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. 48 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 48 /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)
_X_ 60 days after filing pursuant to paragraph (a)(i)
___ on (date) pursuant to paragraph (a)(i)
___ 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>
ISG FUNDS
PROSPECTUS MAY 1, 1999
ISG EQUITY FUNDS
International Equity Fund
o Small-Cap Opportunity Fund
o Mid-Cap Fund
o Capital Growth Fund
o Large-Cap Equity Fund
o Equity Income Fund
ISG FIXED INCOME FUNDS
o Income Fund
o Government Income Fund
o Limited Term Income Fund
o Limited Term U.S. Government
Fund
ISG TAX-EXEMPT FIXED INCOME FUNDS
o Tennessee Tax-Exempt Fund
o Municipal Income Fund
o Limited Term Tennessee
Tax-Exempt Fund
ISG MONEY MARKET FUNDS
o Prime Money Market Fund
o Government Money Market Fund
o Treasury Money Market Fund
o Tax-Exempt Money Market Fund
ISG STRATEGIC PORTFOLIOS
MANAGED BY
FIRST AMERICAN NATIONAL BANK o Aggressive Growth Portfolio
o Growth Portfolio
Questions? o Growth & Income Portfolio
Call 1-800-852-0045 o Moderate Growth & Income Portfolio
or your investment representative. o Current Income Portfolio
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE FUND SHARES OR DETERMINED WHETHER THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
CAREFULLY REVIEW THIS
IMPORTANT SECTION TO LEARN DESCRIPTION OF THE FUNDS - OBJECTIVES,
ABOUT EACH FUND'S GOAL, RISK/RETURN AND EXPENSES
MAIN INVESTMENT STRATEGIES
AND RISKS, PAST __ OVERVIEW
PERFORMANCE, AND FEES.
ISG EQUITY FUNDS
__ INTERNATIONAL EQUITY FUND
__ SMALL-CAP OPPORTUNITY FUND
__ MID-CAP FUND
__ CAPITAL GROWTH FUND
__ LARGE-CAP EQUITY FUND
__ EQUITY INCOME FUND
ISG FIXED INCOME FUNDS
__ INCOME FUND
__ GOVERNMENT INCOME FUND
__ LIMITED TERM INCOME FUND
__ LIMITED TERM U.S. GOVERNMENT FUND
ISG TAX-EXEMPT FIXED INCOME FUNDS
__ TENNESSEE TAX-EXEMPT FUND
__ MUNICIPAL INCOME FUND
__ LIMITED TERM TENNESSEE TAX-EXEMPT FUND
ISG MONEY MARKET FUNDS
__ PRIME MONEY MARKET FUND
__ GOVERNMENT MONEY MARKET FUND
__ TREASURY MONEY MARKET FUND
__ TAX-EXEMPT MONEY MARKET FUND
ISG STRATEGIC PORTFOLIOS
__ AGGRESSIVE GROWTH PORTFOLIO
__ GROWTH PORTFOLIO
__ GROWTH & INCOME PORTFOLIO
__ MODERATE GROWTH & INCOME PORTFOLIO
__ CURRENT INCOME PORTFOLIO
<PAGE>
REVIEW THIS SECTION FOR ADDITIONAL INVESTMENT STRATEGIES AND RISKS
ADDITIONAL INFORMATION ON
INVESTMENT STRATEGIES AND __ EQUITY FUNDS
RISKS. __ FIXED INCOME FUNDS
__ TAX-EXEMPT FIXED INCOME FUNDS
__ MONEY MARKET FUNDS
__ STRATEGIC PORTFOLIOS
__ APPLICABLE TO ALL FUNDS
REVIEW THIS SECTION FOR FUND MANAGEMENT
DETAILS ON THE PEOPLE AND
ORGANIZATIONS WHO OVERSEE __ INVESTMENT ADVISER
THE FUNDS. __ PORTFOLIO MANAGERS
__ ADMINISTRATOR AND DISTRIBUTOR
REVIEW THIS SECTION FOR SHAREHOLDER INFORMATION
DETAILS ON HOW SHARES ARE
VALUED, HOW TO PURCHASE, __ ALTERNATIVE PURCHASE METHODS
SELL AND EXCHANGE SHARES, __ PRICING OF FUND SHARES
RELATED CHARGES AND __ PURCHASING AND ADDING TO YOUR SHARES
PAYMENTS OF DIVIDENDS AND __ SELLING YOUR SHARES
DISTRIBUTIONS. __ EXCHANGING YOUR SHARES
__ GENERAL POLICIES ON SELLING SHARES
__ DISTRIBUTION ARRANGEMENTS/SALES CHARGES
__ DIVIDENDS, DISTRIBUTIONS AND TAXES
REVIEW THIS SECTION FOR FINANCIAL HIGHLIGHTS
RECENT FINANCIAL
INFORMATION. __ EQUITY FUNDS
__ FIXED INCOME FUNDS
__ TAX-EXEMPT FIXED INCOME FUNDS
__ MONEY MARKET FUNDS
WHERE TO LEARN MORE BACK COVER
ABOUT THE FUNDS
<PAGE>
OVERVIEW
- --------------------------------------------------------------------------------
THE FUNDS ISG Funds consist of twenty-two separate Funds,
each with its own investment strategy and
risk/return profile. The differences in strategy
among the Funds determine the types of securities
in which each Fund invests and can be expected to
affect the degree of risk each Fund is subject to
and its yield or return. The Funds are actively
managed and, thus, are subject to manager risk,
which is the possibility that poor securities
selection will cause the Funds to underperform
other funds with similar investment objectives.
Because you could lose money by investing in a
Fund, be sure to read all risk disclosure
carefully before investing.
You should be aware that ISG Funds:
o Are not bank deposits
o Are not guaranteed, endorsed or insured by
any bank, financial institution or government
entity such as the Federal Deposit Insurance
Corporation
o Are not guaranteed to achieve their stated
goals
INFORMATION ON EACH FUND'S RECENT STRATEGIES AND
HOLDINGS CAN BE FOUND IN THE CURRENT
ANNUAL/SEMI-ANNUAL REPORT (SEE BACK COVER).
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
EQUITY FUNDS--These Funds seek capital
appreciation and invest primarily in
equity securities, principally common
stocks and, to a limited extent,
preferred stocks and convertible
securities.
WHO MAY WANT TO Consider investing in these Funds if you are:
INVEST?
! seeking a long-term goal such as retirement
! looking to add a growth component to your
portfolio
! willing to accept the risks of investing in the
stock markets
These Funds may not be appropriate if you are:
! pursuing a short-term goal or investing
emergency reserves
! uncomfortable with an investment that will go
up and down in value
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
INTERNATIONAL EQUITY FUND
TICKER SYMBOLS:
CLASS A - IIEAX
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
appreciation.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES large non-U.S. companies (i.e., incorporated or
organized outside the United States).
In choosing stocks for the Fund, the Fund's
Sub-Adviser, Lazard Asset Management, looks for
established companies in economically developed
countries that it believes are undervalued based
on their return on total capital or equity. The
Sub-Adviser attempts to identify undervalued
securities through traditional measures of value,
including low price to earnings ratio, high yield,
unrecognized assets, potential for management
change and the potential to improve profitability.
The Sub-Adviser focuses on individual stock
selection (a "bottom-up" approach) rather than on
forecasting stock market trends (a "top-down"
approach).
The percentage of the Fund's assets invested in
particular geographic sectors may shift from time
to time in accordance with the judgment of the
Adviser and Sub-Adviser. Ordinarily, the Fund
invests in at least three different foreign
countries. Although the Fund invests primarily in
the stocks of companies located in developed
foreign countries, it may invest up to 25% of its
assets in typically large companies located, or
doing significant business in emerging markets. In
addition, the Fund may have substantial
investments in American and Global Depositary
Receipts.
PRINCIPAL INVESTMENT The Fund's performance will be influenced by
RISKS political, social and economic factors affecting
companies in foreign countries. The securities of
foreign issuers fluctuate in price, often based on
factors unrelated to the issuers' value, and such
fluctuations can be pronounced. Foreign securities
include special risks such as exposure to currency
fluctuations, a lack of adequate company
information, political instability, and differing
auditing and legal standards. As a result, you
could lose money by investing in the Fund,
particularly if there is a sudden decline in the
share prices of the Fund's holdings or an overall
decline in the stock markets of the foreign
countries in which the Fund is invested.
Emerging market countries have economic structures
that are generally less diverse and mature, and
political systems that are less stable, than those
of developed countries. As a result, their markets
are more volatile, but may provide higher rates of
return to investors.
Value stocks involve the risk that they may never
reach what the Sub-Adviser believes is their full
market value. They also may decline in price, even
though in theory they are already underpriced.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
this page provide some FOR CLASS A SHARES
indication of the risks of
investing in the International 9.47%
Equity Fund by showing how ----------------------------------------
the Fund has performed and '98
how its performance has varied
from year to year. The bar
chart shows the performance The bar chart above does not reflect any
of the Fund's Class A shares applicable sales charges which would
for its first full calendar reduce returns.
year of operations. The
table below compares the -----------------------------------------
performance of Class A Best quarter: Q4 1998 +18.79%
shares over time to that Worst quarter: Q3 1998 -19.33%
of the Morgan Stanley
Capital International
Europe, Australia, Far
East ("EAFE") Index, a
widely recognized,
unmanaged index of foreign
securities representing major
non-U.S. stock markets. Both
the bar chart and the table
assume the reinvestment of
dividends and distributions.
Class B and Class I shares
had not been offered for a
full calendar year. Of course,
past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
<S> <C> <C> <C> <C> <C>
(with sales charge imposed) 8/15/97 4.31% N/A N/A 0.83%
EAFE INDEX 7/31/97 20.33% N/A N/A 5.62%
</TABLE>
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares of Shareholder
the International Equity Fund, you Transaction
will pay certain fees and expenses, Fees (fees
which are described in the tables. paid by you CLASS CLASS CLASS
Shareholder transaction fees are directly) A SHARES B SHARES I SHARES
paid from your account. Annual
Fund operating expenses are paid
out of Fund assets, and are -------------------------------------------------------
reflected in the share price.
Maximum sales
charge (load)
on purchases
AS A % OF
<S> <C> <C> <C>
OFFERING PRICE 4.75%1 None None
Maximum deferred
sales charge
(CDSC) None2 4.00%3 None
AS A % OF LOWER
OF PURCHASE OR
SALE PRICE
Annual Fund
Operating
Expenses CLASS CLASS CLASS
(fees paid A SHARES B SHARES I SHARES
from Fund
assets)
Management Fee 1.00% 1.00% 1.00%
---------------------------------------------------------
Distribution
(12b-1) Fee .25% .75% None
---------------------------------------------------------
Other Expenses .88% .98% .88%
---------------------------------------------------------
Total Annual
Fund Operating
Expenses4 2.13% 2.73% 1.88%
---------------------------------------------------------
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class B and Class I are based on estimated amounts for
the current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements that are or were in effect.
Total expenses after fee waivers and expense reimbursements for each class
were: Class A, 1.81%; Class B, 2.41%; and Class I , 1.61%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued
at any time.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
Use the example at right to INTERNATIONAL EQUITY 1 3 5 10
help you compare the cost of FUND YEAR YEARS YEARS YEARS
investing in the Fund with
<S> <C> <C> <C> <C>
the cost of investing in CLASS A SHARES $681 $1,110 $1,565 $2,820
other mutual funds. It --------------------------------------------------------------
illustrates the amount of CLASS B SHARES
fees and expenses you would Assuming Redemption $676 $1,147 $1,645 $2,846
pay, assuming the following:
Assuming no Redemption $276 $ 847 $1,445 $2,846
o $10,000 investment --------------------------------------------------------------
o 5% annual return CLASS I SHARES $191 $ 591 $1,016 $2,201
o no changes in the Fund's --------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
</TABLE>
Because actual returns and
operating expenses will be
different, this example is
for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
SMALL-CAP OPPORTUNITY FUND
TICKER SYMBOLS:
CLASS A - ISOAX
CLASS B - ISOBX
CLASS I - ISOIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
appreciation.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES U.S. companies with market capitalizations of less
than $1.5 billion.
In choosing stocks for the Fund, the Fund's
Sub-Adviser, Womack Asset Management, seeks
investment opportunities in smaller, well managed
U.S. companies whose shares are undervalued
relative to the companies' growth potential. The
Sub-Adviser employs a growth-oriented approach
which involves fundamental analysis of the
company's published financial statements with
technical analysis (which relies on price and
volume movements of the company's stock) to
discern potential and risk.
The Sub-Adviser focuses on individual stock
selection (a "bottom-up" approach) rather than on
forecasting stock market trends (a "top-down"
approach). The Sub-Adviser considers, among other
factors:
o projected earnings growth
o relative price strength
0 business fundamentals
PRINCIPAL INVESTMENT Stocks and other equity securities fluctuate in
RISKS price, often based on factors unrelated to the
issuers' value, and such fluctuations can be
pronounced. The value of your investment in the
Fund will fluctuate in response to movements in
the stock market and the activities of individual
portfolio companies. As a result, you could lose
money by investing in the Fund, particularly if
there is a sudden decline in share prices of the
Fund's holdings or an overall decline in the stock
market.
The Fund invests in small-cap companies which
carry additional risks. Smaller companies
typically have more limited product lines, markets
and financial resources, and have less predictable
earnings than larger companies and their
securities trade less frequently and in more
limited volume than those of larger, more
established companies. As a result, small-cap
stocks and thus the Fund's shares may fluctuate
significantly more in value than larger-cap stocks
and funds that focus on them.
Over time, growth companies are expected to
increase their earnings at an above-average rate.
If these expectations are not met, the stock price
can fall drastically--even if earnings show an
absolute increase.
PERFORMANCE BAR CHART AND TABLE
<TABLE>
<CAPTION>
The bar chart and table on YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
this page provide some CLASS A SHARES
indication of the risks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
of investing un the Small-Cap 20.26% -6.61% 59.13% 24.96% 31.80% -7.21% 28.48% 24.98% 24.41% -7.20%
Opportunity Fund by showing -------------------------------------------------------------------------------
how the Fund has performed '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
and how its performance
has varied from year to
year. The bar chart shows
how the performance of
the Fund's Class A shares The bar chart above does not reflect any applicable sales charges which
has varied from year to year. would reduce returns.
The table below compares
the performance of Class -----------------------------------------------------------
A shares over time to that Best quarter: Q4 1992 +26.42%
of the Russell 2000 Index, Worst quarter: Q3 1998 -23.80%
a widely recognized,
unmanaged index of smaller
capitalization common
stocks. Both the bar chart
and the table assume the
reinvestment of dividends
and distributions. Class B
and Class I shares had not
been offered for a full
calendar year. Of course,
past performance does not
indicate how the Fund will
perform in the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Past Past 5 Past 10
Date Year Years Years
Class A
<S> <C> <C> <C> <C>
(with sales charge imposed) 1/1/82* -11.60% 10.39% 17.05%
RUSSELL 2000 INDEX -2.55% 11.87% 12.92%
* The Small-Cap Opportunity Fund commenced operations on 8/1/94 through a
transfer of assets from collective trust fund accounts managed by the
Adviser's predecessor, using materially equivalent investment objectives,
policies and methodologies as the Fund. The quoted performance of the Fund
includes the performance of these trust accounts for periods prior to the
Fund's commencement of operations, as adjusted to reflect the expenses
associated with the Fund. The trust accounts were not registered with the
SEC and were not subject to the investment restrictions imposed by law on
registered mutual funds. If these trust accounts had been registered, their
returns may have been lower.
</TABLE>
<TABLE>
<CAPTION>
If you purchase and hold shares of Shareholder
the Small-Cap Opportunity Fund, you Transaction
will pay certain fees and expenses, Fees (fees
which are described in the tables. paid by you CLASS CLASS CLASS
Shareholder transaction fees are directly) A SHARES B SHARES I SHARES
paid from your account. Annual
Fund operating expenses are paid
out of Fund assets, and are -------------------------------------------------------
reflected in the share price.
Maximum sales
charge (load)
on purchases
AS A % OF
<S> <C> <C> <C> <C>
OFFERING PRICE 4.75%1 None None
Maximum deferred
sales charge
(CDSC) None2 4.00%3 None
AS A % OF LOWER
OF PURCHASE OR
SALE PRICE
Annual Fund
Operating
Expenses CLASS CLASS CLASS
(fees paid A SHARES B SHARES I SHARES
from Fund
assets)
Management Fee 0.95% 0.95% 0.95%
---------------------------------------------------------
Distribution
(12b-1) Fee .25% .75% None
---------------------------------------------------------
Other Expenses .46% .56% .46%
---------------------------------------------------------
Total Annual
Fund Operating
Expenses4 1.66% 2.26% 1.41%
---------------------------------------------------------
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class B and Class I are based on estimated amounts for
the current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements that are or were in effect.
Total expenses after fee waivers and expense reimbursements for each class
were: Class A, 1.38%; Class B, 1.36%; and Class I, 1.33%. Any fee waiver
or expense reimbursement arrangement is voluntary and may be discontinued
at any time.
</TABLE>
<PAGE>
EXPENSE EXAMPLE
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
Use the example at right to SMALL-CAP OPPORTUNITY 1 3 5 10
help you compare the cost of FUND YEAR YEARS YEARS YEARS
investing in the Fund with
<S> <C> <C> <C> <C> <C>
the cost of investing in CLASS A SHARES $636 $ 974 $1,334 $2,347
other mutual funds. It --------------------------------------------------------------
illustrates the amount of CLASS B SHARES
fees and expenses you would Assuming Redemption $629 $1,006 $1,410 $2,371
pay, assuming the following:
Assuming no Redemption $229 $ 706 $1,210 $2,371
o $10,000 investment --------------------------------------------------------------
o 5% annual return CLASS I SHARES $144 $ 446 $ 771 $1,691
o no changes in the Fund's --------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
MID-CAP FUND
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
appreciation.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES companies publicly traded on U.S. exchanges that
have market capitalizations of $500 million to $5
billion.
In choosing stocks for the Fund, the Fund's
Sub-Adviser, Bennett Lawrence Management, seeks to
identify industries that are benefiting from major
demand trends or themes and are therefore growing
at a much faster rate than the overall economy.
The Sub-Adviser then typically gathers information
on the companies that are benefiting from these
trends or themes. Generally, the Fund will not
invest in a company unless the Sub-Adviser has met
with the company's top management. The Sub-Adviser
also seeks to talk to suppliers, purchasers, and
competitors to reinforce its analysis and monitor
the Fund's holdings. The Sub-Adviser's experience
has been that when mid-sized companies are backed
by major demand trends, they can create attractive
gains for investors.
PRINCIPAL INVESTMENT Stocks and other equity securities fluctuate in
RISKS price, often based on factors unrelated to the
issuers' value, and such fluctuations can be
pronounced. The value of your investment in the
Fund will fluctuate in response to movements in
the stock market and the activities of individual
portfolio companies. As a result, you could lose
money by investing in the Fund, particularly if
there is a sudden decline in share prices of the
Fund's holdings or an overall decline in the stock
market.
The Fund invests in mid-cap companies which carry
additional risks. These companies typically have
less predictable earnings than larger companies
and their securities trade less frequently and in
more limited volume than those of larger, more
established companies. As a result, mid-cap stocks
and thus the Fund's shares S may fluctuate more in
value than larger-cap stocks and funds that focus
on them.
Over time, growth companies are expected to
increase their earnings at an above-average rate.
If these expectations are not met, the stock price
can fall drastically--even if earnings show an
absolute increase.
Because demand trends and themes can change, the
Fund's performance could suffer if the Adviser is
slow to respond to such changes.
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares of Shareholder
the Mid-Cap Fund, you Transaction
will pay certain fees and expenses, Fees (fees
which are described in the tables. paid by you CLASS CLASS CLASS
Shareholder transaction fees are directly) A SHARES B SHARES I SHARES
paid from your account. Annual
Fund operating expenses are paid
out of Fund assets, and are reflected Maximum sales
in the share price. charge (load)
on purchases AS A % OF
<S> <C> <C> <C>
OFFERING PRICE 4.75%1 None None
------------------------------------------------------------------------------
Maximum deferred
sales charge (CDSC) AS None2 4.00%3 None
A % OF LOWER OF PURCHASE
OR SALE PRICE
Annual Fund
Operating CLASS CLASS CLASS
Expenses A SHARES B SHARES I SHARES
(fees paid from
Fund assets)
-------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
-------------------------------------------------------------------------------
Distribution (12b-1) Fee .25% .75% None
-------------------------------------------------------------------------------
Other Expenses 1.75% 1.85% 1.75%
-------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses4 3.00% 3.60% 2.75%
-------------------------------------------------------------------------------
- --------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
MID-CAP EQUITY FUND 1 3
Use the example at right to help you Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $764 $1,358
Fund with the cost of investing in ---------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $763 $1,403
would pay, assuming the following:
Assuming no Redemption $363 $1,103
o $10,000 investment ---------------------------------------------------------
o 5% annual return CLASS I SHARES $278 $ 853
o no changes in the Fund's ---------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
- --------------------------------------------------------------
CAPITAL GROWTH FUND
TICKER SYMBOLS:
CLASS A - ICGAX
CLASS B - ICGBX
CLASS I - ICGIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
growth.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES U.S. companies with market capitalizations of at
least $500 million that the Adviser believes offer
opportunities for capital appreciation and growth
of earnings.
In choosing stocks for the Fund, the Adviser first
identifies industries that it believes will expand
over the next few years or longer. The Adviser
then uses fundamental analysis of company
financial statements to find large U.S. companies
within these industries that offer the prospect of
solid earnings growth. The Adviser also may
consider other factors in selecting investments
for the Fund, including the development of new or
improved products or services, opportunities for
greater market share, more effective management or
other signs that the company will have greater
than average earnings growth and capital
appreciation.
PRINCIPAL INVESTMENT Stocks and other equity securities fluctuate in
RISKS price, often based on factors unrelated to the
issuers' value, and such fluctuations can be
pronounced. The value of your investment in the
Fund will fluctuate in response to movements in
the stock market and the activities of individual
portfolio companies. As a result, you could lose
money by investing in the Fund, particularly if
there is a sudden decline in the share prices of
the Fund's holdings or an overall decline in the
stock market.
The Fund may invest in medium-sized companies
which carry additional risks because their
earnings tend to be less predictable, their share
prices more volatile and their securities less
liquid than larger, more established companies.
Over time, growth companies are expected to
increase their earnings at an above-average rate.
If these expectations are not met, the stock price
can fall drastically--even if earnings show an
absolute increase.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
PERFORMANCE BAR CHART AND TABLE
<TABLE>
<CAPTION>
The bar chart and table on YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
this page provide some CLASS A SHARES
indication of the risks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
of investing in the Capital 28.81% -5.64% 24.66% 6.49% 3.48% -0.42% 30.42% 22.25% 30.79% 32.05%
Growth Fund by showing -----------------------------------------------------------------------------------
how the Fund has performed '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
and how its performance
has varied from year to
year. The bar chart shows
how the performance of
the Fund's Class A shares The bar chart above does not reflect any applicable sales charges which
has varied from year to year. would reduce returns.
The table below compares
the performance of Class -----------------------------------------------------------
A and Class I shares Best quarter: Q4 1998 +22.63%
over time to that Worst quarter: Q3 1990 -11.65%
of the S&P 500R Index, -----------------------------------------------------------
a widely recognized,
unmanaged index of common
stocks. Both the bar chart
and the table assume the
reinvestment of dividends
and distributions. Class B
shares had not been offered
for a full calendar year.
Of course, past performance
does not indicate how the
Fund will perform in the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
<S> <C> <C> <C> <C> <C>
(with sales charge imposed) 12/31/80* 25.77% 21.15% 15.87% 13.02%
Class I 10/3/97 32.40% N/A N/A 26.20%
S&P 500R Index 12/31/80 28.74% 24.08% 19.02% 16.95%
* The Capital Growth Fund commenced operations on 4/1/96 through a
transfer of assets from collective trust fund accounts managed by the
Adviser, using materially equivalent investment objectives,
policies and methodologies as the Fund. The quoted performance of the Fund
includes the performance of these trust accounts for periods prior to the
Fund's commencement of operations, as adjusted to reflect the expenses
associated with the Fund. The trust accounts were not registered with the
SEC and were not subject to the investment restrictions imposed by law on
registered mutual funds. If these trust accounts had been registered, their
returns may have been lower.
</TABLE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Capital Growth Fund, you Transaction
will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 4.75%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .65% .65% .65%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .54% .64% .54%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.44% 2.04% 1.19%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses have been restated for Class A and Class I to reflect
current fees. The expense noted above do not reflect any fee waivers
or expense reimbursement arrangements that are or were in effect. Total
expenses after fee waivers and expense reimbursements for each class
were: Class A, 1.28%; Class B, 2.04%; and Class I, 1.02%. Any fee
waiver or expense reimbursement arrangement is voluntary and may be
discontinued at any time.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
CAPITAL GROWTH FUND 1 3 5 10
Use the example at right to help you Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $615 $909 $1,225 $2,117
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $607 $940 $1,298 $2,140
would pay, assuming the following:
Assuming no Redemption $207 $640 $1,098 $2,140
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $121 $378 $ 654 $1,443
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
LARGE-CAP EQUITY FUND
TICKER SYMBOLS:
CLASS A - ILCAX
CLASS B - ILCBX
CLASS I - ILEIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with long-term
capital appreciation and, as a secondary
objective, current income.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES large U.S. companies with market capitalizations
over $1 billion that the Adviser believes have the
potential to provide capital appreciation and
growth of income.
In choosing stocks for the Fund, the Adviser's
strategy is to select well managed U.S. companies
that have demonstrated sustained patterns of
profitability, strong balance sheets, and the
potential to achieve predictable, above-average
earnings growth. The Adviser also looks for
companies that pay above-average dividends. The
Adviser seeks to diversify the Fund's portfolio
within the various industries typically
comprising, what the Adviser believes to be, the
classic growth segments of the U.S. economy:
Technology, Consumer Non-Durables, Health Care,
Business Equipment and Services, Retail, and
Capital Goods.
The Fund invests for long-term growth rather than
short-term profits.
PRINCIPAL INVESTMENT Stocks and other equity securities fluctuate in
RISKS price, often based on factors unrelated to the
issuers' value, and such fluctuations can be
pronounced. The value of your investment in the
Fund will fluctuate in response to movements in
the stock market and the activities of individual
portfolio companies. As a result, you could lose
money by investing in the Fund, particularly if
there is a sudden decline in the share prices of
the Fund's holdings or an overall decline in the
stock market.
Over time, growth companies are expected to
increase their earnings at an above-average rate.
If these expectations are not met, the stock price
can fall drastically--even if earnings show an
absolute increase.
The risks and returns of different industries can
vary over the long-term and short-term. Because of
this, the Fund's performance could suffer during
times when the stocks of companies in the classic
growth industries in which it is invested are out
of favor.
PERFORMANCE BAR CHART AND TABLE
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES
The bar chart and table on this page provide
some indication of the risks of investing in the
<S> <C> <C> <C> <C> <C> <C>
Large-Cap Equity Fund by showing how the Fund has 5.60% 1.78% 34.99% 17.63% 35.93% 37.87%
performed and how its performance has varied from -----------------------------------------------------------
year to year. The bar chart shows how the '93 '94 '95 '96 '97 '98
performance of the Fund's Class A shares has
varied from year to year. The table below
compares the performance of Class A shares over
time to that of the S&P 5007 Index, a widely
recognized, unmanaged index of common stocks. The bar chart above does not reflect any applicable sales charges
Both the bar chart and the table assume the which would reduce returns.
reinvestment of dividends and distributions.
Class B and Class I shares had not been offered
for a full calendar year. Of course, past
performance does not indicate how the Fund will __________________________________________
perform in the future.
Best quarter: Q4 1998 +24.83%
Worst Quarter: Q3 1998 -5.95%
------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Past 10 Years Since Inception
Class A
<S> <C> <C> <C> <C> <C>
(with sales charge imposed) 8/3/92 31.30% 23.60% N/A 19.97%
S&P 5007INDEX 7/31/92 28.74% 24.08% N/A 20.82%
</TABLE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Large-Cap Equity Fund, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 4.75%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .75% .75% .75%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .35% .45% .35%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.35% 1.95% 1.10%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class B and Class I are based on estimated amounts for
the current fiscal year, and have been restated for Class A to reflect
current fees. The expenses noted above do not reflect any fee waivers or
expense reimbursement arrangements that are or were in effect. Total
expenses after fee waivers and expense reimbursements for each class were:
Class A, 1.03%, Class B. 1.10%, and Class I, 1.04%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
LARGE-CAP EQUITY FUND 1 3 5 10
Use the example at right to help you Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $606 $882 $1,179 $2,022
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $598 $912 $1,252 $2,044
would pay, assuming the following:
Assuming no Redemption $198 $612 $1,052 $2,044
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $112 $350 $ 606 $1,340
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
EQUITY INCOME FUND
TICKER SYMBOLS:
CLASS A - IGIAX
CLASS B - IGBIX
CLASS I - IGIIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income and capital appreciation.
PRINCIPAL INVESTMENT The Fund invests primarily in dividend-paying
STRATEGIES equity securities of U.S. companies that the
Adviser expects to provide reasonable income and
to have capital appreciation potential.
In choosing equity securities for the Fund, the
Adviser's strategy is to identify financially
stable, mature companies that pay above-average
dividends. The Adviser will select those companies
that it believes have the capacity to increase
dividend payments in the future. The Adviser takes
into account factors, such as price-earnings
ratios, cash flow and the relationship of a
company's asset value to the market price of its
securities.
The Fund may invest in the securities of companies
of any size depending on the relative
attractiveness of the company and the industry in
which it operates.
PRINCIPAL INVESTMENT Stocks and other equity securities fluctuate in
RISKS price, often based on factors unrelated to the
issuers' value, and such fluctuations can be
pronounced. The value of your investment in the
Fund will fluctuate in response to movements in
the stock market and the activities of individual
portfolio companies. As a result, you could lose
money by investing in the Fund, particularly if
there is a sudden decline in the share prices of
the Fund's holdings or an overall decline in the
stock market.
Because different types of stocks tend to shift in
and out of favor depending on market and economic
conditions, the Fund's performance may sometimes
be lower or higher than that of other types of
funds (such as those investing in smaller
companies).
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on this
page provide some indication of
the risks of investing in the
Equity Income Fund by showing how
the Fund has performed and how YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES
its performance has varied from
year to year. The bar chart shows
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
how the performance of the Fund's 29.14% -0.21% 22.20% 2.72% 9.92% -6.32% 31.14% 14.69% 32.56% 19.46%
Class A shares has varied from -------------------------------------------------------------------------------
year to year. The table below '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
compares the performance of Class
A and Class I shares over time to
that of the S&P 500 Index, a The bar chart above does not reflect any applicable sales charges
widely recognized, unmanaged which would reduce returns.
index of common stocks. Both the
bar chart and the table assume --------------------------------------------
the reinvestment of dividends and Best quarter: Q4 1998 +16.26%
distributions. Class B shares had Worst quarter: Q3 1998 - 8.79%
not been offered for a full --------------------------------------------
calendar year. Of course, past
performance does not indicate how
the Fund will perform in the
future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Past 10 Years Since Inception
<S> <C> <C> <C> <C> <C>
Class A
(with sales charge imposed) 12/31/86* 13.76% 16.28% 14.21% 13.20%
Class I 10/3/97 19.72% N/A N/A 19.85%
S&P 500 INDEX 12/31/86 28.74% 24.08% 19.20% 17.76%
- ----------------------
* The Equity Income Fund commenced operations on 2/28/97 through a transfer
of assets from collective trust fund accounts managed by the Adviser, using
materially equivalent investment objectives, policies and methodologies as
the Fund. The quoted performance of the Fund includes performance of these
trust accounts for periods prior to the Fund's commencement of operations,
as adjusted to reflect the expenses associated with the Fund. The trust
accounts were not registered with the SEC and were not subject to the
investment restrictions imposed by law on registered mutual funds. If these
trust accounts had been registered, their returns may have been lower.
</TABLE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Equity Income Fund, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 4.75%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .65% .65% .65%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .70% .80% .70%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.60% 2.20% 1.35%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class A and Class I to reflect current fees. The
expenses noted above do not reflect any fee waivers or expense
reimbursement arrangements that are or were in effect. Total expenses after
fee waivers and expense reimbursements for each class were: Class A, 1.45%,
Class B. 2.20%, and Class I, 1.16%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
EQUITY INCOME FUND 1 3 5 10
Use the example at right to help you Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $630 $956 $1,304 $2,285
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $623 $988 $1,380 $2,309
would pay, assuming the following:
Assuming no Redemption $223 $688 $1,180 $2,309
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $137 $428 $ 739 $1,624
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
FIXED INCOME FUNDS -- These Funds seeks current
income and invest primarily in fixed income
securities, such as U.S. Government
securities, or corporate, bank and commercial
obligations.
WHO MAY WANT TO Consider investing in these Funds if you are:
INVEST?
! looking to add a monthly income component
to your portfolio
! willing to accept the risks of price and
dividend fluctuations
These Funds may not be appropriate if you are:
! investing emergency reserves
! uncomfortable with an investment that will go
up and down in value
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
INCOME FUND
TICKER SYMBOLS:
CLASS A - IINAX
CLASS B - IICBX
CLASS I - IINIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income without assuming undue risk.
PRINCIPAL INVESTMENT The Fund invests primarily in a broad range of
STRATEGIES investment grade, U.S. dollar denominated fixed
income securities of U.S. issuers. These
securities include corporate and government bonds,
debentures and notes, convertible debt
obligations, money market instruments, municipal
obligations, mortgage-related securities and
asset-backed securities.
In choosing fixed income securities for the Fund,
the Adviser follows a controlled duration strategy
which limits the Fund's portfolio duration to 50%
to 150% of the duration of its benchmark--the
Merrill Lynch Corporate/Government Master Index.
Duration is an indication of how sensitive a bond
or mutual fund portfolio may be to changes in
interest rates. For example, the market price of a
bond with a duration of three years should decline
3% if interest rates rise 1%. Conversely, the
market price of the same bond should increase 3%
if interest rates fall 1%. The market price of a
bond with a duration of six years should increase
or decline twice as much as the market price of a
bond with a three-year duration. Typically, the
Fund will have an effective duration of between
four and seven years.
When assessing a potential investment, the Adviser
looks at a variety of factors, including the
company's credit history and financial strength,
the long-term economic trends of the industry or
sector it belongs to, the company's management and
whether there is sufficient equity value in the
company.
PRINCIPAL INVESTMENT The Fund's investments in fixed income securities
RISKS will be subject primarily to interest rate, credit
and, for mortgage-related and asset-backed
securities, prepayment risk.
Prices of fixed income securities tend to move
inversely with changes in interest rates. The most
immediate effect of a rise in rates is usually a
drop in the prices of such securities, and
therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. To the extent the Fund maintains a
comparatively long duration, its share price will
react more to interest rate movements. As a
result, the value of your investment in the Fund
will fluctuate and you could lose money by
investing in the Fund.
The Fund's investments also are subject to credit
risk, which is the risk that the issuer of the
security will fail to make timely payments of
interest or principal, or to otherwise honor its
obligations. Credit risk includes the possibility
that any of the Fund's investments will have its
credit rating downgraded or will default.
Mortgage-related and asset-backed securities,
which are derivative instruments, are subject to
both credit and prepayment risk, and may be more
volatile and less liquid than more traditional
debt securities. If the borrowers prepay some or
all of the principal owed to the issuer much
earlier than expected, the Fund may have to
replace the security by investing the proceeds in
a less attractive security which could reduce the
Fund's share price or yield.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
issuer compared with other funds. Accordingly, the
Fund's portfolio may be more sensitive to changes
in the market value of a single issuer or
industry.
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on this
page provide some indication of
the risks of investing in the YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES
Income Fund by showing how the
Fund has performed and how its
performance has varied from year
to year. The bar chart shows how
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
the performance of the Fund's 11.30% 6.25% 15.44% 5.99% 10.10% -3.60% 16.65% 1.08% 8.67% 8.28%
Class A shares has varied from -----------------------------------------------------------------------------
year to year. The table below '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
compares the performance of Class
A and Class I shares over time to
that of the Merrill Lynch The bar chart above does not reflect any applicable sales charges
Corporate/ Government Master which would reduce returns.
Index, a recognized, unmanaged
index of U.S. Government and -----------------------------------------------
investment grade corporate bonds. Best quarter Q2 1989 + 6.77%
Both the bar chart and the table Worst quarter Q1 1994 - 2.95%
assume the reinvestment of -----------------------------------------------
dividends and distributions.
Class B shares had not been
offered for a full calendar year.
Of course, past performance does
not indicate how the Fund will
perform in the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Past 10 Years Since Inception
<S> <C> <C> <C> <C> <C>
Class A
(with sales charge imposed) 12/31/80* 5.00% 5.35% 7.53% 9.43%
Class I 10/3/97 8.55% N/A N/A 8.94%
MERRILL LYNCH CORP/GOV'T
MASTER INDEX 12/31/80 9.53% 7.34% 9.35% 10.99%
* The Income Fund commenced operations on 4/1/96 through a transfer of assets
from collective trust fund accounts managed by the Adviser, using
materially equivalent investment objectives, policies and methodologies as
the Fund. The quoted performance of the Fund includes the performance of
these trust accounts for periods prior to the Fund's commencement of
operations, as adjusted to reflect the expenses associated with the Fund.
The trust accounts were not registered with the SEC and were not subject to
the investment restrictions imposed by law on registered mutual funds. If
these trust accounts had been registered, their returns may have been
lower.
</TABLE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Income Fund, you will Transaction
pay certain fees and expenses, Fees (fees
which are described in the paid by you CLASS CLASS CLASS
tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .50% .50% .50%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .63% .73% .63%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.38% 1.98% 1.13%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class A and Class I to reflect current fees. The
expenses noted above do not reflect any fee waivers or expense
reimbursement arrangements that are or were in effect. Total expenses after
fee waivers and expense reimbursements for each class were: Class A, 1.24%,
Class B. 1.98%, and Class I, .97%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
INCOME FUND 1 3 5 10
Use the example at right to help you Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $436 $724 $1,033 $1,908
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $601 $921 $1,268 $2,076
would pay, assuming the following:
Assuming no Redemption $201 $621 $1,068 $2,076
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $115 $359 $ 622 $1,375
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
GOVERNMENT INCOME FUND
TICKER SYMBOLS:
CLASS A - IGVAX
CLASS B - IGVBX
CLASS I - IGVIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income.
PRINCIPAL INVESTMENT The Fund invests primarily in securities issued or
STRATEGIES guaranteed as to payment of principal and interest
by the U.S. Government, its agencies or
instrumentalities.
The Fund also may enter into repurchase agreements
and, for additional yield, invest in high quality
corporate bonds, mortgage-related securities,
asset-backed securities and bank obligations. The
Fund may purchase securities of any maturity.
Generally, the average maturity of the Fund's
investments is less than 10 years.
PRINCIPAL INVESTMENT Prices of fixed income securities, including U.S.
RISKS Government securities, tend to move inversely with
changes in interest rates. The most immediate
effect of a rise in rates is usually a drop in the
prices of such securities, and therefore in the
Fund's share price as well. Interest rate risk is
usually greater for fixed-income securities with
longer maturities or durations. A security backed
by the U.S. Government is guaranteed only as to
timely payment of interest and principal when held
to maturity. Neither the market value of such
securities nor the Fund's share price is
guaranteed. As a result, the value of your
investment in the Fund will fluctuate and you
could lose money by investing in the Fund.
The Fund's investments in corporate bonds also are
subject to credit risk, which is the risk that the
issuer of the security will fail to make timely
payments of interest or principal, or otherwise
honor its obligations. Credit risk includes the
possibility that any of the Fund's investments
will have its credit rating downgraded or will
default.
Mortgage-related and asset-backed securities,
which are derivative instruments, are subject to
both credit and prepayment risk, and may be more
volatile and less liquid than more traditional
debt securities. If the borrowers prepay some or
all of the principal owed to the issuer much
earlier than expected, the Fund may have to
replace the security by investing the proceeds in
a less attractive security which could reduce the
Fund's share price or yield.
PERFORMANCE BAR CHART AND TABLE
<TABLE>
<CAPTION>
The bar chart and table on this
page provide some indication of
the risks of investing in the
Government Income Fund by showing YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES
how the Fund has performed and
how its performance has varied
<S> <C> <C> <C> <C> <C> <C>
from year to year. The bar chart 9.85% -3.44% 16.73% 2.45% 8.76% 8.95%
shows how the performance of the -----------------------------------------------
Fund's Class A shares has varied '93 '94 '95 '96 '97 '98
from year to year. The table
below compares the performance of
Class A shares over time to that The bar chart above does not reflect any applicable sales charges
of the Merrill Lynch Corporate/ which would reduce returns.
Government Master Index,
a recognized, unmanaged index of
U.S. Government and investment --------------------------------------------------------
grade corporate bonds. Both the Best quarter Q2 1995 +5.79%
bar chart and the table assume Worst quarter Q1 1994 -2.81%
the reinvestment of dividends and --------------------------------------------------------
distributions. Class B and Class
I shares had not been offered for
a full calendar year. Of course,
past performance does not
indicate how the Fund will
perform in the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Past 10 Years Since Inception
Class A
<S> <C> <C> <C> <C> <C>
(with sales charge imposed) 8/3/92 5.69% 5.83% N/A 6.40%
MERRILL LYNCH CORP/ 7/31/92 9.53% 7.34% N/A 7.82%
GOV'T MASTER INDEX
</TABLE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Government Income Fund, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .60% .60% .60%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .38% .48% .38%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.23% 1.83% .98%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class B and Class I are based on estimated amounts for
the current fiscal year, and have been restated for Class A to reflect
current fees. The expenses noted above do not reflect any fee waivers or
expense reimbursement arrangements that are or were in effect. Total
expenses after fee waivers and expense reimbursements for each class were:
Class A, .91%, Class B. 1.83%, and Class I, 1.88%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
GOVERNMENT INCOME FUND 1 3 5 10
Use the example at right to help you Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $422 $679 $ 955 $1,744
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $586 $876 $1,190 $1,915
would pay, assuming the following:
Assuming no Redemption 1863 $576 $ 990 $1,915
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $100 $312 $ 542 $1,201
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
LIMITED TERM INCOME FUND
TICKER SYMBOLS:
CLASS A - ILIAX
CLASS B - ILIBX
CLASS I - ILIIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income without assuming undue risk.
PRINCIPAL INVESTMENT The Fund invests primarily in a broad range of
STRATEGIES investment grade, U.S. dollar denominated fixed
income securities of U.S. issuers. These
securities include corporate and government bonds,
debentures and notes, convertible debt
obligations, money market instruments, municipal
obligations, mortgage-related securities and
asset-backed securities.
In choosing fixed income securities for the Fund,
the Adviser attempts to reduce interest rate risk
by maintaining a portfolio duration between one
and four years and a dollar-weighted average
portfolio life between one and five years,
depending on market conditions. Duration is an
indication of how sensitive a bond or mutual fund
portfolio may be to changes in interest rates. For
example, the market price of a bond with a
duration of two years should decline 2% if
interest rates rise 1%. Conversely, the market
price of the same bond should increase 2% if
interest rates fall 1%. The market price of a bond
with a duration of four years should increase or
decline twice as much as the market price of a
bond with a two-year duration.
When assessing a potential investment, the Adviser
looks at a variety of factors, including the
company's credit history and financial strength,
the long-term economic trends of the industry or
sector it belongs to, the company's management and
whether there is sufficient equity value in the
company.
PRINCIPAL INVESTMENT The Fund's investments in fixed income securities
RISKS will be subject primarily to interest rate, credit
and, for mortgage-related securities, prepayment
risk.
Prices of fixed income securities tend to move
inversely with changes in interest rates. The most
immediate effect of a rise in rates is usually a
drop in the prices of such securities, and
therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. As a result, the value of your
investment in the Fund will fluctuate and you
could lose money by investing in the Fund.
The Fund's investments also are subject to credit
risk, which is the risk that the issuer of the
security will fail to make timely payments of
interest or principal, or to otherwise honor its
obligations. Credit risk includes the possibility
that any of the Fund's investments will have its
credit rating downgraded or will default.
Mortgage-related and asset-backed securities,
which are derivative instruments, are subject to
both credit and prepayment risk, and may be more
volatile and less liquid than more traditional
debt securities. If the borrowers prepay some or
all of the principal owed to the issuer much
earlier than expected, the Fund may have to
replace the security by investing the proceeds in
a less attractive security which could reduce the
Fund's share price or yield.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
issuer compared with other funds. Accordingly, the
Fund's portfolio may be more sensitive to changes
in the market value of a single issuer or
industry.
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on this
page provide some indication of
the risks of investing in the
Limited Term Income Fund by
showing how the Fund has YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES
performed and how its performance
has varied from year to year. The
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
bar chart shows how the 9.93% 8.09% 13.22% 4.85% 6.20% 0.42% 11.20% 4.28% 6.47% 6.48%
performance of the Fund's Class A -----------------------------------------------------------------------------
shares has varied from year to '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
year. The table below compares
the performance of Class A and
Class I shares over time to that The bar chart above does not reflect any applicable sales charges
of the Merrill Lynch 1-5 Year which would reduce returns.
Government/Corporate Bond Index,
a recognized, unmanaged index of ---------------------------------------------------
short-term U.S. Government and Best quarter Q2 1989 +4.55%
corporate bonds. Both the bar Worst quarter Q1 1994 -1.34%
chart and the table assume the ---------------------------------------------------
reinvestment of dividends and
distributions. Class B shares had
not been offered for a full
calendar year. Of course, past
performance does not indicate how
the Fund will perform in the
future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Past 10 Years Since Inception
Class A
<S> <C> <C> <C> <C> <C>
(with sales charge imposed) 9/1/82* 3.28% 4.84% 6.61% N/A
Class I 10/3/97 6.86% N/A N/A 6.66%
MERRILL LYNCH 1-5 YEAR
GOV'T/CORP BOND INDEX 9/30/97 7.68% 6.28% 8.81% _____%
- -------------------------
* The Limited Term Income Fund commenced operations on 3/28/94 through a
transfer of assets from collective trust fund accounts managed by the
Adviser, using materially equivalent investment objectives, policies and
methodologies as the Fund. The quoted performance of the Fund includes the
performance of these trust accounts for periods prior to the Fund's
commencement of operations, as adjusted to reflect the expenses associated
with the Fund. The trust accounts were not registered with the SEC and were
not subject to the investment restrictions imposed by law on registered
mutual funds. If these trust accounts had been registered, their returns
may have been lower.
</TABLE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Limited Term Income Fund, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .50% .50% .50%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .60% .70% .60%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.35% 1.95% 1.10%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses have been restated for Class A and Class I to reflect
current fees. The expenses noted above do not reflect any fee waivers or
expense reimbursement arrangements that are or were in effect. Total
expenses after fee waivers and expense reimbursements for each class were:
Class A, 1.19%, Class B. 1.94%, and Class I, .94%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
LIMITED TERM INCOME 1 3 5 10
Use the example at right to help you FUND Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $433 $715 $1,017 $1,875
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $598 $912 $1,252 $2,044
would pay, assuming the following:
Assuming no Redemption $198 $612 $1,052 $2,044
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $112 $350 $ 606 $1,340
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
LIMITED TERM U.S. GOVERNMENT FUND
TICKER SYMBOLS:
CLASS A - ILGAX
CLASS B - ILGBX
CLASS I - ILGIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with high
current income without assuming undue risk.
PRINCIPAL INVESTMENT The Fund invests in securities issued or
STRATEGIES guaranteed as to payment of principal and interest
by the U.S. Government, its agencies or
instrumentalities, and enters into repurchase
agreements in respect of such securities.
In choosing U.S. Government securities for the
Fund, the Adviser follows a controlled duration
strategy which limits how much the Fund's
portfolio duration will differ from its
benchmark--the Merrill Lynch 1-5 Year Government
Bond Index. Typically, the Fund will have a
portfolio duration between one and four years and
a dollar weighted average portfolio life between
one and five years, depending on market
conditions. Duration is an indication of how
sensitive a bond or mutual fund portfolio may be
to changes in interest rates. For example, the
market price of a bond with a duration of three
years should decline 3% if interest rates rise 1%.
Conversely, the market price of the same bond
should increase 3% if interest rates fall 1%. The
market price of a bond with a duration of six
years should increase or decline twice as much as
the market price of a bond with a three-year
duration.
PRINCIPAL INVESTMENT Prices of U.S. Government securities tend to move
RISKS inversely with changes in interest rates. The most
immediate effect of a rise in rates is usually a
drop in the prices of such securities, and
therefore in the Fund's share price as well.
Interest rate risk is T usually greater for
fixed-income securities with longer maturities or
durations. A security backed by the U.S.
Government is guaranteed only as to timely payment
of interest and principal when held to maturity.
Neither the market value of such securities nor
the Fund's share price is guaranteed. As a result,
the value of your investment in the Fund will
fluctuate and you could lose money by investing in
the Fund.
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on this
page provide some indication of YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES
the risks of investing in the
Limited Term U.S. Government Fund
by showing how the Fund has
performed and how its performance
has varied from year to year. The
bar chart shows how the <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
performance of the Fund's Class A 11.09% 8.11% 12.70% 5.51% 7.04% -1.02% 10.88% 2.69% 6.18% 6.69%
shares has varied from year to -----------------------------------------------------------------------------
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
year. The table below compares
the performance of Class A shares
over time to that of the Merrill
Lynch 1-5 Year Government Bond The bar chart above does not reflect any applicable sales charges
Index, a recognized, unmanaged which would reduce returns.
index of short-term U.S.
Government securities. Both the
bar chart and the table assume -------------------------------------------------
the reinvestment of dividends and Best quarter Q2 1989 + 5.65%
distributions. Class B and Class Worst quarter Q1 1992 - 1.41%
I shares had not been offered for -------------------------------------------------
a full calendar year. Of course,
past performance does not
indicate how the Fund will
perform in the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Past 10 Years Since Inception
Class A
<S> <C> <C> <C> <C>
(with sales charge imposed) 12/31/86* 3.52% 4.37% 6.59%
MERRILL LYNCH 1-5 YEAR 7.67% 6.20% 7.87%
GOV'T BOND INDEX
* The Limited Term U.S. Government Fund commenced operations on 2/28/97
through a transfer of assets from collective trust fund accounts managed by
the Adviser, using materially equivalent investment objectives, policies
and methodologies as the Fund. The quoted performance of the Fund includes
the performance of these trust accounts for periods prior to the Fund's
commencement of operations, as adjusted to reflect the expenses associated
with the Fund. The trust accounts were not registered with the SEC and were
not subject to the investment restrictions imposed by law on registered
mutual funds. If these trust accounts had been registered, their returns
may have been lower.
</TABLE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Limited Term U.S. Transaction
Government Fund, you will pay Fees (fees
certain fees and expenses, which paid by you CLASS CLASS CLASS
are described in the tables. directly A SHARES B SHARES I SHARES
Shareholder transaction fees are
paid from your account. Annual
Fund operating expenses are paid Maximum sales
out of Fund assets, and are charge (load)
reflected in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .50% .50% .50%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .79% .75% .65%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.54% 2.00% 1.15%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class I are based on estimated amounts for the current
fiscal year. The expenses noted above do not reflect any fee waivers or
expense reimbursement arrangements that are or were in effect. Total
expenses after fee waivers and expense reimbursements for each class were:
Class A, 1.02%, Class B. 1.97%, and Class I, .69%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
LIMITED TERM U.S. 1 3 5 10
Use the example at right to help you GOVERNMENT FUND Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $452 $772 $1,114 $2,079
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $603 $927 $1,278 $2,152
would pay, assuming the following:
Assuming no Redemption $203 $627 $1,078 $2,152
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $117 $365 $ 633 $1,398
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
TAX-EXEMPT FIXED INCOME FUNDS--These Funds seek
tax-exempt income and invest primarily in
Municipal Obligations which are exempt from
Federal and, in the case of the Tennessee
Funds, Tennessee income taxes.
WHO MAY WANT TO Consider investing in these Funds if you are:
INVEST?
! looking to reduce Federal or Tennessee taxes
on investment income
! seeking monthly Federal or Tennessee
tax-exempt dividends
! willing to accept the risks of price and
dividend fluctuations
These Funds may not be appropriate if you are:
! investing through a tax-exempt retirement
plan
! uncomfortable with an investment that will go
up and down in value
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
TENNESSEE TAX-EXEMPT FUND
TICKER SYMBOLS:
CLASS A - ITNAX
CLASS B - ITNBX
CLASS I - ITNIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income exempt from Federal and Tennessee income
taxes without assuming undue risk.
PRINCIPAL INVESTMENT The Fund normally invests substantially all of its
STRATEGIES assets in municipal obligations of the State of
Tennessee, its political subdivisions, authorities
and corporations, that provide income exempt from
Federal and Tennessee personal income taxes.
The average dollar-weighted credit rating of the
municipal obligations held by the Fund will be at
least A-. To further limit credit risk, the Fund
invests only in investment grade municipal
obligations or the unrated equivalent as
determined by the Adviser. The Adviser evaluates
municipal obligations based on credit quality,
financial outlook and yield potential. Although
the Fund concentrates its assets in Tennessee
municipal obligations, the Adviser strives to
diversify the portfolio across sectors and issuers
within Tennessee. The Fund may purchase securities
of any maturity. Generally, the average maturity
of the Fund's investments is primarily between six
and ten years.
PRINCIPAL INVESTMENT The Fund's investments in municipal obligations
RISKS will be subject primarily to interest rate and
credit risk.
Prices of municipal obligations tend to move
inversely with changes in interest rates. The most
immediate effect of a rise in rates is usually a
drop in the prices of such securities, and
therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. If interest rates fall, it is possible
that issuers of callable bonds with high interest
coupons will "call" (or prepay) their bonds before
their maturity date. If a call were exercised by
the issuer during a period of declining interest
rates, the Fund is likely to replace such called
security with a lower yielding security. If that
were to happen, it could decrease the Fund's
dividends. As a result, the value of your
investment in the Fund will fluctuate and you
could lose money by investing in the Fund.
The Fund's investments also are subject to credit
risk, which is the risk that the issuer of the
security will fail to make timely payments of
interest or principal, or to otherwise honor its
obligations. Credit risk includes the possibility
that any of the Fund's investments will have its
credit rating downgraded or will default.
Because of the Fund's concentration in Tennessee
municipal obligations, the Fund will be vulnerable
to any development in Tennessee's economy that
weakens or jeopardizes the ability of Tennessee
municipal obligation issuers to pay interest and
principal. As a result, the value of the Fund's
shares may fluctuate more widely than those of a
fund investing in municipal obligations from a
number of different states.
Although the Fund's objective is to generate
income exempt from Federal and Tennessee income
taxes, interest from some of the Fund's holdings
may be subject to the Federal alternative minimum
tax.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
issuer compared with other funds. Accordingly, the
Fund's portfolio may be more sensitive to changes
in the market value of a single issuer or
industry.
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on Year-by-Year Total Returns as of 12/31 for Class A Shares
this page provide some
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
indication of the risks 7.75% 5.67% 9.31% 5.46% 10.25% -8.57% 13.39% 1.39% 7.13% 4.25%
of investing in the -----------------------------------------------------------------------------
Tennessee Tax-Exempt Fund '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
by showing how the Fund
has performed and how its
performance has varied from The bar chart above does not reflect any
year to year. The bar chart applicable sales charges which would
shows how the performance reduce returns.
of the Fund's Class A --------------------------------------------------
shares has varied from Best quarter: Q1 1995 +5.91%
year to year. The table Worth quarter: Q1 1994 -8.12%
below compares the
performance of Class
A and Class I shares over
time to that of the Lehman
Brothers Municipal 10-Year
Index, a recognized, unmanaged
index of investment grade
municipal obligations. Both
the bar chart and the table
assume the reinvestment of
dividends and distributions.
Class B shares had not been
offered for a full calendar
year. Of course, past
performance does not indicate
how the Fund will perform in
the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
<S> <C> <C> <C> <C> <C>
(with sales charge imposed) 12/31/80* 1.18% 2.63% 5.11% N/A
Class I 10/3/97 4.52% N/A N/A _____%
LEHMAN BROTHERS MUNICIPAL 9/30/97 6.11% 6.22% 8.26% ____%
10-YEAR INDEX
* The Tennessee Tax-Exempt Fund commenced operations on 3/28/94 through a
transfer of assets from collective trust fund accounts managed by the
Adviser, using materially equivalent investment objectives, policies and
methodologies as the Fund. The quoted performance of the Fund includes the
performance of these trust accounts for periods prior to the Fund's
commencement of operations, as adjusted to reflect the expenses associated
with the Fund. The trust accounts were not registered with the SEC and were
not subject to the investment restrictions imposed by law on registered
mutual funds. If these trust accounts had been registered, their returns
may have been lower.
</TABLE>
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Tennessee Tax-Exempt Fund, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .50% .50% .50%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .60% .70% .60%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.35% 1.95% 1.10%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses have been restated for Class A and Class I to reflect
current fees. The expenses noted above do not reflect any fee waivers or
expense reimbursement arrangements that are or were in effect. Total
expenses after fee waivers and expense reimbursements for each class were:
Class A, 1.20%; Class B, 1.95%; and Class I, .95%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
TENNESSEE TAX-EXEMPT 1 3 5 10
Use the example at right to help you FUND Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $433 $715 $1,017 $1,875
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $598 $912 $1,252 $2,044
would pay, assuming the following:
Assuming no Redemption $198 $612 $1,052 $2,044
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $112 $350 $ 606 $1,340
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
MUNICIPAL INCOME FUND
TICKER SYMBOLS:
CLASS A - IMIAX
CLASS B - IMIBX
CLASS I - IMIIX
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income exempt from Federal income tax.
PRINCIPAL INVESTMENT The Fund normally invests substantially all of its
STRATEGIES assets in municipal obligations that provide
income exempt from Federal income tax. Municipal
obligations are debt obligations issued by states,
territories and possessions of the United States
and their political subdivisions, agencies and
instrumentalities. The Fund invests in investment
grade municipal obligations or the unrated
equivalent as determined by the Adviser. The
Adviser evaluates municipal obligations based on
credit quality, financial outlook and yield
potential, and seeks to diversify the Fund's
investments across several different states,
sectors and issuers. The Fund may purchase
securities of any maturity. Generally, the average
maturity of the Fund's investments is primarily
between one and five and six and ten years.
PRINCIPAL INVESTMENT The Fund's investments in municipal obligations
RISKS will be subject primarily to interest rate and
credit risk. Prices of municipal obligations tend
to move inversely with changes in interest rates.
The most immediate effect of a rise in rates is
usually a drop in the prices of such securities,
and therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. If interest rates fall, it is possible
that issuers of callable bonds with high interest
coupons will "call" (or prepay) their bonds before
their maturity date. If a call were exercised by
the issuer during a period of declining interest
rates, the Fund is likely to replace such called
security with a lower yielding security. If that
were to happen, it could decrease the Fund's
dividends. As a result, the value of your
investment in the Fund will fluctuate and you
could lose money by investing in the Fund.
The Fund's investments also are subject to credit
risk, which is the risk that the issuer of the
security will fail to make timely payments of
interest or principal, or to otherwise honor its
obligations. Credit risk includes the possibility
that any of the Fund's investments will have its
credit rating downgraded or will default.
Although the Fund's objective is to generate
income exempt from Federal income tax, interest
from some of the Fund's holdings may be subject to
the Federal alternative minimum tax.
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on this Year-by-Year Total Returns as of 12/31 for Class A Shares
page provide some indication of
the risks of investing in the
<S> <C> <C> <C> <C> <C> <C>
Municipal Income Fund by showing 12.75% -6.83% 16.80% 3.62% 7.77% 5.33%
how the Fund has performed and -------------------------------------------------
how its performance has varied '93 '94 '95 '96 '97 '98
from year to year. The bar
chart shows how the performance
of the Fund's Class A shares has
varied from year to year.
The table below compares the ---------------------------------------------
performance of Class A shares Best quarter: Q1 1995 +7.67%
over time to that of the Lehman Worst quarter: Q1 1994 -5.79%
Brothers Municipal Bond Index, ---------------------------------------------
a recognized, unmanaged index
of investment grade municipal
obligations. Both the bar chart
and the table assume the
reinvestment of dividends and
distributions. Class B and
Class I shares had not been
offered for a full calendar
year. Of course, past
performance does not indicate
how the Fund will perform
in the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
<S> <C> <C> <C> <C> <C>
(with sales charge imposed) 12/29/92 2.14% 4.43% N/A 5.75%
LEHMAN BROTHERS MUNICIPAL 12/01/92 5.84% 6.10% N/A 7.29%
BOND INDEX
</TABLE>
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Municipal Income Fund, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .60% .60% .60%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .56% .66% .56%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.41% 2.01% 1.16%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class B and Class I are based on estimated amounts for
the current fiscal year, and have been restated for Class A to reflect
current fees. The expenses noted above do not reflect any fee waivers or
expense reimbursement arrangements that are or were in effect. Total
expenses after fee waivers and expense reimbursements for each class were:
Class A, .91%; Class B, 2.01%; and Class I, .90%. Any fee waiver or expense
reimbursement arrangement is voluntary and may be discontinued at any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
MUNICIPAL INCOME FUND 1 3 5 10
Use the example at right to help you Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $439 $733 $1,048 $1,940
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $604 $930 $1,283 $2,108
would pay, assuming the following:
Assuming no Redemption $204 $630 $1,083 $2,108
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $118 $368 $ 638 $1,409
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
LIMITED TERM TENNESSEE TAX-EXEMPT FUND
TICKER SYMBOLS:
CLASS A - ILTAX
CLASS B - ILTBX
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income exempt from Federal and Tennessee income
taxes without assuming undue risk.
PRINCIPAL INVESTMENT The Fund normally invests substantially all of its
STRATEGIES assets in municipal obligations of the State of
Tennessee, its political subdivisions, authorities
and corporations, that provide income exempt from
Federal and Tennessee personal income taxes.
In choosing municipal obligations for the Fund,
the Adviser attempts to reduce interest rate risk
by maintaining a portfolio duration of under five
years and an effective average portfolio maturity
between three and five years, depending on market
conditions. Duration is an indication of how
sensitive a bond or mutual fund portfolio may be
to changes in interest rates. For example, the
market price of a bond with a duration of three
years should decline 3% if interest rates rise 1%.
Conversely, the market price of the same bond
should increase 3% if interest rates fall 1%. The
market price of a bond with a duration of six
years should increase or decline twice as much as
the market price of a bond with a three-year
duration.
The average dollar-weighted credit rating of the
municipal obligations held by the Fund will be at
least A-. To further limit credit risk, the Fund
invests only in investment grade municipal
obligations or the unrated equivalent as
determined by the Adviser. The Adviser evaluates
municipal obligations based on credit quality,
financial outlook and yield potential. Although
the Fund concentrates its assets in Tennessee
municipal obligations, the Adviser strives to
diversify the portfolio across sectors and issuers
within Tennessee.
PRINCIPAL INVESTMENT The Fund's investments in municipal obligations
RISKS will be subject primarily to interest rate and
credit risk.
Prices of municipal obligations tend to move
inversely with changes in interest rates. The most
immediate effect of a rise in rates is usually a
drop in the prices of such securities, and
therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. If interest rates fall, it is possible
that issuers of callable bonds with high interest
coupons will "call" (or prepay) their bonds before
their maturity date. If a call were exercised by
the issuer during a period of declining interest
rates, the Fund is likely to replace such called
security with a lower yielding security. If that
were to happen, it could decrease the Fund's
dividends. As a result, the value of your
investment in the Fund will fluctuate and you
could lose money by investing in the Fund.
The Fund's investments also are subject to credit
risk, which is the risk that the issuer of the
security will fail to make timely payments of
interest or principal, or to otherwise honor its
obligations. Credit risk includes the possibility
that any of the Fund's investments will have its
credit rating downgraded or will default.
Because of the Fund's concentration in Tennessee
municipal obligations, the Fund will be vulnerable
to any development in Tennessee's economy that
weakens or jeopardizes the ability of Tennessee
municipal obligation issuers to pay interest and
principal. As a result, the value of the Fund's
shares may fluctuate more widely than those of a
fund investing in municipal obligations from a
number of different states.
Although the Fund's objective is to generate
income exempt from Federal and Tennessee income
taxes, interest from some of the Fund's holdings
may be subject to the Federal alternative minimum
tax.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
issuer compared with other funds. Accordingly, the
Fund's portfolio may be more sensitive to changes
in the market value of a single issuer or
industry.
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES
this page provide some
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
indication of the risks of 7.16% 6.13% 8.14% 4.61% 6.38% -2.62% 8.40% 2.17% 5.42% 3.76%
investing in the Limited -----------------------------------------------------------------------------
Term Tennessee Tax-Exempt '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Fund by showing how the
Fund has performed and how
its performance has varied
from year to year. The bar
chart shows how the performance
of the Fund's Class A shares
has varied from year to year.
The table below compares the
performance of Class A shares
over time to that of the
Lehman Brothers Municipal
1-5 Year Index, a
recognized, unmanaged index
of investment grade municipal
obligations. Both the bar
chart and the table assume
the reinvestment of dividends
and distributions. Class B
and Class I shares had not
been offered for a full
calendar year. Of course,
past performance does not
indicate how the Fund will
perform in the future.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Past Past 5 Past 10
Date Year Years Years
Class A
<S> <C> <C> <C> <C>
(with sales charge imposed) 12/31/86* .68% 2.74% 4.58%
LEHMAN BROTHERS MUNICIPAL 5.84% 5.28% 7.08%
1-5 YEAR INDEX
* The Limited Term Tennessee Tax-Exempt Fund commenced operations on 2/28/97
through a transfer of assets from collective trust fund accounts managed by
the Adviser, using materially equivalent investment objectives, policies
and methodologies as the Fund. The quoted performance of the Fund includes
the performance of these trust accounts for periods prior to the Fund's
commencement of operations, as adjusted to reflect the expenses associated
with the Fund. The trust accounts were not registered with the SEC and were
not subject to the investment restrictions imposed by law on registered
mutual funds. If these trust accounts had been registered, their returns
may have been lower.
</TABLE>
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Limited Term Tennessee, Transaction
Tax-Exempt Fund, you will pay Fees (fees
certain fees and expenses, which paid by you CLASS CLASS CLASS
are described in the tables. directly A SHARES B SHARES I SHARES
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses
are paid out of Fund assets, Maximum sales
are and reflected in the sahre charge (load)
price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .50% .50% .50%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .92% 1.02% .92%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 1.67% 2.27% 1.42%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for Class I are based on estimated amounts for the current
fiscal year, and have been restated for Class A to reflect current fees.
The expenses noted above do not reflect any fee waivers or expense
reimbursement arrangements that are or were in effect. Total expenses after
fee waivers and expense reimbursements for each class were: Class A, 1.05%;
Class B, 2.05%; and Class I, 1.42%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
LIMITED TERM TENNESSEE 1 3 5 10
Use the example at right to help you TAX-EXEMPT FUND Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $465 $ 811 $1,180 $2,217
Fund with the cost of investing in --------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $630 $1,009 $1,415 $2,381
would pay, assuming the following:
Assuming no Redemption $223 $ 709 $1,215 $2,381
o $10,000 investment -------------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $137 $ 449 $ 776 $1,702
o no changes in the Fund's -------------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
MONEY MARKET FUNDS--These Funds seek current
income and liquidity and invest primarily in
short-term securities and will seek to
maintain a stable price of $1.00 per share.
An investment in these Funds is not insured
or guaranteed by the FDIC or any other
government agency.
WHO MAY WANT TO Consider investing in these Funds if you are:
INVEST?
! seeking preservation of capital
! investing short-term reserves
! willing to accept lower potential returns in
exchange for a higher degree of safety
These Funds may not be appropriate if you are:
! seeking high total returns
! pursuing a long-term goal or investing for
retirement
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
PRIME MONEY MARKET FUND
TICKER SYMBOLS:
CLASS A - IX
CLASS B - IPBXX
CLASS I - IPIXX
INVESTMENT OBJECTIVE The Fund 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.
PRINCIPAL INVESTMENT The Fund invests in a diversified portfolio of
STRATEGIES high-quality, short-term U.S. dollar-denominated
debt securities, including the following:
o obligations issued or guaranteed by the U.S.
Government or its agencies or
instrumentalities
o certificates of deposit, time deposits,
bankers' acceptances and other short-term
securities issued by domestic or foreign
banks or their subsidiaries or branches
o domestic and foreign commercial paper and
other short-term corporate debt obligations,
including those with floating or variable
rates of interest
o obligations issued or guaranteed by one or
more foreign governments or their agencies or
instrumentalities, including obligations of
supranational entities
o asset-backed securities
o repurchase agreements collateralized by the
types of securities listed above
The Fund buys and sells securities based on
considerations of safety of principal and
liquidity, which means that the Fund may not
necessarily invest in securities paying the
highest available yield at a particular time. The
Fund will attempt to increase its yield by trading
to take advantage of short-term market variations.
The Adviser evaluates Fund investments based on
credit analysis and the interest rate outlook.
The Fund normally will invest at least 25% of its
total assets in domestic or foreign bank
obligations.
PRINCIPAL INVESTMENT Although the Fund seeks to preserve the value of
RISKS your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
The Fund is subject to the risk that changes in
interest rates will affect the yield or value of
the Fund's investments in debt securities.
The Fund's investments also are subject to credit
risk, which is the risk that the issuer or
guarantor of a debt security will be unable or
unwilling to make timely interest or principal
payments, or to otherwise honor its obligations.
Credit risk includes the possibility that any of
the Fund's investments will have its credit rating
downgraded or will default.
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
this page provide some CLASS A SHARES
indication of the risks
of investing in the Prime
Money Market Fund by 5.51% 4.88% 4.90% 4.85%
showing how the Fund has ----------------------------------------
performed and how its '95 '96 '97 '98
performance has varied
from year to year. The
bar chart shows how the ----------------------------------------------
performance of the Fund's Best quarter: Q2 1995 +1.37%
Class A shares has varied Worst quarter: Q4 1998 +1.15%
from year to year. Both the ----------------------------------------------
bar chart and the table
assume the reinvestment of
dividends and distributions.
Class B shares had not been
offered for a full calendar
year. Of course, past
performance does not indicate
how the Fund will perform in
the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December
31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
CLASS A 3/29/94 4.85% N/A N/A 4.89%
Class I 7/1/96 5.11% N/A N/A 5.10%
As of December 31, 1998, the Fund's 7-day yield for Class A was 4.69%. Without
fee waivers and expense reimbursements, the Fund's yield would have been 4.68%
for this time period. For current yield information on the Fund, call
1-800-852-0045. The Fund's yield appears in THE WALL STREET JOURNAL each
Thursday.
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Prime Money Market Fund, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the Fund's yield. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE None None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None 4.00%1 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .25% .25% .25%
-------------------------------------------------------------
Distribution (12b-1)
Fee None .75% None
-------------------------------------------------------------
Other Expenses .57% .58% .48%
-------------------------------------------------------------
Total Annual Fund
Operating Expense24 .82% 1.58% .73%
- --------------------
1 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
2 Other expenses have been restated for Class I to reflect current fees. The
expenses noted above do not reflect any fee waivers or expense
reimbursement arrangements that are or were in effect. Total expenses after
fee waivers and expense reimbursements for each class were: Class A, .81%;
Class B, 1.55%; and Class I, .58%. Any fee waiver or expense reimbursement
arrangement is voluntary and may be discontinued at any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
PRIME MONEY MARKET 1 3 5 10
Use the example at right to help you FUND Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $ 84 $262 $ 455 $1,014
Fund with the cost of investing in ------------------------------------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $561 $799 $1,060 $1,576
would pay, assuming the following:
Assuming no Redemption $161 $499 $ 860 $1,576
o $10,000 investment -----------------------------------------------------------------------------
o 5% annual return CLASS I SHARES $ 75 $233 $ 406 $ 906
o no changes in the Fund's -----------------------------------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
GOVERNMENT MONEY MARKET FUND
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund 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.
PRINCIPAL INVESTMENT The Fund invests in securities issued or
STRATEGIES guaranteed as to payment of principal and interest
by the U.S. Government, or its agencies or
instrumentalities, and enters into repurchase
agreements in respect thereof.
The income from the Fund's investment in direct
obligations of the United States is exempt from
state and local, but not Federal, income taxes.
Dividends and distributions attributable to income
from other U.S. Government securities and
repurchase agreements may be subject to Federal,
state and local taxes.
The Fund invests based on considerations of safety
of principal and liquidity, which means that the
Fund may not necessarily invest in securities
paying the highest available yield at a particular
time. The Fund will attempt to increase its yield
by trading to take advantage of short-term market
variations. The Adviser generally evaluates
investments based on interest rate sensitivity.
PRINCIPAL INVESTMENT Although the Fund seeks to preserve the value of
RISKS your investment at $1.00 per share, it is possible
to lose money by investing in the Fund. The Fund
is subject to the risk that changes in interest
rates will affect the yield or value of the Fund's
investments.
A security backed by the U.S. Treasury or the full
faith and credit of the United States is
guaranteed only as to timely payment of interest
and principal when held to maturity. Neither the
market value of such securities nor the Fund's
share price is guaranteed.
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Government Money Market Transaction
Fund you will pay certain fees Fees (fees
and expenses, which are described paid by you CLASS CLASS CLASS
in the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the Fund's yield. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE None None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None 4.00%1 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .25% .25% .25%
-------------------------------------------------------------
Distribution (12b-1)
Fee None .75% None
-------------------------------------------------------------
Other Expenses .50% .35% .40%
-------------------------------------------------------------
Total Annual Fund
Operating Expense2 .75% 1.35% .65%
- --------------------
1 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
2 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
GOVERNMENT MONEY MARKET 1 3
Use the example at right to help you FUND Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $ 77 $240
Fund with the cost of investing in ----------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $537 $728
would pay, assuming the following:
Assuming no Redemption $137 $428
o $10,000 investment ----------------------------------------------------
o 5% annual return CLASS I SHARES $ 66 $208
o no changes in the Fund's ----------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
TREASURY MONEY MARKET FUND
TICKER SYMBOLS:
CLASS A - ITAXX
CLASS I - ITMXX
INVESTMENT OBJECTIVE The Fund 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.
PRINCIPAL INVESTMENT The Fund invests primarily in U.S. Treasury
securities and repurchase agreements in respect
thereof. The Fund may invest up to 35% of its
assets in other securities guaranteed as to
payment of principal and interest by the U.S.
Government and repurchase agreements in respect
thereof.
The income from the Fund's investment in direct
obligations of the United States is exempt from
state and local, but not Federal, income taxes.
Dividends and distributions attributable to income
from repurchase agreements may be subject to
Federal, state and local taxes.
The Fund invests based on considerations of safety
of principal and liquidity, which means that the
Fund may not necessarily invest in securities
paying the highest available yield at a particular
time. The Fund will attempt to increase its yield
by trading to take advantage of short-term market
variations. The Adviser generally evaluates
investments based on interest rate sensitivity.
PRINCIPAL INVESTMENT Although the Fund seeks to preserve the value of
RISKS your investment at $1.00 per share, it is possible
to lose money by investing in the Fund. The Fund
is subject to the risk that changes in interest
rates will affect the yield or value of the Fund's
investments.
A security backed by the U.S. Treasury or the full
faith and credit of the United States is
guaranteed only as to timely payment of interest
and principal when held to maturity. Neither the
market value of such securities nor the Fund's
share price is guaranteed.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
The bar chart and table on YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
this page provide some CLASS A SHARES
indication of the risks of
investing in the Treasury 2.06% 4.05% 5.41% 4.78% 4.78% 4.68%
Money Market Fund by ----------------------------------------------
showing how the Fund has '93 '94 '95 '96 '97 '98
performed and how its
performance has varied from
year to year. The bar chart
shows how the performance ---------------------------------------------
of the Fund's Class A shares Best quarter: Q2 1995 +1.36%
has varied from year to year. Worst quarter: Q3 1993 + .60%
Both the bar chart and the ---------------------------------------------
table assume the reinvestment
of dividends and distributions.
Of course, past performance
does not indicate how the
Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December
31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A 10/1/92* 4.68% 4.74% N/A 4.29%
Class I 7/1/96 4.93% N/A N/A 4.97%
As of December 31, 1998, the Fund's 7-day yield for Class A was 4.22%. Without
fee waivers and expense reimbursements, the Fund's yield would have been 4.21%
for this time period. For current yield information on the Fund, call
1-800-852-0045. The Fund's yield appears in THE WALL STREET JOURNAL each
Thursday.
* The Treasury Money Market Fund commenced operations on 3/29/94 through a
transfer of assets from collective trust fund accounts managed by the
Adviser, using materially equivalent investment objectives, policies and
methodologies as the Fund. The quoted performance of the Fund includes the
performance of these trust accounts for periods prior to the Fund's
commencement of operations, as adjusted to reflect the expenses associated
with the Fund. The trust accounts were not registered with the SEC and were
not subject to the investment restrictions imposed by law on registered
mutual funds. If these trust accounts had been registered, their returns
may have been lower.
<PAGE>
FEES AND EXPENSES
If you purchase and hold shares Shareholder
of the Treasury Money Market Transaction
Fund you will pay certain fees Fees (fees
and expenses, which are described paid by you CLASS CLASS
in the tables. Shareholder directly A SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the Fund's yield. on purchases AS A %
OF OFFERING PRICE None None
--------------------------------------------
Maximum deferred
sales charge (CDSC) None None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class
(fees paid from A SHARES I SHARES
Fund assets)
--------------------------------------------
Management Fee .25% .25%
--------------------------------------------
Distribution (12b-1)
Fee None None
--------------------------------------------
Other Expenses .53% .43%
--------------------------------------------
Total Annual Fund
Operating Expense1 .78% .68%
- --------------------
1 Other expenses have been restated for Class I to reflect current fees. The
expenses noted above do not reflect any fee waivers or expense
reimbursement arrangements that are or were in effect. Total expenses after
fee waivers and expense reimbursements for each class were: Class A, .77%;
and Class I, .53%. Any fee waiver or expense reimbursement arrangement is
voluntary and may be discontinued at any time.
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
TREASURY MONEY MARKET 1 3 5 10
Use the example at right to help you FUND Year Years Years Years
<S> <C> <C> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $ 80 $249 $433 $966
Fund with the cost of investing in ----------------------------------------------------------------------
other mutual funds. It illustrates the CLASS I SHARES $ 69 $218 $379 $847
amount of fees and expenses you
would pay, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
TAX-EXEMPT MONEY MARKET FUND
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with as high a
level of current income exempt from Federal income
tax as is consistent with the preservation of
capital and the maintenance of liquidity.
PRINCIPAL INVESTMENT The Fund normally invests substantially all of its
STRATEGIES assets in short-term municipal obligations that
provide income exempt from Federal income tax.
Municipal obligations are debt obligations issued
by states, territories and possessions of the
United States and their political subdivisions,
agencies and instrumentalities, and certain other
entities. The Adviser buys and sells municipal
obligations based on considerations of safety of
principal and liquidity, which means the Fund may
not necessarily invest in securities paying the
highest available yield at a particular time. The
Adviser evaluates municipal obligations based on
credit quality, financial outlook and interest
rate sensitivity, and seeks to diversify the
Fund's investments across several different
states, sectors and issuers.
PRINCIPAL INVESTMENT Although the Fund seeks to preserve the value of
RISKS your investment at $1.00 per share, it is possible
to lose money by investing in the Fund. The Fund's
investments in short-term municipal obligations
will be subject primarily to interest rate and
credit risk. Prices of municipal obligations tend
to move inversely with changes in interest rates.
The most immediate effect of a rise in rates is
usually a drop in the prices of such securities,
and therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. The Fund's investments also are subject
to credit risk, which is the risk that the issuer
of the security will fail to make timely payments
of interest or principal, or to otherwise honor
its obligations. Credit risk includes the
possibility that any of the Fund's investments
will have its credit rating downgraded or will
default. Although the Fund's objective is to
generate income exempt from Federal income tax,
interest from some of the Fund's holdings may be
subject to the Federal alternative minimum tax.
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Tax-Exempt Money Market Transaction
Fund you will pay certain fees Fees (fees
and expenses, which are described paid by you CLASS CLASS CLASS
in the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the Fund's yield. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE None None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None 4.00%1 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .35% .35% .35%
-------------------------------------------------------------
Distribution (12b-1)
Fee None .75% None
-------------------------------------------------------------
Other Expenses .57% .58% .47%
-------------------------------------------------------------
Total Annual Fund
Operating Expense2 .92% 1.68% .82%
- --------------------
1 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
2 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
TAX-EXEMPT MONEY MARKET 1 3
Use the example at right to help you FUND Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $ 94 $293
Fund with the cost of investing in ----------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $571 $830
would pay, assuming the following:
Assuming no Redemption $171 $530
o $10,000 investment ----------------------------------------------------
o 5% annual return CLASS I SHARES $ 84 $262
o no changes in the Fund's ----------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
STRATEGIC PORTFOLIOS--These Funds are "fund of
funds" which will invest substantially all of
their assets in Institutional Shares (Class
I) of the Funds (Underlying Funds) as
described herein.
WHO MAY WANT TO Consider investing in these Funds if you are:
INVEST?
! seeking to spread your investment among many
different mutual funds that match your goals
in one simple package
! seeking investment professionals to select
and maintain a portfolio of mutual funds for
you
! seeking the benefits of asset allocation and
multiple levels of risk reducing
diversification
These Funds may not be appropriate if you are:
! pursuing a short-term goal or investing
emergency reserves
! uncomfortable with an investment that will go
up and down in value
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
AGGRESSIVE GROWTH PORTFOLIO
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with OBJECTIVE
capital growth.
PRINCIPAL INVESTMENT The Fund allocates its assets among the Underlying
STRATEGIES Funds 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 Funds.
The Fund will invest 65% to 100% of its total
assets in four Underlying Funds which invest
primarily in equity securities and up to 30% of
its total assets in one Underlying Fund which
invests in money market instruments. The Fund will
invest its assets in the following Underlying
Funds within the strategy ranges (expressed as a
percentage of the Fund's assets) indicated below:
UNDERLYING FUND STRATEGY RANGE
ISG Large-Cap Equity Fund 30-50%
ISG Capital Growth Fund 25-45%
ISG Small-Cap Opportunity Fund 5-15%
ISG International Equity Fund 5-15%
ISG Prime Money Market Fund 0-30%
The Underlying Funds are described earlier in this
Prospectus.
PRINCIPAL INVESTMENT The Fund's investments are concentrated in the
RISKS Underlying Funds, so the Fund's investment
performance is directly related to the performance
of those Underlying Funds. Before investing in the
Fund, investors should assess the risks associated
with the Underlying Funds in which the Fund
invests and the types of investments made by such
Underlying Funds. In addition, since the Fund must
allocate its investments among the Underlying
Funds, the Fund does not have the same flexibility
to invest as a mutual fund without such
constraints. As a result, you could lose money by
investing in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
The Fund invests in Underlying Funds that invest
primarily in equity securities. Stocks and other
equity securities fluctuate in price, often based
on factors unrelated to the issuers' value, and
such fluctuations can be pronounced.
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Aggregive Growth Portfolio, Transaction
you will pay certain fees and Fees (fees
expenses, which are described in paid by you CLASS CLASS CLASS
the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 4.75%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .20% .20% .20%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .54% .64% .54%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 .99% 1.59% .74%
- --------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
In addition to the expenses shown above, if you buy and hold shares of the
Aggressive Growth Portfolio you will indirectly bear your pro rata share of fees
and expenses incurred by the Underlying Funds in which the Fund invests, so that
the investment returns of the Fund will be net of the expenses of the Underlying
Funds. After combining the total operating expenses of the Fund with those of
the Underlying Funds, the estimated average weighted expense ratio is as
follows:
AGGRESSIVE GROWTH PORTFOLIO
Class A Class B Class I
SHARES SHARES SHARES
2.21% 2.81% 1.96%
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
AGGRESSIVE GROWTH 1 3
Use the example at right to help you PORTFOLIO Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $688 $1,133
Fund with the cost of investing in -----------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $684 $1,171
would pay, assuming the following:
Assuming no Redemption $284 $ 871
o $10,000 investment -----------------------------------------------------
o 5% annual return CLASS I SHARES $199 $ 615
o no changes in the Fund's -----------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
GROWTH PORTFOLIO
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with long-term
capital growth.
PRINCIPAL INVESTMENT The Fund allocates its assets among the Underlying
STRATEGIES Funds 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 Funds.
The Fund will invest 65% to 90% of its total
assets in five Underlying Funds which invest
primarily in equity securities, 10% to 20% of its
total assets in one Underlying Fund which invests
primarily in fixed income securities and up to 20%
of its total assets in one Underlying Fund which
invests in money market instruments. The Fund will
invest its assets in the following Underlying
Funds within the strategy ranges (expressed as a
percentage of the Fund's assets) indicated below:
UNDERLYING FUND STRATEGY RANGE
ISG Large-Cap Equity Fund 15-30%
ISG Capital Growth Fund 15-30%
ISG Equity Income Fund 15-25%
ISG Small-Cap Opportunity Fund 5-10%
ISG International Equity Fund 5-10%
ISG Income Fund 10-20%
ISG Prime Money Market Fund 0-20%
The Underlying Funds are described earlier in this
Prospectus.
PRINCIPAL INVESTMENT The Fund's investments are concentrated in the
RISKS Underlying Funds, so the Fund's investment
performance is directly related to the performance
of those Underlying Funds. Before investing in the
Fund, investors should assess the risks associated
with the Underlying Funds in which the Fund
invests and the types of investments made by such
Underlying Funds. In addition, since the Fund must
allocate its investments among the Underlying
Funds, the Fund does not have the same flexibility
to invest as a mutual fund without such
constraints. As a result, you could lose money by
investing in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
The Fund invests in Underlying Funds that invest
primarily in equity securities. Stocks and other
equity securities fluctuate in price, often based
on factors unrelated to the issuers' value, and
such fluctuations can be pronounced.
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Growth Portfolio Transaction
you will pay certain fees Fees (fees
and expenses, which are described paid by you CLASS CLASS CLASS
in the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 4.75%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .20% .20% .20%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .54% .64% .54%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 .99% 1.59% .74%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in certain
circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
In addition to the expenses shown above, if you buy and hold shares of the
Growth & Income Portfolio you will indirectly bear your pro rata share of fees
and expenses incurred by the Underlying Funds in which the Fund invests, so that
the investment returns of the Fund will be net of the expenses of the Underlying
Funds. After combining the total operating expenses of the Fund with those of
the Underlying Funds, the estimated average weighted expense ratio is as
follows:
GROWTH PORTFOLIO
Class A Class B Class I
SHARES SHARES SHARES
2.23% 2.83% 1.98%
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
GROWTH PORTFOLIO 1 3
Use the example at right to help you Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $690 $1,139
Fund with the cost of investing in ----------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $686 $1,177
would pay, assuming the following:
Assuming no Redemption $286 $ 877
o $10,000 investment ----------------------------------------------------
o 5% annual return CLASS I SHARES $201 $ 621
o no changes in the Fund's ----------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
GROWTH & INCOME PORTFOLIO
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with long-term
capital growth and a moderate level of current
income.
PRINCIPAL INVESTMENT The Fund allocates its assets among the Underlying
STRATEGIES Funds 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 Funds.
The Fund will invest 45% to 75% of its total
assets in three Underlying Funds which invest
primarily in equity securities, 25% to 45% of its
total assets in two Underlying Funds which invest
primarily in fixed income securities and up to 20%
of its total assets in one Underlying Fund which
invests in money market instruments. The Fund will
invest its assets in the following Underlying
Funds within the strategy ranges (expressed as a
percentage of the Fund's assets) indicated below:
UNDERLYING FUND STRATEGY RANGE
ISG Large-Cap Equity Fund 15-25%
ISG Capital Growth Fund 15-25%
ISG Equity Income Fund 15-25%
ISG Income Fund 15-25%
ISG Limited Term Income Fund 10-20%
ISG Prime Money Market Fund 0-20%
The Underlying Funds are described earlier in this
Prospectus.
PRINCIPAL INVESTMENT The Fund's investments are concentrated in the
Underlying Funds, so the Fund's investment
performance is directly related to the performance
of those Underlying Funds. Before investing in the
Fund, investors should assess the risks associated
with the Underlying Funds in which the Fund
invests and the types of investments made by such
Underlying Funds. In addition, since the Fund must
allocate its investments among the Underlying
Funds, the Fund does not have the same flexibility
to invest as a mutual fund without such
constraints. As a result, you could lose money by
investing in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
The Fund invests in Underlying Funds that invest
primarily in equity securities. Stocks and other
equity securities fluctuate in price, often based
on factors unrelated to the issuers' value, and
such fluctuations can be pronounced.
The Fund also invests in Underlying Funds that
invest primarily in fixed income securities, which
are subject to interest rate and credit risk.
Interest rate risk is the potential for a decline
in bond prices due to rising interest rates.
Credit risk is the possibility that the issuer of
a fixed-income security will fail to make timely
payments of interest or principal, or that the
security will have its credit rating downgraded.
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Growth & Income Portfolio, Transaction
you will pay certain fees Fees (fees
and expenses, which are described paid by you CLASS CLASS CLASS
in the tables. Shareholder directly A SHARES B SHARES I SHARES
transaction fees are paid from
your account. Annual Fund
operating expenses are paid out Maximum sales
of Fund assets, and are reflected charge (load)
in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 4.75%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .20% .20% .20%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .54% .64% .54%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 .99% 1.59% .74%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
In addition to the expenses shown above, if you buy and hold shares of the
Growth & Income Portfolio you will indirectly bear your pro rata share of fees
and expenses incurred by the Underlying Funds in which the Fund invests, so that
the investment returns of the Fund will be net of the expenses of the Underlying
Funds. After combining the total operating expenses of the Fund with those of
the Underlying Funds, the estimated average weighted expense ratio is as
follows:
GROWTH & INCOME PORTFOLIO
Class A Class B Class I
SHARES SHARES SHARES
2.15% 2.75% 1.90%
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
GROWTH & INCOME 1 3
Use the example at right to help you PORTFOLIO Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $683 $1,116
Fund with the cost of investing in ----------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $678 $1,153
would pay, assuming the following:
Assuming no Redemption $278 $ 853
o $10,000 investment ----------------------------------------------------
o 5% annual return CLASS I SHARES $193 $ 597
o no changes in the Fund's ----------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
MODERATE GROWTH & INCOME PORTFOLIO
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income and a moderate level of capital growth.
PRINCIPAL INVESTMENT The Fund allocates its assets among the Underlying
STRATEGIES Funds 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 Funds.
The Fund will invest 15% to 45% of its total
assets in three Underlying Funds which invest
primarily in equity securities, 45% to 85% of its
total assets in two Underlying Funds which invest
primarily in fixed income securities and up to 20%
of its total assets in one Underlying Fund which
invests in money market instruments. The Fund will
invest its assets in the following Underlying
Funds within the strategy ranges (expressed as a
percentage of the Fund's assets) indicated below:
UNDERLYING FUND STRATEGY RANGE
ISG Limited Term Income Fund 25-45%
ISG Income Fund 20-40%
ISG Large-Cap Equity Fund 5-15%
ISG Capital Growth Fund 5-15%
ISG Equity Income Fund 5-15%
ISG Prime Money Market Fund 0-20%
The Underlying Funds are described earlier in this
Prospectus.
PRINCIPAL INVESTMENT The Fund's investments are concentrated in the
RISKS Underlying Funds, so the Fund's investment
performance is directly related to the performance
of those Underlying Funds. Before investing in the
Fund, investors should assess the risks associated
with the Underlying Funds in which the Fund
invests and the types of investments made by such
Underlying Funds. In addition, since the Fund must
allocate its investments among the Underlying
Funds, the Fund does not have the same flexibility
to invest as a mutual fund without such
constraints. As a result, you could lose money by
investing in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
The Fund invests in Underlying Funds that invest
primarily in fixed income securities, which are
subject to interest rate and credit risk. Interest
rate risk is the potential for a decline in bond
prices due to rising interest rates. Credit risk
is the possibility that the issuer of a
fixed-income security will fail to make timely
payments of interest or principal, or that the
security will have its credit rating downgraded.
The Fund also invests in Underlying Funds that
invest primarily in equity securities. Stocks and
other equity securities fluctuate in price, often
based on factors unrelated to the issuers' value,
and such fluctuations can be pronounced.
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Moderate Growth & Income Transaction
Portfolio, you will pay certain Fees (fees
fees and expenses, which are paid by you CLASS CLASS CLASS
described in the tables. directly A SHARES B SHARES I SHARES
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses Maximum sales
are paid out of Fund assets, and charge (load)
are reflected in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 4.75%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .20% .20% .20%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .54% .64% .54%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 .99% 1.59% .74%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
In addition to the expenses shown above, if you buy and hold shares of the
Growth & Income Portfolio you will indirectly bear your pro rata share of fees
and expenses incurred by the Underlying Funds in which the Fund invests, so that
the investment returns of the Fund will be net of the expenses of the Underlying
Funds. After combining the total operating expenses of the Fund with those of
the Underlying Funds, the estimated average weighted expense ratio is as
follows:
MODERATE GROWTH & INCOME PORTFOLIO
Class A Class B Class I
SHARES SHARES SHARES
2.11% 2.71% 1.86%
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
MODERATE GROWTH & 1 3
Use the example at right to help you INCOME PORTFOLIO Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $679 $1,104
Fund with the cost of investing in ----------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $674 $1,141
would pay, assuming the following:
Assuming no Redemption $274 $ 841
o $10,000 investment ----------------------------------------------------
o 5% annual return CLASS I SHARES $189 $ 585
o no changes in the Fund's ----------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
CURRENT INCOME PORTFOLIO
TICKER SYMBOLS:
CLASS A - N/A
CLASS B - N/A
CLASS I - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income.
PRINCIPAL INVESTMENT The Fund allocates its assets among the Underlying
STRATEGIES Funds 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 Funds.
The Fund will invest 75% to 100% of its total
assets in two Underlying Funds which invest
primarily in fixed income securities and up to 30%
of its total assets in one Underlying Fund which
invests in money market instruments. The Fund will
invest its assets in the following Underlying
Funds within the strategy ranges (expressed as a
percentage of the Fund's assets) indicated below:
UNDERLYING FUND STRATEGY RANGE
ISG Limited Term Income Fund 40-60%
ISG Income Fund 35-55%
ISG Prime Money Market Fund 0-30%
The Underlying Funds are described earlier in this
Prospectus.
PRINCIPAL INVESTMENT The Fund's investments are concentrated in the
RISKS Underlying Funds, so the Fund's investment
performance is directly related to the performance
of those Underlying Funds. Before investing in the
Fund, investors should assess the risks associated
with the Underlying Funds in which the Fund
invests and the types of investments made by such
Underlying Funds. In addition, since the Fund must
allocate its investments among the Underlying
Funds, the Fund does not have the same flexibility
to invest as a mutual fund without such
constraints. As a result, you could lose money by
investing in the Fund, particularly if there is a
sudden decline in the share prices of the
Underlying Fund's holdings.
The Fund invests in Underlying Funds that invest
primarily in fixed income securities, which are
subject to interest rate, credit and prepayment
risk.
Prices of fixed income securities tend to move
inversely with changes in interest rates. The most
immediate effect of a rise in rates is usually a
drop in the prices of such securities, and
therefore in the Underlying Fund's share price as
well. Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. To the extent the Underlying Funds
maintain a comparatively long duration, their
share prices will react more to interest rate
movements.
The Underlying Funds' investments also are subject
to credit risk, which is the risk that the issuer
of the security will fail to make timely payments
of interest or principal, or to otherwise honor
its obligations. Credit risk includes the
possibility that any of the Underlying Funds'
investments will have its credit rating downgraded
or will default.
Mortgage-related and asset-backed securities,
which are derivative instruments, are subject to
both credit and prepayment risk, and may be more
volatile and less liquid than more traditional
debt securities. If the borrowers prepay some or
all of the principal owed to the issuer much
earlier than expected, the Underlying Fund may
have to replace the security by investing the
proceeds in a less attractive security which could
reduce the Underlying Fund's share price or yield.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Fund had not completed a year of
operations. Accordingly, no performance information is provided.
FEES AND EXPENSES
<TABLE>
<CAPTION>
If you purchase and hold shares Shareholder
of the Current Income Transaction
Portfolio, you will pay certain Fees (fees
fees and expenses, which are paid by you CLASS CLASS CLASS
described in the tables. directly A SHARES B SHARES I SHARES
Shareholder transaction fees
are paid from your account.
Annual Fund operating expenses Maximum sales
are paid out of Fund assets, and charge (load)
are reflected in the share price. on purchases AS A %
<S> <C> <C> <C> <C>
OF OFFERING PRICE 3.00%1 None None
-------------------------------------------------------------
Maximum deferred
sales charge (CDSC) None2 4.00%3 None
AS A % OF LOWER OF
PURCHASE OR SALE PRICE
Annual Fund
Operating
Expenses Class Class Class
(fees paid from A SHARES B SHARES I Shares
Fund assets)
-------------------------------------------------------------
Management Fee .20% .20% .20%
-------------------------------------------------------------
Distribution (12b-1)
Fee .25% .75% None
-------------------------------------------------------------
Other Expenses .54% .64% .54%
-------------------------------------------------------------
Total Annual Fund
Operating Expenses4 .99% 1.59% .74%
- --------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived
2 Class A shares bought as part of an investment of $1 million or more are
not subject to an initial sales charge, but may be charged a CDSC of 1.00%
if sold within one year of purchase.
3 The CDSC, which is charged if Class B shares are sold within six years of
purchase, declines as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh
year. Approximately seven years after purchase, Class B shares
automatically convert to Class A shares.
4 Other expenses for each class are based on estimated amounts for the
current fiscal year. The expenses noted above do not reflect any fee
waivers or expense reimbursement arrangements in effect. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at
any time.
</TABLE>
In addition to the expenses shown above, if you buy and hold shares of the
Growth & Income Portfolio you will indirectly bear your pro rata share of fees
and expenses incurred by the Underlying Funds in which the Fund invests, so that
the investment returns of the Fund will be net of the expenses of the Underlying
Funds. After combining the total operating expenses of the Fund with those of
the Underlying Funds, the estimated average weighted expense ratio is as
follows:
CURRENT INCOME PORTFOLIO
Class A Class B Class I
SHARES SHARES SHARES
2.09% 2.69% 1.84%
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
CURRENT INCOME PORTFOLIO 1 3
Use the example at right to help you Year Years
<S> <C> <C> <C>
compare the cost of investing in the CLASS A SHARES $506 $ 935
Fund with the cost of investing in ----------------------------------------------------
other mutual funds. It illustrates the CLASS B SHARES
amount of fees and expenses you Assuming Redemption $672 $1,135
would pay, assuming the following:
Assuming no Redemption $272 $ 835
o $10,000 investment ----------------------------------------------------
o 5% annual return CLASS I SHARES $187 $ 579
o no changes in the Fund's ----------------------------------------------------
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
EQUITY FUNDS
INTERNATIONAL EQUITY FUND--The Fund will invest at least 65% of its total assets
in equity securities of non-United States companies (i.e., incorporated or
organized outside the United States). Under normal market conditions, the 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).
Foreign securities held by the Fund may trade on days when the Fund does not
calculate its NAV and thus affect the Fund's NAV on days when investors have no
access to the Fund.
The Fund is not required to invest exclusively in common stocks or other equity
securities, and, if deemed advisable, the Fund may invest, to a limited extent,
in fixed income securities and money market instruments. The Fund will not
invest in fixed income securities rated lower than A by a credit rating agency,
such as Moody's, S&P, Fitch or Duff, or, if unrated, deemed to be of comparable
quality by the Adviser.
The Fund may engage in foreign currency transactions to hedge the Fund's
portfolio or increase returns. The Fund's success in these transactions will
depend principally on the Sub-Adviser's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar.
The Fund also may engage in short-selling, which involves selling a security it
does not own in anticipation of a decline in the market price of the security.
To complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it later in the market. The price at such time may be more or less
than the price at which the security was sold by the Fund, which would result in
a loss or gain, respectively.
SMALL-CAP OPPORTUNITY FUND--The Fund will invest at least 65% of its total
assets in small-cap equity securities. The Fund also may invest in debt
securities of domestic issuers rated no lower than investment grade (Baa/BBB) by
a credit rating agency, or, if unrated, deemed to be of comparable quality by
the Adviser.
MID-CAP FUND--The Fund will invest at least 65% of its total assets in mid-cap
equity securities. The Fund may invest up to 20% of its total assets in
securities of foreign issuers traded on the New York or American Stock Exchange
or in the over-the-counter market in the form of depositary receipts, such as
ADRs. The Fund also may invest in debt securities of domestic issuers rated no
lower than investment grade (Baa/BBB) by a credit rating agency, or, if unrated,
deemed to be of comparable quality by the Adviser.
Securities of foreign issuers (including ADRs) fluctuate in price, often based
on factors unrelated to the issuers' value, and such fluctuations can be
pronounced. Foreign securities tend to be more volatile than U.S. securities
because they include special risks such as exposure to currency fluctuations, a
lack of comprehensive company information, potential instability, and differing
auditing and legal standards.
CAPITAL GROWTH FUND--The Fund will invest at least 65% of its total assets in
equity securities. The Fund also may invest in debt securities of domestic and
foreign issuers when the Adviser believes that such securities offer
opportunities for capital growth. The Fund may invest up to 10% of its total
assets in foreign securities which are not publicly traded in the United States.
At least 65% of the Fund's total assets invested in debt securities must consist
of debt securities which are rated no lower than investment grade (Baa/BBB) by a
credit rating agency, 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.
LARGE-CAP EQUITY FUND--The Fund will invest at least 70% of its total assets in
equity securities. The Fund also may invest in debt securities of domestic
issuers rated no lower than investment grade (Baa/BBB) by a credit rating
agency, or, if unrated, deemed to be of comparable quality by the Adviser.
EQUITY INCOME FUND--The Fund will invest at least 65% of its total assets in
dividend-paying equity securities. The Adviser anticipates investing from time
to time approximately 25% of the Fund's total assets in convertible securities
and preferred stock. The Fund also may invest in mortgage-related securities,
including real estate investment trusts ("REITs"). The value of securities
issued by REITs are affected by changes in the value of property in which the
REIT invests, 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.
At least 65% of the Fund's total assets invested in debt securities must consist
of debt securities which are rated no lower than investment grade (Baa/BBB) by a
credit rating agency, 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.
APPLICABLE TO ALL EQUITY FUNDS--While the Equity Funds typically invest
primarily in common stocks, the equity securities in which they may invest also
include convertible securities and preferred stocks. Convertible securities are
exchangeable for a certain amount of another form of an issuer's securities,
usually common stock, at a prestated price. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same issuer
and, thus, typically have lower credit ratings than similar non-convertible
securities. Preferred stock pays dividends at a specified rate and has
preference over common stock in the payment of dividends and the liquidation of
assets. Preferred stock ordinarily does not carry voting rights.
To a limited extent, each Equity Fund may invest in debt securities. These
securities will be subject primarily to interest rate and credit risks. Interest
rate risk is the potential for a decline in bond prices due to rising interest
rates. In general, the prices of debt securities are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. Credit risk is the possibility that the issuer of the
security will fail to make timely payments of interest or principal to the Fund.
The credit risk of a Fund depends on the quality of its investments. Certain
debt securities that may be purchased by the Funds, 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 securities.
Under adverse market conditions, each Equity Fund may invest some or all of its
assets in money market instruments. Although the Fund would do this to avoid
losses, it could reduce the benefit from any upswing in the market. During such
periods, the Fund may not achieve its investment objective.
Each Equity Fund may invest, to a limited extent, in securities issued by other
investment companies which principally invest in securities of the type in which
the Fund invests. Such investments will involve duplication of advisory fees and
certain other expenses.
Each Equity Fund may invest some assets in derivative securities, such as
options and futures. These instruments are used primarily to hedge the Fund's
portfolio but may be used to increase returns; however, they sometimes may
reduce returns or increase volatility. In addition, derivatives can be illiquid
and highly sensitive to changes in their underlying security, interest rate or
index, and as a result can be highly volatile. A small investment in certain
derivatives could have a potentially large impact on the Fund's performance.
Each Equity Fund may lend its portfolio securities to brokers, dealers and other
financial institutions, which could subject the Fund to risk of loss if the
institution breaches it agreement with the Fund. In connection with such loans,
the Fund will receive collateral consisting of cash or U.S. Government
securities which will be maintained at all times in an amount equal to 100% of
the current market value of the loaned securities.
FIXED INCOME FUNDS
INCOME FUND--The Fund will invest at least 65% of its total assets in bonds,
debentures and other debt instruments. The issuers may include corporations,
partnerships, trusts or similar entities, and governments or their political
subdivisions, agencies or instrumentalities.
The securities in which the Fund will invest will consist only of those which,
at the time of purchase, are rated no lower than investment grade (Baa/BBB) by a
credit rating agency, or, if unrated, deemed to be of comparable quality by the
Adviser.
The Fund's controlled duration strategy may limit its ability to take advantage
of investment opportunities.
Under adverse market conditions, the Fund may invest some or all of its assets
in money market instruments. Although the Fund would do this to avoid losses, it
could reduce the benefit from any upswing in the market. During such periods,
the Fund may not achieve its investment objective.
GOVERNMENT INCOME FUND--The Fund will invest at least 65% of its total assets in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements in respect of such securities.
Repurchase agreements are contracts in which a U.S. commercial bank or
securities dealer sells U.S. Government securities to the Fund and agrees to
repurchase them on a specific date (usually the next day) and at a specific
price. These agreements offer the Fund a means of investing money for a short
period of time. If the seller defaults, the Fund could be delayed in selling the
securities which could affect the Fund's yield.
LIMITED TERM INCOME FUND--The Fund will invest at least 65% of its total assets
in bonds, debentures and other debt instruments. The issuers may include
corporations, partnerships, trusts or similar entities, and governments or their
political subdivisions, agencies or instrumentalities.
The securities in which the Fund will invest will consist only of those which,
at the time of purchase, are rated no lower than investment grade (Baa/BBB) by a
credit rating agency, or, if unrated, deemed to be of comparable quality by the
Adviser.
The Fund's controlled duration strategy may limit its ability to take advantage
of investment opportunities.
Under adverse market conditions, the Fund may invest some or all of its assets
in money market instruments. Although the Fund would do this to avoid losses, it
could reduce the benefit from any upswing in the market. During such periods,
the Fund may not achieve its investment objective.
LIMITED TERM U.S. GOVERNMENT FUND--The Fund will invest at least 65% of its
total assets in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and repurchase agreements in respect of such
securities.
Repurchase agreements are contracts in which a U.S. commercial bank or
securities dealer sells U.S. Government securities to the Fund and agrees to
repurchase them on a specific date (usually the next day) and at a specific
price. These agreements offer the Fund a means of investing money for a short
period of time. If the seller defaults, the Fund could be delayed in selling the
securities which could affect the Fund's yield.
The Fund's controlled duration strategy may limit its ability to take advantage
of investment opportunities.
APPLICABLE TO ALL FIXED INCOME FUNDS--U.S. Government securities are bonds or
other debt obligations issued or guaranteed as to principal and interest by the
U.S. Government or one of its agencies or instrumentalities. U.S. Treasury
securities and some obligations of U.S. Government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States Government. Other U.S. Government securities are backed by the right of
the issuer to borrow from the U.S. Treasury. Still others are supported only by
the credit of the issuer or instrumentality. While the U.S. Government provides
financial support to U.S. Government-sponsored agencies or instrumentalities,
no assurance can be given that it will always do so.
Each Fixed Income Fund may invest, to a limited extent, in securities issued by
other investment companies which principally invest in securities of the type in
which the Fund invests. Such investments will involve duplication of advisory
fees and certain other expenses.
Each Fixed Income Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, which could subject the Fund to risk of loss if
the institution breaches its agreement with the Fund. In connection with such
loans, the Fund will receive collateral consisting of cash or U.S. Government
securities which will be maintained at all times in an amount equal to 100% of
the current market value of the loaned securities.
Although the Income Fund and Limited Term Income Fund invest principally in the
securities of U.S. issuers, they may invest in U.S. dollar denominated
securities of foreign issuers. Foreign securities include special risks, such as
changing political climate, lack of comprehensive company information and
potentially less liquidity.
TAX-EXEMPT FIXED INCOME FUNDS
APPLICABLE TO EACH TENNESSEE FUND--The Tennessee Tax-Exempt Fund and Limited
Term Tennessee Tax-Exempt Fund each will invest, as a fundamental policy, at
least 80% of its net assets (except when maintaining a temporary defensive
position) in municipal obligations. Under normal circumstances, the Fund will
invest at least 65% of its total assets in bonds, debentures, and other debt
securities of the State of Tennessee, its political subdivisions, authorities
and corporations, the interest from which is, in the opinion of bond counsel to
the issuer, exempt from Federal and Tennessee personal income taxes. The
remainder of the Fund's assets may be invested in securities that are not
Tennessee municipal obligations and therefore may be subject to Tennessee income
tax. The Fund intends to invest in such securities when their return to
investors, taking into account applicable Tennessee income taxes, would be
greater than comparably rated Tennessee municipal obligations. In addition, to
the extent acceptable Tennessee municipal obligations are at any time
unavailable for investment by the Fund, the Fund will invest temporarily in
other municipal obligations. When the Fund has adopted a temporary defensive
position, including when acceptable Tennessee municipal obligations are
unavailable for investment by the Fund, in excess of 35% of the Fund's total
assets may be invested in securities that are not exempt from Tennessee State
income tax.
The Fund may invest up to 10% of its total assets in industrial development
bonds backed only by the assets and revenues of non-governmental users. The Fund
may invest up to 10% of its net assets in municipal obligations which provide
income subject to the alternative minimum tax.
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the Fund's net assets) or for temporary
defensive purposes, the Fund may invest in taxable money market instruments
having, at the time of purchase, a quality rating in the two highest grades of
Moody's, S&P or Fitch or, if unrated, deemed to be of comparable quality by the
Adviser. Except for temporary defensive purposes, at no time will more than 20%
of the Fund's net assets be invested in taxable money market instruments and
municipal obligations which provide income subject to the alternative minimum
tax.
The Limited Term Tennessee Tax-Exempt Fund's controlled duration strategy may
limit its ability to take advantage of investment opportunities.
The Fund may invest some assets in derivative securities, such as options and
futures, which may give rise to taxable income. These instruments are used
primarily to hedge the Fund's portfolio but may be used to increase returns;
however, they sometimes may reduce returns or increase volatility. In addition,
derivatives can be illiquid and highly sensitive to changes in their underlying
security, interest rate or index, and as a result can be highly volatile. A
small investment in certain derivatives could have a potentially large impact on
the Fund's performance.
MUNICIPAL INCOME FUND--The Fund will invest, as a fundamental policy, at least
80% of its net assets (except when maintaining a temporary defensive position)
in municipal obligations.
The Fund may invest without limitation in industrial development bonds backed
only by the assets and revenues of the non-governmental users and other
municipal obligations which. Certain industrial development provide income
subject to the alternative minimum tax, if the Adviser determines that their
purchase is consistent with the Fund's investment objective.
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the Fund's net assets) or for temporary
defensive purposes, the Fund may invest in taxable money market instruments
having, at the time of purchase, a quality rating in the two highest grades of
Moody's, S&P or Fitch or, if unrated, deemed to be of comparable quality by the
Adviser. Except for temporary defensive purposes, at no time will more than 20%
of the Fund's net assets be invested in taxable money market instruments.
APPLICABLE TO TAX-EXEMPT FIXED INCOME FUNDS--Municipal obligations are debt
obligations typically divided into two types:
o GENERAL OBLIGATION BONDS, which are secured by the full faith and
credit of the issuer and its taxing power; and
o REVENUE BONDS, which are payable from the revenues derived from a
specific revenue source, such as charges for water and sewer service
or highway tolls.
To the extent described above, each Tax-Exempt Fixed Income Fund may invest in
industrial development bonds which, although nominally issued by municipal
authorities, are in most cases revenue bonds that are not secured by the taxing
power of the municipality, but by the revenues derived from payments by the
non-governmental users. Certain industrial development bonds, while exempt from
Federal income tax, provide income subject to the alternative minimum tax.
Each Tax-Exempt Fixed Income Fund may invest, to a limited extent, in securities
issued by other investment companies which principally invest in securities of
the type in which the Fund invests. Such investments will involve duplication of
advisory fees and certain other expenses.
Each Tax-Exempt Fixed Income Fund may lend its portfolio securities to brokers,
dealers and other financial institutions, which could subject the Fund to risk
of loss if the institution breaches its agreement the Fund and may give rise to
taxable income. In connection with such loans, the Fund will receive collateral
consisting of cash or U.S. Government securities which will be maintained at all
times in an amount equal to 100% of the current market value of the loaned
securities.
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND--The Fund will invest in U.S. dollar denominated
short-term money market obligations.
The Fund usually invests at least 25% of its assets in domestic and/or U.S.
dollar denominated foreign bank obligations. Thus, it will have correspondingly
greater exposure to the risks generally associated with investments in the
banking industry. Sustained increases in interest rates, for example, can
adversely affect the availability and cost of capital funds for a bank's lending
activities, and a deterioration in general economic conditions could increase
the bank's exposure to credit losses. In addition, 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 will
affect the Fund's return. The Fund, however, will seek to minimize its exposure
to such risks by investing only in debt securities which are determined to be of
high quality.
The Fund 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.
Since the Fund may invest in U.S. dollar denominated securities issued by
foreign issuers, such as foreign governments, foreign banks and foreign
subsidiaries or branches of domestic banks, it may be subject to additional
investment risk with respect to those securities which are different in some
respects from those incurred by a fund that invests only in debt obligations of
U.S. domestic issuers. Foreign issuers usually are not subject to the same
degree of regulation as U.S. issuers. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases, significantly from U.S.
standards. Foreign risk includes nationalization, expropriation or confiscatory
taxation, political changes or diplomatic developments that could adversely
affect such investments.
GOVERNMENT MONEY MARKET FUND--The Fund will invest at least 65% of its total
assets in securities issued or guaranteed as to principal and interest by the
U.S. Government, or its agencies or instrumentalities and repurchase agreements
in respect thereof.
Repurchase agreements are contracts in which a U.S. commercial bank or
securities dealer sells U.S. Government securities to the Fund and agrees to
repurchase them on a specific date (usually the next day) and at a specific
price. These agreements offer the Fund a means of investing money for a short
period of time. If the seller defaults, the Fund could be delayed in selling the
securities which could affect the Fund's yield.
TREASURY MONEY MARKET FUND--The Fund will invest, as a fundamental policy, at
least 65% of its total assets in U.S. Treasury securities and repurchase
agreements in respect thereof. The remainder of its assets may be invested in
other securities guaranteed as to payament of principal and interest by the U.S.
Government and repurchase agreements in respect thereof.
Repurchase agreements are contracts in which a U.S. commercial bank or
securities dealer sells U.S. Government securities to the Fund and agrees to
repurchase them on a specific date (usually the next day) and at a specific
price. These agreements offer the Fund a means of investing money for a short
period of time. If the seller defaults, the Fund could be delayed in selling the
securities which could affect the Fund's yield.
The Fund will not invest in securities issued or guaranteed by U.S. Government
agencies, instrumentalities or government-sponsored enterprises that are not
backed by the full faith and credit of the United States.
TAX-EXEMPT MONEY MARKET FUND--The Fund will invest at least 80% of its total
assets in short-term municipal obligations. The Fund will invest no more than
20% of its net assets in municipal obligations which provide income subject to
the alternative minimum tax and, except for temporary defensive purposes, in
other investments subject to Federal income tax.
The Tax-Exempt Money Market Fund may invest more than 25% of the value of its
total assets in municipal obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
interest upon which is paid from revenues of similar etypes of projects such as
mass transit or water and sewer works, or securities whose issuers are located
in the same state. As a result of such investments, the Fund's yield may be more
affected by factors pertaining to the economy of the relevant government issuer
and other factors specifically affecting the ability of issuers of such
securities to meet their obligations.
APPLICABLE TO EACH MONEY MARKET FUND--As a money market fund, each Money Market
Fund is subject to maturity, quality and diversification requirements designed
to help it maintain a stable price of $1.00 per share. Generally, the Fund is
required to invest at least 95% of its assets in the securities of issuers with
the highest credit rating or the unrated equivalent as determined by the
Adviser. The remainder may be invested in securities with the second highest
credit rating. In addition, the Fund must do the following:
o maintain an average dollar weighted portfolio maturity of 90 days or
less
o buy individual securities that have remaining maturities of 397 days
or less
o buy only high quality U.S. dollar denominated obligations
Each Money Market Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, which could subject the Fund to risk of loss if
the institution breaches its agreement with the Fund and, for the Tax-Exempt
Money Market Fund, may give rise to taxable income. In connection with such
loans, the Fund will receive collateral consisting of cash or U.S. Government
securities which will be maintained at all times in an amount equal to 100% of
the current market value of the loaned securities.
Each Money Market Fund, except the Tax-Exempt Money Market Fund, may enter into
reverse repurchase agreements with banks, brokers or dealers. In these
transactions, the Fund sells a portfolio security to another party in return for
cash and agrees to repurchase the security generally at a particular price and
time. The Fund will use the cash to make investments which either mature or have
a demand feature to resell to the issuer at a date simultaneous with or prior to
the time the Fund must repurchase the security. Reverse repurchase agreements
may be preferable to a regular sale and later repurchase of the securities
because it avoids certain market risks and transaction costs. Such transactions,
however, may increase the risk of potential fluctuations in the market value of
the Fund's assets. In addition, interest costs on the cash received may exceed
the return on the securities purchased.
The Money Market Funds expect to maintain a net asset value of $1.00 per share,
but there is no assurance that the Funds will be able to do so on a continuous
basis. Each Money Market Fund's performance per share will change daily based on
many factors, including fluctuation in interest rates, and for the Prime Money
Market Fund and Tax-Exempt Money Market Fund the quality of the instruments in
the Fund's investment portfolio, economic conditions and general market
conditions.
STRATEGIC PORTFOLIOS
APPLICABLE TO ALL STRATEGIC PORTFOLIOS - The Adviser will make allocation
decisions according to its outlook for the economy, financial markets and
relative market valuation of the Funds. Each Strategic Portfolio has a
"benchmark percentage" representing the asset class mix of the Underlying Funds
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 Strategic Portfolio's asset class
benchmark percentage will be as follows:
BENCHMARK PERCENTAGES
<TABLE>
<CAPTION>
MODERATE
AGGRESSIVE GROWTH & GROWTH & CURRENT
UNDERLYING FUND 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 herein; however,
the Adviser reserves the right to vary such percentages and ranges as the
risk/return characteristics of the financial markets or Underlying Fund asset
classes, as assessed by the Adviser, vary over time.
Each Strategic Portfolio may invest, in anticipation of otherwise investing cash
positions, directly in U.S. Government securities and short-term paper, such as
bankers' acceptances. Under normal market conditions, none of the Strategic
Portfolios expects to have a substantial portion of its assets invested in such
securities. However, when the Adviser determines that adverse market conditions
exist, the Fund may adopt a temporary defensive posture and invest entirely in
such securities. Although the Fund would do this to avoid losses, it could
reduce the benefit of any upswing in the market. During such periods, the Fund
may not achieve its investment objective.
Because the Strategic Portfolios invest in the Underlying Funds, there will be
duplication of advisory fees and certain other expenses.
APPLICABLE TO ALL FUNDS
YEAR 2000 RISK--Like other funds and business organizations around the world,
the Funds could be adversely affected if the computer systems used by the
Adviser or a Sub-Adviser and the Funds' other service providers do not properly
process and calculate date-related information for the year 2000 and beyond.
Year 2000 issues may adversely affect the companies or other issuers in which
the Funds invest where, for example, such entities incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to adequately or
timely do so. Foreign markets may be less prepared to address Year 2000 issues
than U.S. ones.
The Adviser, the Sub-Advisers and the Funds' other service providers (i.e.,
Administrator, Transfer Agent, Fund Accounting Agent, Custodian and Distributor)
have assured the Funds that they have developed and are implementing clearly
defined and documented plans intended to minimize risks to services critical to
the Funds' operations associated with Year 2000 issues. The Adviser, the
Sub-Advisers and service providers are likewise seeking assurances from their
respective vendors and suppliers that such entities are addressing Year 2000
issues.
While the ultimate costs or consequences of incomplete or untimely resolution of
Year 2000 issues by the Adviser, the Sub-Advisers or the Funds' service
providers cannot be accurately assessed at this time, the Funds currently have
no reason to believe that the Year 2000 plans of the Adviser, the Sub-Advisers
and the Funds' service providers will not be completed by December 31, 1999, or
that the anticipated costs associated with full implementation of their plans
will have a material adverse impact on either their business operations or
financial condition or those of the Funds. If any systems upon which the Funds
are dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur, which could result
in a decline in the value of the Fund's securities and yield.
FUND MANAGEMENT
INVESTMENT ADVISERS
First American National Bank, located at First American Center, 315 Deaderick
Street, Nashville, Tennessee 37237, serves as each Fund's investment adviser.
The Adviser is a wholly-owned subsidiary of First American Corporation, a
registered bank holding company. First American National Bank, and its
affiliates, provide personal trust, estate, employee benefit trust, corporate
trust and custody services to over 7,000 accounts, as well as investment
advisory services. The Adviser, and its affiliates, as of December 31, 1998, had
approximately $10 billion under trust and approximately $6 billion under
management.
The Adviser has engaged Lazard Asset Management, Womack Asset Management, Inc.
and Bennett Lawrence Management, LLC to serve as sub-investment adviser to the
International Equity Fund, Small-Cap Opportunity Fund and Mid-Cap Fund,
respectively. The Adviser pays each sub-investment adviser from the advisory fee
it receives from the Fund.
Lazard Asset Management, located at 30 Rockefeller Plaza, New York, New York
10112, serves as the sub-investment adviser to the International Equity Fund.
Lazard Asset Management, a division of Lazard Freres & Co. LLC, which is a New
York limited liability company, provides investment management services to
client discretionary accounts with assets totaling approximately $71 billion as
of December 31, 1998.
Womack Asset Management, Inc., located at 1667 Lelia Drive, Suite 101, Jackson,
Mississippi 39216, serves as the sub-investment adviser to the Small-Cap
Opportunity Fund. Womack Asset Management provides investment management
services to one other investment company portfolio and to client discretionary
accounts totaling approximately $160 million as of December 31, 1998. Bennett
Lawrence Management, LLC, located at 757 Third Avenue, New York, New York 10017,
serves as the sub-investment adviser to the Mid-Cap Fund. Bennett Lawrence
Management provides discretionary investment management services to client
discretionary accounts with assets totaling approximately $950 million as of
December 31, 1998.
The table below shows the investment advisory fee rate paid (or payable for
those Funds which had not commenced operations) to the Adviser by the relevant
Fund for the fiscal year ended December 31, 1998.
NAME OF FUND ANNUAL RATE
International Equity Fund .68%
Small-Cap Opportunity Fund .95%
Mid-Cap Fund .65%
Capital Growth Fund .64%
Large-Cap Equity Fund .75%
Equity Income Fund .64%
Income Fund .50%
Government Income Fund .60%
Limited Term Income Fund .50%
Limited Term U.S. Government Fund .50%
Tennessee Tax-Exempt Fund .49%
Municipal Income Fund .30%
Limited Term Tennessee Tax-Exempt Fund .50%
Prime Money Market Fund .25%
Government Money Market Fund .25%
Treasury Money Market Fund .25%
Tax-Exempt Money Market Fund .35%
Aggressive Growth Portfolio .20%
Growth Portfolio .20%
Growth & Income Portfolio .20%
Moderate Growth & Income Portfolio .20%
Current Income Portfolio .20%
PRIMARY PORTFOLIO MANAGERS
The primary portfolio manager for each Fund, other than the Money Market Funds,
is as follows:
INTERNATIONAL EQUITY FUND--Herbert W. Gullquist and John R. Reinsberg. Messrs.
Gullquist and Reinsberg have been the International Equity Fund's primary
portfolio managers since its inception, and have been Managing Directors of
Lazard for over five years.
SMALL-CAP OPPORTUNITY FUND--William A. Womack. Mr. Womack has been the Small-Cap
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.
MID-CAP FUND--S. Van Zandt Schreiber and Robert W. Deaton. Messrs. Schreiber and
Deaton have been the Mid-Cap Fund's primary portfolio managers since its
inception. Mr. Schreiber has been the Chief Portfolio Manager at Bennett
Lawrence since its inception in August 1995. For more than five years prior
thereto, Mr. Schreiber was Managing Director and Senior Growth Portfolio Manager
with Deutsche Morgan Grenfell/C.J. Lawrence, Inc. Mr. Deaton has been an
Associate Portfolio Manager at Bennett Lawrence since its inception in August
1995. From 1994 to August 1995, Mr. Deaton was a portfolio manager and research
analyst with Deutsche Morgan Grenfell/C.J. Lawrence, Inc. Prior thereto, Mr.
Deaton managed the Long-Term Growth Fund for the Tennessee Consolidated
Retirement System.
CAPITAL GROWTH FUND--Charles E. Winger, Jr. Mr. Winger has been the Capital
Growth Fund's primary portfolio manager since its inception. He has been a Trust
Officer of the Adviser since 1988.
LARGE-CAP EQUITY FUND--Ronald E. Lindquist. Mr. Lindquist, who has over 30
years' experience as a portfolio manager, has been the Large-Cap 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, affiliates of the Adviser.
EQUITY INCOME FUND--Investment decisions for the Equity Income Fund are made by
a team of the Adviser's portfolio managers led by Robert A. Rinner. Mr. Rinner
has been a primary portfolio manager of the Equity Income Fund since its
inception, and has been a portfolio manager with the Adviser since April 1996.
Prior thereto, he was a portfolio manager with Royal Insurance Co.
INCOME FUND--Donald F. Turk. Mr. Turk has been the Income Fund's primary
portfolio manager since its inception and has been a Trust Officer of the
Adviser since 1980.
GOVERNMENT INCOME FUND--John Mark McKenzie. Mr. McKenzie has been the Government
Income Fund's primary portfolio manager since its inception and has been
employed by the Adviser since May 1998. Since 1984, he was employed by Deposit
Guaranty National Bank.
LIMITED TERM INCOME FUND--Donald F. Turk. Mr. Turk has been the Limited Term
Income Fund's primary portfolio manager since its inception and has been a Trust
Officer of the Adviser since 1980.
LIMITED TERM U.S. GOVERNMENT FUND--John Mark McKenzie. Mr. McKenzie has been a
portfolio manager of the Limited Term U.S. Government Fund since May 1998 and
the Fund's primary portfolio manager since December 1998. He has been employed
by the Adviser since May 1998 and by Deposit Guaranty National Bank since 1984.
TENNESSEE TAX-EXEMPT FUND--Sharon S. Brown. She has been the Tennessee
Tax-Exempt Fund's primary portfolio manager since its inception and has been a
Trust Officer of the Adviser since 1988.
MUNICIPAL INCOME FUND--Sharon S. Brown. Ms. Brown has been a primary portfolio
manager of the Municipal Income Fund since its inception. She has been a Trust
Officer of the Adviser since 1988.
LIMITED TERM TENNESSEE TAX-EXEMPT FUND--Sharon S. Brown. Ms. Brown has been the
Limited Term Tennessee Tax-Exempt Fund's primary portfolio manager since its
inception and has been a Trust Officer of the Adviser since 1988.
STRATEGIC PORTFOLIOS --Investment decisions for each Strategic Portfolio are
made by a team of the Adviser's portfolio managers, and no person is primarily
responsible for making recommendations to the team.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Ohio, Inc. (the "Administrator"), 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as each Fund's administrator. The
administrative services of the Administrator include providing office space,
equipment and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing services.
BISYS Fund Services Limited Partnership (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The Distributor
may provide financial assistance in connection with pre-approved seminars,
conferences and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the National Association of Securities
Dealers.
<PAGE>
SHAREHOLDER INFORMATION
ALTERNATIVE PURCHASE METHODS
Each Fund offers Institutional shares ("Class I shares") and Class A shares and,
except for the Treasury Money Market Fund, Class B shares. Each Class I share,
Class A share and Class B share represents an identical pro-rata interest in the
relevant Fund's investment portfolio.
You will need to choose a share class before making your initial investment. (If
only one share class is available through your program, you can refer just to
that information). In making your choice, you should weigh the impact of all
potential costs over the length of your investment, including sales charges and
annual fees. For example, in some cases, it may be more economical to pay an
initial sales charge than to choose a class with no initial sales charge but a
contingent deferred sales charge (CDSC) and higher annual fees.
o Class A shares may be appropriate for investors who prefer to pay the
Fund's sales charge up-front rather than upon the sale of their shares, or
want to take advantage of the reduced sales charges available on larger
investments.
o Class B shares may be appropriate for investors who want to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately and/or have a longer-term investment horizon.
o Class I shares are sold exclusively to clients of the Adviser, its
affiliates and certain other institutions, for their qualified trust,
custody and/or agency accounts.
If you are investing directly in Class B shares of the Prime Money Market Fund,
Government Money Market Fund or Tax-Exempt Money Market Fund, as opposed to
obtaining such shares through an exchange, you will be required to participate
in the Auto-Exchange Plan.
Your investment representative can help you choose the share class that is
appropriate for you.
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV of each class is calculated by adding the total value of the Fund's
investments and other assets attributable to such class, subtracting its
liabilities and then dividing that figure by the number of outstanding shares of
the class:
NAV =
TOTAL ASSETS - LIABILITIES
Number of Class Shares
Outstanding
You can find each Fund's NAV daily in THE WALL STREET JOURNAL
and other newspapers.
MONEY MARKET FUNDS
Per share net asset value (NAV) is determined and Fund shares are priced at
11:00 a.m. Eastern time for the Tax-Exempt Money Market Fund, and at 2:00 p.m.
Eastern time for each other Money Market Fund, on each day the New York Stock
Exchange is open, except Columbus Day and Veterans' Day.
OTHER FUNDS
Per share net asset value (NAV) for each non-Money Market Fund is determined and
its shares are priced at the close of regular trading on the New York Stock
Exchange, normally at 4:00 p.m. Eastern time, on days the Exchange is open,
except Columbus Day and Veterans' Day.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after the Fund receivers your order, less any applicable sales charge
as noted in the section on "Distribution Arrangements/Sales Charges." This is
what is known as the offering price.
Each Money Market Fund uses the amortized cost method of valuing its
investments, which does not take into account unrealized gains or losses. Each
other Fund's investments are valued each business day generally by using
available market quotations or, if market quotations are not available, 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 Funds' investments, see the Statement of
Additional Information.
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Class A MINIMUM INVESTMENT
shares and Class B shares ACCOUNT TYPE INITIAL SUBSEQUENT
through a number of
institutions, including the CLASS A OR B
Adviser and its affiliates, Regular
directly from the (non-retirement) $ 1,000 $100
Distributor, or through Retirement (IRA) $ 100 $ 50
banks, brokers and other Autommtic
investment representatives. Investment Plan $ 250 $ 25
Class I shares may be CLASS I $100,000 No minimum
purchased only by clients of
the Adviser, its affiliates or
certain other institutions for All purchases must be in U.S. dollars. A fee
their fiduciary accounts. will be charged for any checks that do not
Certain investment clear. Third-party checks are not accepted.
representatives may charge
additional fees and may A Fund may waive the minimum purchase
require higher minimum requirements and may reject any purchase order
investments or impose other in whole or in part.
limitations on buying and
selling shares. If you
purchase shares through an
investment representative,
that party is responsible for
transmitting orders in a
timely manner and may have
an earlier cut-off time for
purchase and sale requests.
Consult your investment
representative for specific
information.
Avoid 31% Tax Withholding
A Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
<PAGE>
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
If purchasing through an investment representative, simply tell your
representative that you wish to purchase shares of the Funds and he or she will
take care of the necessary documentation. For all other purchases, follow the
instructions below.
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the account application. Establishing your
account privileges now saves you the inconvenience of having to add them
later.
2. Make check, bank draft or money order payable to "ISG Funds"
3. Mail to: ISG Funds, c/o BISYS Fund Services
P. O. Box 182239
Columbus, Ohio 43218-2239.
Subsequent Investment:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
o ISG Funds/Fund name
o Share class
o Amount invested
o Account name
o Account number
Include your account number on your check.
3. Mail to: ISG Funds, c/o BISYS Fund Services
P. O. Box 182239
Columbus, Ohio 43218-2239
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
Send to: ISG Funds, c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, Ohio 43219
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
United States Bank. Your bank or broker may charge for this service.
<PAGE>
Establish an electronic purchase option on your account application or call
1-800-852-0045. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-852-0045 to arrange a transfer from your bank account.
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial
institutions to send funds to each
other, almost instantaneously. With
an electronic purchase or sale, the
transaction is made through the
Automated Clearing House (ACH) and
may take up to eight days to clear.
There is generally no fee for ACH
transactions.
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment:
Call 1-800-852-0045 to receive a confirmation number and to obtain instructions
on faxing the completed account application. Follow the instructions below after
receiving your confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
The Bank of New York
Routing Number: ABA # 021 000 018
DDA # 890 027 5758
Include:
Your name
Your confirmation number
After instructing your bank to wire the funds, call
1-800-852-0045 to advise us of the amount being transferred and the name
of your bank
You can add to your account by using the convenient options described below. The
Funds reserve the right to change or eliminate these privileges at any time with
60 days' notice.
<PAGE>
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
AUTOMATIC INVESTMENT PLAN Directed Dividend Option
You can make automatic investments By selecting the appropriate box
in the Funds from your bank in the account application, you
account, through payroll deduction can elect to receive your
or from your federal employment, distributions (capital gains and
Social Security or other regular dividends) in cash (check) or have
government checks. Automatic them reinvested in another ISG
investments can be as little as Fund without a sales charge. You
$25, once you've invested the must maintain the minimum balance
$250 minimum required to open the in each Fund into which you plan
account. to reinvest distributions or the
reinvestment will be suspended and
To invest regularly from your bank account: your distributions paid to you.
Complete the Automatic Investment The Fund may modify or terminate
Plan portion on your Account this reinvestment option without
Application. notice. You can change or
Make sure you note: terminate your participation in
o Your bank name, address and the reinvestment option at any
account number time.
o The amount you wish to invest
automatically (minimum $25)
o How often you want to invest
(every month, 4 times a year,
twice a year or once a year)
o Attach a voided personal check.
To invest regularly from your
paycheck or government check:
Call 1-800-852-0045 for an
enrollment form.
- --------------------------------------------------------------------------------
AUTOMATICALLY THROUGH "SWEEP" PROGRAMS--CLASS A AND CLASS B SHARES OF THE MONEY
MARKET FUNDS ONLY--Certain investor accounts may be eligible for an automatic
investment privilege, commonly called a "sweep," under which amounts in excess
of a certain minimum held in these accounts will be invested automatically in
Class A shares or, except for the Treasury Money Market Fund, Class B shares at
predetermined intervals at the next determined NAV. Investors desiring to use
this privilege should consult their investment representative to determine if it
is available and whether any conditions are imposed on its use.
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
You may sell your shares at any WITHDRAWING MONEY FROM YOUR
time. Your sales price will be FUND INVESTMENT
the next NAV after your sell
order is received by the Fund, As a mutual fund shareholder, you are
its transfer agent, or your technically selling shares when you
investment representative. request a withdrawal in cash. This is
Normally you will receive your also known as redeeming shares or a
proceeds within a week after redemmption of shares.
your request is received. See -----------------------------------------
section on "General Policies on CONTINGENT DEFERRED SALES CHARGE
Selling Shares" below.
When you sell Class B shares, you will be
charged a fee for any shares that have not
been held for a sufficient length of time.
These fees will be deducted from the money
paid to you. See the section on
"Distribution Arrangements/Sales Charges"
below for details.
INSTRUCTIONS FOR SELLING SHARES
If you are selling your shares through
your financial adviser or broker, ask him
or her for redemption procedures. Your
adviser and/or broker may have transaction
minimums and/or transaction times which
will affect your redemption. For all other
sales transactions, follow the
instructions below.
By telephone 1. Call 1-800-852-0045 with
(UNLESS YOU HAVE instructions as to how you wish to
DECLINED TELEPHONE receive your funds (mail, wire,
SALES PRIVILEGES) electronic transfer). (See "General
Policies on Selling Shares--Verifying
Telephone Redemptions" below)
- --------------------------------------------------------------------------------
By mail 1. Call 1-800-852-0045 to request
redemption forms or write a letter of
instruction indicating:
o your Fund and account number
o amount you wish to redeem
o address where your check should be
sent
o account owner signature
2. Mail to:
ISG Funds
c/o BISYS Fund Services, Inc.
P. O. Box 182239
Columbus, Ohio 43218-2239
- --------------------------------------------------------------------------------
By overnight service See instruction 1 above.
(See "General 2. Send to
Policies on Selling ISG Funds
Shares--Redemptions c/o BISYS Fund Services, Inc.
in Writing Required" Attn: T.A. Operations
below) 3435 Stelzer Road
Columbus, Ohio 43219
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
Wire transfer Call 1-800-852-0045 to request a wire
YOU MUST INDICATE THIS OPTION transfer.
ON YOUR APPLICATION. If you call by 4 p.m. Eastern time,
your payment will normally be wired
The Fund may charge a wire to your bank on the next business day.
transfer fee.
Note: Your financial
institution may
also charge a
separate fee.
- --------------------------------------------------------------------------------
Electronic Call 1-800-852-0045 to request an
Redemptions electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the
the Automated Clearing House NAV of your shares will normally be
(ACH) and must be a U.S. determined ion the same day and the
bank. proceeds credited within 8 days.
Your bank may charge for this
service.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:
o Make sure you've checked the appropriate box on the account application. Or
call 1-800-852-0045.
o Include a voided personal check.
o Your account must have a value of $5,000 or more to start withdrawals.
o If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
REDEMPTION BY CHECK WRITING - PRIME MONEY MARKET FUND CLASS A
SHARES ONLY
You may write checks in amounts of $500 or more on your account in the Prime
Money Market Fund. To obtain checks, complete the signature card section of the
Account Application or contact the Prime Money Market Fund to obtain a signature
card. Dividends and distributions will continue to be paid up to the day the
check is presented for payment. The check writing feature may be modified or
terminated upon 30-days' written notice. You must maintain the minimum required
account balance in Class A shares of the Prime Money Market Fund of $500 and you
may not close your Prime Money Market Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following
situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of the
following.
o Redemptions over $10,000
o Your account registration or the name(s) in your account has changed
within the last 15 days o The check is not being mailed to the address on
your account
o The check is not being made payable to the owner of the
account
o The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as
a bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock
Exchange Signature Program) or SEMP (Stock Exchanges Medallion Program).
Members are subject to dollar limitations which must be considered when
requesting their guarantee. The Transfer Agent may reject any signature
guarantee if it believes the transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT Before selling recently
purchased shares, please note that if your initial investment was by check, the
Fund may delay sending you the proceeds until the Transfer Agent is satisfied
that the check has cleared (which may require up to 15 business days). You can
avoid this delay by purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you might have to pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Fund may ask you to increase your balance.
If it is still below $500 after 45 days, the Fund may close your account and
send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in the Fund.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and distribution fees you will pay as
an investor in Class A or Class B shares and ways to qualify for reduced sales
charges.
CALCULATION OF SALES CHARGES
CLASS A SHARES
Class A shares are sold at their public offering price. This price includes the
initial sales charge. Therefore, part of the money you invest will be used to
pay the sales charge. The remainder is invested in Fund shares. The sales charge
decreases with larger purchases. Shareholders owning Class A shares on or prior
to September 30, 1997 may be eligible for lower sales charges; consult your
investment representative or see the Statement of Additional Information. There
is no sales charge on reinvested dividends and distributions.
The current sales charge rates are as follows:
FOR THE EQUITY FUNDS, AGGRESSIVE GROWTH PORTFOLIO, GROWTH
PORTFOLIO, GROWTH & INCOME PORTFOLIO
AND MODERATE GROWTH & INCOME PORTFOLIO
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- --------------------------------------------------------------------------------
Up to $49,999 4.75% 4.99%
- --------------------------------------------------------------------------------
$50,000 up to $99,999 4.00% 4.17%
- --------------------------------------------------------------------------------
$100,000 up to 3.25% 3.36%
$249,999
- --------------------------------------------------------------------------------
$250,000 up to 2.50% 2.56%
$499,999
- --------------------------------------------------------------------------------
$500,000 up to 1.75% 1.78%
$999,999
- --------------------------------------------------------------------------------
$1,000,000 and above1 0.00% 0.00%
- --------------------------------------------------------------------------------
FOR THE FIXED INCOME FUNDS, TAX-EXEMPT FIXED INCOME FUNDS AND CURRENT INCOME
PORTFOLIO
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- -------------------------------------------------------------------------------
Up to $49,999 3.00% 3.09%
- -------------------------------------------------------------------------------
$50,000 up to $99,999 2.50% 2.56%
- -------------------------------------------------------------------------------
$100,000 up to 2.00% 2.04%
$249,999
- -------------------------------------------------------------------------------
$250,000 up to 1.50% 1.52%
$499,999
- -------------------------------------------------------------------------------
$500,000 up to 1.00% 1.01%
$999,999
- -------------------------------------------------------------------------------
$1,000,000 and above1 0.00% 0.00%
- -------------------------------------------------------------------------------
- --------
1 There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of 1.00% will be charged
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 million and redeemed within one year of purchase. This charge will be
based on the lower of your cost for the shares or the shares' NAV at the
time of redemption. There is no CDSC on reinvested distributions. The
Distributor may pay financial representatives an amount up to 1% of the net
asset value of Class A shares purchased by their clients that are subject
to a CDSC.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
CLASS B SHARES
Class B shares are offered at NAV, without any up-front sales charge. Therefore,
all the money you invest is used to purchase Fund shares. However, if you sell
your Class B shares before the sixth anniversary of purchase, you will have to
pay a contingent deferred sales charge (CDSC) at the time of redemption. The
CDSC will be based on the lower of the NAV at the time of purchase or the NAV at
the time of redemption according to the schedule below. There is no CDSC on
reinvested dividends or distributions.
ALL FUNDS - CLASS B SHARES
- --------------------------------------------------------------------------------
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
- --------------------------------------------------------------------------------
0-1 4.00%
1-2 3.00%
2-3 3.00%
3-4 2.00%
4-5 2.00%
5-6 1.00%
more than 6 None
- --------------------------------------------------------------------------------
If you sell some but not all of your Class B shares, certain shares not subject
to the CDSC (i.e., shares purchased with reinvested dividends) will be redeemed
first, followed by shares subject to the lowest CDSC (typically shares held for
the longest time).
CONVERSION FEATURE - CLASS B SHARES
o Class B shares automatically convert to Class A shares of the same Fund
after seven years from the end of the month of purchase.
o After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares which will increase
your investment return compared to the Class B shares.
o You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
o If you purchased Class B shares of one Fund which you exchanged for Class B
shares of another Fund, your holding period will be calculated from the
time of your original purchase of Class B shares of the first Fund. The
dollar value of Class A shares you receive will equal the dollar value of
the Class B shares converted.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with
investments of $50,000 or more. In addition, you may qualify for reduced sales
charges under the following circumstances.
o Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.
o Rights of Accumulation. Additional investments will qualify for reduced
sales charges, when the value of shares you already own plus the amount of
your added investment reaches the designated amount for the reduced sales
charge.
o Combination Privilege. You inform the Fund in writing that you are eligible
to combine accounts of multiple Funds or accounts of immediate family
household members (spouse and children under 21) to achieve reduced sales
charges.
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers or reductions of sales charges:
o Shares purchased by investment representatives through fee-based investment
products or accounts.
o Proceeds from redemptions from another mutual fund complex within 90 days
after redemption, if you can demonstrate to the Fund that you paid a sales
charge for those shares, to the extent of such charge.
o Reinvestment of distributions from a deferred compensation plan, agency,
trust, or custody account that was maintained by the Adviser or its
affiliates or invested in any ISG Fund.
o Shares purchased for trust or other advisory accounts established with the
Adviser or its affiliates.
o Shares purchased by full-time employees (and their family members) of the
Adviser or the Administrator; current and retired directors of the Adviser
or any of its affiliates; current and retired Fund directors; dealers who
have an agreement with the Distributor; and any trade organization to which
the Adviser or the Administrator belongs.
REINSTATEMENT PRIVILEGE
If you have sold Class A or B shares and decide to reinvest in the Fund within a
90-day period, you will not be charged the applicable sales load on amounts up
to the value of the shares you sold. You must provide a written reinstatement
request and payment within 90 days of the date your instructions to sell were
processed.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
CLASS B SHARES
The CDSC will be waived under certain circumstances, including the following:
o Distributions from retirement plans if the distributions are made following
the death or disability of shareholders or plan participants.
o Redemptions from accounts other than retirement accounts following the
death or disability of the shareholder.
o Returns of excess contributions to retirement plans.
o Distributions of less than 10% of the annual account value under a
Systematic Withdrawal Plan.
o Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
DISTRIBUTION (12B-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares. Because 12b-1 fees are paid from Fund assets on an ongoing
basis, over time they will increase the cost of your investment and may cost you
more than paying other types of sales charges.
o The 12b-1 fees vary by share class as follows:
o Class A shares (other than the Money Market Funds) pay a
12b-1 fee of .25% of the average daily net assets represented by Class A of
the Fund.
o Class B shares (other than the Treasury Money Market Fund) pay a 12b-1 fee
of .75% of the average daily net assets represented by Class B of the Fund.
This will cause expenses for Class B shares to be higher and dividends to
be lower than for Class A shares.
o The higher 12b-1 fee on Class B shares, together with the CDSC, help
the Distributor sell Class B shares without an "up-front" sales charge.
In particular, these fees help to defray the Distributor's costs of
advancing brokerage commissions to investment representatives.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution fees.
<PAGE>
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
INSTRUCTIONS FOR EXCHANGING SHARES
You can exchange your Exchanges may be made by sending a written
shares in one Fund for request to ISG Funds, P.O. Box 182239,
shares of the same class of Columbus Ohio 43218-2239, or by calling
another ISG Fund, usually 1-800-852-0045. Please provide the following
without paying additional information:
sales charges (see "Notes" o Your name and telephone number
below). No transaction fees o The exact name on your account and
are charged for exchanges. account number
o Taxpayer identification number (usually)
You must meet the minimum your Social Security number)
requirements for the Fund o Dollar value or number of shares to be
into which you are exchanged
exchange. Exchanges from o The name of the Fund from which the
one Fund to another are exchange is to be made
taxable. o The name of the Fund into which the
exchange is being made.
See "Selling your Shares" for important
information about telephone transactions.
IMPORTANT INFORMATION ABOUT EXCHANGES. If
shares of the Fund are purchased by check,
those shares cannot be exchanged until the
check has cleared. This could take 15 days or
more. The Fund may reject an exchange request
from a shareholder who has made more than
five exchanges between investment portfolios
offered by Fund management in a year, or more
than three exchanges in a calendar quarter.
Although unlikely, the Funds may reject any
exchanges or, upon 60-days' notice
shareholders, change or terminate the
exchange privilege. The exchange privilege is
available only in states where shares of the
new Fund may be sold.
<PAGE>
AUTOMATIC EXCHANGES NOTES ON EXCHANGES
You can use the Funds' Automatic When exchanging from a Fund that has no sales
Exchange feature to purchase charge or a lower sales charge to a Fund with
shares of the Funds at regular a higher sales charge, you will pay the
intervals through regular, difference.
automatic redemptions from the
Money Market Funds. To The registration and tax identification
participate in the Automatic numbers of the two accounts must be
Exchange: identical.
o Complete the appropriate
section of the Account The Exchange Privilege (including automatic
Application. exchanges) may be changed or eliminated at
o Keep a minimum of $10,000 any time upon 60 days' notice to
in the Money Market Fund and shareholders.
$1,000 in the Fund whose
shares you are buying. Be sure to read the prospectus carefully of
any Fund into which you wish to exchange
Shareholders investing directly shares.
in Class B shares of the Prime
Money Market Fund, as opposed
to through an exchange, will be
required to participate in the
Auto-Exchange Plan and to
establish the time and amount
of their automatic exchanges
such that all of the Class B
shares of the Prime Money Market
Fund so purchased will have been
exchanged for Class B shares of
the other Funds within two years
of purchase. No CDSC will be
imposed at the time of the
exchange; however, the Class B
shares acquired through an
exchange will be subject on
redemption to the applicable
CDSC, which will be calculated
from the date of the initial
purchase of the Class B shares
exchanged.
To change the Automatic Exchange
instructions or to discontinue
the feature, you must send a
written request to ISG Funds,
P.O. Box 182239, Columbus,
Ohio 43218-2239.
<PAGE>
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
All dividends and distributions will be automatically reinvested in Fund shares
unless you request otherwise. There are no sales charges for reinvested
dividends and distributions. Each share class will generate a different dividend
because each has different expenses. Capital gains, if any, are distributed at
least annually.
Each Fund usually pays its shareholders dividends from its net investment income
as follows:
<TABLE>
<CAPTION>
MONTHLY QUARTERLY ANNUALLY
<S> <C> <C>
o Equity Income Fund o Large-Cap Equity Fund o International Equity Fund
o Income Fund o Capital Growth Fund
o Government Income Fund o Small-Cap Opportunity Fund
o Limited Term Income Fund o Mid-Cap Fund
o Limited Term U.S. Government Fund o Aggressive Growth Portfolio
o Municipal Income Fund o Growth Portfolio
o Tennessee Tax-Exempt Fund o Growth & Income Portfolio
o Limited Term Tennessee Tax-Exempt Fund o Moderate Growth & Income Portfolio
o Treasury Money Market Fund
o Government Money Market Fund
o Tax-Exempt Money Market Fund
o Prime Money Market Fund
o Current Income Portfolio
</TABLE>
Dividends paid by a Fund (other than a tax-exempt fund) are taxable to U.S.
shareholders as ordinary income (unless your investment is in an IRA or
tax-advantaged account). The Tax-Exempt Fixed Income Funds anticipate that,
under normal market conditions, substantially all of their income dividends will
be exempt from Federal and, for the Tennessee Tax-Exempt Fund and Limited Term
Tennessee Tax-Exempt Fund, Tennessee personal income taxes. However, any
dividends from taxable investments are taxable as ordinary income.
Except for tax-deferred accounts, any sale or exchange of Fund shares may
generate a tax liability. Of course, withdrawals or distributions from
tax-deferred accounts are taxable when received.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated in the same manner for Federal income tax purposes whether you receive
them in cash or in additional shares.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED
YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME
OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A DISTRIBUTION.
You will be notified in January each year about the Federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Because everyone's tax situation is unique, you should consult your tax
professional about Federal, state and local tax consequences.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds'
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions. The information in the financial highlights has been audited by
KPMG Peat Marwick LLP, the Funds' independent auditors, whose report, along with
the Funds' financial statements, are included in the annual report, which is
available upon request. No financial information is provided for shares of Funds
which had not been offered as of December 31, 1998.
<PAGE>
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
DECEMBER 31, FEBRUARY 28,
1998(B) 1998(A)
<S> <C> <C>
Net asset Value, Beginning of Period $ 10.46 $10.00
-------- --------
Investment Activities
Net investment income (loss) 0.03 (0.02)
Net realized and unrealized gains (losses) from
investment and foreign currencies 0.12 0.49
-------- --------
Total from Investment Activities 0.15 0.47
------- -------
Distributions
Net investment income (0.03) -
In excess of net investment income - (0.01)
-------- --------
Total Distributions (0.03) (0.01)
-------- --------
Net change in asset value 0.12 0.46
------ ------
Net asset Value, end of Period $ 10.58 $ 10.46
======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE) 1.42%(c) 4.71%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 149 $ 26,533
Ratio of expenses to average net assets 1.81%(d) 1.77%(d)
Ratio of net investment income (loss) 0.71%(d) -0.48%(d)
to average net assets
Ratio of expenses to average net assets* 2.16%(d) 2.27%(d)
Portfolio Turnover** 62% 21%
- ------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED. **
PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (A) FOR THE
PERIOD FROM AUGUST 15, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH FEBRUARY
28, 1998. (B) FOR THE PERIOD FROM MARCH 1, 1998 THROUGH DECEMBER 31, 1998.
IN CONNECTION WITH ITS REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END
TO DECEMBER 31. (C) NOT ANNUALIZED. (D) ANNUALIZED.
</TABLE>
<PAGE>
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
PERIOD ENDED
DECEMBER 31,
1998 (A)
-----------------
Net Asset Value, Beginning of Period $10.05
---------
Investment Activities
Net investment income (loss) (0.01)
Net realized and unrealized
gains (losses) from investments
and foreign currencies 0.54
Total from Investment Activities 0.53
Distributions
Net investment income -
----------
Total Distributions -
----------
Net change in asset value 0.53
Net Asset Value, End of Period $ 10.58
==========
TOTAL RETURN 5.27% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $27,977
Ratio of expenses to average net assets 1.61% (c)
Ratio of net investment income (loss) to
average net assets -1.47% (c)
Ratio of expenses to average net
assets* 1.89% (c)
PORTFOLIO TURNOVER** 62%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (A) PERIOD
FROM DECEMBER 14, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
1998. (B) NOT ANNUALIZED. (C) ANNUALIZED.
<PAGE>
SMALL-CAP OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended Year Ended Year Ended
December 31, February 28, February 28, February 28, February 28,
1998(d) 1998 1997 1996 1995(a)
------------------ -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 15.84 $ 13.53 $ 12.79 $ 11.15 $ 10.00
------------------ -------------- -------------- -------------- ---------------
Investment Activities
Net investment income (loss) (0.42) (0.05) (0.03) - 0.02
Net realized and
unrealized gains
(losses) from investments (1.61) 4.90 1.60 3.30 1.17
------------------ --------------- -------------- -------------- ---------------
Total from Investment Activities (2.03) 4.85 1.57 3.30 1.19
------------------ -------------- -------------- -------------- ---------------
Distributions
Net investment income - - - - (0.02)
Net realized gains (0.88) (2.54) (0.83) (1.66) (0.02)
------------------ -------------- -------------- -------------- ---------------
Total Distributions (0.88) (2.54) (0.83) (1.66) (0.04)
------------------ -------------- -------------- -------------- ---------------
Net change in asset value (2.91) 2.31 0.74 1.64 1.15
------------------ -------------- -------------- -------------- ---------------
Net Asset Value, End of Period $ 12.93 $ 15.84 $13.53 $ 12.79 $11.15
================== ============== ============== ============== ===============
TOTAL RETURN (EXCLUDES SALES
CHARGE) -13.00% (b) 37.81% 12.08% 31.42% 11.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 11,145 $ 122,872 $ 80,527 $ 53,477 $ 36,664
Ratio of expenses to average net
assets 1.38% (c) 1.20% 1.14% 1.17% 0.79%(c)
Ratio of net investment income (loss)
to average net assets -0.42% (c) -0.39% -0.24% 0.00% 0.06%(c)
Ratio of expenses to average net
assets* 1.39% (c) 1.31% 1.30% 1.52% 2.13%(c)
PORTFOLIO TURNOVER** 110% 180% 116% 154% 45%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(a) FOR THE PERIOD FROM AUGUST 1, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH
FEBRUARY 28, 1995. (b) NOT ANNUALIZED. (c) ANNUALIZED.
(d) FOR THE PERIOD MARCH 1, 1998 TO DECEMBER 31, 1998. IN CONNECTION WITH ITS
REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER 31.
</TABLE>
<PAGE>
SMALL-CAP OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
-------------
Net Asset Value, Beginning of Period $12.38
Investment Activities
Net realized and unrealized gains (losses) from investments 0.56
----
Total from Investment Activities 0.56
Distributions
Net investment income -
Total Distributions -
----
Net change in net asset value 0.56
----
Net Asset Value, End of Period $12.94
=======
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 4.52%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $8
Ratio of expenses to average net assets 1.36%(c)
Ratio of net investment income (loss) to average net assets -0.45%(c)
Ratio of expenses to average net assets* 2.35%(c)
PORTFOLIO TURNOVER** 110%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(a) FOR THE PERIOD FROM DECEMBER 21, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1998. (b) NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
SMALL-CAP OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
-------------
Net Asset Value, Beginning of Period $ 11.85
-------
Investment Activities
Net realized and unrealized gains (losses) from
investments 1.08
-------
Total from Investment Activities 1.08
-------
Distributions
Net investment income -
Total Distributions -
Net change in asset value 1.08
Net Asset Value, End of Period $ 12.93
=======
TOTAL RETURN 9.11%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $96,301
Ratio of expenses to average net assets 1.33%(c)
Ratio of net investment income to average net assets -0.54%(c)
Ratio of expenses to average net assets* 1.48%(c)
PORTFOLIO TURNOVER* 110%
- ----------------------------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
DECEMBER 14, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 (a)
---------------------- --------------------- -------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.80 $ 11.32 $ 10.00
----- ----- -----
Investment Activities
Net investment income (loss) (0.01) 0.06 -
Net realized and unrealized gains (losses) from
investments 3.89 3.40 1.32
---- ---- ----
Total from Investment Activities 3.88 3.46 1.32
---- ---- ----
Distributions
Net investment income - (0.06) -
------
Net realized gains (2.48) (1.92) -
----- ------
Total Distributions (2.48) (1.98) -
------ ------
Net change in asset value 1.40 1.48 1.32
---- ----
Net Asset Value, End of Period $ 14.20 $ 12.80 $ 11.32
================ ================ =================
TOTAL RETURN (EXCLUDES SALES CHARGE) 32.05% 30.79% 13.20% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 4,631 $ 858 $ 49,008
Ratio of expenses to average net assets 1.28% 0.93% 1.20% (c)
Ratio of net investment income (loss) to average
net assets -0.19% 0.42% -0.02% (c)
Ratio of expenses to average net assets* 1.29% 1.18% 1.39% (c)
PORTFOLIO TURNOVER** 152% 116% 69%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
APRIL 1, 1996 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1996. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
----------------
Net Asset Value, Beginning of Period $13.10
-----------
Investment Activities
Net investment income (loss) (0.05)
Net realized and unrealized gains (losses) from investments 3.35
-----------
Total from Investment Activities 3.30
-----------
Distributions
Net realized gains (2.48)
-----------
Total Distributions (2.48)
-----------
Net change in net asset value 0.82
-----------
Net Asset Value, End of Period $13.92
===========
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 26.86%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $2,854
Ratio of expenses to average net assets 2.04%(c)
Ratio of net investment income (loss) to average net assets -0.95%(c)
PORTFOLIO TURNOVER* 152%
* PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(a) FOR THE PERIOD FROM FEBRUARY 5, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1998. (b) NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 (a)
<S> <C> <C>
Net Asset Value, Beginning of Period $ 12.69 $ 14.51
Investment Activities ------------ ------------
Net Investment Income 0.01 0.02
Net realized and unrealized gains from investments 3.88 0.10
------------ ------------
Total from Investment Activities 3.89 0.12
Distributions
Net investment income (0.01) (0.02)
Net realized gains (2.48) (1.92)
Total Distributions (2.49) (1.94)
Net change in asset value 1.40 (1.82)
Net Asset Value, End of Period $ 14.09 $ 12.69
================== =============
TOTAL RETURN 32.40% 0.88% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 173,542 $ 41,761
Ratio of expenses to average net assets 1.02% 0.58% (c)
Ratio of net investment income (loss) to average net assets 0.07% 0.80% (c)
Ratio of expenses to average net assets* 1.03% 0.99% (c)
PORTFOLIO TURNOVER** 152% 116%
- --------------------
*DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY FEE
REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
**PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
OCTOBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997 (b) NOT
ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
LARGE-CAP EQUITY FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998(A) 1998 1997 1996 1995 1994
---------------- --------------- --------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, $23.01 $16.68 $14.49 $11.41 $10.87 $10.54
Beginning of Period ---------------- --------------- --------------- ---------------- ------------- -------------
Investment Activities
Net investment income 0.05 0.11 0.14 0.16 0.16 0.14
Net realized and unrealized
gains (losses) from investments 5.79 6.48 2.54 3.63 0.71 0.38
---------------- --------------- --------------- ---------------- ------------- -------------
Total from Investment Activities 5.84 6.59 2.68 3.79 0.87 0.52
---------------- --------------- --------------- ---------------- ------------- -------------
Distributions
Net investment income (0.05) (0.11) (0.14) (0.17) (0.16) (0.14)
Net realized gains (1.25) (0.15) (0.35) (0.54) (0.17) (0.05)
---------------- --------------- --------------- ---------------- ------------- -------------
Total Distributions (1.30) (0.26) (0.49) (0.71) (0.33) (0.19)
---------------- --------------- --------------- ---------------- ------------- -------------
Net change in asset value 4.54 6.33 2.19 3.08 0.54 0.33
---------------- --------------- --------------- ---------------- ------------- -------------
Net Asset Value, End of Period $27.55 $23.01 $16.68 $14.49 $11.41 $10.87
================ =============== =============== ================ ============= =============
TOTAL RETURN (EXCLUDES 25.83%(b) 39.74% 18.79% 33.73% 8.23% 4.99%
SALES CHARGE)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000) $57,772 $ 715,631 $ 490,392 $385,145 $ 259,998 $ 284,203
Ratio of expenses to 1.03%(c) 0.99% 0.92% 0.94% 0.95% 0.96%
average net assets
Ratio of net investment 0.21%(c) 0.54% 0.95% 1.24% 1.54% 1.38%
income to average net assets
Ratio of expenses to (d) (d) (d) (d) (d) 0.97%
average net assets*
PORTFOLIO TURNOVER** 3% 6% 7% 15% 1% 7%
- ----------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(a) FOR THE PERIOD FROM MARCH 1, 1998 THROUGH DECEMBER 31, 1998. IN CONNECTION
WITH ITS REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER 31.
(b) NOT ANNUALIZED. (c) ANNUALIZED. (d) THERE WERE NO FEE REDUCTIONS IN THIS
PERIOD.
</TABLE>
<PAGE>
LARGE-CAP EQUITY FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
--------------
Net Asset Value, Beginning of Period $25.98
Investment Activities
Net realized and unrealized gains (losses) from investments 1.56
----
Total from Investment Activities 1.56
----
Distributions
Net investment income -
Total Distributions -
---
Net change in net asset value 1.56
----
Net Asset Value, End of Period $ 27.54
========
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 6.02%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $100
Ratio of expenses to average net assets 1.10%(c)
Ratio of net investment income to average net assets 0.23%(c)
Ratio of expenses to average net assets* 2.11% (c)
PORTFOLIO TURNOVER** 3%
- ---------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD
FROM DECEMBER 15, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
1998. (b) NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
LARGE-CAP EQUITY FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
--------------
Net Asset Value, Beginning of Period $25.52
--------------
Investment Activities
Net realized and unrealized gains (losses) from investments 2.02
--------------
Total from Investment Activities 2.02
--------------
Distributions
Net investment income -
--------------
Total Distributions -
--------------
Net change in asset value 2.02
--------------
Net Asset Value, End of Period $27.54
==============
TOTAL RETURN 7.92%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 786,462
Ratio of expenses to average net assets 1.04%(c)
Ratio of net investment income to average net assets 0.20%(c)
Ratio of expenses to average net assets* 1.09%(c)
PORTFOLIO TURNOVER** 3%
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(a) FOR THE PERIOD FROM DECEMBER 14, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1998. (b) NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 (A)
------------------- ----------------
<S> <C> <C>
Net Asset Value, Beginning of Period $10.37 $10.00
------------------- -----------------
Investment Activities
Net investment income 0.10 0.65
Net realized and unrealized gains (losses) from investments 1.81 1.71
------------------- -----------------
Total from Investment Activities 1.91 2.36
------------------- -----------------
Distributions
Net investment income (0.10) (0.19)
Net realized gains (2.13) (1.80)
------------------- -----------------
Total Distributions (2.23) (1.99)
------------------- -----------------
Net change in asset value (0.32) 0.37
------------------- -----------------
Net Asset Value, End of Period $10.05 $10.37
=================== ========================
TOTAL RETURN (EXCLUDES SALES CHARGE) 19.46% 24.20%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $3,658 $388
Ratio of expenses to average net assets 1.45% 1.06%(c)
Ratio of net investment income to average net assets 0.86% 2.11%(c)
Ratio of expenses to average net assets* 1.45% 1.31%(c)
PORTFOLIO TURNOVER** 159% 86%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 28, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
------------------
Net Asset Value, Beginning of Period $10.63
------------------
Investment Activities
Net investment income 0.04
Net realized and unrealized gains (losses) from investments 1.54
------------------
Total from Investment Activities 1.58
------------------
Distributions
Net investment income (0.04)
Net realized gains (2.13)
------------------
Total Distributions (2.17)
------------------
Net change in net asset value (0.59)
------------------
Net Asset Value, End of Period $10.04
==================
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 15.79%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $4,189
Ratio of expenses to average net assets 2.20%(c)
Ratio of net investment income to average net assets 0.12%(c)
PORTFOLIO TURNOVER* 159%
- ----------------------
* PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 3, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
<PAGE>
EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 (a)
-------------------- ------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.37 $ 11.73
-------------------- -----------------
Investment Activities
Net investment income 0.13 0.06
Net realized and unrealized gains (losses) from investments 1.81 0.44
-------------------- ------------------
Total from Investment Activities 1.94 0.50
-------------------- ------------------
Distributions
Net investment income (0.13) (0.06)
Net realized gains (2.13) (1.80)
-------------------- ------------------
Total Distributions (2.26) (1.86)
-------------------- -------------------
Net change in asset value (0.32) (1.36)
-------------------- -------------------
Net Asset Value, End of Period $ 10.05 $ 10.37
==================== ===================
TOTAL RETURN 19.72% 4.62%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 75,842 $ 67,949
Ratio of expenses to average net assets 1.16% 0.68%(c)
Ratio of net investment income to average net assets 1.14% 2.15%(c)
Ratio of expenses to average net assets* 1.17% 1.09%(c)
PORTFOLIO TURNOVER** 159% 86%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
OCTOBER 3, 1997 (COMMENCEMENT OF OPERATIONS THROUGH DECEMBER 31, 1997. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 (a)
---------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.25 $ 10.00 $ 10.00
---------------------- ----------------------- ---------------------
Investment Activities
Net investment income 0.54 0.58 0.40
Net realized and unrealized gains (losses) from investments 0.29 0.26 -
---------------------- ----------------------- ---------------------
Total from Investment Activities 0.83 0.84 0.40
---------------------- ----------------------- ---------------------
Distributions
Net investment income (0.54) (0.59) (0.40)
Net realized gains (0.14) - -
In excess of net realized gains (0.01) - -
----------------------- ----------------------- ---------------------
Total Distributions (0.69) (0.59) (0.40)
----------------------- ----------------------- ---------------------
Net change in asset value 0.14 0.25 -
-------------------------- ----------------------- ---------------------
Net Asset Value, End of Period $ 10.39 $ 10.25 $ 10.00
========================== ======================= =====================
TOTAL RETURN (EXCLUDES SALES CHARGE) 8.28% 8.66% 4.12%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 2,624 $ 95 $ 38,815
Ratio of expenses to average net assets 1.24% 0.87% 1.13%(c)
Ratio of net investment income to average net assets 5.07% 5.74% 5.37%(c)
Ratio of expenses to average net assets* 1.24% 1.12% 1.32%(c)
PORTFOLIO TURNOVER** 42% 56% 65%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
APRIL 1, 1996 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1996. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (A)
-----------------
Net Asset Value, Beginning of Period $10.32
-----------------
Investment Activities
Net investment income 0.43
Net realized and unrealized gains (losses) from investments 0.21
-----------------
Total from Investment Activities 0.64
-----------------
Distributions
Net investment income (0.43)
Net realized gains (0.14)
In excess of net realized gains (0.01)
-----------------
Total Distributions (0.58)
-----------------
Net change in net asset value 0.06
-----------------
Net Asset Value, End of Period $10.38
=================
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 6.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $1,241
Ratio of expenses to average net assets 1.98%(c)
Ratio of net investment income to average net assets 4.29%(c)
PORTFOLIO TURNOVER* 42%
- -------------------------------
* PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 4, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
<PAGE>
INCOME FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 (a)
-------------- ---------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.25 $ 10.16
-------------- ---------------
Investment Activities
Net investment income 0.56 0.16
Net realized and unrealized gains (losses) from investments 0.29 0.09
--------------- ---------------
Total from Investment Activities 0.85 0.25
---------------- ---------------
Distributions
Net investment income (0.56) (0.16)
Net realized gains (0.14) -
In excess of net realized gains (0.01) -
----------------- ---------------
Total Distributions (0.71) (0.16)
------------------ ---------------
Net change in asset value 0.14 0.09
------------------ ---------------
Net Asset Value, End of Period $ 10.39 $ 10.25
================== ===============
TOTAL RETURN 8.55% 2.45% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 78,105 $71,991
Ratio of expenses to average net assets 0.97% 0.60% (c)
Ratio of net investment income to average net assets 5.41% 6.28% (c)
Ratio of expenses to average net assets* 0.98% 0.92% (c)
PORTFOLIO TURNOVER** 42% 56%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTION HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
OCTOBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997. (b) NOT
ANNUALIZED. (c) ANNUALIZED
</TABLE>
<PAGE>
GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998(A) 1998 1997 1996 1995 1994
-------------- ------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.07 $ 9.69 $ 9.87 $ 9.47 $ 9.90 $ 10.25
-------------- ------------- ------------ ------------- ------------- -----------
Investment Activities 0.45 0.55 0.57 0.58 0.54 0.55
Net investment income
Net realized and unrealized
gains (losses) from investments 0.31 0.38 (0.18) 0.41 (0.44) (0.09)
------------- ------------- ------------ ------------ ------------ ----------
Total from Investment Activities 0.76 0.93 0.39 0.99 0.10 0.46
------------- ------------- ------------ ------------ ------------ ---------
Distributions
Net investment income (0.45) (0.55) (0.57) (0.59) (0.53) (0.55)
Net realized gains - - - - (0.25)
In excess of net realized gains - - - - - (0.01)
------------- ------------- ------------ ------------ ------------ --------
Total Distributions (0.45) (0.55) (0.57) (0.59) (0.53) (0.81)
------------- ------------- ------------ ------------ ------------- ---------
Net change in asset value 0.31 0.38 (0.18) 0.40 (0.43) (0.35)
-------------- ------------- ------------ ------------ ------------- ---------
Net Asset Value, End of Period $ 10.38 $ 10.07 $ 9.69 $ 9.87 $ 9.47 $ 9.90
============== ============== ============ ============ ============= =========
TOTAL RETURN (EXCLUDES SALES CHARGE) 7.69%(b) 9.90% 4.07% 10.70% 1.20% 4.55%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1,486 $ 270,404 $ 249,618 $ 184,226 $ 168,313 $ 118,695
Ratio of expenses to average net assets 0.91%(c) 0.80% 0.70% 0.72% 0.68% 0.70%
Ratio of net investment income to 5.28% 5.62% 5.82% 5.96% 5.79% 5.34%
average net assets (d) 0.86% 0.80% 0.82% 0.83% 0.89%
Ratio of expenses to average net assets*
PORTFOLIO TURNOVER** 20% 25% 7% 87% 31% 49%
- ----------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
MARCH 1, 1998 THROUGH DECEMBER 31, 1998. IN CONNECTION WITH ITS REORGANIZATION,
THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER 31. (b) NOT ANNUALIZED.
(c) ANNUALIZED (d) THERE WERE NO FEE REDUCTIONS IN THIS PERIOD.
</TABLE>
<PAGE>
GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
---------------
Net Asset Value, Beginning of Period $ 10.42
---------------
Investment Activities
Net investment income 0.03
Net realized and unrealized gains (losses) from investments (0.06)
---------------
Total from Investment Activities (0.03)
---------------
Distributions
Net investment income (0.03)
---------------
Total Distributions (0.03)
---------------
Net change in asset value (0.06)
---------------
Net Asset Value, End of Period $ 10.36
===============
TOTAL RETURN -0.33%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 293,944
Ratio of expenses to average net assets 0.88%(c)
Ratio of net investment income to average net assets 5.07%(c)
PORTFOLIO TURNOVER* 20%
- --------------------------------
* PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
DECEMBER 14, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
LIMITED TERM INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994 (a)
--------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.99 $9.96 $10.13 $ 9.66 $ 10.00
--------------- -------------- ------------- ------------- --------------
Investment Activities
Net investment income 0.52 0.59 0.58 0.59 0.38
Net realized and unrealized gains
(losses) from investments 0.11 0.04 (0.16) 0.47 (0.34)
--------------- -------------- -------------- ------------- --------------
Total from Investment Activities 0.63 0.63 0.42 1.06 0.04
--------------- -------------- -------------- ------------- --------------
Distributions
Net investment income (0.52) (0.59) (0.58) (0.59) (0.38)
Net realized gains (0.04) (0.01) (0.01) - -
In excess of net realized gains (0.01) - - - -
--------------- -------------- -------------- ------------- --------------
Total Distributions (0.57) (0.60) (0.59) (0.59) (0.38)
--------------- -------------- -------------- ------------- --------------
Net change in asset value 0.06 0.03 (0.17) 0.47 (0.34)
--------------- -------------- -------------- ------------- --------------
Net Asset Value, End of Period $ 10.05 $9.99 $9.96 $ 10.13 $ 9.66
=============== ============== ============== ============= ==============
TOTAL RETURN (EXCLUDES SALES CHARGE) 6.48% 6.47% 4.28% 11.20% 0.42%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 7,484 $ 5,894 $ 98,197 $ 103,382 $ 93,189
Ratio of expenses to average net assets 1.19% 0.83% 0.83% 0.87% 0.83%(c)
Ratio of net investment income to average
net assets 5.17% 5.92% 5.84% 5.89% 5.27%(c)
Ratio of expenses to average net assets* 1.20% 1.09% 1.08% 1.12% 1.28%(c)
PORTFOLIO TURNOVER** 41% 45% 51% 28% 6%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
MARCH 28, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994. (b) NOT
ANNUALIZED. () ANNUALIZED.
</TABLE>
<PAGE>
LIMITED TERM INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
---------------
Net Asset Value, Beginning of Period $ 10.03
-------------
Investment Activities
Net investment income 0.41
Net realized and unrealized gains (losses) from investments 0.06
-------------
Total from Investment Activities 0.47
-------------
Distributions
Net investment income (0.41)
Net realized gains (0.04)
In excess of net realized gains (0.01)
-------------
Total Distributions (0.46)
-------------
Net change in net asset value 0.01
-------------
Net Asset Value, End of Period $ 10.04
=============
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 4.76%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 601
Ratio of expenses to average net assets 1.94%(c)
Ratio of net investment income to average net assets 4.33%(c)
PORTFOLIO TURNOVER* 41%
- --------------------------
* PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 4, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
<PAGE>
LIMITED TERM INCOME FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997(A)
------------------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.98 $10.00
------------------------- -----------------
Investment Activities
Net investment income 0.54 0.15
Net realized and unrealized gains 0.13 (0.01)
(losses) from investments ------------------------- -----------------
Total from Investment Activities 0.67 0.14
------------------------- -----------------
Distributions
Net investment income (0.55) (0.15)
Net realized gains (0.04) (0.01)
In excess of net realized gains (0.01) -
------------------------- -----------------
Total Distributions (0.60) (0.16)
------------------------- -----------------
Net change in asset value 0.07 (0.02)
------------------------- -----------------
Net Asset Value, End of Period $10.05 $9.98
========================= =================
TOTAL RETURN 6.86% 1.36%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (ooo) $ 85,425 $ 84,886
Ratio of expenses to average net assets 0.94% 0.56%(c)
Ratio of net investment income to average net assets 5.43% 6.08%(c)
Ratio of expenses to average net assets* 0.95% 0.87%(c)
PORTFOLIO TURNOVER** 41% 45%
- -------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
OCTOBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
LIMITED TERM U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 (a)
-------------------- ------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.12 $ 10.00
-------------------- -------------------
Investment Activities
Net investment income 0.53 0.42
Net realized and unrealized gains (losses) from investments 0.14 0.12
-------------------- -------------------
Total from Investment Activities 0.67 0.54
-------------------- -------------------
Distributions
Net investment income (0.53) (0.42)
Net realized gains (0.01) -
-------------------- -------------------
Total Distributions (0.54) (0.42)
-------------------- -------------------
Net change in asset value 0.13 0.12
-------------------- -------------------
Net Asset Value, End of Period $ 10.25 $ 10.12
==================== ===================
TOTAL RETURN (EXCLUDES SALES CHARGE) 6.69% 5.54%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 2,437 $ 20,103
Ratio of expenses to average net assets 1.02% 1.00%(c)
Ratio of net investment income to average net assets 5.16% 5.34%(c)
Ratio of expenses to average net assets* 1.54% 1.62%(c)
PORTFOLIO TURNOVER** 86% 52%
- ------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 28, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
LIMITED TERM U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
---------------
Net Asset Value, Beginning of Period $ 10.12
---------------
Investment Activities
Net investment income 0.35
Net realized and unrealized gains (losses) from investments 0.15
---------------
Total from Investment Activities 0.50
---------------
Distributions
Net investment income (0.35)
Net realized gains (0.01)
---------------
Total Distributions (0.36)
---------------
Net change in net asset value 0.14
---------------
Net Asset Value, End of Period $ 10.26
===============
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 4.98% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 430
Ratio of expenses to average net assets 1.97% (c)
Ratio of net investment income to average net assets 4.01% (c)
Ratio of expenses to average net assets* 2.24% (c)
PORTFOLIO TURNOVER** 86%
- ------------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
MARCH 3, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
<PAGE>
LIMITED TERM U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
PERIOD ENDED
DECEMBER 31,
1998 (A)
-------------------
Net Asset Value, Beginning of Period $ 10.29
-------------------
Investment Activities
Net investment income 0.03
Net realized and unrealized gains (losses)
from investments (0.04)
-------------------
Total from Investment Activities (0.01)
-------------------
Distributions
Net Investment income (0.03)
-------------------
Total Distributions (0.03)
-------------------
Net change in asset value (0.04)
-------------------
Net Asset Value, End of Period $ 10.25
===================
TOTAL RETURN -0.14%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 46,344
Ratio of expenses to average net assets 0.69%(c)
Ratio of net investment income to average net
assets 5.29%(c)
Ratio of expenses to average net assets* 0.96%(c)
PORTFOLIO TURNOVER** 86%
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
DECEMBER 14, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
TENNESSEE TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31, 31,
1998 1997 1996 1995 1994(A)
--------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.18 $ 9.90 $ 10.19 $ 9.40 $ 10.00
--------------- -------------- --------------- -------------- ----------------
Investment Activities
Net investment income 0.35 0.44 0.42 0.45 0.34
Net realized and unrealized gains
(losses) from investments 0.08 0.25 (0.29) 0.79 (0.60)
--------------- -------------- --------------- -------------- ----------------
Total from Investment Activities 0.43 0.69 0.13 1.24 (0.26)
--------------- -------------- --------------- -------------- ----------------
Distributions
Net investment income (0.35) (0.41) (0.42) (0.45) (0.34)
Net realized gains (0.07) - - - -
Total Distributions (0.42) (0.41) (0.42) (0.45) (0.34)
--------------- -------------- --------------- -------------- ----------------
Net change in asset value 0.01 0.28 (0.29) 0.79 (0.60)
--------------- -------------- --------------- -------------- ----------------
Net Asset Value, End of Period $ 10.19 $ 10.18 $ 9.90 $ 10.19 $ 9.40
=============== ============== =============== ============== ================
TOTAL RETURN (EXCLUDES SALES CHARGE) 4.25% 7.13% 1.39% 13.40% 2.63%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 2,919 $ 1,669 $ 88,084 $ 94,143 $ 86,127
Ratio of expenses to average net assets 1.20% 0.84% 0.86% 0.87% 0.82%(c)
Ratio of net investment income to
average net assets 3.37% 4.13% 4.29% 4.52% 4.61%(c)
Ratio of expenses to average net assets* 1.20% 1.09% 1.11% 1.12% 1.18%(c)
PORTFOLIO TURNOVER** 155% 253% 219% 188% 0.41%
- --------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
MARCH 28, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
TENNESSEE TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (A)
--------------------
Net Asset Value, Beginning of Period $ 10.22
--------------------
Investment Activities
Net investment income 0.26
Net realized and unrealized gains (losses)
from investments 0.06
--------------------
Total from Investment Activities 0.32
--------------------
Distributions
Net Investment income (0.26)
Net realized gains (0.07)
--------------------
Total Distributions (0.33)
--------------------
Net change in asset value (0.01)
--------------------
Net Asset Value, End of Period $ 10.21
====================
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 3.17%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1,397
Ratio of expenses to average net assets 1.95%(c)
Ratio of net investment income to average net assets 2.50%(c)
PORTFOLIO TURNOVER* 155%
* PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 24, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
TENNESSEE TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 (A)
----------------------- ----------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.18 $ 10.05
----------------------- ----------------------
Investment Activities
Net investment income 0.37 0.10
Net realized and unrealized gains (losses)
from investments 0.08 0.13
----------------------- ----------------------
Total from Investment Activities 0.45 0.23
----------------------- ----------------------
Distributions
Net Investment income (0.37) (0.10)
Net realized gains (0.07) -
----------------------- ----------------------
Total Distributions (0.44) (0.10)
----------------------- ----------------------
Net change in asset value 0.01 0.13
----------------------- ----------------------
Net Asset Value, End of Period $ 10.19 $ 10.18
======================= ======================
TOTAL RETURN 4.52% 2.35%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 91,687 $ 100,742
Ratio of expenses to average net assets 0.95% 0.56%(c)
Ratio of net investment income to average net
assets 3.65% 4.22%(c)
Ratio of expenses to average net assets* 0.95% 0.87%(c)
PORTFOLIO TURNOVER** 155% 253%
- ---------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
OCTOBER 3, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
31, 28, 28, 28, 28, 28,
1998 1998 1997 1996 1995 1994(A)
--------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.89 $ 10.59 $ 10.66 $ 10.15 $ 10.57 $ 10.51
--------------- ------------- ------------- ------------- -------------- -------------
Investment Activities
Net investment income 0.34 0.47 0.49 0.49 0.49 0.48
Net realized and unrealized gains
(losses) from investments 0.14 0.32 (0.07) 0.50 (0.43) 0.08
--------------- ------------- ------------- ------------- -------------- -------------
Total from Investment Activities 0.48 0.79 0.42 0.99 0.06 0.56
--------------- ------------- ------------- ------------- -------------- -------------
Distributions
Net investment income (0.39) (0.47) (0.48) (0.48) (0.48) (0.49)
Net realized gains (0.02) (0.02) (0.01) - - (0.01)
--------------- ------------- ------------- ------------- -------------- -------------
Total Distributions (0.41) (0.49) (0.49) (0.48) (0.48) (0.50)
--------------- ------------- ------------- ------------- -------------- -------------
Net change in asset value 0.07 0.30 (0.07) 0.51 (0.42) 0.06
--------------- ------------- ------------- ------------- -------------- -------------
Net Asset Value, End of Period 10.96 10.89 10.59 10.66 10.15 10.57
=============== ============= ============= ============= ============== =============
TOTAL RETURN (EXCLUDES SALES CHARGE) 4.41%(b) 7.70% 4.12% 9.96% 0.81% 5.34%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1,980 $ 48,579 $ 46,928 $ 44,578 $ 41,542 $ 34,435
Ratio of expenses to average net assets 0.91%(c) 0.76% 0.70% 0.70% 0.75% 0.74%
Ratio of net investment income to
average net assets 4.08%(c) 4.40% 4.69% 4.65% 4.93% 4.60%
Ratio of expenses to average net assets* 1.21%(c) 1.07% 1.16% 1.17% 1.16% 1.41%
PORTFOLIO TURNOVER** 3% 6% 9% 20% 9% 9%
- ------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
MARCH 1, 1998 THROUGH DECEMBER 31, 1998. IN CONNECTION WITH ITS REORGANIZATION,
THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER 31. (b) NOT ANNUALIZED.
(c) ANNUALIZED
</TABLE>
<PAGE>
MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
-------------------
Net Asset Value, Beginning of Period $ 11.01
-------------------
Investment Activities
Net investment income 0.02
Net realized and unrealized gains (losses)
from investments (0.05)
-------------------
Total from Investment Activities (0.03)
-------------------
Distributions
Net Investment income (0.02)
-------------------
Total Distributions (0.02)
-------------------
Net change in asset value (0.05)
-------------------
Net Asset Value, End of Period $ 10.96
===================
TOTAL RETURN -0.25%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 54,578
Ratio of expenses to average net assets 0.90%(c)
Ratio of net investment income to average net assets 4.12%(c)
Ratio of expenses to average net assets* 1.24%(c)
PORTFOLIO TURNOVER** 3%
- ------------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
DECEMBER 14, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
LIMITED TERM TENNESSEE TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 (a) 1997 (a)
--------------------------- ---------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.13 $ 10.00
--------------------------- ---------------------------
Investment Activities
Net investment income 0.32 0.29
Net realized and unrealized gains (losses)
from investments 0.06 0.13
--------------------------- ---------------------------
Total from Investment Activities 0.38 0.42
--------------------------- ---------------------------
Distributions
Net Investment income (0.32) (0.29)
Net realized gains (0.08) -
--------------------------- ---------------------------
Total Distributions (0.40) (0.29)
--------------------------- ---------------------------
Net change in asset value (0.02) 0.13
--------------------------- ---------------------------
Net Asset Value, End of Period $ 10.11 $ 10.13
=========================== ===========================
TOTAL RETURN (EXCLUDES SALES CHARGE) 3.76% 4.26% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 19,439 $ 22,893
Ratio of expenses to average net assets 1.05% 0.98% (c)
Ratio of net investment income to average net
assets 3.11% 3.48% (c)
Ratio of expenses to average net assets* 1.52% 1.52% (c)
PORTFOLIO TURNOVER** 189% 179%
- -----------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 28, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997. (b)
NOT ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
LIMITED TERM TENNESSEE TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (a)
--------------------
Net Asset Value, Beginning of Period $ 10.18
--------------------
Investment Activities
Net investment income 0.20
--------------------
Total from Investment Activities 0.20
--------------------
Distributions
Net Investment income (0.20)
Net realized gains (0.08)
--------------------
Total Distributions (0.28)
--------------------
Net change in asset value (0.08)
--------------------
Net Asset Value, End of Period $ 10.10
====================
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 1.94%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 732
Ratio of expenses to average net assets 2.05%(c)
Ratio of net investment income to average net assets 2.02%(c)
Ratio of expenses to average net assets* 2.27%(c)
PORTFOLIO TURNOVER** 189%
- ---------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT
DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED. (a) FOR THE PERIOD FROM
FEBRUARY 3, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998. (b) NOT
ANNUALIZED. (c) ANNUALIZED.
<PAGE>
PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31, 31,
1998 1997 1996 1995 1994(a)
--------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
--------------- ------------- ------------- ------------- --------------
Investment Activities
Net investment income 0.047 0.048 0.048 0.054 0.031
--------------- ------------- ------------- ------------- --------------
Total from Investment Activities 0.047 0.048 0.048 0.054 0.031
--------------- ------------- ------------- ------------- --------------
Distributions
Net investment income (0.047) (0.048) (0.048) (0.054) (0.031)
--------------- ------------- ------------- ------------- --------------
Total Distributions (0.047) (0.048) (0.048) (0.054) (0.031)
--------------- ------------- ------------- ------------- --------------
Net change in asset value - - - - -
--------------- ------------- ------------- ------------- --------------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
=============== ============= ============= ============= ==============
TOTAL RETURN (EXCLUDES SALES CHARGE) 4.85% 4.90% 4.88% 5.51% 3.13%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $310,201 $ 56,163 $ 22,836 $ 63,919 $ 82,351
Ratio of expenses to average net assets 0.81% 0.87% 0.68% 0.65% 0.63%(c)
Ratio of net investment income to average
net assets 4.73% 4.82% 4.83% 5.37% 4.00%(c)
Ratio of expenses to average net assets* 0.82% (d) 0.86% 0.90% 0.93%(c)
- -------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
(a) FOR THE PERIOD MARCH 29, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER
31, 1994. (b) NOT ANNUALIZED. (c) ANNUALIZED. (d) THERE WERE NO FEE REDUCTIONS
IN THIS PERIOD
</TABLE>
<PAGE>
PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS, CLASS B SHARES
PERIOD ENDED
DECEMBER 31,
1998 (A)
---------------------
Net Asset Value, Beginning of Period $ 1.000
---------------------
Investment Activities
Net investment income 0.021
---------------------
Total from Investment Activities 0.021
---------------------
Distributions
Net Investment income (0.021)
---------------------
Total Distributions (0.021)
---------------------
Net change in asset value -
---------------------
Net Asset Value, End of Period $ 1.000
=====================
TOTAL RETURN (EXCLUDES REDEMPTION CHARGE) 2.07%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 187
Ratio of expenses to average net assets 1.55%(c)
Ratio of net investment income to average net assets 3.77%(c)
- ---------------
(a) FOR THE PERIOD FROM JULY 23, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1998. (b) NOT ANNUALIZED. (c) ANNUALIZED.
<PAGE>
PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996(a)
------------------ ------------------------ ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000
------------------ ------------------------ ------------------
Investment Activities
Net investment income 0.050 0.051 0.024
------------------ ------------------------ ------------------
Total from Investment Activities 0.050 0.051 0.024
------------------ ------------------------ ------------------
Distributions
Net Investment income (0.050) (0.051) (0.024)
------------------ ------------------------ ------------------
Total Distributions (0.050) (0.051) (0.024)
------------------ ------------------------ ------------------
Net change in asset value - - -
------------------ ------------------------ ------------------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000
================== ======================== ==================
TOTAL RETURN 5.11% 5.17% 2.46% (b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 66,715 $ 26,389 $ 48,101
Ratio of expenses to average net assets 0.58% 0.62% 0.65% (c)
Ratio of net investment income to average net assets 4.97% 5.05% 4.86% (c)
- -------------
(a) FOR THE PERIOD FROM JULY 1, 1996 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1996. (b) NOT ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31
1998 1997 1996 1995 1994(a)
--------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
--------------- -------------- --------------- -------------- ----------------
Investment Activities
Net investment income 0.046 0.047 0.047 0.053 0.030
--------------- -------------- --------------- -------------- ----------------
Total from Investment Activities 0.046 0.047 0.047 0.053 0.030
--------------- -------------- --------------- -------------- ----------------
Distributions
Net Investment income (0.046) (0.047) (0.047) (0.053) (0.030)
--------------- -------------- --------------- -------------- ----------------
Total Distributions (0.046) (0.047) (0.047) (0.053) (0.030)
--------------- -------------- --------------- -------------- ----------------
Net change in asset value - - - - -
--------------- -------------- --------------- -------------- ----------------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
=============== ============== =============== ============== ================
TOTAL RETURN 4.68% 4.78% 4.78% 5.41% 3.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 167,475 $ 77,065 $ 78,308 $ 168,430 $ 139,715
Ratio of expenses to average net assets 0.77% 0.75% 0.56% 0.50% 0.54%
Ratio of net investment income
to average net assets 4.56% 4.68% 4.72% 5.28% 4.02%
Ratio of expenses to average net assets* 0.78% (d) 0.74% 0.75% 0.83%
- --------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
(a) FOR THE PERIOD FROM MARCH 29, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1994. (b) NOT ANNUALIZED. (c) ANNUALIZED. (d) THERE WERE NO FEE
REDUCTIONS IN THIS PERIOD
</TABLE>
<PAGE>
TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS, INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996(a)
----------------------- --------------------- ----------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000
----------------------- --------------------- ----------------------
Investment Activities
Net investment income 0.048 0.049 0.024
----------------------- --------------------- ----------------------
Total from Investment Activities 0.048 0.049 0.024
----------------------- --------------------- ----------------------
Distributions
Net Investment income (0.048) (0.049) (0.024)
----------------------- --------------------- ----------------------
Total Distributions (0.048) (0.049) (0.024)
----------------------- --------------------- ----------------------
Net change in asset value - - -
----------------------- --------------------- ----------------------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000
======================= ===================== ======================
TOTAL RETURN 4.93% 5.05% 2.43%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 309,979 $ 114,175 $ 109,698
Ratio of expenses to average net assets 0.53% 0.50% 0.52%(c)
Ratio of net investment income to average net assets 4.78% 4.94% 4.78%(c)
- --------------
(a) FOR THE PERIOD FROM JULY 1, 1996 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1996. (b) NOT ANNUALIZED. (c) ANNUALIZED.
</TABLE>
<PAGE>
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS): The Funds' annual and semi-annual reports
to shareholders contain additional information on the Funds' investments. In the
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including its operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUNDS BY CONTACTING THE FUNDS AT:
ISG FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-852-0045
- --------------------------------------------------------------------------------
You can review information about the Funds, including the Funds' Reports and
SAI, at the Public Reference Room of the Securities and Exchange Commission. You
can get text-only copies:
o For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009, or calling
1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-06076.
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
ISG FUNDS
o International Equity Fund o Municipal Income Fund
o Small-Cap Opportunity Fund o Limited Term Tennessee Tax-
Exempt Fund
o Mid-Cap Fund o Prime Money Market Fund
o Capital Growth Fund o Government Money Market Fund
o Large-Cap Equity Fund o Treasury Money Market Fund
o Equity Income Fund o Tax-Exempt Money Market Fund
o Income Fund o Aggressive Growth Portfolio
o Government Income Fund o Growth Portfolio
o Limited Term Income Fund o Growth & Income Portfolio
o Limited Term U.S. Government o Moderate Growth & Income
Fund Portfolio
o Tennessee Tax-Exempt Fund o Current Income Portfolio
CLASS A SHARES, CLASS B SHARES AND INSTITUTIONAL (CLASS I) SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
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 "Fund" and collectively, the "Funds") of The
Infinity Mutual Funds, Inc. (the "Company"), dated May 1, 1999, as it may be
revised from time to time. To obtain a copy of the Prospectus, please write to
the Company at 3435 Stelzer Road, Columbus, Ohio 43219-3035. This Statement of
Additional Information relates only to the Funds and not to any of the Company's
other portfolios.
The most recent Annual Report and Semi-Annual Report to Shareholders
for each Fund are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
PAGE
-----
Description of the Company and the Funds.......................................
Management of the Company......................................................
Management Arrangements........................................................
Purchase and Redemption of Shares..............................................
Determination of Net Asset Value...............................................
Shareholder Services and Privileges............................................
Performance Information........................................................
Dividends, Distributions and Taxes.............................................
Portfolio Transactions.........................................................
Information About the Company and the Funds....................................
Counsel and Independent Auditors...............................................
Financial Statements...........................................................
Appendix ......................................................................
<PAGE>
DESCRIPTION OF THE COMPANY AND THE FUNDS
GENERAL
The Company is a Maryland corporation organized on March 6, 1990. Each
Fund is a separate portfolio of the Company, an open-end management investment
company, known as a mutual fund. Each of the Large-Cap Equity, Small-Cap
Opportunity, Mid-Cap, Municipal Income, Government Income, Prime Money Market,
Government Money Market, Treasury Money Market and Tax-Exempt Money Market Funds
is a diversified investment company, which means that, with respect to 75% of
its total assets, the Fund will not invest more than 5% of its assets in the
securities of any single issuer. Each other Fund is a non-diversified investment
company, which means that the proportion of the Fund's assets that may be
invested in the securities of a single issuer is not limited by the Investment
Company Act of 1940, as amended (the "1940 Act").
First American National Bank (the "Adviser") serves as each Fund's
investment adviser.
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as each
Fund's administrator.
BISYS Fund Services Limited Partnership (the "Distributor"), an
affiliate of the Administrator, serves as each Fund's distributor.
STRATEGIC PORTFOLIOS
Each of the Aggressive Growth Portfolio, Growth Portfolio, Growth &
Income Portfolio, Moderate Growth & Income Portfolio and Current Income
Portfolio (collectively, the "Strategic Portfolios") seeks to achieve its
investment objective by allocating its assets among other mutual funds
("Underlying Funds") advised by the Adviser, 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 Funds.
Each Strategic Portfolio will invest its assets in Institutional
Shares of the following Underlying Funds within the strategy ranges (expressed
as a percentage of the Strategic Portfolio's assets) indicated below:
<PAGE>
<TABLE>
<CAPTION>
STRATEGY RANGES
--------------------------------------------------------------------------------------
UNDERLYING FUND MODERATE
AGGRESSIVE GROWTH & GROWTH & CURRENT
GROWTH GROWTH INCOME INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Large-Cap Equity Fund 35-50% 15-30% 15-25% 5-15% 0%
Capital Growth Fund 25-45% 15-30% 15-25% 5-15% 0%
Equity Income Fund 0% 15-25% 15-25% 5-15% 0%
Small-Cap Opportunity 5-15% 5-10% 0% 0% 0%
Fund
International Equity 5-15% 5-10% 0% 0% 0%
Fund
Income Fund 0% 10-20% 15-25% 20-40% 35-55%
Limited Term Income Fund 0% 0% 10-20% 25-45% 40-60%
Prime Money Market Fund 0-30% 0-20% 0-20% 0-20% 0-30%
</TABLE>
The Strategic Portfolios' selection of the Underlying Funds in which
to invest, as well as the percentage of a Strategic Portfolio's assets which can
be invested in each Underlying Fund, are not fundamental investment policies and
can be changed without the approval of shareholders.
Changes in the net asset value of the Underlying Funds may affect cash
income, if any, derived from these investments and will affect a Strategic
Portfolio's net asset value. Because each Strategic Portfolio invests primarily
in other mutual funds, which fluctuate in value, the Strategic Portfolio's
shares will correspondingly fluctuate in value. Although the Strategic
Portfolios normally seek to remain substantially fully invested in the
Underlying Funds, each Strategic Portfolio may invest temporarily in certain
short-term obligations. Such obligations may be used to invest uncommitted cash
balances or to maintain liquidity to meet shareholder redemptions. Each
Strategic Portfolio also may borrow money for temporary or emergency purposes.
The 1940 Act permits the Strategic 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 Strategic
Portfolios and the Underlying Funds, provided that the Strategic 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
management policies of the Underlying Funds.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Funds' Prospectus.
U.S. TREASURY SECURITIES. (All Funds) Each Fund 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. (All Funds) In addition to U.S. Treasury
securities, each Fund 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 Fund will invest in such securities only
when it is satisfied that the credit risk with respect to the issuer is minimal.
The Treasury Money Market Fund will not invest in securities issued or
guaranteed by U.S. Government agencies, instrumentalities or
government-sponsored enterprises that are not backed by the full faith and
credit of the United States.
BANK OBLIGATIONS. (All Funds, except the Limited Term U.S. Government
Fund, Government Money Market Fund and Treasury Money Market Fund) Each of these
Funds may invest in bank obligations (other than those issued by the Adviser or
its affiliates), including certificates of deposit ("CDs"), time deposits
("TDs"), 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. 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 CDs may be purchased by the Fund are insured by the Bank
Insurance Fund administered by the FDIC (although such insurance may not be of
material benefit to the Fund, depending upon the principal amount of the CDs of
each bank held by the Fund) 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 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. The
Prime Money Market Fund's investment in obligations of foreign subsidiaries of
domestic banks are subject, to the extent required by 1940 Act, to the
limitations on investing in the securities of other investment companies.
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 of these Funds 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 Fund 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 Fund will own more than one such CD per such issuer.
Each of these Funds 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 Fund 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 Fund 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 Fund
and the Borrower. In such cases, the Fund would be required to rely on the
Intermediate Participant that sold the participation interest not only for the
enforcement of the Fund's rights against the Borrower but also for the receipt
and processing of payments due to the Fund 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 Fund may be subject to delays, expenses and risks that
are greater than those that would be involved if the Fund could enforce its
rights directly against the Borrower. Moreover, under the terms of a
participation interest, the Fund may be regarded as a creditor of the
Intermediate Participant (rather than of the Borrower), so that the Fund 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 Fund 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 Fund 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.
Under normal circumstances, and as a matter of fundamental policy, the
Prime Money Market Fund will "concentrate" at least 25% of its assets in debt
instruments issued by domestic and foreign companies engaged in the banking
industry, including bank holding companies. Such investments may include CDs,
TDs, bankers' acceptances and obligations issued by bank holding companies, as
well as repurchase agreements entered into with banks (as distinct from non-bank
dealers) in accordance with the policies set forth in "Repurchase Agreements"
below. During periods when the Adviser determines that the Prime Money Market
Fund should be in a temporary defensive position, the Fund may invest less than
25% of its total assets in the banking industry; during such times the Prime
Money Market Fund's assets will be invested in accordance with its other
investment policies. The Adviser may determine that the adoption of a temporary
defensive position with respect to issuers in the banking industry is
appropriate on the basis of such factors as political, economic, market or
regulatory developments adversely affecting that industry as compared to the
industries of other issuers of securities available for investment by the Prime
Money Market Fund.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. (Each
Fund, except the Limited Term U.S. Government Fund, Government Money Market Fund
and Treasury Money Market Fund) Each of these Funds 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 Funds
will consist only of direct obligations which, at the time of their purchase,
are (a) rated not lower than Prime-1 by Moody's Investors Service, Inc.
("Moody's"), A-1 by Standard & Poor's Ratings Group ("S&P"), F-1 by Fitch IBCA,
Inc. ("Fitch") or Duff-1 by Duff & Phelps Credit Rating Co. ("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 Adviser to be of comparable quality to those rated obligations
which may be purchased by the Fund.
REPURCHASE AGREEMENTS. (All Funds) Each Fund may enter into repurchase
agreements which involve the acquisition by a Fund of an underlying debt
instrument, subject to an obligation of the seller to repurchase, and such Fund
to resell, the instrument at a fixed price usually not more than one week after
its purchase. 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 a Fund 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 Fund entering into them.
Certain costs may be incurred by a Fund 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 or insolvency proceedings are
commenced with respect to the seller of the securities, realization on the
securities by a Fund may be delayed or limited. Each Fund will consider on an
ongoing basis the creditworthiness of the institutions with which it enters into
repurchase agreements. In an attempt to reduce the risk of incurring a loss on a
repurchase agreement, each Fund 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 Fund 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 Adviser will monitor on an ongoing basis the value of the collateral
to assure that it always equals or exceeds the repurchase price. Each Fund will
consider on an ongoing basis the creditworthiness of the institutions with which
it enters into repurchase agreements.
ZERO COUPON AND STRIPPED SECURITIES. (All Funds) Each Fund 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 Fund, except the Limited Term U.S. Government
Fund, Prime Money Market Fund and Treasury Money Market Fund, 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. The Tennessee
Tax-Exempt Fund will invest no more than 25% of the value of its net assets in
zero coupon and stripped securities.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES.
(Each Fund, except the Limited Term U.S. Government Fund, Government Money
Market Fund and Treasury Money Market Fund) Each of these Funds 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 Adviser to be of comparable quality to the other obligations in which
such Fund 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 Fund'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 Fund, except the Limited
Term U.S. Government Fund, Government Money Market Fund and Treasury Money
Market Fund) Each of these Funds 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 Fund to invest
fluctuating amounts, at varying rates of interest, pursuant to direct
arrangements between the Fund, 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 Fund'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 Fund may invest in obligations which are not so rated only if the Adviser
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The Adviser, on
behalf of each Fund, will consider on an ongoing basis the creditworthiness of
the issuers of the floating and variable rate demand obligations purchased by
such Fund.
NOTES. (Each Fund, except the Limited Term U.S. Government Fund,
Government Money Market Fund and Treasury Money Market Fund) Each of these Funds
may purchase unsecured promissory notes ("Notes") which are not readily
marketable and have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), provided such investments are consistent with its
investment objective.
PARTICIPATION INTERESTS AND TRUST RECEIPTS. (Each Fund, except the
Limited Term U.S. Government Fund, Government Money Market Fund and Treasury
Money Market Fund) Each of these Funds 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 Fund an
undivided interest in the security in the proportion that the Fund's
participation interest or receipt bears to the total principal amount of the
security. 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 Fund, 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 Adviser,
acting upon delegated authority from the Company's Board of Directors, must have
determined that the instrument is of comparable quality to those instruments in
which the Fund 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 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 Fund, the
Adviser will consider, in accordance with procedures established by the Board of
Directors, all circumstances deemed relevant in determining whether the Fund
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 Fund will have the unconditional
right to demand payment, on not more than seven days' notice, for all or any
part of the Fund's interest in the security, plus accrued interest. As to these
instruments, the Fund 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 Fund, except the Limited Term
U.S. Government Fund, Government Money Market Fund and Treasury Money Market
Fund) Each of these Funds may make limited investments in guaranteed investment
contracts ("GICs") issued by highly rated U.S. insurance companies. Pursuant to
such a contract, the Fund would make cash contributions to a deposit fund of the
insurance company's general account. The insurance company would then credit to
the Fund 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 Fund currently does not expect to
invest more than 5% of its net assets in GICs.
ILLIQUID SECURITIES. (All Funds) Each Fund may invest up to 15% (10%
in the case of the Capital Growth, Equity Income, Income, Limited Term Income,
Limited Term U.S. Government, Tennessee Tax-Exempt, Limited Term Tennessee
Tax-Exempt, and Money Market Funds) of the value of its net assets in illiquid
securities. As to these securities, the Fund is subject to a risk that should
the Fund desire to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. 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 Fund has valued the
securities and includes, among other things, restricted securities other than
those the Adviser has determined to be liquid pursuant to guidelines established
by the Company's Board and repurchase agreements maturing in more than seven
days. Commercial paper issues include securities issued by major corporations
without registration under the 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 Fund pursuant
to Rule 144A under the 1933 Act, the Fund intends to treat such securities as
liquid securities in accordance with procedures approved by the Company's 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 Company's
Board has directed the Adviser to monitor carefully each Fund'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, a Fund'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 Funds) Each Fund 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 Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
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 Fund 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 Fund
is fully or almost fully invested may result in greater potential fluctuation in
the value of the Fund's net assets and its net asset value per share.
INVESTMENT COMPANY SECURITIES. (All Funds) Each Fund may invest in
securities issued by other investment companies which principally invest in
securities of the type in which such Fund invests. Under the 1940 Act, a Fund'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 Fund's total assets with respect to any one investment company and
(iii) 10% of such Fund's total assets in the aggregate. Investments in the
securities of other investment companies will involve duplication of advisory
fees and certain other expenses.
CONVERTIBLE SECURITIES. (Large-Cap Equity, Capital Growth, Small-Cap
Opportunity, Mid-Cap, Equity Income, International Equity, Income and Limited
Term Income Funds) Convertible securities may be converted at either a stated
price or stated rate into underlying shares of common stock. Convertible
securities have characteristics similar to both fixed income and equity
securities. Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the underlying
common stock. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There can be
no assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
WARRANTS. (Large-Cap Equity, Capital Growth, Small-Cap Opportunity,
Equity Income, Mid-Cap and International Equity Funds) 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. A Fund may invest up to 5% of its net assets in
warrants, except that this limitation does not apply to warrants purchased by
the Fund that are sold in units with, or attached to, other securities.
MORTGAGE-RELATED SECURITIES. (Income, Capital Growth, Equity Income,
Government Income and Limited Term Income Funds) 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 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 Fund may invest include
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 Fund or the
price of the Fund'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 Funds 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 Funds
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 Fund'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 Funds 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 Fund 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.
ASSET-BACKED SECURITIES. (Capital Growth, Equity Income, Income,
Limited Term Income, Government Income and Prime Money Market Funds)
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 Funds may invest in these and other
types of asset-backed securities that may be developed in the future.
The Prime Money Market Fund 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 Fund
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. (Large-Cap Equity, Capital Growth,
Small-Cap Opportunity, Mid-Cap, Equity Income and International Equity Funds)
Each of these Funds may invest in the securities of foreign issuers in the form
of American Depositary Receipts ("ADRs") and other forms of depositary receipts.
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
Funds 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.
STANDARD & POOR'S DEPOSITARY RECEIPTS. (Capital Growth and Equity
Income Funds) 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.
MUNICIPAL OBLIGATIONS. (Income, Limited Term Income, Municipal Income,
Limited Term Tennessee Tax-Exempt, Tennessee Tax-Exempt, Tax-Exempt Money Market
and, to a limited extent, Prime Money Market Funds) The term "Municipal
Obligations" generally includes debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligations may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit,
industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal; the interest paid on such obligations may be
exempt from Federal income tax, although current tax laws place substantial
limitations on the size of such issues. There are, of course, variations in the
security of Municipal Obligations, both within a particular classification and
between classifications.
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 Obligations and
purchased and sold separately.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but which
permit the holder to demand payment of principal at any time, or at specified
intervals. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders thereof. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a particular
offering, maturity of the obligation and rating of the issue. The imposition of
the advisory and administration fees, as well as other Fund operating expenses,
will have the effect of reducing the yield to investors.
Each of these Funds may invest up to 5% of the value of its total
assets in municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations"). Lease obligations have special
risks not ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation ordinarily is
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. Certain lease obligations in which
these Funds may invest may contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease payments in future years
unless money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease obligations are secured by the leased property, disposition
of the leased property in the event of foreclosure might prove difficult. In
addition, no assurance can be given as to the liquidity of certain lease
obligations. The staff of the Securities and Exchange Commission currently
considers certain lease obligations to be illiquid. The Company's Board of
Directors has established guidelines for the Adviser to determine the liquidity
and appropriate valuation of lease obligations based on factors which include:
(1) the frequency of trades and quotes for the lease obligation or similar
securities; (2) the number of dealers willing to purchase or sell the lease
obligation or similar securities and the number of other potential buyers; (3)
the willingness of dealers to undertake to make a market in the security or
similar securities; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer.
Each of these Funds may purchase tender option bonds and similar
securities. A tender option bond is a Municipal Obligation (generally held
pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic intervals,
to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. The Adviser, on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuer of the underlying Municipal Obligation,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying Municipal Obligations and for other reasons.
The Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of the underlying
Municipal Obligations and that payment of any tender fees will not have the
effect of creating taxable income for the Fund. Based on the tender option bond
agreement, each of these Funds expects to be able to value the tender option
bond at par; however, the value of the instrument will be monitored to assure
that is valued at fair value.
RATINGS OF MUNICIPAL OBLIGATIONS. Subsequent to its purchase by a
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the Fund,
but the Adviser will consider such event in determining whether the Fund should
continue to hold the Municipal Obligations. To the extent that the ratings given
by Moody's, S&P or Fitch for Municipal Obligations may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for its investments in accordance with the
investment policies contained in the Fund's Prospectus and this Statement of
Additional Information. The ratings of Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations which they undertake to
rate. It should be emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these ratings may be an
initial criterion for selection of portfolio investments, the Adviser also will
evaluate these securities and the creditworthiness of the issuers of such
securities based upon financial and other available information.
The average dollar-weighted credit rating of the Municipal Obligations
held by the Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund
will be at least A- by Moody's, S&P or Fitch. To further limit risk, each
Municipal Obligation in which the Fund may invest must be rated, in the case of
bonds, at least Baa by Moody's or at least BBB by S&P and Fitch. Each Fund may
invest in short-term Municipal Obligations which are rated in the two highest
categories by Moody's, S&P or Fitch. The average dollar-weighted portfolio
credit rating will be measured on the basis of the dollar value of the Municipal
Obligations purchased and their credit rating without reference to rating
subcategories. The Tennessee Tax-Exempt Fund and Limited Term Tennessee
Tax-Exempt Fund also may invest in Municipal Obligations which, while not rated,
are determined by the Adviser to be of comparable quality to the rated
securities in which the Fund may invest.
The average distribution of investments (at value) in Municipal
Obligations by ratings for the fiscal year ended December 31, 1998 computed on a
monthly basis, for the Municipal Income Fund, Tennessee Tax-Exempt Fund and
Limited Term Tennessee Tax-Exempt Fund was as follows:
PERCENTAGE OF VALUE
-------------------------------------------
LIMITED TERM
MUNICIPAL TENNESSEE TENNESSEE
INCOME TAX-EXEMPT TAX-EXEMPT
MOODY'S FITCH S&P FUND FUND FUND
- ------- ----- --- ----------- ---------- -----------
Aaa AAA AAA 48.0% 65.9% 25.5%
Aa AA AA 47.4% 31.5% 55.6%
A A A 4.6% 2.6% 15.1%
Baa BBB BBB -- -- 3.8%
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
MANAGEMENT POLICIES
INVESTMENT TECHNIQUES AND PORTFOLIO TURNOVER RATES. (All Funds) Each
Fund may engage in various investment techniques the use of which involves risk.
Investors in the Municipal Income, Tennessee Tax-Exempt or Limited Term
Tennessee Tax-Exempt Funds should be aware that the use of these techniques may
give rise to taxable income. Using these techniques may produce higher than
normal portfolio turnover for a Fund and may affect the degree to which its net
asset value fluctuates.
Portfolio turnover may vary from year to year, as well as within a
year. No Fund will consider portfolio turnover to be a limiting factor in making
investment decisions. Under normal market conditions, the portfolio turnover
rate for the current fiscal year is anticipated to be less than 200% for the
Small-Cap Opportunity Fund, Mid-Cap Fund, Capital Growth Fund, International
Equity Fund, Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt
Fund, and is anticipated to be less than 100% for the Large-Cap Equity Fund,
Equity Income Fund, Income Fund, Limited Term Income Fund, Municipal Income
Fund, Government Income Fund, Limited Term U.S. Government Fund and each
Strategic Portfolio. A portfolio turnover rate of 100% is equivalent to the Fund
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. Each Money Market Fund will have a high portfolio turnover, but
that should not adversely affect the Fund since it usually does not pay
brokerage commissions when it purchases short-term debt obligations.
DURATION. (Income, Limited Term Income, Limited Term U.S. Government
Income and Limited Term Tennessee Tax-Exempt Funds) Each of these Funds follows
a controlled duration strategy. 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 three years
would be expected to decline 3% if interest rates rose 1%. Conversely, the
market price of the same bond would be expected to increase 3% if interest rates
fell 1%. The market price of a bond with a duration of six years would be
expected to increase or decline twice as much as the market price of a bond with
a three-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 Fund, the
Adviser will estimate the duration of obligations that are subject to features
such as prepayment or redemption by the issuer, put options retained by the
investor or other imbedded options, taking into account the influence of
interest rates on prepayments and coupon flows.
LENDING PORTFOLIO SECURITIES. (All Funds) From time to time, each Fund
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
Fund's total assets. In connection with such loans, each Fund 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 Fund can increase its income through
the investment of such collateral. Each Fund 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 Fund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with such Fund. From time to
time, a Fund may return to the borrower or a third party which is unaffiliated
with the Fund, 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 Fund 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 Fund must be able
to terminate the loan at any time; (4) the Fund 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 Fund 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 Company's Board of
Directors must terminate the loan and regain the right to vote the securities if
a material event adversely affecting the investment occurs.
OPTIONS TRANSACTIONS. (Large-Cap Equity, Capital Growth, Small-Cap
Opportunity, Mid-Cap, Equity Income, Government Income and International Equity
Funds) Each of these Funds may purchase call and put options in respect of
specific securities in which the Fund 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 Fund, which is a call option with respect to
which the Fund owns the underlying security, exposes the Fund 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 Fund exposes the
Fund during the term of the option to a decline in price of the underlying
security. A put option sold by the Fund is covered when, among other things,
permissible liquid assets are placed in a segregated account to fulfill the
obligation undertaken.
The principal reason for the Fund 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 Fund 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 Fund may write (a) in-the-money call options when the 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
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 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 Fund'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
Fund effects a closing purchase transaction. The Fund 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 Fund generally will purchase
or write only those options for which the 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 Fund 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 Fund 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 Fund as illiquid securities.
STOCK INDEX OPTIONS. (Large-Cap Equity, Capital Growth, Small-Cap
Opportunity, Mid-Cap, Equity Income and International Equity Funds) Each of
these Funds 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. 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.
The effectiveness of the Fund'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 Fund 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 Fund 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 Fund 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 CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. (Large-Cap Equity,
Capital Growth, Small-Cap Opportunity, Mid-Cap, Equity Income, International
Equity, Tennessee Tax-Exempt and Limited Term Tennessee Tax-Exempt Funds) None
of these Funds 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 Funds may engage in futures and options on futures transactions,
as described below.
The commodities transactions of each of these Funds must constitute
bona fide hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, none of
these Funds 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 Fund'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 Funds 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 Fund will
be required to deposit with the Company'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 Fund 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 Fund 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 Funds 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 Fund to substantial losses. If it is not possible, or
the Fund 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 Fund 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 Fund'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 Fund 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 Fund's net investment results if market
movements are not as anticipated when the hedge is established.
Successful use of futures by a Fund 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 Fund 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 Fund 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 Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. The Fund 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 Fund 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 Fund with respect to futures contracts
will be covered in the same manner as put options on specific securities as
described above.
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 Fund.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES. (Large-Cap
Equity, Capital Growth, Small-Cap Opportunity, Mid-Cap, Equity Income and
International Equity Funds) Each of these Funds 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 Funds 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 Funds may use index futures as a substitute for a
comparable market position in the underlying securities.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS. (Tennessee Tax-Exempt and Limited Term Tennessee Tax-Exempt Funds)
Each of these Funds may invest in interest rate futures contracts and options on
interest rate futures contracts as a substitute for a comparable market position
and to hedge against adverse movements in interest rates to the extent of 15% of
the value of its net assets.
To the extent the Fund has invested in interest rate futures contracts
or options on interest rate futures contracts as a substitute for a comparable
market position, the Fund will be subject to the same investment risks had it
purchased the securities underlying the contract.
Each of these Funds may purchase call options on interest rate futures
contracts to hedge against a decline in interest rates and may purchase put
options on interest rate futures contracts to hedge its portfolio securities
against the risk of rising interest rates. The Fund may sell call options on
interest rate futures contracts to partially hedge against declining prices of
portfolio securities. The Fund may sell put options on interest rate futures
contracts to hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contracts.
Each of these Funds also may sell options on interest rate futures
contracts as part of closing purchase transactions to terminate its options
positions. No assurance can be given that such closing transactions can be
effected or the degree of correlation between price movements in the options on
interest rate futures and price movements in the Fund's investment securities
which are the subject of the hedge.
FUTURE DEVELOPMENTS. Each Fund 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 Fund 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 Fund. Before entering into such transactions or
making any such investment, the Fund will provide appropriate disclosure in its
Prospectus or this Statement of Additional Information.
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 Fund has agreed to buy or sell; to hedge the U.S. dollar value of
securities the Fund 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 Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund 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 Fund contracted to receive in the exchange. The
Fund's success in these transactions will depend principally on the ability of
the Fund's Sub-Adviser 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,
Capital Growth, Equity Income, Income, Limited Term Income, Limited Term U.S.
Government, Tennessee Tax-Exempt and Limited Term Tennessee Tax-Exempt Funds) In
these transactions the Fund sells a security it does not own in anticipation of
a decline in the market value of the security. To complete the transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund 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 Fund, which would
result in a loss or gain, respectively. 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% of the value of the Fund's net assets.
Each of these Funds, other than the International Equity Fund, will limit its
short sales to those that are "against the box," a transaction in which the Fund
enters into a short sale of a security which it owns. The proceeds of the short
sale will be held by a broker until the settlement date at which time the Fund
delivers the security to close the short position. The Fund receives the net
proceeds from the short sale. At no time will any of these Funds have more than
15% of the value of its net assets in deposits on short sales against the box.
BORROWING MONEY. (All Funds) As a fundamental policy, each Fund is
permitted to borrow money in an amount up to 33 1/3% of the value of its total
assets. However, each Fund 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 Fund's total assets, such
Fund will not make any investments. In addition, each Money Market Fund may
borrow for investment purposes on a secured basis through entering into reverse
repurchase agreements as described below.
REVERSE REPURCHASE AGREEMENTS. (Prime Money Market, Government Money
Market and Treasury Money Market Funds only) Each of these Funds may enter into
reverse repurchase agreements with banks, brokers or dealers. Reverse repurchase
agreements involve the transfer by the Fund of an underlying debt instrument in
return for cash proceeds based on a percentage of the value of the security. The
Fund retains the right to receive interest and principal payments on the
security. The Fund 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 Fund
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 Fund 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 Company's Directors have considered the risks to each
of these Funds and their shareholders which may result from the entry into
reverse repurchase agreements and have determined that the entry into such
agreements is consistent with such Fund's investment objective and management
policies. The Fund 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.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
RISK OF INVESTING IN MUNICIPAL OBLIGATIONS. (Municipal Income,
Tennessee Tax-Exempt, Limited Term Tennessee Tax-Exempt and Tax-Exempt Money
Market Funds). Each of these Funds may invest more than 25% of the value of its
total assets in Municipal Obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
interest upon which is paid from revenues of similar types of projects or
securities whose issuers are located in the same state. As a result, the Fund
may be subject to greater risk as compared to a fund that does not follow this
practice.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Fund and thus
reduce its available yield. Proposals that may restrict or eliminate the income
tax exemption for interest on Municipal Obligations may be introduced in the
future. If any such proposal were enacted that would reduce the availability of
Municipal Obligations for investment by the Fund so as to adversely affect its
shareholders, the Company would reevaluate the Fund's investment objective and
policies and submit possible changes in the Fund's structure to shareholders for
their consideration. If legislation were enacted that would treat a type of
Municipal Obligation as taxable, the Fund would treat such security as a
permissible taxable investment within the applicable limits set forth in the
Prospectus.
RISK OF INVESTING IN TENNESSEE MUNICIPAL OBLIGATIONS. (Tennessee
Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund) Investors in the
Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund should
consider carefully the special risks inherent in such Funds' investment in
Tennessee Municipal Obligations. These risks result from the financial condition
of the State of Tennessee. The following information constitutes only a brief
summary, does not purport to be a complete description, and is based on
information drawn from official statements relating to securities offerings of
the State of Tennessee (the "State") and various local agencies, available as of
the date of the Statement of Additional Information. While the Company has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects.
In 1978, the voters of the State of Tennessee approved an amendment to
the State Constitution requiring that (1) the total expenditures of the State
for any fiscal year shall not exceed the State's revenues and reserves,
including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations from
State tax revenues exceed the estimated rate of growth of the State's economy.
In the past the Governor and the General Assembly have had to restrict
expenditures to comply with the State Constitution.
The Constitution of the State of Tennessee requires a balanced budget.
As required by law, the legislature enacted a balanced budget for fiscal year
1994-95. Beginning January 1, 1994, the State of Tennessee received a waiver
from the Federal government to replace Medicaid with the new program, TennCare.
TennCare was implemented to help control the increasing cost of health care and
to provide insurance coverage not only to previous Medicaid eligible individuals
but also to uninsured Tennesseans. Due principally to inaccurate funding
assumptions with respect to TennCare program, the fiscal ended June 30, 1995 had
an estimated budgetary shortfall of $126 million.
Despite the budgetary concerns caused by the costs associated with
implementing TennCare, the economic outlook for Tennessee remains favorable. The
State's economic diversity has improved substantially over the last eleven
years. Investments announced in new and expanding business exceeded $1 billion
in each of those years and exceeded $2 billion in the last two years. The $3.2
billion in announced capital investments in 1989 was the single largest year and
exceeded the $2.78 billion in 1985 when Saturn Corporation chose Tennessee for
its plant site. This growth created 23,800 new jobs in Tennessee for the year
ended June 1994.
The Tennessee General Assembly enacted a balanced budget for fiscal
year 1994-95. The budget included a two percent salary increase for State
employees, public higher education employees and teachers in the public school
system effective on July 1, 1994, and another two percent salary increase
effective on October 1, 1994. The revenue estimates were officially revised at
March 1 when the budget for the fiscal year 1995-96 was presented to the General
Assembly.
Actual revenue collections for fiscal year 1994-95 through January
1995 reflected increases of 9.68% for the sales tax and 17.45% for the combined
excise tax and franchise tax. Total growth in collections, excluding the health
services tax, is 9.07%. Expenditures for TennCare (a recently implemented
managed care program for Tennessee's poor and uninsured, under a Medicaid
waiver), the housing of state prisoners, institutional operating costs in
prisons, the children's plan and some other services were in excess of the
original budgeted amounts for fiscal year 1994-95. Supplemental appropriations
were accommodated within the revised revenue estimates and a proposal to use
one-time reserves. The recommended budget for 1995-96 continues the funding of
improvements in the Basic Education Program for public schools and begins
funding teacher salary equalization. It funds TennCare and the Administration's
proposed crime legislation. The revenue estimates for fiscal year 1995-96
assumed a 6.3% growth in the sales tax, and a 5.0% growth in the excise and
franchise taxes. The assumed growth in all collections by the Department of
Revenue is 5.08%. The Revenue Fluctuation Reserve was reduced to $101.4 million
at June 30, 1994 due to accrued liabilities in the children's plan and other
programs. The new budget maintains the reserve at $101.4 million for fiscal
years 1994-95 and 1995-96.
On March 22, 1993, the Tennessee Supreme Court affirmed a lower court
decision that funding for the pubic school system in Tennessee is
unconstitutional because citizens in more affluent school districts receive
greater educational funding. The case was remanded to the trial court for
further proceedings with respect to the State's providing additional funding to
less affluent school systems. After substantial subsequent litigation, the
Tennessee Supreme Court issued on February 16, 1995, an opinion approving the
State's plan set forth in the Educational Improvement Act of 1992 with the
modification that the plan should also include a provision to equalize teachers'
salaries in the same way that other expenditures were to be equalized under the
program. The result of this decision may be that the State must provide
additional funding to less affluent school systems. The general obligation
ratings for the State are Aaa by Moody's, AA+ by S&P and AAA by Fitch.
LOWER RATED SECURITIES RISK. (Capital Growth and Equity Income Funds)
Each of the Capital Growth Fund and Equity Income Fund is permitted to invest,
to a limited extent, in securities rated as low as Ba by Moody's or BB by S&P,
Fitch or Duff. Such securities, though higher yielding, are characterized by
risk. See the "Appendix" for a general description of Moody's, S&P, Fitch and
Duff ratings. Although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk of
these securities. The Fund will rely on the Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities and will fluctuate over time. These securities are considered
by S&P, Moody's, Fitch and Duff generally to be predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with the higher rated securities.
For example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of these securities may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be affected adversely by
specific corporate developments, forecasts, or the unavailability of additional
financing. The risk of loss because of default by the issuer is significantly
greater for the holders of these securities because such securities generally
are unsecured and often are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these securities does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a liquid
secondary market may have an adverse impact on market price and yield and the
Fund's ability to dispose of particular issues when necessary to meet its
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing its securities
and calculating its net asset value. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of these securities. In such cases, judgment may play a greater role
in valuation because less reliable, objective data may be available.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
Each of these Funds may acquire these securities during an initial
offering. Such securities may involve special risks because they are new issues.
The Fund does not have any arrangement with any persons concerning the
acquisition of such securities, and the Adviser will review carefully the credit
and other characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon securities. Such zero coupon securities carry
an additional risk in that, unlike securities which pay interest throughout the
period to maturity, the Fund will realize no cash until the cash payment date
unless a portion of such securities are sold and, if the issuer defaults, the
Fund may obtain no return at all on its investment. See "Dividends,
Distributions and Taxes."
MORTGAGE-RELATED SECURITIES RISK. (Capital Growth, Equity Income,
Limited Term Income, Income and Government Income Funds) Mortgage-related
securities in which these Funds 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 Company's Board of Directors. In accordance with
such guidelines, the 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.
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 the Fund, 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
Fund. Moreover, with respect to certain stripped mortgage-backed securities, if
the underlying mortgage securities experience greater than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating category. 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 Fund's mortgage-related securities to decrease significantly, the Fund's
effective duration, and thus sensitivity to interest rate fluctuations, would
increase.
SIMULTANEOUS INVESTMENTS. (All Funds) Investment decisions for each
Fund 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 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 Fund,
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 a Fund or the price paid or received by
a Fund.
INVESTMENT RESTRICTIONS
Each Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, each Fund has adopted
investment restrictions numbered 1 through 7 as fundamental policies, and only
the Funds so indicated have adopted investment restrictions numbered 8 through
13 as additional fundamental policies. These restrictions cannot be changed, as
to a Fund, without approval by the holders of a majority (as defined in the 1940
Act) of such Fund's outstanding voting securities. Each Fund, except as
otherwise indicated, has adopted investment restrictions numbered 14 through 19
as non-fundamental policies which may be changed by vote of a majority of the
Company's Directors at any time. No Fund may:
1. Invest in commodities, except that each Fund 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 Fund 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 Fund may borrow up to 33 1/3% of the
value of its total assets. For purposes of this investment restriction, a Fund'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 Fund 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
Company's Board of Directors.
5. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the 1933 Act by virtue of
disposing of portfolio securities, and except that the Municipal Income Fund,
Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund, Tax-Exempt
Money Market Fund, Limited Term Income Fund and Income Fund each may bid
separately or as part of a group for the purchase of Municipal Obligations
directly from an issuer for its own portfolio to take advantage of the lower
purchase price available.
6. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act). A Fund's permitted borrowings and transactions in futures and
options, to the extent permitted under the 1940 Act, are not considered senior
securities for purposes of this investment restriction.
7. Purchase securities on margin, but each Fund 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.
The following investment restrictions numbered 8 and 9 are fundamental
policies which apply only to the Prime Money Market Fund. The Prime Money Market
Fund may not:
8. Invest more than 5% of its assets in the obligations of any one
issuer, except that up to 25% of the value of the Prime Money Market Fund's
total assets may be invested without regard to any such limitation, provided
that not more than 10% of its assets may be invested in securities issued or
guaranteed by any single guarantor of obligations held by the Prime Money Market
Fund.
9. Invest less than 25% of its total assets in securities issued by
banks or invest more than 25% of its assets in the securities of issuers in any
other industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Notwithstanding the foregoing, for temporary defensive
purposes the Prime Money Market Fund may invest more than 25% of its assets in
bank obligations.
The following investment restriction number 10 is a fundamental policy
which applies to each Fund, except the Strategic Portfolios and Prime Money
Market Fund. None of these Funds may:
10. Invest more than 25% of its assets in the securities of issuers in
any single industry, provided that, in the case of the Municipal Income Fund,
Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund and Tax-Exempt
Money Market Fund, there shall be no such limitation on the purchase of
tax-exempt municipal obligations and, in the case of each Fund, there shall be
no limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
The following investment restrictions numbered 11 and 12 are
fundamental policies which apply only to the Large-Cap Equity Fund, Small-Cap
Opportunity Fund, Mid-Cap Fund, Municipal Income Fund and Government Income
Fund. None of these Funds may:
11. With respect to 75% of its total assets, invest more than 5% of
its assets in the obligations of any single issuer. This investment restriction
does not apply to the purchase of U.S. Government securities.
12. Hold more than 10% of the outstanding voting securities of any
single issuer. This investment restriction applies only with respect to 75% of
the Fund's total assets.
The following investment restriction number 13 is a fundamental policy
which applies only to the Strategic Portfolios. None of the Strategic Portfolios
may:
13. Invest less than 25% of the value of its total assets in
securities issued by investment companies or invest more than 25% of the value
of its total assets in the securities of issuers in any other industry, provided
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
* * *
14. Invest in the securities of a company for the purpose of
exercising management or control, but each Fund will vote (as provided in the
Company's Charter) the securities it owns as a shareholder in accordance with
its views.
15. 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.
16. 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% (10% in the case of the Capital Growth, Equity
Income, Income, Limited Term Income, Limited Term U.S. Government, Tennessee
Tax-Exempt, Limited Term Tennessee Tax-Exempt and Money Market Funds) of the
value of the Fund's net assets would be so invested.
17. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
The following investment restrictions numbered 18 and 19 are
non-fundamental policies which apply to each Fund, except the Strategic
Portfolios, Large-Cap Equity Fund, Small-Cap Opportunity Fund, Mid-Cap Fund,
International Equity Fund, Municipal Income Fund, Government Income Fund, Prime
Money Market Fund, Government Money Market Fund, Treasury Money Market Fund and
Tax-Exempt Money Market Fund. None of these Funds may:
18. Purchase, sell or write puts, calls or combinations thereof,
except as may be described in the Funds' Prospectus and this Statement of
Additional Information.
19. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such companies
to exceed 5% of the value of its total assets.
For purposes of Investment Restriction No. 10, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
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.
MANAGEMENT OF THE COMPANY
The Company's Board of Directors is responsible for the management and
supervision of each Fund. The Board approves all significant agreements with
those companies that furnish services to the Funds. These companies are as
follows:
First American National Bank....................... Investment Adviser and
Custodian
Lazard Asset Management............................ Sub-Investment Adviser
Womack Asset Management, Inc....................... Sub-Investment Adviser
Bennett Lawrence Management, LLC................... Sub-Investment Adviser
BISYS Fund Services Limited
Partnership...................................... Distributor
BISYS Fund Services Ohio, Inc...................... Administrator and
Transfer Agent
The Bank of New York............................... Sub-Custodian
Directors and officers of the Company, 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 Company, as
defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH COMPANY DURING PAST 5 YEARS
- ------------- ----------------- -------------------
<S> <C> <C>
WILLIAM B. BLUNDIN* President and An employee of BISYS Fund
90 Park Avenue Chairman of the Services, Inc., general
New York, New York 10016 Board of Directors partner of the Distributor.
Age 60 Mr. Blundin also is an
officer of other investment
companies administered by
the Administrator or its
affiliates.
NORMA A. COLDWELL Director International Economist
3330 Southwestern Boulevard and Consultant; Executive
Dallas, Texas 75225 Vice President of Coldwell
Age 72 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.
RICHARD H. FRANCIS Director Former Executive Vice
40 Grosvenor Road President and Chief
Short Hills, New Jersey 07078 Financial Officer of Pan
Age 66 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.
WILLIAM W. McINNEES Director Private investor. From
116 30th Avenue South July 1978 to February 1993,
Nashville, Tennessee 37212 he was Vice-President--Finance
Age 48 and Treasurer of Hospital
Corp. of America. He is
also a director of Gulf
South Medical Supply and
Diversified Trust Co.
ROBERT A. ROBERTSON Director Private investor. Since
2 Hathaway Common 1991, President Emeritus,
New Canaan, Connecticut 06840 and from 1968 to 1991,
Age 71 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.
JEFFREY C. CUSICK Vice President and An employee of BISYS Fund
3435 Stelzer Road Assistant Secretary Services, Inc. since
Columbus, Ohio 43219 July 1995, and an officer
Age 38 of other investment
companies administered by
the Administrator or its
affiliates. From September
1993 to July 1995, he was
Assistant Vice President of
Federated Administrative
Services.
WILLIAM TOMKO Vice President An employee of BISYS Fund
3435 Stelzer Road Services, Inc. and an
Columbus, Ohio 43219 officer of other
Age 38 investment companies
administered by the
Administrator or its
affiliates.
GARY R. TENKMAN Treasurer An employee of BISYS Fund
3435 Stelzer Road Services, Inc. since April
Columbus, Ohio 43219 1998, and an officer of
Age 34 other investment companies
administered by the
Administrator or its
affiliates. For more than
five years prior thereto,
he was an audit manager
with Ernst & Young LLP.
ROBERT L. TUCH Assistant Secretary An employee of BISYS Fund
3435 Stelzer Road Services, Inc. and an
Columbus, Ohio 43219 officer of other
Age 45 investment companies
administered by the
Administrator or its
affiliates.
ALAINA METZ Assistant Secretary An employee of BISYS Fund
3435 Stelzer Road Services, Inc. and an
Columbus, Ohio 43219 officer of other
Age 29 investment companies
administered by the
Administrator or its
affiliates.
</TABLE>
For so long as the Distribution Plan described in the section
captioned "Management Arrangements--Distribution Plan" remains in effect, the
Directors who are not "interested persons" of the Company, as defined in the
1940 Act, will be selected and nominated by the Directors who are not
"interested persons" of the Company.
Directors and officers of the Company, as a group, owned less than 1%
of any Fund's shares of common stock outstanding on April 1, 1999.
The Company 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 the Administrator or any of their
affiliates. The aggregate amount of compensation paid to each such Director by
the Company for year ended December 31, 1998 was as follows:
TOTAL COMPENSATION
AGGREGATE FROM COMPANY
NAME OF BOARD COMPENSATION FROM AND FUND COMPLEX PAID
MEMBER COMPANY* 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 $21,441 for all Directors as a group.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISERS. First American National Bank serves as each
Fund's investment adviser. The Adviser is a wholly-owned subsidiary of First
American Corporation, a registered bank holding company. The Adviser and its
affiliates deal, trade and invest for their own accounts and for the accounts of
their clients, in the types of securities in which the Funds may invest, and may
have deposit, loan and commercial banking relationships with the issuers of
securities purchased by a Fund. The Adviser has informed the Company 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 Funds 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 Adviser provides investment advisory services pursuant to the
Investment Advisory Agreement (the "Agreement") dated February 15, 1994 with the
Company. As to each Fund, the Agreement is subject to annual approval by (i) the
Company's Board of Directors or (ii) vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of such Fund, 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 Company 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 Company'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 November 18, 1998.
As to each Fund, the Agreement is terminable without penalty, on 60 days'
notice, by the Company's Board of Directors or by vote of the holders of a
majority of such Fund's shares, or, on not less than 90 days' notice, by the
Adviser. The Agreement will terminate automatically, as to the relevant Fund, in
the event of its assignment (as defined in the 1940 Act).
Under the terms of the Agreement, the Company has agreed to pay the
Adviser a monthly fee at the annual rate set forth below as a percentage of the
relevant Fund's average daily net assets.
ANNUAL RATE OF
INVESTMENT
NAME OF FUND ADVISORY FEE PAYABLE
- ------------ ---------------------
International Equity Fund 1.00%
Small-Cap Opportunity Fund .95%
Mid-Cap Fund 1.00%
Capital Growth Fund .65%
Large-Cap Equity Fund .75%
Equity Income Fund .65%
Income Fund .50%
Government Income Fund .60%
Limited Term Income Fund .50%
Limited Term U.S. Government Fund .50%
Tennessee Tax-Exempt Fund .50%
Municipal Income Fund .60%
Limited Term Tennessee Tax-Exempt Fund .50%
Prime Money Market Fund .25%*
Government Money Market Fund .25%
Treasury Money Market Fund .25%
Tax-Exempt Money Market Fund .35%
Aggressive Growth Portfolio .20%
Growth Portfolio .20%
Growth & Income Portfolio .20%
Moderate Growth & Income Portfolio .20%
Current Income Portfolio .20%
- ----------------
* Prior to January 30, 1998, the Fund paid the Prime Money Market Fund's
former sub-adviser, Barnett Capital Advisors, Inc. ("Barnett"), .15% and
the Adviser .10% of the value of the Fund's average daily net assets.
From time to time, the Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering the overall expense ratio of that Fund and increasing yield to its
investors. The Fund will not pay the Adviser at a later time for any amounts it
may waive, nor will the Fund reimburse the Adviser for any amounts it may
assume. For the fiscal years and/or periods ended December 31, 1996, 1997 and
1998, as applicable, the investment advisory fees payable by each indicated
Fund, the amounts waived by the Adviser, and the actual net fees paid by each
Fund, were as follows:
<PAGE>
<TABLE>
<CAPTION>
NAME OF FUND MANAGEMENT FEE PAYABLE REDUCTION IN FEE
- ------------ ---------------------- ----------------
1996 1997 1998 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Large-Cap $3,213,522(1) $4,445,559(2) $4,767,781(3) $0 $0
Equity Fund*
Capital Growth $214,961(4) $783,646 $1,005,152 $0 $141,465
Fund
Equity Income N/A $332,185(5) $501,817 N/A $65,601
Fund
International N/A $95,011(6) $239,978(3) N/A $47,505
Equity Fund*
Small-Cap $684,142(1) $966,775(2) $874,343(3) $115,580 $112,136
Opportunity
Fund*
Mid-Cap Fund+ N/A N/A N/A N/A N/A
Income Fund $136,354(4) $328,302 $394,548 $0 $55,665
Government $1,369,096(1) $1,580,350(2) $1,364,121(3) $228,183 $163,534
Income Fund*
Limited Term $519,442 $496,933 $461,085 $0 $72,002
Income Fund
Limited Term N/A $81,110(5) $108,195 N/A $41,559
U.S.
Government
Fund
Municipal $279,232(1) $289,417(2) $273,164(3) $162,886 $150,568
Income Fund*
Tennessee Tax- $456,926 $502,268 $497,352 $0 $78,469
Exempt Fund
Limited Term N/A $93,669(5) $112,873 N/A $34,669
Tennessee Tax-
Exempt Fund
Treasury Money $459,479 $474,129 $480,809 $0 $0
Market Fund
Prime Money $74,618 $80,064 $340,372 $0 $0
Market Fund
Government N/A N/A N/A N/A N/A
Money Market
Fund+
Tax-Exempt N/A N/A N/A N/A N/A
Money Market
Fund+
Aggressive N/A N/A N/A N/A N/A
Growth
Portfolio+
Growth N/A N/A N/A N/A N/A
Portfolio+
Growth & N/A N/A N/A N/A N/A
Income
Portfolio+
Moderate N/A N/A N/A N/A N/A
Growth &
Income
Portfolio+
Current Income N/A N/A N/A N/A N/A
Portfolio+
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series, a
registered investment company advised by ParkSouth Corporation, a
wholly-owned subsidiary of Deposit Guaranty Corp., which merged into First
American Corporation on May 1, 1998.
+ As of December 31, 1998, the Fund had not commenced operations.
(1) For the period March 1, 1996 through February 28, 1997.
(2) For the period March 1, 1997 through February 28, 1998.
(3) For the period March 1, 1998 through December 31, 1998.
(4) For the period April 1, 1996 (commencement of operations) through December
31, 1996.
(5) For the period February 28, 1997 (commencement of operations) through
December 31, 1997. (6) For the period August 15, 1997 (commencement of
operations) through February 28, 1998.
</TABLE>
REDUCTION
NAME OF FUND IN FEE NET FEE PAID
- ------------ ----------- ------------
1998 1996 1997 1998
---- ---- ---- ----
Large-Cap $0 $3,213,522 $4,445,559 $4,767,781
Equity Fund*
Capital Growth $10,128 $214,961 $642,181 $995,024
Fund
Equity Income $4,867 N/A $266,584 $496,950
Fund
International $77,837 N/A $47,506 $162,141
Equity Fund*
Small-Cap $0 $568,562 $854,639 $874,343
Opportunity
Fund*
Mid-Cap Fund+ N/A N/A N/A N/A
Income Fund $3,965 $136,354 $272,637 $390,583
Government $0 $1,140,913 $1,416,816 $1,364,121
Income Fund*
Limited Term $4,977 $519,442 $424,931 $456,108
Income Fund
Limited Term $35,572 N/A $39,551 $72,623
U.S.
Government
Fund
Municipal $136,582 $116,346 $138,849 $136,582
Income Fund*
Tennessee Tax- $5,617 $456,926 $423,799 $491,735
Exempt Fund
Limited Term $25,811 N/A $59,000 $87,062
Tennessee Tax-
Exempt Fund
Treasury Money $0 $459,479 $474,129 $480,809
Market Fund
Prime Money $0 $74,618 $80,064 $340,372
Market Fund
Government N/A N/A N/A N/A
Money Market
Fund+
Tax-Exempt N/A N/A N/A N/A
Money Market
Fund+
Aggressive N/A N/A N/A N/A
Growth
Portfolio+
Growth N/A N/A N/A N/A
Portfolio+
Growth & N/A N/A N/A N/A
Income
Portfolio+
Moderate N/A N/A N/A N/A
Growth &
Income
Portfolio+
Current Income N/A N/A N/A N/A
Portfolio+
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series, a
registered investment company advised by ParkSouth Corporation, a
wholly-owned subsidiary of Deposit Guaranty Corp., which merged into First
American Corporation on May 1, 1998.
+ As of December 31, 1998, the Fund had not commenced operations.
(1) For the period March 1, 1996 through February 28, 1997.
(2) For the period March 1, 1997 through February 28, 1998.
(3) For the period March 1, 1998 through December 31, 1998.
(4) For the period April 1, 1996 (commencement of operations) through December
31, 1996.
(5) For the period February 28, 1997 (commencement of operations) through
December 31, 1997. (6) For the period August 15, 1997 (commencement of
operations) through February 28, 1998.
For the fiscal years and/or periods ended December 31, 1996, 1997 and 1998, the
Prime Money Market Fund paid Barnett $111,623, $120,097 and $11,578,
respectively.
With respect to Small-Cap Opportunity Fund, the Adviser has entered
into a Sub-Investment Advisory Agreement (the "Womack Sub-Advisory Agreement")
with Womack Asset Management, Inc. ("Womack") dated May 14, 1998. As to such
Fund, the Womack Sub-Advisory Agreement is subject to annual approval by (i)
the Board or (ii) vote of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting securities, provided that in either event the continuance
also is approved by a majority of the Board members who are not "interested
persons" (as defined in the 1940 Act) of the Fund or Womack, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Womack Sub-Advisory Agreement is terminable without penalty, (i) by the Adviser
on 60 days' notice, (ii) by the Fund's Board or by vote of the holders of a
majority of the Fund's outstanding voting securities on 60 days' notice, or
(iii) upon not less than 90 days' notice, by Womack. The Womack Sub-Advisory
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act). Under the terms of the Womack Sub-Advisory Agreement,
the Adviser has agreed to pay Womack a monthly fee at the annual rate of .35% of
the value of the Small-Cap Opportunity Fund's average daily net assets.
With respect to International Equity Fund, the Adviser has entered
into a Sub-Investment Advisory Agreement (the "Lazard Sub-Advisory Agreement")
with Lazard Asset Management ("Lazard") dated May 14, 1998. As to such Fund, the
Lazard Sub-Advisory Agreement is subject to annual approval by (i) the Board or
(ii) vote of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the continuance also is
approved by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or Lazard, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Lazard
Sub-Advisory Agreement is terminable without penalty, (i) by the Adviser on 60
days' notice, (ii) by the Fund's Board or by vote of the holders of a majority
of the Fund's outstanding voting securities on 60 days' notice, or (iii) upon
not less than 90 days' notice, by Lazard. The Lazard Sub-Advisory Agreement will
terminate automatically in the event of its assignment (as defined in the 1940
Act). Under the terms of the Lazard Sub-Advisory Agreement, the Adviser has
agreed to pay Lazard a monthly fee at the annual rate of .50% of the value of
the International Equity Fund's average daily net assets.
With respect to Mid-Cap Fund, the Adviser has entered into a
Sub-Investment Advisory Agreement (the "Bennett Lawrence Sub-Advisory
Agreement") with Bennett Lawrence Management, LLC ("Bennett Lawrence") dated
August 12, 1998. As to such Fund, the Bennett Lawrence Sub-Advisory Agreement is
subject to annual approval by (i) the Board or (ii) vote of a majority (as
defined in the 1940 Act) of the Fund's outstanding voting securities, provided
that in either event the continuance also is approved by a majority of the Board
members who are not "interested persons" (as defined in the 1940 Act) of the
Fund or Bennett Lawrence, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Bennett Lawrence Sub-Advisory Agreement
is terminable without penalty, (i) by the Adviser on 60 days' notice, (ii) by
the Fund's Board or by vote of the holders of a majority of the Fund's
outstanding voting securities on 60 days' notice, or (iii) upon not less than 90
days' notice, by Bennett Lawrence. The Bennett Lawrence Sub-Advisory Agreement
will terminate automatically in the event of its assignment (as defined in the
1940 Act). Under the terms of the Bennett Lawrence Sub-Advisory Agreement, the
Adviser has agreed to pay Bennett Lawrence a monthly fee at the annual rate set
forth below as a percentage of the average daily net assets of the Mid-Cap Fund:
ANNUAL RATE OF SUB-
AVERAGE DAILY NEW ADVISORY FEE PAYABLE
ASSETS OF MID-CAP FUND BY THE ADVISER
- ---------------------- ---------------------
on the first $25 million .75%
on the next $50 million .625%
on assets in excess of $75 million .50%
ADMINISTRATOR. BISYS Fund Services Ohio, Inc., a wholly-owned
subsidiary of The BISYS Group, Inc., provides certain administrative services
pursuant to the Administration Agreement (the "Administration Agreement") dated
October 29, 1998 with the Company. Under the Administration Agreement with the
Company, the Administrator generally assists in all aspects of the Funds'
operations, other than providing investment advice, subject to the overall
authority of the Company's Board of Directors in accordance with Maryland law.
In connection therewith, the Administrator provides the Funds 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 Funds' custodian. As to each Fund, the Administration
Agreement will continue until December 31, 2003 and thereafter is subject
to annual approval by (i) the Company's Board of Directors or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
such Fund, 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 Company or the Administrator, by vote cast in person at a
meeting called for the purpose of voting such approval. The Administration
Agreement was last approved by the Company'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 August 12, 1998. As to each Fund,
the Administration Agreement is terminable without penalty, at any time if for
cause, by the Company's Board of Directors or by vote of the holders of a
majority of such Fund's outstanding voting securities, or, on not less than 90
days' notice, by the Administrator. The Administration Agreement will terminate
automatically, as to the relevant Fund, in the event of its assignment (as
defined in the 1940 Act).
As compensation for the Administrator's services, the Company has
agreed to pay the Administrator a monthly administration fee at the annual rate
of .10% of the value of each Money Market Fund's average daily net assets and
.15% of the value of each other Fund's average daily net assets. For the fiscal
years and/or periods ended December 31, 1996, 1997 and 1998, as applicable, the
administration fees payable by each indicated Fund, the amounts waived by the
Administrator, and the actual net administration fees paid by each Fund, were as
follows:
<PAGE>
<TABLE>
<CAPTION>
NAME OF FUND ADMINISTRATION FEE PAYABLE REDUCTION IN FEE
- ------------ ------------------------------------- -----------------------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Large-Cap N/A N/A $630,646(3) N/A N/A $0
Equity Fund*
Capital Growth $49,609(1) $180,842 $231,959 $0 $0 $0
Fund
Equity Income N/A $76,658(2) $115,804 N/A $0 $0
Fund
International N/A N/A $68,863(3) N/A N/A $0
Equity Fund*
Small-Cap N/A N/A $90,864(3) N/A N/A $0
Opportunity
Fund*
Mid-Cap Fund+ N/A N/A N/A N/A N/A N/A
Income Fund $40,906(1) $98,491 $118,365 $0 $0 $0
Government N/A N/A $227,828(3) N/A N/A $0
Income Fund*
Limited Term $155,644 $149,081 $138,326 $0 $0 $0
Income Fund
Limited Term N/A $24,333(2) $32,459 N/A $17,844 $23,803
U.S. Government
Fund
Municipal N/A N/A $83,073(3) N/A N/A $0
Income Fund*
Tennessee Tax- $137,079 $150,681 $149,206 $0 $0 $0
Exempt Fund
Limited Term N/A $28,101(2) $33,862 N/A $20,607 $24,832
Tennessee Tax-
Exempt Fund
Treasury Money $183,791 $189,650 $192,322 $0 $0 $0
Market Fund
Prime Money $74,618 $80,064 $136,147 $0 $0 $0
Market Fund
Government N/A N/A N/A N/A N/A N/A
Money Market
Fund+
Tax-Exempt N/A N/A N/A N/A N/A N/A
Money Market
Fund+
Aggressive N/A N/A N/A N/A N/A N/A
Growth
Portfolio+
Growth N/A N/A N/A N/A N/A N/A
Portfolio+
Growth & Income N/A N/A N/A N/A N/A N/A
Portfolio+
Moderate Growth N/A N/A N/A N/A N/A N/A
& Income
Portfolio+
Current Income N/A N/A N/A N/A N/A N/A
Portfolio+
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series, a
registered investment company administered by an entity other than the
Administrator.
+ As of December 31, 1998, the Fund had not commenced operations.
(1) For the period April 1, 1996 (commencement of operations) through December
31, 1996.
(2) For the period February 28, 1997 (commencement of operations) through
December 31, 1997.
(3) For the period March 1, 1998 through December 31, 1998.
</TABLE>
NAME OF FUND NET FEE PAID
- ------------ ------------------------------------
1996 1997 1998
---- ---- ----
Large-Cap N/A N/A $630,646
Equity Fund*
Capital Growth $49,609 $180,842 $231,959
Fund
Equity Income N/A $76,658 $115,804
Fund
International N/A N/A $68,863
Equity Fund*
Small-Cap N/A N/A $90,864
Opportunity
Fund*
Mid-Cap Fund+ N/A N/A N/A
Income Fund $40,906 $98,491 $118,365
Government N/A N/A $227,828
Income Fund*
Limited Term $155,644 $149,081 $138,326
Income Fund
Limited Term N/A $6,489 $8,656
U.S. Government
Fund
Municipal N/A N/A $83,073
Income Fund*
Tennessee Tax- $137,079 $150,681 $149,206
Exempt Fund
Limited Term N/A $7,494 $9,030
Tennessee Tax-
Exempt Fund
Treasury Money $183,791 $189,650 $192,322
Market Fund
Prime Money $74,618 $80,064 $136,147
Market Fund
Government N/A N/A N/A
Money Market
Fund+
Tax-Exempt N/A N/A N/A
Money Market
Fund+
Aggressive N/A N/A N/A
Growth
Portfolio+
Growth N/A N/A N/A
Portfolio+
Growth & Income N/A N/A N/A
Portfolio+
Moderate Growth N/A N/A N/A
& Income
Portfolio+
Current Income N/A N/A N/A
Portfolio+
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series, a
registered investment company administered by an entity other than the
Administrator.
+ As of December 31, 1998, the Fund had not commenced operations.
(1) For the period April 1, 1996 (commencement of operations) through December
31, 1996.
(2) For the period February 28, 1997 (commencement of operations) through
December 31, 1997.
(3) For the period March 1, 1998 through December 31, 1998.
DISTRIBUTOR. BISYS Fund Services Limited Partnership, a wholly-owned
subsidiary of The BISYS Group, Inc., acts as the exclusive distributor of each
Fund's shares on a best efforts basis pursuant to a Distribution Agreement (the
"Distribution Agreement") dated November 11, 1997, with the Company. Shares are
sold on a continuous basis by the Distributor as agent, although the Distributor
is not obliged to sell any particular amount of shares. No compensation is
payable by the Company to the Distributor pursuant to the Distribution Plan for
its distribution services.
For fiscal year ended December 31, 1996, the Distributor did not
retain any amounts from sales loads on shares of any Fund. For the fiscal years
ended December 31, 1997 and 1998, the Distributor retained $28,514 and $111,381,
respectively, and re-allowed $28,434 and $2,316, respectively, to affiliated
broker/dealers of the Company from sales loads on Class A Shares. For the fiscal
years ended December 31, 1997 and 1998, the Distributor retained $0 and
$440,902, respectively, and re-allowed $0 and $1,198, respectively, to
affiliated broker/dealers of the Company from contingent deferred sales charges
on Class B Shares.
DISTRIBUTION PLAN. (Applicable only with respect to Class A Shares of
each Fund other than the Prime Money Market Fund and Treasury Money Market Fund
and Class B Shares of each Fund offering Class B Shares) 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
Company's Directors have adopted such a plan (the "Distribution Plan") with
respect to Class A Shares of each Fund other than the Prime Money Market Fund
and Treasury Money Market Fund and Class B Shares of each Fund offering Class B
Shares pursuant to which each such Fund pays the Distributor for advertising,
marketing and distributing Class A Shares and Class B Shares at an annual rate
of .25% and .75% of the value of the average daily net assets represented by
Class A Shares and Class B Shares, respectively. Under the Distribution Plan,
the Distributor may make payments to certain financial institutions, securities
dealers and other industry professionals that have entered into agreements with
the Distributor ("Service Organizations") in respect of these services. The
Distributor 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, the
Distributor 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 the Distributor under the Distribution Plan for
advertising, marketing and distributing are payable without regard to actual
expenses incurred. The Company's Directors believe that there is a reasonable
likelihood that the Distribution Plan will benefit each such Fund 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 Company 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 November 18, 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 Fund'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).
For the fiscal year and/or period ended December 31, 1998, the
Distribution Plan fees payable by each indicated Fund, the amounts waived by the
Distributor, and the actual net Distribution Plan fees paid by each Fund, were
as follows:
<PAGE>
<TABLE>
<CAPTION>
NAME OF FUND DISTRIBUTION PLAN FEE PAYABLE REDUCTION IN FEE NET FEE PAID
- ------------ --------------------------------- ------------------------- -------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Large-Cap $0(1) $23(2) $0 $23 $0 $0
Equity Fund*
Capital Growth $6,073 $8,089 $0 $0 $6,073 $8,089
Fund
Equity Income $4,515 $13,211 $0 $0 $4,515 $13,211
Fund
International $0(1) N/A $0 N/A $0 N/A
Equity Fund*
Small-Cap $0(1) $2(3) $0 $2 $0 $0
Opportunity
Fund*
Mid-Cap Fund+ N/A N/A N/A N/A N/A N/A
Income Fund $3,242 $5,085 $0 $0 $3,242 $5,085
Government $0(1) N/A $0 N/A $0 N/A
Income Fund*
Limited Term $16,575 $2,615 $0 $0 $16,575 $2,615
Income Fund
Limited Term $48,533 $1,398 $48,533 $0 $0 $1,398
U.S. Government
Fund
Municipal $0(1) N/A $0 N/A $0 N/A
Income Fund*
Tennessee Tax- $6,387 $5,131 $0 $0 $6,387 $5,131
Exempt Fund
Limited Term $55,168 $3,332 $55,168 $0 $0 $3,332
Tennessee Tax-
Exempt Fund
Prime Money N/A $476 N/A $0 N/A $476
Market Fund
Government N/A N/A N/A N/A N/A N/A
Money Market
Fund+
Tax-Exempt N/A N/A N/A N/A N/A N/A
Money Market
Fund+
Aggressive N/A N/A N/A N/A N/A N/A
Growth
Portfolio+
Growth N/A N/A N/A N/A N/A N/A
Portfolio+
Growth & Income N/A N/A N/A N/A N/A N/A
Portfolio+
Moderate Growth N/A N/A N/A N/A N/A N/A
& Income
Portfolio+
Current Income N/A N/A N/A N/A N/A N/A
Portfolio+
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series and
was not subject to the Distribution Plan.
+ As of December 31, 1998, the Fund had not commenced operations.
(1) For the period March 1, 1998 through December 31, 1998.
(2) For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
(3) For the period December 21, 1998 (commencement of operations) through December
31, 1998.
</TABLE>
Of the $36,792 paid by Class A and $39,337 paid by Class B pursuant to
the Distribution Plan, $28,937 and $39,337, respectively, was paid to
broker/dealers in connection with the sale of Fund shares and $7,855 paid by
Class A and $0 paid by Class B was retained by the Distributor in connection
with advertising and marketing Fund shares.
SHAREHOLDER SERVICES PLAN. The Company's Directors have adopted a
shareholder services plan (the "Shareholder Services Plan") pursuant to which
each Fund pays the Distributor for the provision of certain services to the
holders of its shares at an annual rate of .15% of the value of the average
daily net assets represented by Institutional Shares and Class A Shares (.25% in
the case of the Prime Money Market Fund and Treasury Money Market Fund) 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
Fund 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, the Distributor may make payments to certain Service
Organizations in respect of these services. The Distributor 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 Shareholder Services Plan thereafter. The fees payable to
BISYS under the Shareholder Services Plan are payable without regard to actual
expenses incurred. The Company's Directors believe that there is a reasonable
likelihood that the Shareholder Services Plan will benefit each Fund 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 Company 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 November 18, 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).
For the fiscal year and/or period ended December 31, 1998, the
Shareholder Services Plan fees payable by each indicated Fund, the amounts
waived by the Distributor, and the actual net Shareholder Services Plan fees
paid by each Fund, were as follows:
<TABLE>
<CAPTION>
SHAREHOLDER SERVICES PLAN
NAME OF FUND FEE PAYABLE REDUCTION IN FEE
- ------------ -------------------------- --------------------------------------
INST. CLASS A CLASS B INST. CLASS A CLASS B
----- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Large-Cap $54,187(1) $899,369(2) $8(3) $0 $0 $8
Equity Fund*
Capital $0 $0 $2,697 $0 $0 $0
Growth Fund
Equity Income $0 $0 $4,404 $0 $0 $0
Fund
International $1,923(1) $34,073(2) N/A $0 $0 N/A
Equity Fund*
Small-Cap $6,414(1) $131,641(2) $1(4) $0 $0 $1
Opportunity
Fund*
Mid-Cap N/A N/A N/A N/A N/A N/A
Fund+
Income Fund $0 $0 $1,695 $0 $0 $0
Government $20,409(1) 319,247(2) N/A $0 $0 N/A
Income Fund*
Limited Term $0 $0 $871 $0 $0 $0
Income Fund
Limited Term $0 $0 $466 $0 $0 $0
U.S.
Government
Fund
Municipal $3,797(1) $64,495(2) N/A $0 $0 N/A
Income Fund*
Tennessee $0 $0 $1,710 $0 $0 $0
Tax-Exempt
Fund
Limited Term N/A $0 $1,110 N/A $0 $0
Tennessee
Tax-Exempt
Fund
Treasury $0 $230,368 N/A $0 $0 N/A
Money Market
Fund
Prime Money N/A $200,958 $159 N/A $0 $0
Market Fund
Government N/A N/A N/A N/A N/A N/A
Money Market
Fund+
Tax-Exempt N/A N/A N/A N/A N/A N/A
Money Market
Fund+
Aggressive N/A N/A N/A N/A N/A N/A
Growth
Portfolio+
Growth
Portfolio+ N/A N/A N/A N/A N/A N/A
Growth & N/A N/A N/A N/A N/A N/A
Income
Portfolio+
Moderate N/A N/A N/A N/A N/A N/A
Growth &
Income
Portfolio+
Current N/A N/A N/A N/A N/A N/A
Income
Portfolio+
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series and
was not subject to the Shareholder Services Plan.
+ As of December 31, 1998, the Fund had not commenced operations.
(1) For the period December 14, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period March 1, 1998 through December 31, 1998.
(3) For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
(4) For the period December 21, 1998 (commencement of operations) through
December 31, 1998.
</TABLE>
NAME OF FUND NET FEE PAID
- ------------ --------------------------------------
INST. CLASS A CLASS B
----- ------- -------
Large-Cap $54,187 $899,369 $0
Equity Fund*
Capital $0 $0 $2,697
Growth Fund
Equity Income $0 $0 $4,404
Fund
International $1,923 $34,073 N/A
Equity Fund*
Small-Cap $6,414 $131,641 $0
Opportunity
Fund*
Mid-Cap N/A N/A N/A
Fund*+
Income Fund $0 $0 $1,695
Government $20,409 $319,247 N/A
Income Fund*
Limited Term $0 $0 $871
Income Fund
Limited Term $0 $0 $466
U.S.
Government
Fund
Municipal $3,797 64,495 N/A
Income Fund*
Tennessee $0 $0 $1,710
Tax-Exempt
Fund
Limited Term N/A $0 $1,110
Tennessee
Tax-Exempt
Fund
Treasury $0 $230,368 N/A
Money Market
Fund
Prime Money N/A $200,958 $159
Market Fund
Government N/A N/A N/A
Money Market
Fund+
Tax-Exempt N/A N/A N/A
Money Market
Fund+
Aggressive N/A N/A N/A
Growth
Portfolio+
Growth
Portfolio+ N/A N/A N/A
Growth & N/A N/A N/A
Income
Portfolio+
Moderate N/A N/A N/A
Growth &
Income
Portfolio+
Current N/A N/A N/A
Income
Portfolio+
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series and
was not subject to the Shareholder Services Plan.
+ As of December 31, 1998, the Fund had not commenced operations.
(1) For the period December 14, 1998 (commencement of operations) through
December 31, 1998.
(2) For the period March 1, 1998 through December 31, 1998.
(3) For the period December 15, 1998 (commencement of operations) through
December 31, 1998.
(4) For the period December 21, 1998 (commencement of operations) through
December 31, 1998.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. BISYS Fund
Services Ohio, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of The
BISYS Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is
the Company's transfer and dividend disbursing agent. Under a transfer agency
agreement with the Company, the Transfer Agent arranges for the maintenance of
shareholder account records for each Fund, the handling of certain
communications between shareholders and the Fund and the payment of dividends
and distributions payable by the Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for each Fund during the month, and is reimbursed for
certain out-of-pocket expenses.
First American National Bank acts as custodian of the investments of
each Fund. Under a custody agreement with the Company, First American National
Bank provides for the holding of each Fund's securities and the retention of all
necessary accounts and records. For its custody services, First American
National Bank receives a monthly fee based on the market value of the Funds'
assets held in custody and receives certain securities transactions charges. The
Bank of New York, 90 Washington Street, New York, New York 10286, is the Funds'
sub-custodian.
EXPENSES. All expenses incurred in the operation of the Company are
borne by the Company, except to the extent specifically assumed by others. The
expenses borne by the Company include: 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 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 each Fund'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 Fund are charged against the assets of that Fund; other expenses of the
Company are allocated among the Funds on the basis determined by the Board of
Directors, including, but not limited to, proportionately in relation to the net
assets of each Fund.
PURCHASE AND REDEMPTION OF SHARES
ALTERNATIVE PURCHASE METHODS. Orders for purchases of Institutional
Shares (also referred to as "Class I Shares"), may be placed only for certain
eligible investors as described below. An investor who is not eligible to
purchase Institutional 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. Class B Shares are not offered for the Treasury
Money Market Fund. Each Class A, Class B and Institutional Share represents an
identical pro-rata interest in a Fund's investment portfolio.
Class A Shares are sold at net asset value per share plus, for each
Fund, other than the Money Market Funds, 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 Fund. 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. Shareholders investing directly in Class
B Shares of the Prime Money Market Fund, as opposed to obtaining such shares
through an exchange, will be required to participate in the Prime Money Market
Fund's Auto-Exchange Plan. In accordance with said Plan, shareholders will be
required to establish the time and amount of their automatic exchanges such that
all of the Prime Money Market Fund Class B Shares so purchased will have been
exchanged for Class B Shares of the other Funds within two 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.
Institutional Shares are sold at net asset value with no sales charge.
Institutional 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 Institutional Shares because of the
higher expenses borne by Class A.
An investor who is not eligible to purchase Institutional Shares
should consider whether, during the anticipated life of the investor's
investment in the Fund, 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 the Distributor. Orders for
purchases of Institutional 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 Fund shares, you must specify
the Fund and Class of shares being purchased. The Adviser, its affiliates and
Service Organizations may receive different levels of compensation for selling
different Classes of Fund shares. Stock certificates will not be issued. It is
not recommended that the Tax-Exempt Fixed Income Funds be used as a vehicle for
Keogh, IRA and other qualified plans, because such plans are otherwise entitled
to tax deferred benefits. The Company 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 Institutional Shares of each Fund
is $100,000, with no subsequent minimum investment. The Institution through
which Institutional 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 Institutional 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 Fund 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.
You may purchase Class A Shares or Class B Shares by check or wire, or
through TeleTrade or, for the Money Market Funds only, a sweep program as
described below. 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 Funds' Account
Application for initial orders and your check or money order payable to: ISG
Funds (Fund Name), to 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 herein or in the Funds' Prospectus, and, to the
extent permitted by applicable regulatory authority, may charge their clients a
direct fee for effecting transactions in Fund shares. You should consult the
Adviser, its affiliates or your Service Organization in this regard.
SALES LOADS. (Applicable to Class A Shares of each Fund other than the
Money Market Funds). The public offering price of Class A Shares of the Fixed
Income Funds, Tax-Exempt Fixed Income Funds and Current Income Portfolio is the
net asset value per share of that Class, plus a sales load as shown below:
<TABLE>
<CAPTION>
TOTAL SALES LOAD
-----------------
AS A % OF DEALERS' REALLOWANCE
AS A % OF NET ASSET AS A % OF OFFERING
AMOUNT OF TRANSACTION OFFERING PRICE VALUE PRICE
- --------------------- -------------- --------- ---------------------
<S> <C> <C> <C>
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%
</TABLE>
The public offering price of Class A Shares of the Equity Funds and Aggressive
Growth Portfolio, Growth Portfolio, Growth & Income Portfolio and Moderate
Growth & Income Portfolio is the net asset value per share of that Class, plus,
except for shareholders who beneficially owned Class A Shares of Capital Growth
Fund and Equity Income Fund on September 30, 1997, a sales load as shown below:
<TABLE>
<CAPTION>
TOTAL SALES LOAD
----------------
AS A % OF DEALERS' REALLOWANCE
AS A % OF NET ASSET AS A % OF OFFERING
AMOUNT OF TRANSACTION OFFERING PRICE VALUE PRICE
- --------------------- -------------- ------------ --------------------
<S> <C> <C> <C>
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%
</TABLE>
For shareholders beneficially owning Class A Shares of the Capital Growth Fund
and Equity Income Fund on September 30, 1997, the public offering price of Class
A Shares of such Funds is the net asset value per share of that Class, plus a
sales load as shown below:
<TABLE>
<CAPTION>
TOTAL SALES LOAD
----------------
AS A % OF DEALERS' REALLOWANCE
AS A % OF NET ASSET AS A % OFFERING
AMOUNT OF TRANSACTION OFFERING PRICE VALUE PRICE
- --------------------- -------------- ---------- ---------------------
<S> <C> <C> <C>
Less than $100,000..................... 3.00% 3.09% 2.70%
$100,000 to less than
$250,000........................ 2.50% 2.56% 2.25%
$250,000 to less than
$500,000........................ 2.00% 2.04% 1.80%
$500,000 to less than
$750,000........................ 1.50% 1.52% 1.35%
$750,000 to less than
$1,000,000........................ 1.00% 1.01% 0.90%
$1,000,000 or more..................... 0% 0% 0%
</TABLE>
A CDSC of 1% will 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. The Distributor 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. Letter of Intent and Right of Accumulation apply to such
purchases of Class A Shares.
The scale of sales loads applies to purchases of Class A Shares of
each Fund other than the Prime Money Market Fund and Treasury Money Market Fund
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 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.
Set forth below are examples of the method of computing the offering
price of Class A Shares. The examples assume a purchase of Class A Shares of the
indicated Fund aggregating less than $50,000 subject to the current schedule of
sales charges set forth above for Class A Shares at a price based upon the net
asset value of the Fund's Class A Shares on December 31, 1998:
LARGE-CAP EQUITY FUND:
Net Asset Value per Share $ 27.55
Per Share Sales Charge - 4.75%
of offering price (4.99% of
net asset value per share) $ 1.37
----------------
Per Share Offering Price to
the Public $ 28.92
================
SMALL-CAP OPPORTUNITY FUND:
Net Asset Value per Share $ 12.93
Per Share Sales Charge - 4.75%
of offering price (4.99% of
net asset value per share) $ .64
----------------
Per Share Offering Price to
the Public $ 13.57
================
INTERNATIONAL EQUITY FUND:
Net Asset Value per Share $ 10.58
Per Share Sales Charge - 4.75%
of offering price (4.99% of
net asset value per share) $ .53
----------------
Per Share Offering Price to
the Public $ 11.11
================
CAPITAL GROWTH FUND*:
Net Asset Value per Share $ 14.20
Per Share Sales Charge - 4.75%
of offering price (4.99% of
net asset value per share) $ .71
----------------
Per Share Offering Price to
the Public $ 14.91
================
EQUITY INCOME FUND*:
Net Asset Value per Share $ 10.05
Per Share Sales Charge - 4.75%
of offering price (4.99% of
net asset value per share) $ .50
----------------
Per Share Offering Price to
the Public $ 10.55
================
- -----------
* Class A Shares of the Capital Growth Fund and Equity Income Fund purchased
by shareholders beneficially owning Class A Shares of such Funds on
September 30, 1997 are subject to a different sales load schedule, as
described above.
LIMITED TERM INCOME FUND:
Net Asset Value per Share $ 10.05
Per Share Sales Charge - 3.00%
of offering price (3.09% of $ .31
net asset value per share) ----------------
Per Share Offering Price to
the Public $ 10.36
================
LIMITED TERM U.S. GOVERNMENT FUND:
Net Asset Value per Share $ 10.25
Per Share Sales Charge - 3.00%
of offering price (3.09% of $ .32
net asset value per share) ----------------
Per Share Offering Price to
the Public $ 10.57
=================
LIMITED TERM TENNESSEE TAX-EXEMPT FUND:
Net Asset Value per Share $ 10.11
Per Share Sales Charge - 3.00%
of offering price (3.09% of $ .31
net asset value per share) ----------------
Per Share Offering Price to
the Public $ 10.42
================
TENNESSEE TAX-EXEMPT FUND:
Net Asset Value per Share $ 10.19
Per Share Sales Charge - 3.00%
of offering price (3.09% of
net asset value per share) $ .32
----------------
Per Share Offering Price to
the Public $ 10.51
================
INCOME FUND:
Net Asset Value per Share $ 10.39
Per Share Sales Charge - 3.00%
of offering price (3.09% of
net asset value per share) $ .32
----------------
Per Share Offering Price to
the Public $ 10.71
================
GOVERNMENT INCOME FUND:
Net Asset Value per Share $ 10.38
Per Share Sales Charge - 3.00%
of offering price (3.09% of $ .32
net asset value per share) ================
Per Share Offering Price to
the Public $ 10.70
================
MUNICIPAL INCOME FUND:
Net Asset Value per Share $ 10.96
Per Share Sales Charge - 3.00%
of offering price (3.09% of $ .34
net asset value per share) ----------------
Per Share Offering Price to
the Public $ 11.30
================
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 the Distributor pertaining to the sale of Fund shares, full-time
employees of the Adviser or the Distributor, their spouses and minor children,
current and retired directors of the Adviser or any of its 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 the Distributor pertaining
to the sale of Fund shares, provided that they have furnished the Distributor
appropriate notification of such status at the time of the investment and with
such information as the Distributor may request from time to time in order to
verify eligibility for this privilege. This privilege also applies to the
Company'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, the Distributor or
their affiliates or subsidiaries or pursuant to a payroll deduction system which
makes direct investments in a Fund 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.
Class A Shares also may be purchased at net asset value or at a
reduced sales load, subject to appropriate documentation, through a
broker-dealer or other financial institution with the proceeds from the
redemption of shares of a registered open-end management investment company not
managed by the Adviser or its affiliates. The purchase of Class A Shares of a
Fund must be made within 90 days of such redemption and the shares redeemed must
have been subject to an initial sales charge or a contingent deferred sales
charge to have the Fund's sales load waived or reduced to the extent of such
sales charge.
The dealer reallowance may be changed from time to time but will
remain the same for all dealers. From time to time, the Distributor may make or
allow additional payments or promotional incentives in the form of cash or other
compensation to dealers that sell Fund 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 Funds, 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: travel and lodging at vacation locations; tickets for
entertainment events; and merchandise. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of Fund shares. None of the aforementioned compensation is paid for by the
Company, any Fund or its shareholders.
RIGHT OF ACCUMULATION--CLASS A SHARES. Reduced sales loads apply to
any purchase of Class A Shares by you and any related "purchaser," where the
aggregate investment in Class A Shares among any of the Funds 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 Municipal Income Fund,
with an aggregate current market value of $40,000 and subsequently purchase
Class A Shares of the Municipal Income Fund 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 Funds may be subject to different sales load schedules, as described
above. 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 the investor's 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.
CONTINGENT DEFERRED SALES CHARGE. If a shareholder redeems Class B
Shares prior to the sixth anniversary of purchase, the shareholder will pay a
CDSC at the rates set forth below. The CDSC is assessed on an amount equal to
the lesser of the then-current market value or the cost of the Class B Shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price. In addition, no charge is assessed
on Class B Shares derived from reinvestment of dividends or capital gain
distributions.
The amount of CDSC, if any, varies depending on the number of years
from the time of payment for the purchase of 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 are 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
INVESTED OR REDEMPTION
YEAR SINCE PURCHASE 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
When an investor redeems his or her Class B Shares, the redemption
order is processed so as to minimize the amount of the CDSC that will be
charged. Class B Shares that are not subject to the CDSC (i.e., Class B Shares
that were acquired through reinvestment of dividends or capital gain
distributions) are redeemed first and after that Class B Shares that have been
held the longest are redeemed.
To provide an example, assume you purchased 100 Class B Shares at $10
per share (a total cost of $1,000) and prior to the second anniversary after
purchase, the net asset value per share is $12 and during such time you have
acquired 10 additional Class B Shares through dividends reinvested in Class B
Shares. If you then make your first redemption of 50 Class B Shares (proceeds of
$600), the first 10 Class B Shares will not be subject to the CDSC because you
received them as dividends. With respect to the remaining 40 Class B Shares, the
CDSC is applied only to the original cost of $10 per share and not to the
increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds is subject to a CDSC at a rate of 3.00% (the applicable rate
prior to the second anniversary after purchase).
The Distributor compensates certain Service Organizations for selling
Class B Shares at the time of purchase from the Distributor's 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, the Administrator or their affiliates or subsidiaries or which make
direct investments in the Fund by means of electronic data transmission, (c)
redemptions as a result of a combination of any investment company with the Fund
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 Funds' Prospectus and this Statement of Additional Information.
Any Fund shares subject to a CDSC which were purchased prior to the termination
of such waiver will have the CDSC waived as provided in the Funds' 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 and 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") 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.
"SWEEP" PROGRAM. (Applicable to the Money Market Funds Only) Shares of
the Money Market Funds may be purchased or sold through the "sweep" program
established by certain financial institutions under which a portion of their
customers' accounts may be automatically invested in the Fund. The customer
becomes the beneficial owner of specific shares of the Fund which may be
purchased, redeemed and held by the financial institution in accordance with the
customer's instructions and may fully exercise all rights as a shareholder. The
shares will be held by the Transfer Agent in book-entry form. A statement with
regard to the customer's shares is generally supplied to the customer monthly,
and confirmations of all transactions for the account of the customer ordinarily
are available to the customer promptly on request. In addition, each customer is
sent proxies, periodic reports and other information from the Company with
regard to shares of the Funds. The customer's shares are fully assignable and
may be encumbered by the customer. The "sweep" agreement can be terminated by
the customer at any time, without affecting its beneficial ownership of the
shares.
To obtain the benefits of this service, a customer typically is
required to maintain a minimum balance subject to a monthly maintenance fee, or
a higher minimum balance for which no monthly fee would be imposed. In either
case, a penalty fee is imposed if the minimum should not be maintained. In
general, the automatic investment in the Fund's shares occurs on the same day
that withdrawals are made by the financial institution, at the next determined
net asset value after the order is received.
All agreements which relate to the service are with the financial
institution. Neither the Distributor nor the Company is a party to any of those
agreements and no part of the compensation received by the financial institution
flows to the Company or to BISYS or to any of their affiliates, either directly
or indirectly. Further information concerning this program and any related
charges or fees is provided by the financial institution prior to any purchase
of the Fund's shares. Any fees charged by the financial institution effectively
reduces the Fund's yield for those customers.
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.
SIGNATURE-GUARANTIES. Written redemption requests must be signed by
each shareholder, including each holder of a joint account, and each signature
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-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. 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.
REDEMPTION COMMITMENT. Each Fund 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 Fund'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 Fund to the detriment of the existing shareholders. In this
event, the securities would be valued in the same manner as the Fund is valued.
If the recipient sold such securities, brokerage charges might be incurred.
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 Fund normally utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Fund'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 Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
GENERAL. Expenses and fees, including the advisory fee and fees paid
pursuant to the Distribution Plan and Shareholder Services Plan, are accrued
daily and taken into account for the purpose of determining the net asset value
of the relevant Class of Fund shares. Each Strategic Portfolio's net asset value
will fluctuate with changes in the securities markets and the value of the
Underlying Funds in which it invests. Each Underlying Fund'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 Fund's investments.
LARGE-CAP EQUITY, SMALL-CAP OPPORTUNITY, MID-CAP, INTERNATIONAL
EQUITY, CAPITAL GROWTH, AND EQUITY INCOME FUNDS. Each of these Funds'
securities, including covered call options written by the Fund, 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
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 Fund's securities. Debt securities
maturing in 60 days or less generally 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 Board of Directors. Any securities or
other assets for which recent market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Board of
Directors.
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 Board of Directors, are valued at fair value as
determined in good faith by the Board of Directors. The Board of Directors will
review the method of valuation on a current basis. In making their good faith
valuation of restricted securities, the Directors 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 of Directors if the Directors 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 of Directors.
INCOME, GOVERNMENT INCOME, LIMITED TERM INCOME AND LIMITED TERM U.S.
GOVERNMENT FUNDS. Each of these Funds' 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
of Directors. 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 Company's officers under the general
supervision of the Board of Directors.
MUNICIPAL INCOME, TENNESSEE TAX-EXEMPT AND LIMITED TERM TENNESSEE
TAX-EXEMPT FUNDS. Each of these Funds' investments are valued by the Service.
When, in the judgment of the Service, quoted bid prices for investments are
readily available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the Fund's securities) are carried
at fair value as determined by the Service, based on methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. The Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. The Service's procedures are
reviewed by the Company's officers under the general supervision of the Board of
Directors.
PRIME MONEY MARKET FUND, GOVERNMENT MONEY MARKET FUND, TREASURY MONEY
MARKET FUND AND TAX-EXEMPT MONEY MARKET FUND. The valuation of each of these
Funds' 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 Fund would
receive if it sold the instrument.
The Board of Directors has established, as a particular responsibility
within the overall duty of care owed to each of these Funds' investors,
procedures reasonably designed to stabilize each such Fund's price per share as
computed for the purpose of purchases and redemptions at $1.00. Such procedures
include review of the Fund's investment holdings by the Board of Directors, at
such intervals as it deems appropriate, to determine whether such Fund'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 of Directors. With respect to the Tax-Exempt Money Market Fund,
market quotations and market equivalents used in the Board's review are obtained
from an independent pricing service (the "Service") approved by the Board. The
Service values the Tax-Exempt Money Market Fund's investments based on methods
which include considerations of: yields or prices of municipal obligations of
comparable quality, coupon, maturity and type; indications of values from
dealers; and general market conditions. The Service also may employ electronic
data processing techniques and/or a matrix system to determine valuations.
The extent of any deviation between a Fund'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 of Directors. If such deviation
exceeds 1/2 of 1%, the Board of Directors promptly will consider what action, if
any, will be initiated. In the event the Board of Directors determines that a
deviation exists which may result in material dilution or other unfair results
to investors or existing 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.
SHAREHOLDER SERVICES AND 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 the Prospectus or this Statement of
Additional Information. 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 Fund, shares of the same Class of another Fund in the
ISG Family of Funds, 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 the Administrator to determine if it is available and
whether any conditions are imposed on its use.
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 Fund 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 Fund 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 Company 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 Company
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 Fund 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.
AUTO-EXCHANGE PLAN--PRIME, GOVERNMENT AND TAX-EXEMPT MONEY MARKET
FUNDS ONLY. The Auto-Exchange Plan enables holders of Class B Shares of these
Money Market Funds to make regular monthly or quarterly exchanges into Class B
Shares of another Fund. The Transfer Agent will exchange automatically Class B
Shares of the Fund in the amount specified (subject to applicable minimums)
according to the schedule the investor has selected. Shares will be exchanged at
the then-current net asset value. No CDSC will be imposed at the time of the
exchange; however, the Class B Shares acquired through an exchange will be
subject on redemption to the applicable CDSC, which will be calculated from the
date of the initial purchase of the Class B Shares exchanged.
Shareholders investing directly in Class B Shares of these Money
Market Funds, as opposed to through an exchange, will be required to participate
in the Auto-Exchange Plan and to establish the time and amount of their
automatic exchanges such that all of the Class B Shares of the Fund so purchased
will have been exchanged for Class B Shares of the other Funds within two years
of purchase.
To participate in the Auto-Exchange Plan, shareholders must complete
the appropriate section of the Account Application. The Auto-Exchange Plan may
be modified or canceled by the Company or the Administrator at any time. You may
modify your instructions or cancel your participation in the Auto-Exchange Plan
at any time by mailing written notification to ISG Funds, c/o BISYS Fund
Services, Inc., Department L-1686, Columbus, Ohio 43260-1686.
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 the Administrator. You may cancel your
participation in the Automatic Investment Plan or change the amount of purchase
at any time by mailing written notification to 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
Company 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 Fund in Class A or Class B Shares of another Fund of which you are a
shareholder. Class A or Class B Shares of the other Fund 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 Company 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 Company 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 Fund 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
the Administrator 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 Fund 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 Company 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.
PERFORMANCE INFORMATION
Current yield is computed pursuant to a formula which operates as
follows: The amount of the Fund's expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned by the Fund 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.
Tax equivalent yield is computed by dividing that portion of the
current yield (calculated as described above) which is tax exempt by 1 minus a
stated tax rate and adding the quotient to that portion, if any, of the yield of
the Fund that is not tax exempt.
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 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.
Seven-day yield will be computed in accordance with a standardized
method which involves determining the net change in the value of a hypothetical
pre-existing Fund account having a balance of one share at the beginning of a
seven calendar day period for which yield is to be quoted, dividing the net
change by the value of the account at the beginning of the period to obtain the
base period return, and annualizing the results (i.e., multiplying the base
period return by 365/7). The net change in the value of the account reflects the
value of additional shares purchased with dividends declared on the original
share and any such additional shares and fees that may be charged to shareholder
accounts, in proportion to the length of the base period and the Fund's average
account size, but does not include realized gains and losses or unrealized
appreciation and depreciation. Effective annualized yield is computed by adding
1 to the base period return (calculated as described above), raising that sum to
a power equal to 365 divided by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held, their maturity and operating expenses. An
investor's principal in the Fund is not guaranteed. See "Determination of Net
Asset Value" for a discussion of the manner in which each Fund's price per share
is determined.
Set forth below is the average annual total return for the indicated
Fund and Class of shares as of December 31, 1998:
INTERNATIONAL EQUITY FUND
Average Annual
Total Return
Without Sales With Sales
CHARGE CHARGE*
Class A Shares
1-Year..................................... 9.47% 4.31%
Since Inception 8/15/97.................... 4.48% 0.83%
* Reflects the maximum sales charge of 4.75%.
Average Annual
Institutional Shares Total Return
1-Year..................................... 9.47%
Since Inception 8/15/97.................... 4.48%
The quoted returns reflect the performance from 8/15/97 to 12/14/98 of the DG
International Equity Fund, an open-end investment company that was the
predecessor fund to the ISG International Equity Fund.
The Institutional Share class was initially offered on 12/14/98 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
SMALL-CAP OPPORTUNITY FUND
Average Annual
Total Return
Without Sales With Sales
Class A CHARGE CHARGE*
1-Year.................................... -7.20% -11.60%
5-Year.................................... 11.46% 10.39%
10-Year................................... 17.61% 17.05%
* Reflects the maximum sales charge of 4.75%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B
1-Year.................................... -7.13% -9.74%
5-Year.................................... 11.48% 10.35%
10-Year................................... 17.62% 17.62%
** Reflects the applicable contingent deferred sales charge
(maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... -7.20%
5-Year.................................... 11.46%
10-Year................................... 17.61%
The quoted returns reflect the performance from 8/1/94 to 12/14/98 of the DG
Opportunity Fund, an open-end investment company that was the predecessor fund
to the ISG Small-Cap Opportunity Fund.
Performance for the Class B Shares, which commenced operations on 12/21/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 12/14/98 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
CAPITAL GROWTH FUND
Average Annual
Total Return
Without Sales With Sales
Class A CHARGE CHARGE*
1-Year.................................... 32.05% 25.77%
5-Year.................................... 22.35% 21.15%
10-Year................................... 16.43% 15.87%
* Reflects the maximum sales charge of 4.75%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B
1-Year.................................... 30.96% 27.96%
5-Year.................................... 21.94% 21.85%
10-Year................................... 16.24% 16.24%
** Reflects applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 32.40%
5-Year.................................... 22.21%
10-Year................................... 16.36%
Performance for the Class B Shares, which commenced operations on 2/5/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 10/3/97 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
LARGE-CAP EQUITY FUND
Average Annual
Total Return
WITHOUT SALES WITH SALES
Class A Shares CHARGE CHARGE
1-Year.................................... 37.87% 31.30%
5-Year.................................... 24.81% 23.60%
Since Inception 8/3/92.................... 20.88% 19.97%
* Reflects the maximum sales charge of 4.75%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B Shares
1-Year.................................... 37.83% 34.83%
5-Year.................................... 24.80% 24.72%
Since Inception 8/3/92.................... 20.88% 20.88%
** Reflects the applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 37.83%
5-Year.................................... 24.80%
10-Year................................... 20.88%
The quoted returns reflect the performance from 8/3/92 to 12/14/98 of the DG
Equity Fund, an open-end investment company that was the predecessor fund to the
ISG Large-Cap Equity Fund.
Performance for the Class B Shares, which commenced operations on 12/15/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 12/14/98 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
EQUITY INCOME FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 19.46% 13.76%
5-Year.................................... 17.41% 16.28%
10-Year................................... 14.78% 14.21%
* Reflects the maximum sales charge of 4.75%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B Shares
1-Year.................................... 18.77% 15.87%
5-Year.................................... 17.28% 17.17%
10-Year................................... 14.71% 14.71%
** Reflects the applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 19.72%
5-Year.................................... 17.46%
10-Year................................... 14.80%
Performance for the Class B Shares, which commenced operations on 2/3/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 10/3/97 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
INCOME FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 8.28% 5.00%
5-Year.................................... 5.99% 5.35%
10-Year................................... 7.86% 7.53%
* Reflects the maximum sales charge of 3.00%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B Shares
1-Year.................................... 7.59% 4.59%
5-Year.................................... 5.84% 5.68%
10-Year................................... 7.78% 7.78%
**Reflects the applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 8.55%
5-Year.................................... 6.03%
10 Year................................... 7.88%
Performance for the Class B Shares, which commenced operations on 2/4/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 10/3/97 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
GOVERNMENT INCOME FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 8.95% 5.69%
5-Year.................................... 6.47% 5.83%
Since Inception 8/3/92.................... 6.91% 6.40%
* Reflects the maximum sales charge of 3.00%.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 8.83%
5-Year.................................... 6.45%
Since Inception 8/3/92.................... 6.89%
The quoted returns reflect the performance from 8/3/92 to 12/14/98 of the DG
Government Income Fund, an open-end investment company that was the predecessor
fund to the ISG Government Income Fund.
The Institutional Share class was initially offered on 12/14/98 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
LIMITED TERM INCOME FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 6.48% 3.28%
5-Year.................................... 5.48% 4.84%
10-Year................................... 6.94% 6.61%
* Reflects the maximum sales charge of 3.00%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B Shares
1-Year.................................... 5.86% 2.86%
5-Year.................................... 5.33% 5.17%
10-Year................................... 6.86% 6.86%
** Reflects the applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 6.86%
5-Year.................................... 5.54%
10-Year................................... 6.97%
Performance for the Class B Shares, which commenced operations on 2/4/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 10/3/97 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
LIMITED TERM U.S. GOVERNMENT FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 6.69% 3.52%
5-Year.................................... 5.01% 4.37%
10-Year................................... 6.91% 6.59%
* Reflects the maximum sales charge of 3.00%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B Shares
1-Year.................................... 5.93% 2.93%
5-Year.................................... 4.86% 4.69%
10-Year................................... 6.84% 6.84%
** Reflects the applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 6.64%
5-Year.................................... 5.00%
10-Year................................... 6.91%
Performance for the Class B Shares, which commenced operations on 3/3/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 12/14/98 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
TENNESSEE TAX-EXEMPT FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 4.25% 1.18%
5-Year.................................... 3.25% 2.63%
10-Year................................... 5.44% 5.11%
* Reflects the maximum sales charge of 3.00%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B Shares
1-Year.................................... 3.91% 0.91%
5-Year.................................... 3.19% 3.02%
10-Year................................... 5.41% 5.41%
** Reflects the applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 4.52%
5-Year.................................... 3.32%
10-Year................................... 5.47%
Performance for the Class B Shares, which commenced operations on 2/24/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
The Institutional Share class was initially offered on 10/3/97 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
MUNICIPAL INCOME FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 5.33% 2.14%
5-Year.................................... 5.06% 4.43%
Since Inception 12/29/92.................. 6.29% 5.75%
**Reflects the maximum sales charge of 3.00%.
Average Annual
Total Return
Institutional Shares
1-Year.................................... 5.34%
5-Year.................................... 5.06%
Since Inception 12/29/92.................. 6.29%
The quoted returns reflect the performance from 12/29/92 to 12/14/98 of the DG
Municipal Income Fund, an open-end investment company that was the predecessor
fund to the ISG Municipal Income Fund.
The Institutional Share class was initially offered on 12/14/98 and reflects the
historical performance of the Class A Shares (without sales charge) prior to
that date.
LIMITED TERM TENNESSEE TAX-EXEMPT FUND
Average Annual
Total Return
Without Sales With Sales
Class A Shares CHARGE CHARGE*
1-Year.................................... 3.76% 0.68%
5-Year.................................... 3.36% 2.74%
10-Year................................... 4.91% 4.58%
* Reflects the maximum sales charge of 3.00%.
Average Annual
Total Return
WITHOUT CDSC WITH CDSC**
Class B Shares
1-Year.................................... 2.76% -0.23%
5-Year.................................... 3.16% 2.98%
10-Year................................... 4.81% 4.81%
** Reflects the applicable contingent deferred sales charge (maximum 4.00%).
The data for Class B Shares primarily presents the results of the Class A
Shares. Actual Class B Shares average annual total return would have been lower.
Performance for the Class B Shares, which commenced operations on 2/3/98, is
based on the historical performance of the Class A Shares (without sales charge)
prior to that date. Class A Shares performance does not reflect the higher 12b-1
fees or the contingent deferred sales charge (CDSC). Had the CDSC and higher
12b-1 fees been incorporated, total return would have been lower.
Past performance is not a prediction of future results. Each Fund's investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original purchase price.
From time to time, advertising materials for a Fund 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 Fund may include
information concerning retirement and investing for retirement, average life
expectancy and pension and social security benefits. Comparative performance
information may be used from time to time in advertising or marketing each
Fund's shares, including data from Lipper Analytical Services, Inc.,
Morningstar, Inc., Bank Rate MonitorTM, IBC Money Fund Averages ReportTM, Bond
Buyer's 20-Bond Index, Moody's Bond Survey Bond Index, Lehman Brothers Aggregate
Bond Index and components thereof, S&P 500 Index, Russell 2000 Index, EAFE
Index, the Dow Jones Industrial Average, CDA/Wiesenberger Investment Companies
Service, Mutual Fund Values; Mutual Fund Forecaster, Mutual Fund Investing and
other industry publications.
DIVIDENDS, DISTRIBUTION AND TAXES
The Adviser believes that each operational Fund qualified as a
"regulated investment company" under the Code for the fiscal year ended December
31, 1998. Each Fund intends to continue to so qualify if such qualification is
in the best interests of its shareholders. To qualify as a regulated investment
company, the Fund 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 Fund
from any liability for Federal income taxes to the extent its earnings are
distributed in accordance with the applicable provisions of the Code. If a Fund
did not qualify as a regulated investment company, it would be treated for tax
purposes as an ordinary corporation subject to Federal income tax. 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 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 a Fund's income, the entire amount
or a portion of the dividends paid by the Fund 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 Fund distributed to qualifying corporate shareholders will be
eligible for the dividends received deduction only to the extent that such
Fund'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 Fund 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 Fund 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 Fund shares.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and options, and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code. In addition, all or a portion of the gain realized from the
disposition of market discount bonds will be treated as ordinary income under
Section 1276 of the Code. A market discount bond is defined as any bond
purchased by a Fund after April 30, 1993, and after its original issuance, at a
price below its face or accredited value. Finally, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as ordinary
income under Section 1258. "Conversion transactions" are defined to include
certain forward, futures, option and "straddle" transactions, transactions
marketed or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by the Fund
from certain financial futures and options transactions (other than those taxed
under Section 988 of the Code) will be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. Gain or loss will arise upon the
exercise or lapse of such futures and options as well as from closing
transactions. In addition, any such futures or options remaining unexercised at
the end of the Fund's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to the Fund characterized in
the manner described above.
Offsetting positions held by a Fund involving financial futures and
options may constitute "straddles." Straddles are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of straddles
is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Sections 988 and 1256 of the
Code. If the Fund was treated as entering into straddles by reason of its
futures or options transactions, such straddles could be characterized as "mixed
straddles" if the futures or options transactions comprising such straddles were
governed by Section 1256. The Fund may make one or more elections with respect
to "mixed straddles." Depending upon which election is made, if any, the results
to the Fund may differ. If no election is made, to the extent the straddle rules
apply to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle rules, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital gain on
straddle positions may be treated as short-term capital gain or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally will apply if a Fund 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 Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund 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.
Investment by a Fund in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount, timing
and character of distributions to shareholders by causing such Fund to recognize
income prior to the receipt of cash payments. For example, the Fund could be
required to accrue a portion of the discount (or deemed discount) at which the
securities were issued each year and to distribute such income in order to
maintain its qualifica tion as a regulated investment company. In such case, the
Fund may have to dispose of securities which it might otherwise have continued
to hold in order to generate cash to satisfy these distribution requirements.
The International Equity Fund may qualify for and may make an election
permitted under Section 853 of the Code so that shareholders may be eligible to
claim a credit or deduction on their Federal income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro rata
portion of qualified taxes paid or incurred by the Fund to foreign countries
(which taxes relate primarily to investment income). The International Equity
Fund may make an election under Section 853 of the Code, provided more than 50%
of the value of the Fund's total assets at the close of the taxable year
consists of securities in foreign corporations, and the Fund satisfies the
applicable distribution provisions of the Code. The foreign tax credit available
to shareholders is subject to certain limitations imposed by the Code.
If the International Equity Fund invests in an entity that is
classified as a "passive foreign investment company" ("PFIC") for Federal income
tax purposes, the operation of certain provisions of the Code applying to PFICs
could result in the imposition of certain federal income taxes on the Fund. In
addition, gain realized from the sale or other disposition of PFIC securities
may be treated as ordinary income under Section 1291 of the Code and gain
realized with respect to PFIC securities that are marked-to-market will be
treated as ordinary income under Section 1296 of the Code.
PORTFOLIO TRANSACTIONS
GENERAL. Transactions are allocated to various dealers by the Funds'
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. The allocation of brokerage transactions also may take into account a
broker's sales of Fund shares. No brokerage commissions have been paid to date,
except as noted below.
To the extent research services are furnished by brokers through which
a Fund effects securities transactions, the Adviser may use such information in
advising other funds or accounts it advises and, conversely, to the extent
research services are furnished to the Adviser by brokers in connection with
other funds or accounts the Adviser advises, the Adviser also may use such
information in advising the Funds. 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.
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. The Fund may pay commission rates in excess of those
another broker or dealer would have charged for effecting the same transaction,
if the Adviser determines in good faith that the commission paid is reasonable
in relation to the value of the brokerage and research services provided.
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 Company's Board of Directors has determined, in accordance with
Section 17(e) of the 1940 Act and Rule 17e-1 thereunder, that any portfolio
transaction for the Fund 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.
LARGE-CAP EQUITY, SMALL-CAP OPPORTUNITY, MID-CAP, INTERNATIONAL
EQUITY, CAPITAL GROWTH AND EQUITY INCOME FUNDS. 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 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. It is anticipated that in any fiscal year, the turnover rate for
each of these Funds generally should be less than 100%. Higher turnover rates
are likely to result in comparatively greater brokerage expenses.
For the fiscal years and/or periods ended December 31, 1996, 1997 and
1998, the amounts paid by the indicated Funds for brokerage commissions, gross
spreads and concessions on principal transactions, none of which was paid to the
Distributor, were as follows:
NAME OF FUND 1996 1997 1998
- ------------ ---- ---- ----
Large-Cap Equity $75,624(1) $74,672(2) $76,036(3)
Capital Growth $88,860(4) $360,208 $494,130
Small-Cap Opportunity $315,139(1) $498,832(2) $318,620(3)
Equity Income N/A $16,678(5) $314,269
International Equity N/A $67,394(2) $68,007(3)
- ------------------
(1) For the period March 1, 1996 through February 28, 1997.
(2) For the period March 1, 1997 through February 28, 1998.
(3) For the period March 1, 1998 through December 31, 1998.
(4) For the period April 1, 1996 (commencement of operations) through December
31, 1996.
(5) For the period February 27, 1997 (commencement of operations) through
December 31, 1997.
The aggregate amount of transactions during the last fiscal year in
securities effected on an agency basis through a broker for, among other things,
research services, and the commissions and concessions related to such
transactions for the indicated Funds were as follows:
COMMISSIONS/
NAME OF FUND TRANSACTION AMOUNTS CONCESSIONS
- ------------ ------------------- -------------
Large-Cap Equity $0 $0
Capital Growth $0 $0
Small-Cap Opportunity $0 $0
Equity Income $0 $0
International Equity $0 $0
During the fiscal years and/or periods ended December 31, 1996, 1997
and 1998, the amounts paid to the Adviser or its affiliates by the indicated
Fund for brokerage Commissions and the percentage such amounts represent of the
aggregate brokerage commissions paid by the Fund and of the aggregate dollar
amount of transactions for which the Fund paid brokerage commissions were as
follows:
<TABLE>
<CAPTION>
% OF AGGREGATE BROKERAGE % OF AGGREGATE DOLLAR
NAME OF FUND BROKERAGE COMMISSIONS COMMISSIONS AMOUNT OF TRANSACTIONS
- ------------ --------------------- ------------------------ ---------------------------
1996(1) 1997 1998 1996(1) 1997 1998 1996(1) 1997 1998
------- ---- ---- ------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth $0 $0 $34,567 0% 0% 6.99% 0% 0% 0.10%
Equity Income $0 $0 $17,821 0% 0% 5.67% 0% 0% 0.12%
- ------------------------
(1) For the period from April 1, 1996 (commencement of operations) through
December 31, 1996.
</TABLE>
INCOME, LIMITED TERM INCOME, MUNICIPAL INCOME, TENNESSEE TAX-EXEMPT,
LIMITED TERM TENNESSEE TAX-EXEMPT, GOVERNMENT INCOME, LIMITED TERM U.S.
GOVERNMENT, PRIME MONEY MARKET, GOVERNMENT MONEY MARKET, TREASURY MONEY MARKET
AND TAX-EXEMPT MONEY MARKET FUNDS. Purchases and sales of Fund 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 Fund 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 COMPANY AND THE FUNDS
The Fund is authorized to issue 28 billion 500 million shares of
Common Stock (with 1 billion 250 million shares allocated to the Prime Money
Market Fund and 750 million shares allocated to each other Fund), par value
$.001 per share. Each Fund's shares are classified into Class A Shares (250
million, 500 million in the case of each Money Market Fund), Class B Shares (250
million, except for Treasury Money Market Fund which does not offer Class B
Shares) and Institutional Shares (250 million, 500 million in the case of each
Money Market Fund). Each share has one vote and shareholders will vote in the
aggregate and not by Class except as otherwise required by law. Each Fund share,
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.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Company 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 Company 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
Company'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 Company 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 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.
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 Company, 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.
To date, 28 portfolios have been authorized. All consideration
received by the Company 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 Company) 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.
Each Fund will send annual and semi-annual financial statements to all
its shareholders.
As of January 31, 1999, the following shareholders owned of record 5%
or more of the outstanding shares of the indicated Fund and Class:
PERCENT OF TOTAL SHARES
NAME AND ADDRESS OF CLASS OUTSTANDING
- ---------------- -----------------------
ISG CAPITAL GROWTH FUND:
JC Bradford Company 8.35% (Class A Shares)
F/B/O Robert Jernigan
330 Commerce Street
Nashville, TN 37201-1899
FTC & Company 5.58% (Class A Shares)
Attn: Datalynx No. 106
P.O. Box 173736
Denver, CO 80217-3736
First American National Bank 56.32% (Class A Shares)
Attn: ISG Investment Management 96.80% (Institutional Shares)
and Trust
800 First American Center
Nashville, TN 37237
ISG EQUITY INCOME FUND:
First American National Bank 62.45% (Class A Shares)
Attn: ISG Investment Management 97.10% (Institutional Shares)
and Trust
800 First American Center
Nashville, TN 37237
ISG LARGE-CAP EQUITY FUND:
First American National Bank 85.59% (Institutional Shares)
Attn: ISG Investment Management
and Trust
800 First American Center
Nashville, TN 37237
NFSC FEBO FAN-156833 10.55% (Class B Shares)
Charles T. Duke
206 Bonnabrook Drive
Hermitage, TN 37076
NFSC FEBO FAN-158690 7.21% (Class B Shares)
Patricia A. Estes
104 Bill Stewart Blvd.
Lavergne, TN 37086
NFSC FEBO FAN-159417 7.06% (Class B Shares)
Albert Don Taylor
7492 Nolensville Road
Nolensville, TN 37135
ISG SMALL-CAP OPPORTUNITY FUND:
First American National Bank 90.76% (Institutional Shares)
Attn: ISG Investment Management
and Trust
800 First American Center
Nashville, TN 37237
NFSC FEBO FAE-004251 12.47% (Class B Shares)
First American National Bank,
Custodian
738 Tobylynn Drive
Nashville, TN 37211
NFSC FEBO FAN-110625 28.26% (Class B Shares)
Rhonda K. Sheppard, Custodian
532 Emily Drive
Smyrna, TN 37167
NFSC FEBO FAN-110833 26.31% (Class B Shares)
Rhonda K. Sheppard, Custodian
532 Emily Drive
Smyrna, TN 37167
NFSC FEBO FAN-110833 32.94% (Class B Shares)
Janis G. Lopez
2723 Albany Court
Murfreesboro, TN 37219
Sanwa Bank of California 15.76% (Class A Shares)
Wilshire Associates, Inc.
444 Market Street, 23rd Floor
San Francisco, CA 94111-5325
JC Bradford Company 12.96% (Class A. Shares)
RCIP Limited Partners 1
330 Commerce Street
Nashville, TN 37201-1899
ISG INCOME FUND:
First American National Bank 83.52% (Class A Shares)
Attn: ISG Investment Management 99.83% (Institutional Shares)
and Trust
800 First American Center
Nashville, TN 37237
NFSC FEBO FAN-107280 6.26% (Class B Shares)
Mary M. McGavock
115 Woodmont Blvd. Apt. 22O
Nashville, TN 37205
NFSC FEBO FAE-033243 10.40% (Class B Shares)
First American National Bank
6437 Thunderbird Drive
Nashville, TN 37208
NFSC FEBO FAN-109630 5.96% (Class B Shares)
Mildred V. Morgan
1449 Fosterville Loop
Bell Buckle, TN 37020
ISG LIMITED TERM U.S. GOVERNMENT FUND:
First American National Bank 93.68% (Institutional Shares)
Attn: ISG Investment Management
and Trust
800 First American Center
Nashville, TN 37237
Martha D. Waller 5.50% (Class A Shares)
Martha Sue Waller
2615 Poplar Springs Drive
Meridian, MS 38305-4614
Anderson Support and Equipment 7.85% (Class A Shares)
Foundation Inc.
1400 20th Avenue
Meridian, MS 38301-4103
National Financial Services Corp. 10.86% (Class B Shares)
Rasberry Comm. Properties, L.P.
800 Spring Street S
Bethany, LA 71007-9532
NFSC FEBO FAN-107280 17.66% (Class B Shares)
Mary M. McGarock
115 Woodmont Blvd. Apt. 22O
Nashville, TN 37205
NFSC FEBO FAD-029864 6.03% (Class B Shares)
Ruby Page Morton
521 Fairfax Avenue
Nashville, TN 37212
NFSC FEBO FAN-092312 7.23% (Class B Shares)
Lois B. Hoge
20 Ridge Road
Westminster, MD 21157
NFSC FEBO FAN-103012 13.28% (Class B Shares)
Mary L. Binkley
309 Chesterfield Circle
Madison, TN 37115
NFSC FEBO FAN-137383 10.79% (Class B Shares)
Beatrice P. Rushing
430 Forrest Avenue
Jackson, TN 38301
NFSC FEBO FAP-068025 11.57% (Class B Shares)
First American National Bank,
Custodian
306 Dye Road
Bell Buckle, TN 37020
NFSC FEBO FAN-155306 10.13% (Class B Shares)
Woodrow W. Billips
3701 Woodlawn Drive
Nashville, TN 37215
ISG LIMITED TERM TENNESSEE TAX-EXEMPT
FUND:
First American National Bank 99.40% (Class A Shares)
ATTN: ISG Investment Management &
Trust
800 First American Center
Nashville, TN 37237
NFSC FEBO FAN-000078 8.95% (Class B Shares)
Rose S. Kennon
1603 Tyne Blvd.
Nashville, TN 37216
NFSC FEBO FAD-024937 8.38% (Class B Shares)
Mary Ann Pangle
3916 Caylor Drive
Nashville, TN 37215
NFSC FEBO FAD-027499 6.87% (Class B Shares)
Thomas I. Sutton
4616 Tara Drive
Nashville, TN 37215
NFSC FEBO FAN-059580 7.70% (Class B Shares)
Floyd W. Rhew
5009 D. Camelot Drive
Columbia, TN 38401
NFSC FEBO FAN-090565 13.96% (Class B Shares)
Mary Dye
1913 Truett Street
Nashville, TN 37206
NFSC FEBO FAN-109183 6.99% (Class B Shares)
Louese H. Peace
7919 Lakeview Heights
Baxter, TN 39544
NFSC FEBO FAN-142115 13.49% (Class B Shares)
Yvonne P. Benson
4409 Belmont Terrace #246
Nashville, TN 37215
ISG TENNESSEE TAX-EXEMPT FUND:
First American National Bank 16.78% (Class A Shares)
Attn: ISG Investment Management
& Trust
800 First American Center
Nashville, TN 37237
CoreLink Financial Inc. 12.07% (Class A Shares)
PO Box 4054
Concord, CA 94520
JC Bradford Company 13.24% (Class A Shares)
BTC SUC TUA Jeanne A
330 Commerce Street
Nashville, TN 37201-1899
NFSC FEBO FAN-060623 7.66% (Class A Shares)
James E. Richards, III
10 Castlewood Court
Nashville, TN 37215
NFSC FEBO FAN-071587 8.63% (Class A Shares)
Janet Myers Trent
1400 Kenesaw Avenue, Apt. 12R
Knoxville, TN 37918
NFSC FEBO FAN-080438 6.79% (Class A Shares)
Alan F. Cooper
3305 Honeywood Drive
Johnson City, TN 37604
NFSC FEBO FAN-048933 7.29% (Class B Shares)
Vivian M. Jones
5400 Park Avenue Unit - 306
Memphis, TN 34119
NFSC FEBO FAN-128732 5.36% (Class B Shares)
Emil Fay Penley
1920 Bowster Drive, Apt C-8
Kingport, TN 37660
NFSC FEBO FAN-068340 9.13% (Class B Shares)
Frances T. Harris
8045 Sunrise Circle
Franklin, TN 37067
NFSC FEBO FAN-267880 10.76% (Class B Shares)
Bobby L. Jones
9 Abbeywood Court
Nashville, TN 37215
NFSC FEBO FAN-230626 10.02% (Class B Shares)
Emmet R. Ray Sr.
Mary F. Ray
802 Davis Drive
Brentwood, TN 37027
NFSC FEBO FAN-162552 7.19% (Class B Shares)
Brenda K. Brasher
8244 Spring Ridge Drive
Nashville, TN 37221
ISG LIMITED TERM INCOME FUND:
CoreLink Financial Inc. 24.60% (Class A Shares)
P.O. Box 4054
Concord, CA 94520
FTC & Company 35.09% (Class A Shares)
P.O. Box 173736
Denver, CO 80217-3736
First American National Bank 38.28% (Institutional Shares)
Attn: ISG Investment Management
and Trust
800 First American Center
Nashville, TN 37237
NFSC FEBO FAN-107280 12.51% (Class B Shares)
Mary M. McGavook
115 Woodmont Blvd. Apt. 220
Nashville, TN 37206
NFSC FEBO FAN-092312 5.06% (Class B Shares)
Lois B. Hoge
20 Ridge Road
Westminster, MD 21157
NFSC FEBO FAN-109630 13.25% (Class B Shares)
Mildred V. Morgan
1448 Footerville Loop
Bell Buckle, TN 37020
NFSC FEBO FAN-121002 5.09% (Class B Shares)
Faye Ellen Dunlap
4612 Singleton Station Road
Louisville, TN 37777
NFSC FEBO FAN-129216 8.46% (Class B Shares)
Margaret H. Leeper
137 Piney Flats Road
Piney Flats, TN 37686
NFSC FEBO FAP-062073 9.84% (Class B Shares)
First American National Bank,
Custodian
202 Windsor Terr. Road
Nashville, TN 37221
NFSC FEBO FAP-074845 10.29% (Class B Shares)
First American National Bank,
Custodian
347 Dafoe Circle
Maryville, TN 37804
NFSC FEBO FAP-058025 8.16% (Class B Shares)
First American National Bank,
Custodian
306 Dye Road
Bell Buckle, TN 37020
First American National Bank 99.84% (Institutional Shares)
First American Center
300 Union Street
Nashville, TN 37237
ISG PRIME MONEY MARKET FUND:
First American National Bank 12.99% (Class A Shares)
Attn: ISG Investment 99.44% (Institutional Shares)
Management and Trust
800 First American Center
Nashville, TN 37237
National Financial Services Corp. 86.54% (Class A Shares)
Exclusively for the Benefit of our
Customers
200 Liberty Street
New York, NY 10281
NFSC FEBO FAD-034177 11.72% (Class B Shares)
Sanh Huzl Huynh
4917 Franklin Road
Nashville, TN 37220
NFSC FEBO FAN-064009121002 22.50% (Class B Shares)
William E. Brazell
127 W End
Dickson, TN 37055
NFSC FEBO FAN-104426 23.23% (Class B Shares)
Norma I. Haden
272 Sailboat Drive
Nashville, TN 37217
NFSC FEBO FAP-065617 10.08% (Class B Shares)
First American National Bank,
Custodian
272 Sailboat Drive
Nashville, TN 37217
NFSC FEBO FAN-102121 11.50% (Class B Shares)
First American National Bank,
Custodian
610 Henslee Drive
Dickson, TN 37055
NFSC FEBO FAN-156019 10.50% (Class B Shares)
Glynda B. Pendergrass
204 Village Circle West
Dickson, TN 37055
NFSC FEBO FAD-044407 10.47% (Class B Shares)
Scott A. Moore
753 Radiance Drive
Cordova, TN 38018
ISG TREASURY MONEY MARKET FUND:
First American National Bank 24.35% (Class A Shares)
Attn: ISG Investment 97.75% (Institutional
Management and Trust Shares)
800 First American Center
Nashville, TN 37237
Hare & Co. 66.01% (Class A Shares)
c/o The Bank of New York
Attn: Stif/Master Note
One Wall Street
New York, NY 10286
National Financial Services Corp. 6.72% (Class A Shares)
Exclusively for the Benefit
of our Customers
200 Liberty Street
New York, NY 10281
ISG GOVERNMENT INCOME FUND:
National Financial Services Corp. 5.14% (Class A Shares)
Highland Plantation
Attn: James D. Bell
1248 Highland Plantation Road
Greenville, MS 36701-9252
NFSC FEBO OIC 800962 11.33% (Class A Shares)
Hodding Carter Memorial YMCA
1688 Fairground Road
Greenville, MS 38703-7805
NFSC FEBO BH2 379948 5.39% (Class A Shares)
William F. Ford
SH 2069
Shreveport, LA 71101-3666
NFSC FEBO BH2 190349 16.49% (Class A Shares)
Johnny B. Mitchell
Mary Sue Mitchell
904 Meadowbrook Drive
West Monroe, LA 71291-5035
NFSC FEBO BH2 001392 10.11% (Class A Shares)
Marie Gober
2326 Bienville Drive
Monroe, LA 71201-2945
NFSC FEBO FAD-045543 99.96% (Class B Shares)
James R. Wesson
612 Spring House Court
Brentwood, TN 37027
First American National Bank 88.40% (Institutional Shares)
Attn: ISG Investment Management &
Trust
800 First American Center
Nashville, TN 37237
ISG MUNICIPAL INCOME FUND:
Pullen Estate LP 5.82% (Class A Shares)
PO Box 5372
Jackson, MS 39296-5372
NFSC FEBO OIC 375128 10.59% (Class A Shares)
Blanche R. Young
334 Williamsburg Road
Columbia, MS 36701-1948
NFSC FEBO OIC 528730 5.60% (Class A Shares)
Harvey C. Sanders
Alda Sanders
PO Box 4387
Jackson, MS 39296-4387
NFSC FEBO OIC 215384 5.19% (Class A Shares)
James A. O'Neill, Jr.
Marie D. O'Neill
2302 St. Charles Avenue, 3A
New Orleans, LA 70130-5849
NFSC FEBO OIC 560251 36.13% (Class A Shares)
Cheryl Jean Jones
Max & Martha Jordan Family Trust
1175 Jordan Lane
Raymond, MS 39154-8725
BISYS Fund Services, L.P. 100.00% (Class B Shares)
3435 Stelzer Road
Columbus, Ohio 43219-8001
First American National Bank 99.39% (Institutional Shares)
Attn: ISG Investment Management &
Trust
800 First American Center
Nashville, TN 37237
ISG INTERNATIONAL EQUITY FUND:
Houvis & Co. 59.61% (Class A Shares)
First American National Bank
RPO Legwell & Sons, Enterprises
300 Union Street, NA 0052
Nashville, TN 37237-0001
NFSC FEBO OIC 054372 7.00% (Class A Shares)
John R. Nunnery
PO Box 1325
Meridian, MS 39302-1325
NFSC FEBO BH2 128899 7.27% (Class A Shares)
David H. Nordyke
6113 River Road
Shreveport, LA 71105-4833
NFSC FEBO OIC 176060215384 13.85% (Class A Shares)
Mark A. Barger
Lacy N. Langford
PO Box 296
Greenwood, MS 38936-0295
BISYS Fund Services, L.P. 100.00% (Class B Shares)
3435 Stelzer Road
Columbia, Ohio 43219-8001
First American National Bank 90.13% (Institutional Shares)
Attn: ISG Investment Management &
Trust
800 First American Center
Nashville, TN 37237
ISG AGGRESSIVE GROWTH PORTFOLIO:
Lorrie D. Madden 99.01% (Class A Shares)
James B. Madden
1054 Huntsman CR
Franklin, TN 37064
BISYS Fund Services, L.P. 100.00% (Institutional
3435 Stelzer Road Shares)
Columbus, Ohio 43219-8001
ISG GROWTH PORTFOLIO:
BISYS Fund Services, L.P. 100.00% (Institutional
3435 Stelzer Road Shares)
Columbus, Ohio 43219-8001
ISG GROWTH & INCOME PORTFOLIO:
BISYS Fund Services, L.P. 100.00% (Class A Shares)
3435 Stelzer Road
Columbus, Ohio 43219-8001
BISYS Fund Services, L.P. 100.00% (Institutional
3435 Stelzer Road Shares)
Columbus, Ohio 43219-8001
ISG MODERATE GROWTH & INCOME
PORTFOLIO:
BISYS Fund Services, L.P. 100.00% (Class A Shares)
3435 Stelzer Road
Columbus, Ohio 43219-8001
BISYS Fund Services, L.P. 100.00% (Institutional
3435 Stelzer Road Shares)
Columbus, Ohio 43219-8001
ISG CURRENT INCOME PORTFOLIO:
BISYS Fund Services, L.P. 100.00% (Class A Shares)
3435 Stelzer Road
Columbus, Ohio 43219-8001
BISYS Fund Services, L.P. 100.00% (Institutional
3435 Stelzer Road Shares)
Columbus, Ohio 43219-8001
A shareholder who beneficially owns, directly or indirectly, more than
25% of a Fund's voting securities may be deemed a "control person" (as defined
in the 1940 Act) of the Fund.
<PAGE>
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Company, 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 the Prospectus.
KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215, independent
auditors, have been selected as each Fund's auditors.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the fiscal year ended
December 31, 1998 is a separate document supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing therein are incorporated by reference
into this Statement of Additional Information.
<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>
CORRESPONDENT CASH RESERVES
PROSPECTUS
MAY 1, 1999
MONEY MARKET PORTFOLIO
TAX FREE MONEY MARKET PORTFOLIO
MANAGED BY MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Questions?
Call 1-800-442-3809
or your Investment Representative.
AS WITH ALL MUTUAL FUNDS, THE
SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED
THESE PORTFOLIO SHARES OR DETERMINED
WHETHER THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANYONE WHO TELLS YOU
OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
CAREFULLY REVIEW THIS DESCRIPTION OF THE PORTFOLIOS - OBJECTIVE,
IMPORTANT SECTION TO LEARN RISK/RETURN AND EXPENSES
ABOUT EACH PORTFOLIO'S GOAL,
MAIN INVESTMENT STRATEGIES AND 1 OVERVIEW
RISKS, PAST PERFORMANCE, AND
FEES. 2-4 MONEY MARKET PORTFOLIO
5-7 TAX FREE MONEY MARKET PORTFOLIO
_______________________________________________________________________________
REVIEW THIS SECTION FOR ADDITIONAL INVESTMENT STRATEGIES AND RISKS
ADDITIONAL INFORMATION ON
INVESTMENT STRATEGIES AND 8 GENERAL
RISKS.
8-9 MONEY MARKET PORTFOLIO
9-10 TAX FREE MONEY MARKET PORTFOLIO
10 GENERAL RISKS APPLICABLE TO EACH
PORTFOLIO
_______________________________________________________________________________
REVIEW THIS SECTION FOR PORTFOLIO MANAGEMENT
DETAILS ON THE ORGANIZATIONS
THAT OVERSEE THE PORTFOLIOS. 11 INVESTMENT ADVISER
11 ADMINISTRATOR AND DISTRIBUTOR
_______________________________________________________________________________
REVIEW THIS SECTION FOR SHAREHOLDER INFORMATION
DETAILS ON HOW SHARES ARE
VALUED, HOW TO PURCHASE AND 12 PRICING OF PORTFOLIO SHARES
SELL SHARES, RELATED CHARGES
AND PAYMENTS OF DIVIDENDS AND 12 PURCHASING AND ADDING TO YOUR
DISTRIBUTIONS. SHARES
14 SELLING YOUR SHARES
15 DISTRIBUTION AND SERVICE (12B-1)
FEES
15 SPECIAL MANAGEMENT SERVICES FEES
16 DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
REVIEW THIS SECTION FOR RECENT FINANCIAL HIGHLIGHTS
FINANCIAL INFORMATION.
17 MONEY MARKET PORTFOLIO
18 TAX FREE MONEY MARKET PORTFOLIO
_______________________________________________________________________________
BACK COVER
WHERE TO LEARN MORE
ABOUT THE PORTFOLIOS.
<PAGE>
DESCRIPTION OF THE PORTFOLIOS - OBJECTIVE, RISK/RETURN AND EXPENSES
OVERVIEW
Each Portfolio is a money market mutual fund. As a money market fund, each
Portfolio is subject to maturity, quality and diversification requirements
designed to help it maintain a stable price of $1.00 per share.
You should be aware that:
o An investment in the Portfolios is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
o Although each Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by
investing in a Portfolio.
o There is no guarantee that each Portfolio will achieve its goals.
MORE INFORMATION ON EACH PORTFOLIO CAN BE FOUND IN THE PORTFOLIOS' CURRENT
ANNUAL/SEMI-ANNUAL REPORT (SEE BACK COVER).
WHO MAY WANT TO INVEST?
Consider investing in a Portfolio if you are:
o seeking preservation of capital
o investing short-term reserves
o willing to accept lower potential returns in exchange for a
higher degree of safety
The Portfolios may not be appropriate if you are:
o seeking high total returns
o pursuing a long-term goal or investing for retirement
In addition, the Tax Free Portfolio may not be appropriate if you are investing
through a tax exempt retirement plan because such plans do not benefit from tax
exempt income.
<PAGE>
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
TICKER SYMBOL: ICCXX
INVESTMENT OBJECTIVE The 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.
PRINCIPAL INVESTMENT The Portfolio invests in a diversified portfolio
STRATEGIES of high-quality, short-term U.S. dollar-
denominated debt securities, including the
following:
o obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities
o certificates of deposit, time deposits,
bankers' acceptances and other short-term
securities issued by domestic or foreign banks
or their subsidiaries or branches
o domestic and foreign commercial paper and other
short-term corporate debt obligations,
including those with floating or variable rates
of interest
o obligations issued or guaranteed by one or more
foreign governments or their agencies or
instrumentalities, including obligations of
supranational entities
o asset-backed securities
o repurchase agreements collateralized by the
types of securities listed above
<PAGE>
The Portfolio buys and sells securities based on
considerations of safety of principal and
liquidity, which means that the Portfolio may not
necessarily invest in securities paying the
highest available yield at a particular time. The
Portfolio may attempt to increase its yield by
trading to take advantage of short-term market
variations. The Adviser evaluates Portfolio
investments based on credit analysis and the
interest rate outlook. The Portfolio normally will
invest at least 25% of its total assets in
domestic and/or foreign bank obligations.
Portfolio are: The principal risks of investing in the
o INTEREST RATE RISK This is the risk that
changes in interest rates will affect the yield
or value of the Portfolio's investments in debt
securities.
o CREDIT RISK This is the risk that the issuer or
guarantor of a debt security will be unable or
unwilling to make timely interest or principal
payments, or to otherwise honor its
obligations. Credit risk includes the
possibility that any of the Portfolio's
investments will have its credit rating
downgraded or will default.
<PAGE>
MONEY MARKET PORTFOLIO
PERFORMANCE BAR
CHART AND TABLE
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
table on this page
provide some
indication of the 3.11% 2.48% 3.45% 5.24% 4.72% 4.77% 4.75%
risks of investing -----------------------------------------------
in the Money Market '92 '93 '94 '95 '96 '97 '98
Portfolio by showing
how the Portfolio -----------------------------------------------
has performed and Best quarter: Q3 1991 +1.31%
how its performance Worst quarter: Q2 1993 +0.59%
has varied from -----------------------------------------------
year-to-year. Both
the bar chart and
table assume
reinvestment of
dividends and
distributions. Of
course, past
performance does not
indicate how the
Portfolio will
perform in the
future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Past Year Past 5 Years Since Inception
(May 20, 1991)
- ----------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 4.75% 4.59% 4.16%
- ----------------------------------------------------------------------------
As of December 31, 1998, the 7-day yield was 4.35%. Without fee waivers and
expense reimbursements, the Portfolio's yield would have been 4.24% for this
time period. For current yield information on the Portfolio, call
1-800-442-3809.
<PAGE>
MONEY MARKET PORTFOLIO
FEES AND EXPENSES
If you purchase and Annual Portfolio Operating Expenses
hold shares of the (expenses that are deducted from Portfolio assets)
Money Market
Portfolio, you will
pay certain fees and
expenses, which are Management Fees 0.10%
described in the
tables. Annual Distribution/Service (12b-1) Fees 0.60%
Portfolio operating
expenses are paid Other Expenses (including administration, 0.34%
out of Portfolio special management services and custody
assets, and are fees)
reflected in the
Portfolio's yield. Total Annual Portfolio Operating Expenses* 1.04%
- --------------
* A portion of the fees and expenses noted above were waived or reimbursed
during the last fiscal year, which reduced Total Annual Portfolio Operating
Expenses to 0.93%. This fee waiver and expense reimbursement arrangement is
voluntary and may be terminated at any time.
EXPENSE EXAMPLE
Use the example below to help you compare the cost of investing in the Portfolio
with the cost of investing in other mutual funds. It illustrates the amount of
fees and expenses you would pay, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Portfolio's operating expenses
o reinvestment of all dividends and distributions
Because the Portfolio's actual return and operating expenses will be different,
this example is for comparison only.
1 3 5 10
MONEY MARKET PORTFOLIO Year Years Years Years
$106 $331 $574 $1,271
<PAGE>
<PAGE>
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
TICKER SYMBOL: CTFXX
INVESTMENT OBJECTIVE The Portfolio seeks to provide investors with as
high a level of current income exempt from Federal
income tax as is consistent with the preservation
of capital and the maintenance of liquidity.
PRINCIPAL INVESTMENT The Portfolio normally invests substantially all
STRATEGIES of its assets in high-quality, short-term
municipal obligations, the interest from which is
exempt from Federal income tax. Municipal
obligations are debt obligations issued by states,
territories and possessions of the United States
and their political subdivisions, agencies and
instrumentalities, and certain other entities. The
Portfolio invests in municipal obligations based
on considerations of safety of principal and
liquidity, which means that the Portfolio may not
necessarily invest in municipal obligations paying
the highest available yield at a particular time.
The Portfolio may attempt to increase its yield by
trading to take advantage of short-term market
variations. The Adviser evaluates municipal
obligations based on credit quality and interest
rate sensitivity, and seeks to diversify the
Portfolio's investments across several different
states, sectors and issuers.
Although the Portfolio's goal is to generate
income exempt from Federal income tax, interest
from some of its holdings may be subject to the
alternative minimum tax. In addition, when the
Adviser believes that acceptable municipal
obligations are unavailable for investment, the
Portfolio may invest temporarily in high-quality,
taxable money market instruments. During such
period, the Portfolio may not achieve its
investment objective.
PRINCIPAL INVESTMENT The principal risks of investing in the
RISKS Portfolio are:
o INTEREST RATE RISK This is the risk that
changes in interest rates will affect the yield
or value of the Portfolio's investments in
municipal obligations.
o CREDIT RISK This is the risk that the issuer or
guarantor of a debt security will be unable or
unwilling to make timely interest or principal
payments, or to otherwise honor its
obligations. Credit risk includes the
possibility that any of the Portfolio's
investments will have its credit rating
downgraded or will default.
<PAGE>
TAX FREE MONEY MARKET PORTFOLIO
PERFORMANCE BAR YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
CHART AND TABLE
The bar chart and
table on this page
provide some 2.90% 2.83%
indication of the ---------------
risks of investing '97 '98
in the Tax Free
Money Market
Portfolio by showing --------------------------------------------
how the Portfolio Best quarter: Q2 1998 +0.75%
has performed and Worst quarter: Q4 1998 +0.66%
how its performance --------------------------------------------
has varied from
year-to-year. Both
the bar chart and
table assume
reinvestment of
dividends and
distributions. Of
course, past
performance does not
indicate how the
Portfolio will
perform in the
future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Past Year Since Inception
(October 7, 1996)
- -------------------------------------------------------------------
TAX FREE
MONEY MARKET PORTFOLIO 2.83% 2.86%
- -------------------------------------------------------------------
As of December 31, 1998, the 7-day yield and the 7-day tax equivalent yield
(based on a 39.67% federal income tax rate) were 2.81% and 4.65%, respectively.
Without fee waivers and expense reimbursements, the Portfolio's yield and tax
equivalent yield would have been 2.50% and 4.14%, respectively, for this time
period. For current yield information on the Portfolio, call 1-800-442-3809.
<PAGE>
TAX FREE MONEY MARKET PORTFOLIO
FEES AND EXPENSES
If you purchase and Annual Portfolio Operating Expenses
hold shares of the (expenses that are deducted from Portfolio assets)
Tax Free Money
Market Portfolio,
you will pay certain
fees and expenses, Management Fees 0.10%
which are described
in the tables. Distribution/Service (12b-1) Fees 0.60%
Annual Portfolio
operating expenses Other Expenses (including
are paid out of administration, special management
Portfolio assets, services and custody fees) 0.32%
and are reflected in
the Portfolio's Total Annual Portfolio Operating Expenses* 1.02%
yield.
- --------------
* A portion of the fees and expenses noted above were waived or reimbursed
during the last fiscal year, which reduced Total Annual Portfolio Operating
Expenses to 0.71%. This fee waiver and expense reimbursement arrangement is
voluntary and may be terminated at any time.
EXPENSE EXAMPLE
Use the example below to help you compare the cost of investing in the Portfolio
with the cost of investing in other mutual funds. It illustrates the amount of
fees and expenses you would pay, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Portfolio's operating expenses
o reinvestment of all dividends and distributions
Because the Portfolio's actual return and operating expenses will be different,
this example is for comparison only.
1 3 5 10
TAX FREE MONEY MARKET PORTFOLIO Year Years Years Years
$104 $325 $563 $1,248
<PAGE>
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
GENERAL
Generally, each Portfolio is required to invest at least 95% of its assets in
the securities of issuers with the highest credit rating or the unrated
equivalent as determined by the Adviser. The remainder may be invested in
securities with the second highest credit rating or the unrated equivalent. In
addition, each Portfolio must do the following:
o maintain an average dollar-weighted portfolio maturity of 90 days
or less
o buy individual securities that have or are deemed to have remaining
maturities of 397 days or less
o buy only high quality U.S. dollar-denominated obligations
MONEY MARKET PORTFOLIO
The Money Market Portfolio usually invests at least 25% of its assets in
domestic and/or U.S. dollar denominated foreign bank obligations. Thus, it will
have correspondingly greater exposure to the risks generally associated with
investments in the banking industry. Sustained increases in interest rates, for
example, can adversely affect the availability and cost of capital funds for a
bank's lending activities, and a deterioration in general economic conditions
could increase the bank's exposure to credit losses. In addition, 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 will affect the Portfolio's return. The 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.
The 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.
Since the Money Market Portfolio may invest in U.S. dollar-denominated
securities issued by foreign issuers, such as foreign governments, foreign banks
and foreign subsidiaries or branches of domestic banks, it may be subject to
additional investment risk with respect to those securities which are different
in some respects from those incurred by a fund that invests only in debt
obligations of U.S. domestic issuers. Foreign issuers usually are not subject to
the same degree of regulation as U.S. issuers. Reporting, accounting, and
auditing standards of foreign countries differ, in some cases significantly,
from U.S. standards. Foreign risk includes nationalization, expropriation or
confiscatory taxation, political changes or diplomatic developments that could
adversely affect such investments.
The Money Market Portfolio also may lend securities from its portfolio to
brokers, dealers and other financial institutions, which could subject the
Portfolio to risk of loss if the institution breaches its agreement with the
Portfolio. In connection with such loans, the 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.
TAX FREE MONEY MARKET PORTFOLIO
The Tax Free Money Market Portfolio will invest at least 80% of its net assets
(except when maintaining a temporary defensive position) in short-term municipal
obligations. Municipal obligations are debt obligations typically divided into
two types:
o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of
the issuer and its taxing power
o REVENUE BONDS, which are payable from the revenues derived from a specific
revenue source, such as charges for water and sewer service or highway tolls
From time to time, the Tax Free Money Market Portfolio may invest more than 25%
of its total assets in industrial development bonds which, although nominally
issued by municipal authorities, are in most cases revenue bonds that are not
secured by the taxing power of the municipality, but by the revenues derived
from payments by the non-governmental users. Certain industrial development
bonds, while exempt from Federal income tax, provide income subject to the
alternative minimum tax. The Portfolio may invest up to 20% of its net assets in
municipal obligations which provide income subject to the alternative minimum
tax and, except for temporary defensive purposes, in other investments subject
to Federal income tax. For temporary defensive purposes because of market,
economic, political or other conditions, the Portfolio may invest more than 20%
of its net assets in taxable money market securities. Dividends paid by the
Portfolio from income earned from these securities will be taxable to
shareholders, and the Portfolio may not achieve its investment objective.
The Tax Free Money Market Portfolio may invest more than 25% of the value of its
total assets in municipal obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
interest upon which is paid from revenues of similar types of projects such as
mass transit or water and sewer works, or securities whose issuers are located
in the same state. As a result of such investments, the Portfolio's yield may be
more affected by factors pertaining to the economy of the relevant governmental
issuer and other factors specifically affecting the ability of issuers of such
securities to meet their obligations.
GENERAL RISKS APPLICABLE TO EACH PORTFOLIO
Each Portfolio's yield will vary as the short-term securities it holds mature
and the proceeds are reinvested in securities with different interest rates. The
Portfolios are actively managed and, thus, are subject to investment selection
risk, which is the possibility that weak securities selection will cause the
Portfolios to underperform other funds with similar investment objectives. A
Portfolio's performance also will depend on the effectiveness of the Adviser's
credit analysis and interest rate outlook.
The Portfolios expect to maintain a net asset value of $1.00 per share, but
there is no assurance that the Portfolios will be able to do so on a continuous
basis. The Portfolios' performance per share will change daily based on many
factors, including fluctuation in interest rates, the quality of the instruments
in each Portfolio's investment portfolio, national and international economic
conditions and general market conditions, as well as the timing and size of
purchases and redemptions of Portfolio shares.
Like other funds and business organizations around the world, the Portfolios
could be adversely affected if the computer systems used by the Adviser and the
Portfolios' other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. In addition, Year 2000
issues may adversely affect the companies or other issuers in which the
Portfolios invest where, for example, such entities incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to adequately or
timely do so.
The Adviser and the Portfolios' other service providers (i.e., Administrator,
Transfer Agent, Fund Accounting Agent, Custodian and Distributor) have assured
the Portfolios that they have developed and are implementing clearly defined and
documented plans intended to minimize risks to services critical to the
Portfolios' operations associated with Year 2000 issues. The Adviser and the
other service providers are likewise seeking assurances from many of their
respective vendors and suppliers that such entities are addressing Year 2000
issues.
While the ultimate costs or consequences of incomplete or untimely resolution of
Year 2000 issues by the Adviser or the Portfolios' other service providers
cannot be accurately assessed at this time, the Portfolios currently have no
reason to believe that the Year 2000 plans of the Adviser and the Portfolios'
other service providers will not be completed by December 31, 1999, or that the
anticipated costs associated with full implementation of their plans will have a
material adverse impact on either their business operations or financial
condition or those of the Portfolios. If any systems upon which the Portfolios
are dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur, which could result
in a decline in the value of the Portfolios' securities and yield.
<PAGE>
PORTFOLIO MANAGEMENT
INVESTMENT ADVISER
Mitchell Hutchins Asset Management Inc. (the "Adviser"), 1285 Avenue of the
Americas, New York, NY 10019, is each Portfolio's investment adviser. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated, which in turn
is wholly-owned by Paine Webber Group, Inc., a publicly-owned financial services
holding company. As of December 31, 1998, the Adviser served as investment
adviser or sub-adviser to 75 investment company portfolios with aggregate assets
of approximately $44.3 billion. The Adviser makes the day-to-day investment
decisions for the Portfolios.
For the year ended December 31, 1998, the Portfolios paid the Adviser an
advisory fee at the following indicated annual rate:
PERCENTAGE OF
AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Money Market Portfolio 0.10%
Tax Free Money Market Portfolio 0.10%
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Ohio, Inc. (the "Administrator"), 3435 Stelzer Road,
Columbus, OH 43219-3035, serves as the Portfolios' administrator. The
administrative services of the Administrator include providing office space,
equipment and clerical personnel to the Portfolios and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing services.
BISYS Fund Services Limited Partnership (the "Distributor") serves as the
distributor of the Portfolios' shares. The Distributor may provide securities
dealers that sell Portfolio shares financial assistance in connection with
pre-approved seminars, conferences and advertising to the extent permitted by
applicable state or self-regulatory agencies, such as the National Association
of Securities Dealers.
SHAREHOLDER INFORMATION
PRICING OF PORTFOLIO SHARES
HOW NAV IS CALCULATED
The NAV is Each Portfolio's net asset value or NAV
calculated by adding is expected to be constant at $1.00 per
the total value of share, although this value is not
the Portfolio's guaranteed. The NAV is determined at
investments and 12:00 noon, Eastern time, on days the
other assets, New York Stock Exchange is open, except
subtracting its Columbus Day and Veterans' Day. The
liabilities and then Portfolios value their securities at
dividing that figure their amortized cost. This method
by the number of involves valuing an instrument at its
outstanding shares cost and thereafter applying a constant
of the Portfolio: amortization to maturity of any discount
or premium, regardless of the impact of
fluctuating interest rates on the market
value of the investment.
NAV =
Your order for the purchase or sale of
TOTAL ASSETS - LIABILITIES shares is priced at the next NAV
Number of Shares calculated after the Portfolio receives
Outstanding your order.
PURCHASING AND ADDING TO YOUR SHARES
The Portfolios' shares are offered only to clients of certain securities dealers
("Financial Institutions") that have entered into securities clearing
arrangements with Correspondent Services Corporation [csc]. These clients
include qualified retirement plans, including pension and profit-sharing plans,
which are established by corporations, partnerships, or self-employed
individuals, and individual retirement accounts.
The Financial Institution ACCOUNT TYPE MINIMUM MINIMUM
may charge additional INITIAL INVESTMENT SUBSEQUENT
fees and may require
different minimum Regular $1,000 $1
investments or impose (non-retirement)
other limitations on
buying and selling Retirement $25 $1
shares. The Financial (IRA)*
Institution is ----------------------------------------------
responsible for *The Tax Free Money Market Portfolio is not
transmitting orders in a recommended as an investment for
timely manner and may retirement plans.
have an earlier cut-off
time for purchase and Your purchase of shares will be on the same
sale requests. Consult business day if the Portfolio's transfer agent
your Financial receives your order by 12:00 noon, Eastern time,
Institution for specific and receives payment by Federal Funds by 4:00
information. p.m., Eastern time. If your order is received
after 12:00 noon or Federal Funds payment is
received after 4:00 p.m., Eastern time, your
purchase will be effective on the next business
day.
A Portfolio may reject a purchase order if it
considers it in the best interest of the Portfolio
and its shareholders.
<PAGE>
Avoid 31% Tax Withholding
The Portfolio is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Portfolio with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
THROUGH A FINANCIAL INSTITUTION
All orders must be made through your Financial Institution. The Financial
Institution will transmit your payment and other required account information to
the Portfolios.
SELLING YOUR SHARES
You may "redeem" or --------------------------------------------
sell your shares at WITHDRAWING MONEY FROM YOUR
any time. Your sales PORTFOLIO INVESTMENT
price will be the
next NAV after the As a shareholder, you are technically selling
Portfolio's transfer shares when you request a withdrawal in cash.
agent receives your This is also known as redeeming shares or a
sell order. redemption of shares.
Normally, you will --------------------------------------------
receive your
proceeds within a
week after your
request is received.
INSTRUCTIONS FOR SELLING SHARES
You may request redemption of your shares at any time by following the
instructions pertaining to your account at your Financial Institution. It is
your Financial Institution's responsibility to transmit the redemption order to
the Portfolios' transfer agent and credit your account with the redemption
proceeds on a timely basis. The Portfolio will not accept requests to sell
shares by wire or telephone from you or your Financial Institution.
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly, or
semi-annual basis if you have a $1,000 minimum account. For information on the
Automatic Withdrawal Plan, consult your Financial Institution. The minimum
withdrawal is $50. Redemption proceeds will be on deposit in your designated
account at an Automated Clearing House member bank ordinarily within two
business days following redemption or, at your request, paid by check sent to
you or a designated third party. Your participation in the Automatic Withdrawal
Plan may be ended at any time by you, your Financial Institution, the Portfolio,
or the Transfer Agent. Retirement plan participants may be eligible for the
Automatic Withdrawal Plan under certain circumstances. Contact your Financial
Institution for further information on participation in the Automatic Withdrawal
Plan.
<PAGE>
AUTOMATIC REDEMPTION
Correspondent Services Corporation [csc] carries securities accounts and
performs clearing services for the Financial Institutions and has instituted an
automatic redemption procedure applicable to Portfolio shareholders. This
procedure may be used to satisfy amounts due from you as a result of the
purchase of securities or other transactions in your securities account. Under
this procedure, unless you notify your Financial Institution to the contrary,
your securities account will be scanned each business day prior to 12:00 noon,
Eastern time, and after application of any cash balances in the account, a
sufficient number of Portfolio shares may be redeemed at the 12:00 noon, Eastern
time, pricing that day to satisfy any amounts for which you are obligated to
make payment to your Financial Institution. Redemptions will be effected on the
business day preceding the date you are obligated to make such payment, and your
Financial Institution will receive the redemption proceeds on the day following
the redemption date.
REDEMPTION BY CHECK
You may write checks in amounts of $100 or more on your account in a Portfolio.
To obtain checks, contact your Financial Institution and request an Optional
Services Application form. Complete the appropriate section of the Optional
Services Application and return it to your Financial Institution. Dividends and
distributions will continue to be paid up to the day the check is presented for
payment. The check writing feature may be modified or terminated upon 30-days
written notice. You must maintain the minimum required account balance of $1,000
and you may not close your Portfolio account by writing a check.
REPURCHASE THROUGH FINANCIAL INSTITUTIONS
The Portfolios will repurchase shares through Financial Institutions. The
Portfolios ordinarily will accept orders to repurchase shares from Financial
Institutions for their customers at the NAV next computed after receipt of the
order from the Financial Institution, provided that such request for repurchase
is received from the Financial Institution prior to 12:00 noon, Eastern time, on
any business day. It is your Financial Institution's responsibility to transmit
your repurchase order properly on a timely basis.
These repurchase arrangements are for the convenience of shareholders and do not
involve a charge by the Portfolio; however, Financial Institutions may charge
their clients for transmitting the notice of repurchase to the Portfolio. The
Portfolios reserve the right to reject any order for repurchase through a
Financial Institution, but it may not reject other properly submitted requests
for redemption as described herein. The Portfolio promptly will notify the
Financial Institution of any rejection of a repurchase. For shareholders selling
shares through their Financial Institution, payments will be made by the
Transfer Agent to the Financial Institution.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Portfolio may ask you to increase your
balance. If it is still below $500 after 45 days, the Portfolio may close your
account and send you the proceeds. Certain Financial Institutions may impose,
with respect to their clients' investments in a Portfolio, a minimum account
balance which is higher than that specified above.
<PAGE>
DISTRIBUTION AND SERVICE (12B-1) FEES
The Portfolios have adopted a plan under SEC Rule 12b-1. The plan allows the
Portfolios to pay fees for services and expenses relating to the sale and
distribution of the Portfolios' shares and/or for providing shareholder
services. The amount of the fee is 0.60% of the average daily net assets of the
Portfolios. Because these fees are paid from the Portfolios' assets on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
SPECIAL MANAGEMENT SERVICES FEE
Each Portfolio has agreed to pay the Adviser and the Administrator each a
monthly fee for certain special management services, other than those provided
pursuant to the Portfolios' Distribution Plan. These services include developing
and monitoring customized investor programs including individual retirement
accounts and other ERISA options, automatic deposit and withdrawal programs and
other programs requested by Financial Institutions.
DIVIDENDS, DISTRIBUTIONS AND TAXES
All dividends and distributions will be automatically reinvested unless you
request otherwise.
Any income a Portfolio receives in the form of interest is paid out, less
expenses, to its shareholders as dividends. Each Portfolio declares dividends
from net investment income on each day the Portfolio is open for business.
Dividends are paid monthly, usually on or about the fifteenth day of the month.
If you redeem all shares in your account at any time during the month, all
dividends to which you are entitled will be paid to you, along with the proceeds
of the redemption. Capital gains, if any, for the Portfolios are distributed at
least annually.
Dividends and distributions are treated in the same manner for Federal income
tax purposes whether you receive them in cash or in additional shares.
The Portfolios expect that their dividends will primarily consist of net income
or, if any, short-term capital gains as opposed to long-term capital gains.
Dividends paid by the Money Market Portfolio and by the Tax Free Money Market
Portfolio that are derived from taxable investments are taxable as ordinary
income.
During normal market conditions, the Tax Free Money Market Portfolio expects
that substantially all of its dividends will be excluded from gross income for
Federal income tax purposes. The Portfolio may invest in certain securities with
interest that may be a preference item for the purposes of the alternative
minimum tax or a factor in determining whether Social Security benefits are
taxable. In such event, a portion of the Portfolio's dividends would not be
exempt from Federal income taxes.
Except for tax-deferred accounts, any sale or exchange of Portfolio shares may
generate tax liability. Of course, withdrawals or distributions from
tax-deferred accounts are taxable when received.
<PAGE>
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year.
You will be notified in January each year about the Federal tax status of
distributions made by the Portfolios. Depending on your residence for tax
purposes, distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Consult your tax adviser about the Federal, state and local tax consequences in
your particular circumstances.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolios' financial performance for the fiscal periods indicated. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in the Portfolio, assuming reinvestment of all dividends
and distributions. The information in the financial highlights has been audited
by KPMG LLP, the Portfolios' independent auditors, whose report, along with the
Portfolios' financial statements, are included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 0.9992 $ 0.9991 $ 0.9986 $ 0.9975 $ 0.9999
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.0465 0.0467 0.0462 0.0512 0.0340
Net realized gains (losses) on
investment transactions........... 0.0002 0.0001 0.0005 0.0011 (0.0024)
------ ------ ------ ------ -------
Total from investment operations...... 0.0467 0.0468 0.0467 0.0523 0.0316
====== ====== ====== ====== ======
Dividends to shareholders from net
investment income..................... (0.0465) (0.0467) (0.0462) (0.0512) (0.0340)
------- ------- ------- ------- -------
Net change in net asset value............. 0.0002 0.0001 0.0005 0.0011 (0.0024)
------ ------ ------ ------ -------
Net Asset Value, End of Period............ $ 0.9994 $ 0.9992 $ 0.9991 $ 0.9986 $ 0.9975
======= ======== ======== ======== =========
Total Return.............................. 4.75% 4.77% 4.72% 5.24% 3.45%
Ratios/Supplemental Data:
Net assets, end of period (000's)...... $1,387,903 $ 1,151,012 $ 1,007,265 $779,011 $458,092
Ratio of expenses to average net
assets (after fee waivers)........... 0.93% 0.95% 0.88% 0.85% 0.94%
Ratio of net investment income to
average net assets (after fee
waivers)............................. 4.64% 4.68% 4.65% 5.14% 3.47%
Ratio of expenses to average net
assets*.............................. 1.04% 1.06% 1.01% 1.03% 1.12%
- ------------------------------
* During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary waivers and/or reimbursements had not
occurred, the ratios would have been as indicated.
</TABLE>
<PAGE>
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,1996*
---------------------- -----------------
1998 1997
---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- --------
Income from investment operations:
Net investment income..................... 0.0279 0.0286 0.0100
------ ------ ------
Total from investment operations.......... 0.0279 0.0286 0.0100
------ ------ ------
Dividends to shareholders from net
investment income.......................... (0.0279) (0.0286) (0.0100)
------- ------- -------
Net change in net asset value.................. - - -
------- ------- -------
Net Asset Value, End of Period................. $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- --------
Total Return................................... 2.83% 2.90% 0.66%(a)
==== ==== ====
Ratios/Supplemental Data:
Net assets, end of period (000's)............ $102,821 $103,399 $ 80,409
Ratio of expenses to average net
assets (after fee waivers)................. 0.71% 0.78% 0.74%(b)
Ratio of net investment income to
average net assets (after fee waivers)..... 2.79% 2.86% 2.80%(b)
Ratio of expenses to average net
assets**................................... 1.02% 1.18% 1.20%(b)
- ------------------------------
* For the period from October 7, 1996 (commencement of operations) through
December 31, 1996.
** During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary waivers and/or reimbursements had not
occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
</TABLE>
<PAGE>
For more information about the Portfolios, the following documents are available
free upon request:
ANNUAL/SEMIANNUAL REPORTS (REPORTS):
The Portfolios' annual and semi-annual reports to shareholders contain detailed
information on the Portfolios' investments.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Portfolios, including their
operations and investment policies. It is incorporated by reference, and is
legally considered a part of this prospectus.
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST
OTHER INFORMATION AND DISCUSS YOUR QUESTIONS ABOUT THE
PORTFOLIOS BY CONTACTING THE PORTFOLIOS AT:
CORRESPONDENT CASH RESERVES
PO BOX 163879
COLUMBUS, OH 43216-3879
TELEPHONE: 1-800-442-3809
You can review information about the Portfolios, including the Portfolios'
Reports and SAI, at the Public Reference Room of the Securities and Exchange
Commission. You can get text-only copies:
o For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009, or calling
1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
(Investment Company Act file no. 811-6076)
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Correspondent Cash Reserves Money Market Portfolio (the "Money Market
Portfolio") and Correspondent Cash Reserves Tax Free Money Market Portfolio (the
"Tax Free Money Market Portfolio"), dated May 1, 1999, of The Infinity Mutual
Funds, Inc. (the "Fund"), as it may be revised from time to time. To obtain a
copy of the Portfolios' Prospectus, please write to the Fund at 3435 Stelzer
Road, Columbus, Ohio 43219- 8020, contact your sales representative or call
1-800-442-3809. This Statement of Additional Information relates only to the
Portfolios and not to any of the Fund's other portfolios.
The most recent Annual Report and Semi-Annual Report to Shareholders
for each Portfolio are separate documents supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing in the Annual Report are incorporated
by reference into this Statement of Additional Information.
TABLE OF CONTENTS
PAGE
Description of the Fund and the Portfolios............................B-2
Management of the Fund................................................B-21
Management Arrangements...............................................B-25
Purchase and Redemption of Shares.....................................B-30
Determination of Net Asset Value......................................B-31
Yield Information.....................................................B-32
Portfolio Transactions................................................B-33
Information About the Fund and the Portfolios.........................B-33
Counsel and Independent Auditors......................................B-35
Financial Statements..................................................B-35
Appendix .............................................................B-36
<PAGE>
DESCRIPTION OF THE FUND AND THE PORTFOLIOS
GENERAL
The Fund is a Maryland corporation organized on March 6, 1990. Each
Portfolio is a separate portfolio of the Fund, an open-end management investment
company, known as a mutual fund. Each Portfolio is a diversified investment
company, which means that, with respect to 75% of its total assets, the
Portfolio will not invest more than 5% of its assets in the securities of any
single issuer.
Mitchell Hutchins Asset Management Inc. (the "Adviser") serves as each
Portfolio's investment adviser.
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as each
Portfolio's administrator.
BISYS Fund Services Limited Partnership (the "Distributor"), an
affiliate of the Administrator, serves as each Portfolio's distributor.
PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Portfolios' Prospectus.
BANK OBLIGATIONS. The Money Market Portfolio and, to a limited extent,
Tax Free Money Market Portfolio may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions.
Certificates of deposit ("CDs") are negotiable certificates evidencing
the obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits ("TDs") are non-negotiable deposits maintained in a
banking institution for a specified period of time (in no event longer than
seven days) at a stated interest rate.
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 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.
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 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 Portfolio, depending upon the principal amount of the CDs of each
bank held by the 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.
However, not all of such laws and regulations apply to the foreign branches of
domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign branches of foreign
banks, such as CDs and 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. The Portfolio's investment in obligations of foreign
subsidiaries of domestic banks are subject, to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), to the limitations
on investing in the securities of other investment companies.
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 or 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, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Adviser carefully evaluates such investments on a
case-by-case basis pursuant to procedures established by the Board of Directors.
Under normal circumstances, and as a matter of fundamental policy, the
Money Market Portfolio will "concentrate" at least 25% of its assets in debt
instruments issued by domestic and foreign companies engaged in the banking
industry, including bank holding companies. Such investments may include CDs,
TDs, bankers' acceptances and obligations issued by bank holding companies, as
well as repurchase agreements entered into with banks (as distinct from non-bank
dealers) in accordance with the policies set forth in "Repurchase Agreements"
below. During periods when the Adviser determines that the Money Market
Portfolio should be in a temporary defensive position, the Portfolio may invest
less than 25% of its total assets in the banking industry; during such times the
Money Market Portfolio's assets will be invested in accordance with its other
investment policies. The Adviser may determine that the adoption of a temporary
defensive position with respect to issuers in the banking industry is
appropriate on the basis of such factors as political, economic, market or
regulatory developments adversely affecting that industry as compared to the
industries of other issuers of securities available for investment by the Money
Market Portfolio.
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS. The Money Market Portfolio
and, to a limited extent, the Tax Free Portfolio may purchase commercial paper
and other corporate obligations. Commercial Paper consists of short-term,
unsecured promissory notes issued to finance short-term credit needs. The
commercial paper purchased by the Portfolio will consist only of direct
obligations issued by domestic and foreign entities. The other corporate
obligations in which each Portfolio may invest consist of high quality, U.S.
dollar denominated short-term bonds and notes (including variable amount master
demand notes) issued by domestic and foreign corporations, including banks.
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 not
exceeding 397 days, in each case upon not more than 30 days' notice. 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 amounts 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, plus accrued interest. 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. These
obligations include highly rated certificates of participation in trusts secured
by accounts receivable, including trade receivables, and other assets. Such
obligations frequently are not rated by credit rating agencies and, if not so
rated, the Portfolio may invest in them only if the Adviser, acting upon
delegated authority from, and subject to ratification by, the Fund's Board of
Directors, determines that at the time of investment the obligations are of
comparable quality to the other obligations in which the Portfolio may invest.
The 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 held by the Portfolio. The Portfolio will not invest more than 10%
of the value of its net assets in floating or variable rate demand obligations
as to which it cannot exercise the demand feature on not more than seven days'
notice if the Adviser determines, acting upon delegated authority from, and
procedures established by, the Fund's Board of Directors, that there is no
secondary market available for these obligations, and in other securities that
are illiquid.
ASSET-BACKED SECURITIES. Each Portfolio may purchase asset- backed
securities, which are securities issued by special purpose entities whose
primary assets consist of, in the case of those purchased by the Money Market
Portfolio, a pool of mortgages, loans, receivables or other assets, or, in the
case of those purchased by the Tax Free Money Market Portfolio, a pool of
Municipal Obligations. 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 these 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.
PARTICIPATION INTERESTS. The Money Market Portfolio may invest in
short-term 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 Money Market 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 to herein as "Intermediate Participants." The Money Market 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 Portfolio and the Borrower. In such cases, the Money Market
Portfolio would be required to rely on the Intermediate Participant that sold
the participation interest not only for the enforcement of the Portfolio's
rights against the Borrower but also for the receipt and processing of payments
due to the 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 Money Market Portfolio may be subject to delays, expenses and risks
that are greater than those that would be involved if the Portfolio could
enforce its rights directly against the Borrower. Moreover, under the terms of a
participation interest, the Money Market Portfolio may be regarded as a creditor
of the Intermediate Participant (rather than of the Borrower), so that the
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 Money Market
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 Money
Market 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. In addition, insurance companies
are affected by economic and financial conditions and are subject to extensive
government regulation, including rate regulation. The property and casualty
industry is cyclical, being subject to dramatic swings in profitability which
can be affected by natural catastrophes and other disasters. Individual
companies may be exposed to material risks, including reserve inadequacy, latent
health exposure and inability to collect from their reinsurance carriers.
The Tax Free Money Market Portfolio may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements).
A participation interest gives the Portfolio an undivided interest in
the security in the proportion that the Portfolio's participation interest 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 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
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 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 is reduced subsequent to its purchase by the Portfolio, the 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 will be treated as a separate issuer. For certain
participation interests, 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.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements. In a repurchase agreement, the Portfolio buys, and the seller agrees
to repurchase, a security at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield during
the purchaser's holding period, while the seller's obligation to repurchase is
secured by the value of the underlying security. 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 a Portfolio under a repurchase agreement. In connection with its third-party
repurchase transactions, the Portfolio will employ only eligible sub-custodians
which meet the requirements set forth in Section 17(f) of the 1940 Act and the
rules thereunder. Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by the Portfolio. Certain costs
may be incurred 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 the Portfolio may be delayed or
limited. In an attempt to reduce the risk of incurring a loss on a repurchase
agreement, the Portfolio will enter into repurchase agreements only with
domestic banks (including foreign branches and subsidiaries of domestic banks)
with total assets in excess of $1 billion or primary government securities
dealers reporting to the Federal Reserve Bank of New York, with respect to
securities in which the 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.
REVERSE REPURCHASE AGREEMENTS. (MONEY MARKET PORTFOLIO ONLY) The Money
Market Portfolio may enter into reverse repurchase agreements with banks,
brokers or dealers. In these transactions, the Portfolio sells a portfolio
security to another party in return for cash and agrees to repurchase the
security generally at a particular price and time. The Portfolio will use the
cash to make investments which either mature or have a demand feature to resell
to the issuer at a date simultaneous with or prior to the time the Portfolio
must repurchase the security. Reverse repurchase agreements may be preferable to
a regular sale and later repurchase of the securities because it avoids certain
market risks and transaction costs. Such transaction, however, may increase the
risk of potential fluctuations in the market value of the Portfolio's assets. In
addition, interest costs on the cash received may exceed the return on the
securities purchased. The Company's Directors have considered the risks to the
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. The Portfolio will maintain in a segregated custodial
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.
U.S. GOVERNMENT SECURITIES. Each Portfolio may invest in securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, which include U.S. Treasury securities that differ in their
interest rates, maturities and times of issuance. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities are supported by
the full faith and credit of the U.S. Treasury; others by the right of the
issuer to borrow from the Treasury; others by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Interest
may fluctuate based on generally recognized reference rates or the relationship
of rates. While the U.S. Government currently 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.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES.
(MONEY MARKET PORTFOLIO ONLY) The Money Market 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 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 the 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.
MUNICIPAL OBLIGATIONS. (TAX FREE MONEY MARKET PORTFOLIO ONLY) The Tax
Free Money Market Portfolio will invest at least 80% of the value of its net
assets (except when maintaining a temporary defensive position) in Municipal
Obligations. 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 of authorities, the interest from which, in the opinion of bond counsel
to the issuer, is exempt from Federal income tax. 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. Tax exempt industrial development bonds, in most cases,
are revenue bonds that 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. The
Portfolio also may purchase short-term structured securities backed by Municipal
Obligations (a form of asset-backed security) provided such securities meet the
requirements of Rule 2a-7 under the 1940 Act. Municipal Obligations bear fixed,
floating or variable rates of interest. 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.
Floating and variable rate demand obligations are tax exempt
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 not exceeding 397 days, in each case upon not more than 30 days'
notice. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders thereof. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals.
For the purpose of diversification under the 1940 Act, the
identification of the issuer of Municipal Obligations depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the non-governmental
user, then such non- governmental user would be deemed to be the sole issuer.
If, however, in either case, the creating government or some other entity
guarantees a security, such a guaranty would be considered a separate security
and will be treated as an issue of such government or other entity.
The yields of Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a particular
offering, maturity of the obligation and rating of the issue. The imposition of
the Portfolio's management fee, as well as other operating expenses, will have
the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations") have special risks not
ordinarily associated with Municipal Obligations. Although lease obligations do
not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation ordinarily is backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. The Tax Free Money
Market Portfolio will seek to minimize these risks by investing only in those
lease obligations that (1) are rated in one of the two highest rating categories
for debt obligations by at least two nationally recognized statistical rating
organizations (or one rating organization if the lease obligation was rated only
by one such organization) or (2) if unrated, are purchased principally from the
issuer or domestic banks or other responsible third parties, in each case only
if the seller shall have entered into an agreement with the Portfolio providing
that the seller or other responsible third party will either remarket or
repurchase the lease obligation within a short period after demand by the
Portfolio. The staff of the Securities and Exchange Commission currently
considers certain lease obligations to be illiquid. Accordingly, not more than
10% of the value of the Tax Free Money Market Portfolio's net assets will be
invested in lease obligations that are illiquid and in other illiquid
securities.
The Tax Free Money Market Portfolio may purchase tender option bonds.
A tender option bond is a Municipal Obligation (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal Obligation's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short- term tax exempt rate.
The Adviser, on behalf of the Portfolio, will consider on an ongoing basis the
creditworthiness of the issuer of the underlying Municipal Obligation, of any
custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligation and for other reasons.
The Portfolio will not purchase tender option bonds unless (a) the
demand feature applicable thereto is exercisable by the Portfolio within 397
days of the date of such purchase upon no more than 30 days' notice and
thereafter is exercisable by the Portfolio no less frequently than annually upon
no more than 30 days' notice and (b) at the time of such purchase, the Adviser
reasonably expects (i) based upon its assessment of current and historical
interest rate trends, that prevailing short-term tax exempt rates will not
exceed the stated interest rate on the underlying Municipal Obligations at the
time of the next tender fee adjustment and (ii) that the circumstances which
might entitle the grantor of a tender option to terminate the tender option
would not occur prior to the time of the next tender opportunity. At the time of
each tender opportunity, the Portfolio will exercise the tender option with
respect to any tender option bonds unless the Adviser reasonably expects, (x)
based upon its assessment of current and historical interest rate trends, that
prevailing short-term tax exempt rates will not exceed the stated interest rate
on the underlying Municipal Obligations at the time of the next tender fee
adjustment, and (y) that the circumstances which might entitle the grantor of a
tender option to terminate the tender option would not occur prior to the time
of the next tender opportunity. The Portfolio will exercise the tender feature
with respect to tender option bonds, or otherwise dispose of its tender option
bonds, prior to the time the tender option is scheduled to expire pursuant to
the terms of the agreement under which the tender option is granted. The
Portfolio otherwise will comply with the provisions of Rule 2a-7 in connection
with the purchase of tender option bonds, including, without limitation, the
requisite determination by the Fund's Board that the tender option bonds in
question meet the quality standards described in Rule 2a-7, which, in the case
of a tender option bond subject to a conditional demand feature, would include a
determination that the security has received both the required short-term and
long-term quality rating or is determined to be of comparable quality. In the
event of a default of the Municipal Obligation underlying a tender option bond,
or the termination of the tender option agreement, the Portfolio would look to
the maturity date of the underlying security for purposes of compliance with
Rule 2a-7 and, if its remaining maturity was greater than 13 months, the
Portfolio would sell the security as soon as would be practicable. The Portfolio
will purchase tender option bonds only when it is satisfied that the custodial
and tender option arrangements, including the fee payment arrangements, will not
adversely affect the tax exempt status of the underlying Municipal Obligations
and that payment of any tender fees will not have the effect of creating taxable
income for the Portfolio. Based on the tender option bond agreement, the
Portfolio expects to be able to value the tender option bond at par; however,
the value of the instrument will be monitored to assure that it is valued at
fair value.
STAND-BY COMMITMENTS. (TAX FREE MONEY MARKET PORTFOLIO ONLY) The Tax
Free Money Market Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio. Under a stand-by commitment, the
Portfolio obligates a broker, dealer or bank to repurchase, at the Portfolio's
option, specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by
commitment, therefore, is subject to the ability of the seller to make payment
on demand. The Portfolio will acquire stand-by commitments solely to facilitate
its portfolio liquidity and does not intend to exercise its rights thereunder
for trading purposes. The Portfolio may pay for stand-by commitments if such
action is deemed necessary, thus increasing to a degree the cost of the
underlying Municipal Obligation and similarly decreasing such security's yield
to investors. Gains realized in connection with stand-by commitments will be
taxable.
RATINGS OF MUNICIPAL OBLIGATIONS. (TAX FREE MONEY MARKET PORTFOLIO
ONLY) If, subsequent to its purchase by the Tax Free Money Market Portfolio, (a)
an issue of rated Municipal Obligations ceases to be rated in the highest rating
category by at least two rating organizations (or one rating organization if the
instrument was rated by only one such organization) or the Fund's Board
determines that it is no longer of comparable quality or (b) the Adviser becomes
aware that any portfolio security not so highly rated or any unrated security
has been given a rating by any rating organization below the rating
organization's second highest rating category, the Fund's Board will reassess
promptly whether such security presents minimal credit risk and will cause the
Portfolio to take such action as it determines is in the best interest of the
Portfolio and its shareholders; provided that the reassessment required by
clause (b) is not required if the portfolio security is disposed of or matures
within five business days of the Adviser becoming aware of the new rating and
the Board of Directors is subsequently notified of the Adviser's actions.
To the extent that the ratings given by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch IBCA, Inc.
("Fitch") for Municipal Obligations may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for its investments in accordance with its
stated investment policies. The ratings of Moody's, S&P and Fitch represent
their opinions as to the quality of the Municipal Obligations which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
may be an initial criterion for selection of portfolio investments, the Adviser
also will evaluate these securities and the creditworthiness of the issuers of
such securities based upon financial and other available information.
ILLIQUID SECURITIES. Neither Portfolio will invest more than 10% 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 Portfolio has valued the securities and includes, among other things,
restricted securities other than those the 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 in which the Money
Market Portfolio may invest 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. An insufficient number of qualified institutional buyers
interested in purchasing certain restricted securities held by the Portfolio,
however, could affect adversely the marketability of such portfolio securities
and the Portfolio might be unable to dispose of such securities promptly or at
reasonable prices. It is anticipated that the market for certain restricted
securities will expand further as a result of Rule 144A and the development of
automated systems for the trading, clearance and settlement of unregistered
securities, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
The Board of Directors has the ultimate responsibility for determining
whether specific securities are liquid or illiquid, other than those the
Securities and Exchange Commission deems to be illiquid. The Board of Directors
has delegated the function of making day-to-day determinations of liquidity to
the Adviser, pursuant to guidelines approved by the Board. The Adviser takes
into account a number of factors in reaching liquidity decisions, including (1)
the frequency of trades for the security, (2) the number of dealers that make
quotes for the security, (3) the number of dealers that have undertaken to make
a market in the security, (4) the number of other potential purchasers and (5)
the nature of the security and how trading is effected (e.g., the time needed to
sell the security, how offers are solicited and the mechanics of transfer). The
Adviser will monitor the liquidity of restricted securities held by the
Portfolio and report periodically on such decisions to the Board of Directors.
INVESTMENT PRACTICES
The following information supplements and should be read in
conjunction with the Portfolios' Prospectus.
LENDING PORTFOLIO SECURITIES. (MONEY MARKET PORTFOLIO ONLY) To a
limited extent, the Money Market 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, the Portfolio can increase its income through the investment of the
cash collateral. For the purposes of this policy, the Portfolio considers
collateral consisting of U.S. Government securities or irrevocable letters of
credit issued by banks whose securities meet the standards for investment by the
Portfolio to be the equivalent of cash. Such loans may not exceed 33-1/3% of the
Money Market Portfolio's total assets. From time to time, the Portfolio may pay
a part of the interest earned from the investment of collateral received for
securities loaned to the borrower or a third party which is unaffiliated with
the Fund, and which is acting as a "placing broker," in an amount determined by
the Board of Directors to be reasonable and based solely on services rendered.
FORWARD COMMITMENTS. Each Portfolio may purchase securities on a
forward commitment or when-issued basis, which means that delivery and payment
take place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment or
when- issued security are fixed when the Portfolio enters into the commitment,
but the Portfolio does not make payment until it receives delivery from the
counterparty. The Portfolio will commit 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 set aside in a segregated account permissible liquid assets at
least equal at all times to the amount of the purchase commitment.
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 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
Portfolio is fully or almost fully invested may result in greater potential
fluctuation in the value of the Portfolio's net assets and its net asset value
per share.
INVESTMENT RESTRICTIONS
MONEY MARKET PORTFOLIO ONLY. The Money Market Portfolio has adopted
its investment objective and the following investment restrictions as
fundamental policies, which cannot be changed without approval by the holders of
a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting
shares. The Money Market Portfolio may not:
1. Purchase common stocks, preferred stocks, warrants or other equity
securities.
2. Borrow money, except (i) from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Portfolio's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made (while such borrowings exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make any additional
investments) and (ii) in connection with the entry into reverse repurchase
agreements. At no time may total borrowings exceed 33-1/3% of the value of the
Portfolio's total assets.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except (i) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements.
4. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), other than in connection with the entry into certain reverse
repurchase agreements.
5. Sell securities short or purchase securities on margin.
6. Write or purchase put or call options or combinations thereof.
7. Act as underwriter of securities of other issuers. The Portfolio
may not 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 10% of its net assets would be so invested.
8. Purchase or sell real estate, real estate investment trust
securities, commodities, or oil and gas interests.
9. Make loans to others, except through the purchase of debt
obligations and through repurchase agreements referred to in the Portfolio's
Prospectus, and except that the 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.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
12. Invest more than 5% of its assets in the obligations of any one
issuer, except that up to 25% of the value of the Portfolio's total assets may
be invested without regard to any such limitation (subject to provisions of Rule
2a-7), provided that not more than 10% of its assets may be invested in
securities issued or guaranteed by any single guarantor of obligations held by
the Portfolio. Notwithstanding the foregoing, to the extent required by the
rules of the Securities and Exchange Commission, the Portfolio will not invest
more than 5% of its assets in the obligations of any one bank.
13. Invest less than 25% of its total assets in securities issued by
banks or invest more than 25% of its assets in the securities of issuers in any
other industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Notwithstanding the foregoing, for temporary defensive
purposes the Money Market Portfolio may invest more than 25% of its assets in
bank obligations.
For purposes of Investment Restriction No. 13, asset- backed
securities are grouped in industries based on their underlying assets and are
not treated as constituting a single, separate industry.
* * *
TAX FREE MONEY MARKET PORTFOLIO ONLY. The Tax Free Money Market
Portfolio has adopted its investment objective and the following investment
restrictions as fundamental policies, which cannot be changed without approval
by the holders of a majority (as defined in the 1940 Act) of the Portfolio's
outstanding voting shares. The Tax Free Money Market Portfolio may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Portfolio's Prospectus.
2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Portfolio's
total assets (including the amount borrowed) based on 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 the value of the Portfolio's
total assets, the Portfolio will not make any additional investments).
3. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure borrowings for temporary or emergency purposes.
4. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act).
5. Sell securities short or purchase securities on margin.
6. Write or purchase put or call options or combinations thereof.
7. The Portfolio may not 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 10% of its net assets would be so
invested.
8. Purchase or sell real estate, real estate investment trust
securities, commodities, or oil and gas interests, but this shall not prevent
the Portfolio from investing in Municipal Obligations secured by real estate or
interests therein.
9. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements referred to above and in
the Portfolio's Prospectus.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.
12. Underwrite the securities of other issuers, except that the
Portfolio may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage of
the lower purchase price available.
13. Invest more than 25% of its assets in the securities of issuers in
any single industry, provided that there shall be no limitation on the purchase
of tax exempt securities issued by state or municipal governments or their
political subdivisions and, for temporary defensive purposes, securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
For purposes of Investment Restriction No. 13, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
* * *
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
MANAGEMENT OF THE FUND
The Fund's Board of Directors is responsible for the management and
supervision of each Portfolio. The Board approves all significant agreements
with those companies that furnish services to the Portfolios. These companies
are as follows:
Mitchell Hutchins Asset Management Inc........ Investment Adviser
BISYS Fund Services Limited Partnership...... Distributor
BISYS Fund Services Ohio, Inc................. Administrator and Transfer Agent
The Bank of New York.......................... Custodian
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.
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Age With Company During Past 5 Years
- ------------- ----------------- -------------------
<S> <C> <C>
WILLIAM B. BLUNDIN* President and An employee of BISYS
90 Park Avenue Chairman of the Fund Services, Inc.,
New York, New York 10016 Board of general partner of
Age 60 Directors the Distributor. Mr.
Blundin also is
an officer of other
investment companies administered by
the Administrator or its
affiliates.
NORMA A. COLDWELL Director International
3330 Southwestern Boulevard Economist and
Dallas, Texas 75225 Consultant; Executive
Age 72 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.
RICHARD H. FRANCIS Director Former Executive Vice
40 Grosvenor Road President and Chief
Short Hills, New Jersey Financial Officer of
07078 Pan American World
Age 66 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.
WILLIAM W. McINNEES Director Private investor.
116 30th Avenue South From July 1978 to
Nashville, Tennessee 37212 February 1993, he was
Age 48 Vice-President--Finance
and Treasurer of
Hospital Corp. of
America. He is also
a director of Gulf
South Medical Supply
and Diversified Trust
Co.
ROBERT A. ROBERTSON Director Private investor.
2 Hathaway Common Since 1991, President
New Canaan, Connecticut Emeritus, and from
06840 1968 to 1991,
Age 71 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.
JEFFREY C. CUSICK Vice President An employee of BISYS
3435 Stelzer Road and Assistant Fund Services, Inc.
Columbus, Ohio 43219 Secretary since July 1995, and
Age 38 an officer of other
investment companies
administered by the
Administrator or its
affiliates. From
September 1993 to
July 1995, he was
Assistant Vice
President of Federated
Administrative Services.
WILLIAM TOMKO Vice President An employee of BISYS
3435 Stelzer Road Fund Services, Inc.
Columbus, Ohio 43219 and an officer of
Age 38 other investment
companies administered by the
Administrator or its
affiliates.
GARY R. TENKMAN Treasurer An employee of BISYS
3435 Stelzer Road Fund Services, Inc.
Columbus, Ohio 43219 since April 1998, and
Age 34 an officer of other
investment companies
administered by the
Administrator or
its affiliates.
For more than five years
prior thereto, he was
an audit manager with
Ernst & Young LLP.
ROBERT L. TUCH Assistant An employee of BISYS
3435 Stelzer Road Secretary Fund Services, Inc.
Columbus, Ohio 43219 and an officer of
Age 45 other investment
companies administered by the
Administrator or its
affiliates.
ALAINA METZ Assistant An employee of BISYS
3435 Stelzer Road Secretary Fund Services, Inc.
Columbus, Ohio 43219 and an officer of
Age 29 other investment companies
administered by the
Administrator or its
affiliates.
</TABLE>
For so long as the Fund's 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
each Portfolio's shares outstanding on April 1, 1999.
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 the year ended
December 31, 1998 was as follows:
Total Compensation
Aggregate From Fund and
Name of Board Compensation Fund Complex Paid
Member from Fund* to Board Member*
- --------------------- ----------------------- -----------------------
Norma A. Coldwell $18,000 $18,000
Richard H. Francis $18,000 $18,000
William W. McInnis $18,000 $18,000
Robert A. Robinson $18,000 $18,000
- ---------------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $21,441 for all Directors as a group.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. The Adviser is a wholly-owned subsidiary of
PaineWebber Incorporated ("PaineWebber"), which in turn is a wholly-owned
subsidiary of Paine Webber Group Inc. ("PW Group"), a publicly owned financial
services holding company. The Adviser provides investment advisory services
pursuant to the Investment Advisory Agreement (the "Agreement") dated October
30, 1990, 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 the
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 Board, including a majority of
the Directors who are not "interested persons" of any party to the Agreement,
last approved the Agreement at a meeting held on November 18, 1998. Shareholders
of the Money Market Portfolio approved the Agreement on December 20, 1991. As to
each Portfolio, the Agreement is terminable without penalty, on 60 days' notice,
by the Fund's Board or by vote of the holders of a majority of the 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).
The Adviser provides investment advisory services in accordance with
the stated policies of the Portfolios, subject to the approval of the Fund's
Board of Directors. The Adviser provides each Portfolio with Investment Officers
who are authorized by the Board of Directors to execute purchases and sales of
securities. The Money Market Portfolio's Chief Investment Officers are Susan P.
Ryan and Dennis L. McCauley. The Tax Free Money Market Portfolio's Chief
Investment Officers are Elbridge T. Gerry III, Debbie Vermann and Kevin
McIntyre. The Adviser also maintains a research department with a professional
staff of portfolio managers and securities analysts who provide research
services for each Portfolio and for other funds advised by the Adviser. All
purchases and sales are reported for the Board's review at the meeting
subsequent to such transactions.
As compensation for its services, the Fund has agreed to pay the
Adviser a monthly fee at the annual rate of .10% of the value of each
Portfolio's average daily net assets. For the fiscal years ended December 31,
1996, 1997 and 1998, the advisory fees paid to the Adviser by the Money Market
Portfolio amounted to $950,074, $1,088,088 and $1,328,616, respectively. For the
period October 7, 1996 (commencement of operations of the Tax Free Money Market
Portfolio) through December 31, 1996 and for the fiscal years ended December 31,
1997 and 1998, the advisory fees payable to the Adviser by the Tax Free Money
Market Portfolio amounted to $19,900, $93,494 and $113,647, respectively, which
amounts were reduced by $9,950 in 1996 and $14,024 in 1997, pursuant to
undertakings by the Adviser, resulting in net advisory fees paid to the Adviser
by the Tax Free Money Market Portfolio of $9,950 for the period ended December
31, 1996 and $79,470 for the fiscal year ended December 31, 1997.
ADMINISTRATOR. BISYS Fund Services Ohio, Inc., a wholly-owned
subsidiary of The BISYS Group, Inc., provides certain administrative services
pursuant to the Administration Agreement (the "Administration Agreement") dated
April 25, 1996, with the Fund. Under the Administration Agreement, the
Administrator generally assists in all aspects of the Portfolios' 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, the Administrator provides the Portfolios 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
Portfolios' custodian. As to each Portfolio, the Administration Agreement will
continue until December 31, 1999 and thereafter is subject to annual approval by
(i) the Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the 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
Administrator, 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 November 11, 1997. As to each Portfolio, the Administration Agreement is
terminable without penalty, at any time if for cause, by the Fund's Board or by
vote of the holders of a majority of the Portfolio's outstanding voting
securities, or, on not less than 90 days' notice, by the Administrator. 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 its administrative services, each Portfolio has
agreed to pay the Administrator a monthly fee at the annual rate of .10% of the
value of the Portfolio's average daily net assets. For the fiscal years ended
December 31, 1996, 1997 and 1998, the Money Market Portfolio paid the
Administrator $950,074, $1,088,088 and $1,328,616, respectively. For the period
October 7, 1996 (commencement of operations of the Tax Free Money Market
Portfolio) through December 31, 1996 and for the fiscal years ended December 31,
1997 and 1998, the administration fees payable to the Administrator by the Tax
Free Money Market Portfolio amounted to $19,900, $93,494 and $113,647,
respectively, which amounts were reduced by $19,900 in 1996, $67,007 in 1997 and
$47,448 in 1998, resulting in no administration fee being paid for the period
ended December 31, 1996 and $26,487 and $66,199 in administration fees paid to
the Administrator for the fiscal years ended December 31, 1997 and 1998,
respectively, pursuant to undertakings.
DISTRIBUTOR. BISYS Fund Services Limited Partnership, a wholly-owned
subsidiary of The BISYS Group, Inc., acts as the exclusive distributor of each
Portfolio's shares on a best efforts basis pursuant to a Distribution Agreement
(the "Distribution Agreement") dated February 11, 1997, with the Fund. Shares
are sold on a continuous basis by the Distributor as agent, although the
Distributor is not obliged to sell any particular amount of shares. No
compensation is payable by a Portfolio to the Distributor for its distribution
services.
DISTRIBUTION PLAN. 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. Because some or all of the fees paid
to Correspondent Services Corporation [csc] and other Financial Institutions (as
defined in the Prospectus) for services provided to Portfolio shareholders could
be deemed to be payment of distribution expenses, the Fund's Board of Directors
has adopted such a plan (the "Plan"). The Fund's Board of Directors believes
that there is a reasonable likelihood that the Plan will benefit each Portfolio
and its shareholders. Pursuant to the Plan, each Portfolio pays Correspondent
Services Corporation [csc] and other Financial Institutions a monthly fee at the
annual rate of .60% of the Portfolio's average daily net assets. The fees under
the Plan are payable without regard to actual expenses incurred by the Financial
Institutions.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the Board of
Directors for its review. In addition, as to each Portfolio, the Plan provides
that it may not be amended to increase materially the costs which shareholders
may bear for distribution pursuant to the Plan without shareholder approval and
that other 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 Plan or in the related Plan Agreement between the Fund
and Correspondent Services Corporation [csc], an affiliate of the Adviser, by
vote cast in person at a meeting called for the purpose of considering such
amendments. The Plan and the Plan Agreement are subject to annual approval by
such vote cast in person at a meeting called for the purpose of voting on the
Plan. The Plan and Plan Agreement were so approved on November 18, 1998. The
Money Market Portfolio's shareholders approved the Plan on December 20, 1991. As
to each Portfolio, the 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 Plan or in the Plan
Agreement or by vote of the holders of a majority of the Portfolio's shares. As
to each Portfolio, the Plan Agreement is terminable without penalty, at any
time, by such vote of the Directors, upon not more than 60 days' written notice
to Correspondent Services Corporation [csc] or by vote of the holders of a
majority of the Portfolio's shares. The Plan Agreement will terminate
automatically, as to the relevant Portfolio, in the event of its assignment (as
defined in the 1940 Act).
For the fiscal year ended December 31, 1998, the amount payable
pursuant to the Plan by the Money Market Portfolio amounted to $7,981,102;
however, pursuant to an undertaking, the amount was reduced by $110,436,
resulting in a net amount paid by the Money Market Portfolio of $7,860,666
pursuant to the Plan. For the fiscal year ended December 31, 1998, the amount
payable pursuant to the Plan by the Tax Free Money Market Portfolio amounted to
$681,887; however, pursuant to an undertaking, the amount was reduced by
$196,182, resulting in a net amount paid by the Tax Free Money Market Portfolio
of $485,705 pursuant to the Plan. All of said amounts were paid to
broker/dealers in connection with the sale of Portfolio shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. BISYS Fund
Services Ohio, Inc. (the "Transfer Agent"), a wholly- owned subsidiary of The
BISYS Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is
the Fund's transfer and dividend disbursing agent. Under a transfer agency
agreement with the Fund, the Transfer Agent arranges for the maintenance of
shareholder account records for each Portfolio, the handling of certain
communications between shareholders and the Portfolio and the payment of
dividends and distributions payable by the Portfolio. For these services, the
Transfer Agent receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for each Portfolio during the month, and is
reimbursed for certain out-of-pocket expenses.
The Bank of New York, 90 Washington Street, New York, New York 10286,
acts as custodian of the investments of each Portfolio. Under a custody
agreement with the Fund, The Bank of New York provides for the holding of each
Portfolio's securities and the retention of all necessary accounts and records.
SPECIAL MANAGEMENT SERVICES AGREEMENT. Pursuant to the terms of a
Special Management Services Agreement among the Fund, the Adviser and the
Administrator, each Portfolio has agreed to pay the Adviser and the
Administrator each a monthly fee at the annual rate of .05 of 1% of the value of
the Portfolio's average daily net assets. The fees payable to the Adviser by the
Money Market Portfolio under the agreement for the fiscal years ended December
31, 1996, 1997 and 1998 amounted to $461,556, $544,044 and $664,308,
respectively; however, pursuant to an undertaking, the Adviser waived the fee in
its entirety for each such fiscal year. The fees payable to the Adviser by the
Tax Free Money Market Portfolio under the agreement for the period October 7,
1996 (commencement of operations of the Tax Free Money Market Portfolio) through
December 31, 1996 and for the fiscal years ended December 31, 1997 and 1998,
amounted to $9,950, $46,747 and $56,824, respectively, which amounts were waived
in their entirety pursuant to an undertaking.
The fees payable to the Administrator by the Money Market Portfolio
pursuant to the terms of the Special Management Services Agreement for the
fiscal years ended December 31, 1996, 1997 and 1998 amounted to $461,555,
$544,044 and $664,308, respectively; however, pursuant to an undertaking, the
Administrator waived the fee in its entirety for each such fiscal year. The fees
payable to the Administrator by the Tax Free Money Market Portfolio for the
period October 7, 1996 (commencement of operations of the Tax Free Money Market
Portfolio) through December 31, 1996 and for the fiscal years ended December 31,
1997 and 1998, amounted to $9,950, $46,747 and $56,823, respectively, which
amounts were waived in their entirety pursuant to an undertaking.
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: 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 or the
Administrator or any of their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory fees, 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 prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, 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, including, but not limited to, proportionately in relation to the
net assets of each Portfolio.
As to each Portfolio, the Adviser and the Administrator have agreed
that if in any fiscal year the aggregate expenses of the Portfolio, exclusive of
taxes, brokerage, interest on borrowings and (with the prior written consent of
the necessary state securities commissions) extraordinary expenses, but
including the advisory and administration fees, exceed the expense limitation of
any state having jurisdiction over the Portfolio, the Fund may deduct from the
payment to be made to the Administrator under the Administration Agreement, or
the Adviser and/or the Administrator will bear, such excess expense to the
extent required by state law. 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.
PURCHASE AND REDEMPTION OF 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.
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 a Portfolio ordinarily utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the 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
AMORTIZED COST PRICING. The valuation of each 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 Portfolio would receive if it sold the
instrument.
The Board of Directors has established, as a particular responsibility
within the overall duty of care owed to each Portfolio's investors, procedures
reasonably designed to stabilize the Portfolio's price per share as computed for
the purpose of purchases and redemptions at $1.00. Such procedures include
review of the Portfolio's investment holdings by the Board of Directors, at such
intervals as it deems appropriate, to determine whether the 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 equivalent 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 of Directors.
The extent of any deviation between a 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
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.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which
the New York Stock Exchange and the Custodian are closed currently are: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
YIELD INFORMATION
Yield is computed in accordance with a standardized method which
involves determining the net change in the value of a hypothetical pre-existing
Portfolio account having a balance of one share at the beginning of a seven
calendar day period for which yield is to be quoted, dividing the net change by
the value of the account at the beginning of the period to obtain the base
period return, and analyzing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared on the original share and
any such additional shares and fees that may be charged to shareholder accounts,
in proportion to the length of the base period and the Portfolio's average
account size, but does not include realized gains and losses or unrealized
appreciation and depreciation. Effective annualized yield is computed by adding
1 to the base period return (calculated as described above), raising that sum to
a power equal to 365 divided by 7, and subtracting 1 from the result.
Tax equivalent yield is computed by dividing that portion of the yield
or effective yield (calculated as described above) which is tax exempt by 1
minus a stated tax rate and adding the quotient to that portion, if any, of the
yield of the Portfolio that is not tax exempt. Each investor should consult with
its tax adviser, and consider its own factual circumstances and applicable tax
laws, in order to ascertain the relevant tax equivalent yield.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held, their maturity and operating expenses. An
investor's principal in a Portfolio is not guaranteed. See "Determination of Net
Asset Value" for a discussion of the manner in which each Portfolio's price per
share is determined.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased directly from the issuer
or an underwriter or a market maker for the securities. Usually no brokerage
commissions are paid for such purchases. Purchases from underwriters of
portfolio securities include a concession paid by the issuer to the underwriter
and the purchase price paid to market makers for the securities may include the
spread between the bid and asked price. No brokerage commissions have been paid
by either Portfolio to date.
Transactions are allocated to various dealers by the Portfolio's
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.
Research services furnished by brokers through which the Portfolios
effect securities transactions may be used by the Adviser in advising other
funds or accounts it advises and, conversely, research services furnished to the
Adviser by brokers in connection with other funds or accounts the Adviser
advises may be used by the Adviser in advising each Portfolio. Although it is
not possible to place a dollar value on these services, it is the opinion of the
Adviser that the receipt and study of such services should not reduce the
overall expenses of its research department.
INFORMATION ABOUT THE FUND AND THE PORTFOLIOS
The Fund is authorized to issue 28 billion 500 million shares of
Common Stock (with 3 billion shares allocated to each Portfolio), par value
$.001 per share. 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, subscription or conversion rights and are freely
transferable.
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 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.
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.
To date, 28 portfolios have been authorized. 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.
Each Portfolio will send annual and semi-annual financial statements
to all its shareholders.
COUNSEL AND INDEPENDENT AUDITORS
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
being sold pursuant to the Prospectus.
KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215, independent
auditors, has been selected as the Fund's auditors for the year ending December
31, 1999.
FINANCIAL STATEMENTS
The Portfolios' Annual Report to Shareholders for the fiscal year
ended December 31, 1998 is a separate document supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing therein are incorporated by reference
in this Statement of Additional Information.
<PAGE>
APPENDIX
Description of the two highest commercial paper, bond, municipal bond
and other short- and long-term rating categories assigned by S&P, Moody's,
Fitch, Duff & Phelps Credit Rating Co. ("Duff"), and Thomson BankWatch, Inc.
("BankWatch"):
COMMERCIAL PAPER AND SHORT-TERM RATINGS
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.
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 pin well established industries, high rates of
return of 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. Issues 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.
The rating Fitch-1 (Highest Grade) is the highest commercial paper
rating assigned by Fitch. Paper rated Fitch-1 is regarded as having the
strongest degree of assurance for timely payment. The rating Fitch-2 (Very Good
Grade) is the second highest commercial paper rating assigned by Fitch which
reflects an assurance of timely payment only slightly less in degree than the
strongest issues.
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.
The rating TBW-1 is the highest short-term rating assigned by
BankWatch; the rating indicates that the degree of safety regarding timely
repayment of principal and interest is very strong. The rating TBW-2 is the
second highest short-term rating assigned by BankWatch; while the degree of
safety regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade
obligations and possess an extremely strong capacity to pay principal and
interest. Bonds rated AA by S&P are judged by S&P to have a very strong capacity
to pay principal and interest, and in the majority of instances, differ only in
small degrees from issues rated 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." Bonds rated Aa by Moody's are judged by Moody's to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger. Moody's applies numerical modifiers
1, 2 and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high
grade, broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated AAA by Duff are considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than U.S.
Treasury debt. Bonds rated AA are considered to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.
INTERNATIONAL AND U.S. BANK RATINGS
A Fitch bank rating represents Fitch's current assessment of the
strength of the bank and whether such bank would receive support should it
experience difficulties. In its assessment of a bank, Fitch uses a dual rating
system comprised of Legal Ratings and Individual Ratings. In addition, Fitch
assigns banks Long- and Short-Term Ratings as used in the corporate ratings
discussed above. Legal Ratings, which range in gradation from 1 through 5,
address the question of whether the bank would receive support provided by
central banks or shareholders if it experienced difficulties, and such ratings
are considered by Fitch to be a prime factor in its assessment of credit risk.
Individual Ratings, which range in gradations from A through E, represent
Fitch's assessment of a bank's economic merits and address the question of how
the bank would be viewed if it were entirely independent and could not rely on
support from state authorities or its owners.
Description of certain S&P, Moody's and Fitch ratings of Municipal
Obligations:
S&P
MUNICIPAL BOND RATINGS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable, and will include:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. The AA
rating may be modified by the addition of a plus or a minus sign, which is used
to show relative standing within the category.
MUNICIPAL NOTE RATINGS
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
Moody's
MUNICIPAL 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.
Bonds in the Aa category which Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). Such ratings recognize the
difference between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short- term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Fitch
MUNICIPAL 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+. Plus (+) and minus (-) signs are used with the rating symbol AA 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.
<PAGE>
<PAGE>
ISG FUNDS
PROSPECTUS
MAY 1, 1999
DG CLASS
ISG EQUITY FUNDS
o International Equity Fund
o Small-Cap Opportunity Fund
o Large-Cap Equity Fund
ISG FIXED INCOME FUNDS
o Government Income Fund
o Limited Term U.S. Government Fund
ISG TAX-EXEMPT FIXED INCOME FUND
o Municipal Income Fund
ISG MONEY MARKET FUNDS
o Prime Money Market Fund
o Treasury Money Market Fund
MANAGED BY
FIRST AMERICAN NATIONAL BANK
QUESTIONS?
CALL 1-800-852-0045
OR YOUR INVESTMENT REPRESENTATIVE.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE FUND SHARES OR DETERMINED WHETHER THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
CAREFULLY REVIEW THIS DESCRIPTION OF THE FUNDS - OBJECTIVES,
IMPORTANT SECTION TO LEARN RISK/RETURN AND EXPENSES
ABOUT EACH FUND'S GOAL,
MAIN INVESTMENT STRATEGIES __ OVERVIEW
AND RISKS, PAST
PERFORMANCE, AND FEES. ISG EQUITY FUNDS
__ INTERNATIONAL EQUITY FUND
__ SMALL-CAP OPPORTUNITY FUND
__ LARGE-CAP EQUITY FUND
ISG FIXED INCOME FUNDS
__ GOVERNMENT INCOME FUND
__ LIMITED TERM U.S. GOVERNMENT FUND
ISG TAX-EXEMPT FIXED INCOME FUND
__ MUNICIPAL INCOME FUND
ISG MONEY MARKET FUNDS
__ PRIME MONEY MARKET FUND
__ TREASURY MONEY MARKET FUND
REVIEW THIS SECTION FOR ADDITIONAL INVESTMENT STRATEGIES
ADDITIONAL INFORMATION ON
INVESTMENT STRATEGIES AND __ EQUITY FUNDS
RISKS. __ FIXED INCOME FUNDS
__ TAX-EXEMPT FIXED INCOME FUND
__ MONEY MARKET FUNDS
__ APPLICABLE TO ALL FUNDS
REVIEW THIS SECTION FOR FUND MANAGEMENT
DETAILS ON THE PEOPLE AND
ORGANIZATIONS WHO OVERSEE __ INVESTMENT ADVISERS
THE FUNDS. __ PRIMARY PORTFOLIO MANAGERS
__ ADMINISTRATOR AND DISTRIBUTOR
REVIEW THIS SECTION FOR SHAREHOLDER INFORMATION
DETAILS ON HOW SHARES ARE
VALUED, HOW TO PURCHASE, __ PRICING OF FUND SHARES
SELL AND EXCHANGE SHARES, __ PURCHASING AND ADDING TO YOUR SHARES
RELATED CHARGES AND __ SELLING YOUR SHARES
PAYMENTS OF DIVIDENDS AND __ EXCHANGING YOUR SHARES
DISTRIBUTIONS. __ GENERAL POLICIES ON SELLING SHARES
__ DISTRIBUTION ARRANGEMENTS/SALES CHARGES
__ DIVIDENDS, DISTRIBUTIONS AND TAXES
REVIEW THIS SECTION FOR FINANCIAL HIGHLIGHTS
RECENT FINANCIAL
INFORMATION. __ EQUITY FUNDS
__ FIXED INCOME FUNDS
__ TAX-EXEMPT FIXED INCOME FUND
__ MONEY MARKET FUNDS
WHERE TO LEARN MORE BACK COVER
ABOUT THE FUNDS
<PAGE>
OVERVIEW
- --------------------------------------------------------------------------------
THE FUNDS DG Class shares of eight ISG Funds are
offered by this prospectus. Each ISG Fund has its
own investment strategy and risk/return profile.
The differences in strategy among the Funds
determine the types of securities in which each
Fund invests and can be expected to affect the
degree of risk each Fund is subject to and its
yield or return. The Funds are actively managed
and, thus, are subject to manager risk, which is
the possibility that poor securities selection
will cause the Funds to underperform other funds
with similar investment objectives. Because you
could lose money by investing in a Fund, be sure
to read all risk disclosure carefully before
investing. o o You should be aware that ISG Funds:
o Are not bank deposits
o Are not guaranteed, endorsed or insured by
any bank, financial institution or government
entity such as the Federal Deposit Insurance
Corporation
o Are not guaranteed to achieve their stated
goals
INFORMATION ON EACH FUND'S RECENT STRATEGIES AND
HOLDINGS CAN BE FOUND IN THE CURRENT
ANNUAL/SEMI-ANNUAL REPORT (SEE BACK COVER).
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
EQUITY FUNDS--These Funds seek
capital appreciation and invest
primarily in equity securities,
principally common stocks and, to
a limited extent, preferred
stocks and convertible securities.
WHO MAY WANT TO INVEST? Consider investing in these Funds if you are:
! seeking a long-term goal such as retirement
! looking to add a growth component to your
portfolio
! willing to accept the risks of investing in the
stock markets
These Funds may not be appropriate if you are:
! pursuing a short-term goal or investing
emergency reserves
! uncomfortable with an investment that will go up
and down in value
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
INTERNATIONAL EQUITY FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
appreciation.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES large non-U.S. companies (i.e., incorporated or
organized outside the United States).
In choosing stocks for the Fund, the Fund's
Sub-Adviser, Lazard Asset Management, looks for
established companies in economically developed
countries that it believes are undervalued based
on their return on total capital or equity. The
Sub-Adviser attempts to identify undervalued
securities through traditional measures of value,
including low price to earnings ratio, high yield,
unrecognized assets, potential for management
change and the potential to improve profitability.
The Sub-Adviser focuses on individual stock
selection (a "bottom-up" approach) rather than on
forecasting stock market trends (a "top-down"
approach).
The percentage of the Fund's assets invested in
particular geographic sectors may shift from time
to time in accordance with the judgment of the
Adviser and Sub-Adviser. Ordinarily, the Fund
invests in at least three different foreign
countries. Although the Fund invests primarily in
the stocks of companies located in developed
foreign countries, it may invest up to 25% of its
assets in typically large companies located, or
doing significant business in emerging markets. In
addition, the Fund may have substantial
investments in American and Global Depositary
Receipts.
PRINCIPAL INVESTMENT The Fund's performance will be influenced by
RISKS political, social and economic factors affecting
companies in foreign countries. The securities of
foreign issuers fluctuate in price, often based on
factors unrelated to the issuers' value, and such
fluctuations can be pronounced. Foreign securities
include special risks such as exposure to currency
fluctuations, a lack of adequate company
information, political instability, and differing
auditing and legal standards. As a result, you
could lose money by investing in the Fund,
particularly if there is a sudden decline in the
share prices of the Fund's holdings or an overall
decline in the stock markets of the foreign
countries in which the Fund is invested. Emerging
market countries have economic structures that are
generally less diverse and mature, and political
systems that are less stable, than those of
developed countries. As a result, their markets
are more volatile, but may provide higher rates of
return to investors.
Value stocks involve the risk that they may never
reach what the Sub-Adviser believes is their full
market value. They also may decline in price, even
though in theory they are already underpriced.
The Fund is non-diversified and may invest a
greater percentage of its assets in a particular
company compared with other funds. Accordingly,
the Fund's portfolio may be more sensitive to
changes in the market value of a single company or
industry.
PERFORMANCE BAR CHART AND TABLE
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
table on this page CLASS A SHARES
provide some
indication of the
risks of investing
in the
International Equity
Fund by showing how 9.47%
the Fund has -----------
performed and how '98
its performance has
varied from year to
year. The bar chart The bar chart above does not reflect any
shows the applicable sales charges which would reduce
performance of the returns.
Fund's Class A
shares for its first -----------------------------------------------
full calendar year Best quarter: Q4 1998 +18.79%
of operations. The Worst quarter: Q3 1998 -19.33%
table below -----------------------------------------------
compares the
performance of
Class A shares over
time to that of the
Morgan Stanley Capital
International
Europe, Australia,
Far East ("EAFE")
Index, a widely
recognized, unmanaged index of
foreign securities
representing major
non-U.S. stock
markets. Both the
bar chart and the
table assume the
reinvestment of
dividends and distributions.
Class A shares are
not offered by this
prospectus. However, except to
the extent Class A
and DG Class shares
have different
expenses, DG Class
shares should have
substantially
similar annual
returns to Class A
shares since each
class invests in the
same portfolio of
securities. Of
course, past
performance does not
indicate how the
Fund will perform in
the future.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
(without sales
charge imposed) 8/15/97 9.47% N/A N/A 4.48%
EAFE INDEX 7/31/97 20.33% N/A N/A 5.62%
<PAGE>
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
International Equity Fees (fees
Fund, you will pay paid by you DG CLASS
certain fees and directly) SHARES
expenses, which are
described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE None
are paid out of Fund
assets, and are
reflected in the
share price. -----------------------------------------------
Maximum deferred None
sales charge
(CDSC) AS A
% OF LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating SHARES
Expenses
(fees paid
from Fund assets)
----------------------------------------------
Management Fee 1.00%
-----------------------------------------------
Distribution (12b-1) Fee .25%
-----------------------------------------------
Other Expenses .88%
-----------------------------------------------
Total Annual Fund 2.13%
Operating Expenses
-----------------------------------------------
Fee Waiver And
Expense Reimbursement .36%
-----------------------------------------------
Net Expenses1 1.77%
-----------------------------------------------
- ----------------------
1 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than 1.77%
until May 1, 2000, when DG Class shares automatically convert to Class A
shares. The expenses noted above do not reflect any other fee waivers or
expense reimbursement arrangements that are or were in effect.
<PAGE>
EXPENSE EXAMPLE
Use the example at right to INTERNATIONAL 1 3
help you compare the cost of EQUITY FUND Year Years
investing in the Fund
with the cost of investing in DG CLASS SHARES $180 $634
other mutual funds. It
illustrates the amount of
fees and expenses you would
pay based on the expense
reimbursement arrangement
for periods prior to May 1, 2000,
assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
o reinvestment of all dividends and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
SMALL-CAP OPPORTUNITY FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital
appreciation.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES U.S. companies with market capitalizations of less
than $1.5 billion.
In choosing stocks for the Fund, the Fund's
Sub-Adviser, Womack Asset Management, seeks
investment opportunities in smaller, well managed
U.S. companies whose shares are undervalued
relative to the companies' growth potential. The
Sub-Adviser employs a growth-oriented approach
which involves fundamental analysis of the
company's published financial statements with
technical analysis (which relies on price and
volume movements of the company's stock) to
discern potential and risk.
The Sub-Adviser focuses on individual stock
selection (a "bottom-up" approach) rather than on
forecasting stock market trends (a "top-down"
approach). The Sub-Adviser considers, among other
factors:
o projected earnings growth
o relative price strength
o business fundamentals
PRINCIPAL INVESTMENT Stocks and other equity securities fluctuate in
RISKS price, often based on factors unrelated to the
issuers' value, and such fluctuations can be
pronounced. The value of your investment in the
Fund will fluctuate in response to movements in
the stock market and the activities of individual
portfolio companies. As a result, you could lose
money by investing in the Fund, particularly if
there is a sudden decline in share prices of the
Fund's holdings or an overall decline in the stock
market.
The Fund invests in small-cap companies which
carry additional risks. Smaller companies
typically have more limited product lines, markets
and financial resources, and have less predictable
earnings than larger companies and their
securities trade less frequently and in more
limited volume than those of larger, more
established companies. As a result, small-cap
stocks and thus the Fund's shares may fluctuate
significantly more in value than larger-cap stocks
and funds that focus on them. Over time, growth
companies are expected to increase their earnings
at an above-average rate. If these expectations
are not met, the stock price can fall
drastically--even if earnings show an absolute
increase.
PERFORMANCE BAR CHART AND TABLE
<TABLE>
<CAPTION>
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
table on this page CLASS A SHARES
provide some
indication of the <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
risks of investing 20.26% -6.61% 59.13% 24.96% 31.80% -7.21% 28.48% 24.98% 24.41% -7.20%
in the Small-Cap ------------------------------------------------------------------------------
Opportunity Fund by '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
showing how the
Fund has performed
and how its
performance has The bar chart above does not reflect any
varied from year to applicable sales charges which would reduce returns.
year. The bar chart
shows how the --------------------------------------------------
performance of the Best quarter: Q4 1992 +26.42%
Fund's Class A Worst quarter: Q3 1998 -23.80%
shares has varied ---------------------------------------------------------
from year to year.
The table below
compares the
performance of Class
A shares over time
to that of the
Russell 2000 Index,
a widely recognized,
unmanaged index of
smaller capitalization
common stocks.
Both the bar chart
and the table assume the
reinvestment of dividends and
distributions. Class A shares are
not offered by this prospectus.
However, except to the extent
Class A and DG Class shares have
different expenses, DG Class shares should have
substantially similar annual returns
to Class A shares since each class invests
in the same portfolio of securities.
Of course, past performance does not
indicate how the Fund will perform in the future.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended
December 31, 1998)
Inception Past Past 5 Past 10
Date Year Years Years
Class A
(with 3.50% sales
charge imposed) 1/1/82* -10.03% 10.39% 17.05%
-------------------------------------------
RUSSELL 2000 INDEX -2.55% 11.87% 12.92%
-------------------------------------------
* The Small-Cap Opportunity Fund commenced operations on 8/1/94 through a
transfer of assets from collective trust fund accounts managed by the
Adviser's predecessor, using materially equivalent investment objectives,
policies and methodologies as the Fund. The quoted performance of the Fund
includes the performance of these trust accounts for periods prior to the
Fund's commencement of operations, as adjusted to reflect the expenses
associated with the Fund. The trust accounts were not registered with the SEC
and were not subject to the investment restrictions imposed by law on
registered mutual funds. If these trust accounts had been registered, their
returns may have been lower.
<PAGE>
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
Small-Cap Opportunity Fees (fees DG CLASS
Fund, you will pay paid by you SHARES
certain fees and directly)
expenses, which are
described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases 3.50%1
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE
are paid out of Fund
assets, and are
reflected in the
share price.
-----------------------------------------------
Maximum deferred None2
sales charge
(CDSC) AS A
% OF LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating SHARES
Expenses
(fees paid
from
Fund assets)
-----------------------------------------------
Management Fee .95%
-----------------------------------------------
Distribution (12b-1) Fee .25%
-----------------------------------------------
Other Expenses .46%
-----------------------------------------------
Total Annual
Fund Operating 1.66%
Expenses
-----------------------------------------------
Fee Waiver And
Expense Reimbursement .33%
-----------------------------------------------
Net Expenses3 1.33%
-----------------------------------------------
- -------------------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Shares bought as part of an investment of $1 million or more are not subject
to an initial sales charge, but may be charged a CDSC of up to .50% if sold
within one year of purchase.
3 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than 1.33% until
May 1, 2000, when DG Class shares automatically convert to Class A shares.
The expenses noted above do not reflect any other fee waivers or expense
reimbursement arrangements that are or were in effect.
<PAGE>
EXPENSE EXAMPLE
Use the example at right to SMALL-CAP 1 3
help you compare the cost of OPPORTUNITY FUND Year Years
investing in the Fund
with the cost of investing DG CLASS SHARES $481 $825
in other mutual funds. It
illustrates the amount of -------------------------------------------
fees and expenses you would
pay based on the expense
reimbursement arrangement
for periods prior to May 1, 2000,
assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all dividends
and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
LARGE-CAP EQUITY FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with long-term
capital appreciation and, as a secondary
objective, current income.
PRINCIPAL INVESTMENT The Fund invests primarily in equity securities of
STRATEGIES large U.S. companies with market capitalizations
over $1 billion that the Adviser believes have the
potential to provide capital appreciation and
growth of income.
In choosing stocks for the Fund, the Adviser's
strategy is to select well managed U.S. companies
that have demonstrated sustained patterns of
profitability, strong balance sheets, and the
potential to achieve predictable, above-average
earnings growth. The Adviser also looks for
companies that pay above-average dividends. The
Adviser seeks to diversify the Fund's portfolio
within the various industries typically
comprising, what the Adviser believes to be, the
classic growth segments of the U.S. economy:
Technology, Consumer Non-Durables, Health Care,
Business Equipment and Services, Retail, and
Capital Goods.
The Fund invests for long-term growth rather than
short-term profits.
PRINCIPAL INVESTMENT Stocks and other equity securities fluctuate in
RISKS price, often based on factors unrelated to the
issuers' value, and such fluctuations can be
pronounced. The value of your investment in the
Fund will fluctuate in response to movements in
the stock market and the activities of individual
portfolio companies. As a result, you could lose
money by investing in the Fund, particularly if
there is a sudden decline in the share prices of
the Fund's holdings or an overall decline in the
stock market.
Over time, growth companies are expected to
increase their earnings at an above-average rate.
If these expectations are not met, the stock price
can fall drastically--even if earnings show an
absolute increase.
The risks and returns of different industries can
vary over the long-term and short-term. Because
of this, the Fund's performance could suffer
during times when the stocks of companies in the
classic growth industries in which it is invested
are out of favor.
PERFORMANCE BAR CHART AND TABLE
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
table on this page CLASS A SHARES
provide some
indication of the
risks of investing 5.60% 1.78% 34.99% 17.63% 35.93% 37.87%
in the Large-Cap -------------------------------------------------
Equity Fund by '93 '94 '95 '96 '97 '98
showing how the Fund
has performed and how The bar chart above does not reflect any
its performance has applicable sales charges which would reduce
varied from year to returns.
year. The bar chart -----------------------------------------------
shows how the Best quarter: Q4 1998 +24.83%
performance of the Worst quarter: Q3 1998 - 5.95%
Fund's Class A
shares has varied
from year to year.
The table below
compares the
performance of Class
A shares over time
to that of the S&P
500(R)Index, a widely
recognized, unmanaged
index of common stocks.
Both the bar chart and the
table assume the
reinvestment of dividends and
distributions. Class A shares are
not offered by this prospectus.
However, except to the extent
Class A and DG Class shares have
different expenses, DG Class
shares should have substantially similar
annual returns to Class A shares
since each class invests in the
same portfolio
of securities. Of course, past
performance does not indicate how the Fund will
perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods
ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
(with 3.50% sales
charge imposed) 8/3/92 32.71% 24.01% N/A 20.51%
S&P 500(R)INDEX 7/31/92 28.74% 24.08% N/A 20.82%
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
Large-Cap Equity Fees (fees
Fund, you will pay paid by you DG CLASS
certain fees and directly) SHARES
expenses, which are
described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases 3.50%1
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE
are paid out of Fund
assets, and are
reflected in the
share price.
-----------------------------------------------
Maximum deferred None2
sales charge
(CDSC) AS A
% OF LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating Expenses SHARES
(fees paid from
Fund assets)
-----------------------------------------------
Management Fee .75%
-----------------------------------------------
Distribution (12b-1) Fee .25%
-----------------------------------------------
Other Expenses .35%
-----------------------------------------------
Total Annual
Fund Operating 1.35%
Expenses
-----------------------------------------------
Fee Waiver
And Expense
Reimbursement .31%
-----------------------------------------------
Net Expenses3 1.04%
-----------------------------------------------
- ------------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Shares bought as part of an investment of $1 million or more are not subject
to an initial sales charge, but may be charged a CDSC of up to .50% if sold
within one year of purchase.
3 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than 1.04% until
May 1, 2000, when DG Class shares automatically convert to Class A shares.
The expenses noted above do not reflect any other fee waivers or expense
reimbursement arrangements that are or were in effect.
<PAGE>
EXPENSE EXAMPLE
Use the example at right to LARGE-CAP EQUITY FUND 1 3
help you compare the cost of Year Years
investing in the Fund
with the cost of investing in DG CLASS SHARES $452 $734
other mutual funds. It ---------------------------------------------
illustrates the amount of
fees and expenses you would
pay, based on the expense
reimbursement arrangement
for periods prior to May 1, 2000,
assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's
operating expenses
o reinvestment of all
dividends and distributions
Because actual returns and operating
expenses will be different,
this example is for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
FIXED INCOME FUNDS--These Funds seek current income and
invest primarily in fixed income
securities, such as U.S. Government securities.
WHO MAY WANT TO Consider investing in these Funds if you are:
INVEST?
! looking to add a monthly income component to
your portfolio
! willing to accept the risks of price and dividend
fluctuations
These Funds may not be appropriate if you are:
! investing emergency reserves
! uncomfortable with an investment that will go up
and down in value
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
GOVERNMENT INCOME FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income.
PRINCIPAL INVESTMENT The Fund invests primarily in securities issued or
STRATEGIES guaranteed as to payment of principal and interest
by the U.S. Government, its agencies or
instrumentalities.
The Fund also may enter into repurchase agreements
and, for additional yield, invest in high quality
corporate bonds, mortgage-related securities,
asset-backed securities and bank obligations. The
Fund may purchase securities of any maturity.
Generally, the average maturity of the Fund's
investments is less than 10 years.
PRINCIPAL INVESTMENT Prices of fixed income securities, including U.S.
RISKS Government securities, tend to move inversely with
changes in interest rates. The most immediate
effect of a rise in rates is usually a drop in the
prices of such securities, and therefore in the
Fund's share price as well. Interest rate risk is
usually greater for fixed-income securities with
longer maturities or durations. A security backed
by the U.S. Government is guaranteed only as to
timely payment of interest and principal when held
to maturity. Neither the market value of such
securities nor the Fund's share price is
guaranteed. As a result, the value of your
investment in the Fund will fluctuate and you
could lose money by investing in the Fund.
The Fund's investments in corporate bonds also are
subject to credit risk, which is the risk that the
issuer of the security will fail to make timely
payments of interest or principal, or otherwise
honor its obligations. Credit risk includes the
possibility that any of the Fund's investments
will have its credit rating downgraded or will
default.
Mortgage-related and asset-backed securities,
which are derivative instruments, are subject to
both credit and prepayment risk, and may be more
volatile and less liquid than more traditional
debt securities. If the borrowers prepay some or
all of the principal owed to the issuer much
earlier than expected, the Fund may have to
replace the security by investing the proceeds in
a less attractive security which could reduce the
Fund's share price or yield.
PERFORMANCE BAR CHART AND TABLE
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
table on this page CLASS A SHARES
provide some
indication of the 9.85% -3.44% 16.73% 2.45% 8.76% 8.95%
risks of investing -------------------------------------------------
in the Government '93 '94 '95 '96 '97 '98
Income Fund by
showing how the Fund The bar chart above does not reflect any
has performed and applicable sales charges which would
how its performance reduce returns.
has varied from year
to year. The bar Best quarter: Q2 1995 +5.79%
chart shows how the Worst quarter: Q1 1994 -2.81%
performance of the
Fund's Class A
shares has varied
from year to year.
The table below
compares the
performance of Class
A shares over time
to that of the
Merrill Lynch Corporate/Government
Master Index, a recognized,
unmanaged index
of U.S. Government and investment
grade corporate bonds. Both the
bar chart and
the table assume the reinvestment
of dividends and distributions.
Class A shares
are not offered by this prospectus.
However, except to the extent Class A and DG
Class shares have different expenses,
DG Class shares should have substantially
similar annual returns to Class
A shares since each class invests
in the same
portfolio of securities. Of course,
past performance does not indicate how the
Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods
ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
(with 2.00% sales
charge imposed) 8/3/92 6.71% 5.91% N/A 6.67%
MERRILL LYNCH 7/31/92 9.53% 7.34% N/A 7.82%
CORP./GOV'T
MASTER INDEX
<PAGE>
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
Government Income Fees (fees
Fund, you will pay paid by you DG CLASS
certain fees and directly) SHARES
expenses, which are
described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases 2.00%1
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE
are paid out of Fund
assets, and are
reflected in the
share price. -----------------------------------------------
Maximum deferred None2
sales charge
(CDSC)
AS A % OF
LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating Expenses SHARES
(fees paid from
Fund assets)
-----------------------------------------------
Management Fee .60%
-----------------------------------------------
Distribution (12b-1) Fee .25%
-----------------------------------------------
Other Expenses .38%
-----------------------------------------------
Total Annual Fund 1.23%
Operating Expenses
-----------------------------------------------
Fee Waiver And
Expense Reimbursement .32%
-----------------------------------------------
Net Expenses3 .91%
-----------------------------------------------
- -------------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Shares bought as part of an investment of $1 million or more are not subject
to an initial sales charge, but may be charged a CDSC of up to .50% if sold
within one year of purchase.
3 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than .91% until
May 1, 2000, when DG Class shares automatically convert to Class A shares.
The expenses noted above do not reflect any other fee waivers or expense
reimbursement arrangements that are or were in effect.
<PAGE>
EXPENSE EXAMPLE
Use the example at right to GOVERNMENT INCOME FUND 1 3
help you compare the cost Year Years
of investing in the Fund
with the cost of investing DG CLASS SHARES $291 $552
in other mutual funds. It
illustrates the amount of --------------------------------------------
fees and expenses you would pay
based on the expense reimbursement
arrangement for periods prior to
May 1, 2000, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
o reinvestment of all dividends and distributions
Because actual returns and operating
expenses will be different, this
example is for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
LIMITED TERM U.S. GOVERNMENT FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with high
current income without assuming undue risk.
PRINCIPAL INVESTMENT The Fund invests in securities issued or
STRATEGIES guaranteed as to payment of principal and interest
by the U.S. Government, its agencies or
instrumentalities, and enters into repurchase
agreements in respect of such securities.
In choosing U.S. Government securities for the
Fund, the Adviser follows a controlled duration
strategy which limits how much the Fund's
portfolio duration will differ from its
benchmark--the Merrill Lynch 1 - 5 Year Government
Bond Index. Typically, the Fund will have a
portfolio duration between one and four years and
a dollar weighted average portfolio life between
one and five years, depending on market
conditions. Duration is an indication of how
sensitive a bond or mutual fund portfolio may be
to changes in interest rates. For example, the
market price of a bond with a duration of three
years should decline 3% if interest rates rise 1%.
Conversely, the market price of the same bond
should increase 3% if interest rates fall 1%. The
market price of a bond with a duration of six
years should increase or decline twice as much as
the market price of a bond with a three-year
duration.
PRINCIPAL INVESTMENT Prices of U.S. Government securities tend to move
RISKS inversely with changes in interest rates. The most
immediate effect of a rise in rates is usually a
drop in the prices of such securities, and
therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. A security backed by the U.S.
Government is guaranteed only as to timely payment
of interest and principal when held to maturity.
Neither the market value of such securities nor
the Fund's share price is guaranteed. As a result,
the value of your investment in the Fund will
fluctuate and you could lose money by investing in
the Fund.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
<TABLE>
<CAPTION>
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
table on this page CLASS A SHARES
provide some
indication of the 11.09% 8.11% 12.70% 5.51% 7.04% -1.02% 10.88% 2.68% 6.18% 6.69%
risks of investing ------------------------------------------------------------------------
in the Limited Term <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Fund by showing how
the Fund has The bar chart above does not reflect any
performed and how applicable sales charges which would reduce returns.
its performance has
varied from year to
year. The bar chart Best quarter: Q2 1989 +5.65%
shows how the Worst quarter: Q1 1992 -1.41%
performance of the
Fund's Class A
shares has varied
from year to year.
The table below
compares the
performance of Class A shares
over time to that of the Merrill
Lynch 1 - 5 Year Government Bond
Index, a recognized, unmanaged
index of short-term U.S. Government securities.
Both the bar chart and the table
assume the reinvestment of dividends and
distributions. Class A shares are
not offered by this prospectus. However,
except to the extent Class A and DG
Class shares have different expenses, DG
Class shares should have substantially
similar annual returns to Class A shares
since each class invests in the same
portfolio of securities. Of course, past
performance does not indicate how the
Fund will perform in the future.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (for the periods
ended December 31, 1998)
Inception Past Past 5 Past 10
Date Year Years Years
Class A
(with 2.00% sales
charge imposed) 12/31/86* 4.55% 4.67% 6.94%
MERRILL LYNCH 1-5 7.67% 6.20% 7.87%
YEAR GOV'T BOND INDEX
* The Limited Term U.S. Government Fund commenced operations on 2/28/97
through a transfer of assets from collective trust fund accounts managed by
the Adviser, using materially equivalent investment objectives, policies and
methodologies as the Fund. The quoted performance of the Fund includes the
performance of these trust accounts for periods prior to the Fund's
commencement of operations, as adjusted to reflect the expenses associated
with the Fund. The trust accounts were not registered with the SEC and were
not subject to the investment restrictions imposed by law on registered
mutual funds. If these trust accounts had been registered, their returns may
have been lower.
<PAGE>
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
Limited Term U.S. Fees (fees
Government Fund, you paid by you DG CLASS
will pay certain fees directly) SHARES
and expenses, which
are described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases 2.00%1
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE
are paid out of Fund
assets, and are
reflected in the
share price. ---------------------------------------------
Maximum deferred None2
sales charge
(CDSC) AS A
% OF LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating Expenses SHARES
(fees paid from
Fund assets)
-----------------------------------------------
Management Fee .50%
-----------------------------------------------
Distribution (12b-1) Fee .25%
-----------------------------------------------
Other Expenses .79%
-----------------------------------------------
Total Annual
Fund Operating 1.54%
Expenses
-----------------------------------------------
Fee Waiver
And Expense
Reimbursement .32%
-----------------------------------------------
Net Expenses3 1.22%
-----------------------------------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Shares bought as part of an investment of $1 million or more are not
subject to an initial sales charge, but may be charged a CDSC of up to .50%
if sold within one year of purchase.
3 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than 1.22% until
May 1, 2000, when DG Class shares automatically convert to Class A shares.
The expenses noted above do not reflect any other fee waivers or expense
reimbursement arrangements that are or were in effect.
<PAGE>
EXPENSE EXAMPLE
Use the example at right LIMITED TERM 1 3
to help you compare the U.S. GOVERNMENT FUND Year Years
cost of investing in the Fund
with the cost of investing in DG CLASS SHARES $322 $647
other mutual funds. It ------------------------------------------
illustrates the amount of
fees and expenses you would
pay based on the expense reimbursement
arrangement for periods prior to
May 1, 2000, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
o reinvestment of all dividends and distributions
Because actual returns and operating
expenses will be different,
this example is for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
TAX-EXEMPT FIXED INCOME FUND--This Fund seeks tax-exempt
income and invests primarily in Municipal
Obligations which are exempt from Federal income tax.
WHO MAY WANT Consider investing in this Fund if you are:
TO INVEST?
! looking to reduce Federal taxes on investment income
! seeking monthly Federal tax-exempt dividends
! willing to accept the risks of price and dividend
fluctuations
This Fund may not be appropriate if you are:
! investing through a tax-exempt retirement plan
! uncomfortable with an investment that will go up and
down in value
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
MUNICIPAL INCOME FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund seeks to provide investors with current
income exempt from Federal income tax.
PRINCIPAL INVESTMENT The Fund normally invests substantially all of its
STRATEGIES assets in municipal obligations that provide
income exempt from Federal income tax. Municipal
obligations are debt obligations issued by states,
territories and possessions of the United States
and their political subdivisions, agencies and
instrumentalities. The Fund invests in investment
grade municipal obligations or the unrated
equivalent as determined by the Adviser. The
Adviser evaluates municipal obligations based on
credit quality, financial outlook and yield
potential, and seeks to diversify the Fund's
investments across several different states,
sectors and issuers. The Fund may purchase
securities of any maturity. Generally, the average
maturity of the Fund's investments is primarily
between one and five and six and ten years.
PRINCIPAL INVESTMENT The Fund's investments in municipal obligations
RISKS will be subject primarily to interest rate and
credit risk. Prices of municipal obligations tend
to move inversely with changes in interest rates.
The most immediate effect of a rise in rates is
usually a drop in the prices of such securities,
and therefore in the Fund's share price as well.
Interest rate risk is usually greater for
fixed-income securities with longer maturities or
durations. If interest rates fall, it is possible
that issuers of callable bonds with high interest
coupons will "call" (or prepay) their bonds before
their maturity date. If a call were exercised by
the issuer during a period of declining interest
rates, the Fund is likely to replace such called
security with a lower yielding security. If that
were to happen, it could decrease the Fund's
dividends. As a result, the value of your
investment in the Fund will fluctuate and you
could lose money by investing in the Fund. The
Fund's investments also are subject to credit
risk, which is the risk that the issuer of the
security will fail to make timely payments of
interest or principal, or to otherwise honor its
obligations. Credit risk includes the possibility
that any of the Fund's investments will have its
credit rating downgraded or will default. Although
the Fund's objective is to generate income exempt
from Federal income tax, interest from some of the
Fund's holdings may be subject to the Federal
alternative minimum tax.
PERFORMANCE BAR CHART AND TABLE
The bar chart and Year-by-Year Total Returns as of 12/31 for
table on this page Class A Shares
provide some
indication of the 12.75% -6.83% 16.80% 3.62% 7.77% 5.33%
risks of investing -------------------------------------------
in the Municipal '93 '94 '95 '96 '97 '98
Income Fund by
showing how the Fund The bar chart above does not reflect any
has performed and applicable sales charges which would reduce returns.
how its performance
has varied from year Best quarter: Q1 1995 +7.67%
to year. The bar Worst quarter: Q1 1994 -5.79%
chart shows how the
performance of the
Fund's Class A
shares has varied
from year to year.
The table below
compares the
performance of Class
A shares over time to that
of the Lehman Brothers Municipal
Bond Index, a recognized, unmanaged
index of investment grade municipal
obligations. Both the
bar chart and the table assume the
reinvestment of dividends and
distributions.
Class A shares are
not offered by this
prospectus. However, except
to the extent Class A and DG Class shares have
different expenses, DG
Class shares should have
substantially similar annual
returns to Class A shares since
each class invests in the same portfolio of
securities. Of course, past performance does not
indicate how the
Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended
December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A
(with 2.00% sales
charge imposed) 12/29/92 3.20% 4.75% N/A 6.02%
LEHMAN BROTHERS 12/01/92 5.84% 6.10% N/A 7.29%
MUNICIPAL BOND
INDEX
<PAGE>
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
Municipal Income Fees (fees
Fund, you will pay paid by you DG CLASS
certain fees and directly) SHARES
expenses, which are
described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases 2.00%1
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE
are paid out of Fund
assets, and are
reflected in the
share price. -----------------------------------------------
Maximum deferred None2
sales charge
(CDSC) AS A
% OF LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating Expenses SHARES
(fees paid from
Fund assets)
-----------------------------------------------
Management Fee .60%
-----------------------------------------------
Distribution (12b-1) Fee .25%
-----------------------------------------------
Other Expenses .56%
-----------------------------------------------
Total Annual Fund 1.41%
Operating Expenses
-----------------------------------------------
Fee Waiver And
Expense Reimbursement .51%
-----------------------------------------------
Net Expenses3 .90%
-----------------------------------------------
- -------------------------
1 Sales charges may be reduced depending upon the amount invested or, in
certain circumstances, waived.
2 Shares bought as part of an investment of $1 million or more are not
subject to an initial sales charge, but may be charged a CDSC of up to .50%
if sold within one year of purchase.
3 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than .90% until
May 1, 2000, when DG Class shares automatically convert to Class A shares.
The expenses noted above do not reflect any other fee waivers or expense
reimbursement arrangements that are or were in effect.
EXPENSE EXAMPLE
Use the example at right MUNICIPAL INCOME FUND 1 3
to help you compare the Year Years
cost of investing in the Fund
with the cost of investing DG CLASS SHARES $290 $590
in other mutual funds. It -------------------------------------------
illustrates the amount of
fees and expenses you would
pay based on the expense reimbursement
arrangement for periods prior to
May 1, 2000, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
o reinvestment of all dividends and distributions
Because actual returns and operating
expenses will be different,
this example is for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
MONEY MARKET FUNDS--These Funds seek current income and
liquidity and invest primarily in short-term
securities and will seek to maintain a stable price
of $1.00 per share. An investment in these
Funds is not insured or guaranteed by the
FDIC or any other government agency.
WHO MAY WANT TO Consider investing in these Funds if you are:
INVEST?
! seeking preservation of capital
! investing short-term reserves
! willing to accept lower potential returns in
exchange for a higher degree of safety
These Funds may not be appropriate if you are:
! seeking high total returns
! pursuing a long-term goal or investing for
retirement
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
PRIME MONEY MARKET FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund 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.
PRINCIPAL INVESTMENT The Fund invests in a diversified portfolio of
STRATEGIES high-quality, short-term U.S. dollar-denominated
debt securities, including the following:
o obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities
o certificates of deposit, time deposits, bankers'
acceptances and other short-term securities
issued by domestic or foreign banks or their
subsidiaries or branches
o domestic and foreign commercial paper
and other short-term corporate debt obligations,
including those with floating or variable rates
of interest
o obligations issued or guaranteed by one
or more foreign governments or their
agencies or instrumentalities,
including obligations of supranational entities
o asset-backed securities
o repurchase agreements collateralized by the
types of securities listed above
The Fund buys and sells securities based on
considerations of safety of principal and
liquidity, which means that the Fund may not
necessarily invest in securities paying the
highest available yield at a particular time. The
Fund will attempt to increase its yield by trading
to take advantage of short-term market variations.
The Adviser evaluates Fund investments based on
credit analysis and the interest rate outlook.
The Fund normally will invest at least 25% of its
total assets in domestic or foreign bank
obligations.
Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
The Fund is subject to the risk that changes in
interest rates will affect the yield or value of
the Fund's investments in debt securities.
The Fund's investments also are subject to credit
risk, which is the risk that the issuer or
guarantor of a debt security will be unable or
unwilling to make timely interest or principal
payments, or to otherwise honor its obligations.
Credit risk includes the possibility that any of
the Fund's investments will have its credit rating
downgraded or will default.
PERFORMANCE BAR CHART AND TABLE
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
table on this page CLASS A SHARES
provide some
indication of the 5.51% 4.88% 4.90% 4.85%
risks of investing ----------------------------------
in the Prime Money '95 '96 '97 '98
Market Fund by
showing how the
Fund has performed Best quarter: Q2 1995 + 1.37%
and how its Worst quarter: Q2 1994 - .88%
performance has
varied from year to
year. The bar chart
shows how the
performance of the
Fund's Class A
shares has varied
from year to year.
Both the bar chart
and the table assume
the reinvestment of
dividends and
distributions.
Class A shares are
not offered by this
prospectus.
However, except to
the extent Class A
and DG Class shares
have different
expenses, DG Class
shares should have
substantially
similar annual
returns to Class A
shares since each
class invests in
the same portfolio
of securities. Of
course, past
performance does not
indicate how the
Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods
ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A 3/29/94 4.85% N/A N/A 4.89%
As of December 31, 1998, the Fund's 7-day yield for Class A was 4.69%. Without
fee waivers and expense reimbursements, the Fund's yield would have been 4.68%
for this time period. For current yield information on the Fund, call
1-800-852-0045. The Fund's yield appears in THE WALL STREET JOURNAL each
THURSDAY.
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
Prime Money Market Fees (fees
Fund, you will pay paid by you DG CLASS
certain fees and directly) SHARES
expenses, which are
described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases None
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE
are paid out of Fund
assets, and are
reflected in the
Fund's yield. -----------------------------------------------
Maximum deferred None
sales charge
(CDSC) AS A
% OF LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating Expenses SHARES
(fees paid from
Fund assets)
-----------------------------------------------
Management Fee .25%
-----------------------------------------------
Distribution (12b-1) Fee None
-----------------------------------------------
Other Expenses .57%
-----------------------------------------------
Total Annual Fund .82%
Operating Expenses
-----------------------------------------------
Fee Waiver
And Expense
Reimbursement .16%
-----------------------------------------------
Net Expenses1 .66%
-----------------------------------------------
- -------------
1 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than .66% until
May 1, 2000, when DG Class shares automatically convert to Class A shares.
The expenses noted above do not reflect any other fee waivers or expense
reimbursement arrangements that are or were in effect.
EXPENSE EXAMPLE
Use the example at right PRIME MONEY MARKET 1 3
to help you compare the FUND Year Years
cost of investing in the Fund
with the cost of investing DG CLASS SHARES $67 $246
in other mutual funds. It ----------------------------------------
illustrates the amount of
fees and expenses you would
pay based on the expense
reimbursement arrangement
for periods prior to May 1, 2000,
assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
o reinvestment of all dividends and distributions
Because actual returns and operating
expenses will be different,
this example is for comparison only.
<PAGE>
DESCRIPTION OF THE FUNDS--OBJECTIVES, RISK/RETURN AND EXPENSES
TREASURY MONEY MARKET FUND
TICKER SYMBOL:
DG CLASS - N/A
INVESTMENT OBJECTIVE The Fund 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.
PRINCIPAL INVESTMENT The Fund invests primarily in U.S. Treasury
STRATEGIES securities and repurchase agreements in respect
thereof. The Fund may invest up to 35% of its
assets in other securities guaranteed as to
payment of principal and interest by the U.S.
Government and repurchase agreements in respect
thereof.
The income from the Fund's investment in direct
obligations of the United States is exempt from
state and local, but not Federal, income taxes.
Dividends and distributions attributable to income
from repurchase agreements may be subject to
Federal, state and local taxes.
The Fund invests based on considerations of safety
of principal and liquidity, which means that the
Fund may not necessarily invest in securities
paying the highest available yield at a particular
time. The Fund will attempt to increase its yield
by trading to take advantage of short-term market
variations. The Adviser generally evaluates
investments based on interest rate sensitivity.
PRINCIPAL INVESTMENT Although the Fund seeks to preserve the value of
RISKS your investment at $1.00 per share, it is possible
to lose money by investing in the Fund. The Fund
is subject to the risk that changes in interest
rates will affect the yield or value of the Fund's
investments.
A security backed by the U.S. Treasury or the full
faith and credit of the United States is
guaranteed only as to timely payment of interest
and principal when held to maturity. Neither the
market value of such securities nor the Fund's
share price is guaranteed.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
The bar chart and YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
table on this page CLASS A SHARES
provide some
indication of the
risks of investing 2.06% 4.05% 5.41% 4.78% 4.78% 4.68%
in the Treasury ---------------------------------------------
Money Market Fund by '93 '94 '95 '96 '97 '98
showing how the
Fund has performed
and how its Best quarter: Q2 1995 +1.36%
performance has Worst quarter: Q3 1993 - .60%
varied from year to
year. The bar chart
shows how the
performance of the
Fund's Class A shares has
varied from year to year.
Both the bar chart and the
table assume the reinvestment
of dividends and distributions.
Class A shares are
not offered by this prospectus.
However, except to the extent Class A and DG
Class shares have different expenses,
DG Class shares should have substantially
similar annual returns to Class A
shares since each class invests in the same
portfolio of securities. Of course,
past performance does not
indicate how the
Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (for the periods
ended December 31, 1998)
Inception Past Past 5 Past 10 Since
Date Year Years Years Inception
Class A 10/1/92* 4.68% 4.74% N/A 4.29%
As of December 31, 1998, the Fund's 7-day yield for Class A was 4.22%. Without
fee waivers and expense reimbursements, the Fund's yield would have been 4.21%
for this time period. For current yield information on the Fund, call
1-800-852-0045. The Fund's yield appears in THE WALL STREET JOURNAL each
Thursday.
* The Treasury Money Market Fund commenced operations on 3/29/94 through a
transfer of assets from collective trust fund accounts managed by the
Adviser, using materially equivalent investment objectives, policies and
methodologies as the Fund. The quoted performance of the Fund includes the
performance of these trust accounts for periods prior to the Fund's
commencement of operations, as adjusted to reflect the expenses associated
with the Fund. The trust accounts were not registered with the SEC and were
not subject to the investment restrictions imposed by law on registered
mutual funds. If these trust accounts had been registered, their returns may
have been lower.
FEES AND EXPENSES
If you purchase and Shareholder
hold shares of the Transaction
Treasury Money Market Fees (fees
Fund, you will pay paid by you DG CLASS
certain fees and directly) SHARES
expenses, which are
described in the
tables. Shareholder Maximum sales
transaction fees are charge (load)
paid from your on purchases None
account. Annual Fund AS A % OF
operating expenses OFFERING PRICE
are paid out of Fund
assets, and are
reflected in the
Fund's yield. ------------------------------------------------
Maximum deferred None
sales charge
(CDSC) AS A
% OF LOWER OF
PURCHASE OR
SALE PRICE
Annual Fund DG CLASS
Operating Expenses SHARES
(fees paid from
Fund assets)
------------------------------------------------
Management Fee .25%
------------------------------------------------
Distribution (12b-1) Fee None
------------------------------------------------
Other Expenses .53%
------------------------------------------------
Total Annual Fund .78%
Operating Expenses
------------------------------------------------
Fee Waiver
And Expense
Reimbursement .18%
----------------------------------------------
Net Expenses1 .60%
-----------------------------------------------
- -------------------
1 The expenses noted above reflect an agreement by the Adviser to maintain
total fund operating expenses for DG Class shares at no more than .60% until
May 1, 2000, when DG Class shares automatically convert to Class A shares.
The expenses noted above do not reflect any other fee waivers or expense
reimbursement arrangements that are or were in effect.
EXPENSE EXAMPLE
Use the example at right TREASURY MONEY MARKET 1 3
to help you compare the FUND Year Years
cost of investing in the Fund
with the cost of investing in DG CLASS SHARES $61 $231
other mutual funds. It illustrates -----------------------------------------
the amount of fees and expenses
you would pay based on the expense
reimbursement arrangement
for periods prior to May 1, 2000,
assuming the following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
o reinvestment of all dividends and distributions
Because actual returns and operating
expenses will be different,
this example is for comparison only.
<PAGE>
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
EQUITY FUNDS
INTERNATIONAL EQUITY FUND--The Fund will invest at least 65% of its total assets
in equity securities of non-United States companies (i.e., incorporated or
organized outside the United States). Under normal market conditions, the 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).
Foreign securities held by the Fund may trade on days when the Fund does not
calculate its NAV and thus affect the Fund's NAV on days when investors have no
access to the Fund.
The Fund is not required to invest exclusively in common stocks or other equity
securities, and, if deemed advisable, the Fund may invest, to a limited extent,
in fixed income securities and money market instruments. The Fund will not
invest in fixed income securities rated lower than A by a credit rating agency,
such as Moody's, S&P, Fitch or Duff, or, if unrated, deemed to be of comparable
quality by the Adviser.
The Fund may engage in foreign currency transactions to hedge the Fund's
portfolio or increase returns. The Fund's success in these transactions will
depend principally on the Sub-Adviser's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar.
The Fund also may engage in short-selling, which involves selling a security it
does not own in anticipation of a decline in the market price of the security.
To complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it later in the market. The price at such time may be more or less
than the price at which the security was sold by the Fund, which would result in
a loss or gain, respectively.
SMALL-CAP OPPORTUNITY FUND--The Fund will invest at least 65% of its total
assets in small-cap equity securities. The Fund also may invest in debt
securities of domestic issuers rated no lower than investment grade (Baa/BBB) by
a credit rating agency, or, if unrated, deemed to be of comparable quality by
the Adviser.
LARGE-CAP EQUITY FUND--The Fund will invest at least 70% of its total assets in
equity securities. The Fund also may invest in debt securities of domestic
issuers rated no lower than investment grade (Baa/BBB) by a credit rating
agency, or, if unrated, deemed to be of comparable quality by the Adviser.
APPLICABLE TO ALL EQUITY FUNDS--While the Equity Funds typically invest
primarily in common stocks, the equity securities in which they may invest also
include convertible securities and preferred stocks. Convertible securities are
exchangeable for a certain amount of another form of an issuer's securities,
usually common stock, at a prestated price. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same issuer
and, thus, typically have lower credit ratings than similar non-convertible
securities. Preferred stock pays dividends at a specified rate and has
preference over common stock in the payment of dividends and the liquidation of
assets. Preferred stock ordinarily does not carry voting rights.
To a limited extent, each Equity Fund may invest in debt securities. These
securities will be subject primarily to interest rate and credit risks. Interest
rate risk is the potential for a decline in bond prices due to rising interest
rates. In general, the prices of debt securities are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. Credit risk is the possibility that the issuer of the
security will fail to make timely payments of interest or principal to the Fund.
The credit risk of a Fund depends on the quality of its investments. Certain
debt securities that may be purchased by the Funds, 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 securities.
Under adverse market conditions, each Equity Fund may invest some or all of its
assets in money market instruments. Although the Fund would do this to avoid
losses, it could reduce the benefit from any upswing in the market. During such
periods, the Fund may not achieve its investment objective.
Each Equity Fund may invest, to a limited extent, in securities issued by other
investment companies which principally invest in securities of the type in which
the Fund invests. Such investments will involve duplication of advisory fees and
certain other expenses.
Each Equity Fund may invest some assets in derivative securities, such as
options and futures. These instruments are used primarily to hedge the Fund's
portfolio but may be used to increase returns; however, they sometimes may
reduce returns or increase volatility. In addition, derivatives can be illiquid
and highly sensitive to changes in their underlying security, interest rate or
index, and as a result can be highly volatile. A small investment in certain
derivatives could have a potentially large impact on the Fund's performance.
Each Equity Fund may lend its portfolio securities to brokers, dealers and other
financial institutions, which could subject the Fund to risk of loss if the
institution breaches it agreement with the Fund. In connection with such loans,
the Fund will receive collateral consisting of cash or U.S. Government
securities which will be maintained at all times in an amount equal to 100% of
the current market value of the loaned securities.
FIXED INCOME FUNDS
GOVERNMENT INCOME FUND--The Fund will invest at least 65% of its total assets in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements in respect of such securities.
Repurchase agreements are contracts in which a U.S. commercial bank or
securities dealer sells U.S. Government securities to the Fund and agrees to
repurchase them on a specific date (usually the next day) and at a specific
price. These agreements offer the Fund a means of investing money for a short
period of time. If the seller defaults, the Fund could be delayed in selling the
securities which could affect the Fund's yield.
LIMITED TERM U.S. GOVERNMENT FUND--The Fund will invest at least 65% of its
total assets in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and repurchase agreements in respect of such
securities.
Repurchase agreements are contracts in which a U.S. commercial bank or
securities dealer sells U.S. Government securities to the Fund and agrees to
repurchase them on a specific date (usually the next day) and at a specific
price. These agreements offer the Fund a means of investing money for a short
period of time. If the seller defaults, the Fund could be delayed in selling the
securities which could affect the Fund's yield.
The Fund's controlled duration strategy may limit its ability to take advantage
of investment opportunities.
APPLICABLE TO ALL FIXED INCOME FUNDS--U.S. Government securities are bonds or
other debt obligations issued or guaranteed as to principal and interest by the
U.S. Government or one of its agencies or instrumentalities. U.S. Treasury
securities and some obligations of U.S. Government agencies and
instrumentalities are supported by the "full faith and credit" of the United
States Government. Other U.S. Government securities are backed by the right of
the issuer to borrow from the U.S. Treasury. Still others are supported only by
the credit of the issuer or instrumentality. While the U.S. Government provides
financial support to U.S. Government-sponsored agencies or instrumentalities, no
assurance can be given that it will always do so.
Each Fixed Income Fund may invest, to a limited extent, in securities issued by
other investment companies which principally invest in securities of the type in
which the Fund invests. Such investments will involve duplication of advisory
fees and certain other expenses.
Each Fixed Income Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, which could subject the Fund to risk of loss if
the institution breaches its agreement with the Fund. In connection with such
loans, the Fund will receive collateral consisting of cash or U.S. Government
securities which will be maintained at all times in an amount equal to 100% of
the current market value of the loaned securities.
TAX-EXEMPT FIXED INCOME FUND
MUNICIPAL INCOME FUND--The Fund will invest, as a fundamental policy, at least
80% of its net assets (except when maintaining a temporary defensive position)
in municipal obligations.
The Fund may invest without limitation in industrial development bonds backed
only by the assets and revenues of the non-governmental users, and other
municipal obligations which provide income subject to the alternative minimum
tax, if the Adviser determines that their purchase is consistent with the Fund's
investment objective. Industrial development bonds which, although nominally
issued by municipal authorities, are in most cases revenue bonds that are not
secured by the taxing power of the municipality, but by the revenues derived
from payments by the non-governmental users. Certain industrial development
bonds, while exempt from Federal income tax, provide income subject to the
alternative minimum tax.
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the Fund's net assets) or for temporary
defensive purposes, the Fund may invest in taxable money market instruments
having, at the time of purchase, a quality rating in the two highest grades of
Moody's, S&P or Fitch or, if unrated, deemed to be of comparable quality by the
Adviser. Except for temporary defensive purposes, at no time will more than 20%
of the Fund's net assets be invested in taxable money market instruments.
Municipal obligations are debt obligations typically divided into two types:
o GENERAL OBLIGATION BONDS, which are secured by the full faith and
credit of the issuer and its taxing power; and
o REVENUE BONDS, which are payable from the revenues derived from a
specific revenue source, such as charges for water and sewer
service or highway tolls.
The Fund may invest, to a limited extent, in securities issued by other
investment companies which principally invest in securities of the type in which
the Fund invests. Such investments will involve duplication of advisory fees and
certain other expenses.
The Fund may lend its portfolio securities to brokers, dealers and other
financial institutions, which could subject the Fund to risk of loss if the
institution breaches its agreement the Fund and may give rise to taxable income.
In connection with such loans, the Fund will receive collateral consisting of
cash or U.S. Government securities which will be maintained at all times in an
amount equal to 100% of the current market value of the loaned securities.
MONEY MARKET FUNDS
PRIME MONEY MARKET FUND--The Fund will invest in U.S. dollar denominated
short-term money market obligations.
The Fund usually invests at least 25% of its assets in domestic and/or U.S.
dollar denominated foreign bank obligations. Thus, it will have correspondingly
greater exposure to the risks generally associated with investments in the
banking industry. Sustained increases in interest rates, for example, can
adversely affect the availability and cost of capital funds for a bank's lending
activities, and a deterioration in general economic conditions could increase
the bank's exposure to credit losses. In addition, 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 will
affect the Fund's return. The Fund, however, will seek to minimize its exposure
to such risks by investing only in debt securities which are determined to be of
high quality.
The Fund 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.
Since the Fund may invest in U.S. dollar denominated securities issued by
foreign issuers, such as foreign governments, foreign banks and foreign
subsidiaries or branches of domestic banks, it may be subject to additional
investment risk with respect to those securities which are different in some
respects from those incurred by a fund that invests only in debt obligations of
U.S. domestic issuers. Foreign issuers usually are not subject to the same
degree of regulation as U.S. issuers. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases, significantly from U.S.
standards. Foreign risk includes nationalization, expropriation or confiscatory
taxation, political changes or diplomatic developments that could adversely
affect such investments.
TREASURY MONEY MARKET FUND--The Fund will invest, as a fundamental policy, at
least 65% of its total assets in U.S. Treasury securities and repurchase
agreements in respect thereof. The remainder of its assets may be invested in
other securities guaranteed as to payment of principal and interest by the U.S.
Government and repurchase agreements in respect thereof.
Repurchase agreements are contracts in which a U.S. commercial bank or
securities dealer sells U.S. Government securities to the Fund and agrees to
repurchase them on a specific date (usually the next day) and at a specific
price. These agreements offer the Fund a means of investing money for a short
period of time. If the seller defaults, the Fund could be delayed in selling the
securities which could affect the Fund's yield.
The Fund will not invest in securities issued or guaranteed by U.S. Government
agencies, instrumentalities or government-sponsored enterprises that are not
backed by the full faith and credit of the United States.
APPLICABLE TO EACH MONEY MARKET FUND--As a money market fund, each Money Market
Fund is subject to maturity, quality and diversification requirements designed
to help it maintain a stable price of $1.00 per share. Generally, the Fund is
required to invest at least 95% of its assets in the securities of issuers with
the highest credit rating or the unrated equivalent as determined by the
Adviser. The remainder may be invested in securities with the second highest
credit rating. In addition, the Fund must do the following:
o maintain an average dollar weighted portfolio maturity of
90 days or less
o buy individual securities that have remaining maturities
of 397 days or less
o buy only high quality U.S. dollar denominated obligations
Each Money Market Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, which could subject the Fund to risk of loss if
the institution breaches its agreement with the Fund and, for the Tax-Exempt
Money Market Fund, may give rise to taxable income. In connection with such
loans, the Fund will receive collateral consisting of cash or U.S. Government
securities which will be maintained at all times in an amount equal to 100% of
the current market value of the loaned securities.
Each Money Market Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. In these transactions, the Fund sells a portfolio security
to another party in return for cash and agrees to repurchase the security
generally at a particular price and time. The Fund will use the cash to make
investments which either mature or have a demand feature to resell to the issuer
at a date simultaneous with or prior to the time the Fund must repurchase the
security. Reverse repurchase agreements may be preferable to a regular sale and
later repurchase of the securities because it avoids certain market risks and
transaction costs. Such transactions, however, may increase the risk of
potential fluctuations in the market value of the Fund's assets. In addition,
interest costs on the cash received may exceed the return on the securities
purchased.
The Money Market Funds expect to maintain a net asset value of $1.00 per share,
but there is no assurance that the Funds will be able to do so on a continuous
basis. Each Money Market Fund's performance per share will change daily based on
many factors, including fluctuation in interest rates, and for the Prime Money
Market Fund the quality of the instruments in the Fund's investment portfolio,
economic conditions and general market conditions.
APPLICABLE TO ALL FUNDS
YEAR 2000 RISK--Like other funds and business organizations around the world,
the Funds could be adversely affected if the computer systems used by the
Adviser or a Sub-Adviser and the Funds' other service providers do not properly
process and calculate date-related information for the year 2000 and beyond.
Year 2000 issues may adversely affect the companies or other issuers in which
the Funds invest where, for example, such entities incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to adequately or
timely do so. Foreign markets may be less prepared to address Year 2000 issues
than U.S. ones.
The Adviser, the Sub-Advisers and the Funds' other service providers (i.e.,
Administrator, Transfer Agent, Fund Accounting Agent, Custodian and Distributor)
have assured the Funds that they have developed and are implementing clearly
defined and documented plans intended to minimize risks to services critical to
the Funds' operations associated with Year 2000 issues. The Adviser, the
Sub-Advisers and service providers are likewise seeking assurances from their
respective vendors and suppliers that such entities are addressing Year 2000
issues.
While the ultimate costs or consequences of incomplete or untimely resolution of
Year 2000 issues by the Adviser, the Sub-Advisers or the Funds' service
providers cannot be accurately assessed at this time, the Funds currently have
no reason to believe that the Year 2000 plans of the Adviser, the Sub-Advisers
and the Funds' service providers will not be completed by December 31, 1999, or
that the anticipated costs associated with full implementation of their plans
will have a material adverse impact on either their business operations or
financial condition or those of the Funds. If any systems upon which the Funds
are dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur, which could result
in a decline in the value of the Funds' securities and yield.
FUND MANAGEMENT
INVESTMENT ADVISERS
First American National Bank, located at First American Center, 315 Deaderick
Street, Nashville, Tennessee 37237, serves as each Fund's investment adviser.
The Adviser is a wholly-owned subsidiary of First American Corporation, a
registered bank holding company. First American National Bank, and its
affiliates, provide personal trust, estate, employee benefit trust, corporate
trust and custody services to over 7,000 accounts, as well as investment
advisory services. The Adviser, and its affiliates, as of December 31, 1998, had
approximately $10 billion under trust and approximately $6 billion under
management.
The Adviser has engaged Lazard Asset Management and Womack Asset Management,
Inc. to serve as sub-investment adviser to the International Equity Fund and
Small-Cap Opportunity Fund, respectively. The Adviser pays each sub-investment
adviser from the advisory fee it receives from the Fund.
Lazard Asset Management, located at 30 Rockefeller Plaza, New York, New York
10112, serves as the sub-investment adviser to the International Equity Fund.
Lazard Asset Management, a division of Lazard Freres & Co. LLC, which is a New
York limited liability company, provides investment management services to
client discretionary accounts with assets totaling approximately $71 billion as
of December 31, 1998.
Womack Asset Management, Inc., located at 1667 Lelia Drive, Suite 101, Jackson,
Mississippi 39216, serves as the sub-investment adviser to the Small-Cap
Opportunity Fund. Womack Asset Management provides investment management
services to one other investment company portfolio and to client discretionary
accounts totaling approximately $160 million as of December 31, 1998. The table
below shows the investment advisory fee rate paid to the Adviser by the relevant
Fund for the fiscal year ended December 31, 1998.
The table below shows the investment advisory fee rate paid to the Adviser by
the relevant Fund for the fiscal year ended December 31, 1998.
NAME OF FUND ANNUAL RATE
International Equity Fund .68%
Small-Cap Opportunity Fund .95%
Large-Cap Equity Fund .75%
Government Income Fund .60%
Limited Term U.S. Government Fund .50%
Municipal Income Fund .30%
Prime Money Market Fund .25%
Treasury Money Market Fund .25%
PRIMARY PORTFOLIO MANAGERS
The primary portfolio manager for each Fund, other than the Money Market Funds,
is as follows:
INTERNATIONAL EQUITY FUND--Herbert W. Gullquist and John R. Reinsberg. Messrs.
Gullquist and Reinsberg have been the International Equity Fund's primary
portfolio managers since its inception, and have been Managing Directors of
Lazard for over five years.
SMALL-CAP OPPORTUNITY FUND--William A. Womack. Mr. Womack has been the Small-Cap
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.
LARGE-CAP EQUITY FUND--Ronald E. Lindquist. Mr. Lindquist, who has over 30
years' experience as a portfolio manager, has been the Large-Cap 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, affiliates of the Adviser.
GOVERNMENT INCOME FUND--John Mark McKenzie. Mr. McKenzie has been the Government
Income Fund's primary portfolio manager since its inception and has been
employed by the Adviser since May 1998. Since 1984, he was employed by Deposit
Guaranty National Bank.
LIMITED TERM U.S. GOVERNMENT FUND--John Mark McKenzie. Mr. McKenzie has been a
portfolio manager of the Limited Term U.S. Government Fund since May 1998 and
the Fund's primary portfolio manager since December 1998. He has been employed
by the Adviser since May 1998 and by Deposit Guaranty National Bank since 1984.
MUNICIPAL INCOME FUND--Sharon S. Brown. Ms. Brown has been a primary portfolio
manager of the Municipal Income Fund since its inception. She has been a Trust
Officer of the Adviser since 1988.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Ohio, Inc. (the "Administrator"), 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as each Fund's administrator. The
administrative services of the Administrator include providing office space,
equipment and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing services.
BISYS Fund Services Limited Partnership (the "Distributor"), an affiliate of the
Administrator, serves as the distributor of each Fund's shares. The Distributor
may provide financial assistance in connection with pre-approved seminars,
conferences and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the National Association of Securities
Dealers.
SHAREHOLDER INFORMATION
DG Class shares are offered only to investors who acquired Fund shares in
connection with the reorganization of a corresponding DG Investor Series fund.
Other classes of shares--Institutional Shares, Class A Shares and Class B
Shares--are offered by a separate prospectus and are not offered hereby. The DG
Class shares, Institutional shares, Class A shares and Class B shares are
identical, except as to the services offered to each Class and the expenses
borne by each Class which may affect performance. Investors desiring to obtain
information about Institutional shares, Class A shares and Class B shares should
ask their sales representative or call 1-800-852-0045.
PRICING OF FUND SHARES
HOW NAV IS CALCULATED MONEY MARKET FUNDS
The NAV of each class is Each Money Market Fund's per share net asset
calculated by adding the value (NAV) is determined and its shares are
total value of the Fund's priced at 2:00 p.m. Eastern time on each day
investments and other assets the New York Stock Exchange is open, except
attributable to such class, Columbus Day and Veterans' Day.
subtracting its liabilities
and then dividing that OTHER FUNDS
figure by the number of
outstanding shares of the Per share net asset value (NAV) for each
class: non-Money Market Fund is determined and its
shares are priced at the close of regular
NAV = trading on the New York Stock Exchange,
normally at 4:00 p.m. Eastern time, on days
TOTAL ASSETS - LIABILITIES the Exchange is open, except Columbus Day and
Number of Class Shares Veterans' Day.
Outstanding
You can find each Fund's Your order for purchase, sale or exchange of
NAV daily in THE WALL shares is priced at the next NAV calculated
STREET JOURNAL and other after the Fund receives your order, less any
newspapers. applicable sales charge as noted in the
section on "Distribution Arrangements/Sales
Charges." This is what is known as the
offering price.
Each Money Market Fund uses the amortized cost method of valuing its
investments, which does not take into account unrealized gains or losses. Each
other Fund's investments are valued each business day generally by using
available market quotations or, if market quotations are not available, 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 Funds' investments, see the Statement of
Additional Information.
<PAGE>
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO
YOUR SHARES
MINIMUM INVESTMENT
--------------------------------------------
You may purchase DG Class ACCOUNT TYPE INITIAL SUBSEQUENT
shares through a number of
institutions, inccluding the Regular
Adviser and its affiliates, (non-retirement) $1,000 $100
director from the Distributor, Retirement (IRA) $ 100 $ 50
or through banks, brokers and Automatic
other investment representa- Investment Plan $ 250 $ 25
tives. Certain investment
representatives may charge
additional fees and may require
higher minimum investments or All purchases must be in U.S. dollars. A fee
impose other limitations on will be charged for any checks that do not
buying and selling shares. If clear. Third-party checks are not accepted.
you purchase shares through
an investment representative, A Fund may waive the minimum purchase
that party is responsible requirements and may reject any purchase
for transmitting orders in order in whole or in part.
a timely manner and may have
an earlier cut-off time for
purchase and sale requests.
Consult your investment
representative for specific
information.
Avoid 31% Tax Withholding
A Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
<PAGE>
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
If purchasing through an investment representative, simply tell your
representative that you wish to purchase shares of the Funds and he or she will
take care of the necessary documentation. For all other purchases, follow the
instructions below.
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the account application. Establishing your
account privileges now saves you the inconvenience of having to add them
later.
2. Make check, bank draft or money order payable to "ISG Funds."
3. Mail to: ISG Funds, c/o BISYS Fund Services
P.O. Box 182239
Columbus, Ohio 43218-2239.
Subsequent Investment:
1. Use the investment slip attached to your account statement. Or, if
unavailable,
1. Include the following information on a piece of paper:
o ISG Funds/Fund name
o Share class
o Amount invested
o Account name
o Account number
Include your account number on your check.
3. Mail to: ISG Funds, c/o BISYS Fund Services
P.O. Box 182239
Columbus, Ohio 43218-2239.
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
Send to: ISG Funds,
c/o BISYS Funds Services,
Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
United States Bank. Your bank or broker may charge for this service.
<PAGE>
Establish an electronic purchase option on your account application or call
1-800-852-0045. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-852-0045 to arrange a transfer from your bank account.
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions
to send funds to each other, almost
instantaneously. With an electronic purchase
or sale, the transaction is made through the
Automated Clearing House (ACH) and may take
up to eight days to clear. There is generally
no fee for ACH transactions.
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment:
Fax the completed account application, along with a request for a confirmation
number to 1-800-852-0045. Follow the instructions below after receiving your
confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Name of Bank
Routing Number: ABA #021000018
DDA#
Include:
Your name
Your confirmation number
After instructing your bank to wire the funds, call
1-800-852-0045 to advise us of the amount being transferred and the name
of your bank
You can add to your account by using the convenient options described below. The
Funds reserve the right to change or eliminate these privileges at any time with
60 days' notice.
<PAGE>
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES - CONTINUED
AUTOMATIC INVESTMENT PLAN Directed Dividend Option
You can make automatic investments By selecting the appropriate box in
in the Funds from your bank the account application, you can
account, through payroll deduction elect to receive your distributions
or from your federal employment, (capital gains and dividends) in
Social Security or other regular cash (check) or have them
government checks. Automatic reinvested in another ISG Fund
investments can be as little as without a sales charge. You must
$25, once you've invested the maintain the minimum balance in
$250 minimum required to open the each Fund into which you plan to
account. reinvest distributions or the
reinvestment will be suspended and
To invest regularly from your bank your distributions paid to you. The
account: Fund may modify or terminate this
o Complete the Automatic Investment reinvestment option without notice.
Plan portion on your Account You can charge or terminate your
Application. participation in the reinvestment
Make sure you note: option at any time.
o Your bank name, address and account
number
o The amount you wish to invest
automatically (minimum $25)
o How often you want to invest (every
month, 4 times a year, twice a year
or once a year)
o Attach a voided personal check.
To invest regularly from your
paycheck or government check:
Call 1-800-852-0045 for an
enrollment form.
- --------------------------------------------------------------------------------
AUTOMATICALLY THROUGH "SWEEP" PROGRAMS--MONEY MARKET FUNDs ONLY--Certain
investor accounts may be eligible for an automatic investment privilege,
commonly called a "sweep," under which amounts in excess of a certain minimum
held in these accounts will be invested automatically in shares of either
Money Market Fund at predetermined intervals at the next determined NAV.
Investors desiring to use this privilege should consult their investment
representative to determine if it is available and whether any conditions are
imposed on its use.
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
You may sell your shares at any WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
time. Your sales price will be
the next NAV after your sell As a mutual fund shareholder, you are
order is received by the Fund, technically selling shares when you request
its transfer agent, or your a withdrawal in cash. This is also known as
investment representative. redeeming shares or a redemption of shares.
Normally you will receive your
proceeds within a week after
your request is received. See
section on "General Policies on
Selling Shares" below.
INSTRUCTIONS FOR SELLING SHARES
If you are selling your shares through your
financial adviser or broker, ask him or her
for redemption procedures. Your adviser
and/or broker may have transaction minimums
and/or transaction times which will affect
your redemption. For all other sales
transactions, follow the instructions below.
By telephone 1. Call 1-800-852-0045 with instructions as
(UNLESS YOU HAVE to how you wish to receive your funds
DECLINED TELEPHONE (mail, wire, electronic transfer). (See
SALES PRIVILEGES) "General Policies on Selling Shares--
Verifying Telephone Redemptions" below)
- --------------------------------------------------------------------------------
By mail 1. Call 1-800-852-0045 to request
redemption forms or write a letter of
instruction indicating:
o your Fund and account number
o amount you wish to redeem
o address where your check should be
sent
o account owner signature
2. Mail to:
ISG Funds
c/o BISYS Fund Services, Inc.
P.O. Box 182239
Columbus, OH 43218-2239
- --------------------------------------------------------------------------------
By overnight service See instruction 1 above.
(See "General 2. Send to
Policies on Selling ISG Funds
Shares--Redemptions c/o BISYS Fund Services, Inc.
in Writing Required" Attn: T.A. Operations
below) 3435 Stelzer Road
Columbus, OH 43219
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
Wire transfer Call 1-800-852-0045 to request a wire
YOU MUST INDICATE transfer.
THIS OPTION ON YOUR
APPLICATION. If you call by 4 p.m. Eastern time, your
payment will normally be wired to your bank
The Fund may charge to a wire on the next business day.
transfer fee.
Note: Your financial institution
may also charge a separate fee.
- --------------------------------------------------------------------------------
Electronic Redemptions Call 1-800-852-0045 to request an
electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the NAV
the Automated Clearing House of your shares will normally be determined
(ACH) and must be a U.S. on the same day and the proceeds credited
bank. within 8 days.
Your bank may charge for this
service.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature: o Make sure you've checked the appropriate box on the account
application. Or call 1-800-852-0045.
o Include a voided personal check.
o Your account must have a value of $5,000 or more to start withdrawals.
o If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
REDEMPTION BY CHECK WRITING - MONEY MARKET FUNDS
You may write checks in amounts of $500 or more on your account in the Money
Market Fund. To obtain checks, complete the signature card section of the
Account Application or contact the Fund to obtain a signature card. Dividends
and distributions will continue to be paid up to the day the check is presented
for payment. The check writing feature may be modified or terminated upon
30-days' written notice. You must maintain the minimum required account balance
of $500 and you may not close your Money Market Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following
situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of the
following.
o Redemptions over $10,000
o Your account registration or the name(s) in your account has changed
within the last 15 days o The check is not being mailed to the address on
your account o The check is not being made payable to the owner of the
account
o The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such
as a bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock
Exchange Signature Program) or SEMP (Stock Exchanges Medallion Program).
Members are subject to dollar limitations which must be considered when
requesting their guarantee. The Transfer Agent may reject any signature
guarantee if it believes the transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES - CONTINUED
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT Before selling recently
purchased shares, please note that if your initial investment was by check, the
Fund may delay sending you the proceeds until the Transfer Agent is satisfied
that the check has cleared (which may require up to 15 business days). You can
avoid this delay by purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you might have to pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Fund may ask you to increase your balance.
If it is still below $500 after 45 days, the Fund may close your account and
send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in the Fund.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and distribution fees you will pay as
an investor in DG Class shares and ways to qualify for reduced sales charges.
CALCULATION OF SALES CHARGES
DG CLASS SHARES
DG Class shares are sold at their public offering price. This price includes the
initial sales charge. Therefore, part of the money you invest will be used to
pay the sales charge. The remainder is invested in Fund shares. The sales charge
decreases with larger purchases. There is no sales charge on reinvested
dividends and distributions. DG Class shares of the International Equity Fund
and each Money Market Fund are sold at their NAV.
The current sales charge rates are as follows:
FOR THE LARGE-CAP EQUITY FUND AND SMALL-CAP OPPORTUNITY FUND
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- --------------------------------------------------------------------------------
Up to $99,999 3.50% 3.63%
- --------------------------------------------------------------------------------
$100,000 up to $249,999 3.00% 3.09%
- --------------------------------------------------------------------------------
$250,000 up to $499,999 2.50% 2.56%
- --------------------------------------------------------------------------------
$500,000 up to $999,999 1.00% 1.01%
- --------------------------------------------------------------------------------
$1,000,000 and above1 0.00% 0.00%
- --------------------------------------------------------------------------------
FOR THE FIXED INCOME FUNDS AND TAX-EXEMPT FIXED INCOME FUND
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- --------------------------------------------------------------------------------
Up to $99,999 2.00% 2.04%
- --------------------------------------------------------------------------------
$100,000 up to $249,999 1.75% 1.78%
- --------------------------------------------------------------------------------
$250,000 up to $499,999 1.50% 1.52%
- --------------------------------------------------------------------------------
$500,000 up to $999,999 1.00% 1.01%
- --------------------------------------------------------------------------------
$1,000,000 and above1 0.00% 0.00%
- --------------------------------------------------------------------------------
- --------
1 There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of 0.50% will be charged
at the time of redemption of DG Class shares purchased without an initial
sales charge as part of an investment of at least $1 million (0.25% will be
assessed on purchases over $2,000,000) and redeemed within one year of
purchase. This charge will be based on the lower of your cost for the
shares or the shares' NAV at the time of redemption. There is no CDSC on
reinvested distributions. The Distributor may pay financial representatives
an amount up to 0.50% of the net asset value of DG Class shares purchased
by their clients that are subject to a CDSC.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
CONVERSION FEATURE
o DG Class shares automatically convert to Class A shares of the same Fund on
May 1, 2000.
o After conversion, your shares will be subject to the distribution and
shareholder servicing fees charged on Class A shares which are the same as
those chargeable DG Class shares.
o You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
o The dollar value of Class A shares you receive will equal the dollar value
of the DG Class shares converted.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
SALES CHARGE REDUCTIONS
Reduced sales charges for DG Class shares are available to shareholders with
investments of $100,000 or more. In addition, you may qualify for reduced sales
charges under the following circumstances.
o Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.
o Rights of Accumulation. Additional investments will qualify for reduced
sales charges, when the value of shares you already own plus the amount of
your added investment reaches the designated amount for the reduced sales
charge.
o Combination Privilege. You inform the Fund in writing that you are eligible
to combine accounts of multiple Funds or accounts of immediate family
household members (spouse and children under 21) to achieve reduced sales
charges.
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers or reductions of sales charges:
o Shares purchased by investment representatives through fee-based investment
products or accounts.
o Proceeds from redemptions from another mutual fund complex within 90 days
after redemption, if you can demonstrate to the Fund that you paid a sales
charge for those shares, to the extent of such charge.
o Reinvestment of distributions from a deferred compensation plan, agency,
trust, or custody account that was maintained by the Adviser or its
affiliates or invested in any ISG Fund.
o Shares purchased for trust or other advisory accounts established with the
Adviser or its affiliates.
o Shares purchased by full-time employees (and their family members) of the
Adviser or the Administrator; current and retired directors of the Adviser
or any of its affiliates; current and retired Fund directors; dealers who
have an agreement with the Distributor; and any trade organization to which
the Adviser or the Administrator belongs.
REINSTATEMENT PRIVILEGE
If you have sold DG Class shares and decide to reinvest in the Fund within a
90-day period, you will not be charged the applicable sales load on amounts up
to the value of the shares you sold. You must provide a written reinstatement
request and payment within 90 days of the date your instructions to sell were
processed.
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED
DISTRIBUTION (12B-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares. Because 12b-1 fees are paid from Fund assets on an ongoing
basis, over time they will increase the cost of your investment and may cost you
more than paying other types of sales charges.
o DG Class shares (other than the Money Market Funds) pay a 12b-1 fee of .25%
of the average daily net assets represented by DG Class shares of the Fund.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution fees.
<PAGE>
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
INSTRUCTIONS FOR EXCHANGING SHARES
You can exchange your Exchanges may be made by sending a written request
shares in one Fund for to ISG Funds, P.O. Box 182239, Columbus OH 43219,
shares of the same class of or by calling 1-800-852-0045. Please provide the
another ISG Fund, usually following information:
without paying additional
sales charges (see "Notes" o Your name and telephone number
below). No transaction fees o The exact name on your account and account
are charged for exchanges. number
o Taxpayer identification number (usually your
You must meet the minimum Social Security number)
investment requirements for o Dollar value or number of shares to be exchanged
the Fund into which you are o The name of the Fund from which the exchange is
exchanging. Exchanges from to be made
one Fund to another are o The name of the Fund into which the exchange is
taxable. being made.
See "Selling your Shares" for important
information about telephone transactions.
IMPORTANT INFORMATION ABOUT EXCHANGES. If shares
of the Fund are purchased by check, those shares
cannot be exchanged until the check has cleared.
This could take 15 days or more. The Fund may
reject an exchange request from a shareholder who
has made more than five exchanges between
investment portfolios offered by Fund management
in a year, or more than three exchanges in a
calendar quarter. Although unlikely, the Funds may
reject any exchanges or, upon 60-days' notice to
shareholders, change or terminate the exchange
privilege. The exchange privilege is available
only in states where shares of the new Fund may be
sold.
AUTOMATIC EXCHANGES NOTES ON EXCHANGES
You can use the Funds' Automatic When exchanging from a Fund that has no sales
Exchange feature to purchase charge or a lower sales charge to
shares of the Funds at regular a Fund with a higher sales charge, you will
intervals through regular, pay the difference.
automatic redemptions from the
Money Market Funds. To The registration and tax identification
participate in the Automatic numbers of the two accounts must be
Exchange: identical.
o Complete the appropriate
section of the Account The Exchange Privilege (including automatic
Application. exchanges) may be changed or eliminated at
o Keep a minimum of $10,000 any time upon 60 days' notice to
in the Money Market Fund shareholders.
and $1,000 in the Fund
whose shares you are buying. Be sure to read the prospectus carefully of
any Fund into which you wish to
To change the Automatic Exchange exchange shares.
instructions or to discontinue
the feature, you must send a
written request to ISG Funds
P.O. Box 182239
Columbus, Ohio 43218-2239
<PAGE>
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
All dividends and distributions will be automatically reinvested in Fund shares
unless you request otherwise. There are no sales charges for reinvested
dividends and distributions. Each share class will generate a different dividend
because each has different expenses. Capital gains, if any, are distributed at
least annually.
Each Fund usually pays its shareholders dividends from its net investment income
as follows:
<TABLE>
<CAPTION>
MONTHLY QUARTERLY ANNUALLY
<S> <C> <C>
o Government Income Fund o Large-Cap Equity Fund o International Equity Fund
o Limited Term U.S. Government Fund o Small-Cap Opportunity Fund
o Municipal Income Fund
o Treasury Money Market Fund
o Prime Money Market Fund
</TABLE>
Dividends paid by a Fund (other than a tax-exempt fund) are taxable to U.S.
shareholders as ordinary income (unless your investment is in an IRA or
tax-advantaged account). The Municipal Income Fund anticipates that, under
normal market conditions, substantially all of its income dividends will be
exempt from Federal personal income taxes. However, any dividends from taxable
investments are taxable as ordinary income.
Except for tax-deferred accounts, any sale or exchange of Fund shares may
generate a tax liability. Of course, withdrawals or distributions from
tax-deferred accounts are taxable when received.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated in the same manner for Federal income tax purposes whether you receive
them in cash or in additional shares.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED
YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME
OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A DISTRIBUTION.
You will be notified in January each year about the Federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Because everyone's tax situation is unique, you should consult your tax
professional about Federal, state and local tax consequences.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds'
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions. The information in the financial highlights has been audited by
KPMG LLP, the Funds' independent auditors, whose report, along with the Funds'
financial statements, are included in the annual report, which is available upon
request. No financial information is provided for shares of Funds which had not
been offered as of December 31, 1998.
<PAGE>
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
DECEMBER 31, FEBRUARY 28,
1998(B) 1998(A)
<S> <C> <C>
Net asset Value, Beginning of Period $ 10.46 $10.00
-------- --------
Investment Activities
Net investment income (loss) 0.03 (0.02)
Net realized and unrealized gains (losses) from
investment and foreign currencies 0.12 0.49
------- -------
Total from Investment Activities 0.15 0.47
------- -------
Distributions
Net investment income (0.03) -
In excess of net investment income - (0.01)
------- -----
Total Distributions (0.03) (0.01)
------ ------
Net change in asset value 0.12 0.46
------ -----
Net asset Value, end of Period $ 10.58 $ 10.46
======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE) 1.42%(c) 4.71%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 149 $ 26,533
Ratio of expenses to average net assets 1.81%(d) 1.77%(d)
Ratio of net investment income (loss) 0.71%(d) -0.48%(d)
to average net assets
Ratio of expenses to average net assets* 2.16%(d) 2.27%(d)
Portfolio Turnover** 62% 21%
- ------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(a) FOR THE PERIOD FROM AUGUST 15, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH
FEBRUARY 28, 1998.
(b) FOR THE PERIOD FROM MARCH 1, 1998 THROUGH DECEMBER 31, 1998. IN CONNECTION
WITH ITS REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER
31.
(c) NOT ANNUALIZED.
(d) ANNUALIZED.
</TABLE>
<PAGE>
SMALL-CAP OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended Year Ended Year Ended
December 31, February 28, February 28, February 28, February 28,
1998(d) 1998 1997 1996 1995(a)
------------------ -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 15.84 $ 13.53 $ 12.79 $ 11.15 $ 10.00
------------------ -------------- -------------- -------------- ---------------
Investment Activities
Net investment income (loss) (0.42) (0.05) (0.03) - 0.02
Net realized and unrealized gains
(losses) from investments (1.61) 4.90 1.60 3.30 1.17
------------------ -------------- -------------- -------------- ---------------
Total from Investment Activities (2.03) 4.85 1.57 3.30 1.19
------------------ -------------- -------------- -------------- ---------------
Distributions
Net investment income - - - - (0.02)
Net realized gains (0.88) (2.54) (0.83) (1.66) (0.02)
------------------ -------------- -------------- -------------- ---------------
Total Distributions (0.88) (2.54) (0.83) (1.66) (0.04)
------------------ -------------- -------------- -------------- ---------------
Net change in asset value (2.91) 2.31 0.74 1.64 1.15
------------------ -------------- -------------- -------------- ---------------
Net Asset Value, End of Period $ 12.93 $ 15.84 $ 13.53 $ 12.79 $ 11.15
================== ============== ============== ============== ===============
TOTAL RETURN (EXCLUDES SALES
CHARGE) -13.00% (b) 37.81% 12.08% 31.42% 11.84%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 11,145 $ 122,872 $ 80,527 $ 53,477 $ 36,664
Ratio of expenses to average net
assets 1.38% (c) 1.20% 1.14% 1.17% 0.79%(c)
Ratio of net investment income
to average net assets -0.42% (c) -0.39% -0.24% 0.00% 0.06%(c)
Ratio of expenses to average net
assets* 1.39% (c) 1.31% 1.30% 1.52% 2.13%(c)
PORTFOLIO TURNOVER** 110% 180% 116% 154% 45%
- -------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED. **
PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(A) FOR THE PERIOD FROM AUGUST 1, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH
FEBRUARY 28, 1995.
(B) NOT ANNUALIZED.
(C) ANNUALIZED.
(D) FOR THE PERIOD MARCH 1, 1998 TO DECEMBER 31, 1998. IN CONNECTION WITH ITS
REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER 31.
</TABLE>
<PAGE>
LARGE-CAP EQUITY FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, February 28, February 28, February 28, February 28, February 28,
1998(a) 1998 1997 1996 1995 1994
---------------- -------------- -------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 23.01 $ 16.68 $ 14.49 $ 11.41 $ 10.87 $ 10.54
---------------- -------------- -------------- -------------- --------------- -------------
Investment Activities
Net investment income 0.05 0.11 0.14 0.16 0.16 0.14
Net realized and unrealized gains
(losses) from investments 5.79 6.48 2.54 3.63 0.71 0.38
---------------- -------------- -------------- -------------- --------------- -------------
Total from Investment Activities 5.84 6.59 2.68 3.79 0.87 0.52
---------------- -------------- -------------- -------------- --------------- -------------
Distributions
Net investment income (0.05) (0.11) (0.14) (0.17) (0.16) (0.14)
Net realized gains (1.25) (0.15) (0.35) (0.54) (0.17) (0.05)
---------------- -------------- -------------- -------------- --------------- -------------
Total Distributions (1.30) (0.26) (0.49) (0.71) (0.33) (0.05)
---------------- -------------- -------------- -------------- --------------- -------------
Net change in asset value 4.54 6.33 2.19 3.08 0.54 0.33
---------------- -------------- -------------- -------------- --------------- -------------
Net Asset Value, End of Period $ 27.55 $ 23.01 $ 16.68 $ 14.49 $ 11.41 $ 10.87
================ ============== ============== ============== =============== =============
TOTAL RETURN (EXCLUDES SALES
CHARGE) 25.83% (b) 39.74% 18.79% 33.73% 8.23% 4.99%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 55,772 $ 715,631 $ 490,392 $ 385,145 $ 259,998 $ 284,203
Ratio of expenses to average net
assets 1.08% (c) 0.99% 0.92% 0.94% 0.95% 0.96%
Ratio of net investment income
to average net assets 0.22% (c) 0.54% 0.95% 1.24% 1.54% 1.38%
Ratio of expenses to average net
assets* 1.03% (c) (d) (d) (d) (d) 0.97%
PORTFOLIO TURNOVER** 3% 6% 7% 15% 1% 7%
- -----------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED. **
PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(A) FOR THE PERIOD FROM MARCH 1, 1998 THROUGH DECEMBER 31, 1998. IN CONNECTION
WITH ITS REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER
31
(B) NOT ANNUALIZED.
(C) ANNUALIZED.
(D) THERE WERE NO FEE REDUCTIONS IN THIS PERIOD.
</TABLE>
<PAGE>
GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, February 28, February 28, February 28, February 28, February 28,
1998(a) 1998 1997 1996 1995 1994
---------------- -------------- -------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 10.07 $ 9.69 $ 9.87 $ 9.47 $ 9.90 $ 10.25
---------------- -------------- -------------- -------------- --------------- -------------
Investment Activities
Net investment income 0.45 0.55 0.57 0.58 0.54 0.55
Net realized and unrealized
gains (losses) from investments 0.31 0.38 (0.18) 0.41 (0.44) (0.09)
---------------- -------------- -------------- -------------- --------------- -------------
Total from Investment Activities 0.76 0.93 0.39 0.99 0.10 0.46
---------------- -------------- -------------- -------------- --------------- -------------
Distributions
Net investment income (0.45) (0.55) (0.57) (0.59) (0.53) (0.55)
Net realized gains - - - - (0.25)
In excess of net realized gains - - - - - (0.01)
---------------- -------------- -------------- -------------- --------------- -------------
Total Distributions (0.45) (0.55) (0.57) (0.59) (0.53) (0.81)
---------------- -------------- -------------- -------------- --------------- -------------
Net change in asset value 0.31 0.38 (0.18) 0.40 (0.43) (0.35)
---------------- -------------- -------------- -------------- --------------- -------------
Net Asset Value, End of Period $ 10.38 $ 10.07 $ 9.69 $ 9.87 $ 9.47 $ 9.90
================ ============== ============== ============== =============== =============
TOTAL RETURN (EXCLUDES SALES CHARGE) 7.69%(b) 9.90% 4.07% 10.70% 1.20% 4.55%
RATIOS/SUPPLEMENTARY DATA: $ 1,486 $ 270,404 $ 249,618 $ 184,226 $ 168,313 $ 118,695
Net Assets at end of period (000) 0.91%(c) 0.80% 0.70% 0.72% 0.68% 0.70%
Ratio of expenses to average net
assets 5.28%(c) 5.62% 5.82% 5.96% 5.79% 5.34%
Ratio of net investment income to
average net assets* (d) 0.86% 0.80% 0.82% 0.83% 0.89%
PORTFOLIO TURNOVER** 20% 25% 7% 87% 31% 49%
- ----------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(A) FOR THE PERIOD FROM MARCH 1, 1998 THROUGH DECEMBER 31, 1998. IN CONNECTION
WITH ITS REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER
31
(B) NOT ANNUALIZED.
(C) ANNUALIZED.
(D) THERE WERE NO FEE REDUCTIONS IN THIS PERIOD.
</TABLE>
<PAGE>
LIMITED TERM U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 (A)
-------------------- -----------------------
-------------------- -----------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.12 $ 10.00
-------------------- -----------------------
Investment Activities
Net investment income 0.53 0.42
Net realized and unrealized gains
(losses) from investments 0.14 0.12
-------------------- -----------------------
Total from Investment Activities 0.67 0.54
-------------------- -----------------------
Distributions
Net investment income (0.53) (0.42)
Net realized gains (0.01) -
-------------------- -----------------------
Total Distributions (0.54) (0.42)
-------------------- -----------------------
Net change in asset value 0.13 0.12
-------------------- -----------------------
Net Asset Value, End of Period $ 10.25 $ 10.12
==================== =======================
TOTAL RETURN (EXCLUDES SALES CHARGE) 6.69% 5.54%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 2,437 $ 20,103
Ratio of expenses to average net assets 1.02% 1.00%(c)
Ratio of net investment income to average net assets 5.16% 5.34%(c)
Ratio of expenses to average net assets* 1.54% 1.62%(c)
PORTFOLIO TURNOVER** 86% 52%
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(A) FOR THE PERIOD FROM FEBRUARY 28, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1997.
(B) NOT ANNUALIZED.
(C) ANNUALIZED.
</TABLE>
<PAGE>
MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, February 28, February 28, February 28, February 28, February 28,
1998(a) 1998 1997 1996 1995 1994
---------------- -------------- -------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.89 $ 10.59 $ 10.66 $ 10.15 $ 10.57 $ 10.51
---------------- -------------- -------------- -------------- --------------- -------------
Investment Activities
Net investment income 0.34 0.47 0.49 0.49 0.49 0.48
Net realized and unrealized gains
(losses) from investments 0.14 0.32 (0.07) 0.50 (0.43) 0.08
---------------- -------------- -------------- -------------- --------------- -------------
Total from Investment Activities 0.48 0.79 0.42 0.99 0.06 0.56
---------------- -------------- -------------- -------------- --------------- -------------
Distributions
Net investment income (0.39) (0.47) (0.48) (0.48) (0.48) (0.49)
Net realized gains (0.02) (0.02) (0.01) - - (0.01)
---------------- -------------- -------------- -------------- --------------- -------------
Total Distributions (0.41) (0.49) (0.49) (0.48) (0.48) (0.50)
---------------- -------------- -------------- -------------- --------------- -------------
Net change in asset value 0.07 0.30 (0.07) 0.51 (0.42) 0.06
---------------- -------------- -------------- -------------- --------------- -------------
Net Asset Value, End of Period $ 10.96 $ 10.89 $ 10.59 $ 10.66 $ 10.15 $ 10.57
================ ============== ============== ============== =============== =============
TOTAL RETURN (EXCLUDES SALES CHARGE) 4.41%(b) 7.70% 4.12% 9.96% 0.81% 5.34%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1,980 $ 48,579 $ 46,928 $ 44,578 $ 41,542 $ 34,435
Ratio of expenses to average net
assets 0.91%(c) 0.76% 0.70% 0.70% 0.75% 0.74%
Ratio of net investment income to
average net 4.08%(c) 4.40% 4.69% 4.65% 4.93% 4.60%
Ratio of expenses to average net assets* 1.21%(c) 1.07% 1.16% 1.17% 1.16% 1.41%
PORTFOLIO TURNOVER** 3% 6% 9% 20% 9% 9%
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
** PORTFOLIO TURNOVER IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE
WITHOUT DISTINGUISHING BETWEEN THE CLASSES OF SHARES ISSUED.
(A) FOR THE PERIOD FROM MARCH 1, 1998 THROUGH DECEMBER 31, 1998. IN CONNECTION
WITH ITS REORGANIZATION, THE FUND CHANGED ITS FISCAL YEAR END TO DECEMBER
31.
(B) NOT ANNUALIZED.
(C) ANNUALIZED.
</TABLE>
<PAGE>
PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31, 31,
1998 1997 1996 1995 1994(A)
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------- ------------- ------------- ------------
Investment Activities
Net investment income 0.047 0.048 0.048 0.054 0.031
------------ ------------- ------------- ------------- ------------
Total from Investment Activities 0.047 0.048 0.048 0.054 0.031
------------ ------------- ------------- ------------- ------------
Distributions
Net investment income (0.047) (0.048) (0.048) (0.054) (0.031)
------------ ------------- ------------- ------------- ------------
Total Distributions (0.047) (0.048) (0.048) (0.054) (0.031)
------------ ------------- ------------- ------------- ------------
Net change in asset value - - - - -
------------ ------------- ------------- ------------- ------------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============= ============= ============= ============
TOTAL RETURN (EXCLUDES SALES CHARGE) 4.85% 4.90% 4.88% 5.51% 3.13%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 310,201 $ 56,163 $ 22,836 $ 63,919 $ 82,351
Ratio of expenses to average net assets 0.81% 0.87% 0.68% 0.65% 0.63%(c)
Ratio of net investment income to average
net assets 4.73% 4.82% 4.83% 5.37% 4.00%(c)
Ratio of expenses to average net assets* 0.82% (d) 0.86% 0.90% 0.93%(c)
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
(A) FOR THE PERIOD MARCH 29, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER
31, 1994.
(B) NOT ANNUALIZED.
(C) ANNUALIZED.
(D) THERE WERE NO FEE REDUCTIONS IN THIS PERIOD.
</TABLE>
<PAGE>
TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS, CLASS A SHARES
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31, 31,
1998 1997 1996 1995 1994(A)
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------- ------------- ------------- ------------
Investment Activities
Net investment income 0.046 0.047 0.047 0.053 0.030
------------ ------------- ------------- ------------- ------------
Total from Investment Activities 0.046 0.047 0.047 0.053 0.030
------------ ------------- ------------- ------------- ------------
Distributions
Net Investment income (0.046) (0.047) (0.047) (0.053) (0.030)
------------ ------------- ------------- ------------- ------------
Total Distributions (0.046) (0.047) (0.047) (0.053) (0.030)
------------ ------------- ------------- ------------- ------------
Net change in asset value - - - - -
------------ ------------- ------------- ------------- ------------
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============= ============= ============= ============
TOTAL RETURN 4.68% 4.78% 4.78% 5.41% 3.01%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 167,475 $ 77,065 $ 78,308 $168,430 $ 139,715
Ratio of expenses to average net assets 0.77% 0.75% 0.56% 0.50% 0.54%(c)
Ratio of net investment income to average net assets 4.56% 4.68% 4.72% 5.28% 4.02%(c)
Ratio of expenses to average net assets* 0.78% (d) 0.74% 0.75% 0.83%(c)
- --------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY
FEE REDUCTIONS HAD NOT OCCURRED, THE RATIO WOULD HAVE BEEN AS INDICATED.
(A) FOR THE PERIOD FROM MARCH 29, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1994.
(B) NOT ANNUALIZED.
(C) ANNUALIZED.
(D) THERE WERE NO FEE REDUCTIONS IN THIS PERIOD.
</TABLE>
<PAGE>
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS): The Funds' annual and semi-annual reports
to shareholders contain additional information on the Funds' investments. In the
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including its operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUNDS BY CONTACTING THE FUNDS AT:
ISG FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-852-0045
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You can review information about the Funds, including the Funds' Reports and
SAI, at the Public Reference Room of the Securities and Exchange Commission. You
can get text-only copies:
o For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009, or calling
1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-06076.
THE INFINITY MUTUAL FUNDS, INC.
ISG FUNDS
o International Equity Fund
o Small-Cap Opportunity Fund
o Large-Cap Equity Fund
o Government Income Fund
o Limited Term U.S. Government Fund
o Municipal Income Fund
o Prime Money Market Fund
o Treasury Money Market Fund
DG CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus for DG
Class Shares of the ISG Funds listed above (each, a "Fund" and collectively, the
"Funds") of The Infinity Mutual Funds, Inc. (the "Company"), dated May 1, 1999,
as it may be revised from time to time. To obtain a copy of the Prospectus,
please write to the Company at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
This Statement of Additional Information relates only to the Funds and not to
any of the Company's other portfolios.
The most recent Annual Report and Semi-Annual Report to Shareholders
for each Fund are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
PAGE
Description of the Company and the Funds.............................B-3
Management of the Company............................................B-41
Management Arrangements..............................................B-44
Purchase and Redemption of Shares....................................B-53
Determinations of Net Asset Value....................................B-62
Shareholder Services and Privileges..................................B-65
Performance Information..............................................B-68
Dividends, Distributions and Taxes...................................B-70
Portfolio Transactions...............................................B-73
Information About the Company and the Funds..........................B-75
Counsel and Independent Auditors.....................................B-77
Financial Statements.................................................B-77
Appendix ............................................................B-78
<PAGE>
DESCRIPTION OF THE COMPANY AND THE FUNDS
GENERAL
The Company is a Maryland corporation organized on March 6, 1990. Each
Fund is a separate portfolio of the Company, an open-end management investment
company, known as a mutual fund. Each of the Large-Cap Equity, Small-Cap
Opportunity, Municipal Income, Government Income, Prime Money Market and
Treasury Money Market Funds is a diversified investment company, which means
that, with respect to 75% of its total assets, the Fund will not invest more
than 5% of its assets in the securities of any single issuer. Each other Fund is
a non-diversified investment company, which means that the proportion of the
Fund's assets that may be invested in the securities of a single issuer is not
limited by the Investment Company Act of 1940, as amended (the "1940 Act").
First American National Bank (the "Adviser") serves as each Fund's
investment adviser.
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as each
Fund's administrator.
BISYS Fund Services Limited Partnership (the "Distributor"), an
affiliate of the Administrator, serves as each Fund's distributor.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Funds' Prospectus.
U.S. TREASURY SECURITIES. (All Funds) Each Fund 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. (All Funds) In addition to U.S. Treasury
securities, each Fund 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 Fund will invest in such securities only
when it is satisfied that the credit risk with respect to the issuer is minimal.
The Treasury Money Market Fund will not invest in securities issued or
guaranteed by U.S. Government agencies, instrumentalities or
government-sponsored enterprises that are not backed by the full faith and
credit of the United States.
BANK OBLIGATIONS. (All Funds, except the Limited Term U.S. Government
Fund and Treasury Money Market Fund) Each of these Funds may invest in bank
obligations (other than those issued by the Adviser or its affiliates),
including certificates of deposit ("CDs"), time deposits ("TDs"), 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. 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 CDs may be purchased by the Fund are insured by the Bank
Insurance Fund administered by the FDIC (although such insurance may not be of
material benefit to the Fund, depending upon the principal amount of the CDs of
each bank held by the Fund) 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 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. The
Prime Money Market Fund's investment in obligations of foreign subsidiaries of
domestic banks are subject, to the extent required by 1940 Act, to the
limitations on investing in the securities of other investment companies.
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 of these Funds 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 Fund 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 Fund will own more than one such CD per such issuer.
Each of these Funds 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 Fund 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 Fund 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 Fund
and the Borrower. In such cases, the Fund would be required to rely on the
Intermediate Participant that sold the participation interest not only for the
enforcement of the Fund's rights against the Borrower but also for the receipt
and processing of payments due to the Fund 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 Fund may be subject to delays, expenses and risks that
are greater than those that would be involved if the Fund could enforce its
rights directly against the Borrower. Moreover, under the terms of a
participation interest, the Fund may be regarded as a creditor of the
Intermediate Participant (rather than of the Borrower), so that the Fund 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 Fund 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 Fund 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.
Under normal circumstances, and as a matter of fundamental policy, the
Prime Money Market Fund will "concentrate" at least 25% of its assets in debt
instruments issued by domestic and foreign companies engaged in the banking
industry, including bank holding companies. Such investments may include CDs,
TDs, bankers' acceptances and obligations issued by bank holding companies, as
well as repurchase agreements entered into with banks (as distinct from non-bank
dealers) in accordance with the policies set forth in "Repurchase Agreements"
below. During periods when the Adviser determines that the Prime Money Market
Fund should be in a temporary defensive position, the Fund may invest less than
25% of its total assets in the banking industry; during such times the Prime
Money Market Fund's assets will be invested in accordance with its other
investment policies. The Adviser may determine that the adoption of a temporary
defensive position with respect to issuers in the banking industry is
appropriate on the basis of such factors as political, economic, market or
regulatory developments adversely affecting that industry as compared to the
industries of other issuers of securities available for investment by the Prime
Money Market Fund.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. (Each
Fund, except the Limited Term U.S. Government Fund and Treasury Money Market
Fund) Each of these Funds 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 Funds will consist only of direct
obligations which, at the time of their purchase, are (a) rated not lower than
Prime-1 by Moody's Investors Service, Inc. ("Moody's"), A-1 by Standard & Poor's
Ratings Group ("S&P"), F-1 by Fitch IBCA, Inc. ("Fitch") or Duff-1 by Duff &
Phelps Credit Rating Co. ("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 Adviser to be
of comparable quality to those rated obligations which may be purchased by the
Fund.
REPURCHASE AGREEMENTS. (All Funds) Each Fund may enter into repurchase
agreements which involve the acquisition by a Fund of an underlying debt
instrument, subject to an obligation of the seller to repurchase, and such Fund
to resell, the instrument at a fixed price usually not more than one week after
its purchase. 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 a Fund 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 Fund entering into them.
Certain costs may be incurred by a Fund 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 or insolvency proceedings are
commenced with respect to the seller of the securities, realization on the
securities by a Fund may be delayed or limited. Each Fund will consider on an
ongoing basis the creditworthiness of the institutions with which it enters into
repurchase agreements. In an attempt to reduce the risk of incurring a loss on a
repurchase agreement, each Fund 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 Fund 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 Adviser will monitor on an ongoing basis the value of the collateral
to assure that it always equals or exceeds the repurchase price. Each Fund will
consider on an ongoing basis the creditworthiness of the institutions with which
it enters into repurchase agreements.
ZERO COUPON AND STRIPPED SECURITIES. (All Funds) Each Fund 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 Fund, except the Limited Term U.S. Government
Fund, Prime Money Market Fund and Treasury Money Market Fund, 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 Fund, except the Limited Term U.S. Government Fund and Treasury Money
Market Fund) Each of these Funds 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 Adviser to be of
comparable quality to the other obligations in which such Fund 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
Fund'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 Fund, except the Limited
Term U.S. Government Fund and Treasury Money Market Fund) Each of these Funds
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 Fund to invest fluctuating amounts, at varying rates
of interest, pursuant to direct arrangements between the Fund, 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
Fund'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 Fund may invest in obligations which are not so
rated only if the Adviser determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the Fund
may invest. The Adviser, on behalf of each Fund, will consider on an ongoing
basis the creditworthiness of the issuers of the floating and variable rate
demand obligations purchased by such Fund.
NOTES. (Each Fund, except the Limited Term U.S. Government Fund and
Treasury Money Market Fund) Each of these Funds may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
provided such investments are consistent with its investment objective.
PARTICIPATION INTERESTS AND TRUST RECEIPTS. (Each Fund, except the
Limited Term U.S. Government Fund and Treasury Money Market Fund) Each of these
Funds 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 Fund an undivided interest in the security in the
proportion that the Fund's participation interest or receipt bears to the total
principal amount of the security. 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 Fund, 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 Adviser, acting upon delegated authority from the Company's
Board of Directors, must have determined that the instrument is of comparable
quality to those instruments in which the Fund 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 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 Fund, the Adviser will consider, in accordance with
procedures established by the Board of Directors, all circumstances deemed
relevant in determining whether the Fund 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
Fund will have the unconditional right to demand payment, on not more than seven
days' notice, for all or any part of the Fund's interest in the security, plus
accrued interest. As to these instruments, the Fund 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 Fund, except the Limited Term
U.S. Government Fund and Treasury Money Market Fund) Each of these Funds may
make limited investments in guaranteed investment contracts ("GICs") issued by
highly rated U.S. insurance companies. Pursuant to such a contract, the Fund
would make cash contributions to a deposit fund of the insurance company's
general account. The insurance company would then credit to the Fund 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 Fund currently does not expect to invest more than
5% of its net assets in GICs.
ILLIQUID SECURITIES. (All Funds) Each Fund may invest up to 15% (10%
in the case of Limited Term U.S. Government and Money Market Funds) of the value
of its net assets in illiquid securities. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer is
not available at a price the Fund deems representative of their value, the value
of the Fund's net assets could be adversely affected. 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 Fund has valued the securities and includes, among other things,
restricted securities other than those the Adviser has determined to be liquid
pursuant to guidelines established by the Company's Board and repurchase
agreements maturing in more than seven days. Commercial paper issues include
securities issued by major corporations without registration under the 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 Fund pursuant
to Rule 144A under the 1933 Act, the Fund intends to treat such securities as
liquid securities in accordance with procedures approved by the Company's 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 Company's
Board has directed the Adviser to monitor carefully each Fund'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, a Fund'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 Funds) Each Fund 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 Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
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 Fund 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 Fund
is fully or almost fully invested may result in greater potential fluctuation in
the value of the Fund's net assets and its net asset value per share.
INVESTMENT COMPANY SECURITIES. (All Funds) Each Fund may invest in
securities issued by other investment companies which principally invest in
securities of the type in which such Fund invests. Under the 1940 Act, a Fund'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 Fund's total assets with respect to any one investment company and
(iii) 10% of such Fund's total assets in the aggregate. Investments in the
securities of other investment companies will involve duplication of advisory
fees and certain other expenses.
CONVERTIBLE SECURITIES. (Large-Cap Equity, Small-Cap Opportunity and
International Equity Funds) Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock. Convertible
securities have characteristics similar to both fixed income and equity
securities. Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the underlying
common stock. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There can be
no assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
WARRANTS. (Large-Cap Equity, Small-Cap Opportunity and International
Equity Funds) 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. A Fund may invest up to 5%
of its net assets in warrants, except that this limitation does not apply to
warrants purchased by the Fund that are sold in units with, or attached to,
other securities.
MORTGAGE-RELATED SECURITIES. (Government Income Fund) 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 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
Fund may invest include 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 Fund or the
price of the Fund'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.
The Fund 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. The Fund 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 Fund'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--The Fund 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 Fund 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.
ASSET-BACKED SECURITIES. (Government Income and Prime Money Market
Funds) 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 Funds may invest in these
and other types of asset-backed securities that may be developed in the future.
The Prime Money Market Fund 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 Fund
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. (Large-Cap Equity, Small-Cap Opportunity
and International Equity Funds) Each of these Funds may invest in the securities
of foreign issuers in the form of American Depositary Receipts ("ADRs") and
other forms of depositary receipts. 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 Funds 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.
MUNICIPAL OBLIGATIONS. (Municipal Income and, to a limited extent,
Prime Money Market Funds) The term "Municipal Obligations" generally includes
debt obligations issued to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, industrial, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal; the interest paid on such
obligations may be exempt from Federal income tax, although current tax laws
place substantial limitations on the size of such issues. There are, of course,
variations in the security of Municipal Obligations, both within a particular
classification and between classifications.
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 Obligations and
purchased and sold separately.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but which
permit the holder to demand payment of principal at any time, or at specified
intervals. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders thereof. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a particular
offering, maturity of the obligation and rating of the issue. The imposition of
the advisory and administration fees, as well as other Fund operating expenses,
will have the effect of reducing the yield to investors.
The Municipal Income Fund may invest up to 5% of the value of its
total assets in municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations"). Lease obligations have special
risks not ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation ordinarily is
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. Certain lease obligations in which the
Fund may invest may contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease obligations are secured by the leased property, disposition
of the leased property in the event of foreclosure might prove difficult. In
addition, no assurance can be given as to the liquidity of certain lease
obligations. The staff of the Securities and Exchange Commission currently
considers certain lease obligations to be illiquid. The Company's Board of
Directors has established guidelines for the Adviser to determine the liquidity
and appropriate valuation of lease obligations based on factors which include:
(1) the frequency of trades and quotes for the lease obligation or similar
securities; (2) the number of dealers willing to purchase or sell the lease
obligation or similar securities and the number of other potential buyers; (3)
the willingness of dealers to undertake to make a market in the security or
similar securities; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer.
The Municipal Income Fund may purchase tender option bonds and similar
securities. A tender option bond is a Municipal Obligation (generally held
pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic intervals,
to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. The Adviser, on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuer of the underlying Municipal Obligation,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying Municipal Obligations and for other reasons.
The Municipal Income Fund will purchase tender option bonds only when
it is satisfied that the custodial and tender option arrangements, including the
fee payment arrangements, will not adversely affect the tax exempt status of the
underlying Municipal Obligations and that payment of any tender fees will not
have the effect of creating taxable income for the Fund. Based on the tender
option bond agreement, each of these Funds expects to be able to value the
tender option bond at par; however, the value of the instrument will be
monitored to assure that is valued at fair value.
RATINGS OF MUNICIPAL OBLIGATIONS. Subsequent to its purchase by a
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the Fund,
but the Adviser will consider such event in determining whether the Fund should
continue to hold the Municipal Obligations. To the extent that the ratings given
by Moody's, S&P or Fitch for Municipal Obligations may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for its investments in accordance with the
investment policies contained in the Fund's Prospectus and this Statement of
Additional Information. The ratings of Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations which they undertake to
rate. It should be emphasized, however, that ratings are relative and subjective
and are not absolute standards of quality. Although these ratings may be an
initial criterion for selection of portfolio investments, the Adviser also will
evaluate these securities and the creditworthiness of the issuers of such
securities based upon financial and other available information.
The average distribution of investments (at value) in Municipal
Obligations by ratings for the fiscal year ended December 31, 1998 computed on a
monthly basis, for the Municipal Income Fund was as follows:
<PAGE>
Percentage of Value
Municipal
Income
Moody's Fitch S&P Fund
- ---------- ----- ---- ----------
Aaa AAA AAA 48.0%
Aa AA AA 47.4%
A A A 4.6%
---------
100.0%
MANAGEMENT POLICIES
INVESTMENT TECHNIQUES AND PORTFOLIO TURNOVER RATES. (All Funds) Each
Fund may engage in various investment techniques the use of which involves risk.
Investors in the Municipal Income Fund should be aware that the use of these
techniques may give rise to taxable income. Using these techniques may produce
higher than normal portfolio turnover for a Fund and may affect the degree to
which its net asset value fluctuates.
Portfolio turnover may vary from year to year, as well as within a
year. No Fund will consider portfolio turnover to be a limiting factor in making
investment decisions. Under normal market conditions, the portfolio turnover
rate for the current fiscal year is anticipated to be less than 200% for the
Small-Cap Opportunity Fund and International Equity Fund, and is anticipated to
be less than 100% for the Large-Cap Equity Fund, Municipal Income Fund,
Government Income Fund and Limited Term U.S. Government Fund. A portfolio
turnover rate of 100% is equivalent to the Fund 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. Each
Money Market Fund will have a high portfolio turnover, but that should not
adversely affect the Fund since it usually does not pay brokerage commissions
when it purchases short-term debt obligations.
DURATION. (Limited Term U.S. Government Income Fund) The Fund follows
a controlled duration strategy. 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 three years
would be expected to decline 3% if interest rates rose 1%. Conversely, the
market price of the same bond would be expected to increase 3% if interest rates
fell 1%. The market price of a bond with a duration of six years would be
expected to increase or decline twice as much as the market price of a bond with
a three-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 Fund, the
Adviser will estimate the duration of obligations that are subject to features
such as prepayment or redemption by the issuer, put options retained by the
investor or other imbedded options, taking into account the influence of
interest rates on prepayments and coupon flows.
LENDING PORTFOLIO SECURITIES. (All Funds) From time to time, each Fund
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
Fund's total assets. In connection with such loans, each Fund 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 Fund can increase its income through
the investment of such collateral. Each Fund 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 Fund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with such Fund. From time to
time, a Fund may return to the borrower or a third party which is unaffiliated
with the Fund, 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 Fund 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 Fund must be able
to terminate the loan at any time; (4) the Fund 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 Fund 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 Company's Board of
Directors must terminate the loan and regain the right to vote the securities if
a material event adversely affecting the investment occurs.
OPTIONS TRANSACTIONS. (Large-Cap Equity, Small-Cap Opportunity,
Government Income and International Equity Funds) Each of these Funds may
purchase call and put options in respect of specific securities in which the
Fund 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 Fund, which is a call option with respect to which the Fund owns the
underlying security, exposes the Fund 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 Fund exposes the Fund during the
term of the option to a decline in price of the underlying security. A put
option sold by the Fund is covered when, among other things, permissible liquid
assets are placed in a segregated account to fulfill the obligation undertaken.
The principal reason for the Fund 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 Fund 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 Fund may write (a) in-the-money call options when the 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
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 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 Fund'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
Fund effects a closing purchase transaction. The Fund 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 Fund generally will purchase
or write only those options for which the 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 Fund 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 Fund 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 Fund as illiquid securities.
STOCK INDEX OPTIONS. (Large-Cap Equity, Small-Cap Opportunity and
International Equity Funds) Each of these Funds 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. 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.
The effectiveness of the Fund'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 Fund 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 Fund 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 Fund 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 CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. (Large-Cap Equity,
Small-Cap Opportunity and International Equity Funds) None of these Funds 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 Funds may
engage in futures and options on futures transactions, as described below.
The commodities transactions of each of these Funds must constitute
bona fide hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, none of
these Funds 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 Fund'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 Funds 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 Fund will
be required to deposit with the Company'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 Fund 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 Fund 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 Funds 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 Fund to substantial losses. If it is not possible, or
the Fund 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 Fund 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 Fund'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 Fund 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 Fund's net investment results if market
movements are not as anticipated when the hedge is established.
Successful use of futures by a Fund 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 Fund 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 Fund 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 Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. The Fund 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 Fund 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 Fund with respect to futures contracts
will be covered in the same manner as put options on specific securities as
described above.
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 Fund.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX Futures. (Large-Cap
Equity, Small-Cap Opportunity and International Equity Funds) Each of these
Funds 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 Funds 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 Funds may use index futures as a substitute for a
comparable market position in the underlying securities.
FUTURE DEVELOPMENTS. Each Fund 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 Fund 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 Fund. Before entering into such transactions or
making any such investment, the Fund will provide appropriate disclosure in its
Prospectus or this Statement of Additional Information.
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 Fund has agreed to buy or sell; to hedge the U.S. dollar value of
securities the Fund 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 Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund 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 Fund contracted to receive in the exchange. The
Fund's success in these transactions will depend principally on the ability of
the Fund's Sub-Adviser 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,
Limited Term U.S. Government Fund) In these transactions the Fund sells a
security it does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund 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 Fund, which would result in a loss or gain, respectively. 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% of the value of
the Fund's net assets. The Limited Term U.S. Government Fund will limit its
short sales to those that are "against the box," a transaction in which the Fund
enters into a short sale of a security which it owns. The proceeds of the short
sale will be held by a broker until the settlement date at which time the Fund
delivers the security to close the short position. The Fund receives the net
proceeds from the short sale. At no time will either of these Funds have more
than 15% of the value of its net assets in deposits on short sales against the
box.
BORROWING MONEY. (All Funds) As a fundamental policy, each Fund is
permitted to borrow money in an amount up to 33-1/3% of the value of its total
assets. However, each Fund 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 Fund's total assets, such
Fund will not make any investments. In addition, each Money Market Fund may
borrow for investment purposes on a secured basis through entering into reverse
repurchase agreements as described below.
REVERSE REPURCHASE AGREEMENTS. (Money Market Funds only) The Prime
Money Market Fund and Treasury Money Market Fund may enter into reverse
repurchase agreements with banks, brokers or dealers. Reverse repurchase
agreements involve the transfer by the Fund of an underlying debt instrument in
return for cash proceeds based on a percentage of the value of the security. The
Fund retains the right to receive interest and principal payments on the
security. The Fund 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 Fund
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 Fund 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 Company's Directors have considered the risks to each
of the Prime Money Market Fund and Treasury Money Market Fund 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 such
Fund's investment objective and management policies. The Fund 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.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
RISK OF INVESTING IN MUNICIPAL OBLIGATIONS. (Municipal Income Fund)
The Fund may invest more than 25% of the value of its total assets in Municipal
Obligations which are related in such a way that an economic, business or
political development or change affecting one such security also would affect
the other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects or securities whose issuers are
located in the same state. As a result, the Fund may be subject to greater risk
as compared to a fund that does not follow this practice.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Fund and thus
reduce its available yield. Proposals that may restrict or eliminate the income
tax exemption for interest on Municipal Obligations may be introduced in the
future. If any such proposal were enacted that would reduce the availability of
Municipal Obligations for investment by the Fund so as to adversely affect its
shareholders, the Company would reevaluate the Fund's investment objective and
policies and submit possible changes in the Fund's structure to shareholders for
their consideration. If legislation were enacted that would treat a type of
Municipal Obligation as taxable, the Fund would treat such security as a
permissible taxable investment within the applicable limits set forth in the
Prospectus.
MORTGAGE-RELATED SECURITIES RISK. (Government Income Fund)
Mortgage-related securities in which the Fund 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 Company's Board of Directors. In accordance
with such guidelines, the 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.
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 the Fund, 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
Fund. Moreover, with respect to certain stripped mortgage-backed securities, if
the underlying mortgage securities experience greater than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating category. 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 Fund's mortgage-related securities to decrease significantly, the Fund's
effective duration, and thus sensitivity to interest rate fluctuations, would
increase.
SIMULTANEOUS INVESTMENTS. (All Funds) Investment decisions for each
Fund 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 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 Fund,
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 a Fund or the price paid or received by
a Fund.
INVESTMENT RESTRICTIONS
Each Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, each Fund has adopted
investment restrictions numbered 1 through 7 as fundamental policies, and only
the Funds so indicated have adopted investment restrictions numbered 8 through
12 as additional fundamental policies. These restrictions cannot be changed, as
to a Fund, without approval by the holders of a majority (as defined in the 1940
Act) of such Fund's outstanding voting securities. Each Fund, except as
otherwise indicated, has adopted investment restrictions numbered 13 through 18
as non-fundamental policies which may be changed by vote of a majority of the
Company's Directors at any time. No Fund may:
1. Invest in commodities, except that each Fund 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 Fund 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 Fund may borrow up to 331/3% of the
value of its total assets. For purposes of this investment restriction, a Fund'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 Fund may
lend its portfolio securities in an amount not to exceed 331/3% 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
Company's Board of Directors.
5. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the 1933 Act by virtue of
disposing of portfolio securities, and except that the Municipal Income Fund may
bid separately or as part of a group for the purchase of Municipal Obligations
directly from an issuer for its own portfolio to take advantage of the lower
purchase price available.
6. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act). A Fund's permitted borrowings and transactions in futures and
options, to the extent permitted under the 1940 Act, are not considered senior
securities for purposes of this investment restriction.
7. Purchase securities on margin, but each Fund 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.
The following investment restrictions numbered 8 and 9 are fundamental
policies which apply only to the Prime Money Market Fund. The Prime Money Market
Fund may not:
8. Invest more than 5% of its assets in the obligations of any one
issuer, except that up to 25% of the value of the Prime Money Market Fund's
total assets may be invested without regard to any such limitation, provided
that not more than 10% of its assets may be invested in securities issued or
guaranteed by any single guarantor of obligations held by the Prime Money Market
Fund.
9. Invest less than 25% of its total assets in securities issued by
banks or invest more than 25% of its assets in the securities of issuers in any
other industry, provided that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Notwithstanding the foregoing, for temporary defensive
purposes the Prime Money Market Fund may invest more than 25% of its assets in
bank obligations.
The following investment restriction number 10 is a fundamental policy
which applies to each Fund, except the Prime Money Market Fund. None of these
Funds may:
10. Invest more than 25% of its assets in the securities of issuers in
any single industry, provided that, in the case of the Municipal Income Fund,
there shall be no such limitation on the purchase of tax-exempt municipal
obligations and, in the case of each Fund, there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
The following investment restrictions numbered 11 and 12 are
fundamental policies which apply only to the Large-Cap Equity Fund, Small-Cap
Opportunity Fund, Municipal Income Fund and Government Income Fund. None of
these Funds may:
11. With respect to 75% of its total assets, invest more than 5% of
its assets in the obligations of any single issuer. This investment restriction
does not apply to the purchase of U.S. Government securities.
12. Hold more than 10% of the outstanding voting securities of any
single issuer. This investment restriction applies only with respect to 75% of
the Fund's total assets.
* * *
13. Invest in the securities of a company for the purpose of
exercising management or control, but each Fund will vote (as provided in the
Company's Charter) the securities it owns as a shareholder in accordance with
its views.
14. 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.
15. 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% (10% in the case of the Limited Term U.S.
Government and Money Market Funds) of the value of the Fund's net assets would
be so invested.
16. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
The following investment restrictions numbered 17 and 18 are
non-fundamental policies which apply only to the Limited Term U.S. Government
Fund. The Limited Term U.S. Government Fund may not:
17. Purchase, sell or write puts, calls or combinations thereof,
except as may be described in the Fund's Prospectus and this Statement of
Additional Information.
18. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such companies
to exceed 5% of the value of its total assets.
For purposes of Investment Restriction No. 10, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
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.
MANAGEMENT OF THE COMPANY
The Company's Board of Directors is responsible for the management and
supervision of each Fund. The Board approves all significant agreements with
those companies that furnish services to the Funds. These companies are as
follows:
First American National Bank....................... Investment Adviser and
Custodian
Lazard Asset Management............................ Sub-Investment Adviser
Womack Asset Management, Inc....................... Sub-Investment Adviser
BISYS Fund Service Limited Partnership............. Distributor
BISYS Fund Services Ohio, Inc...................... Administrator and
Transfer Agent
The Bank of New York............................... Sub-Custodian
Directors and officers of the Company, 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 Company, as
defined in the 1940 Act, is indicated by an asterisk.
Name, Address Position(s) Held Principal Occupation(s)
And Age With Company During Past 5 Years
WILLIAM B. BLUNDIN* President and An employee of BISYS
90 Park Avenue Chairman of the Fund Services, Inc.,
New York, New York 10016 Board of general partner of
Age 60 Directors the Distributor.
Mr. Blundin also is
an officer of other
investment companies
administered by the
Administrator or its
affiliates.
NORMA A. COLDWELL Director International Economist
3330 Southwestern Boulevard and Consultant; Executive
Dallas, Texas 75225 Vice President of Coldwell
Age 72 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.
RICHARD H. FRANCIS Director Former Executive Vice
40 Grosvenor Road President and Chief
Short Hills, New Jersey 07078 Financial Officer of
Age 66 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.
WILLIAM W. McINNEES Director Private investor.
116 30TH Avenue South From July 1978 to
Nashville, Tennessee 37212 February 1993, he was
Age 48 Vice-President--Finance and
Treasurer of Hospital
Corp. of America.
He is also a director of
Gulf South Medical Supply
and Diversified Trust Co.
ROBERT A. ROBERTSON Director Private investor. Since
2 Hathaway Common 1991, President Emeritus,
New Canaan, Connecticut 06840 and from 1968 to 1991,
Age 71 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
Cantebury Cathedral
Trust in America,
The Living Church
Foundation and
Hoosac School.
JEFFREY C. CUSICK Vice President An employee of BISYS
3435 Stelzer Road and Assistant Fund Services, Inc.
Columbus, Ohio 43219 Secretary since July 1995, and
Age 38 an officer of other
investment companies
administered by the
Administrator or its
affiliates. From
September 1993 to
July 1995, he was
Assistant Vice President of
Federated Administrative
Services.
WILLIAM TOMKO Vice President An employee of BISYS
3435 Stelzer Road Fund Services, Inc.
Columbus, Ohio 43219 and an officer of
Age 38 other investment
companies administered by
the Administrator or its
affiliates.
GARY R. TENKMAN Treasurer An employee of BISYS
3435 Stelzer Road Fund Services, Inc.
Columbus, Ohio 43219 since April 1998,
Age 34 and an officer of other
investment companies
administered by the
Administrator or its
affiliates. For more than
five years prior thereto,
he was an audit manager
with Ernst & Young LLP.
ROBERT L. TUCH Assistant An employee of BISYS
3435 Stelzer Road Secretary Fund Services, Inc.
Columbus, Ohio 43219 and an officer of
Age 45 other investment
companies administered by
the Administrator or its
affiliates.
ALAINA METZ Assistant An employee of BISYS
3435 Stelzer Road Secretary Fund Services, Inc.
Columbus, Ohio 43219 and an officer of
Age 29 other investment companies
administered by the
Administrator or its
affiliates.
For so long as the Distribution Plan described in the section
captioned "Management Arrangements--Distribution Plan" remains in effect, the
Directors who are not "interested persons" of the Company, as defined in the
1940 Act, will be selected and nominated by the Directors who are not
"interested persons" of the Company.
Directors and officers of the Company, as a group, owned less than 1%
of any Fund's shares of common stock outstanding on April 1, 1999.
The Company 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 the Administrator or any of their
affiliates. The aggregate amount of compensation paid to each such Director by
the Company for year ended December 31, 1998 was as follows:
Total Compensation
Aggregate From Company and
Name of Board Compensation from Fund Complex Paid to
Member Company* 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 $21,441 for all Directors as a group.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISERS. First American National Bank serves as each
Fund's investment adviser. The Adviser is a wholly-owned subsidiary of First
American Corporation, a registered bank holding company. The Adviser and its
affiliates deal, trade and invest for their own accounts and for the accounts of
their clients, in the types of securities in which the Funds may invest, and may
have deposit, loan and commercial banking relationships with the issuers of
securities purchased by a Fund. The Adviser has informed the Company 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 Funds 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 Adviser provides investment advisory services pursuant to the
Investment Advisory Agreement (the "Agreement") dated February 15, 1994 with the
Company. As to each Fund, the Agreement is subject to annual approval by (i) the
Company's Board of Directors or (ii) vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of such Fund, 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 Company 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 Company'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 November 18, 1998.
As to each Fund, the Agreement is terminable without penalty, on 60 days'
notice, by the Company's Board of Directors or by vote of the holders of a
majority of such Fund's shares, or, on not less than 90 days' notice, by the
Adviser. The Agreement will terminate automatically, as to the relevant Fund, in
the event of its assignment (as defined in the 1940 Act).
Under the terms of the Agreement, the Company has agreed to pay the
Adviser a monthly fee at the annual rate set forth below as a percentage of the
relevant Fund's average daily net assets.
<PAGE>
Annual Rate of
Investment
Name of Fund Advisory Fee Payable
International Equity Fund 1.00%
Small-Cap Opportunity Fund .95%
Large-Cap Equity Fund .75%
Government Income Fund .60%
Limited Term U.S. Government Fund .50%
Municipal Income Fund .60%
Prime Money Market Fund .25%*
Treasury Money Market Fund .25%
- ----------------
* Prior to January 30, 1998, the Fund paid the Prime Money Market Fund's
former sub-adviser, Barnett Capital Advisors, Inc. ("Barnett"), .15% and
the Adviser .10% of the value of the Fund's average daily net assets.
From time to time, the Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering the overall expense ratio of that Fund and increasing yield to its
investors. The Fund will not pay the Adviser at a later time for any amounts it
may waive, nor will the Fund reimburse the Adviser for any amounts it may
assume. For the fiscal years and/or periods ended December 31, 1996, 1997 and
1998, as applicable, the investment advisory fees payable by each indicated
Fund, the amounts waived by the Adviser, and the actual net fees paid by each
Fund, were as follows:
<TABLE>
<CAPTION>
Name of Fund Management Fee Payable Reduction in Fee Net Fee Paid
- ---------- ------------------------------------ ----------------------------- -------------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large-Cap $ 3,213,522(1) $ 4,445,559(2) $ 4,767,781(3) $ 0 $ 0 $ 0 $3,213,522 $ 4,445,559 $ 4,767,781
Equity Fund*
International N/A $ 95,011(4) $ 239,978(3) N/A $ 47,505 $ 77,837 N/A $ 47,505 $ 162,141
Equity Fund*
Small-Cap $ 684,142(1) $ 966,755(2) $ 874,343(3) $ 115,580 $112,136 $ 0 $ 568,562 $ 854,639 $ 874,343
Opportunity Fund*
Government $ 1,369,096(1) $ 1,580,350(2) $ 1,364,121(3) $ 228,183 $163,534 $ 0 $1,140,913 $ 1,416,816 $ 1,364,121
Income Fund*
Limited N/A $ 81,110(5) $ 108,195 N/A $ 41,559 $ 35,572 N/A $ 39,551 $ 72,623
Term U.S.
Government Fund
Municipal $ 279,232(1) $ 289,417(2) $ 273,164(3) $ 162,886 $150,568 $136,582 $ 116,346 $ 138,849 $ 136,582
Income Fund*
Treasury $ 459,479 $ 474,129 $ 480,809 $ 0 $ 0 $ 0 $ 459,479 $ 474,129 $ 480,809
Money Market
Fund
Prime Money $ 74,618 $ 80,064 $ 340,372 $ 0 $ 0 $ 0 $ 74,618 $ 80,064 $ 340,372
Market Fund
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series, a
registered investment company advised by ParkSouth Corporation, a
wholly-owned subsidiary of Deposit Guaranty Corp., which merged into First
American Corporation on May 1, 1998.
(1) For the period March 1, 1996 through February 28, 1997.
(2) For the period March 1, 1997 through February 28, 1998.
(3) For the period March 1, 1998 through December 31, 1998.
(4) For the period August 15, 1997 (commencement of operations) through
December 31, 1996.
(5) For the period February 28, 1997 (commencement of operations) through
December 31, 1997.
</TABLE>
For the fiscal years and/or periods ended December 31, 1996, 1997 and 1998,
the Prime Money Market Fund paid Barnett $111,623, $120,097 and $11,578,
respectively.
With respect to Small-Cap Opportunity Fund, the Adviser has entered
into a Sub-Investment Advisory Agreement (the "Womack Sub-Advisory Agreement")
with Womack Asset Management, Inc. ("Womack") dated May 14, 1998. As to such
Fund, the Womack Sub-Advisory Agreement is subject to annual approval by (i)
the Board or (ii) vote of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting securities, provided that in either event the continuance
also is approved by a majority of the Board members who are not "interested
persons" (as defined in the 1940 Act) of the Fund or Womack, by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Womack Sub-Advisory Agreement is terminable without penalty, (i) by the Adviser
on 60 days' notice, (ii) by the Fund's Board or by vote of the holders of a
majority of the Fund's outstanding voting securities on 60 days' notice, or
(iii) upon not less than 90 days' notice, by Womack. The Womack Sub-Advisory
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act). Under the terms of the Womack Sub-Advisory Agreement,
the Adviser has agreed to pay Womack a monthly fee at the annual rate of .35% of
the value of the Small-Cap Opportunity Fund's average daily net assets.
With respect to International Equity Fund, the Adviser has entered
into a Sub-Investment Advisory Agreement (the "Lazard Sub-Advisory Agreement")
with Lazard Asset Management ("Lazard") dated May 14, 1998. As to such Fund, the
Lazard Sub-Advisory Agreement is subject to annual approval by (i) the Board or
(ii) vote of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the continuance also is
approved by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of the Fund or Lazard, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Lazard
Sub-Advisory Agreement is terminable without penalty, (i) by the Adviser on 60
days' notice, (ii) by the Fund's Board or by vote of the holders of a majority
of the Fund's outstanding voting securities on 60 days' notice, or (iii) upon
not less than 90 days' notice, by Lazard. The Lazard Sub-Advisory Agreement will
terminate automatically in the event of its assignment (as defined in the 1940
Act). Under the terms of the Lazard Sub-Advisory Agreement, the Adviser has
agreed to pay Lazard a monthly fee at the annual rate of .50% of the value of
the International Equity Fund's average daily net assets.
ADMINISTRATOR. BISYS Fund Services Ohio, Inc., a wholly-owned
subsidiary of The BISYS Group, Inc., provides certain administrative services
pursuant to the Administration Agreement (the "Administration Agreement") dated
October 29, 1998 with the Company. Under the Administration Agreement with the
Company, the Administrator generally assists in all aspects of the Funds'
operations, other than providing investment advice, subject to the overall
authority of the Company's Board of Directors in accordance with Maryland law.
In connection therewith, the Administrator provides the Funds 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 Funds' custodian. As to each Fund, the Administration
Agreement will continue until December 31, 2003 and thereafter is subject to
annual approval by (i) the Company's Board of Directors or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
such Fund, 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 Company or the Administrator, by vote cast in person at a
meeting called for the purpose of voting such approval. The Administration
Agreement was last approved by the Company'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 August 12, 1998. As to each Fund,
the Administration Agreement is terminable without penalty, at any time if for
cause, by the Company's Board of Directors or by vote of the holders of a
majority of such Fund's outstanding voting securities, or, on not less than 90
days' notice, by the Administrator. The Administration Agreement will terminate
automatically, as to the relevant Fund, in the event of its assignment (as
defined in the 1940 Act).
As compensation for the Administrator's services, the Company has
agreed to pay the Administrator a monthly administration fee at the annual rate
of .10% of the value of the Prime Money Market Fund's and Treasury Money Market
Fund's average daily net assets and .15% of the value of each other Fund's
average daily net assets. For the fiscal years and/or periods ended December 31,
1996, 1997 and 1998, as applicable, the administration fees payable by each
indicated Fund, the amounts waived by the Administrator, and the actual net
administration fees paid by each Fund, were as follows:
<TABLE>
<CAPTION>
Name of Fund Administration Fee Payable Reduction in Fee Net Fee Paid
- -------------- -----------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large-Cap N/A N/A $ 630,646(2) N/A N/A $0 N/A N/A $ 630,646
Equity Fund*
International N/A N/A $ 68,863(2) N/A N/A $0 N/A N/A $ 68,863
Equity Fund*
Small-Cap N/A N/A $ 90,864(2) N/A N/A $0 N/A N/A $ 90,864
Opportunity Fund*
Government N/A N/A $ 227,828(2) N/A N/A $0 N/A N/A $ 227,828
Income Fund*
Limited Term N/A $ 24,333(1) $ 32,459 N/A $ 17,844 $ 23,803 N/A $ 6,489 $ 8,656
U.S. Government
Fund
Municipal N/A N/A $ 83,073(2) N/A N/A $0 N/A N/A $ 83,073
Income Fund*
Treasury $ 183,791 $189,650 $ 192,322 $0 $0 $0 $ 183,791 $ 189,650 $ 192,322
Money Market
Fund
Prime Money $ 74,618 $ 80,064 $ 136,147 $0 $0 $0 $ 74,618 $ 80,064 $ 136,147
Market Fund
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series,
a registered investment company administered by an entity other than the
Administrator.
(1) For the period February 28, 1997 (commencement of operations) through
December 31, 1997.
(2) For the period March 1, 1998 through December 31, 1998.
</TABLE>
DISTRIBUTOR. BISYS Fund Services Limited Partnership, a wholly-owned
subsidiary of The BISYS Group, Inc., acts as the exclusive distributor of each
Fund's shares on a best efforts basis pursuant to a Distribution Agreement (the
"Distribution Agreement") dated November 11, 1997, with the Company. Shares are
sold on a continuous basis by the Distributor as agent, although the Distributor
is not obliged to sell any particular amount of shares. No compensation is
payable by the Company to the Distributor pursuant to the Distribution Plan for
its distribution services.
DISTRIBUTION PLAN. (Applicable to each Fund other than the Prime Money
Market Fund and Treasury Money Market Fund) 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 Company's
Directors have adopted such a plan (the "Distribution Plan") with respect to DG
Class Shares of each Fund other than the Prime Money Market Fund and Treasury
Money Market Fund pursuant to which each such Fund pays the Distributor for
advertising, marketing and distributing DG Class Shares at an annual rate of
.25% of the value of the average daily net assets represented by DG Class
Shares. Under the Distribution Plan, the Distributor may make payments to
certain financial institutions, securities dealers and other industry
professionals that have entered into agreements with the Distributor ("Service
Organizations") in respect of these services. The Distributor determines the
amounts to be paid to Service Organizations. Service Organizations receive such
fees in respect of the average daily value of DG Class Shares owned by their
clients. From time to time, the Distributor 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 the Distributor
under the Distribution Plan for advertising, marketing and distributing are
payable without regard to actual expenses incurred. The Company's Directors
believe that there is a reasonable likelihood that the Distribution Plan will
benefit each such Fund and the holders of its DG Class 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
DG Class 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 Company 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 February 25, 1999. 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 DG Class Shares 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 Fund's DG Class
Shares voting separately as a Class. A Distribution Plan agreement will
terminate automatically in the event of its assignment (as defined in the 1940
Act).
DG Class Shares had not been offered as of the last fiscal year end.
However, the Funds' Class A Shares are subject to the Distribution Plan at the
same annual rate as are the DG Class Shares. For the fiscal year and/or period
ended December 31, 1998, the Distribution Plan fees payable with respect to
Class A Shares by each indicated Fund, the amounts waived by the Distributor,
and the actual net Distribution Plan fees paid by each Fund, were as follows:
<TABLE>
<CAPTION>
Name of Fund Distribution Plan Fee Payable Reduction in Fee Net Fee Paid
Class A Class A Class A
<S> <C> <C> <C>
Large-Cap $0 $0 $0
Equity Fund*
International $0 $0 $0
Equity Fund*
Small-Cap $0 $0 $0
Opportunity Fund*
Government $0 $0 $0
Income Fund*
Limited $48,533 $48,533 $0
Term U.S.
Government Fund
Municipal $0 $0 $0
Income Fund*
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series and
was not subject to the Distribution Plan.
</TABLE>
SHAREHOLDER SERVICES PLAN. The Company's Directors have adopted a
shareholder services plan (the "Shareholder Services Plan") pursuant to which
each Fund pays the Distributor for the provision of certain services to the
holders of its shares at an annual rate of .15% of the value of the average
daily net assets represented by DG Class Shares (.25% in the case of the Prime
Money Market Fund and Treasury Money Market Fund). The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding a Fund 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, the
Distributor may make payments to certain Service Organizations in respect of
these services. The Distributor determines the amounts to be paid to Service
Organizations. Service Organizations receive such fees in respect of the average
daily value of DG Class Shares owned by their clients. From time to time, the
Distributor may defer or waive receipt of fees under the Shareholder Services
Plan while retaining the ability to be paid by the Fund under the Shareholder
Services Plan thereafter. The fees payable to the Distributor under the
Shareholder Services Plan are payable without regard to actual expenses
incurred. The Company's Directors believe that there is a reasonable likelihood
that the Shareholder Services Plan will benefit each Fund 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 Company 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 February 25, 1999. 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).
DG Class Shares had not been offered as of the last fiscal year end.
However, the Funds' Class A Shares are subject to the Shareholder Services Plan
at the same annual rate as are the DG Class Shares. For the fiscal year and/or
period ended December 31, 1998, the Shareholder Services Plan fees payable with
respect to Class A Shares by each indicated Fund, the amounts waived by the
Distributor, and the actual net Shareholder Services Plan fees paid by each
Fund, were as follows:
<PAGE>
<TABLE>
<CAPTION>
Shareholder Services Plan Reduction in Fee Net Fee Paid
Name of Fund Fee Payable Class A Class A
<S> <C> <C> <C>
Large-Cap $ 899,369(1) $0 $ 899,369
Equity Fund*
International $ 34,073(1) $0 $ 34,073
Equity Fund*
Small-Cap $ 131,641(1) $0 $ 131,641
Opportunity
Fund*
Government $ 319,247(1) $0 $ 319,247
Income Fund*
Limited Term $0 $0 $0
U.S. Government
Fund
Municipal $ 64,495(1) $0 $ 64,495
Income Fund*
Treasury Money $ 230,368 $0 $ 230,368
Market Fund
Prime Money $ 200,598 $0 $ 200,958
Market Fund
- ---------------------------
* Prior to December 14, 1998, the Fund was a series of DG Investor Series
and was not subject to the Shareholder Services Plan.
(1) For the period March 1, 1998 through December 31, 1998.
</TABLE>
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN. BISYS Fund
Services Ohio, Inc. (the "Transfer Agent"), a wholly-owned subsidiary of The
BISYS Group, Inc., located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is
the Company's transfer and dividend disbursing agent. Under a transfer agency
agreement with the Company, the Transfer Agent arranges for the maintenance of
shareholder account records for each Fund, the handling of certain
communications between shareholders and the Fund and the payment of dividends
and distributions payable by the Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for each Fund during the month, and is reimbursed for
certain out-of-pocket expenses.
First American National Bank acts as custodian of the investments of
each Fund. Under a custody agreement with the Company, First American National
Bank provides for the holding of each Fund's securities and the retention of all
necessary accounts and records. For its custody services, First American
National Bank receives a monthly fee based on the market value of the Funds'
assets held in custody and receives certain securities transactions charges. The
Bank of New York, 90 Washington Street, New York, New York 10286, is the Funds'
sub-custodian.
EXPENSES. All expenses incurred in the operation of the Company are
borne by the Company, except to the extent specifically assumed by others. The
expenses borne by the Company include: 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 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 each Fund'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 Fund are charged against the assets of that Fund; other expenses of the
Company are allocated among the Funds on the basis determined by the Board of
Directors, including, but not limited to, proportionately in relation to the net
assets of each Fund.
PURCHASE AND REDEMPTION OF SHARES
GENERAL PURCHASE INFORMATION. DG CLASS SHARES ARE OFFERED ONLY TO
INVESTORS WHO ACQUIRED FUND SHARES IN CONNECTION WITH THE REORGANIZATION OF A
CORRESPONDING DG INVESTOR SERIES FUND. DG Class Shares are sold at net asset
value per share plus, for each Fund, other than the International Equity and
Money Market Funds, an initial sales charge imposed at the time of purchase,
which may be reduced or waived for certain purchases, as described below. On May
1, 2000, DG Class Shares automatically will convert to Class A Shares, based on
the relative net asset values for shares of each such Class.
DG Class Shares may be purchased through a number of institutions,
including the Adviser and its affiliates, Service Organizations, and directly
from the Distributor. When purchasing Fund shares, you must specify the Fund and
Class of shares being purchased. The Adviser, its affiliates and Service
Organizations may receive different levels of compensation for selling different
Classes of Fund shares. Stock certificates will not be issued. It is not
recommended that the Municipal Income Fund be used as a vehicle for Keogh, IRA
and other qualified plans, because such plans are otherwise entitled to tax
deferred benefits. The Company 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 DG Class Shares of each Fund 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.
You may purchase DG Class Shares by check or wire, or through
TeleTrade or, for the Money Market Funds only, a sweep program as described
below. 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. 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 DG Class 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 herein or in the Funds' Prospectus, and, to the
extent permitted by applicable regulatory authority, may charge their clients a
direct fee for effecting transactions in Fund shares. You should consult the
Adviser, its affiliates or your Service Organization in this regard.
SALES LOADS. (Applicable to DG Class Shares of each Fund other than
the International Equity Fund, Prime Money Market Fund and Treasury Money Market
Fund). The public offering price of DG Class Shares of the Government Income
Fund, Limited Term U.S. Government Income Fund and Municipal Income Fund is the
net asset value per share of that Class, plus a sales load as shown below:
<TABLE>
<CAPTION>
Total Sales Load
Dealers' Reallowance
As a % of As a % of Net As a % of Offering
Amount of Transaction Offering Price Asset Value Price
- ------------------------------------- ------------- -------------- --------------------
<S> <C> <C> <C>
Less than $100,000................... 2.00% 2.04% 1.80%
$100,000 to less than
$250,000....................... 1.75% 1.78% 1.58%
$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%
</TABLE>
The public offering price of DG Class Shares of the Large-Cap Equity Fund and
Small-Cap Opportunity Fund is the net asset value per share of that Class, plus
a sales load as shown below:
<PAGE>
<TABLE>
<CAPTION>
Total Sales Load
As a % of Dealers' Reallowance
As a % of Net Asset As a % of
Amount of Transaction Offering Price Value Offering Price
- --------------------- ---------------- ------------- ---------------
<S> <C> <C> <C>
Less than $100,000..................... 3.50% 3.63% 3.15%
$100,000 to less than
$250,000.......................... 3.00% 3.09% 2.70%
$250,000 to less than
$500,000.......................... 2.50% 2.56% 2.25%
$500,000 to less than
$1,000,000.......................... 1.00% 1.01% 0.90%
$1,000,000 or more..................... 0% 0% 0%
</TABLE>
A contingent deferred sales charge ("CDSC") of 0.50% will be assessed
at the time of redemption of DG Class Shares purchased without an initial sales
charge as part of an investment of at least $1,000,000 (0.25% will be assessed
on purchases over $2,000,000) and redeemed within one year after purchase. The
Distributor may pay Service Organizations an amount up to 0.50% of the net asset
value of DG Class Shares purchased by their clients that are subject to a CDSC.
Letter of Intent and Right of Accumulation apply to such purchases of DG Class
Shares.
The scale of sales loads applies to purchases of DG Class Shares of
each Fund, other than the International Equity Fund, Prime Money Market Fund and
Treasury Money Market Fund, 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 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.
Set forth below are examples of the method of computing the offering
price of DG Class Shares. The examples assume a purchase of DG Class Shares of
the indicated Fund aggregating less than $100,000 subject to the current
schedule of sales charges set forth above for DG Class Shares at a price based
upon the net asset value of the Fund's Class A Shares on December 31, 1998:
LARGE-CAP EQUITY FUND:
Net Asset Value per Share $ 27.55
Per Share Sales Charge - 3.50%
of offering price (3.63% of
net asset value per share) $ 1.00
-------------
Per Share Offering Price to
the Public $ 28.55
=============
SMALL-CAP OPPORTUNITY FUND:
Net Asset Value per Share $ 12.93
Per Share Sales Charge - 3.50%
of offering price (3.63% of
net asset value per share) $ 0.47
-------------
Per Share Offering Price to
the Public $ 13.40
=============
LIMITED TERM U.S. GOVERNMENT FUND:
Net Asset Value per Share $ 10.25
Per Share Sales Charge - 2.00%
of offering price (2.04% of
net asset value per share) $ 0.21
-------------
Per Share Offering Price to
the Public $ 10.46
=============
GOVERNMENT INCOME FUND:
Net Asset Value per Share $ 10.38
Per Share Sales Charge - 2.00%
of offering price (2.04% of
net asset value per share) $ 0.21
-------------
Per Share Offering Price to
the Public $ 10.59
==============
MUNICIPAL INCOME FUND:
Net Asset Value per Share $ 10.96
Per Share Sales Charge - 2.00%
of offering price (2.04% of
net asset value per share) $ 0.22
-------------
Per Share Offering Price to
the Public $ 11.18
=============
DG Class 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 the Distributor pertaining to the sale of Fund shares,
full-time employees of the Adviser or the Distributor, their spouses and minor
children, current and retired directors of the Adviser or any of its 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 the Distributor
pertaining to the sale of Fund shares, provided that they have furnished the
Distributor appropriate notification of such status at the time of the
investment and with such information as the Distributor may request from time to
time in order to verify eligibility for this privilege. This privilege also
applies to the Company'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, the
Distributor or their affiliates or subsidiaries or pursuant to a payroll
deduction system which makes direct investments in a Fund 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.
DG Class Shares also may be purchased at net asset value or at a
reduced sales load, subject to appropriate documentation, through a
broker-dealer or other financial institution with the proceeds from the
redemption of shares of a registered open-end management investment company not
managed by the Adviser or its affiliates. The purchase of DG Class Shares of a
Fund must be made within 90 days of such redemption and the shares redeemed must
have been subject to an initial sales charge or a contingent deferred sales
charge to have the Fund's sales load waived or reduced to the extent of such
sales charge.
The dealer reallowance may be changed from time to time but will
remain the same for all dealers. From time to time, the Distributor may make or
allow additional payments or promotional incentives in the form of cash or other
compensation to dealers that sell Fund 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 Funds, 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: travel and lodging at vacation locations; tickets for
entertainment events; and merchandise. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of Fund shares. None of the aforementioned compensation is paid for by the
Company, any Fund or its shareholders.
RIGHT OF ACCUMULATION. Reduced sales loads apply to any purchase of DG
Class Shares by you and any related "purchaser," where the aggregate investment
in DG Class Shares among any of the Funds offered with a sales load, including
such purchase, is $100,000 or more. If, for example, you previously purchased
and still hold DG Class Shares of the Municipal Income Fund, with an aggregate
current market value of $90,000 and subsequently purchase DG Class Shares of the
Municipal Income Fund having a current value of $20,000, the sales load
applicable to the subsequent purchase would be reduced to 1.75% of the offering
price (1.78% of the net asset value). DG Class Shares of the other Funds may be
subject to different sales load schedules, as described above. All present
holdings of DG Class 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 the investor's 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.
CONTINGENT DEFERRED SALES CHARGE. If a shareholder redeems within one
year after purchase DG Class Shares which were part of an investment of at least
$1,000,000 in a Fund that charges a sales load, the shareholder will pay a CDSC
at the rates set forth above. The CDSC is assessed on an amount equal to the
lesser of the then-current market value or the cost of the shares being
redeemed. Accordingly, no CDSC is imposed on increases in net asset value above
the initial purchase price. In addition, no charge is assessed on shares derived
from reinvestment of dividends or capital gain distributions. 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 any increase in net asset value.
"SWEEP" PROGRAM. (Applicable to the Prime Money Market Fund and
Treasury Money Market Fund Only) Shares of the Prime Money Market Fund and
Treasury Money Market Fund may be purchased or sold through the "sweep" program
established by certain financial institutions under which a portion of their
customers' accounts may be automatically invested in the Fund. The customer
becomes the beneficial owner of specific shares of the Fund which may be
purchased, redeemed and held by the financial institution in accordance with the
customer's instructions and may fully exercise all rights as a shareholder. The
shares will be held by the Transfer Agent in book-entry form. A statement with
regard to the customer's shares is generally supplied to the customer monthly,
and confirmations of all transactions for the account of the customer ordinarily
are available to the customer promptly on request. In addition, each customer is
sent proxies, periodic reports and other information from the Company with
regard to shares of the Funds. The customer's shares are fully assignable and
may be encumbered by the customer. The "sweep" agreement can be terminated by
the customer at any time, without affecting its beneficial ownership of the
shares.
To obtain the benefits of this service, a customer typically is
required to maintain a minimum balance subject to a monthly maintenance fee, or
a higher minimum balance for which no monthly fee would be imposed. In either
case, a penalty fee is imposed if the minimum should not be maintained. In
general, the automatic investment in the Fund's shares occurs on the same day
that withdrawals are made by the financial institution, at the next determined
net asset value after the order is received.
All agreements which relate to the service are with the financial
institution. Neither the Distributor nor the Company is a party to any of those
agreements and no part of the compensation received by the financial institution
flows to the Company or to BISYS or to any of their affiliates, either directly
or indirectly. Further information concerning this program and any related
charges or fees is provided by the financial institution prior to any purchase
of the Fund's shares. Any fees charged by the financial institution effectively
reduces the Fund's yield for those customers.
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.
SIGNATURE-GUARANTIES. Written redemption requests must be signed by
each shareholder, including each holder of a joint account, and each signature
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-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. 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.
REDEMPTION COMMITMENT. Each Fund 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 Fund'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 Fund to the detriment of the existing shareholders. In this
event, the securities would be valued in the same manner as the Fund is valued.
If the recipient sold such securities, brokerage charges might be incurred.
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 Fund normally utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Fund'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 Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
GENERAL. Expenses and fees, including the advisory fee and fees paid
pursuant to the Distribution Plan and Shareholder Services Plan, are accrued
daily and taken into account for the purpose of determining the net asset value
of the relevant Class of Fund shares.
LARGE-CAP EQUITY, SMALL-CAP OPPORTUNITY AND INTERNATIONAL EQUITY
FUNDS. Each of these Funds' securities, including covered call options written
by the Fund, 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 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 Fund's securities. Debt
securities maturing in 60 days or less generally 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 Board of Directors. Any
securities or other assets for which recent market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Board of Directors.
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 Board of Directors, are valued at fair value as
determined in good faith by the Board of Directors. The Board of Directors will
review the method of valuation on a current basis. In making their good faith
valuation of restricted securities, the Directors 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 of Directors if the Directors 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 of Directors.
GOVERNMENT INCOME AND LIMITED TERM U.S. GOVERNMENT FUNDS. Each of
these Funds' 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 of Directors. 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 Company's officers under the general supervision
of the Board of Directors.
MUNICIPAL INCOME FUND. The Fund's investments are valued by the
Service. When, in the judgment of the Service, quoted bid prices for investments
are readily available and are representative of the bid side of the market,
these investments are valued at the mean between the quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments (which constitute a majority of the Fund's
securities) are carried at fair value as determined by the Service, based on
methods which include consideration of: yields or prices of municipal bonds of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. The Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by the Company's officers under the general
supervision of the Board of Directors.
<PAGE>
PRIME MONEY MARKET FUND AND TREASURY MONEY MARKET Fund. The valuation
of each of these Funds' 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
Fund 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 each of these Funds' investors, to
establish procedures reasonably designed to stabilize each such Fund's price per
share as computed for the purpose of purchases and redemptions at $1.00. Such
procedures include review of the Fund's investment holdings by the Board of
Directors, at such intervals as it deems appropriate, to determine whether such
Fund's net asset value calculated by using available market quotations or market
equiva lents 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 of Directors.
The extent of any deviation between a Fund'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 of Directors. If such deviation
exceeds 1/2 of 1%, the Board of Directors promptly will consider what action, if
any, will be initiated. In the event the Board of Directors determines that a
deviation exists which may result in material dilution or other unfair results
to investors or existing 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.
<PAGE>
SHAREHOLDER SERVICES AND PRIVILEGES
The services and privileges described under this heading may not be
available to certain clients of the Adviser, its affiliates and certain Service
Organizations, and the Adviser, its affiliates and some Service Organizations
may impose certain conditions on their clients which are different from those
described in the Prospectus or this Statement of Additional Information. Such
investors should consult the Adviser, its affiliates or their Service
Organization in this regard.
EXCHANGE PRIVILEGE. The Exchange Privilege enables you to purchase, in
exchange for shares of a Fund, shares of the same Class of another Fund in the
ISG Family of Funds, 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 or its affiliate where you maintain your account, your Service
Organization or the Administrator to determine if it is available and whether
any conditions are imposed on its use.
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 Fund 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 DG Class Shares. If you are exchanging DG
Class Shares into a Fund 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 Company 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 Company 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 Fund 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 DG Class 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, DG Class 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 DG Class 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 the Administrator. You may cancel your participation in the
Automatic Investment Plan or change the amount of purchase at any time by
mailing written notification to 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 Company 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 Fund in shares of another Fund of which you are a shareholder. Shares of
the other Fund 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 Company 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 DG Class 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 Company
or the Transfer Agent.
Purchases of additional DG Class Shares where the sales load is
imposed concurrently with withdrawals of DG Class Shares generally are
undesirable.
REINSTATEMENT PRIVILEGE. The Reinstatement Privilege enables investors
who have redeemed DG Class Shares to repurchase, within 90 days of such
redemption, DG Class Shares of a Fund 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. 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
the Administrator or certain Service Organizations, you become eligible for
reduced sales load applicable to the total number of DG Class 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 Fund 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 DG Class Shares held in escrow to realize the
difference. Signing a Letter of Intent does not bind the investor to purchase,
or the Company 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 DG Class 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.
PERFORMANCE INFORMATION
Current yield is computed pursuant to a formula which operates as
follows: The amount of the Fund's expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned by the Fund 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.
Tax equivalent yield is computed by dividing that portion of the
current yield (calculated as described above) which is tax exempt by 1 minus a
stated tax rate and adding the quotient to that portion, if any, of the yield of
the Fund that is not tax exempt.
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 DG Class
Shares the maximum sales load has been deducted from the hypothetical initial
investment at the time of purchase.
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 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 DG Class Shares. In such cases, the calculation
would not reflect the deduction of the sales load with respect to DG Class
Shares, which, if reflected, would reduce the performance quoted.
Seven-day yield will be computed in accordance with a standardized
method which involves determining the net change in the value of a hypothetical
pre-existing Fund account having a balance of one share at the beginning of a
seven calendar day period for which yield is to be quoted, dividing the net
change by the value of the account at the beginning of the period to obtain the
base period return, and annualizing the results (i.e., multiplying the base
period return by 365/7). The net change in the value of the account reflects the
value of additional shares purchased with dividends declared on the original
share and any such additional shares and fees that may be charged to shareholder
accounts, in proportion to the length of the base period and the Fund's average
account size, but does not include realized gains and losses or unrealized
appreciation and depreciation. Effective annualized yield is computed by adding
1 to the base period return (calculated as described above), raising that sum to
a power equal to 365 divided by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held, their maturity and operating expenses. An
investor's principal in the Fund is not guaranteed. See "Determination of Net
Asset Value" for a discussion of the manner in which each Fund's price per share
is determined.
From time to time, advertising materials for a Fund 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 Fund may include
information concerning retirement and investing for retirement, average life
expectancy and pension and social security benefits. Comparative performance
information may be used from time to time in advertising or marketing each
Fund's shares, including data from Lipper Analytical Services, Inc.,
Morningstar, Inc., Bank Rate MonitorTM, IBC Money Fund Averages ReportTM, Bond
Buyer's 20-Bond Index, Moody's Bond Survey Bond Index, Lehman Brothers Aggregate
Bond Index and components thereof, S&P 500 Index, Russell 2000 Index, EAFE
Index, the Dow Jones Industrial Average, CDA/Wiesenberger Investment Companies
Service, Mutual Fund Values; Mutual Fund Forecaster, Mutual Fund Investing and
other industry publications.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Adviser believes that each Fund qualified as a "regulated
investment company" under the Code for the fiscal year ended December 31, 1998.
Each Fund intends to continue to so qualify if such qualification is in the best
interests of its shareholders. To qualify as a regulated investment company, the
Fund 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 Fund from any
liability for Federal income taxes to the extent its earnings are distributed in
accordance with the applicable provisions of the Code. If a Fund did not qualify
as a regulated investment company, it would be treated for tax purposes as an
ordinary corporation subject to Federal income tax. 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 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 a Fund's income, the entire amount
or a portion of the dividends paid by the Fund 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 Fund distributed to qualifying corporate shareholders will be
eligible for the dividends received deduction only to the extent that such
Fund'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 Fund 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 Fund 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 Fund shares.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and options, and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code. In addition, all or a portion of the gain realized from the
disposition of market discount bonds will be treated as ordinary income under
Section 1276 of the Code. A market discount bond is defined as any bond
purchased by a Fund after April 30, 1993, and after its original issuance, at a
price below its face or accredited value. Finally, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as ordinary
income under Section 1258. "Conversion transactions" are defined to include
certain forward, futures, option and "straddle" transactions, transactions
marketed or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by the Fund
from certain financial futures and options transactions (other than those taxed
under Section 988 of the Code) will be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. Gain or loss will arise upon the
exercise or lapse of such futures and options as well as from closing
transactions. In addition, any such futures or options remaining unexercised at
the end of the Fund's taxable year will be treated as sold for their then fair
market value, resulting in additional gain or loss to the Fund characterized in
the manner described above.
Offsetting positions held by a Fund involving financial futures and
options may constitute "straddles." Straddles are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of straddles
is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, override or modify the provisions of Sections 988 and 1256 of the
Code. If the Fund was treated as entering into straddles by reason of its
futures or options transactions, such straddles could be characterized as "mixed
straddles" if the futures or options transactions comprising such straddles were
governed by Section 1256. The Fund may make one or more elections with respect
to "mixed straddles." Depending upon which election is made, if any, the results
to the Fund may differ. If no election is made, to the extent the straddle rules
apply to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle rules, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital gain on
straddle positions may be treated as short-term capital gain or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if a Fund 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 Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund 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.
Investment by a Fund in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount, timing
and character of distributions to shareholders by causing such Fund to recognize
income prior to the receipt of cash payments. For example, the Fund could be
required to accrue a portion of the discount (or deemed discount) at which the
securities were issued each year and to distribute such income in order to
maintain its qualifica tion as a regulated investment company. In such case, the
Fund may have to dispose of securities which it might otherwise have continued
to hold in order to generate cash to satisfy these distribution requirements.
The International Equity Fund may qualify for and may make an election
permitted under Section 853 of the Code so that shareholders may be eligible to
claim a credit or deduction on their Federal income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro rata
portion of qualified taxes paid or incurred by the Fund to foreign countries
(which taxes relate primarily to investment income). The International Equity
Fund may make an election under Section 853 of the Code, provided more than 50%
of the value of the Fund's total assets at the close of the taxable year
consists of securities in foreign corporations, and the Fund satisfies the
applicable distribution provisions of the Code. The foreign tax credit available
to shareholders is subject to certain limitations imposed by the Code.
If the International Equity Fund invests in an entity that is
classified as a "passive foreign investment company" ("PFIC") for Federal income
tax purposes, the operation of certain provisions of the Code applying to PFICs
could result in the imposition of certain federal income taxes on the Fund. In
addition, gain realized from the sale or other disposition of PFIC securities
may be treated as ordinary income under Section 1291 of the Code and gain
realized with respect to PFIC securities that are marked-to-market will be
treated as ordinary income under Section 1296 of the Code.
PORTFOLIO TRANSACTIONS
GENERAL. Transactions are allocated to various dealers by the Funds'
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. The allocation of brokerage transactions also may take into account a
broker's sales of Fund shares. No brokerage commissions have been paid to date,
except as noted below.
To the extent research services are furnished by brokers through which
a Fund effects securities transactions, the Adviser may use such information in
advising other funds or accounts it advises and, conversely, to the extent
research services are furnished to the Adviser by brokers in connection with
other funds or accounts the Adviser advises, the Adviser also may use such
information in advising the Funds. 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.
The Company's Board of Directors has determined, in accordance with
Section 17(e) of the 1940 Act and Rule 17e-1 thereunder, that any portfolio
transaction for the Fund 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.
LARGE-CAP EQUITY, SMALL-CAP OPPORTUNITY AND INTERNATIONAL EQUITY
FUNDS. 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 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. It is anticipated that in
any fiscal year, the turnover rate for each of these Funds generally should be
less than 100%. 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.
For the fiscal years and/or periods ended December 31, 1996, 1997 and
1998, the amounts paid by the indicated Funds for brokerage commissions, gross
spreads and concessions on principal transactions, none of which was paid to the
Distributor, were as follows:
<PAGE>
NAME OF FUND 1996 1997 1998
- ------------ ---- ---- ----
Large-Cap Equity $ 75,624(1) $ 74,672(2) $ 76,036(3)
Small-Cap Opportunity $ 315,139(1) $ 498,832(2) $ 318,620(3)
International Equity N/A $ 67,394(2) $ 68,007(3)
- ------------------
(1) For the period March 1, 1996 through February 28, 1997.
(2) For the period March 1, 1997 through February 28, 1998.
(3) For the period March 1, 1998 through December 31, 1998.
The aggregate amount of transactions during the last fiscal year in
securities effected on an agency basis through a broker for, among other things,
research services, and the commissions and concessions related to such
transactions for the indicated Funds were as follows:
Commissions/
Name of Fund Transaction Amounts Concessions
Large-Cap Equity $0 $ 0
Small-Cap Opportunity $0 $ 0
International Equity $0 $ 0
MUNICIPAL INCOME, GOVERNMENT INCOME, LIMITED TERM U.S. GOVERNMENT,
PRIME MONEY MARKET AND TREASURY MONEY MARKET Funds. Purchases and sales of Fund
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 Fund 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 COMPANY AND THE FUNDS
The Fund is authorized to issue 28 billion 500 million shares of
Common Stock (with 1 billion 500 million shares allocated to the Prime Money
Market Fund, 1 billion 250 million shares allocated to the Treasury Money Market
Fund and 1 billion shares allocated to each other Fund), par value $.001 per
share. Each Fund's shares are classified into Class A Shares (250 million, 500
million in the case of each Money Market Fund), Class B Shares (250 million,
except for Treasury Money Market Fund which does not offer Class B Shares),
Institutional Shares (250 million, 500 million in the case of each Money Market
Fund) and DG Class 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. Each Fund share, 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.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Company 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 Company 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
Company'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 Company 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 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.
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 Company, 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.
To date, 28 portfolios have been authorized. All consideration
received by the Company 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 Company) 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.
Each Fund will send annual and semi-annual financial statements to all
its shareholders.
COUNSEL AND INDEPENDENT AUDITORS
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Company, 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 the Prospectus.
KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215, independent
auditors, have been selected as each Fund's auditors.
FINANCIAL STATEMENTS
The Funds' Annual Report to Shareholders for the fiscal year ended
December 31, 1998 is a separate document supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing therein are incorporated by reference
into this Statement of Additional Information.
<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 23.
(a)(1) Articles of Incorporation are incorporated by reference to Exhibit
(1) of the Registration Statement on Form N-1A, filed on March 29,
1990.
(2) 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.
(3) 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.
(4) 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.
(b) By-Laws.
(d)(1) 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.
(2) Investment Advisory Agreement between Registrant and First American
National Bank.
(3) Sub-Investment Advisory Agreement between First American National
Bank and Lazard Asset Management is incorporated by reference to
Exhibit (5)(b)(i) of Post-Effective Amendment No. 40 to the
Registration Statement on Form N-1A, filed September 23, 1998.
(4) Sub-Investment Advisory Agreement between First American National
Bank and Womack Asset Management, Inc.
(5) Administration Agreement between Registrant and BISYS Fund Services
Ohio, Inc.
(e)(1) Distribution Agreement between Registrant and BISYS Fund Services
Limited Partnership.
(2) 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.
(3) Distribution Plan Agreement, with respect to Registrant's ISG and
Stewardship Funds.
(g)(1) 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.
(2) 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.
(h)(1) 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.
(2) Form of Shareholder Services Agreement, with respect to Registrant's
ISG/Stewardship Funds.
(3) Shareholder Services Plan, with respect to Registrant's
ISG/Stewardship Funds.
(i) Opinion and consent of Registrant's counsel is incorporated by
reference to Pre-Effective Amendment No. 3 to the Registration
Statement on Form N-1A, filed June 22, 1990.
(j) Consent of Independent Auditors.
(m)(1) 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.
(2) Distribution Plan pursuant to Rule 12b-1, with respect to
Registrant's ISG/Stewardship Funds.
(n) Financial Data Schedules are incorporated by reference to
Registrant's Annual Report on Form N-SAR filed on or about February
26, 1999.
(o)(1) 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.
(2) Rule 18f-3 Plan for Registrant's Non-Money Market Portfolios.
(3) Rule 18f-3 Plan for Registrant's ISG Money Market Portfolios.
Other Exhibit:
(1) 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.
(2) 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.
- -----------------------
Item 24. Persons Controlled By or Under Common Control with Registrant
Not applicable.
Item 25. 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 to be filed as
Exhibit (e)(1) hereto.
Item 26(a). Business and Other Connections of Investment Adviser
(i) Registrant is fulfilling the requirement of this Item 26(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 ISG and Stewardship Funds, 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 26(a) to
provide a list of the officers and directors of Lazard Asset Management, the
investment adviser of the Registrant's ISG International Equity Fund,
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 26(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 Fund and
Stewardship Small-Cap Equity Fund, 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 26(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 Fund, 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 27. 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 27(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 28. 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 29. Management Services
Not Applicable.
Item 30. Undertakings
None
<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 28th day
of April, 1999.
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 April 28, 1999
Robert L. Tuch
Attorney-in-fact
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
Post-Effective Amendment No. 48 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
-----------
EXHIBITS
-----------
INDEX TO EXHIBITS
Page
(b) By-Laws
(d)(2) Investment Advisory Agreement
(d)(4) Sub-Investment Advisory Agreement
(d)(5) Administration Agreement
(e)(1) Distribution Agreement
(e)(3) Distribution Plan Agreement
(h)(2) Shareholder Services Agreement
(h)(3) Shareholder Services Plan
(j) Consent of Independent Auditors
(m)(2) Distribution Plan
(o)(2) Rule 18f-3 Plan (Non-Money Market Portfolios)
(o)(3) Rule 18f-3 Plan (Money Market Portfolios)
EXHIBIT 23(b)
BY-LAWS
OF
THE INFINITY MUTUAL FUNDS, INC.
(A Maryland Corporation)
-----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing shares
of stock shall set forth thereon the statements prescribed by Section 2-211 of
the Maryland General Corporation Law ("General Corporation Law") and by any
other applicable provision of law and shall be signed by the Chairman of the
Board or the President or a Vice President and countersigned by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be
sealed with the corporate seal. The signatures of any such officers may be
either manual or facsimile signatures and the corporate seal may be either
facsimile or any other form of seal. In case any such officer who has signed
manually or by facsimile any such certificate ceases to be such officer before
the certificate is issued, it nevertheless may be issued by the corporation with
the same effect as if the officer had not ceased to be such officer as of the
date of its issue.
No certificate representing shares of stock shall be issued for any
share of stock until such share is fully paid, except as otherwise authorized in
Section 2-206 of the General Corporation Law.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require, in its discretion, the owner
of any such certificate or the owner's legal representative to give bond, with
sufficient surety, to the corporation to indemnify it against any loss or claim
that may arise by reason of the issuance of a new certificate.
2. SHARE TRANSFERS. Upon compliance with provisions restricting the
transferability of shares of stock, if any, transfers of shares of stock of the
corporation shall be made only on the stock transfer books of the corporation by
the record holder thereof or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation or with a
transfer agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon.
3. RECORD DATE FOR STOCKHOLDERS. The Board of Directors may fix, in
advance, a date as the record date for the purpose of determining stockholders
entitled to notice of, or to vote at, any meeting of stockholders, or
stockholders entitled to receive payment of any dividend or the allotment of any
rights or in order to make a determination of stockholders for any other proper
purpose. Such date, in any case, shall be not more than 90 days, and in case of
a meeting of stockholders not less than 10 days, prior to the date on which the
meeting or particular action requiring such determination of stockholders is to
be held or taken. In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not to exceed 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of, or to vote at, a meeting of
stockholders, such books shall be closed for at least 10 days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) The record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
the notice of meeting is mailed or the day 30 days before the meeting, whichever
is the closer date to the meeting; and (2) The record date for the determination
of stockholders entitled to receive payment of a dividend or an allotment of any
rights shall be at the close of business on the day on which the resolution of
the Board of Directors declaring the dividend or allotment of rights is adopted,
provided that the payment or allotment date shall not be more than 60 days after
the date on which the resolution is adopted.
4. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the corporation is
authorized to issue only one class of shares of stock and said reference also is
intended to include any outstanding share or shares of stock and any holder or
holders of record of outstanding shares of stock of any class or series upon
which or upon whom the Charter confers such rights where there are two or more
classes or series of shares or upon which or upon whom the General Corporation
Law confers such rights notwithstanding that the Charter may provide for more
than one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder.
5. STOCKHOLDER MEETINGS.
ANNUAL MEETINGS. If a meeting of the stockholders of the
corporation is required by the Investment Company Act of 1940, as amended, to
elect the directors, then there shall be submitted to the stockholders at such
meeting the question of the election of directors, and a meeting called for that
purpose shall be designated the annual meeting of stockholders for that year. In
other years in which no action by stockholders is required for the aforesaid
election of directors, no annual meeting need be held.
SPECIAL MEETINGS. Special stockholder meetings for any purpose
may be called by the Board of Directors or the President and shall be called by
the Secretary for the purpose of removing a Director whenever the holders of
shares entitled to at least ten percent of all the votes entitled to be cast at
such meeting shall make a duly authorized request that such meeting be called.
The Secretary shall call a special meeting of stockholders for all other
purposes whenever the holders of shares entitled to at least a majority of all
the votes entitled to be cast at such meeting shall make a duly authorized
request that such meeting be called. Such request shall state the purpose of
such meeting and the matters proposed to be acted on thereat, and no other
business shall be transacted at any such special meeting. The Secretary shall
inform such stockholders of the reasonably estimated costs of preparing and
mailing the notice of the meeting, and upon payment to the corporation of such
costs, the Secretary shall give notice in the manner provided for below.
PLACE AND TIME. Stockholder meetings shall be held at such place,
either within the State of Maryland or at such other place within the United
States, and at such date or dates as the directors from time to time may fix.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. Written or
printed notice of all meetings shall be given by the Secretary and shall state
the time and place of the meeting. The notice of a special meeting shall state
in all instances the purpose or purposes for which the meeting is called.
Written or printed notice of any meeting shall be given to each stockholder
either by mail or by presenting it to the stockholder personally or by leaving
it at his or her residence or usual place of business not less than 10 days and
not more than 90 days before the date of the meeting, unless any provisions of
the General Corporation Law shall prescribe a different elapsed period of time,
to each stockholder at his or her address appearing on the books of the
corporation or the address supplied by the stockholder for the purpose of
notice. If mailed, notice shall be deemed to be given when deposited in the
United States mail addressed to the stockholder at his or her post office
address as it appears on the records of the corporation with postage thereon
prepaid. Whenever any notice of the time, place or purpose of any meeting of
stockholders is required to be given under the provisions of these by-laws or of
the General Corporation Law, a waiver thereof in writing, signed by the
stockholder and filed with the records of the meeting, whether before or after
the holding thereof, or actual attendance or representation at the meeting shall
be deemed equivalent to the giving of such notice to such stockholder. The
foregoing requirements of notice also shall apply, whenever the corporation
shall have any class of stock which is not entitled to vote, to holders of stock
who are not entitled to vote at the meeting, but who are entitled to notice
thereof and to dissent from any action taken thereat.
STATEMENT OF AFFAIRS. The President of the corporation or, if the
Board of Directors shall determine otherwise, some other executive officer
thereof, shall prepare or cause to be prepared annually a full and correct
statement of the affairs of the corporation, including a balance sheet and a
financial statement of operations for the preceding fiscal year, which shall be
filed at the principal office of the corporation in the State of Maryland.
QUORUM. At any meeting of stockholders, the presence in person or
by proxy of stockholders entitled to cast one-third of the votes thereat shall
constitute a quorum. In the absence of a quorum, the stockholders present in
person or by proxy, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time, but not for a period
exceeding 120 days after the original record date until a quorum shall attend.
ADJOURNED MEETINGS. A meeting of stockholders convened on the
date for which it was called (including one adjourned to achieve a quorum as
provided in the paragraph above) may be adjourned from time to time without
further notice to a date not more than 120 days after the original record date,
and any business may be transacted at any adjourned meeting which could have
been transacted at the meeting as originally called.
CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the President, a Vice President or, if none of the foregoing
is in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the corporation or, in his or her absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present the chairman of the meeting
shall appoint a secretary of the meeting.
PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether for the purposes of determining the
stockholder's presence at a meeting, or whether by waiving notice of any
meeting, voting or participating at a meeting, expressing consent or dissent
without a meeting or otherwise. Every proxy shall be executed in writing by the
stockholder or by his or her duly authorized attorney-in-fact or be in such
other form as may be permitted by the Maryland General Corporation Law,
including documents conveyed by electronic transmission and filed with the
Secretary of the corporation. A copy, facsimile transmission or other
reproduction of the writing or transmission may be substituted for the original
writing or transmission for any purpose for which the original transmission
could be used. No unrevoked proxy shall be valid after 11 months from the date
of its execution, unless a longer time is expressly provided therein. The
placing of a stockholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such stockholder shall constitute execution of such proxy by or on behalf of
such stockholder.
INSPECTORS OF ELECTION. The directors, in advance of any meeting,
may, but need not, appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath to execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them.
VOTING. Each share of stock shall entitle the holder thereof to
one vote, except in the election of directors, at which each said vote may be
cast for as many persons as there are directors to be elected. Except for
election of directors, a majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon any matter which may come before a meeting,
unless more than a majority of votes cast is required by the corporation's
Articles of Incorporation. A plurality of all the votes cast at a meeting at
which a quorum is present shall be sufficient to elect a director.
6. INFORMAL ACTION. Any action required or permitted to be taken
at a meeting of stockholders may be taken without a meeting if a consent in
writing, setting forth such action, is signed by all the stockholders entitled
to vote on the subject matter thereof and any other stockholders entitled to
notice of a meeting of stockholders (but not to vote thereat) have waived in
writing any rights which they may have to dissent from such action and such
consent and waiver are filed with the records of the corporation.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed under the direction of a Board of Directors. The
use of the phrase "entire board" herein refers to the total number of directors
which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. Each director shall be a natural person
of full age. A director need not be a stockholder, a citizen of the United
States or a resident of the State of Maryland. The initial Board of Directors
shall consist of one person. Thereafter, the number of directors constituting
the entire board shall never be less than three or the number of stockholders,
whichever is less. At any regular meeting or at any special meeting called for
that purpose, a majority of the entire Board of Directors may increase or
decrease the number of directors, provided that the number thereof shall never
be less than three or the number of stockholders, whichever is less, nor more
than twelve and further provided that the tenure of office of a director shall
not be affected by any decrease in the number of directors.
3. ELECTION AND TERM. The first Board of Directors shall consist of
the director named in the Articles of Incorporation and shall hold office until
the first meeting of stockholders or until his or her successor has been elected
and qualified. Thereafter, directors who are elected at a meeting of
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until their successors have been
elected and qualified, as amended. Newly created directorships and any vacancies
in the Board of Directors, other than vacancies resulting from the removal of
directors by the stockholders, may be filled by the Board of Directors, subject
to the provisions of the Investment Company Act of 1940, as amended. Newly
created directorships filled by the Board of Directors shall be by action of a
majority of the entire Board of Directors then in office. All vacancies to be
filled by the Board of Directors may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum
thereof.
4. MEETINGS.
TIME. Meetings shall be held at such time as the Board of
Directors shall fix, except that the first meeting of a newly elected Board of
Directors shall be held as soon after its election as the directors conveniently
may assemble.
PLACE. Meetings shall be held at such place within or without the
State of Maryland as shall be fixed by the Board.
CALL. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at the
direction of the President or of a majority of the directors in office.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. Whenever any notice of
the time, place or purpose of any meeting of directors or any committee thereof
is required to be given under the provisions of the General Corporation Law or
of these by-laws, a waiver thereof in writing, signed by the director or
committee member entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof, or actual attendance at
the meeting shall be deemed equivalent to the giving of such notice to such
director or such committee member.
QUORUM AND ACTION. A majority of the entire Board of Directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least one-third of the entire
Board and, in no event, less than two directors. A majority of the directors
present, whether or not a quorum is present, may adjourn a meeting to another
time and place. Except as otherwise specifically provided by the Articles of
Incorporation, the General Corporation Law or these by-laws, the action of a
majority of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors.
CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, or the President or any other director chosen by the Board,
shall preside at all meetings.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be
removed for cause or without cause by the stockholders, who may elect a
successor or successors to fill any resulting vacancy or vacancies for the
unexpired term of the removed director or directors.
6. COMMITTEES. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of one or more
directors and may delegate to such committee or committees, in the intervals
between meetings of the Board of Directors, any or all of the powers of the
Board of Directors in the management of the business and affairs of the
corporation, except the power to amend the by-laws, to approve any merger or
share exchange which does not require stockholder approval, to authorize
dividends, to issue stock (except to the extent permitted by law) or to
recommend to stockholders any action requiring the stockholders' approval. In
the absence of any member of any such committee, the members thereof present at
any meeting, whether or not they constitute a quorum, may appoint a member of
the Board of Directors to act in the place of such absent member.
7. INFORMAL ACTION. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if a written consent to such action is signed by all
members of the Board of Directors or any such committee, as the case may be, and
such written consent is filed with the minutes of the proceedings of the Board
or any such committee.
Members of the Board of Directors or any committee designated
thereby may participate in a meeting of such Board or committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE III
OFFICERS
The corporation may have a Chairman of the Board and shall have a
President, a Secretary and a Treasurer, who shall be elected by the Board of
Directors, and may have such other officers, assistant officers and agents as
the Board of Directors shall authorize from time to time. Any two or more
offices, except those of President and Vice President, may be held by the same
person, but no person shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law to be executed,
acknowledged or verified by two or more officers.
Any officer or agent may be removed by the Board of Directors
whenever, in its judgment, the best interests of the corporation will be served
thereby.
ARTICLE IV
PRINCIPAL OFFICE - RESIDENT AGENT - STOCK LEDGER
The address of the principal office of the corporation in the
State of Maryland prescribed by the General Corporation Law is 300 East Lombard
Street, c/o The Corporation Trust Incorporated, Baltimore, Maryland 21202. The
name and address of the resident agent in the State of Maryland prescribed by
the General Corporation Law are: The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202.
The corporation shall maintain, at its principal office in the
State of Maryland prescribed by the General Corporation Law or at the business
office or an agency of the corporation, an original or duplicate stock ledger
containing the names and addresses of all stockholders and the number of shares
of each class held by each stockholder. Such stock ledger may be in written form
or any other form capable of being converted into written form within a
reasonable time for visual inspection.
The corporation shall keep at said principal office in the State
of Maryland the original or a certified copy of the by-laws, including all
amendments thereto, and shall duly file thereat the annual statement of affairs
of the corporation prescribed by Section 2-313 of the General Corporation Law.
ARTICLE V
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation or any series thereof shall be
fixed, and shall be subject to change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BY-LAWS
The power to make, alter, amend and repeal the by-laws is vested
exclusively in the Board of Directors of the corporation.
ARTICLE VIII
INDEMNIFICATION
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation
shall indemnify its directors to the fullest extent that indemnification of
directors is permitted by the law. The corporation shall indemnify its officers
to the same extent as its directors and to such further extent as is consistent
with law. The corporation shall indemnify its directors and officers who while
serving as directors or officers also serve at the request of the corporation as
a director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the same extent as its directors and, in the case of officers,
to such further extent as is consistent with law. The indemnification and other
rights provided by this Article shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").
2. ADVANCES. Any current or former director or officer of the
corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
General Corporation Law. The person seeking indemnification shall provide to the
corporation a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the corporation has been met and a
written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
corporation for his or her undertaking; (b) the corporation is insured against
losses arising by reason of the advance; or (c) a majority of a quorum of
directors of the corporation who are neither "interested persons" as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties
to the proceeding ("disinterested non-party directors"), or independent legal
counsel, in a written opinion, shall have determined, based on a review of facts
readily available to the corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
3. PROCEDURE. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the General Corporation Law,
whether the standards required by this Article have been met. Indemnification
shall be made only following: (a) a final decision on the merits by a court or
other body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of disabling conduct or (b) in the absence
of such a decision, a reasonable determination, based upon a review of the
facts, that the person to be indemnified was not liable by reason of disabling
conduct by (i) the vote of a majority of a quorum of disinterested non-party
directors or (ii) an independent legal counsel in a written opinion.
4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents
who are not officers or directors of the corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940, as amended.
5. OTHER RIGHTS. The Board of Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested non-party directors or otherwise.
6. AMENDMENTS. References in this Article are to the General
Corporation Law and to the Investment Company Act of 1940 as from time to time
amended. No amendment of the by-laws shall affect any right of any person under
this Article based on any event, omission or proceeding prior to the amendment.
Dated: June 19, 1990
Amended: February 25, 1999
EXHBIT 23(d)(2)
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement made as of February 15, 1994, and
revised as of February 25, 1999, 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.
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/or "Stewardship," as the case may be, 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" and/or "Stewardship," as the
case may be, in the name of such investment company.
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
- -------------- --------------- ---------- -----------
ISG Aggressive
<S> <C> <C> <C>
Growth Portfolio .20 of 1% December 31, 1999 December 31
ISG Capital
Growth Fund .65 of 1% December 31, 1999 December 31
ISG Income Fund .50 of 1% December 31, 1999 December 31
ISG Current Income
Portfolio .20 of 1% December 31, 1999 December 31
ISG Equity Income Fund .65 of 1% December 31, 1999 December 31
ISG Equity Value Fund .75 of 1% December 31, 1999 December 31
ISG Government
Income Fund .60 of 1% December 31, 1999 December 31
ISG Government
Money Market Fund .25 of 1% December 31, 1999 December 31
ISG Growth
Portfolio .20 of 1% December 31, 1999 December 31
ISG Growth &
Income Portfolio .20 of 1% December 31, 1999 December 31
ISG International
Equity Fund* 1.00% December 31, 1999 December 31
ISG Large-Cap
Equity Fund .75 of 1% December 31, 1999 December 31
ISG Limited
Term Income Fund .50 of 1% December 31, 1999 December 31
ISG Limited Term
Tennessee Tax-
Exempt Fund .50 of 1% December 31, 1999 December 31
ISG Limited Term
U.S. Government Fund .50 of 1% December 31, 1999 December 31
ISG Mid-Cap Fund** 1.00% December 31, 1999 December 31
ISG Moderate
Growth & Income
Portfolio .20 of 1% December 31, 1999 December 31
ISG Municipal
Income Fund .60 of 1% December 31, 1999 December 31
ISG Prime Money
Market Fund .25 of 1% December 31, 1999 December 31
ISG Small-Cap
Opportunity Fund*** .95 of 1% December 31, 1999 December 31
ISG Tax-Exempt
Money Market Fund .35 of 1% December 31, 1999 December 31
ISG Tennessee
Tax-Exempt Fund .50 of 1% December 31, 1999 December 31
ISG Treasury Money
Market Fund .25 of 1% December 31, 1999 December 31
Stewardship Large-Cap
Equity Fund ___% December 31, 2000 December 31
Stewardship Small-Cap
Equity Fund*** ___% December 31, 2000 December 31
Stewardship Mid-Cap
Equity Fund** ___% December 31, 2000 December 31
- -------------
* The Adviser has retained Lazard Asset Management as the Series'
sub-investment adviser.
** 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 23(d)(4)
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 1667 Lelia Drive, Suite 101, Jackson, Mississippi 39216 (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, other than cash and cash equivalents. 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.
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 Fund
Stewardship ____% December 31, 2000 December 31
Small-Cap
Equity Fund
Revised: February 25, 1999
EXHIBIT 23(d)(5)
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 29th day of October, 1998, by and
between THE INFINITY MUTUAL FUNDS, INC. (the "Company"), a Maryland corporation,
and BISYS FUND SERVICES OHIO, INC. (the "Administrator"), an Ohio corporation.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of common stock ("Shares"); and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
each currently existing series of the Company advised by First American National
Bank (the "Bank"), and such additional series advised by the Bank as the Company
and the Administrator may agree on ("Portfolios") and as listed on Schedule A
attached hereto and made a part of this Agreement, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Company hereby retains
the Administrator to act as the administrator of the Portfolios and to furnish
the Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. ADMINISTRATIVE SERVICES. The Administrator shall perform or
supervise the performance by others of administrative services in connection
with the operations of the Portfolios, and, on behalf of the Company, will
investigate, assist in the selection of and conduct relations with custodians,
depositories, accountants, legal counsel, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and persons in any other capacity deemed
to be necessary or desirable for the Portfolios' operations. The Administrator
shall provide the Directors of the Company with such reports regarding
investment performance as they may reasonably request but shall have no
responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities. The Administrator agrees to perform the
services described herein in accordance with all applicable laws, rules and
regulations and in accordance with the service standards set forth in Schedule B
attached hereto.
The Administrator shall provide the Company with regulatory reporting,
all necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and Directors' meetings) for handling
the affairs of the Portfolios and such other services as the Administrator
shall, from time to time, determine to be necessary to perform its obligations
under this Agreement. In addition, at the request of the Board of Directors, the
Administrator shall make reports to the Company's Directors concerning the
performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate contractual Company expenses and control
all disbursements for the Company, and as appropriate
compute the Company's yields, total return, expense ratios,
portfolio, turnover rate and, if required, portfolio average
dollar-weighted maturity;
(b) assist Company counsel with the preparation of
prospectuses, statements of additional information,
registration statements and proxy materials;
(c) prepare such reports, applications and documents
(including reports regarding the sale and redemption of
Shares as may be required in order to comply with Federal
and state securities law) as may be necessary or desirable
to register the Company's Shares with state securities
authorities, monitor the sale of Company Shares for
compliance with state securities laws, and file with the
appropriate state securities authorities the registration
statements and reports for the Company and the Company's
Shares and all amendments thereto, as may be necessary or
convenient to register and keep effective the Company and
the Company's Shares with state securities authorities to
enable the Company to make a continuous offering of its
Shares;
(d) develop and prepare, with the assistance of the
Company's investment adviser, communications to
Shareholders, including the annual report to Shareholders,
coordinate the mailing of prospectuses, notices, proxy
statements, proxies and other reports to Company
Shareholders, and supervise and facilitate the proxy
solicitation process for all shareholder meetings, including
the tabulation of shareholder votes;
(e) administer contracts on behalf of the Company with,
among others, the Company's investment adviser, distributor,
custodian, transfer agent and fund accountant;
(f) supervise the Company's transfer agent with respect
to the payment of dividends and other distributions to
Shareholders;
(g) calculate performance data of the Portfolios for
dissemination to information services covering the
investment company industry;
(h) coordinate and supervise the preparation and filing
of the Company's tax returns;
(i) examine and review the operations and performance
of the various organizations providing services to the
Company or any Portfolio of the Company, including, without
limitation, the Company's investment adviser, distributor,
custodian, fund accountant, transfer agent, outside legal
counsel and independent public accountants, and at the
request of the Board of Directors, report to the Board on
the performance of organizations;
(j) assist with the layout and printing of publicly
disseminated prospectuses and assist with and coordinate
layout and printing of the Company's semi-annual and annual
reports to Shareholders;
(k) assist with the design, development, and operation
of the Portfolios, including new classes, investment
objectives, policies and structure;
(l) provide individuals reasonably acceptable to the
Company's Board of Directors to serve as officers of the
Company, who will be responsible for the management of
certain of the Company's affairs as determined by the
Company's Board of Directors;
(m) advise the Company and its Board of Directors on
matters concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and
directors and officers/errors and omissions insurance
policies for the Company in accordance with the requirements
of Rules 17g-1 and 17d-1(7) under the 1940 Act, as amended
from time to time, as such bonds and policies are approved
by the Company's Board of Directors;
(o) monitor and advise the Company and its Portfolios
on their registered investment company status under the
Internal Revenue Code of 1986, as amended;
(p) perform all administrative services and functions
of the Company and each Portfolio to the extent
administrative services and functions are not provided to
the Company or such Portfolio pursuant to the Company's or
such Portfolio's investment advisory agreement, distribution
agreement, custodian agreement, transfer agent agreement and
fund accounting agreement;
(q) furnish advice and recommendations with respect to
other aspects of the business and affairs of the Portfolios
as the Company and the Administrator shall determine
desirable; and
(r) prepare and file with the SEC the semi-annual
report for the Company on Form N-SAR and all required
notices pursuant to Rule 24f-2, as amended from time to
time.
The Administrator shall consult with officers of the Company and the
Company's investment adviser and, in connection therewith, shall perform the
above-referenced services and such other services for the Company that are
mutually agreed upon by the parties from time to time. Such services may include
performing internal audit examinations; mailing the annual reports of the
Portfolios; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the
Company will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES.
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Directors of the
Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Directors of the
Company to perform services on behalf of the Company.
(B) THE COMPANY. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
Federal and state securities laws, fees and out-of-pocket expenses of Directors
who are not affiliated persons of the Administrator or the Investment Adviser to
the Company or any affiliated corporation of the Administrator or the Investment
Adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Company.
ARTICLE 4. COMPENSATION OF THE ADMINISTRATOR.
(A) ADMINISTRATION FEE. For the services to be rendered, the
facilities furnished and the expenses assumed by the Administrator pursuant to
this Agreement, the Company shall pay to the Administrator compensation at an
annual rate specified in Schedule A attached hereto. Such compensation shall
also be in consideration for the fund accounting services provided by the
Administrator pursuant to the Fund Accounting Agreement, dated October 29, 1998,
between the Administrator and the Company. Such compensation shall be calculated
and accrued daily, and paid to the Administrator monthly. The Company shall also
reimburse the Administrator for its reasonable itemized out-of-pocket expenses,
including the travel and lodging expenses incurred by officers and employees of
the Administrator in connection with attendance at Board meetings.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
(B) SURVIVAL OF COMPENSATION RIGHTS. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement, except to the extent that such right to
compensation is in contravention of applicable law.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful malfeasance or
misfeasance, bad faith or negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties hereunder, except as
may otherwise be provided under provisions of applicable law which cannot be
waived or modified hereby. (As used in this Article 5, the term "Administrator"
shall include, without limitation, directors, officers, employees and other
agents of the Administrator as well as the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Company assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
Administrator's actions taken or nonactions with respect to the performance of
services hereunder. Notwithstanding the foregoing, the Administrator agrees to
indemnify and hold harmless the Company, its employees, agents, directors,
officers and nominees from and against any and all actions, suits and claims,
whether groundless or otherwise, and from and against any and all judgments,
liabilities, losses, damages, costs, charges, reasonable counsel fees and other
expenses of every nature and character arising out of or in any way relating to
the Administrator's bad faith, willful malfeasance or misfeasance, negligence,
or reckless disregard by it of its obligations and duties, with respect to the
performance of services under this Agreement. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provisions contained herein shall apply, however, it is
understood that if in any case the indemnifying party may be asked to indemnify
or hold the indemnified party harmless, the indemnifying party shall be fully
and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the indemnified party will use all
reasonable care to identify and notify the indemnifying party promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against the indemnifying party,
but failure to do so in good faith shall not affect the rights hereunder.
The indemnifying party shall be entitled to participate at its own
expense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the indemnifying
party elects to assume the defense of any such claim, the defense shall be
conducted by counsel chosen by the indemnifying party and satisfactory to the
indemnified party, whose approval shall not be unreasonably withheld. In the
event that the indemnifying party elects to assume the defense of any suit and
retain counsel, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it. If the indemnifying party does not elect to
assume the defense of a suit, it will reimburse the indemnified party for the
reasonable fees and expenses of any counsel retained by the indemnified party.
The Administrator may apply to the Company at any time for
instructions and may consult counsel for the Company and with accountants and
other experts retained by the Company with respect to any matter arising in
connection with the Administrator's duties, and the Administrator shall not be
liable or accountable for any action taken or omitted by it in good faith in
accordance with such instruction or with the opinion of such counsel,
accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Company until receipt of written notice thereof from the Company.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement
shall be as specified in Schedule A hereto.
ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by
either party without the written consent of the other party; provided, however,
that the Administrator may, at its expense, with the prior written consent of
the Company, which consent shall not be unreasonably withheld, subcontract with
any entity or person concerning the provision of the services contemplated
hereunder. The Administrator shall not, however, be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that the Administrator shall be responsible, to the extent
provided in Article 5 hereof, for all acts of such subcontractor as if such acts
were its own. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns.
ARTICLE 9. AMENDMENTS. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Directors of the Company, and (ii) by the vote of a majority of
the Directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Directors meeting called
for the purpose of voting on such approval.
With the mutual consent of duly authorized officers of the parties,
the parties hereto may amend such procedures set forth herein as may be
appropriate or practical under the circumstances, and the Administrator may
conclusively assume that any special procedure which has been approved by the
Company does not conflict with or violate any requirements of its Articles of
Incorporation or then current prospectuses, or any rule, regulation or
requirement of any regulatory body.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain
customary records in connection with its duties as specified in this Agreement
as required by applicable law. Any records required to be maintained and
preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act, as amended from
time to time, which are prepared or maintained by the Administrator on behalf of
the Company shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Company and will be made
available to or surrendered promptly to the Company on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that, with reasonable prior notice to the Company, the Administrator may exhibit
such records to any person in any case where it is advised by its counsel that
it may be held liable for failure to do so, unless (in cases involving potential
exposure only to civil liability) the Company has agreed to indemnify the
Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested
person" and "affiliated person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section. Copies of notices that are given to
the Company shall also be sent to First American National Bank, 721 First
American Center, 7th Floor, Nashville, Tennessee 37237-0721, Attn: General
Counsel.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act, as amended from time to time. To the extent that the applicable
laws of the State of Ohio, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. YEAR 2000. The Administrator agrees to perform
comprehensive tests on the systems it utilizes to provide the services hereunder
to simulate the actual turning of the century. These tests shall be intended to
identify any operational issues caused by the century change at midnight
December 31, 1999. The Administrator agrees to use all commercially reasonable
efforts to implement by June 30, 1999, all necessary updates and changes for
such systems, if any, to accommodate the turn of the century. The Administrator
agrees to provide to the Company quarterly updates on the status of its Year
2000 readiness project and to make its personnel reasonably available to address
any questions or concerns.
In the event that, at any time prior to November 1, 1999, the Company
reasonably determines, as a result of the periodic updates provided by the
Administrator, that any of the systems the Administrator utilizes to perform the
services hereunder will not be Year 2000 ready by December 31, 1999, and that
such lack of readiness will have a materially adverse effect on the Company, the
Company shall have the right to terminate this Agreement upon providing written
notice to the Administrator describing, in reasonable detail, the basis for its
termination; provided, however, that the Administrator shall have sixty (60)
days following receipt of any such notice to cure any deficiencies to the
Company's reasonable satisfaction. Promptly upon becoming aware of such, the
Administrator agrees to use all commercially reasonable efforts to cure any
defect or deficiency that relates to the turn of the century in any system the
Administrator utilizes to provide the services hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE INFINITY MUTUAL FUNDS, INC.
By:____________________________
Title:_________________________
BISYS FUND SERVICES OHIO, INC.
By:____________________________
Title:_________________________
AGREED TO AND ACCEPTED:
FIRST AMERICAN NATIONAL BANK
By: ________________________________
Title: ______________________________
<PAGE>
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF OCTOBER 29, 1998
BETWEEN
THE INFINITY MUTUAL FUNDS, INC.
AND
BISYS FUND SERVICES OHIO, INC.
Portfolios: This Agreement shall apply to all Portfolios of The Infinity
Mutual Funds, Inc. advised by the Bank, either now or
hereafter created (collectively, the "Portfolios"). The
current Portfolios of the Company advised by the Bank are
set forth below:
MONEY MARKET PORTFOLIOS:
ISG Prime Money Market Fund
ISG Treasury Money Market Fund
ISG Government Money Market Fund
ISG Tax-Exempt Money Market Fund
NON-MONEY MARKET PORTFOLIOS:
ISG Limited Term U.S. Government Fund
ISG Government Income Fund
ISG Limited Term Income Fund
ISG Income Fund
ISG Limited Term Tennessee Tax-Exempt Fund
ISG Tennessee Tax-Exempt Fund
ISG Municipal Income Fund
ISG Capital Growth Fund
ISG Equity Income Fund
ISG Mid-Cap Fund
ISG Large-Cap Equity Fund
ISG Small-Cap Opportunity Fund
ISG International Equity Fund
ISG Equity Value Fund
ISG Aggressive Growth Portfolio
ISG Growth Portfolio
ISG Growth & Income Portfolio
ISG Moderate Growth & Income Portfolio
ISG Current Income Portfolio
Stewardship Large-Cap Equity Fund
Stewardship Small-Cap Equity Fund
Stewardship Mid-Cap Equity Fund
Fees: Pursuant to Article 4, in consideration of the services
rendered and expenses assumed pursuant to this Agreement and
the Fund Accounting Agreement, dated October 29, 1998,
between the Administrator and the Company, the Company will
pay the Administrator on the first business day of each
month, or at such time(s) as the Administrator shall request
and the parties hereto shall agree, a fee computed daily at
the annual rate of:
MONEY MARKET PORTFOLIOS:
Ten one-hundredths of one percent (.10%) of the Portfolio's
average daily net assets.
NON-MONEY MARKET PORTFOLIOS:
Fifteen one-hundredths of one percent (.15%) of the
Portfolio's average daily net assets.
The fee for the period from the day of the month this
Agreement is entered into until the end of that month shall
be prorated according to the proportion which such period
bears to the full monthly period. Upon any termination of
this Agreement before the end of any month, the fee for such
part of a month shall be prorated 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 purposes of determining the fees payable to the
Administrator, the value of the net assets of a particular
Portfolio shall be computed in the manner described in the
Company's Articles of Incorporation or in the Prospectus or
Statement of Additional Information respecting that
Portfolio as from time to time is in effect for the
computation of the value of such net assets in connection
with the determination of the liquidating value of the
shares of such Portfolio.
The parties hereby confirm that the fees payable hereunder
shall be applied to each Portfolio as a whole, and not to
separate classes of shares within the Portfolios.
The fee payable by the Company hereunder shall be allocated
to each Portfolio based upon its pro rata share of the total
fee payable hereunder. Such fee as is attributable to each
Portfolio shall be a separate (and not joint or joint and
several) obligation of each such Portfolio. The
Administrator may agree, from time to time, to waive any
fees payable under this Agreement. Such waiver shall be at
the Administrator's sole discretion.
Term: Pursuant to Article 7, the term of this Agreement shall
commence on January 1, 1999, and shall remain in effect
until December 31, 2003 (the "Initial Term"). Thereafter,
unless otherwise terminated as provided herein, this
Agreement may be renewed for successive one-year periods
("Rollover Periods") by the execution of a letter of renewal
on behalf of each of the parties hereto at least 60 days
prior to the end of the Initial Term or any Rollover Period,
as the case may be. This Agreement may be terminated without
penalty (i) by failure to renew in the manner set forth
above, (ii) by mutual agreement of the parties, or (iii) for
"cause," as defined below, upon the provision of 60 days
advance written notice by the party alleging cause.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been cured
within thirty (30) days following written notice of such
breach from the non-breaching party; (b) a final, judicial,
regulatory or administrative ruling or order in which the
party to be terminated has been found guilty of criminal or
unethical behavior in the conduct of its business; (c)
financial difficulties on the part of the party to be
terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said
Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or
alteration of the rights of creditors; (d) a service
standard deficiency, as defined in Schedule B attached
hereto; or (e) a failure to cure any Year 2000 deficiencies
pursuant to ARTICLE 15 of this Agreement.
Notwithstanding the foregoing, after such termination for so
long as the Administrator, with the written consent of the
Company, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including
without limitation the provisions dealing with
indemnification, shall continue in full force and effect.
Compensation due the Administrator and unpaid by the Company
upon such termination shall be immediately due and payable
upon and notwithstanding such termination. The Administrator
shall be entitled to collect from the Company, in addition
to the compensation described in this Schedule A, the amount
of all of the Administrator's cash disbursements for
services in connection with the Administrator's activities
in effecting such termination, including without limitation,
the delivery to the Company and/or its designees of the
Company's property, records, instruments and documents, or
any copies thereof. The Administrator shall use its best
efforts to promptly effectuate the transition of services to
any successor administrator in the event this Agreement is
terminated. Subsequent to such termination, for a reasonable
fee, the Administrator will provide the Company with
reasonable access to any Company documents or records
remaining in its possession.
If, during the Initial Term, for any reason other than
nonrenewal, mutual agreement of the parties or "cause," as
defined above, the Administrator (i) is replaced as fund
manager and administrator, or if a third party is added to
perform all or a part of the services provided by the
Administrator under this Agreement (excluding any
sub-administrator appointed by the Administrator as provided
in Article 7 hereof), (ii) is replaced as fund accountant,
or if a third party is added to perform all or a part of the
fund accounting services provided under the Fund Accounting
Agreement, dated as of October 29, 1998, between the
Administrator and the Company (excluding any sub-accountant
appointed by the Administrator pursuant to such Fund
Accounting Agreement), and/or (iii) is replaced as transfer
agent, or if a third party is added to perform all or a part
of the transfer agency services provided under the Transfer
Agency Agreement, dated as of October 29, 1998, between the
Administrator and the Company (excluding any sub-transfer
agent appointed by the Administrator pursuant to such
Transfer Agency Agreement), then the Company shall make a
one-time cash payment, as liquidated damages, to the
Administrator that shall be computed as set forth below. In
the event the Company is merged into another legal entity in
part or in whole pursuant to any form of business
reorganization or is liquidated in part or in whole prior to
the expiration of the then-current term of this Agreement or
the other service agreements referenced above, the parties
acknowledge and agree that the liquidated damages provision
set forth above shall be applicable in those instances in
which the Administrator is not retained to provide services.
The one-time cash payment of liquidated damages shall be due
and payable immediately following the replacement of the
Administrator as fund administrator, fund accountant and/or
transfer agent. In the case of a merger or liquidation of
the Company, that shall be immediately following the day
during which assets are transferred pursuant to the plan of
reorganization or liquidation. Such payment amount shall be
computed as follows: (i) in the event the Company is merged
into another entity and the Administrator is not retained to
provide administration services, in the event the
Administrator ceases to provide services following (A) the
merger of the Company into another entity or (B) a
Performance Evaluation, as defined below, such payment shall
be equal to the sum of the following: (A) all monies
advanced by the Administrator or any of its affiliates in
connection with the transition of service providers from
Federated Investors to BISYS Fund Services, (B) with respect
to monies set aside by the Administrator for Company
initiatives, those amounts that were utilized by the Company
that were over and above the monthly accrual amount, (C) all
out-of-pocket expenses incurred by the Administrator or any
of its affiliates in connection with Company marketing
initiatives and (D) $500,000; or (ii) in the event the
Administrator is replaced as a service provider for any
other reason or, if a third party is added to perform all or
a part of the services provided herein or in the other
service agreements referenced above, such payment shall be
equal to the balance due the Administrator under this
Agreement for the lesser of (A) the next 12 months of the
Initial Term or (B) the remainder of such Initial Term,
assuming for purposes of calculation of the payment that (i)
such balance shall be based upon the average amount of the
Company's assets for the twelve months prior to the date the
Administrator is replaced or a third party is added and (ii)
such payment shall be based upon the actual fee being
charged, which may or may not be lower than the contractual
fee amount.
*******
The remainder of the term of this Agreement, assuming for
purposes of calculation of the payment that the asset level
of the Company on the date the Administrator is replaced, or
a third party is added, will remain constant for the balance
of the contract term. In the event the Company is liquidated
in part or in whole prior to the expiration of the
then-current term of this Agreement, the parties acknowledge
and agree that for purposes of calculating the payment
amount representing liquidated damages, the appropriate
asset level of the Company shall be the greater of: (i) the
asset level calculated for the Company at the time the
Company's Board of Directors receives notification of an
intention on the part of Fund management to effect such a
liquidation; (ii) the asset level calculated for the Company
at the time the Company's Board of Directors formally
approves such a liquidation; or (iii) the asset level
calculated for the Company on the day prior to the first day
during which assets are transferred by the Company to the
surviving entity pursuant to the liquidation.
The parties acknowledge and agree that, in the event of a
change of control (as defined in the 1940 Act) of the
Administrator (a "Change of Control"), the Company shall
have an option to replace the Administrator as administrator
for the Portfolios, subject to the liquidated damages
provisions set forth above, upon the provision of 60 days
written notice to the Administrator prior to the expiration
of the Initial Term or any subsequent Rollover Period. Such
option shall expire on the 60th day following the effective
date of the Change of Control.
The parties further acknowledge and agree that, in the event
the Administrator ceases to be retained, as set forth above,
(i) a determination of actual damages incurred by the
Administrator would be extremely difficult, and (ii) the
liquidated damages provision contained herein is intended to
adequately compensate the Administrator for damages incurred
and is not intended to constitute any form of penalty.
Following October 28, 2002, the Company may conduct an
interim evaluation of the market conditions for the services
provided under this Agreement ("Market Evaluation").
Following any such Market Evaluation, at the Company's
request, the parties shall negotiate in good faith an
amendment to this Schedule A pertaining to fees. In the
event the parties agree to an amendment that reflects fees
that are lower than those set forth in this Schedule A, such
amendment shall also extend the Initial Term of this
Agreement. In that regard, the newly created Initial Term
shall expire four years following the date of such
amendment. In the event the parties (i) agree that no such
amendment is necessary or (ii) agree to an amendment that
reflects fees that are equal to or higher than those set
forth in this Schedule A, this Agreement shall continue in
full force and effect without an extension of the Initial
Term.
In the event of a change of control (as such term is defined
in the 1940 Act) of the Administrator (a "Change of
Control"), the Company may conduct an interim evaluation of
the Administrator's performance under this Agreement (the
"Performance Evaluation"). Such Performance Evaluation shall
be conducted within 30 days following the Change of Control.
If the Company's Performance Evaluation indicates that the
quality level of services being provided by the
Administrator has materially diminished in the reasonable
judgment of the Company's Directors (but does not constitute
a material breach), the Company shall, within 30 days
following the Performance Evaluation, provide written notice
to the Administrator specifying the areas in which the
quality of service has diminished. The Administrator shall
have a period of 180 days in which to restore, to the
reasonable satisfaction of the Company, the quality level of
services. If, at the end of such 180-day period, the
Administrator has not restored the quality level of
services, the Company may by written notice to the
Administrator terminate this Agreement, subject to the
liquidated damages provisions contained herein, effective on
the 90th day after such termination notice is provided to
the Administrator.
<PAGE>
SCHEDULE B
TO THE ADMINISTRATION AGREEMENT
DATED AS OF OCTOBER 29, 1998
BETWEEN
THE INFINITY MUTUAL FUNDS, INC.
AND
BISYS FUND SERVICES OHIO, INC.
SERVICE STANDARDS
Pursuant to Article 2 of this Agreement, the Administrator has agreed to perform
the services described in this Agreement in accordance with the service
standards set forth in this Schedule B. Such standards are contained on the page
attached hereto. The parties agree that such service standards may be revised,
from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance team,
which shall be identified in a separate writing that is executed by the parties.
In the event the Administrator fails to meet a service standard in any
particular month, the Administrator agrees to take appropriate corrective
measures within the following thirty-day period in order to be in compliance
with the appropriate standard at the end of such thirty-day period; provided,
however, that the foregoing requirement shall not apply in those instances in
which the Administrator's failure to meet a service standard was due to
circumstances beyond its control.
In the event the Administrator fails to meet a particular service standard
(except for any failure due to circumstances beyond its reasonable control) in
two consecutive months, the fee payable to the Administrator hereunder shall be
reduced by ten percent (10%) or such lower amount as the parties shall agree
upon for the second of those two months. If such failure occurs in three
consecutive months, the fee payable to the Administrator hereunder shall be
reduced by fifteen percent (15%) or such lower amount as the parties shall agree
upon for the third of those three months.
In the event the Administrator fails to meet a particular service standard
(except for any failure due to circumstances beyond its reasonable control) for
any three months within a six-month period, such failure shall be deemed to be a
service standard deficiency for purposes of the "cause" definition contained in
the Term provisions set forth in Schedule A.
<PAGE>
FUND ADMINISTRATION SERVICE STANDARDS
FOR
THE ISG/STEWARDSHIP PORTFOLIOS
OF THE INFINITY MUTUAL FUNDS, INC.
- -------------------------------------------------------------------------------
ITEM STANDARD
- -------------------------------------------------------------------------------
Portfolio Compliance Reviews Monthly
- -------------------------------------------------------------------------------
Financial Reports Printed and mailed sixty days
from Company's fiscal year end
& semi-annual period end
- -------------------------------------------------------------------------------
Prospectus Updates Prepared and printed within five
days of the effective date of
the registration statement
- -------------------------------------------------------------------------------
Accrual Reviews Monthly
- -------------------------------------------------------------------------------
EXHIBIT 23(e)(1)
DISTRIBUTION AGREEMENT
Distribution Agreement made as of February 11, 1997, and amended and
restated as of November 18, 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");
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; and
WHEREAS, this Agreement, as amended and restated, is intended to apply
to all Shares issued before or after such amendment and restatement;
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. In addition,
Shares of any class of the Fund offered for sale by the Distributor may be
subject to a contingent deferred sales charge ("CDSC") as set forth in the
Fund's then-current prospectus. The Distributor shall be entitled to receive any
sales charge or CDSC in respect of the Shares. If a sales charge or CDSC is in
effect, the Distributor shall have the right to pay a portion of the sales
charge or CDSC 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.
(f) In consideration of the Distributor's services described
herein and in the Fund's distribution plan (the "ISG Distribution Plan") in
respect of Class B Shares of each Series listed on Schedule 2 hereof, the Fund
agrees: (I) to pay to the Distributor monthly in arrears its "Allocable Portion"
(as hereinafter defined) of a fee (the "Class B Distribution Fee") which shall
accrue daily in an amount equal to the product of (A) the daily equivalent of
0.75% per annum multiplied by (B) the net asset value of the Class B Shares of
such Series outstanding on such day, and (II) to withhold from redemption
proceeds such Distributor's Allocable Portion of the CDSCs in respect of Class B
Shares of such Series and to pay the same over to such Distributor or at its
direction. Furthermore, the Allocation Schedule attached hereto as Schedule A
and each of the provisions set forth in clauses (I) through (V) of the second
sentence of Section 1(b) of the ISG Distribution Plan as in effect on the date
of this Agreement, as amended and restated, together with the related
definitions, are hereby incorporated herein by reference with the same force and
effect as if set forth herein in their entirety.
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 an Ohio limited partnership
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 Fund February 15, 1994
ISG Income Fund February 15, 1994
ISG Current Income Portfolio August 12, 1998
ISG Equity Income Fund February 15, 1994
ISG Equity Value Fund May 14, 1998
ISG Government Income Fund May 14, 1998
ISG Government Money Market May 14, 1998
Fund
ISG Growth Portfolio August 12, 1998
ISG Growth & Income Portfolio August 12, 1998
ISG International Equity May 14, 1998
Fund
ISG Large-Cap Equity Fund May 14, 1998
ISG Limited Term Income February 15, 1994
Fund
ISG Limited Term February 11, 1997
Tennessee Tax-Exempt Fund
ISG Limited Term U.S. February 11, 1997
Government Fund
ISG Mid-Cap Fund May 14, 1998
ISG Moderate Growth & Income August 12, 1998
Fund
ISG Municipal Income May 14, 1998
Fund
ISG Prime Money Market February 15, 1994
Fund
ISG Small-Cap Opportunity Fund May 14, 1998
ISG Tax-Exempt Money Market May 14, 1998
Fund
ISG Tennessee Tax-Exempt Fund February 15, 1994
ISG Treasury February 15, 1994
Money Market Fund
Correspondent Cash Reserves October 30, 1990
Money Market Portfolio
Correspondent Cash Reserves October 30, 1990
Tax Free Money Market Portfolio
Stewardship Large-Cap February 25, 1999
Equity Fund
Stewardship Small-Cap February 25, 1999
Equity Fund
Stewardship Mid-Cap February 25, 1999
Equity Fund
Revised: February 25, 1999
<PAGE>
SCHEDULE 2
NAME OF SERIES SUBJECT TO SUBSECTION 2(F) OF SECTION II
ISG Aggressive Growth Portfolio
ISG Capital Growth Fund
ISG Income Fund
ISG Current Income Portfolio
ISG Equity Income Fund
ISG Equity Value Fund
ISG Government Income Fund
ISG Growth Portfolio
ISG Growth & Income Portfolio
ISG International Equity Fund
ISG Large-Cap Equity Fund
ISG Limited Term Income Fund
ISG Limited Term Tennessee Tax-Exempt Fund
ISG Limited Term U.S. Government Fund
ISG Mid-Cap Fund
ISG Moderate Growth & Income Portfolio
ISG Municipal Income Fund
ISG Small-Cap Opportunity Fund
ISG Tennessee Tax-Exempt Fund
ISG Tax-Exempt Money Market Fund
ISG Government Money Market Fund
ISG Prime Money Market Fund
Stewardship Large-Cap Equity Fund
Stewardship Small-Cap Equity Fund
Stewardship Mid-Cap Equity Fund
Revised: February 25, 1999
<PAGE>
SCHEDULE A
to the
Distribution Agreement
DISTRIBUTION AGREEMENT ALLOCATION PROCEDURES
CDSCs and Class B Distribution Fees related to Class B Shares of each
Series of the Fund designated on Schedule 2 hereof (each, an "ISG Fund") shall
be allocated by the Fund between the Distributor and any replacement principal
distributor for Class B Shares of any ISG Fund (the "Successor Distributor") in
accordance with this Schedule A.
Defined terms used in this Schedule A and not otherwise defined herein
shall have the meaning assigned to them in the Distribution Agreement to which
this Schedule A is attached. As used in this Schedule A the following terms
shall have the meanings indicated:
"COMMISSION SHARE" means, in respect of any ISG Fund, each Share of such
ISG Fund which is issued under circumstances which would normally give rise to
an obligation of the holder of such Share to pay a CDSC upon redemption of such
Share (including, without limitation, any Share of such ISG Fund issued in
connection with a Free Exchange) and any such Share shall continue to be a
Commission Share of such ISG Fund prior to the redemption (including a
redemption in connection with a Free Exchange) or conversion of such Share, even
though the obligation to pay the CDSC may have expired or conditions for waivers
thereof may exist.
"DATE OF ORIGINAL ISSUANCE" means in respect of any Commission Share, the
date with reference to which the amount of the CDSC payable on redemption
thereof, if any, is computed.
"FREE EXCHANGE" means an exchange of a Commission Share of one ISG Fund for
a Commission Share of another ISG Fund under circumstances where the CDSC which
would have been payable in respect of a redemption of the exchanged Commission
Share on the date of such exchange is waived and the Commission Share issued in
such exchange is treated as a continuation of the investment in the Commission
Share exchanged for purposes of determining the CDSC payable if such Commission
Share issued in the exchange is thereafter redeemed.
"FREE SHARE" means, in respect of any ISG Fund, each Share of such ISG
Fund, other than a Commission Share, including, without limitation, any Share
issued in connection with the reinvestment of dividends or capital gains.
"INCEPTION DATE" means, in respect of any ISG Fund, the first date on which
such ISG Fund issued Shares.
"NET ASSET VALUE" means, (i) with respect to any ISG Fund, as of the date
any determination thereof is made, the net asset value of such ISG Fund computed
in the manner such value is required to be computed by such ISG Fund in its
reports to its shareholders, and (ii) with respect to any Share of such ISG Fund
as of any date, the quotient obtained by dividing: (A) the net asset value of
such ISG Fund (as computed in accordance with clause (i) above) allocated to
Shares of such ISG Fund (in accordance with the constituent documents for such
ISG Fund) as of such date, by (B) the number of Shares of such ISG Fund
outstanding on such date.
"SHARE" means, in respect of any ISG Fund, each Class B Share of such ISG
Fund.
PART I: ATTRIBUTION OF SHARES
Shares of each ISG Fund, which are outstanding from the time to time, shall
be attributed to the Distributor and any Successor Distributor in accordance
with the following rules;
(1) COMMISSION SHARES:
(a) Commission Shares attributed to the Distributor shall be Commission
Shares the Date of Original Issuance of which occurred on or after the Inception
Date of such ISG Fund and on or prior to the last day on which the Distributor
acts as principal distributor of Shares for such ISG Fund.
(b) Commission Shares attributable to the Successor Distributor shall be
Commission Shares the Date of Original Issuance of which occurs on or after the
first day on which such Successor Distributor acts as principal distributor of
Shares of such ISG Fund and on or prior to the last day such Successor
Distributor acts as principal distributor of Shares for such ISG Fund.
(c) A Commission Share of a particular ISG Fund (the "ISSUING ISG FUND")
issued in consideration of the investment of proceeds of the redemption of a
Commission Share of another ISG Fund (the "REDEEMING ISG FUND") in connection
with a Free Exchange, is deemed to have a Date of Original Issuance identical to
the Date of Original Issuance of the Commission Share of the Redeeming ISG Fund
and any such Commission Share will be attributed to the Distributor or the
Successor Distributor based upon such Date of Original Issuance in accordance
with Part I(a) and (b) above.
(d) A Commission Share redeemed (other than in connection with a Free
Exchange) or converted to a Class A Share is attributable to the Distributor or
Successor Distributor based upon the Date of Original Issuance in accordance
with Part I(a), (b) and (c) above.
(2) FREE SHARES:
Free Shares of an ISG Fund outstanding on any date shall be attributed to
the Distributor or Successor Distributor, as the case may be, in the same
proportion that the Commission Shares of such ISG Fund outstanding on such date
are attributed to it on such date; PROVIDED that if the Distributor reasonably
determines that the Fund's transfer agent is able to produce monthly reports
which track the Date of Original Issuance for the Commission Shares related to
such Free Shares, then the Free Shares shall be allocated pursuant to clause
1(a), (b) and (c) above.
PART II: ALLOCATION OF CDSCS
(1) CDSCS RELATED TO THE REDEMPTION OF COMMISSION SHARES:
CDSCs in respect of the redemption of Commission Shares shall be allocated
to the Distributor or Successor Distributor depending upon whether the related
redeemed Commission Share is attributable to the Distributor or Successor
Distributor, as the case may be, in accordance with Part I above.
PART III: ALLOCATION OF CLASS B DISTRIBUTION FEES
Assuming that the Class B Distribution Fee remains constant over time and
among the ISG Funds so that Part IV hereof does not become operative:
(1) The portion of the aggregate Class B Distribution Fees accrued in
respect of all Shares of all ISG Funds during any calendar month allocable to
the Distributor or a Successor Distributor is determined by multiplying the
total of such Class B Distribution Fees by the following fraction:
(A+C)/2
(B+D)/2
where:
A= The aggregate Net Asset Value of all Shares of all ISG Funds attributed to
the Distributor or such Successor Distributor, as the case may be, and
outstanding at the beginning of such calendar month
B= The aggregate Net Asset Value of all Shares of all ISG Funds at the
beginning of such calendar month
C= The aggregate Net Asset Value of all Shares of all ISG Funds attributed to
the Distributor or such Successor Distributor, as the case may be, and
outstanding at the end of such calendar month
D= The aggregate Net Asset Value of all Shares of all ISG Funds at the end of
such calendar month
(2) if the Distributor reasonably determines that the ISG Fund or its
transfer agent is able to produce automated monthly reports which allocate the
average Net Asset Value of the Commission Shares (or all Shares if available) of
all ISG Funds among the Distributor and each Successor Distributor in a manner
consistent with the methodology detailed in Part I and Part III(1) above, the
portion of the Class B Distribution Fees accrued in respect of all such Shares
of all ISG Funds during a particular calendar month will be allocated to the
Distributor or each Successor Distributor by multiplying the total of such Class
B Distribution Fees by the following fraction:
(A)/(B)
where:
A= Average Net Asset Value of all such Shares of all ISG Funds for such
calendar month attributed to the Distributor or such Successor Distributor,
as the case may be
B= Total average Net Asset Value of all Shares of all ISG Funds for such
calendar month
PART IV: ADJUSTMENT OF THE DISTRIBUTOR'S
SHARE AND SUCCESSOR DISTRIBUTORS' SHARES
The parties to the Distribution Agreement recognize that if the terms of
any Distribution Agreement, any Plan, any Prospectus, the Conduct Rules or any
other applicable law change the rate at which Class B Distribution Fees or
service fees pursuant to the Fund's Shareholder Services Plan for the ISG Funds
are computed with reference to the Net Asset Value of Shares of any ISG Fund,
these allocation procedures must be revised in light of such changes in a manner
which carries out the intent of these allocations procedures.
EXHIBIT 23(e)(3)
THE INFINITY MUTUAL FUNDS, INC.
DISTRIBUTION PLAN AGREEMENT
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
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
<PAGE>
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
.__ of 1% of DG Class 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 Fund
Class A Shares
Class B Shares
ISG Income Fund
Class A Shares
Class B Shares
ISG Current Income Portfolio
Class A Shares
Class B Shares
ISG Equity Income Fund
Class A Shares
Class B Shares
ISG Equity Value Fund
Class A Shares
Class B Shares
ISG Government Income Fund
Class A Shares
Class B Shares
DG Class Shares
ISG Growth Portfolio
Class A Shares
Class B Shares
ISG Growth & Income Portfolio
Class A Shares
Class B Shares
ISG International Equity Fund
Class A Shares
Class B Shares
DG Class Shares
ISG Large-Cap Equity Fund
Class A Shares
Class B Shares
DG Class Shares
ISG Limited Term Income Fund
Class A Shares
Class B Shares
ISG Limited Term Tennessee Tax-Exempt Fund
Class A Shares
Class B Shares
ISG Limited Term U.S. Government Fund
Class A Shares
Class B Shares
DG Class Shares
ISG Mid-Cap Fund
Class A Shares
Class B Shares
ISG Moderate Growth & Income Portfolio
Class A Shares
Class B Shares
ISG Municipal Income Fund
Class A Shares
Class B Shares
DG Class Shares
ISG Small-Cap Opportunity Fund
Class A Shares
Class B Shares
DG Class Shares
ISG Tennessee Tax-Exempt Fund
Class A Shares
Class B Shares
ISG Tax-Exempt Money Market Fund
Class B Shares
ISG Government Money Market Fund
Class B Shares
ISG Prime Money Market Fund
Class B Shares
Stewardship Large-Cap Equity Fund
Class A Shares
Class B Shares
Stewardship Small-Cap Equity Fund
Class A Shares
Class B Shares
Stewardship Mid-Cap Equity Fund
Class A Shares
Class B Shares
EXHIBIT 23(h)(2)
SHAREHOLDER SERVICES PLAN AGREEMENT
The Infinity Mutual Funds, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
Gentlemen:
We wish to enter into this Shareholder Services Plan Agreement with you
concerning the provision of certain services to the beneficial holders of
certain classes (each, a "Class") of the portfolios set forth on Schedule 1
hereto, as such may be revised from time to time (each, a "Portfolio"), of The
Infinity Mutual Funds, Inc. (the "Fund"). The terms and conditions of this
Agreement are as follows:
1. We agree to provide certain services to the beneficial holders of shares of
each Class which services may include providing personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding such
Class and providing reports and other information, and providing services
related to the maintenance of shareholder accounts.
2. We will act solely as agent for, upon the order of, and for the account of,
the holders of Class shares for whom we are providing the services described
herein.
3. We will provide such office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and facilities
currently used in our business, or any personnel employed by us) as may be
reasonably necessary or beneficial in order to provide such services
contemplated hereunder.
4. We will not nor will any of our officers, employees or agents make any
representations concerning the Fund or shares of any Class except those
contained in the Portfolios' then-current prospectus, copies of which will be
supplied to us by the Fund, or in such supplemental literature or advertising as
may be authorized by the Fund in writing.
5. 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 the Fund in any
matter or in any respect. We agree to and do release, indemnify and hold the
Fund harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions or inactions of or by us or
our officers, employees or agents regarding our responsibilities hereunder for
the purchase, redemption, transfer or registration of shares of a Class by or on
behalf of the holders of such shares. We and our employees, upon request, will
be available during normal business hours to consult with the Fund or its
designees concerning the performance of our responsibilities under this
Agreement.
6. In consideration of the services and facilities provided by us hereunder, as
to each Class, the Fund agrees to pay us and we will accept as full payment
therefor, a fee up to the annual rate set forth on Schedule 2 hereto as a
percentage of the average daily net asset value of the outstanding shares of
such Class as to which we provide the services described herein, which fee will
be computed daily and payable monthly. For purposes of determining the fees
payable under this Section 6, the average daily net asset value of the
outstanding shares of a Class will be computed in the manner specified in the
Fund's registration statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of such Class for
purposes of purchases and redemptions. The Fund, in its discretion and without
notice, may suspend or withdraw the sale of shares of any Class. The provisions
set forth in the last sentence of Section 1 of the Shareholder Services Plan as
in effect on the date hereof, a copy of which has been provided to us, are
hereby incorporated herein by reference with the same force and effect as if set
forth herein in their entirety.
7. Any person authorized to direct the disposition of monies paid or payable by
the Fund pursuant to this Agreement will provide to the Fund's Board of
Directors, and the Fund's Directors will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made. In addition, we will furnish the Fund or its designees with such
information as the Fund or its designees may reasonably request (including,
without limitation, periodic certifications confirming the provision of the
services described herein), and will otherwise cooperate with the Fund or its
designees (including, without limitation, any auditors designated by the Fund),
in connection with the preparation of reports to the Fund's Board of Directors
concerning this Agreement and the monies paid or payable pursuant hereto, as
well as any other reports or filings that may be required by law. We will
promptly report to the Fund any potential or existing conflicts with respect to
the investments of our clients in shares of any Class.
8. The Fund may enter into other similar Shareholder Services Plan Agreements
with any other person or persons without our consent.
9. We represent, warrant and agree that: (i) in no event will any of the
services provided by us hereunder be primarily intended to result in the sale of
any shares issued by the Fund; (ii) the compensation payable to us hereunder,
together with any other compensation payable to us by our clients in connection
with the investment of their assets in shares of a Class, will be disclosed by
us to our clients, will be authorized by our clients and will not result in an
excessive or unreasonable fee to us; (iii) we will not advertise or otherwise
promote our client accounts primarily as a means of investing in shares of a
Class or establish or maintain client accounts for the primary purpose of
investing in shares of a Class; (iv) in the event an issue pertaining to this
Agreement is submitted to shareholders of a Class for approval, we will vote the
shares of such Class held for our own account in the same proportion as the vote
of the shares of such Class held for our clients' benefit; and (v) we will not
engage in activities pursuant to this Agreement which constitute acting as a
broker or dealer under state law unless we have obtained the licenses required
by such law.
10. This Agreement will become effective on the date a fully executed copy of
this Agreement is received by the Fund or its designee. Unless sooner
terminated, this Agreement will continue until ____________, and thereafter will
continue automatically for successive annual periods ending on
_________________, provided such continuance is specifically approved at least
annually by the Fund in the manner described in Section 13.
11. All notices and other communications will be duly given if mailed,
telegraphed, telexed or transmitted by similar telecommunications device to the
appropriate address shown above, or to such other address as either party shall
so provide the other.
12. 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,
and is non-assignable by the parties hereto.
13. This Agreement is subject to annual approval by vote of a majority of (i)
the Board of Directors of the Fund and (ii) the Directors who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Fund or us, by vote cast in person at a meeting called for the purpose of voting
such approval. This Agreement is terminable without penalty, on 60 days' notice,
by the Fund's Board of Directors, or, on not less than 90 days' notice, by us.
This Agreement will terminate, as to the relevant Class, automatically in the
event of its assignment (as defined in the Act).
If you agree to be legally bound by the provisions of this Agreement, please
sign a copy of this letter where indicated below and promptly return it to us.
Very truly yours,
- -----------------------------
(Name of Service Organization)
By: _______________________________
Title: ____________________________
Date: _____________________________
Accepted and agreed to:
THE INFINITY MUTUAL FUNDS, INC.
By: _____________________________
Title: __________________________
<PAGE>
SCHEDULE 1
----------
NAME OF PORTFOLIO AND CLASS DATE ESTABLISHED
- --------------------------- ------------------
ISG Aggressive Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Capital Growth Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Income Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Current Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Equity Income Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Equity Value Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Government Income Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Growth & Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG International Equity Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Large-Cap Equity Fund August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Limited Term Income Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Limited Term Tennessee February 15, 1994
Tax-Exempt Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Limited Term U.S. February 11, 1997
Government Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Mid-Cap Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Moderate Growth &
Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Municipal Income Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Small-Cap Opportunity Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Tennessee Tax-Exempt Fund February 11, 1997
Class A Shares
Class B Shares
Institutional Shares
ISG Tax-Exempt Money Market Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Government Money Market Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Prime Money Market Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Treasury Money Market Fund February 15, 1994
Class A Shares
Institutional Shares
DG Class Shares
Stewardship Large-Cap Equity Fund February 25, 1999
Class A Shares
Class B Shares
Stewardship Small-Cap Equity Fund February 25, 1999
Class A Shares
Class B Shares
Stewardship Mid-Cap Equity Fund February 25, 1999
Class A Shares
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 .15%
Class B Shares .25%
Institutional Shares .15%
ISG Capital Growth Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Current Income Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Equity Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Equity Value Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Government Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Growth Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Growth & Income Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG International Equity Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Large-Cap Equity Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Limited Term Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Limited Term Tennessee Tax-Exempt Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Limited Term U.S. Government Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Mid-Cap Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Moderate Growth &
Income Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Municipal Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Small-Cap Opportunity Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Tennessee Tax-Exempt Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Tax-Exempt Money Market Fund
Class A Shares .25%
Class B Shares .25%
Institutional Shares .15%
ISG Government Money Market Fund
Class A Shares .25%
Class B Shares .25%
Institutional Shares .15%
ISG Prime Money Market Fund
Class A Shares .25%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .25%
ISG Treasury Money Market Fund
Class A Shares .25%
Institutional Shares .15%
DG Class Shares .25%
EXHIBIT 23(h)(3)
THE INFINITY MUTUAL FUNDS, INC.
AMENDED AND RESTATED
SHAREHOLDER SERVICES PLAN
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 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 amend and restate the 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 amends and restates this Plan with respect
to each Class, such amendment to be effective with respect to all shares of each
Class issued prior to or after the date of such amendment.
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. With respect to a Portfolio's Class B Shares only, each Plan
Agreement between the Fund and a Service Organization shall provide that
notwithstanding anything to the contrary in the Plan or the Plan Agreement, such
Service Organization may assign, sell or pledge (collectively, "Transfer") its
rights to its earned fees for Class B Shares pursuant to said Plan Agreement
and, upon receipt of notice of such Transfer, the Fund shall pay to the
assignee, purchaser or pledgee (collectively with their subsequent transferees,
"Transferees"), as third party beneficiaries of such Plan Agreement, such
portion of such Service Organization's fees thereunder so sold or pledged, and
the Fund's obligation to pay such fees shall be absolute and unconditional and
shall not be subject to dispute, offset, counterclaim or any defense whatsoever,
at law or equity, including, without limitation, any of the foregoing based on
the insolvency or bankruptcy of such Service Organization.
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 and Restated: November 18, 1998
<PAGE>
SCHEDULE 1
NAME OF PORTFOLIO AND CLASS DATE ESTABLISHED
- ---------------------------- -----------------
ISG Aggressive Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Capital Growth Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Income Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Current Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Equity Income Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Equity Value Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Government Income Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Growth & Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG International Equity Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Large-Cap Equity Fund August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Limited Term Income Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
ISG Limited Term Tennessee February 15, 1994
Tax-Exempt Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Limited Term U.S. February 11, 1997
Government Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Mid-Cap Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Moderate Growth &
Income Portfolio August 12, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Municipal Income Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Small-Cap Opportunity Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Tennessee Tax-Exempt Fund February 11, 1997
Class A Shares
Class B Shares
Institutional Shares
ISG Government Money Market Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Prime Money Market Fund February 15, 1994
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Tax-Exempt Money Market Fund May 14, 1998
Class A Shares
Class B Shares
Institutional Shares
ISG Treasury Money Market Fund February 15, 1994
Class A Shares
Institutional Shares
DG Class Shares
Stewardship Large-Cap Equity Fund February 25, 1999
Class A Shares
Class B Shares
Stewardship Small-Cap Equity Fund February 25, 1999
Class A Shares
Class B Shares
Stewardship Mid-Cap Equity Fund February 25, 1999
Class A Shares
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 .15%
Class B Shares .25%
Institutional Shares .15%
ISG Capital Growth Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Current Income Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Equity Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Equity Value Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Government Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Growth Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Growth & Income Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG International Equity Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Large-Cap Equity Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Limited Term Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Limited Term Tennessee Tax-Exempt Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Limited Term U.S. Government Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Mid-Cap Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Moderate Growth & Income Portfolio
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Municipal Income Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Small-Cap Opportunity Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .15%
ISG Tennessee Tax-Exempt Fund
Class A Shares .15%
Class B Shares .25%
Institutional Shares .15%
ISG Tax-Exempt Money Market Fund
Class A Shares .25%
Class B Shares .25%
Institutional Shares .15%
ISG Government Money Market Fund
Class A Shares .25%
Class B Shares .25%
Institutional Shares .15%
ISG Prime Money Market Fund
Class A Shares .25%
Class B Shares .25%
Institutional Shares .15%
DG Class Shares .25%
ISG Treasury Money Market Fund
Class A Shares .25%
Institutional Shares .15%
DG Class Shares .25%
Stewardship Large-Cap Equity Fund
Class A Shares .15%
Class B Shares .25%
Stewardship Small-Cap Equity Fund
Class A Shares .15%
Class B Shares .25%
Stewardship Mid-Cap Equity Fund
Class A Shares .15%
Class B Shares .25%
EXHIBIT 23(j)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of
The Infinity Mutual Funds, Inc.:
We consent to the use our reports dated February 3, 1999 for The Infinity Mutual
Funds, Inc. - The Correspondent Cash Reserves and February 19, 1999 for The
Infinity Mutual Funds, Inc. - ISG Funds as incorporated by reference herein and
to the reference of our firm under the headings "Financial Highlights" in the
Prospectuses and "Counsel and Independent Auditors" in the Statements of
Additional Information included herein.
Columbus, Ohio
April 28, 1999
EXHIBIT 23(m)(2)
THE INFINITY MUTUAL FUNDS, INC.
AMENDED AND RESTATED
DISTRIBUTION PLAN PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
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 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 as principal distributor for the shares of common stock of each
Portfolio, and may retain from time to time other persons, pursuant to the terms
of a distribution agreement with such person (each, the "Distribution
Agreement"), to so act pursuant to the Plan (each being referred to herein as
the "Distributor"); and
WHEREAS, the Fund adopted 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 wishes to amend and restate the Plan as set forth
hereinafter, such amendment to be effective with respect to all shares of each
Class issued prior to or after the date of such amendment; and
WHEREAS, the Board, in considering whether the Fund should amend this
Plan, has requested and evaluated such information as it deemed necessary to an
informed determination as to whether the Plan should be amended 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 and amendment 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 amended and restated Plan
with respect to each Class in accordance with Rule 12b-1 under the 1940 Act.
Section 1. (a) GENERAL. 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.
(b) CLASS B SHARES. The Fund shall pay to the Distributor,
as compensation for acting as principal distributor in respect of the Class B
Shares of the Portfolios its "Allocable Portion" (as hereinafter defined) of a
fee (the "Class B Distribution Fee"), which shall accrue daily at the rate of
0.75% per annum of the average daily net assets attributable to Class B Shares
of each Portfolio and be payable monthly. The Distribution Agreement between the
Fund and the Distributor as it relates to the Class B Shares of the Portfolios
shall provide that: (I) the Distributor will be deemed to have performed all
services required to be performed in order to be entitled to receive its
Allocable Portion (as defined below) of the Class B Distribution Fee payable in
respect of the Class B Shares upon the Date of Original Issuance (as defined in
the Allocation Procedures attached as Schedule A to the Fund's Distribution
Agreement (the "Allocation Schedule")) of each "Commission Share" (as defined in
the Allocation Schedule) taken into account in determining the Distributor's
Allocable Portion of such Class B Distribution Fee; (II) notwithstanding
anything to the contrary in this Plan or the Distribution Agreement, the Fund's
obligation to pay the Distributor its Allocable Portion of the Class B
Distribution Fee payable shall not be terminated or modified (including, without
limitation, by change in the rules applicable to the conversion of Class B
Shares into shares of another class) for any reason (including a termination of
the Distribution Agreement between the Distributor and the Fund) except as to
each Portfolio: (a) to the extent required by a change in the 1940 Act, the
rules and regulations thereunder or the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD"), in each case enacted or
promulgated after November 18, 1998, (b) on a basis which does not alter the
Distributor's Allocable Portion of the Class B Distribution Fee computed with
reference to Commission Shares the Date of Original Issuance of which occurs on
or prior to the adoption of such termination or modification and with respect to
Free Shares (as defined in the Allocation Schedule) which would be attributed to
the Distributor under the Allocation Schedule with reference to such Commission
Shares, or (c) in connection with a "Complete Termination" (as hereinafter
defined) of the Plan; (III) the Fund will not take any action to waive or change
any contingent deferred sales charge ("CDSC") in respect of the Class B Shares
the Date of Original Issuance (as defined in the Allocation Schedule) of which
occurs on or prior to the taking of such action, except as provided in the
Portfolios' prospectus or statement of additional information on the date such
Commission Share was issued, without the consent of the Distributor and its
Transferees (as defined below); (IV) notwithstanding anything to the contrary in
this Plan or the Distribution Agreement, neither the termination of the
Distributor's role as principal distributor of the Class B Shares, nor the
termination of such Distribution Agreement nor the termination of this Plan will
terminate the Distributor's right to its Allocable Portion of the CDSCs; and (V)
notwithstanding anything to the contrary in this Plan or the Distribution
Agreement, the Distributor may assign, sell or pledge (collectively, "Transfer")
its rights to its Allocable Portion of the Class B Distribution Fees and CDSCs
and, upon receipt of notice of such Transfer, the Fund shall pay to the
assignee, purchaser or pledgee (collectively with their subsequent transferees,
"Transferees"), as third party beneficiaries of the Distribution Agreement, such
portion of the Distributor's Allocable Portion of the Class B Distribution Fees
or CDSCs in respect of the Class B Shares so sold or pledged, and, except as
provided in (II) above and notwithstanding anything to the contrary set forth in
this Plan or in the Distribution Agreement, the Fund's obligation to pay the
Distributor's Allocable Portion of the Class B Distribution Fees and CDSCs
payable in respect of the Class B Shares shall be absolute and unconditional and
shall not be subject to dispute, offset, counterclaim or any defense whatsoever,
at law or equity, including, without limitation, any of the foregoing based on
the insolvency or bankruptcy of the Distributor. For purposes of this Plan, the
term Allocable Portion of Class B Distribution Fees or CDSCs payable in respect
of the Class B Shares as applied to any Distributor shall mean the portion of
such Class B Distribution Fees or CDSCs payable in respect of such Class B
Shares allocated to such Distributor in accordance with the Allocation Schedule.
For purposes of this Plan and the Distribution Agreement, the term "Complete
Termination" of the Plan means with respect to a Portfolio a termination of this
Plan and every other distribution plan of the Fund relating to the Portfolio, or
any successor to the Portfolio or any trust or fund acquiring a substantial
portion of the assets of the Portfolio (collectively, the "Affected Funds"),
involving the complete cessation of the payment of Class B Distribution Fees in
respect of all shares of the current Class B shares of each Affected Fund and
each future class of shares of each Affected Fund which has substantially
similar characteristics to the shares of the current Class B shares of the
Portfolios, including the manner of payment and amount of sales charge, CDSC or
other similar charges borne directly or indirectly by the holders of such shares
of the Portfolios (all such classes of shares "Class B Shares").
Section 2. Payments to Service Organizations under paragraph 1(a)
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
Amended and Restated: November 18, 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 Fund February 15, 1994
Class A Shares
Class B Shares
ISG Income Fund February 15, 1994
Class A Shares
Class B Shares
ISG Current Income Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG Equity Income Fund February 15, 1994
Class A Shares
Class B Shares
ISG Equity Value Fund May 14, 1998
Class A Shares
Class B Shares
ISG Government Income Fund May 14, 1998
Class A Shares
Class B Shares
DG Class Shares
ISG Growth Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG Growth & Income Portfolio August 12, 1998
Class A Shares
Class B Shares
ISG International Equity Fund May 14, 1998
Class A Shares
Class B Shares
DG Class Shares
ISG Large-Cap Equity Fund August 12, 1998
Class A Shares
Class B Shares
DG Class Shares
ISG Limited Term Income Fund February 15, 1994
Class A Shares
Class B Shares
ISG Limited Term Tennessee February 11, 1997
Tax-Exempt Fund
Class A Shares
Class B Shares
ISG Limited Term U.S. February 11, 1997
Government Fund
Class A Shares
Class B Shares
DG Class Shares
ISG Mid-Cap Fund May 14, 1998
Class A Shares
Class B Shares
ISG Moderate Growth & August 12, 1998
Income Portfolio
Class A Shares
Class B Shares
ISG Municipal Income Fund May 14, 1988
Class A Shares
Class B Shares
DG Class Shares
ISG Small-Cap Opportunity Fund May 14, 1998
Class A Shares
Class B Shares
DG Class Shares
ISG Tennessee Tax-Exempt Fund February 15, 1994
Class A Shares
Class B Shares
ISG Tax-Exempt Money Market Fund May 14, 1998
Class B Shares
ISG Government Money Market Fund May 14, 1998
Class B Shares
ISG Prime Money Market Fund February 15, 1994
Class B Shares
Stewardship Large-Cap Equity Fund February 25, 1999
Class A Shares
Class B Shares
Stewardship Small-Cap Equity Fund February 25, 1999
Class A Shares
Class B Shares
Stewardship Mid-Cap Equity Fund February 25, 1999
Class A Shares
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 Fund
Class A Shares .25%
Class B Shares .75%
ISG Income Fund
Class A Shares .25%
Class B Shares .75%
ISG Current Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Equity Income Fund
Class A Shares .25%
Class B Shares .75%
ISG Equity Value Fund
Class A Shares .25%
Class B Shares .75%
ISG Government Income Fund
Class A Shares .25%
Class B Shares .75%
DG Class Shares .25%
ISG Growth Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Growth & Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG International Equity Fund
Class A Shares .25%
Class B Shares .75%
DG Class Shares .25%
ISG Large-Cap Equity Fund
Class A Shares .25%
Class B Shares .75%
DG Class Shares .25%
ISG Limited Term Income Fund
Class A Shares .25%
Class B Shares .75%
ISG Limited Term
Tennessee Tax-Exempt Fund
Class A Shares .25%
Class B Shares .75%
ISG Limited Term
U.S. Government Fund
Class A Shares .25%
Class B Shares .75%
DG Class Shares .25%
ISG Mid-Cap Fund
Class A Shares .25%
Class B Shares .75%
ISG Moderate Growth
& Income Portfolio
Class A Shares .25%
Class B Shares .75%
ISG Municipal Income Fund
Class A Shares .25%
Class B Shares .75%
DG Class Shares .25%
ISG Small-Cap Opportunity Fund
Class A Shares .25%
Class B Shares .75%
DG Class Shares .25%
ISG Tennessee Tax-Exempt Fund
Class A Shares .25%
Class B Shares .75%
ISG Tax-Exempt Money Market Fund
Class B Shares .75%
ISG Government Money Market Fund
Class B Shares .75%
ISG Prime Money Market Fund
Class B Shares .75%
Stewardship Large-Cap Equity Fund
Class A Shares .25%
Class B Shares .75%
Stewardship Small-Cap Equity Fund
Class A Shares .25%
Class B Shares .75%
Stewardship Mid-Cap Equity Fund
Class A Shares .25%
Class B Shares .75%
Revised: February 25, 1999
EXHIBIT 23(o)(2)
THE INFINITY MUTUAL FUNDS, INC.
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, Institutional Shares and DG Class 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, Directed Distribution Plan, Automatic Withdrawal Plan and
Reinstatement Privilege shall be available only to holders of Class A Shares,
Class B Shares or DG Class Shares, and Right of Accumulation and Letter of
Intent shall be available only to holders of Class A Shares or DG Class Shares.
3. DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Class A Shares of each
Portfolio and DG Class Shares of certain Portfolios 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 or DG
Class Shares purchased without an initial sales charge as part of an investment
of $1 million or more. Class A Shares and DG Class 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 and DG Class Shares are set forth
on Schedule B and Schedule C, respectively.
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 D hereto.
Institutional 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
Institutional Shares pursuant to a Shareholder Services Plan. Institutional
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 and
DG Class Shares shall automatically convert to Class A Shares on May 1, 2000,
each 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 E
hereto. No other Classes 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: February 25, 1999
<PAGE>
SCHEDULE A
ISG Aggressive Growth Portfolio
Class A Shares
Class B Shares
Institutional Shares
ISG Capital Growth Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Income Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Current Income Portfolio
Class A Shares
Class B Shares
Institutional Shares
ISG Equity Income Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Equity Value Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Government Income Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Growth Portfolio
Class A Shares
Class B Shares
Institutional Shares
ISG Growth & Income Portfolio
Class A Shares
Class B Shares
Institutional Shares
ISG International Equity Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Large-Cap Equity Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Limited Term Income Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Limited Term Tennessee Tax-Exempt Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Limited Term U.S. Government Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Mid-Cap Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Moderate Growth & Income Portfolio
Class A Shares
Class B Shares
Institutional Shares
ISG Municipal Income Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Small-Cap Opportunity Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Tennessee Tax-Exempt Fund
Class A Shares
Class B Shares
Institutional Shares
Stewardship Large-Cap Equity Fund
Class A Shares
Class B Shares
Stewardship Small-Cap Equity Fund
Class A Shares
Class B Shares
Stewardship Mid-Cap Equity Fund
Class A Shares
Class B Shares
<PAGE>
SCHEDULE B
FRONT-END SALES CHARGE--CLASS A SHARES OF ISG INCOME FUND, ISG CURRENT INCOME
PORTFOLIO, ISG GOVERNMENT INCOME FUND, ISG LIMITED TERM INCOME FUND, ISG LIMITED
TERM TENNESSEE TAX-EXEMPT FUND, ISG LIMITED TERM U.S. GOVERNMENT FUND, ISG
MUNICIPAL INCOME FUND AND ISG TENNESSEE TAX-EXEMPT FUND--The public offering
price for Class A Shares of such Portfolios 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
Amount of Transaction price per value per
share share
----------------- ---------------
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 AGGRESSIVE GROWTH PORTFOLIO, ISG
CAPITAL GROWTH FUND, ISG EQUITY INCOME FUND, ISG LARGE-CAP EQUITY FUND, ISG
EQUITY VALUE FUND, ISG GROWTH PORTFOLIO, ISG GROWTH & INCOME PORTFOLIO, ISG
MODERATE GROWTH & INCOME PORTFOLIO, ISG INTERNATIONAL EQUITY FUND, ISG MID-CAP
FUND, ISG SMALL-CAP OPPORTUNITY FUND, STEWARDSHIP LARGE-CAP EQUITY FUND,
STEWARDSHIP SMALL-CAP EQUITY FUND AND STEWARDSHIP MID-CAP EQUITY FUND--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 Fund and ISG Equity Income Fund on
September 30, 1997, a sales load as shown below:
Total Sales Load
------------------------------------
As a % of As a % of
offering net asset
Amount of Transaction price per value per
share share
--------------- ------------------
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 FUND AND ISG EQUITY
INCOME FUND--SHAREHOLDERS BENEFICIALLY OWNING CLASS A SHARES ON SEPTEMBER 30,
1997--For shareholders beneficially owning Class A Shares of ISG Capital Growth
Fund and ISG Equity Income Fund on September 30, 1997, the public offering price
for Class A Shares of such Portfolios 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
Amount of Transaction price per value per
share share
-------------- ----------------
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-
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES--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. The terms contained on Schedule D
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
FRONT-END SALES CHARGE--DG CLASS SHARES OF ISG GOVERNMENT INCOME FUND AND ISG
MUNICIPAL INCOME FUND--The public offering price of DG Class Shares of such
Portfolios 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
Amount of Transaction share share
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--DG CLASS SHARES OF ISG LARGE-CAP EQUITY FUND AND ISG
SMALL-CAP OPPORTUNITY FUND--The public offering price of DG Class Shares of such
Portfolios 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
AMOUNT OF TRANSACTION share share
------------------ ---------------
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-
DG CLASS SHARES OF ISG INTERNATIONAL EQUITY FUND--The public offering price for
DG Class Shares of such Portfolio shall be the net asset value per share of that
Class. No initial sales charge shall be imposed at the time of purchase of DG
Class Shares of ISG International Equity Fund.
CONTINGENT DEFERRED SALES CHARGE--DG CLASS SHARES--A CDSC of .50% shall be
assessed at the time of redemption of DG Class Shares of each Portfolio, except
ISG International Equity Fund, 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 D 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 DG Class Shares
subject to a CDSC. Letter of Intent and Right of Accumulation shall apply to
such purchases of DG Class Shares.
AMOUNT OF DISTRIBUTION PLAN FEES--DG CLASS SHARES--.25 of 1% of the value of the
average daily net assets of DG Class Shares.
AMOUNT OF SHAREHOLDER SERVICES PLAN FEES--DG CLASS SHARES--.15 of 1% of the
value of the average daily net assets of DG Class
Shares.
<PAGE>
SCHEDULE D
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 E
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 and 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.
CONVERSION OF DG CLASS SHARES--On May 1, 2000, DG Class Shares automatically
shall convert to Class A Shares, based on the relative net asset values for
shares of each such Class.
EXHIBIT 23(o)(3)
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, Institutional Shares and DG Class 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, Class B Shares or DG Class 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, Class B Shares or DG Class Shares shall be
provided certain services pursuant to a Shareholder Services Plan.
3. DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Class A Shares and DG
Class Shares of each Portfolio shall be charged an annual shareholder services
fee of .25% of the value of the average daily net assets of each 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.
Institutional Shares shall not be subject to a CDSC, shareholder
services fees or distribution fees. Institutional 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 and
DG Class Shares shall automatically convert to Class A Shares on May 1, 2000,
each 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 Classes 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: February 25, 1999
<PAGE>
SCHEDULE A
ISG Government Money Market Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Prime Money Market Fund
Class A Shares
Class B Shares
Institutional Shares
DG Class Shares
ISG Tax-Exempt Money Market Fund
Class A Shares
Class B Shares
Institutional Shares
ISG Treasury Money Market Fund
Class A Shares
Institutional Shares
DG Class 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
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*
- --------
* 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.
CONVERSION OF DG CLASS SHARES--DG Class Shares automatically shall convert to
Class A Shares on May 1, 2000, based on the relative net asset values for shares
of each such Class.
