio
ISG Small Cap Opportunity Portfolio
ISG Tennessee Tax Exempt Bond Portfolio
<PAGE>
SCHEDULE B
FRONT-END SALES CHARGE--CLASS A SHARES OF ISG CORE INCOME PORTFOLIO, ISG CURRENT
INCOME PORTFOLIO, ISG GOVERNMENT INCOME PORTFOLIO, ISG LIMITED DURATION INCOME
PORTFOLIO, ISG LIMITED DURATION TENNESSEE TAX FREE PORTFOLIO, ISG LIMITED
DURATION U.S. GOVERNMENT PORTFOLIO, ISG MUNICIPAL INCOME PORTFOLIO AND ISG
TENNESSEE TAX EXEMPT BOND PORTFOLIO--The public offering price for Class A
Shares of such Portfolios shall be the net asset value per share of that Class
plus, except for shareholders beneficially owning Class A Shares of ISG
Government Income Portfolio and ISG Municipal Income Portfolio on _____________,
1998, a sales load as shown below:
Total Sales Load
------------------------------
As a % of As a % of
offering net asset
price per value per
share share
Amount of Transaction
--------- ----------
Less than $50,000............................ 3.00 3.09
$50,000 to less than $100,000................ 2.50 2.56
$100,000 to less than $250,000............... 2.00 2.04
$250,000 to less than $500,000............... 1.50 1.52
$500,000 to less than $1,000,000............. 1.00 1.01
$1,000,000 or more........................... -0- -0-
FRONT-END SALES CHARGE--CLASS A SHARES OF ISG GOVERNMENT INCOME PORTFOLIO AND
ISG MUNICIPAL INCOME PORTFOLIO--SHAREHOLDERS BENEFICIALLY OWNING CLASS A SHARES
ON ____________, 1998--For shareholders beneficially owning Class A Shares of
ISG Government Income Portfolio and ISG Municipal Income Portfolio on
___________, 1998, the public offering price of Class A Shares of such
Portfolios (until May 1, 2000) shall be 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
offering net asset
price per value per
share share
Amount of Transaction
--------- ----------
Less than $100,000......................... 2.00 2.04
$100,000 to less than $250,000............. 1.75 1.78
$250,000 to less than $500,000............. 1.50 1.52
$500,000 to less than $1,000,000........... 1.00 1.01
$1,000,000 or more......................... -0- -0-
FRONT-END SALES CHARGE--CLASS A SHARES OF ISG AGGRESSIVE GROWTH PORTFOLIO, ISG
CAPITAL GROWTH PORTFOLIO, ISG DIVIDEND GROWTH PORTFOLIO, ISG LARGE CAP EQUITY
PORTFOLIO, ISG EQUITY VALUE PORTFOLIO, ISG GROWTH PORTFOLIO, ISG GROWTH AND
INCOME PORTFOLIO, ISG MODERATE GROWTH AND INCOME PORTFOLIO, ISG INTERNATIONAL
EQUITY PORTFOLIO, ISG MID CAP PORTFOLIO AND ISG SMALL CAP OPPORTUNITY
PORTFOLIO--The public offering price for Class A Shares of such Portfolios shall
be the net asset value per share of that Class plus, except for shareholders
beneficially owning Class A Shares of ISG Capital Growth Portfolio and ISG
Dividend Growth Portfolio on September 30, 1997 and shareholders beneficially
owning Class A Shares of ISG Large Cap Equity Portfolio, ISG International
Equity Portfolio, ISG Mid Cap Portfolio and ISG Small Cap Opportunity Portfolio
on _______________, 1998, a sales load as shown below:
Total Sales Load
------------------------------
As a % of As a % of
offering net asset
price per value per
share share
Amount of Transaction
--------- ----------
Less than $50,000.......................... 4.75 4.99
$50,000 to less than $100,000.............. 4.00 4.17
$100,000 to less than $250,000............. 3.25 3.36
$250,000 to less than $500,000............. 2.50 2.56
$500,000 to less than $1,000,000........... 1.75 1.78
$1,000,000 or more......................... -0- -0-
FRONT-END SALES CHARGE--CLASS A SHARES OF ISG CAPITAL GROWTH PORTFOLIO AND ISG
DIVIDEND GROWTH PORTFOLIO--SHAREHOLDERS BENEFICIALLY OWNING CLASS A SHARES ON
SEPTEMBER 30, 1997--For shareholders beneficially owning Class A Shares of ISG
Capital Growth Portfolio and ISG Dividend Growth Portfolio on September 30,
1997, the public offering price for Class A Shares of such Portfolio shall be
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
offering net asset
price per value per
share share
Amount of Transaction
--------- ----------
Less than $100,000........................... 3.00 3.09
$100,000 to less than $250,000............... 2.50 2.56
$250,000 to less than $500,000............... 2.00 2.04
$500,000 to less than $750,000............... 1.50 1.52
$750,000 to less than $1,000,000............. 1.00 1.01
$1,000,000 or more........................... -0- -0-
FRONT-END SALES CHARGE--CLASS A SHARES OF ISG LARGE CAP EQUITY PORTFOLIO AND ISG
SMALL CAP OPPORTUNITY PORTFOLIO--SHAREHOLDERS BENEFICIALLY OWNING CLASS A SHARES
ON ___________, 1998--For shareholders beneficially owning Class A Shares of ISG
Large Cap Equity Portfolio and ISG Small Cap Opportunity Portfolio on ________,
1998, the public offering price of Class A Shares of such Portfolios (until May
1, 2000) shall be 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
offering net asset
price per value per
share share
Amount of Transaction
--------- ----------
Less than $100,000........................... 3.50 3.63
$100,000 to less than $250,000............... 3.00 3.09
$250,000 to less than $500,000............... 2.50 2.56
$500,000 to less than $1,000,000............. 1.00 1.01
$1,000,000 or more........................... -0- -0-
CLASS A SHARES OF ISG MID CAP PORTFOLIO AND ISG INTERNATIONAL EQUITY
PORTFOLIO--SHAREHOLDERS BENEFICIALLY OWNING CLASS A SHARES ON _____________,
1998--For shareholders beneficially owning Class A Shares of ISG Mid Cap
Portfolio and ISG International Equity Portfolio on ______________, 1998, the
public offering price for Class A Shares of such Portfolios (until May 1, 2000)
shall be the net asset value per share of that Class. Until May 1, 2000, no
initial sales charge shall be imposed at the time of purchase of Class A Shares
of ISG Mid Cap Portfolio or ISG International Equity Portfolio by such
shareholders.
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES--Except for shareholders
beneficially owning Class A Shares of ISG Large Cap Equity Portfolio, ISG
Government Income Portfolio, ISG International Equity Portfolio, ISG Mid Cap
Portfolio, ISG Municipal Income Portfolio and ISG Small Cap Opportunity
Portfolio on _____________, 1998, a CDSC of 1% shall be assessed at the time of
redemption of Class A Shares purchased on or after May 14, 1998 without an
initial sales charge as part of an investment of at least $1,000,000 and
redeemed within one year after purchase. For shareholders beneficially owning
Class A Shares of such Portfolios on ____________, 1998 that charge such
shareholders an initial sales charge, a CDSC of .50% shall 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 (.25% shall be assessed on
purchases over $2,000,000) and redeemed within one year after purchase. The
terms contained on Schedule C pertaining to the CDSC assessed on redemptions of
Class B Shares (other than the amount of the CDSC and time periods), including
the provisions for waiving the CDSC, shall be applicable to the Class A Shares
subject to a CDSC. Letter of Intent and Right of Accumulation shall apply to
such purchases of Class A Shares.
AMOUNT OF DISTRIBUTION PLAN FEES--CLASS A SHARES--.25 of 1% of the value of the
average daily net assets of Class A.
AMOUNT OF SHAREHOLDER SERVICES PLAN FEES--CLASS A SHARES--.15 of 1% of the value
of the average daily net assets of Class A.
<PAGE>
SCHEDULE C
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES--A CDSC payable to the Fund's
Distributor shall be imposed on any redemption of Class B Shares which reduces
the current net asset value of such Class B Shares to an amount which is lower
than the dollar amount of all payments by the redeeming shareholder for the
purchase of Class B Shares of the Portfolio held by such shareholder at the time
of redemption. No CDSC shall 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 shareholder's
Class B Shares above the dollar amount of all payments for the purchase of Class
B Shares of the Portfolio held by such shareholder 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
shall depend on the number of years from the time the shareholder 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 shall 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:
YEAR SINCE PURCHASE PAYMENT CDSC AS A % OF AMOUNT
WAS MADE INVESTED OR REDEMPTION PROCEEDS
--------------------------- -------------------------------
First................................. 4.00
Second................................ 3.00
Third................................. 3.00
Fourth................................ 2.00
Fifth................................. 2.00
Sixth................................. 1.00
Seventh............................... 0.00*
- --------
* Approximately seven years after the date of purchase, Class B Shares
automatically shall convert to Class A Shares.
In determining whether a CDSC is applicable to a redemption, the
calculation shall be made in a manner that results in the lowest possible rate.
Therefore, it shall 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.
WAIVER OF CDSC--The CDSC shall 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 Internal Revenue Code of 1986, as amended (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 Portfolio's Adviser, the Distributor 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 any systematic withdrawal plan as described in the Portfolio's
prospectus. Any Portfolio shares subject to a CDSC which were purchased prior to
the termination of such waiver shall have the CDSC waived as provided in the
Portfolio's prospectus at the time of the purchase of such shares.
AMOUNT OF DISTRIBUTION PLAN FEES--CLASS B SHARES--.75 of 1% of the value of the
average daily net assets of Class B.
AMOUNT OF SHAREHOLDER SERVICES PLAN FEES--CLASS B SHARES--.25 of 1% of the value
of the average daily net assets of Class B.
<PAGE>
SCHEDULE D
CONVERSION OF CLASS B SHARES--Approximately seven years after the date of
purchase, Class B Shares automatically shall convert to Class A Shares, based on
the relative net asset values for shares of each such Class, and shall no longer
be subject to the distribution fee and shareholder services fee charged Class B
Shares, but shall 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") shall 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.
EXHIBIT (18)(c)
THE INFINITY MUTUAL FUNDS, INC.
ISG MONEY MARKET FUNDS
RULE 18F-3 PLAN
Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), requires that the Board of an investment company desiring to offer
multiple classes pursuant to said Rule adopt a plan setting forth the separate
arrangement and expense allocation of each class, and any related conversion
features or exchange privileges.
The Board, including a majority of the non-interested Board members,
of The Infinity Mutual Funds, Inc. (the "Fund"), on behalf of each series of the
Fund listed on Schedule A attached hereto (each, a "Portfolio") which offers
multiple classes, has determined that the following plan is in the best
interests of each class individually and the Portfolio as a whole:
1. CLASS DESIGNATION: Portfolio shares shall be divided into Class A
Shares, Class B Shares and Trust Shares, except as otherwise indicated on
Schedule A.
2. DIFFERENCES IN SERVICES: The services offered to shareholders of
each Class shall be substantially the same, except that TELETRADE, Automatic
Investment Plan and Automatic Withdrawal Plan shall be available only to holders
of Class A Shares or Class B Shares, and Auto-Exchange Plan and Reinstatement
Privilege shall be available only to holders of Class B Shares. In addition,
holders of Class A Shares or Class B Shares shall be provided certain services
pursuant to a Shareholder Services Plan.
3. DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Class A Shares of each
Portfolio shall be charged an annual shareholder services fee of .25% of the
value of the average daily net assets of such Class under the Shareholder
Services Plan. The fee payable pursuant to such plan is intended to be a
"service fee" as defined under the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD").
Class B Shares shall be subject to a contingent deferred sales charge
(a "CDSC"), as such term is defined under the Conduct Rules of the NASD, and
shall be charged an annual distribution fee under a Distribution Plan adopted
pursuant to Rule 12b-1 under the 1940 Act and an annual service fee under the
Shareholder Services Plan. The amount of and provisions relating to the CDSC,
and the amount of the fees under the Distribution Plan and Shareholder Services
Plan pertaining to Class B Shares, are set forth on Schedule B hereto.
Trust Shares shall not be subject to a CDSC, shareholder services fees
or distribution fees. Trust Shares shall be offered exclusively to clients of
First American National Bank for their qualified trust, custody and/or agency
accounts and to clients of affiliated or correspondent banks of First American
National Bank or certain other institutions for their similar accounts
maintained at such affiliates or institutions.
4. EXPENSE ALLOCATION. The following expenses shall be allocated, to
the extent practicable, on a Class-by-Class basis: (a) fees under the
Shareholder Services Plan and Distribution Plan; (b) printing and postage
expenses related to preparing and distributing materials, such as shareholder
reports, prospectuses and proxies, to current shareholders of a specific Class;
(c) Securities and Exchange Commission and Blue Sky registration fees incurred
by a specific Class; (d) the expense of administrative personnel and services as
required to support the shareholders of a specific Class; (e) litigation or
other legal expenses relating solely to a specific Class; (f) transfer agent
fees identified by the Fund's transfer agent as being attributable to a specific
Class; and (g) Board members' fees incurred as a result of issues relating to a
specific Class.
5. CONVERSION FEATURES: Class B Shares shall automatically convert to
Class A Shares after a specified period of time after the date of purchase,
based on the relative net asset value of each such Class without the imposition
of any sales charge, fee or other charge, as set forth on Schedule C hereto. No
other Class shall be subject to any automatic conversion feature.
6. EXCHANGE PRIVILEGES: Portfolio shares of a Class shall be
exchangeable only for (a) shares of the same Class of another Portfolio and (b)
shares of certain other investment companies specified from time to time.
Dated: April 26, 1995
Amended: May 14, 1998
<PAGE>
SCHEDULE A
ISG Government Money Market Portfolio
Class A Shares, Class B Shares and Trust Shares
ISG Prime Money Market Portfolio
Class A Shares, Class B Shares and Trust Shares
ISG Tax Free Money Market Portfolio
Class A Shares, Class B Shares and Trust Shares
ISG U.S. Treasury Money Market Portfolio
Class A Shares and Trust Shares
<PAGE>
SCHEDULE B
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES--A CDSC payable to the Fund's
Distributor shall be imposed on any redemption of Class B Shares which reduces
the current net asset value of such Class B Shares to an amount which is lower
than the dollar amount of all payments by the redeeming shareholder for the
purchase of Class B Shares of the Portfolio held by such shareholder at the time
of redemption. No CDSC shall 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 shareholder's
Class B Shares above the dollar amount of all payments for the purchase of Class
B Shares of the Portfolio held by such shareholder 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
shall depend on the number of years from the time the shareholder 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 shall 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 AMOUNT
YEAR SINCE PURCHASE INVESTED OR REDEMPTION
PAYMENT WAS MADE PROCEEDS
- ------------------- ----------------------
First.................................. 4.00
Second................................. 3.00
Third.................................. 3.00
Fourth................................. 2.00
Fifth.................................. 2.00
Sixth.................................. 1.00
Seventh................................ 0.00*
- ------------------
* Approximately seven years after the date of purchase, Class B Shares
automatically shall convert to Class A Shares.
In determining whether a CDSC is applicable to a redemption, the
calculation shall be made in a manner that results in the lowest possible rate.
Therefore, it shall 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.
WAIVER OF CDSC--The CDSC shall 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 Internal Revenue Code of 1986, as amended (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 Portfolio's Adviser, the Distributor 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 any systematic withdrawal plan as described in the Portfolio's
prospectus. Any Portfolio shares subject to a CDSC which were purchased prior to
the termination of such waiver shall have the CDSC waived as provided in the
Portfolio's prospectus at the time of the purchase of such shares.
AMOUNT OF DISTRIBUTION PLAN FEES--CLASS B SHARES--.75 of 1% of the value of the
average daily net assets of Class B.
AMOUNT OF SHAREHOLDER SERVICES PLAN FEES--CLASS B SHARES--.25 of 1% of the value
of the average daily net assets of Class B.
<PAGE>
SCHEDULE C
CONVERSION OF CLASS B SHARES--Approximately seven years after the date of
purchase, Class B Shares automatically shall convert to Class A Shares, based on
the relative net asset values for shares of each such Class, and shall no longer
be subject to the distribution fee and shareholder services fee charged Class B
Shares, but shall be subject to the shareholder services fee charged Class A
Shares. At that time, Class B Shares that have been acquired through the
reinvestment of dividends and distributions ("Dividend Shares") shall 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.
