THE STRATEGIC STOCK FUND
(A PORTFOLIO OF THE VIRTUS FUNDS)
PROSPECTUS
The shares of The Strategic Stock Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio in The Virtus Funds (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
seeks to provide growth of capital by investing primarily in common stocks.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND
ARE NOT ENDORSED OR GUARANTEED BY, SIGNET TRUST COMPANY OR SIGNET BANK OR ANY OF
THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated March 6,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Trust or calling 804-732-9512.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 6, 1995
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Common Stocks 2
Other Corporate Securities 2
Commercial Paper 2
Bank Instruments 2
American Depositary Receipts 3
U.S. Government Securities 3
Put and Call Options 3
Financial Futures and Options
on Futures 3
Risks 3
Derivative Contracts and Securities 4
Portfolio Turnover 4
Borrowing Money 4
Selling Short 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Investing in Securities of Other
Investment Companies 5
Diversification 5
Repurchase Agreements 5
Lending of Portfolio Securities 5
Acquiring Securities 5
Investment Risks 5
THE VIRTUS FUNDS INFORMATION 6
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Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Distribution of Fund Shares 7
Distribution Plan 7
Administrative Arrangements 7
Glass-Steagall Act 7
Administration of the Funds 7
Administrative Services 7
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Independent Auditors 8
Expenses of the Fund 8
Brokerage Transactions 8
NET ASSET VALUE 8
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INVESTING IN THE FUND 8
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Share Purchases 8
By Check 8
By Wire 9
Systematic Investment Program
Minimum Investment Required 9
What Shares Cost 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
EXCHANGE PRIVILEGE 9
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By Telephone 10
REDEEMING SHARES 10
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By Telephone 10
By Mail 11
Contingent Deferred Sales Charge 11
Systematic Withdrawal Program 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
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Voting Rights 12
Massachusetts Partnership Law 13
EFFECT OF BANKING LAWS 13
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TAX INFORMATION 13
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Federal Income Tax 13
PERFORMANCE INFORMATION 14
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ADDRESSES 15
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................... None
Contingent Deferred Sales Charge(1) (as a percentage of original
purchase price or redemption proceeds, as applicable)............................. 2.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).................. None
Exchange Fee........................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fees (after waiver)(2)................................................... 0.02%
12b-1 Fees(3)....................................................................... 0.00%
Total Other Expenses (after waiver)(4).............................................. 0.42%
Total Fund Operating Expenses(5)............................................... 0.44%
</TABLE>
(1) The Contingent Deferred Sales Charge is 2.00% of the lesser of the original
purchase price or the net asset value of the shares redeemed within five years
of the purchase date. For a more complete description, see "Redeeming Shares."
(2) The estimated management fee of the Fund has been reduced to reflect the
anticipated voluntary waiver by the investment adviser. The adviser can
terminate its voluntary waiver of fees at any time at its sole discretion. The
maximum management fee is 1.00%.
(3) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund will not pay or accrue 12b-1 fees until a separate class of
shares has been created for certain institutional investors. The Fund can pay up
to 0.25% as a 12b-1 fee to the distributor. See "The Virtus Funds Information."
(4) The Other Expenses have been reduced to reflect the anticipated voluntary
waiver by the transfer agent. The transfer agent can terminate this voluntary
waiver at any time at its sole discretion.
(5) Total Fund Operating Expenses for the Fund are estimated to be at 1.44%
absent the anticipated voluntary waivers by the investment adviser and the
transfer agent.
* Annual Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the fiscal year ending September 30, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "The Virtus Funds Information" and "Investing in the Fund."
<TABLE>
<CAPTION>
EXAMPLE 1 year 1 year+ 3 years 3 years+
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period................ $ 25 $ 5 $37 $ 14
</TABLE>
>
+ Reflects expenses on the same investment, assuming no redemption.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE
IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1995.
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated June 20, 1990. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees (the "Board" or "Trustees") has not
established separate classes of shares. The Fund is designed for institutional
and retail customers of Signet Bank and its affiliates as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio
investing primarily in common stocks. A minimum initial investment of $1,000 is
required. A contingent deferred sales charge may be imposed on all shares of the
Fund (other than shares purchased through reinvestment of dividends and capital
gains distributions), which are redeemed within five years of their purchase
dates. Information on redeeming shares of the Fund may be found under "Redeeming
Shares." The Fund is advised by Virtus Capital Management, Inc.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide growth of capital. The
investment objective cannot be changed without shareholder approval. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
primarily in common stocks of large, medium and small capitalization companies
which are either listed on the New York or American Stock Exchange or trade in
the over-the-counter markets. The securities in which the Fund invests include,
but are not limited to, the following securities. Unless indicated otherwise,
investment policies may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material changes in these policies
becomes effective.
COMMON STOCKS. The Fund will invest in stocks that the Fund's investment
adviser's proprietary investment methodology has identified as having superior
appreciation potential. Factors such as product position, market share,
potential earnings growth, or asset values will be considered by the investment
adviser. Under normal market conditions, at least 65% of the Fund's portfolio
will be invested in common stocks.
OTHER CORPORATE SECURITIES. The Fund may invest in preferred stocks, corporate
bonds, notes, warrants, rights, and convertible securities of these companies.
The corporate bonds, notes, and convertible debt securities in which the Fund
may invest must be rated, at the time of purchase, BBB or better by Standard and
Poor's Ratings Group ("S&P"), or Fitch Investors Services ("Fitch"), or Baa or
better by Moody's Investors Service, Inc. (Moody's), or, if unrated, of
comparable quality as determined by the Fund's adviser. (If a security's rating
is reduced below the required minimum after the Fund has purchased it, the Fund
is not required to sell the security, but may consider doing so.) Bonds rated
"BBB" by Standard & Poor's or Fitch or "Baa" by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than higher rated bonds.
COMMERCIAL PAPER. The Fund may invest in commercial paper rated A-1 by S&P, or
Prime-1 by Moody's, or F-1 by Fitch and money market instruments (including
commercial paper) which are unrated but of comparable quality, including
Canadian Commercial Paper ("CCPs") and Europaper.
BANK INSTRUMENTS. The Fund may invest in instruments of domestic and foreign
banks and savings and loans (such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances) if they have capital,
surplus, and undivided profits over $100,000,000, or if the principal amount of
the instrument is insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC") or the
Savings Association Insurance Fund ("SAIF"),
which is administered by the FDIC. These instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"),
and Eurodollar Time Deposits ("ETDs").
AMERICAN DEPOSITARY RECEIPTS ("ADRS"). The Fund may invest in ADRs. ADRs are
receipts typically issued by an American bank or trust company that evidences
ownership of underlying securities issued by a foreign issuer.
U.S. GOVERNMENT SECURITIES. The Fund may invest in securities issued and/or
guaranteed as to payment of principal and interest by the U.S. government, its
agencies or instrumentalities including those obligations purchased on a
when-issued or delayed delivered basis.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may also
write covered call options on all or any portion of its portfolio to generate
income for the Fund. The Fund will write call options on securities either held
in its portfolio or which it has the right to obtain without payment of further
consideration or for which it has segregated cash or U.S. government securities
in the amount of any additional consideration.
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio against
changes in stock prices. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contract is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly
with the prices of the securities in the Fund's portfolio. This may cause
the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as stock price movements. In these events,
the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will
exist for any particular futures contract or option at any particular time.
The Fund's ability to establish and close out futures and options positions
depends on this secondary market.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
been applied to certain contracts (including, futures, forward, option and swap
contracts) that "derive" their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of securities that
incorporate the performance characteristics of these contracts are also referred
to as "derivatives." The term has also been applied to securities "derived" from
the cash flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Fund will only
use derivative contracts for the purposes disclosed in the applicable prospectus
sections above. To the extent that the Fund invests in securities that could be
characterized as derivatives, it will only do so in a manner consistent with its
investment objectives, policies and limitations.
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its portfolio will be sold whenever
the adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The adviser does not anticipate that the Fund's annual
portfolio turnover rate will exceed 200% under normal market conditions. A high
portfolio turnover rate may lead to increased costs and may also result in
higher taxes paid by the Fund's shareholders.
BORROWING MONEY. The Fund will not borrow money directly or through reverse
repurchase agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an agreement to buy it back
on a set date) or pledge securities except, under certain circumstances, the
Fund may borrow money up to one-third of the value of its total assets and
pledge up to 15% of the value of those assets to secure such borrowings. This
policy cannot be changed without the approval of holders of a majority of the
Fund's shares.
SELLING SHORT. The Fund will not make short sales of securities, except in
certain limited circumstances.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restriction on resale under federal securities law. The Fund will not invest
more than 10% of the value of its total assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except for certain
restricted securities which meet the criteria for liquidity as established by
the Board of Trustees). This exception specifically extends to commercial paper
issued under Section 4(2) of the Securities Act of 1933. This policy cannot be
changed without the approval of holders of a majority of the Fund's Shares.
The Fund will not invest more than 15% of its net assets in illiquid securities,
including repurchase agreements providing for settlement more than seven days
after notice and certain securities determined by the Trustees not to be liquid.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase dates. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date. The
Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but will not own more than 3% of
the total outstanding voting stock of any investment company, invest more than
5% of total assets in any one investment company, or invest more than 10% of
total assets in investment companies in general. The Fund will invest in other
investment companies primarily for the purpose of investing short-term cash
which has not yet been invested in other portfolio instruments. It should be
noted that investment companies incur certain expenses such as management fees
and, therefore, any investment by the Fund in shares of another investment
company would be subject to such duplicate expenses. The adviser will waive its
investment advisory fee on assets invested in securities of open-end investment
companies.
DIVERSIFICATION. With respect to 75% of the value of total assets, the Fund will
not invest more than 5% in securities of any one issuer other than cash or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by such
securities. This policy cannot be changed without the approval of holders of a
majority of the Fund's Shares.
REPURCHASE AGREEMENTS. The securities in which the Fund invests may be purchased
pursuant to repurchase agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive more or less than the repurchase price on any sale
of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Board of Trustees and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
This policy cannot be changed without the approval of holders of a majority of
the Fund's shares.
ACQUIRING SECURITIES. The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. This policy cannot be changed without the
approval of holders of a majority of the Fund's shares.
INVESTMENT RISKS
The Fund's ADRs, ECDs, ETDs, Yankee CDs, and Europaper are subject to different
risks than domestic obligations of domestic banks or corporations. Examples of
these risks include international economic and political developments, foreign
governmental restrictions that may adversely affect the payment of principal or
interest, foreign withholding or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing entity, and the possible
impact of interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan limitations, examinations, accounting,
auditing, recordkeeping, and the public availability of information. These
factors will be carefully considered by the Fund's adviser in selecting
investments for the Fund.
As with other mutual funds that invest primarily in equity securities, the Fund
is subject to market risks. That is, the possibility exists that common stocks
will decline over short or even extended periods of time. The United States
equity market tends to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease. However,
because the Fund invests in small capitalization stocks, there are some
additional risk factors associated with investments in the Fund. In particular,
stocks in the small capitalization sector of the United States equity market
have historically been more volatile in price than larger capitalization stocks,
such as those included in the Standard & Poor's 500 Composite Stock Price Index
("Standard & Poor's 500 Index"). This is because, among other things, small
companies have less certain growth prospects than larger companies; have a lower
degree of liquidity in the equity market; and tend to have a greater sensitivity
to changing economic conditions.
Further, in addition to exhibiting greater volatility, the stocks of small
companies may, to some degree, fluctuate independently of the stocks of large
companies. That is, the stocks of small companies may decline in price as the
price of large company stocks rises or vice versa. Therefore, investors should
expect that the Fund, to the extent that it is invested in small capitalization
stocks, will be more volatile than, and may fluctuate independently of, broad
stock market indices such as the Standard & Poor's 500 Index.
In addition, with respect to fixed income securities, investors should be aware
that prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.
THE VIRTUS FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Board of Trustees (the "Board" or the "Trustees") is
responsible for managing the business affairs of the Trust and for exercising
all of the powers of the Trust except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Virtus
Capital Management, Inc., the Fund's investment adviser (the "Adviser"), subject
to direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase or
sale of portfolio instruments, for which it receives an annual fee from the
assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee of
1.00% of the Fund's average net assets. The fee paid by the Fund, while
higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. The investment advisory contract provides for the voluntary
waiver of expenses by the Adviser from time to time. The Adviser can
terminate this voluntary waiver of expenses at any time at its sole
discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Virtus Capital Management, Inc., a Maryland
corporation formed in 1995, is a wholly-owned subsidiary of Signet Banking
Corporation. Signet Banking Corporation is a multi-state, multi-bank
holding company which has provided investment management services since
1956. Virtus Capital Management, Inc. on March 1, 1995 succeeded to the
business of the Trust's former investment adviser, Signet Asset Management
(a division of Signet Trust Company), by virtue of a corporate
reorganization within the Signet holding company system. Signet Asset
Management had managed The Virtus Funds (the "Funds") since their inception
in 1990. Since those persons at Signet Asset Management who were
responsible for managing the Funds' assets have similar responsibilities to
the Funds as employees of Virtus Capital Management, Inc., the
reorganization will have no effect on the operations of the Fund. As
successor to the business of Signet Asset Management, Virtus Capital
Management, Inc., which is a registered investment adviser, will manage, in
addition to the Funds, three equity common trust funds with $39 million in
assets and three fixed income common trust funds with $221 million in
assets. As part of their regular banking operations, Signet Bank may make
loans to public companies. Thus, it may be possible, from time to time, for
the Funds to hold or acquire the securities of issuers which are also
lending clients of Signet Bank. The lending relationship will not be a
factor in the selection of securities.
Garry M. Allen has managed the Fund since its inception. Mr. Allen is a
Chartered Financial Analyst, and has since March 1994 been Senior Vice
President of Signet Trust Company and Chief Investment Officer for Virtus
Capital Management, Inc. Prior to joining Virtus Capital Manage-
ment, Inc., Mr. Allen was the Managing Director of U.S. Equities (November
1990 to March 1994) and Director, International Asset Management (June 1985
to November 1990) of the Virginia Retirement System.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 on behalf of the Fund (the "Plan"), the
distributor may select financial institutions such as fiduciaries, custodians
for public funds, investment advisers and brokers/dealers to provide
distribution and/or administrative services as agents for their clients or
customers. Administrative services may include, but are not limited to, the
following functions: providing office space, equipment, telephone facilities,
and various personnel including clerical, supervisory, and computer as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Fund reasonably requests for
its shares.
The distributor will pay financial institutions a fee based upon shares subject
to the Plan and owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time to
time by the Trustees, provided that for any period the total amount of these
fees shall not exceed an annual rate of .25 of 1% of the average net asset value
of shares of the Fund subject to the Plan held during the period by clients or
customers of financial institutions. Any fees paid by the distributor under the
Plan will be reimbursed from the assets of the Fund. The Plan will not be
activated unless and until a second class of shares of the Fund, which will not
have a Rule 12b-1 Plan, is created.
The distributor will, periodically, uniformly offer to pay cash or promotional
incentives in the form of trips to sales seminars at luxury resorts, tickets or
other items to all dealers selling shares of the Fund. Such payments will be
predicated upon the amount of shares of the Fund that are sold by the dealers.
ADMINISTRATIVE ARRANGEMENTS. The distributor may pay financial institutions a
fee based upon the average net asset value of shares of the Fund of their
customers invested in the Trust for providing administrative services. This fee,
if paid, will be reimbursed by the Adviser and not the Trust.
GLASS-STEAGALL ACT. The Glass-Steagall Act prohibits a depository institution
(such as a commercial bank or a savings and loan association) from being an
underwriter or distributor of most securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
administrative capacities described above or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
----------------------------------- -----------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$150,000. Federated Administrative Services may voluntarily waive a portion of
its fee.
CUSTODIAN. Signet Trust Company, Richmond, Virginia, is custodian for the
securities and cash of the Fund. Under the Custodian Agreement, Signet Trust
Company holds the Fund's portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. These expenses include, but are not limited to: the cost of organizing
the Trust and continuing its existence; Trustees fees; investment advisory and
administrative services; printing prospectuses and other Fund documents for
shareholders; registering the Trust and the Fund; taxes and commissions; issuing
purchasing, repurchasing and redeeming shares; fees for custodian, transfer
agent, dividend disbursing agent, shareholder servicing agents, and registrars;
printing, mailing, auditing, accounting, and legal expenses; reports to
shareholders and government agencies; meeting of Trustees and shareholders and
proxy solicitations therefore; insurance premiums; association membership dues;
and such nonrecurring and extraordinary expenses as may arise. However, the
adviser may voluntarily waive and/or reimburse some expenses.
BROKERAGE TRANSACTIONS. When selecting brokers and dealers to handle the
purchase and sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with dealers, the
Adviser will generally utilize those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the order can
be obtained elsewhere. In selecting among firms believed to meet these criteria,
the Adviser may give consideration to those firms which have sold or are selling
shares of the Trust. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Board of Trustees.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Funds are sold on days on which the New York Stock Exchange is
open for business except on Lee-Jackson-King Day, Columbus Day and Veterans'
Day. Shares of the Fund may be purchased through Signet Financial Services, Inc.
or Signet Trust Company. In connection with the sale of shares of the Fund, the
distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
To purchase shares of the Fund through Signet Financial Services, Inc., call
toll-free 1-800-723-9512. Trust and institutional investors should contact their
account officer to make purchase requests through Signet Trust Company. Purchase
orders must be received by Signet Financial Services, Inc. or Signet Trust
Company before 4:00 p.m. (Eastern time). Payment for shares of the Fund may be
made by check or by wire. Payment must be received for shares purchased through
Signet Financial Services, Inc. within five days of placing the order. Payment
for shares purchased through Signet Trust Company must be received on the next
business day after placing the order.
BY CHECK. Purchases of shares by check must be made payable to Signet Financial
Services, Inc. and sent to Signet Financial Services, Inc., P.O. Box 26301,
Richmond, VA 23260.
BY WIRE. Shares of the Fund cannot be purchased by Federal Reserve Wire on
Columbus Day, Veterans' Day or Lee-Jackson-King Day. To purchase shares by wire,
trust and institutional investors should contact their trust investment adviser.
All other shareholders should contact Signet Financial Services, Inc.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, holders of Fund shares may add to their
investment on a regular basis in a minimum amount of $100. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking account and invested in shares at the net asset value next determined
after an order is received by Signet Financial Services, Inc. A shareholder may
apply for participation in this program through Signet Financial Services, Inc.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,000. Subsequent investments must
be in amounts of at least $100. No minimum investment is required for officers,
directors and employees (and their spouses and immediate family members) of
Signet Banking Corporation or its subsidiaries.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund at the time of
purchase.
On Monday through Friday, the Fund calculates net asset value at 4:00 p.m.
(Eastern time), except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares of the Fund are tendered
for redemption and no orders to purchase shares are received; or (iii) the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting Signet Financial Services, Inc. in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. In addition, quarterly confirmations are sent to report dividends
paid during that quarter.
DIVIDENDS
Dividends are declared and paid quarterly.
Unless cash payments are requested by shareholders in writing to the Fund,
dividends are automatically reinvested in additional shares of the Fund on
payment dates at the ex-dividend date net asset value without a sales charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Holders of shares of the Fund have easy access to shares of the other funds
comprising the Trust through an exchange program, and exchanges may be made at
net asset value without paying a redemption fee or sales charge upon such
exchange.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
Upon receipt by Signet Financial Services, Inc. of proper instructions and all
necessary supporting documents, shares submitted for exchange will be redeemed
at the next-determined net asset value and invested in shares of the other
participating fund. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration and reinvestment options for
dividends and capital gains as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In the case where the new account
registration is not identical to that of the existing account, a signature
guarantee is required. (See "Redeeming Shares-By Mail".) Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short- or long-term capital gain or loss may be realized.
The Fund reserves the right to modify or terminate the exchange privilege at any
time. Shareholders will be notified prior to any modification or termination of
this privilege. Shareholders may obtain further information on the exchange
privilege by calling Signet Financial Services, Inc. This privilege is available
to shareholders resident in any state in which the fund shares being acquired
may be sold.
BY TELEPHONE. Shareholders may provide instructions for exchanges between
participating funds by calling Signet Financial Services, Inc. toll-free at
1-800-723-9512. It is recommended that investors request this privilege at the
time of their initial application. Information on this service can be obtained
through Signet Financial Services, Inc. Shares may be exchanged by telephone
only between fund accounts having identical shareholder registrations. Exchange
instructions given by telephone may be electronically recorded. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
Any shares of the Fund held in certificate form cannot be exchanged by telephone
but must be forwarded to Signet Financial Services, Inc. and deposited to the
shareholder's mutual fund account before being exchanged.
Telephone exchange instructions must be received by Signet Financial Services,
Inc. before 3:00 p.m. (Eastern time) for shares of the Fund to be exchanged the
same day. The telephone exchange privilege may be modified or terminated at any
time. Shareholders will be notified of such modification or termination.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through banks, brokers, and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his bank, broker, or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Signet Financial Services, Inc.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems its shares at their net asset value, less any applicable
contingent deferred sales charge, next determined after Signet Financial
Services, Inc. or Signet Trust Company receives the redemption request.
Redemptions will be made on days on which the Fund computes its net asset value.
Telephone or written requests for redemption must be received in proper form by
Signet Financial Services, Inc. or Signet Trust Company.
BY TELEPHONE. To redeem shares of the Fund through Signet Financial Services,
Inc., call toll-free 1-800-444-7123. Trust and institutional investors should
contact their account officer to make redemption requests through Signet Trust
Company. Shares of the Fund will be redeemed at the net asset value, less any
applicable contingent deferred sales charge, next determined after the Fund
receives the redemption request from Signet Financial Services, Inc. or Signet
Trust Company.
A redemption request must be received by Signet Financial Services, Inc. or
Signet Trust Company before 4:00 p.m. (Eastern time) in order for shares of the
Fund to be redeemed at that day's net asset value. Redemption requests through
registered broker/dealers must be received by Signet Financial Services, Inc.
before 3:00 p.m. (Eastern time) in order for shares of the Fund to be redeemed
at that day's net asset value. Signet Financial Services, Inc. and Signet Trust
Company are responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. Other registered
broker/dealers may charge customary fees and commissions for this service.
If, at any time, the Fund should determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application.
If not completed at the time of initial application, authorization forms and
information on this service can be obtained through Signet Financial Services,
Inc. or Signet Trust Company. Telephone redemption instructions may be recorded.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail", should be considered.
BY MAIL. Shareholders may redeem shares of the Fund by sending a written
request to Signet Financial Services, Inc. Trust and institutional investors
should send a written request to Signet Trust Company. The written request
should include the shareholder's name, the Fund name, the account number, and
the share or dollar amount requested. If share certificates have been issued,
they must be properly endorsed and should be sent by registered or certified
mail with the written request to Signet Financial Services, Inc., P.O. Box
26301, Richmond, VA 23260.
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the SAIF, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from accounts in the Fund within five years of the
purchase date of those shares will be charged a contingent deferred sales charge
by the Fund's distributor. The charge will be based upon the lesser of the
original purchase price or the net asset value of the shares redeemed, as
follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
AMOUNT OF PURCHASE SALES CHARGE
------------------------------------ --------------------
<S> <C>
Under $100,000 2.0%
$100,000-$249,999 1.5%
$250,000-$399,999 1.0%
$400,000-$499,999 0.5%
$500,000 or more None
</TABLE>
Separate purchases will not be aggregated for purposes of determining the
applicable contingent deferred sales charge. In instances in which Fund shares
have been acquired in exchange for shares in other Virtus Funds, (i) the
purchase price is the price of the shares when originally purchased and (ii) the
five year period will begin on the date of the original purchase. The contingent
deferred sales charge will not be imposed on shares acquired (i) through the
reinvestment of dividends or distribution of capital gains, (ii) prior to
October 1, 1992, or (iii) in exchange for shares acquired prior to October 1,
1992. In computing the contingent deferred sales charge, if any, redemptions are
deemed to have occurred in the following order: 1) shares acquired through the
reinvestment of dividends and long-term capital gains, 2) shares purchased prior
to October 1, 1992 (including shares acquired in
exchange for shares purchased prior to October 1, 1992), 3) shares purchased
more than five years before the date of redemption, and 4) shares purchased
after October 1, 1992 and redeemed within five years of the date of purchase,
determined on a first-in, first-out basis.
The contingent deferred sales charge will not be imposed on redemption of shares
(i) following the death or disability (as defined in the Internal Revenue Code)
of a shareholder; (ii) to the extent that the redemption represents a minimum
required distribution from an IRA or other retirement plan to a shareholder who
has attained the age of 70 1/2; (iii) owned by the Trust Division of Signet
Trust Company or other affiliates of Signet Banking Corporation representing
funds which are held in a fiduciary, agency, custodial, or similar capacity;
(iv) or owned by directors and employees of the Fund, Signet Banking Corporation
or Federated Securities Corp. or their affiliates, or any bank or investment
dealer who has a sales agreement with Federated Securities Corp. with regard to
the Fund, and their spouses and children under 21; (v) or owned by non-trust
customers ("Customers") of fee-based planners, investment advisers or banking
institutions (collectively, "Institutions") where such Institutions have an
agreement with, and such Customers have a brokerage account with, Signet
Financial Services, Inc.; (vi) purchased through the Imprint program sponsored
by Signet Financial Services, Inc.; or (vii) if the proceeds from the redemption
are used to purchase a Strive variable annuity within 10 days of the redemption.
Contingent deferred sales charges are not charged when Fund shares are exchanged
for shares of any other portfolio of The Virtus Funds or when redemptions are
made by the Fund to liquidate accounts with low balances.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares are
redeemed at net asset value less any applicable contingent deferred sales
charge, to provide for periodic withdrawal payments in an amount directed by the
shareholder. Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to shares, and the
fluctuation of the net asset value of shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
shares of the Fund. For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in shares of the
Fund. To be eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for participation in
this program through Signet Financial Services, Inc.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$1,000 due to shareholder redemptions. This requirement does not apply, however,
if the balance falls below $1,000 because of changes in the Fund's net asset
value. Before shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional shares to meet
the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shareholders of that Fund or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the operation of the Trust or the Fund and
for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for obligations of
the Trust, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer. Signet Trust Company is subject to such
banking laws and regulations.
Signet Trust Company believes, based on the advice of its counsel, that Virtus
Capital Management, Inc. may perform the services for the Fund contemplated by
its advisory agreement with the Trust without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Changes in either federal
or state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such or future statutes and
regulations, could prevent Virtus Capital Management, Inc. from continuing to
perform all or a part of the above services for its customers and/or the Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of the Fund may
occur, including possible termination of any automatic or other Fund share
investment and redemption services then being provided by Virtus Capital
Management, Inc. It is not expected that existing shareholders would suffer any
adverse financial consequences (if another adviser with equivalent abilities to
Virtus Capital Management, Inc. is found) as a result of any of these
occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of The Virtus Funds will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distribution, including capital gains, received. This
applies whether dividends and distributions are received in cash or as
additional shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of shares of
the Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
From time to time, the Fund may advertise its performance using certain
reporting services and compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Strategic Stock Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Virtus Capital Management, Inc. 707 East Main Street
Suite 1300
Richmond, Virginia 23219
- ------------------------------------------------------------------------------------------------
Custodian
Signet Trust Company 7 North Eighth Street
Richmond, Virginia 23219
- ------------------------------------------------------------------------------------------------
Transfer Agent, and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
THE STRATEGIC STOCK FUND
(A PORTFOLIO OF THE VIRTUS FUNDS)
PROSPECTUS
An Open-End
Management Investment Company
March 6, 1995
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
G00528-01 (3/95)
THE STRATEGIC STOCK FUND
(A PORTFOLIO OF THE VIRTUS FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
The Strategic Stock Fund (the "Fund") of The Virtus Funds (the "Trust"), dated
March 6, 1995. This Statement is not a prospectus itself. To receive a copy of
the prospectus, write to or call the Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated March 6, 1995
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
U.S. Government Obligations 3
Repurchase Agreements 3
Reverse Repurchase Agreements 3
When-Issued and Delayed Delivery
Transactions 3
Lending of Portfolio Securities 4
Restricted Securities 4
INVESTMENT LIMITATIONS 4
- ---------------------------------------------------------------
THE VIRTUS FUNDS MANAGEMENT 6
- ---------------------------------------------------------------
Officers and Trustees 6
Fund Ownership 10
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
- ---------------------------------------------------------------
Adviser to the Fund 10
Advisory Fees 11
ADMINISTRATIVE SERVICES 11
- ---------------------------------------------------------------
CUSTODIAN 11
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 11
- ---------------------------------------------------------------
PURCHASING SHARES 12
- ---------------------------------------------------------------
Distribution Plan 12
DETERMINING NET ASSET VALUE 12
- ---------------------------------------------------------------
Determining Market Value of Securities 12
REDEEMING SHARES 12
- ---------------------------------------------------------------
Redemption in Kind 13
TAX STATUS 13
- ---------------------------------------------------------------
The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 13
- ---------------------------------------------------------------
YIELD 13
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 14
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated June 20, 1990. As of the date of this Statement, the Trust
consists of eight separate portfolios of securities (collectively, the "Funds",
individually, a "Fund") which are as follows: The U.S. Government Securities
Fund, The Stock Fund, The Virginia Municipal Bond Fund, The Maryland Municipal
Bond Fund, The Treasury Money Market Fund, The Money Market Fund, The Tax-Free
Money Market Fund, and The Strategic Stock Fund. On October 1, 1992, the name of
the Trust was changed from "The SBK Series" to "Signet Select Funds." On August
15, 1994, the name of the Trust was changed from "Signet Select Funds" to "The
Medalist Funds." On February 15, 1995, the name of the Trust was changed from
"The Medalist Funds" to "The Virtus Funds."
With the exception of The Tax-Free Money Market Fund and The Strategic Stock
Fund, the Funds are offered in two classes, Investment Shares and Trust Shares.
This Statement of Additional Information relates only to the shares of The
Strategic Stock Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide growth of capital. The investment
objective cannot be changed without approval of shareholders. Unless otherwise
indicated, the investment policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
TYPES OF INVESTMENTS
Acceptable investments include, among other investments, common stocks,
preferred stocks, corporate bonds, notes, warrants and convertible securities.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different
investment objectives.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in
which, in the investment adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, the Fund may hold or trade
convertible securities. In selecting convertible securities for the Fund,
the Fund's adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible
security, the Fund's adviser considers numerous factors, including the
economic and political outlook, the value of the security relative to
other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
WARRANTS
Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned common
stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of
the Fund, the Fund may attempt to hedge all or a portion of its portfolio
by buying and selling financial futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write
covered call options on portfolio securities to attempt to increase its
current income. The Fund will maintain its positions in securities,
option rights, and segregated cash subject to puts and calls until the
options are exercised, closed, or have expired. An option position on
financial futures contracts may be closed out only on an exchange which
provides a secondary market from options of the same series.
- --------------------------------------------------------------------------------
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer, who agrees to take delivery
of the security ("going long") at a certain time in the future. Financial
futures contracts call for the delivery of shares of common stocks
represented in a particular index.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio. When the
Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As stock prices fall, causing the
prices of futures to go down, the Fund's obligation under a call option
on a future (to sell a futures contract) costs less to fulfill, causing
the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's fixed income or
indexed portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin 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 contract, assuming all
contractual obligations have been satisfied.
A futures contact held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the
- --------------------------------------------------------------------------------
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its
open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. The Fund may only sell call options either
on securities held in its portfolio or on securities which it has the
right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options for those options on portfolio securities held by the Fund and
not traded on an exchange.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options
may not.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by the full faith and
credit of the U.S. Treasury, the issuer's right to borrow from the U.S.
Treasury, the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities, or the credit of the agency or
instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are the Farm Credit System, including
the National Bank for Cooperatives, Farm Credit Bank, and Banks for
cooperatives; Federal Home Loan Banks; Farmers Home Administration; and Federal
National Mortgage Association.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. In
the event that a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by a Fund might be delayed pending court action.
The Fund believes that under the regular procedures normally in effect for
custody of the Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial institutions
such as broker/dealers which are deemed by the adviser to be creditworthy
pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make
- --------------------------------------------------------------------------------
payment for the securities to be purchased are segregated on the Fund's records
at the trade date. These assets are marked to market daily and are maintained
until the transaction has been settled. The Fund does not intend to engage in
when issued and delayed delivery transactions to an extent that would cause the
segregation of more than 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Board of Trustees are quite liquid. The Fund
intends, therefore, to treat the restricted securities which meet the criteria
for liquidity established by the Trustees, including Section 4(2) commercial
paper, as determined by the Fund's investment adviser, as liquid and not subject
to the investment limitation applicable to illiquid securities. In addition,
because Section 4(2) commercial paper is liquid, the Fund intends to not subject
such paper to the limitation applicable to restricted securities.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amount
borrowed. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding.
BUYING ON MARGIN
The Fund will not purchase any securities on margin, but it may obtain
such short-term credits as may be necessary for clearance of
transactions. The deposit or payment by the Fund of initial or variation
margin in connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases the Fund may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of the Fund at the time of
the pledge. Margin deposits for the purchase and sale of financial
futures contracts and related options are not deemed to be a pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies, and limitations or the Trust's
Declaration of Trust.
- --------------------------------------------------------------------------------
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933
(except certain restricted securities which meet the criteria for
liquidity as established by the Board of Trustees). This exception
specifically extends to commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Board of Trustees.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts or
commodity futures contracts except for financial futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although the Fund may invest in securities secured
by real estate or interests in real estate or issued by companies,
including real estate investment trusts, which invest in real estate or
interests therein.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer (other than cash, cash items
or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by such securities), if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of their total assets
in any one industry.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as the Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
The above limitations cannot be changed with respect to the Fund without
approval of a majority of the Fund's shares. The following limitations may be
changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities determined by the Trustees not to be liquid.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of total assets in any one investment
company, and invest no more than 10% of total assets in investment
companies in general. The Fund will purchase securities of closed-end
investment companies only in open market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets. The adviser will waive its
investment advisory fee on assets invested in securities of open-end
investment companies.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
ARBITRAGE TRANSACTIONS
The Fund will not enter into transactions for the purpose of engaging in
arbitrage.
- --------------------------------------------------------------------------------
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest in warrants, except that the Fund may invest not
more than 5% of its net assets in warrants, including those acquired in
units or attached to other securities. To comply with certain state
restrictions, the Fund will limit its investment in such warrants not
listed on the New York or American Stock Exchanges to 2% of its net
assets. (If state restrictions change, this latter restriction may be
revised without notice to shareholders.) For purposes of this investment
restriction, warrants will be valued at the lower of cost or market,
except that warrants acquired by the Fund in units with or attached to
securities may be deemed to be without value.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of a Fund's total assets would be invested in premiums on open put
option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
SELLING SHORT
The Fund will not sell securities short unless (1) it owns, or has a
right to acquire, an equal amount of such securities, or (2) it has
segregated an amount of its other assets equal to the lesser of the
market value of the securities sold short or the amount required to
acquire such securities. The segregated amount will not exceed 5% of the
Fund's net assets. The dollar amount of short sales at any one time shall
not exceed 5% of the net equity of the Fund and the value of securities
of any one issuer in which the Fund is short may not exceed the lesser of
2% of the value of the Fund's net assets or 2% of the securities of any
class of any issuer. While in a short position, the Fund will retain the
securities, rights, or segregated assets.
Except with respect to the Fund's policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund has no present intent to borrow money, pledge securities or invest in
restricted or illiquid securities in excess of 5% of the value of its net assets
in the coming fiscal year.
The Fund (1) will limit the aggregate value of the assets underlying covered
call options or put options written by the Fund to not more than 25% of its net
assets, (2) will limit the premiums paid for options purchased by the Fund to
20% of its net assets, and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
THE VIRTUS FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
birth dates and present positions, including any affiliation with Signet Asset
Management, Signet Trust Company, Federated Investors, Federated Securities
Corp., Federated Services Company, and Federated Administrative Services or the
Funds (as defined below).
- --------------------------------------------------------------------------------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Corporation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Thomas G. Bigley
28th Floor
One Oxford Center
Pittsburgh, PA 15219
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
- --------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
- --------------------------------------------------------------------------------
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
- --------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
- --------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director, Trustee, or
Managing General Partner of the Funds.
- --------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+
5916 Penn Mall
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park Restaurants,
Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------
Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------
John E. Murray, Jr., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Director, Trustee or Managing
General Partner of the Funds.
- --------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
- --------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Craig P. Churman
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 17, 1958
Vice President and Assistant Treasurer of the Trust
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
- --------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President of the Trust
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services;
President or Vice President of the Funds; Director, Trustee, or Managing General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director, Federated
Research Corp.; Chairman and Director, Federated Securities Corp.; President or
Vice President of some of the Funds; Director or Trustee of some of the Funds.
- --------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
- --------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
As used in the table above, "Funds" includes the following investment companies:
American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated
Cash Management Trust; Automated Government Money Trust; California Municipal
Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust,
- --------------------------------------------------------------------------------
Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of the Fund.
TRUSTEES COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, POSITION COMPENSATION
WITH TRUST FROM THE TRUST*+
------------------ ------------------
<S> <C>
John F. Donahue $ 0
Chairman and Trustee
Thomas G. Bigley $ 0
Trustee
John T. Conroy, Jr. $1926.50
Trustee
William J. Copeland $1926.50
Trustee
James E. Dowd $1926.50
Trustee
Lawrence D. Ellis, M.D. $1748.00
Trustee
Edward L. Flaherty, Jr. $1926.50
Trustee
Peter E. Madden $1748.00
Trustee
Gregor F. Meyer $1748.00
Trustee
John E. Murray, Jr., J.D., S.J.D. $ 0
Trustee
Wesley W. Posvar $1748.00
Trustee
Marjorie P. Smutts $1748.00
Trustee
</TABLE>
* Information is furnished for the fiscal year ended September 30, 1994. The
Trust is the only investment company in the Fund Complex.
+ The aggregate compensation is provided for the Trust which is comprised of 8
portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE FUND
The Fund's investment adviser is Virtus Capital Management Inc., which is a
wholly-owned subsidiary of Signet Banking Corporation.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
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Because of internal controls maintained by Virtus Capital Management, Inc. to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of Virtus Capital Management, Inc. or its affiliates'
lending relationships with an issuer.
ADVISORY FEES
For its advisory services, Virtus Capital Management, Inc. receives an annual
investment advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation. If the Fund's monthly
projected operating expenses exceed this limitation, the investment
advisory fee paid will be reduced by the amount of the excess, subject to
an annual adjustment. If the expense limitation is exceeded, the amount
to be reimbursed by the adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee. This arrangement is
not part of the advisory contract and may be amended or rescinded in the
future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for the fees set
forth in the prospectus.
CUSTODIAN
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Signet Trust Company is custodian for the securities and cash of the Fund. Under
the Custodian Agreement, Signet Trust Company holds the Fund's portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties. The custodian receives a fee at an annual rate of a percentage of
the average net assets of the Fund. There is also a fee imposed on each
transaction.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser in advising the
Fund and other accounts. To the extent that receipt of these services may
supplant services for which the adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
PURCHASING SHARES
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Shares of the Fund are sold at their net asset value without a sales charge on
days the New York Stock Exchange is open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus under "Investing in
the Fund."
DISTRIBUTION PLAN
The Trust has adopted a distribution plan for shares of the Fund pursuant to
Rule 12b-1 (the "Plan") which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940. The Plan provides
that the Funds' distributor, Federated Securities Corp., shall act as the
distributor of shares, and it permits the payment of fees to brokers and dealers
for distribution and administrative services and to administrators for
administrative services. The Plan is designed to (i) stimulate brokers and
dealers to provide distribution and administrative support services to the Fund
and their holders of shares and (ii) stimulate administrators to render
administrative support services to the Fund and their holders of shares. These
services are to be provided by a representative who has knowledge of the holder
of shares' particular circumstances and goals, and include, but are not limited
to: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Trust reasonably requests.
Other benefits which the Fund hopes to achieve through the Plan include, but are
not limited to, the following: (1) an efficient and effective administrative
system; (2) a more efficient use of assets of holders of shares by having them
rapidly invested in the Fund with a minimum of delay and administrative detail;
and (3) an efficient and reliable records system for holders of shares and
prompt responses to shareholder requests and inquiries concerning their
accounts.
By adopting the Plan, the Board of Trustees expects that the Fund will be able
to achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Fund in seeking to achieve its investment objective. By identifying
potential investors in shares whose needs are served by the Fund's objective,
and properly servicing these accounts, the Fund may be able to curb sharp
fluctuations in rates of redemptions and sales.
DETERMINING NET ASSET VALUE
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Net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market value of the Fund's portfolio securities are determined as follows:
- - for equity securities, according to the last sale price on a national
securities exchange, if available;
- - in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
- - for unlisted equity securities, the latest bid prices;
- - for bonds and other fixed income securities, as determined by an independent
pricing service;
- - for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase at
amortized cost; or
- - for all other securities, at fair value as determined in good faith by the
Board of Trustees.
The Fund will value futures contracts, options, and put options on futures and
at their market values established by the exchanges at the close of option
trading on such exchanges unless the Board of Trustees determine in good faith
that another method of valuing option positions is necessary to appraise their
fair value. Over-the-counter put options will be valued at the mean between the
bid and asked prices.
REDEEMING SHARES
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The Fund redeems share at the next computed net asset value after the Fund
receives the redemption request, less a contingent deferred sales charge, if
applicable. Redemption procedures are explained in the prospectus under
"Redeeming Shares."
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REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the Board
of Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which a Fund is obligated to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of any class' net asset value
during any 90-day period. Although the Fund reserves the right to redeem shares
in kind, it will activate this right only after providing 60 days' notice to
shareholders.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
Capital gains or losses may be realized by the Fund on the sale of portfolio
securities and as a result of discounts from par value on securities held to
maturity. Sales would generally be made because of:
- - the availability of higher relative yields;
- - differentials in market values;
- - new investment opportunities;
- - changes in creditworthiness of an issuer; or
- - an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
TOTAL RETURN
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The average annual return for the Fund is the average compounded rate of return
for a given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed by
multiplying the number of shares owned at the end of the period by the maximum
offering price per share at the end of the period. The number of shares owned at
the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any additional
shares, assuming the monthly/quarterly reinvestment of all dividends and
distributions.
YIELD
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The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
share over a thirty-day period by the maximum offering price on the last day of
the period. This value is then annualized using semiannual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
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To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
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The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in the Fund's expenses; and
- - various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and complete offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the "growth and
income funds" category in advertising sales literature.
- - DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America, the DJIA
index is a leading economic indicator for the stock market as a whole.
- - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and public
utility companies, compares total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard & Poor's index
assumes reinvestment of all dividends paid by stocks listed on the index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the Standard & Poor's figures.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature may quote total returns which are
calculated on non-standardized base periods. These total returns also represent
the historic change in the value of an investment in either class of shares
based on monthly reinvestment of dividends over a specified period of time.
G00528-02 (3/95)
