<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1996.
No. 33-37963
_________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
POST-EFFECTIVE AMENDMENT NO.7 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 8 [x]
RETIREMENT SYSTEM FUND INC.
(Exact Name of Registrant as Specified in Charter)
317 Madison Avenue
New York, New York 10017-5397
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 503-0100
STEPHEN P. POLLAK, ESQUIRE
317 Madison Avenue
New York, New York 10017
(Name and Address of Agent for Service)
Copy to:
RICHARD W. GRANT, ESQUIRE
Morgan, Lewis & Bockius, LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
X immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
Registrant has elected to maintain registration of an indefinite number of
shares of its Common Stock, $.001 par value, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for its fiscal
year ended September 30, 1995 was filed with the Commission on November 21,
1995.
- --------------------------------------------------------------------------------
<PAGE>
RETIREMENT SYSTEM FUND INC.
January 29, 1996
Cross Reference Sheet
Registration
Statement
Items Required by Form N-1A Heading
Part A - Information Required in a Prospectus
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis ............................ Fee Table
Item 3. Condensed Financial Information ..... Financial Highlights
Item 4. General Description of Registrant ... RETIREMENT SYSTEM FUND INC; Other
Investment Policies; Investment
Restrictions; General Information
Item 5. Management of the Fund............... Management of the Fund;Investment
Advisory Services; Administrator;
Distributor; Custodian; Counsel
and Auditors
Item 5A. Management's Discussion of Fund
Performance.......................... **
Item 6. Capital Stock and Other Securities .. Cover Page; Distributions and
Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in the Fund;
Distributor
Item 8. Redemption or Repurchase ............ Redemption of Shares
Item 9. Pending Legal Proceedings ........... *
Part B - Information Required in a Statement of Additional Information
Item 10. Cover Page .......................... Cover Page
Item 11. Table of Contents ................... Table of Contents
Item 12. General Information and History .... The Fund
Item 13. Investment Objectives and Policies .. Additional Information about
Investment Policies and
Restrictions
Item 14. Management of the Fund .............. Administration of the Fund
Item 15. Control Persons and Principal
Holders of Securities ............... Administration of the Fund
Item 16. Investment Advisory and Other
Services ............................ Advisory and Other Services;
Counsel and Auditors
Item 17. Brokerage Allocation ................ Brokerage Allocation and
Portfolio Turnover
Item 18. Capital Stock and Other Securities .. See Prospectus General
Information;Description of Shares
- ---------------------------
* Omitted since the answer is negative or the item is not applicable.
** Information required by Item 5A. is contained in the Fund's 1995 Annual
Report.
<PAGE>
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ............. Valuation of Shares
Item 20. Tax Status ........................... Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters ......................... Distribution Agreement
Item 22. Calculation of Performance Data ...... Performance Information
Item 23. Financial Statements ................. Financial Statements
Part C - Other Information
Part C contains the information required by the items contained
therein under the items set forth in the form.
<PAGE>
TABLE OF CONTENTS
Page
Introduction..................................................
Fee Table.....................................................
Financial Highlights..........................................
Prospectus Summary............................................
The Fund......................................................
Core Equity Fund............................................
Value Equity Fund...........................................
Emerging Growth Equity Fund.................................
International Equity Fund...................................
Actively Managed Fixed-Income Fund..........................
Intermediate-Term Fixed-Income Fund.........................
Money Market Fund...........................................
Other Investment Policies and Risk Considerations.............
Cash Equivalents............................................
Options on Securities and Indices of Securities.............
Futures Transactions........................................
Foreign Securities..........................................
Foreign Currency Transactions...............................
Repurchase Agreements.......................................
Reverse Repurchase Agreements...............................
When-Issued Securities......................................
Lending Fund Securities.....................................
Investment Restrictions.......................................
Performance Information.......................................
How to Invest in the Fund.....................................
Purchase of Fund Shares.....................................
Periodic Purchases..........................................
Payroll Deductions .........................................
Exchanges...................................................
Investment in the Fund by New York Savings Banks............
Redemption of Shares..........................................
Distributions and Taxes.......................................
Dividends and Distributions.................................
Tax Treatment of Dividends and Distributions................
Tax Status of the Funds.....................................
Management of the Fund........................................
Investment Advisory Services................................
Distributor...................................................
Administrator.................................................
General Information...........................................
Description of Shares.......................................
Annual Meetings.............................................
Reports.....................................................
Shareholder Inquiries.......................................
Custodian...................................................
Counsel and Auditors........................................
Appendix....................................................
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or the Fund's Statement of
Additional Information incorporated herein by references, in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund or
its Distributor. This Prospectus does not constitute an offering by the Fund or
by the Distributor in any jurisdiction in which such offering may not lawfully
be made.
<PAGE>
RETIREMENT SYSTEM FUND INC.
PROSPECTUS
INTRODUCTION
Retirement System Fund Inc. ("Fund") is a mutual fund designed to
provide professional investment management and diversification of risk to
investors by offering shares in separate investment funds ("Investment Funds" or
"Funds"), each with a different investment objective. Currently investors may
purchase shares of the:
CORE EQUITY FUND, which seeks to achieve a total return in excess of
the total return of the Lipper Growth and Income Mutual Funds Average
measured over a period of three to five years, by investing primarily
in a broadly diversified group of large capitalization companies.
EMERGING GROWTH EQUITY FUND, which seeks to achieve, over time, a
total return in excess of the Lipper Small Company Growth Mutual Fund
Average by investing primarily in equity-based securities of companies
which are expected to experience rapid earnings growth.
INTERMEDIATE-TERM FIXED-INCOME FUND, which seeks to achieve a total
return in excess of the Lipper Intermediate (five to ten year
maturity) U.S. Government Mutual Funds Average by investing primarily
in a diversified portfolio of debt securities with an actual or
expected average life of under ten years.
MONEY MARKET FUND, which seeks to achieve as high a level of current
interest income as is consistent with maintaining liquidity and
stability of principal by investing in high quality, U.S.
dollar-denominated money market instruments with maturities of no more
than one year. An investment in the Fund is neither insured nor
guaranteed by the United States government. There is no assurance that
the Money Market Fund will be able to maintain a stable net asset
value of $1.00 per share.
In the future, the Fund expects to offer shares of the Value Equity
Fund, the International Equity Fund and the Actively Managed Fixed-Income Fund
that are described herein. The Fund has the authority to create additional
Investment Funds as well.
The name Retirement System Fund Inc. has no particular relationship to
the Fund's investment policy or strategy. The name of the Fund is derived from
the Fund's association with its advisor, Retirement System Investors Inc., its
distributor, Retirement System Distributors Inc. and its administrator,
Retirement System Consultants Inc.
Shares are available directly from the Fund's Distributor, Retirement
System Distributors Inc., P.O. Box 2064, Grand Central Station, New York, New
York 10163-2064, (800)772-3615, or through financial institutions that have
entered into Shareholder Servicing Agreements with the Fund. See, "How to Invest
in the Fund" on page 28 of this Prospectus.
<PAGE>
This Prospectus provides basic information that investors should know
about the Fund prior to investing, and should be retained for future reference.
A Statement of Additional Information dated January 29, 1996 has been filed with
the Securities and Exchange Commission and is hereby incorporated by reference.
It is available upon request and without charge by writing to the Fund or the
Distributor at the above address.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GURARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSOURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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 January 29, 1996
<PAGE>
FEE TABLE
Shown below are expenses for the various Investment Funds. Only the Core Equity
Fund, Emerging Growth Equity Fund, Intermediate-Term Fixed-Income Fund and Money
Market Fund are currently available.
<TABLE>
<CAPTION>
Emerging Actively Intermediate-
Core Value Growth International Managed Term Money
Equity Equity Equity Equity Fixed-Income Fixed-Income Market
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
I. Shareholder Transaction
Expenses
Sales Load on Purchases.......... None None None None None None None
Sales Load on Reinvested Dividends None None None None None None None
Deferred Sales Load.............. None None None None None None None
Redemption Fees.................. None None None None None None None
Exchange Fees.................... None None None None None None None
II. Annual Fund
Operating Expenses(A)
(after fee waivers)
Management Fees
(after fee waivers)(B).......... .60 .60 1.00 .60 .30 .40 .00
12b-1 Fees (after fee waivers)(C) .20 .20 .20 .20 .20 .20 .20
Other Expenses
(after fee waivers)(D).......... .20 .62 .80 1.41 .24 .40 .30
Total Annual Fund
Operating Expenses(E)........... 1.00 1.42 2.00 2.21 .74 1.00 .50
(after fee waivers and reimbursements)
III. Example: You would pay the following expenses in each of the Investment Funds on a $1,000 investment assuming (1) a 5%
annual return and (2) redemption at the end of each time period. (The example is based on expenses after fee waivers.)
1 year........................... $ 10.20 $ 14.45 $ 20.30 $ 22.41 $ 7.56 $ 10.20 $ 5.11
3 years.......................... $ 31.85 $ 44.95 $ 62.78 $ 69.15 $23.66 $ 31.85 $16.04
5 years.......................... $ 55.31 $ 77.75 $107.97 $118.68 $41.19 $ 55.31 $27.97
10 years......................... $123.15 $171.41 $234.71 $256.66 $92.24 $123.15 $63.02
The Example shown in the table should not be considered a representation of
future expenses. Actual expenses may be greater or less than those shown.
<PAGE>
(A) The Fund operating expenses set forth in this table reflect actual
expenses incurred by the Core Equity Fund, Emerging Growth Equity Fund
and Intermediate-Term Fixed-Income Fund for the fiscal year ended
September 30, 1995, shown as a percentage of a Fund's average net
assets for such period and estimated expenses for the Value Equity
Fund, International Equity Fund and Actively Managed Fixed-Income
Fund, respectively. Due to the continuous nature of Rule 12b-1 fees,
long-term shareholders of the Fund may pay more than the equivalent of
the maximum front-end sales charges permitted by the Rules of the Fair
Practice National Association of Securities Dealers, Inc.
(B) Absent voluntary waivers, management fees would be 1.20% of
average net assets of the Emerging Growth Equity Fund, .80% of average
net assets of the Value Equity Fund, .80% of average net assets of the
International Equity Fund and .45% of average net assets of the
Actively Managed Fixed-Income Fund and .25% of the average net assets
of the Money Market Fund. While the management fees paid by the
Emerging Growth Equity Fund, the Value Equity Fund and the
International Equity Fund are higher than the fees paid by most other
investment companies, the Fund's management believes that the fees are
comparable to, and in some cases lower than, the fees paid by other
investment companies with similar objectives and policies.
(C) Absent voluntary fee waivers, 12b-1 fees would be .25% for each
Fund.
(D) "Other Expenses" is based on amounts for the Core Equity Fund,
Emerging Growth Equity Fund, Intermediate-Term Fixed-Income Fund and
Money Market Fund for the 1995 fiscal year and an estimate for the
Value Equity Fund, International Equity Fund and Actively Managed
Fixed-Income Fund, and includes, among other things, custodial,
transfer agency, legal and auditing fees. Absent voluntary waivers,
"Other Expenses" would be 1.35% of average net assets of the Core
Equity Fund, 3.70% of average net assets of the Emerging Growth Equity
Fund, 2.02% of average net assets of the Value Equity Fund, 2.02% of
average net assets of the International Equity Fund, 2.40% of average
net assets of the Actively Managed Fixed-Income Fund, 1.34% of average
net assets of the Intermediate-Term Fixed-Income Fund and 3.72% of
average net assets of the Money Market Fund.
(E) Absent voluntary fee waivers, total annual Fund operating expenses
would be 2.20% of average net assets of the Core Equity Fund, 5.15% of
average net assets of the Emerging Growth Equity Fund, 3.07% of
average net assets of the Value Equity Fund, 3.07% of average net
assets of the International Equity Fund, 3.10% of average net assets
of the Actively Managed Fixed-Income Fund, 1.99% of average net assets
of the Intermediate-Term Fixed-Income Fund and 4.22% of average net
assets of the Money Market Fund.
The purpose of this table is to assist investors in understanding the
costs and expenses an investor in the Fund will bear directly and
indirectly. A person who purchases shares of the Fund through a
financial institution may be charged separate fees by the financial
institution and investors should review this Prospectus in conjunction
with any such institution with any such institution's fee schedule. In
addition, financial institutions may be required to register as
dealers pursuant to state securities laws. See, "Management of the
Fund - Investment Advisory Services" and "Management of the Fund
Administrator" for a more complete description of these costs and
expenses.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
Shown below are financial highlights for the Core Equity Fund, the Emerging
Growth Equity Fund, the Intermediate-Term Fixed-Income Fund and the Money Market
Fund during the indicated fiscal periods from the date operations commenced
through September 30, 1995. The following information for the years ended
September 30, 1992, 1993, 1994 and 1995 has been audited by McGladrey & Pullen,
LLP, independent auditors, whose report thereon, which is incorporated by
reference, appears in the Fund's 1995 Annual Report to Shareholders. The
financial information included in this table should be read in conjunction with
the financial statements incorporated by reference in the Statement of
Additional Information. Shares of the Value Equity Fund, the International
Equity Fund and the Actively Managed Fixed-Income Fund described in the Fund's
Prospectus are not yet available for sale to investors. The 1995 Report to
Shareholders contains additional performance information and is available at no
cost from the Fund by calling (800) 772-3615.
Core Equity Fund
Financial Highlights
(for a share outstanding throughout each period)
<TABLE>
<CAPTION>
From 5/10/91
(Commencement of
Year Year Year Year Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout each period)
Net Asset Value, beginning of year $12.72 $12.08 $10.98 $10.45 $10.00
----- ----- ----- ----- -----
Income from investment operations:
Investment income-net 0.13 0.15 0.18 0.23 0.14
Net realized and unrealized gain on investments 4.22 0.74 1.84 0.60 0.31
---- ---- ---- ---- ----
Total from Investment Operations 4.35 0.89 2.02 0.83 0.45
---- ---- ---- ---- ----
Distributions:
Distributions from capital gains (0.22) (0.11) (0.64) (0.08) --
Distributions from investment income-net (0.16) (0.14) (0.08) (0.22) --
------ ------ ------ ------
Total distributions (0.38) (0.25) (0.92) (0.30) --
------ ------ ------ ------ --
Net increase 3.97 0.64 1.10 0.53 0.45
---- ---- ---- ---- ----
Net Asset Value, end of year $16.69 $12.08 $12.72 $10.98 $10.45
====== ====== ====== ====== ======
Total Return*** 35.24% 7.47% 19.39% 8.11% 4.50%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income-net 1.52% 1.17% 1.31% 1.86% 3.31%
Decrease reflected in above expense ratio
due to expense reimbursement 1.30% 1.33% 2.43% 2.46% 1.80%
Portfolio turnover rate 25.49% 9.64% 21.79% 61.27% 12.49%
Net Assets at End of Year ($1,000's) $5,657 $3,639 $3,094 $1,049 $1,560
<FN>
* using average share basis
** Annualized
*** The total return calculation reflects dividend reinvestment.
</FN>
</TABLE>
<PAGE>
Emerging Growth Equity Fund
Financial Highlights
(for a share outstanding throughout each period)
<TABLE>
<CAPTION>
From 5/10/91
(Commencement of
Year Year Year Year Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout each period)
Net Asset Value, beginning of year $14.01 $14.74 $11.83 $10.54 $10.00
----- ----- ----- ----- -----
Income from Investment Operations:
Investment (loss)-net (0.12) (0.04) (0.13) (0.17) (0.02)
Net realized and unrealized gain on investments 5.49 1.58 4.36 1.49 0.56
---- ---- ---- ---- ----
Total from Investment Operations 5.37 1.54 4.23 1.32 0.54
---- ---- ---- ---- ----
Distributions:
Distributions from capital gains (0.33) (2.27) (1.21) (0.01) --
Distributions from investment income -- -- (0.11) -- --
Return of capital -- -- -- (0.02) --
----- ----- ----- ----- -----
Total distributions (0.33) (2.27) (1.32) (0.03) --
----- ----- ----- ----- -----
Net increase (decrease) 5.04 (0.73) 2.91 1.29 0.54
----- ----- ----- ----- -----
Net Asset Value, end of year $19.05 $14.01 $14.74 $11.83 $10.54
===== ===== ===== ===== =====
Total Return*** 39.20% 11.89% 38.05% 13.80% 5.40%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 1.85% 1.85% 1.85% 1.86% 1.85%**
Investment (loss)-net (1.33)% (1.37)% (1.34)% (1.10)% (0.46)%**
Decrease reflected in above expense ratio
due to expense reimbursement 3.30% 4.11% 6.41% 7.90% 0.85%**
Portfolio turnover rate 84.05% 72.59% 144.49% 138.46% 25.38%
Net Assets at End of Year ($1,000's) $2,950 $1,825 $1,352 $684 $602
<FN>
* using average share basis
** Annualized
*** The total return calculation reflects dividend reinvestment.
</FN>
</TABLE>
<PAGE>
Intermediate-Term Fixed-Income Fund
Financial Highlights
(for a share outstanding throughout each period)
<TABLE>
<CAPTION>
From 5/10/91
(Commencement of
Year Year Year Year Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout each year)
Net Asset Value, beginning of year $10.46 $10.46 $11.43 $11.00 $10.00
----- ----- ----- ----- -----
Income from Investment Operations:
Investment income-net 0.59 0.52 0.54 0.80 0.25
Net realized and unrealized gain (loss) on
investments 0.38 (0.85) 0.36 0.73 0.40
---- ---- ---- ---- ----
Total from Investment Operations 0.97 (0.33) 0.90 1.53 0.65
---- ---- ---- ---- ----
Distributions:
Distributions from capital gains (0.05) (0.08) -- (0.15) --
Distributions from investment income-net (0.57) (0.56) (0.47) (0.84) (0.19)
----- ----- ----- ----- -----
Total distributions (0.62) (0.64) (0.47) (0.99) (0.19)
----- ----- ----- ----- -----
Net increase (decrease) 0.35 (0.97) 0.43 0.54 0.46
----- ----- ----- ----- -----
Net Asset Value, end of year $10.81 $10.46 $11.43 $11.00 $10.46
===== ===== ===== ===== =====
Total Return*** 9.64% (2.99)% 8.47% 13.86% 6.58%
Ratios/Supplemental Data
Ratios to average net assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income-net 5.71% 5.76% 4.90% 5.59% 6.27%**
Decrease reflected in above expense ratio
due to expense reimbursement 1.09% 1.66% 3.33% 5.56% 1.80%**
Portfolio turnover rate 8.50% 8.68% 27.62% 8.66% 85.85%
Net Assets at End of Year ($1,000's) $5,136 $3,372 $2,159 $881 $423
<FN>
* using average share basis
** Annualized
*** The total return calculation reflects dividend reinvestment.
</FN>
</TABLE>
<PAGE>
Money Market Fund
Financial Highlights
(for a share outstanding throughout each period)
<TABLE>
<CAPTION>
From 5/10/91
(Commencement of
Year Year Year Year Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- ----- -----
Income from Investment Operations:
Investment income-net 0.05 0.03 0.03 0.04 0.03
---- ---- ---- ---- ----
Total from Investment Operations 0.05 0.03 0.03 0.04 0.03
---- ---- ---- ---- ----
Distributions:
Distributions from investment income-net (0.05) (0.03) (0.03) (0.04) (0.03)
----- ----- ----- ----- -----
Total distributions (0.05) (0.03) (0.03) (0.04) (0.03)
----- ----- ----- ----- -----
Net increase 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Net Asset Value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ===== ===== ===== =====
Total Return*** 5.20% 3.27%+ 2.77% 3.73% 3.30%
Ratios/Supplemental Data Ratios to average net assets:
Expenses 0.50% 0.42% 0.25% 0.44% 0.75%**
Investment income-net 5.15% 3.18% 2.94% 3.68% 4.60%**
Decrease reflected in above expense ratio
due to expense reimbursement 3.72% 3.47% 4.39% 5.19% 1.95%**
Net Assets at End of Year ($1,000's) $1,207 $1,112 $1,466 $664 $857
<FN>
* using average share basis
** Annualized
*** The total return calculation reflects dividend reinvestment.
+ Had an affiliate of the advisor not contributed capital to the fund to
reimburse a realized loss, the total return would have been 3.22%.
</FN>
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus and in the Statement
of Additional Information.
Retirement System Fund Inc. (the "Fund") is a diversified mutual fund
currently offering shares in the Core Equity Fund, the Emerging Growth Equity
Fund, the Intermediate-Term Fixed-Income Fund, and the Money Market Fund. The
Core Equity Fund seeks to achieve a total return in excess of the total return
of the Lipper Growth and Income Mutual Funds Average, measured over a period of
three to five years, by investing primarily in a broadly diversified group of
large capitalization companies. The Emerging Growth Equity Fund seeks to
achieve, over time, a total return in excess of the Lipper Small Company Growth
Mutual Fund Average by investing primarily in equity-based securities of
companies which are expected to experience rapid earnings growth. The
Intermediate-Term Fixed-Income Fund seeks to achieve a total return in excess of
the Lipper Intermediate (five to ten year maturity) U.S. Government Mutual Funds
Average by investing primarily in a diversified portfolio of debt securities
with an actual or expected average life of under ten years. The Money Market
Fund seeks to achieve as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal by investing in
high quality, U.S. dollar-denominated money market instruments with maturities
of no more than one year. In the future, the Fund expects to offer shares of the
Value Equity Fund, the International Equity Fund and the Actively Managed
Fixed-Income Fund that are described herein. See, "The Fund."
The Fund may pursue certain investment policies and strategies
including: investing in options on securities and indices of securities;
engaging in futures transactions; acquiring foreign securities; investing in
foreign currency transactions; investing in repurchase agreements; acquiring
when-issued securities; and lending Fund securities. See, "Other Investment
Policies and Risk Considerations" for a description of these policies and
strategies, the risks and limitations, and the extent to which the Fund may
pursue them.
Shares are available directly from the Fund's Distributor or through
financial institutions that have entered into Shareholder Servicing Agreements
with the Fund. The minimum initial investment is $500 and the minimum subsequent
investment in the Fund is $250. Purchases are effected at the net asset value
per share next determined after receipt at the Fund's offices of a properly
completed purchase order. Net asset value is determined as of the close of the
New York Stock Exchange, currently 4:00 P.M., on each day the Exchange is open
by adding the value of all the assets of a Fund, subtracting liabilities, and
dividing by the number of shares outstanding. Securities are valued at their
market prices where possible. See, "How to Invest in the Fund -- Purchase of
Fund Shares."
Shareholders may submit their shares for redemption on any day that
the New York Stock Exchange is open and properly completed redemption requests
will be effected at the net asset value per share next determined after the
receipt of such request by the Fund. Payment for redeemed shares will be made by
check, unless arrangements have been made in advance for payment by wire
transfer, not later than seven days after receipt of written redemption requests
in proper form. See, "Redemption of Shares."
<PAGE>
Retirement System Investors Inc. (the "Investment Advisor") is the
investment advisor to each Investment Fund. Certain Investment Funds have
engaged independent investment managers to make and effect decisions on buying
and selling portfolio securities. The Investment Advisor acts as investment
manager to the remaining Investment Funds and, in the case of all Investment
Funds, exercises general oversight with respect to portfolio management and
reports to the Board of Directors with respect thereto. See, "Management of the
Fund -- Investment Advisory Services."
The Fund and the Distributor have entered into a Distribution
Agreement pursuant to which the Distributor will distribute and promote the sale
of shares of the Investment Funds. Each Investment Fund has adopted a Plan of
Distribution under which payments are made to the Distributor to compensate the
Distributor and to help defray the cost of offering shares. See, "Distributor."
THE FUND
The Fund consists of seven diversified Investment Funds, each with a
different set of investment objectives and policies. There can be no assurance
that the investment objective of any Fund can be attained. The term "investment
manager" as used herein in reference to any Investment Fund means the investment
advisor or sub-advisor that is managing the portfolio of such Fund or any
segment thereof. See, "Management of the Fund -- Investment Advisory Services."
The following sets forth the investment objectives and policies
particular to each of the Investment Funds. See, "Appendix" for a description of
certain rating categories discussed below.
Core Equity Fund
The Core Equity Fund seeks to achieve a total return in excess of the
total return of the Lipper Growth and Income Mutual Funds Average, measured over
a period of three to five years, by investing primarily in a broadly diversified
group of large capitalization companies. The Fund seeks this objective primarily
through capital appreciation with income as a secondary consideration. The Fund
will invest in securities of companies which the investment manager believes to
be financially sound and will consider such factors as the sales, growth and
profitability prospects for the economic sector and markets in which the company
operates and for the services or products it provides; the financial condition
of the company; its ability to meet its liabilities and to provide income in the
form of dividends; the prevailing price of the security; how that price compares
to historical price levels of the security, to current price levels in the
general market, and to the prices of competing companies; projected earnings
estimates and earnings growth rate of the company, and the relation of those
figures to the current price.
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Under normal circumstances, the Core Equity Fund expects to be as
fully invested as practicable in equity-based securities, primarily common
stocks, and will be at least 65% so invested. Equity-based securities may
include securities convertible into common stocks and warrants to purchase
common stocks.
In general, the Fund will invest in stocks of companies with market
capitalizations in excess of $750 million. Although there is no assurance that
the Fund will meet its objective, the securities held in the Core Equity Fund
will generally reflect the price volatility of the broad equity market (i.e.,
the Standard & Poor's 500 Index).
For temporary defensive purposes, the Fund may invest up to 100% of
its total assets in cash equivalents. The Fund may also pursue certain
additional investment policies and strategies including: investing in options on
securities and indices of securities; engaging in futures transactions;
acquiring foreign securities; investing in foreign currency transactions;
investing in repurchase agreements; acquiring when-issued securities; and
lending Fund securities. See, "Other Investment Policies and Risk
Considerations" for a description of these policies and strategies, their risks
and limitations, and the extent to which the Fund may pursue them.
Portfolio Manager
Mr. James P. Coughlin, President and Chief Investment Officer of
Retirement System Investors Inc. ("Investors"), has been the portfolio manager
for the Core Equity Fund since its inception in May 1991. Mr. Coughlin also
serves as Executive Vice President - Investments for the Fund. His prior
experience in the investment management business, as a research analyst and
portfolio manager, was with the economic and investment counsel firm of Lionel
Edie & Co., which for a time was a subsidiary of Merrill Lynch and eventually
part of Manufacturers Hanover. An honors graduate of Iona College, Mr. Coughlin
holds a Bachelor of Arts degree in economics. He received a Master of Business
Administration degree in Finance from New York University Graduate School of
Business and is a Chartered Financial Analyst (CFA).
Value Equity Fund
The Value Equity Fund seeks to achieve a total return in excess of the
total return of the Lipper Growth and Income Mutual Funds Average, measured over
a period of three to five years, by investing primarily in securities of
companies the investment manager perceives to be undervalued in the equity
markets and to offer prospects for significant earnings or dividend growth
relative to their market prices. The Fund seeks this objective primarily through
capital appreciation.
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Under normal circumstances, the Fund expects to be as fully invested
as practicable in equity-based securities, primarily common stock, and will be
at least 65% so invested. Equity-based securities may include securities
convertible into common stocks and warrants to purchase common stocks.
Undervalued companies generally will have price/earnings and
price-to-book ratios that are lower than average relative to (i) the
corresponding ratios of the average company in a similar industry included in
broad stock market indices (e.g., the Standard & Poor's 500 Composite Stock
Price Index), or (ii) the company's historical price/earnings and price-to-book
ratios.
In general, the Value Equity Fund invests primarily in stocks of
companies with market capitalizations in excess of $750 million. The Value
Equity Fund generally will have a lower degree of risk than the Emerging Growth
Equity Fund and a slightly higher degree of risk than the Core Equity Fund.
For temporary defensive purposes, the Fund may invest up to 100% of
its total assets in cash equivalents. The Fund may also pursue certain
additional investment policies and strategies including: investing in options on
securities and indices of securities; engaging in futures transactions;
acquiring foreign securities; investing in foreign currency transactions;
investing in repurchase agreements; acquiring when-issued securities; and
lending Fund securities. See, "Other Investment Policies and Risk
Considerations" for a description of these policies and strategies, their risks
and limitations, and the extent to which the Fund may pursue them.
Emerging Growth Equity Fund
The Emerging Growth Equity Fund seeks to achieve a total return in
excess of the Lipper Small Company Growth Mutual Fund Average, measured over a
period of three to five years, by investing primarily in equity-based securities
of companies which are expected by the investment manager to experience rapid
earnings growth. The following types of companies frequently offer rapid
earnings growth: newer companies that are able to identify and service a market
niche; more mature companies that restructure their operations or develop a new
product or service that enhances the company's sales and profit growth
potential; and small to medium-sized companies (i.e., companies with market
capitalizations from $50 million to $750 million at time of purchase) that,
because of successful market penetration, expect to experience accelerating
revenue and earnings growth. Under normal circumstances, the Fund expects to be
as fully invested as practicable in equity-based securities, primarily common
stocks, and will be at least 65% so invested. Equity-based securities may
include securities convertible into common stocks and warrants to purchase
common stocks.
<PAGE>
Emerging growth companies generally exhibit the following
characteristics relative to the average company in a similar industry included
in broad stock market indices (e.g., the Standard & Poor's 500 Composite Stock
Price Index): (i) higher than average return on equity, (ii) higher than average
earnings and dividend growth potential as perceived by the investment manager,
and (iii) smaller than average market capitalization.
The securities of the Emerging Growth Equity Fund generally will have
a higher degree of risk and price volatility than those of the Core Equity and
Value Equity Funds and a lower income return than these Funds.
For temporary defensive purposes, the Fund may invest up to 100% of
its total assets in cash equivalents. The Fund may also pursue certain
additional investment policies and strategies including: investing in options on
securities and indices of securities; engaging in futures transactions;
acquiring foreign securities; investing in foreign currency transactions;
investing in repurchase agreements; acquiring when-issued securities; and
lending Fund securities. See, "Other Investment Policies and Risk
Considerations" for a description of these policies and strategies, their risks
and limitations, and the extent to which the Fund may pursue them.
Portfolio Manager
Richard M. Frucci, Senior Vice President of The Putnam Advisory
Company, Inc. has, since February 28, 1994, primary responsibility for the
day-to-day management of the Emerging Growth Equity Fund. Mr. Frucci has been
employed by Putnam since 1984.
International Equity Fund
The International Equity Fund seeks to achieve a total return in
excess of the Lipper International Mutual Funds Average, measured over a period
of three to five years. The International Equity Fund invests primarily in
equity securities of non-United States companies and at least 65% of its assets
will be invested in equity securities of companies in at least three countries
(other than the United States). The Fund may also invest in securities of
non-United States governments and their agencies and may also invest in
securities of United States companies which derive, or are expected to derive, a
substantial portion of their revenues from operations outside the United States.
Investments in such United States companies will normally be less than 10% of
the Fund's total assets.
The Fund may enter into forward foreign currency exchange contracts,
foreign currency futures contracts and related options to protect against
uncertainty in the level of future foreign exchange rates. See, "Other
Investment Policies and Risk Considerations -- Foreign Currency Transactions".
Under normal circumstances, the Fund will invest primarily in equity securities
(common stocks and other equity-based securities, such as securities convertible
<PAGE>
into common stocks and warrants to purchase common stocks), but the Fund may
have up to 25% of its total assets invested in debt securities. Such debt
securities must be assigned (or determined by the investment manager to be equal
to) a rating of "A" or better from Moody's Investors Services, Inc., Standard &
Poor's Corporation, Fitch Investors Service, Inc. or another nationally known
rating service. See, "Appendix" for an explanation of the ratings.
The International Equity Fund invests in securities of a diversified
group of larger companies whose market capitalization normally would be more
than $750 million. Investments in companies with a market capitalization of less
than $750 million should normally not exceed 15% of the Fund's total assets.
Equity securities of a company will be selected considering such
factors as the sales, growth and profitability prospects for the economic sector
and markets in which the company operates and for the products or services it
provides; the financial condition of the company, its ability to meet its
liabilities and to provide income in the form of dividends; the prevailing price
of the security; how that price compares to historical price levels of the
security, to current price levels in the general market, and to the prices of
competing companies; and projected earnings estimates and earnings growth rate
for the company, and the relation of those figures to the current price of the
security.
Investments in debt securities will be based on judgments by the
investment manager of the quality of the securities. These judgments may be
based upon such considerations as: (i) the issuer's financial strength,
including its historic and current financial condition, its historic and
projected earnings and its present and anticipated cash flow; (ii) the issuer's
debt maturity schedules and current and future borrowing requirements; and (iii)
the issuer's continuing ability to meet its future obligations. In addition,
emphasis will be placed on comparative geographical and economic evaluation,
which will require fundamental analysis of the economies, currencies, financial
markets and other variables of the various countries in which investments may be
made.
Investments in securities of non-United States issuers and in
securities involving foreign currencies entail investment risks that are
different from investments in securities of United States issuers involving no
foreign currency, including the effect of different economies, changes in
currency rates, controls or other governmental restrictions. There is also less
publicly available information about a non-United States issuer than about a
domestic issuer, and non-United States issuers are not subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers. Stock exchanges
outside the United States may have substantially less volume than United States
exchanges and securities of some non-United States companies are less liquid and
more volatile than securities of comparable domestic issuers. There is generally
less government regulation of stock exchanges, brokers and listed companies
outside the United States. In addition, with respect to certain countries, there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect investments
in securities of issuers located in those countries.
<PAGE>
For temporary defensive purposes, the Fund may invest up to 100% of
its total assets in cash equivalents. The Fund may also pursue certain
additional investment policies and strategies including: investing in options on
securities and indices of securities; engaging in futures transactions;
investing in repurchase agreements; acquiring when-issued securities; and
lending Fund securities. See "Other Investment Policies and Risk Considerations"
for a description of these policies and strategies, their risks and limitations,
and the extent to which the Fund may pursue them.
Actively Managed Fixed-Income Fund
The Actively Managed Fixed-Income Fund seeks to achieve a total return
in excess of the Lipper U.S. Government Bond Funds Average, measured over a
period of three to five years, by investing primarily in fixed-income securities
which the investment manager believes to be of good quality.
Under normal circumstances, the Fund will be as fully invested as
practicable in fixed-income securities and will be at least 65% so invested. In
light of the Fund's objective, the investment manager will consider the
potential for capital appreciation, as well as yield, in selecting investments.
The investment manager will be free to take full advantage of the entire range
of maturities in the debt securities markets and will adjust the structure of
the Fund from time to time, particularly its average maturity, depending on the
investment manager's assessment of interest rate and market factors.
Accordingly, obtaining successful results in the Fund will depend significantly
upon the investment manager's ability to forecast interest rate and bond market
movements.
The Actively Managed Fixed-Income Fund invests in securities of United
States corporations only if at the time of purchase they carry a rating of "A"
or better from Moody's Investors Services, Inc., Standard & Poor's Corporation,
Fitch Investors Service, Inc. or another nationally known rating service. See,
"Appendix" for an explanation of the ratings. The Actively Managed Fixed-Income
Fund may also invest in obligations issued or guaranteed by the United States
government, its agencies or instrumentalities.
The Fund will observe the following policies: (i) at least 75% of the
Fund, taken at market value, must be in securities having a rating at the time
of purchase of "Aa" or better from Moody's Investors Services, Inc., "AA" or
better from Standard & Poor's Corporation or Fitch Investors Services, Inc. or
an equivalent rating from another nationally known rating service or must
consist of securities issued or guaranteed by the United States government or
its agencies or instrumentalities; (ii) at least 65% of the Fund must be
invested in securities issued or guaranteed by the United States government or
its agencies or instrumentalities; and (iii) the balance of the Fund must be
invested in securities of United States corporations rated "A" or better by one
of the above rating agencies and other debt securities (e.g., securities of
foreign issuers), which, in the judgment of the investment manager, would be of
comparable quality to United States securities having a rating of "A" or better
by one of the above rating agencies. See, "Appendix" for an explanation of the
ratings.
<PAGE>
As noted above, the Fund may also invest in securities of foreign
issuers which, in the judgment of the investment manager, would be of comparable
quality to United States securities having a rating of "A" or better by one of
the above rating agencies. See, "Other Investment Policies and Risk
Considerations -- Foreign Securities." The Fund may also acquire zero-coupon
obligations that do not pay interest currently but that are purchased at a
discount and payable in full at maturity. The value of such obligations may be
subject to greater market fluctuations from changing interest rates prior to
maturity than other debt obligations of similar maturities and yields.
Changes in interest rates will cause the value of securities held in
the Fund's portfolio to vary inversely to changes in prevailing interest rates.
If, however, a security is held to maturity, no gain or loss will be realized as
a result of changes in prevailing rates. The value of these securities will also
be affected by general market and economic conditions and by the
creditworthiness of the issuer. Fluctuations in the value of the Fund's
securities will cause net asset value per unit to fluctuate.
For temporary defensive purposes, the Fund may invest up to 100% of
its total assets in cash equivalents. The Fund may also pursue certain
additional investment policies and strategies including: investing in options on
securities and indices of securities; engaging in futures transactions;
acquiring foreign securities; investing in foreign currency transactions;
investing in repurchase agreements; acquiring when-issued securities; and
lending Fund securities. See, "Other Investment Policies and Risk
Considerations" for a description of these policies and strategies, their risks
and limitations, and the extent to which the Fund may pursue them.
Intermediate-Term Fixed-Income Fund
The Intermediate-Term Fixed-Income Fund is a diversified portfolio of
fixed-income securities which seeks to achieve a total return in excess of the
Lipper Short-Intermediate (five to ten year) U.S. Government Mutual Funds
Average, measured over a period of three to five years. The returns are sought
through a high level of current income with consideration also given to the
safety of principal through investments in fixed-income securities either
maturing within 10 years or having an expected average life of under 10 years.
The Fund is managed within an average portfolio maturity range of 2 1/2 years to
a maximum of 5 years and an average duration range from 2 1/2 years to 4 years.
Under normal circumstances, the Fund will be as fully invested as
practicable in fixed-income securities and will be at least 65% so invested. In
seeking total return, the investment manager will focus principally on a high
level of current income, with consideration also given to safety of principal.
The Fund will attempt to purchase only securities which were part of an original
<PAGE>
issue of $100 million or more. The investment manager will also consider the
nature of the issuer's business; the industry under which it is classified; the
issuer's financial strength, including its historic and projected earnings and
its present and anticipated cash flow; the issuer's debt maturity schedules and
current and future borrowing requirements; and the issuer's continuing ability
to meet its future obligations.
The Fund will observe the following policies: (i) at least 75% of the
Fund, taken at market value, must be in securities having a rating at the time
of purchase of "Aa" or better from Moody's Investors Services, Inc., "AA" or
better from Standard & Poor's Corporation or Fitch Investors Services, Inc. or
an equivalent rating from another nationally known rating service or must
consist of securities issued or guaranteed by the United States government or
its agencies or instrumentalities; (ii) at least 65% of the Fund must be
invested in securities issued or guaranteed by the United States Government or
its agencies or instrumentalities; and (iii) the balance of the Fund must be
invested in securities of United States corporations rated "A" or better by one
of the above rating agencies, and other debt securities (e.g., securities of
foreign issuers), which, in the judgment of the investment manager, would be of
comparable quality to United States securities having a rating of "A" or better
by one of the above rating agencies. See, "Other Investment Policies and Risk
Considerations-Foreign Securities." See also, "Appendix" for an explanation of
the ratings.
Changes in interest rates will cause the value of securities held in
the Fund to vary inversely to changes in prevailing interest rates. If, however,
a security is held to maturity, no gain or loss will be realized as a result of
changes in prevailing rates. The value of these securities will also be affected
by general market and economic conditions and by the creditworthiness of the
issuer. Fluctuations in value of the Fund securities will cause net asset value
per unit to fluctuate.
As noted above, the Fund may invest in securities issued and backed by
the full faith and credit of the United States Treasury, as well as obligations
issued by agencies or instrumentalities of the United States government. These
obligations may or may not be backed by the full faith and credit of the United
States government. Certain agencies or instrumentalities of the United States
government, such as the United States Postal Service and the Government National
Mortgage Association, have the right to borrow from the United States Treasury
to meet their obligations but in other instances obligations are supported only
by the credit of the issuing agency (e.g., the Federal National Mortgage
Association and the Federal Farm Credit System).
The portfolio structure of the Intermediate-Term Fixed-Income Fund is
distributed among sectors or industries with no more than 25% of such portfolio
invested in securities of any one sector of the corporate bond market. The Fund
attempts to purchase only securities which were part of an original issue of
$100 million or more.
Non-income producing securities to be held in the Intermediate-Term
Fixed-Income Fund may include zero-coupon obligations of corporations,
instruments evidencing ownership of future interest or principal payments on
United States Treasury Bonds and collateralized mortgage obligations. (See the
next paragraph for a discussion of collateralized mortgage obligations.)
<PAGE>
Zero-coupon obligations pay no current interest. Zero-coupon obligations are
sold at prices discounted from par value, with that par value to be paid to the
holder at maturity. The return on a zero-coupon obligation, when held to
maturity, equals the difference between the par value and the original purchase
price. Zero-coupon obligations may be purchased if the yield spread between
these obligations and coupon issues is considered advantageous, giving
consideration to the duration of the two alternative investments. The market
value of a zero-coupon obligation is generally more volatile than that of an
interest-bearing obligation and, as a result, if a zero-coupon obligation is
sold prior to maturity under unfavorable market conditions, the loss that may be
sustained on such sale may be greater than on the sale of an interest-bearing
obligation of similar yield and maturity.
From time to time the Fund may invest in collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities. CMOs
generally represent a participation in, or are secured by, a pool of mortgage
loans. The CMOs in which the Fund may invest are limited to United States
government and related securities (including those of agencies or
instrumentalities) such as CMOs issued by GNMA, FNMA and FHLMC. Stripped
mortgage securities are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage assets. The Fund may invest in both the interest-only or "IO" class and
the principal-only or "PO" class. The yield to maturity on an IO class is
extremely sensitive not only to changes in prevailing interest rates but also to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on the Fund's yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities. Conversely,
POs tend to increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated.
For temporary defensive purposes, the Fund may invest up to 100% of
its total assets in cash equivalents. The Fund may also pursue certain
additional investment policies and strategies including: investing in options on
securities and indices of securities; engaging in futures transactions;
acquiring foreign securities; investing in foreign currency transactions;
investing in repurchase agreements; acquiring when-issued securities; and
lending Fund securities. See, "Other Investment Policies and Risk
Considerations" for a description of these policies and strategies, their risks
and limitations, and the extent to which the Fund may pursue them.
Portfolio Manager
Since inception (May 1991), the Intermediate-Term Fixed-Income Fund
had been co-managed by James P. Coughlin, President, and Herbert Kuhl, Jr. of
Retirement System Investors Inc. ("Investors"), until Mr. Kuhl's retirement in
November 1995. Upon Mr. Kuhl's retirement, he was replaced by Michael Egan and
Deborah A. Modzelewski as co-managers. The three managers each play an important
<PAGE>
role in the Investment Fund's management process. They work closely together to
develop investment strategies and select securities for the Investment Fund's
portfolio. Mr. Coughlin also serves as Executive Vice President -- Investments
for the Fund. He joined Retirement System for Savings Institutions (predecessor
to Investors Inc.) in 1984. His prior investment experience, both with domestic
equities and fixed-income securities, was with the economic and investment
counsel firm of Lionel Edie & Co., which for a time was a subsidiary of Merrill
Lynch and eventually part of Manufacturers Hanover. He is an honors graduate of
Iona College with a Bachelor of Arts degree in economics and received a Master
of Business Administration degree in Finance from New York University Graduate
School of Business. Mr. Coughlin is a Chartered Financial Analyst. Ms.
Modzelewski joined Retirement System in September, 1984 and she has been
responsible for money market investments and cash management for all investment
funds managed by Investors Inc. and has handled the day to day portfolio
management of the Fund's Money Market Fund and RSI Retirement Trust's Short-Term
Investment Fund. A graduate of New York University, Ms. Modzelewski holds a
Bachelor of Science degree in Finance and International Business. She also
received a Master of Business Administration degree in Finance from St. John's
University. Mr. Egan joined Investors Inc. in October, 1995 with over 20 years
of experience in securities research and fixed-income investments. Prior to
joining the company, he was with the State of New York Banking Department, where
he was responsible for examining banks' safety and soundness, and for assessing
the risks associated with banks' trading activities in new instruments. Mr. Egan
was also employed by Oppenheimer & Co., Inc., and Morgan Guaranty Trust
Co.--J.P. Morgan Investment Management, Inc. in various investment management
capacities. He is a graduate from the University of Missouri with a degree in
Banking and Finance and attended the New York Graduate School of Business.
Money Market Fund
The Money Market Fund seeks as high a level of current interest income
as is consistent with maintaining liquidity and stability of principal by
investing in high quality, U.S. dollar-denominated money market instruments with
maturities of one year or less. In pursuing this objective, the Fund may invest
in a broad range of United States government, bank and commercial obligations
that may be available in money markets. In addition, all portfolio investments
must meet the definition of "Eligible Security" as set forth in Rule 2a-7 under
the Investment Company Act of 1940. The following descriptions illustrate the
types of high quality money market instruments in which the Fund may invest.
The Fund may invest in bills, notes, bonds and other obligations
issued and backed by the full faith and credit of the United States Treasury, as
well as obligations issued by agencies or instrumentalities of the United States
government. These obligations may or may not be backed by the full faith and
credit of the United States government. Certain agencies or instrumentalities of
the United States government, such as the United States Postal Service and the
Government National Mortgage Association, have the right to borrow from the
United States Treasury to meet their obligations but in other instances
obligations are supported only by the credit of the issuing agency (e.g., the
Federal National Mortgage Association and the Federal Farm Credit System).
<PAGE>
The Fund may also invest in United States dollar-denominated
obligations of United States and foreign banks, including certificates of
deposit, bankers' acceptances and time deposits. Securities of United States
banks (including their foreign branches) are eligible if the investment manager
determines the institutions are creditworthy and: (i) if they are members of the
Federal Reserve System; (ii) if they are subject to examination by the
Comptroller of the Currency; (iii) if the banks have outstanding a class of
unsecured debt obligations rated "AA" or better by a nationally recognized
rating agency or, if unrated, of comparable quality as determined by the
investment manager; or (iv) if, and to the extent, the instrument is insured by
the Federal Deposit Insurance Corporation. It is the present policy of the Fund
not to invest in time deposits subject to withdrawal penalties, other than
overnight deposits, if more than 10% of the value of its total assets would be
invested in such deposits or other illiquid securities.
The Fund may also invest in commercial paper rated P-1 by Moody's
Investors Services, Inc., and A-1 or better by Standard & Poor's Corporation,
and in corporate bonds, debentures and notes that are callable on demand or that
have a remaining maturity of less than one year and that are rated "AA" or
better by a nationally recognized rating agency or, if unrated, are of
comparable quality as determined by the investment manager. If the issuer also
has outstanding short-term debt, it must have a commercial paper rating as noted
above, or an "AA" rating (of the equivalent) for other short-term debt. These
corporate obligations may include variable amount master demand notes which are
unsecured demand notes that permit investment of fluctuating amounts of money at
variable rates of interest pursuant to arrangements with issuers which meet the
foregoing quality criteria. Although there is no secondary market in master
demand notes, the payee may demand payments of the principal amount of the note
on relatively short notice. All master demand notes acquired by the Fund will be
payable within a prescribed notice period not to exceed seven days.
The Fund may also enter into repurchase agreements with respect to
United States government securities. For a description of repurchase agreements,
see, "Other Investment Policies and Risk Considerations -- Repurchase
Agreements." United States government securities underlying such repurchase
agreements may have maturities of greater than one year but the repurchase
agreement itself must mature in less than one year. The Fund will not enter into
a repurchase agreement with a maturity of greater than seven days if as a result
more than 10% of the Fund's assets would be invested in illiquid securities,
including all repurchase agreements with maturities of greater than seven days.
The Fund may also acquire when-issued securities and lend Fund securities. See,
"Other Investment Policies and Risk Considerations" for a description of these
policies and strategies, their risks and limitations, and the extent to which
the Fund may pursue them.
The Fund will attempt to maintain a constant net asset value per share
of $1.00 by complying with applicable SEC requirements which include, among
other things, certain quality and maturity restrictions. However, there can be
no assurance that the Fund will be able to maintain a constant net asset value
per share.
<PAGE>
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Except as noted, each of the Investment Funds may employ the following
investment policies and strategies.
Cash Equivalents
Cash equivalents include instruments that the Money Market Fund may purchase.
Options on Securities and Indices of Securities
Each Fund (other than the Money Market Fund) may purchase or sell (or write)
exchange-traded options on securities or indices of securities and may enter
into closing transactions with respect thereto. An option on a security gives
the purchaser the right, in return for the payment of a premium, to acquire (in
the case of a call option) or sell (in the case of a put option) the security at
a specified price. Index options are similar but are settled by delivery of a
cash payment based on the difference between the contract price and the value of
the index at the time of maturity or termination of the contract.
A Fund may sell (or write) a covered call option or a secured put
option in order to earn premium income. Covered calls also, to the extent of the
premium, provide a hedge against a decline in the value of a security or of
securities generally. A Fund may acquire a call as a means of taking advantage
of anticipated price increases or may acquire a put to protect against the
possibility of a market decline.
The writer of a call surrenders during the term of the agreement the
opportunity to benefit from appreciation above the contract price of the option
and the writer of a put accepts the risk of a decline in market value. A Fund
will not write an option if immediately after such sale the aggregate value of
the obligations under the outstanding options would exceed 25% of such Fund's
net assets. The risk incurred by an option purchaser is limited to the premium
paid. The success of an option strategy may be limited by such factors as the
ability of the investment manager to predict market trends accurately, the cost
of the transaction, the depth and liquidity of the market on which the option is
traded and the correlation between the market value of the option and the
movement of the underlying security or index.
<PAGE>
Futures Transactions
In order to provide a measure of protection against losses due to such
occurrences as stock market declines, increases in interest rates and adverse
currency movements, the Funds may engage in a variety of hedging strategies.
These strategies include, in addition to the use of options for hedging purposes
as described above, investing in contracts to purchase or sell specified
financial instruments at a date in the future, and investing in interest rate
and stock index futures contracts and in their related options. The choice of
appropriate strategies will be dictated by the types of securities in the
particular Fund and the risks against which the investment manager believes the
Fund should be protected. As discussed below, there can be no assurance that any
of these strategies will be entirely effective and each has inherent costs,
risks and limitations.
A futures contract on a specific security gives the seller the
obligation to deliver, and the purchaser the obligation to accept delivery of,
the amount of the security specified in the contract at a specified time in the
future for a specified price. An index future is similar except that settlement
is accomplished by the delivery of an amount of cash equal to a specified dollar
amount times the difference between the value of the relevant index and the
price specified in the contract. Options on futures give the purchaser the
right, in return for the premium paid, to assume a long or short position in a
futures contract.
A Fund may purchase or sell (or write) futures and their related
options only for hedging purposes, consistent with applicable regulatory
requirements. In addition, a Fund may not enter into any such transaction if,
immediately thereafter, (i) more than 25% of the value of the Fund's total
assets would be so invested, or (ii) the amount committed to initial margin plus
the amount paid for premiums for unexpired options on futures contracts exceeds
5% of the value of the Fund's total assets, after taking into account unrealized
gains and unrealized losses on such contracts, excluding the amount by which any
option is "in-the-money." The success of a strategy employing futures and their
related options may be limited by factors such as the ability of the investment
manager to predict market and interest rate trends accurately, the cost of the
transaction, the depth and liquidity of the relevant market and the degree of
correlation between the prices of the futures contracts or related options and
the market for the underlying medium.
Foreign Securities
All Funds may invest in foreign securities but, with the exception of the
International Equity Fund, are limited in the percentages of their respective
assets that may be so invested. The Core Equity, Emerging Growth Equity, Value
Equity and Actively Managed Fixed-Income Funds may each invest up to 20% of
their total assets in foreign securities, while the Intermediate-Term
Fixed-Income and Money Market Funds are limited to 10% and 25%, respectively.
The Money Market Fund may invest only in dollar-denominated securities. A Fund's
investment manager will use the same criteria for selecting investments in
foreign securities that it uses for United States securities.
<PAGE>
The Funds purchasing these securities may be subject to additional
risks associated with the holding of property abroad. Such risks include future
political and economic developments, currency fluctuations, the possible
withholding of tax payments, the possible seizure or nationalization of foreign
assets, the possible establishment of exchange controls or the adoption of other
foreign government restrictions which might adversely affect the payment of
principal or interest on foreign securities held by the Funds.
Foreign Currency Transactions
A change in the value of a foreign currency relative to the United States dollar
will result in a corresponding change in the United States dollar value of a
Fund's assets denominated in that currency. Accordingly, the value of such
assets as measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations. In addition, a Fund may incur costs in connection with conversions
between various currencies. In order to protect against uncertainty in the level
of future foreign exchange rates, the Funds (other than the Money Market Fund)
are authorized to use forward foreign currency exchange contracts which are
obligations to purchase or sell a specific currency at a future date at a price
set at the time of the contract, as well as currency futures contracts and
related options. See, "Other Investment Policies and Risk Considerations --
Futures Transactions."
A Fund may use forward contracts, futures and related options only
under two circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the United States dollar price of the security. Second, when an
investment manager of a Fund believes that the currency of a particular foreign
country may experience a substantial decline against the United States dollar,
it may enter into a forward contract to sell an amount of foreign currency
approximating the value of up to all of the Fund's securities denominated in
such foreign currency, or may set up a similar hedge using a currency future or
a related option. Such transactions may also be used to protect a portion of the
Fund that is denominated in a foreign currency against an adverse movement in
the value of that currency relative to other currencies. No Fund will enter into
such forward contracts if, as a result, such Fund would have more than 25% of
the value of its total assets committed to such contracts.
It will not generally be possible to match precisely the amount
covered by a forward contract, a futures contract or related option and the
value of the securities involved due to changes in the values of such securities
resulting from market movements between the date the transaction is entered into
and the date it matures. In addition, while such transactions may offer
protection from losses resulting from declines in the value of a particular
foreign currency, they also limit potential gains which might result from
increases in the value of such currency.
<PAGE>
Repurchase Agreements
Each Fund may enter into repurchase agreements with broker-dealers or financial
institutions deemed creditworthy under guidelines approved by the Board of
Directors of the Fund. A repurchase agreement is a short-term investment in
which the purchaser acquires ownership of a debt security, which in the case of
each Fund will be securities issued or guaranteed by the United States
government or its agencies or instrumentalities, and the seller agrees to
repurchase the obligation at a future time and set price, usually not more than
seven days from the date of purchase, thereby determining the yield during the
purchaser's holding period. The value of the underlying securities will be at
least equal at all times to the total amount of the obligation, including the
interest factor.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements with broker-dealers or
financial institutions deemed creditworthy under guidelines approved by the
Board of Directors of the Fund. Such agreements involve the sale of securities
held by the Fund pursuant to the Fund's agreement to repurchase the securities
at an agreed-upon date and price reflecting a market rate of interest. Reverse
repurchase agreements are considered to be borrowings by the Fund and may be
entered only when the investment manager believes a Fund's earnings from the
transaction will exceed the interest expense incurred.
When-Issued Securities
A Fund may purchase securities at the current market value of the securities on
a forward commitment basis. "When-issued" securities are securities which have
not been issued at the time they are purchased and thus delivery of and payment
for these securities may be delayed for several weeks or more, as compared to
the timing of a normal settlement. A Fund will ordinarily invest no more than
25% of its net assets at any time in when-issued securities. While the Fund will
purchase securities on a forward commitment basis only with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date. When-issued securities are subject to market fluctuation, and no interest
accrues to the purchaser during this period. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the purchaser enters into the commitment. Because subsequent changes in the
market price will affect the value of the security to be delivered, the purchase
of when-issued securities creates the potential for profit or loss to the Fund
without any investment of Fund assets at the time of commitment.
Lending Fund Securities
A Fund may lend portfolio securities in an amount up to 50% of its total assets
to creditworthy broker-dealers and financial institutions. By lending its
<PAGE>
portfolio securities, a Fund attempts to increase its income through the receipt
of interest on the loan. Any such loan will be continuously secured by
collateral consisting of cash or United States government securities in an
amount at least equal to the value of the securities loaned. If the borrower
were to default on its obligation to return the securities, the Fund could
experience loss due to delay in liquidating the collateral and to adverse market
action.
INVESTMENT RESTRICTIONS
The investment policies of the respective Funds are subject to a
number of restrictions which reflect both self-imposed standards and Federal and
state regulatory limitations. The investment restrictions recited below are
matters of fundamental policy and may not be changed without the affirmative
vote of a majority of the outstanding shares of the Fund. Accordingly, each Fund
will not:
(1) Concentrate 25% or more of its total assets in securities of
issuers in any one industry (for this purpose the United States Government, its
agencies and instrumentalities are not considered an industry);
(2) With respect to 75% of its total assets, invest more than 5% of
its total assets in the securities of any single issuer (for this purpose the
United States Government, its agencies and instrumentalities are not considered
a single issuer);
(3) Borrow money, except for (i) short term credits from banks as may
be necessary for the clearance of portfolio transactions, (ii) borrowing from
banks to meet redemption requests, which would otherwise require untimely
disposition of its portfolio securities, and (iii) borrowing from banks for any
other temporary or emergency situation that could arise. Borrowing for any
purpose, in the aggregate by any Investment Fund, may not exceed 5% of the value
of the total assets of that Investment Fund;
(4) Pledge, mortgage or hypothecate the assets of any Investment Fund
to any extent greater than 10% of the value of the total assets of that
Investment Fund; or
(5) Invest more than 10% of its total assets in illiquid securities,
including repurchase agreements with maturities greater than seven days.
The Funds are subject to further investment restrictions that are set
forth in the Statement of Additional Information.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise total return and yield data
of the various Investment Funds over specified periods. Such information is
based on historical results and is not intended to indicate future performance
of the Investment Funds. Both total return and yield data will be computed
according to the standardized calculations required by the Securities and
Exchange Commission to provide consistency and comparability in investment
company advertising. Advertisements may also include other measures of total
returns as permitted by rules of the Securities and Exchange Commission.
<PAGE>
Total return shows the change in the value of an investment in a Fund
over a specified period of time (such as one, three, five or ten years),
assuming reinvestment of all dividends and distributions and after deduction of
all applicable charges and expenses. The Fund's average annual total return
represents the annual compounded growth rate that would produce the total return
achieved over the period. The performance information reported by the Fund does
not take into account any Federal or state income taxes that may be payable by
an investor.
The "yield" of a Fund refers to the income generated by an investment
in a Fund over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in a Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The performance of a Fund, as well as the composite performance of all
fixed-income funds and all equity funds, may be compared to data prepared by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., the Donoghue Organization, Inc. or other independent services
which monitor the performance of investment companies, and may be quoted in
advertising in terms of their rankings in each applicable universe. In addition,
the Fund may use performance data reported in financial and industry
publications, including Barron's, Business Week, Forbes, Investor's Daily,
IBC/Donoghue's Money Fund Report, Money Magazine, The Wall Street Journal and
USA Today.
The Funds' annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the respective portfolio during the year, excluding United States government
securities and securities with maturities of one year or less) may vary from
year to year, as well as within a year, depending on market conditions. A high
level of portfolio turnover may generate relatively high transaction costs and
may increase the amount of taxes payable by the Fund's Shareholders. (See,
"Distributions and Taxes.") For the fiscal years ended September 30, 1994 and
September 30, 1995, the portfolio turnover rate for the Core Equity Fund was
9.64% and 25.49%, respectively, the Emerging Growth Equity Fund was 72.59% and
84.05%, respectively, and the Intermediate-Term Fixed-Income Fund was 8.68% and
8.50%, respectively. The Fund anticipates that the annual portfolio turnover
rate of each of the Core Equity Fund, the Emerging Growth Equity Fund, the Value
Equity Fund, the International Equity Fund and the Intermediate-Term
Fixed-Income Fund will not exceed 100%, and the annual portfolio turnover rate
of the Actively Managed Fixed-Income Fund will not exceed 200% in the fiscal
year ending September 30, 1996.
<PAGE>
HOW TO INVEST IN THE FUND
Purchase of Fund Shares
The Fund offers its shares to the public without a sales load on a
continuous basis through its distributor, Retirement System Distributors Inc.,
P.O. Box 2064, Grand Central Station, New York, New York 10163-2064 (the
"Distributor"). See, "Distributor." Shares are also available through
broker-dealers that have entered into dealer agreements and through financial
institutions that provide shareholder services to their customers. Financial
Institutions may impose separate fees in connection with these services and
investors should review this prospectus in conjunction with any such
institutions fee schedule. In addition, financial institutions may be required
to register as dealers pursuant to state securities laws. Such broker-dealers
are responsible for the transmission of purchase and redemption orders (and the
delivery of funds) on a timely basis.
Purchases are effected at the net asset value per share next
determined after receipt at the Fund's offices of a properly completed purchase
order. Persons who desire to make an initial investment in the Fund should fill
out an Initial Purchase Order Form and mail it to the Fund together with a check
payable to Retirement System Fund Inc. Orders are subject to acceptance by the
Fund and in any event are not accepted unless accompanied by payment. Check
payments must be converted into immediately available funds before investment by
the Fund. Except for "Periodic Purchases" and "Payroll Deduction" (see, below),
the minimum initial investment is $2,500 and the minimum subsequent investment
in the Fund is $250. Minimums are not applicable for investments in
non-qualified retirement plans or Individual Retirement Accounts. Investors
wishing to purchase securities by means of wire transfer should contact the
Distributor.
Purchase orders submitted for tax-qualified retirement plans or other
retirement arrangements which are not properly completed will be directed to
Retirement System Consultants Inc. (the "Service Company") for clarification.
The Service Company will promptly ascertain the information necessary to
properly complete the purchase order and forward the purchase order to the Fund.
If such purchase orders are transmitted to the Fund in proper form by 4:00 P.M.,
Eastern Time, the purchase will be effected at the net asset value determined as
of the close of business on that day, or, if payment is by check, on the day
payment has been converted into immediately available funds. Otherwise, such
purchase order will be based on the next determined net asset value, when there
are immediately available funds.
All purchasers will receive a Confirmation Notice from the Fund which
sets forth the amount invested, the purchase price per share, the number of
shares and fractional share credits purchased and held in account after the
transaction, and the identifying number of the account.
<PAGE>
Net asset value is determined as of the close of the New York Stock
Exchange, currently 4:00 P.M., Eastern Time, on each day the Exchange is open,
by adding the value of all the assets of a Fund, subtracting liabilities, and
dividing by the number of shares outstanding. Securities are valued at their
market prices where possible. Listed equity securities are valued at the closing
price on the primary exchange for each such security and NASDAQ quoted
securities are valued at the last current bid price. Debt securities are valued
based on quotes obtained from market makers. Securities may be valued based on
prices obtained from a pricing service where approved by the Board of Directors.
All securities of the Money Market Fund and, for the other Funds, debt
securities with remaining maturities of 60 days or less, are valued on the basis
of amortized cost.
Periodic Purchases
Regular periodic purchases of Fund shares may be beneficial to
investors. The Fund therefore makes available an arrangement under which
shareholders may state their intentions to make periodic purchases of Fund
shares in specified amounts. A shareholder may indicate in the place provided on
the Initial Purchase Order Form the frequency (monthly or quarterly) and amount
(minimum amount $200 if monthly and $600 if quarterly) of such intended periodic
purchases. There is no obligation on the part of the shareholder to make the
intended periodic purchases of Fund shares indicated on the Initial Purchase
Order Form.
Payroll Deductions
Purchases of Fund shares may be available to certain investors by
means of payroll deductions. Employers making payroll deduction arrangements
available forward funds for purchase of shares to the Fund at least monthly
(unless deductions are made less frequently) on behalf of the shareholder and
make appropriate forms available to their employees. The minimum investment in
the Fund per periodic payroll deduction is $25. Confirmation Notices of
purchases made by payroll deduction are sent to the employee. Shareholders
participating in payroll deduction arrangements may also purchase shares by
means of direct orders.
Exchanges
Shares in any Investment Fund may be exchanged without cost for shares
in any other Investment Fund. Shareholders may submit their shares for exchange
on any day that the New York Stock Exchange is open and properly completed
Exchange Request Forms will be effected at the respective net asset values of
the shares involved next determined after the receipt of such request by the
Fund. Exchange Request Forms must be submitted to the Fund at its offices in
writing and must be signed in exactly the same manner in which the shares are
registered. Exchange Request Forms submitted for tax-qualified retirement plans
or other retirement arrangements which are not properly completed will be
directed to the Service Company for clarification. If such Exchange Request
Forms are transmitted to the Fund in proper form by 4:00 P.M., Eastern Time, the
exchange will be effected at the respective net asset values of the shares
involved determined as of the close of business on that day. Otherwise, such
redemption will be based on the next determined net asset value. The Fund may
modify or terminate this exchange privilege at any time upon sixty-days written
notice to shareholders.
Investment in the Fund by New York Savings Banks
Savings banks organized under the laws of the State of New York are
eligible to invest in shares in the Fund under the "leeway" provisions of
Section 235.31 of the Banking Law of the State of New York. Section 235.31
generally provides that a New York savings bank may invest in investments such
as shares of the Fund provided that: (i) no investment shall be made by a
savings bank pursuant to Section 235.31 if the amount of such investment exceeds
one percent of the assets of such savings bank or if the aggregate amount of all
investments made pursuant to Section 235.31 exceeds, or by the making of such
investment will exceed, five percent of the assets of such savings bank; (ii) no
investment shall be made by a savings bank in the equity securities of any one
issuer pursuant to Section 235.31 if the aggregate amount invested in the equity
securities of such issuer pursuant to any other provision of law, exceeds, or by
the making of such investment will exceed, one percent of the assets of such
savings bank; and (iii) no investment shall be made by a savings bank in a loan
to, or in the debt securities of, any one issuer if the aggregate amount
invested by it pursuant to Section 235.31, together with the amount invested in
a loan to, or in the debt securities of, such issuer pursuant to any other
provision of laws, exceeds, or by the making of such investment will exceed, one
percent of the assets of such savings bank.
REDEMPTION OF SHARES
Shareholders may submit their shares for redemption on any day that
the New York Stock Exchange is open and a properly completed Redemption Request
Form will be effected at the net asset value per share next determined after the
receipt of such request by the Fund. Redemption Request Forms must be submitted
to the Fund at its offices in writing and must be signed in exactly the same
manner in which the shares are registered. The signature(s) must be guaranteed
by a bank or trust company (including a savings bank) or a member of a national
securities exchange. Redemption Request Forms submitted for tax-qualified
retirement plans or other retirement arrangements which are not properly
completed will be directed to the Service Company for clarification. The Service
Company will promptly ascertain the information necessary to properly complete
the Redemption Request Form and forward the request to the Fund. If such
Redemption Request Forms are transmitted to the Fund in proper form by 4:00
P.M., Eastern Time, the redemption will be effected at the net asset value
determined as of the close of business on that day. Otherwise, such redemption
will be based on the next determined net asset value.
<PAGE>
Payments for redeemed shares will be made by check, unless
arrangements have been made in advance for payment by wire transfer, not later
than seven days after receipt of written redemption requests in proper form.
Dividends payable up to the date of the redemption of shares will be paid on the
next dividend payable date. If all shares in an account have been redeemed on a
dividend payable date, the dividend will be remitted by check to the former
shareholder, except that, in the case of the Money Market Fund, shareholders who
redeem all shares in their accounts will receive all dividends to which they are
entitled along with the proceeds of the redemption. The Fund reserves the right
to redeem shareholder accounts amounting to less than $250 upon 60 days' notice;
provided, however, that the Fund will not redeem any account which falls below
the minimum account size solely as a result of a decline in the net asset value
of a Fund.
DISTRIBUTIONS AND TAXES
Dividends and Distributions
It is the policy of each Fund to distribute to shareholders
substantially all of its taxable net investment income (consisting of dividend
and interest income and the excess, if any, of net short-term capital gains over
net long-term capital losses) in the form of periodic dividends. Each of the
Core Equity Fund, the Emerging Growth Equity Fund, the Value Equity Fund and the
International Equity Fund will generally declare and distribute dividends from
its net investment income on an annual basis. The Actively Managed Fixed-Income
Fund and the Intermediate-Term Fixed-Income Fund will generally declare and
distribute dividends from net investment income on a monthly basis. The net
investment income of the Money Market Fund is declared daily (and distributed
monthly on the first day of each month) as a dividend to the Fund's
shareholders. Each Fund anticipates that it will distribute substantially all of
its "net capital gain" income (the excess of net long-term capital gains over
net short-term capital losses) for each taxable year as a capital gains
distribution.
Unless the shareholder elects otherwise, all income dividends and net
capital gains distributions, if any, will be reinvested in additional shares at
the then net asset value per share on the payment date. However, shareholders
may elect a cash distribution by notifying the Fund at least seven days before
the next date on which dividends or distributions will be paid.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences is
based on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of any
Fund or its shareholders. Accordingly, shareholders are urged to consult their
tax advisers regarding specific questions as to federal, state and local taxes.
<PAGE>
Tax Status of the Funds
Each Investment Fund is treated as a separate entity for federal
income tax purposes and is not combined with the other Funds. Each Fund expects
to be taxed as a regulated investment company under Subchapter M of the United
States Internal Revenue Code of 1986, as amended (the "Code"). So long as a Fund
qualifies for this tax treatment, the Fund will be relieved of United States
federal income tax on amounts distributed to shareholders, but shareholders
will, unless otherwise exempt, pay income or capital gains taxes on the amounts
so distributed, regardless of whether such distributions are paid in cash or
reinvested in additional shares. Each Fund will send written notices to
shareholders annually regarding the tax status of all distributions.
Distributions from a Fund out of net capital gains (net long-term
capital gains less net short-term capital losses), if any, are taxed to
shareholders as long-term capital gains. All other income distributions are
taxed to the shareholders as ordinary income. Ordinarily, shareholders will
include all dividends declared by a Fund as income in the year of payment.
However, dividends declared in October, November or December of any year,
payable to shareholders of record on a specified date in such a month, will be
deemed to have been received by the shareholders and paid by the Fund on
December 31 of such year, if such dividends are paid during January of the
following year.
Capital gains distributions received from any Fund and ordinary income
dividends received from the Actively Managed Fixed-Income Fund, the
Intermediate-Term Fixed-Income Fund, or the Money Market Fund will not qualify
for the dividends-received deduction generally available to corporate taxpayers.
Dividends received from the International Equity Fund will qualify for the
dividends-received deduction only to the extent they are attributable to
dividends the Fund receives from domestic corporations.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
may reflect the amount of the forthcoming distribution. Those purchasing just
prior to a distribution will nevertheless be taxable on the entire amount of the
distribution received. The sale, redemption or exchange of Fund shares is a
taxable event to the shareholder.
Investment income received by the International Equity Fund from
sources within foreign countries may be subject to foreign income taxes withheld
at the source. To the extent that the International Equity Fund is liable for
foreign income taxes so withheld, the Fund intends to operate so as to meet the
<PAGE>
requirements of the Code to pass through to the Fund's shareholders credits for
foreign income taxes paid. If the International Equity Fund does so qualify,
shareholders will be deemed to have received a dividend for their pro rata share
of the foreign taxes paid by the Fund and will be deemed to have paid such
amounts as foreign taxes. Although the International Equity Fund intends to meet
the requirements of the Code to pass through such taxes, there can be no
assurance that the Fund will be able to do so.
A 4% non-deductible Federal excise tax is imposed on a regulated
investment company that fails to distribute before the end of each calendar year
substantially all of its ordinary taxable income for the calendar year and
capital gain net income for the one-year period ending October 31 of such year,
plus certain other amounts. Each Fund intends to make sufficient distributions
of its ordinary income and capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax. The sale, exchange, or
redemption of an Investment Fund's shares is a taxable event for the
shareholder.
Future legislative changes may materially affect the tax consequences
of investing in the Fund. Shareholders are also urged to consult with their tax
advisors concerning the application of United States state and local income
taxes to investments in the Fund, which may differ from the United States
Federal income tax consequences described above.
MANAGEMENT OF THE FUND
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund or any
Investment Fund and persons or companies furnishing services thereto, including
all agreements for the provision of investment advisory, distribution,
administrative, custody and transfer agent services. One Director and all the
officers of the Fund are officers or employees of Retirement System Group Inc.,
the parent company of Retirement System Investors Inc., the investment advisor
of each Investment Fund and the investment manager of certain Investment Funds,
the Distributor, and Retirement System Consultants Inc., the Fund's
administrator.
Investment Advisory Services
Retirement System Investors Inc. (the "Investment Advisor") is the
investment advisor to each Investment Fund. As further described below, certain
Investment Funds have engaged independent investment managers to make and effect
decisions on buying and selling portfolio securities. The Investment Advisor
acts as investment manager to the remaining Funds and, in the case of all
Investment Funds, exercises general oversight with respect to portfolio
management and reports to the Board of Directors with respect thereto.
The Investment Advisor is a subsidiary of Retirement System Group Inc.
("Group"), a company formed as part of a reorganization, effective August 1,
1990, that externalized the management functions of RSI Retirement Trust (the
"Trust"), an open-end diversified management investment company designed
exclusively for the investment of funds held in certain tax-exempt trusts. The
<PAGE>
Trust has six portfolios that have investment objectives and policies that are
substantially the same as those of the Investment Funds, as well as two
portfolios that have specialized functions. In connection with the
reorganization, the Investment Advisor assumed those investment management
functions for the Trust that had previously been performed by employees of the
Trust.
As of December 31, 1995, the Investment Advisor managed assets of
$533,049,417.
For its services, the Investment Advisor is entitled to receive a fee,
calculated daily and paid monthly, based on a percentage of the average annual
net assets of the respective Investment Funds. The specific percentages for the
Investment Funds or, in the case of the Actively Managed Fixed-Income Fund, the
portion of such Investment Fund for which the Investment Advisor acts as
investment manager, are set forth in the following table.
Fee (% of
Investment Fund average net assets)
Core Equity Fund
First $50 million .60
Next $150 million .50
Over $200 million .40
Actively Managed Fixed-Income Fund
First $50 million .40
Next $100 million .30
Over $150 million .20
Intermediate-Term Fixed-Income Fund
First $50 million .40
Next $100 million .30
Over $150 million .20
Money Market Fund
First $50 million .25
Over $50 million .20
In addition, the Investment Advisor is entitled to receive a fee based
on a percentage of the average annual net assets of the respective Investment
Funds (or portion thereof) for which it does not act as investment manager,
which fee shall be an amount equal to the sum of (i) .20% of total assets of the
<PAGE>
applicable Fund, and (ii) the fee to which the investment manager of the
applicable Fund is entitled (payable as provided below), calculated in the
manner described below with respect to the investment manager's fees for each
such Investment Fund. While the management fees paid by the Emerging Growth
Equity Fund, the Value Equity Fund and the International Equity Fund are higher
than the fees paid by most other investment companies, the Fund's management
believes that the fees are comparable to, and in some cases lower than, the fees
paid by other investment companies with similar objectives and policies.
With respect to the Investment Funds for which the Investment Advisor
does not act as investment manager, the Investment Advisor has agreed to waive
payment of the portion of the investment advisory fees in an amount equal to
.20% of the total assets during the first year of the Fund's operations, and
intends thereafter to waive payment of such amount if necessary to maintain a
competitive expense ratio or to assure that the Fund's expense ratios comply
with regulations in various states where Fund shares are qualified for sale.
For investment advisory services to the Core Equity Fund,
Intermediate-Term Fixed-Income Fund and Money Market Fund, respectively, for the
fiscal year ended September 30, 1995, the Investment Advisor waived all fees due
it under its investment advisory agreement with the Fund. In addition, the
Investment Advisor together with the Distributor and Service Company reimbursed
expenses in the amount of $58,183, $49,727, and $42,954 respectively, for the
foregoing three Investment Funds, and $74,265 for the Emerging Growth Equity
Fund. See, the fourth paragraph under "Administrator".
For investment advisory services to the Emerging Growth Equity Fund
for the fiscal year ended September 30, 1995, the Investment Advisor received
fees (net of fee waivers) equal to 1% of such Investment Fund's average net
assets and paid all of such fees to The Putnam Advisory Company, Inc. as
compensation as an independent investment manager.
The following table lists the investment managers that have been
selected for the various Investment Funds and the approximate percentage of such
Fund allocated to each manager. No Investment Manager has been selected for the
Value Equity Fund, International Equity Fund and Actively Managed Fixed-Income
Fund which are not presently offered.
Core Equity Fund................... Retirement System
Investors Inc.(100%)
Emerging Growth Equity Fund........ The Putnam Advisory
Company, Inc. (100%)
Value Equity Fund.................. No Investment Manager
selected
International Equity Fund.......... No Investment Manager
<PAGE>
selected
Actively Managed Fixed-
Income Fund........................ No Investment Manager
selected
Intermediate-Term Fixed-
Income Fund........................ Retirement System
Investors Inc.(100%)
Money Market Fund.................. Retirement System
Investors Inc. (100%)
Each investment manager is also a manager of the corresponding
portfolio of the Trust and each such manager's fee is calculated as a percentage
of assets based on the combined assets of the portion of the Investment Fund and
the corresponding portfolio of the Trust under management of such investment
manager, which percentage is then applied with respect to both the Fund and the
Trust in determining the manager's compensation. Accordingly, references to
"total assets" in the description of the respective investment managers' fees as
set forth below are to the combined Fund and Trust assets allocated to such
investment manager.
The following is a brief description of the Fund's investment manager
(other than the Investment Advisor) and the compensation it is entitled to
receive from the Investment Advisor:
The Putnam Advisory Company, Inc. ("Putnam"), One Post
Office Square, Boston, Massachusetts 02109, was formed in 1968 to
manage domestic and foreign institutional separately managed accounts
for its parent company, Putnam Investments Inc., One Post Office
Square, Boston, Massachusetts 02109. Putnam Investments Inc. is a
wholly-owned subsidiary of Marsh & McLennan Companies, Inc., 1166
Avenue of the Americas, New York, New York 10036, a publicly owned
holding company, whose principal businesses are international
insurance and reinsurance brokerage, employee benefit consulting and
investment management. The Putnam organization has been managing money
since 1937 with the inception of The George Putnam Fund of Boston.
Putnam's annual fee is 1% of the total assets up to and including $25
million, and .75% of the total assets in excess of $25 million
(provided that the assets of the Emerging Growth Equity Fund shall be
assessed a fee of .25% until the assets of such Investment Fund equals
at least $500,000), calculated quarterly on the basis of the average
asset value as of the last day of each month of each calendar quarter,
equal to one-fourth of the annual rate. For the fiscal year ended
September 30, 1995, the Investment Advisor paid Putnam a fee equal to
1% of the Emerging Growth Equity Fund average asset value.
The Fund's agreements with the Investment Advisor and with each
investment manager had an initial term of two years. These agreements may be
continued from year to year after the initial term by the Board of Directors or
the shareholders. These were most recently approved as provided in the
Investment Company Act of 1940, on January 25, 1996. Each such agreement is
subject to termination on no more than 60 days' notice by the Board of Directors
or the shareholders and, in the case of the investment managers, by the
Investment Advisor. In addition, each such agreement terminates automatically in
the case of its assignment.
<PAGE>
DISTRIBUTOR
The Fund and the Distributor have entered into a Distribution
Agreement pursuant to which the Distributor will distribute and promote the sale
of shares of the Investment Funds. The Distributor is a subsidiary of Retirement
System Group Inc. and was established as part of the reorganization described
under "Management of the Fund -- Investment Advisory Services." The Distribution
Agreement, which had an initial term of two years, may be continued from year to
year after its initial term by the Board of Directors or by the shareholders of
the Fund. The Agreement is subject to termination on no more than 60 days notice
by the Board of Directors or the shareholders. In addition, the Distribution
Agreement terminates automatically in case of its assignment.
Each Investment Fund has adopted a Plan of Distribution under which
payments are made to the Distributor to compensate the Distributor and to help
defray the cost of offering shares. Under the Plan, the Distributor may make
payments to broker-dealers that sell shares to their customers and provide
certain related services (for example, acceptance and delivery of purchase
orders and redemption orders and responding to shareholder inquiries) and to
banks and other financial institutions that enter into agreements with the Fund
to provide shareholder services (including processing purchase orders,
redemption orders and dividend payments, forwarding shareholder reports,
responding to inquiries and providing subaccounting services) to their
customers. The maximum amount payable under the Plan is equal to .25% of the
average daily net assets of a Fund but the Distributor currently voluntarily
limits such expenditures to .20% of average daily net assets. The Plan does not
provide for any charges to a Fund for excess amounts expended by the Distributor
and, if the Plan is terminated, the obligation of the Fund to make payments to
the Distributor will cease and the Fund will not be required to make any
payments thereafter. If the Distributor's costs in connection with its
distribution services to a Fund are less than .20% of net assets, the
Distributor may nevertheless retain the difference. If the Distributor's costs
exceed .20% of net assets, the Distributor will assume the difference and will
not be reimbursed therefore. For the fiscal year ended September 30, 1995, the
Distributor received from the Fund (net of fee waivers) a fee equal to .20% of
average daily net assets.
ADMINISTRATOR
The Service Company has entered into a Service Agreement with the Fund
to provide each Investment Fund with the general administrative and related
services necessary to carry on the affairs of the Investment Funds, including
transfer agent and registrar services. The Service Company is a subsidiary of
Retirement System Group Inc. and was established as part of the reorganization
described under "Management of the Fund -- Investment Advisory Services."
<PAGE>
On October 27, 1994, the Board of Directors of the Fund approved
continuance of an amended Service Agreement with the Service Company, effective
January 28, 1995. Under the amended Service Agreement, the Service Company is
paid a fee for its services as of the last day of each month such Service
Agreement is in effect, at the following annual rates, based on the average
daily net assets of each of the Fund's Investment Funds for such month:
Net Assets of Investment Fund Fee (% of average daily net assets)
First $25 million .60%
Next $25 million .50%
Next $25 million .40%
Next $25 million .30%
Over $100 Million .20%
The Service Company has agreed to waive payment of its fee and to
reimburse the Fund during the fiscal year ended September 30, 1996 and intends
thereafter to waive payment of its fee and to reimburse the Fund to the extent
necessary to maintain a competitive expense ratio or to assure that the Funds'
expense ratios comply with regulations in various states where Fund shares are
qualified for sale.
For the fiscal year ended September 30, 1995, the Service Company, the
Distributor and Investment Advisor reimbursed expenses of the Core Equity Fund,
Emerging Growth Equity Fund, Intermediate-Term Fixed-Income Fund and Money
Market Fund amounting to $58,183, $74,265, $49,727 and $42,954, respectively.
The amended Service Agreement may be continued from year-to-year after
its initial term of two years by the Board of Directors or by shareholders. The
Agreement is subject to termination on no more than 60 days' notice by the Board
or by shareholders and terminates automatically in case of its assignment. The
Fund will pay, or reimburse the Service Company for the payment of the Fund's
expenses, including, without limitation, the following: (i) fees and expenses
relating to investment advisory, distribution and custody services; (ii) fees of
outside professionals, including legal counsel and independent auditors; (iii)
interest charges; (iv) Federal, state and local taxes, if any; (v) costs of
stock certificates and other expenses of issuing and redeeming shares; (vi)
costs of shareholder meetings; (vii) fees and expenses of registering or
qualifying shares for sale under Federal and state securities laws; (viii) costs
(including postage) of printing and mailing prospectuses, proxy statements and
other reports and notices to shareholders and to governmental agencies (other
than in connection with promoting the sale of shares to prospective new
investors); (ix) premiums on all insurance and fidelity, surety and guarantee
bonds; (x) fees and expenses of the Fund's disinterested directors; (xi) fees
and expenses paid to any securities pricing service; (xii) commissions and other
costs in connection with securities transactions; and (xiii) extraordinary
expenses, including any litigation costs.
<PAGE>
GENERAL INFORMATION
Description of Shares
The Fund, an open-end diversified management investment company, was
organized under the laws of the State of Maryland on November 14, 1990. The Fund
is authorized to issue two billion shares of capital stock, par value $.001 per
share, all of which shares are designated common stock. When issued, the shares
will be fully paid and non-assessable. Each share has one vote and will be
entitled to dividends and distributions when and if declared by the Fund. In the
event of liquidation and dissolution of the Fund, each share would be entitled
to its pro rata portion of the Fund's assets after all debts and expenses have
been paid. The Board of Directors of the Fund is authorized to establish
multiple series of shares of capital stock, each evidencing interest in a
separate Fund of securities. At present Retirement System Fund Inc. has seven
such Funds.
The name and address of the beneficial holder of 25% or more of the
total Fund's outstanding shares, and the percentage of such shares owned by such
shareholder as of December 31, 1995 are as follows: ALBANK, FSB, Corner of State
and North Pearl Streets, Albany, New York 12207, 35.72%. The shares held by such
shareholder are, to the best of the Fund's knowledge, held for investment
purposes only, and not to exercise any influence over Fund policies.
Annual Meetings
Unless required under applicable Maryland law, the Fund does not
expect to hold annual meetings of shareholders after the initial meeting, which
was held during the Fund's first full year on May 5, 1992. However, shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held and, if such a request is made, the Fund will
assist with the shareholder communications in connection with the meeting.
Reports
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held by the respective Investment Funds, and financial statements.
Shareholder Inquiries
Shareholders with inquiries concerning their shares should call (800)
772-3615 or write to the Fund.
<PAGE>
Custodian
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey
08540-6231, acts as custodian of the assets of the Fund.
Counsel and Auditors
Morgan, Lewis & Bockius, LLP, 2000 One Logan Square, Philadelphia,
Pennsylvania 19103-6993, acts as counsel for the Fund and has rendered its
opinion as to certain legal matters regarding the validity of shares offered
pursuant to this prospectus. McGladrey & Pullen, LLP, 555 Fifth Avenue, New
York, New York 10017, has been selected as auditors of the Fund.
<PAGE>
Appendix
Description of Moody's Investors Service, Inc.'s long-term ratings of A or
better:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility
to impairment some time in the future.
Description of Standard & Poor's Rating Group's corporate debt ratings of A or
better:
AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
Description of Fitch Investors Service, Inc.'s corporate debt ratings of A or
better:
AAA -- AAA rated bonds are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
<PAGE>
AA -- AA rated bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to forseeable future developments, Short-term
debt of these issuers is generally rated A-1+.
A -- A rated bonds are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds
with higher ratings.
Description of Moody's Investors Service, Inc.'s commercial paper rating of
Prime-1:
Prime-1 -- Issuers rated Prime-1 (or supporting institutions) have a
superior ability # add space for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with
moderate reliance on debt and ample asset
protection.
-- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
-- Well-established access to a range of financial
markets and assured sources of alternate
liquidity.
Description of Standard & Poor's Ratings Group's commercial paper ratings of A-1
or better:
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+)
sign designation.
<PAGE>
Statement of Additional Information
RETIREMENT SYSTEM FUND INC.
---------------------------
This Statement of Additional Information sets forth certain
information with respect to shares offered by Retirement System Fund Inc.
("Fund"), an open-end diversified management investment company.
---------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE FUND'S PROSPECTUS DATED JANUARY 29, 1996. A COPY OF THE
PROSPECTUS MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO RETIREMENT SYSTEM FUND
INC., P.O. BOX 2064, GRAND CENTRAL STATION, NEW YORK, NEW YORK 10163-2064,
ATTENTION: STEPHEN P. POLLAK, ESQ.
Dated: January 29, 1996
<PAGE>
TABLE OF CONTENTS
Page
The Fund..............................................................
Additional Information About Investment Policies and
Restrictions .......................................................
Federal Tax Treatment of Dividends and Distributions..................
Miscellaneous Considerations..........................................
Valuation of Shares...................................................
Performance Information...............................................
Administration of the Fund............................................
Advisory and Other Services...........................................
Distribution Agreement................................................
Brokerage Allocation and Portfolio Turnover...........................
Description of Shares.................................................
Counsel and Auditors..................................................
Control Persons.......................................................
Financial Statements..................................................
<PAGE>
THE FUND
Retirement System Fund Inc. ("Fund") is an open-end diversified
management investment company which was organized under the laws of the State of
Maryland on November 14, 1990. The Fund consists of seven diversified investment
funds each with a different set of investment objectives and policies
("Investment Funds" or "Funds"). Currently investors may purchase shares of the
Core Equity Fund, Emerging Growth Equity Fund, Intermediate-Term Fixed-Income
Fund and Money Market Fund. In the future, the Fund expects to offer shares of
the Value Equity Fund, International Equity Fund and Actively Managed
Fixed-Income Fund and has the authority to create additional funds as well.
There can be no assurance that the investment objective of any Investment Fund
can be attained.
Retirement System Investors Inc. (the "Investment Advisor") acts as
the Fund's investment advisor. The Investment Advisor is a subsidiary of
Retirement System Group Inc. ("Group"), a company formed as part of a
reorganization, effective August 1, 1990, that externalized the management
functions of RSI Retirement Trust (the "Trust"), an open-end diversified
management investment company.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objectives and general investment policies are
described in the Prospectus. This Statement of Additional Information provides
additional information about the investment policies and strategies which may be
used by the Fund. Additional investment restrictions are set forth below.
Repurchase Agreements
Each Fund may enter into repurchase agreements with broker-dealers or
financial institutions deemed creditworthy under guidelines approved by the
Board of Directors. A repurchase agreement is a short-term investment in which
the purchaser (i.e., the Fund) acquires ownership of a debt security and the
seller agrees to repurchase the obligation at a future time and set price,
usually not more than seven days from the date of purchase, thereby determining
the yield during the purchaser's holding period. The value of underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. The Fund makes payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The underlying securities
may have maturity dates exceeding one year. The Fund does not bear the risk of a
decline in value of the underlying securities unless the seller defaults under
<PAGE>
its repurchase obligation. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and loss including (i) possible decline in
the value of the underlying security while the Fund seeks to enforce its rights
thereto, (ii) possible subnormal levels of income and lack of access to income
during this period, and (iii) expenses of enforcing its rights.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with
broker-dealers or financial institutions deemed creditworthy under guidelines
approved by the Board of Directors up to an aggregate value of not more than 5%
of the Fund's total assets. Such agreements involve the sale of securities held
by the Fund pursuant to the Fund's agreement to repurchase the securities at an
agreed-upon date and price reflecting a market rate of interest. Such agreements
are considered to be borrowings, and may be entered into only for temporary or
emergency purposes. While a reverse repurchase transaction is outstanding, the
Fund will maintain with its custodian in a segregated account cash, United
States government securities or other liquid, high-grade debt obligations,
marked to market daily, in an amount at least equal to the Fund's obligations
under the reverse repurchase agreement.
When-Issued and Delayed Delivery Securities
From time to time, in the ordinary course of business, the Fund may
make purchases of securities, at the current market value of the securities, on
a forward commitment basis. "When-issued" securities are securities which have
not been issued at the time they are purchased and thus delivery of and payment
for these securities may be delayed for several weeks or more, as compared to
the timing of a normal settlement. Delayed delivery securities are outstanding
securities the settlement for which is negotiated, the price is fixed at the
time of the commitment, but delivery and payment will take place after the date
of the commitment. While the Fund will purchase securities on a forward
commitment basis only with the intention of acquiring the securities, the Fund
may sell the securities before the settlement date, if it is deemed advisable.
The securities so purchased or sold are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time the Fund makes
the commitment to purchase or sell securities on a forward commitment basis, it
will record the transaction and thereafter reflect the value of such securities
purchased or the proceeds to be received in determining its net asset value.
Because subsequent changes in the market price will affect the value of the
security to be delivered, the purchase of "when-issued" or delayed delivery
securities creates the potential for profit or loss to the Fund without any
investment by the Fund. At the time of delivery of the securities, their value
may be more or less than the purchase or sale price.
Lending Fund Securities
The Fund may also lend portfolio securities to broker-dealers or
financial institutions deemed creditworthy under guidelines approved by the
Fund's Board of Directors. The Fund will lend portfolio securities only against
collateral consisting of cash or United States government securities with an
<PAGE>
aggregate value at all times equal to or greater than the value of the
securities loaned. The borrower would pay to the Fund an amount equal to any
dividends or interest received on the securities lent. The Fund would retain all
or a portion of the interest received on investment of the cash collateral or
receive a fee from the borrower. Either the Fund or the borrower could terminate
the Loan at any time.
Options and Futures
As noted in the Prospectus, investment managers of the Funds may
engage in certain options and futures strategies primarily in order to attempt
to hedge the Fund's assets. An investment manager may use options on equity and
debt securities in which the Fund is authorized to invest, stock index options,
stock and stock index futures contracts and interest rate futures contracts
("futures contracts" or "futures") and options on futures contracts. The
foregoing instruments are sometimes referred to collectively as "Hedging
Instruments." Certain special characteristics of and risks associated with using
Hedging Instruments are discussed below. In addition to the investment
guidelines (described below) adopted by the Board of Directors to govern
investment in Hedging Instruments, use of these instruments is subject to the
applicable regulations of the Securities and Exchange Commission (the "SEC"),
the several options and futures exchanges upon which options and futures are
traded, the Commodity Futures Trading Commission ("CFTC") and the various state
regulatory authorities.
The Fund will not use leverage in its hedging strategies. In the case
of transactions entered into as a hedge, the Fund will hold securities or other
options or futures positions whose values are expected to offset ("cover") its
obligations under the hedging strategies. The Fund will not enter into a hedging
or option income strategy that exposes it to an obligation to another party
unless it owns either (1) an offsetting ("covered") position in securities or
other options or futures contracts or (2) cash, receivables and short-term debt
securities with a value sufficient to cover its potential obligations. The Fund
will comply with guidelines established by the SEC with respect to coverage of
hedging strategies by mutual funds, and will set aside cash and/or liquid,
high-grade debt securities in a segregated account with its custodian in the
amount prescribed. Securities or other options or futures positions used for
cover and securities held in a segregated account cannot be sold or closed out
while the hedging strategy is outstanding, unless they are replaced with similar
assets. As a result, there is a possibility that the use of cover or segregation
involving a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
A call option is a short-term contract pursuant to which the purchaser
of the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of the call option, who receives the premium, has the
<PAGE>
obligation, upon exercise of the option during the option term, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right to
sell the underlying equity security at a specified price during the option term.
The writer of the put option, who receives the premium, has the obligation upon
exercise during the option term, to buy the underlying security at the exercise
price.
A stock index assigns relative values to the stocks included in the
index and fluctuates with changes in the market values of those stocks. A stock
index option operates in the same way as a more traditional stock option, except
that exercise of a stock index option is effected with cash payment and does not
involve delivery of securities. Thus, upon exercise of a stock index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the stock index.
The Fund may purchase call options on debt securities that an
investment manager intends to include in its portfolio in order to fix the cost
of a future purchase. Call options also may be used as a means of participating
in an anticipated price increase of a security on a more limited risk basis than
would be possible if the security itself were purchased. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the potential loss to the Fund to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Fund either sells or exercises the option, any profit
eventually realized will be reduced by the premium. The Fund may purchase put
options in order to hedge against a decline in the market value of securities it
holds. The put option enables the Fund to sell the underlying security at the
predetermined exercise price; thus, the potential for loss to the Fund below the
exercise price is limited to the option premium paid. If the market price of the
underlying security is higher than the exercise price of the put option, any
profit the Fund realizes on the sale of the security would be reduced by the
premium paid for the put option less any amount for which the put option may be
sold.
The Fund may write covered call and put options on securities in which
it is authorized to invest for hedging or to increase income in the form of
premiums received from the purchasers of the options. Because it can be expected
that a call option will be exercised if the market value of the underlying
security increases to a level greater than the exercise price, the Fund will
write covered call options on securities generally when an investment manager
believes that the premium received by the Fund, plus anticipated appreciation in
the market price of the underlying security up to the exercise price of the
option, will be greater than the total appreciation in the price of the
security. The strategy may be used to provide limited protection against a
decrease in the market price of the security, in an amount equal to the premium
received for writing the call option less any transactions costs. Thus, in the
event that the market price of the underlying security held by the Fund
declines, the amount of such decline will be offset wholly or in part by the
amount of the premium received by the Fund. If, however, there is an increase in
the market price of the underlying security and the option is exercised, the
Fund would be obligated to sell the security at less than its market value.
A put option gives the purchaser of the option the right to sell, and
the writer (seller) the obligation to buy, the underlying security at the
exercise price during the option period. So long as the obligation continues,
the writer may be assigned an exercise notice by the broker-dealer through whom
such option was sold, requiring it to make payment of the exercise price against
delivery of the underlying security. The operation of put options in other
<PAGE>
respects, including their related risks and rewards, is substantially identical
to that of call options. Generally, the Fund would write covered put options on
securities when an investment manager believes that the market price of the
securities will not decline below the exercise price less the premiums received.
If the put option is not exercised, the Fund will realize income in the amount
of the premium received. This technique could be used to enhance current return
during periods of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security would decline below the
exercise price less the premiums received, in which case the Fund would expect
to suffer a loss.
Options Guidelines
In view of the risks involved in using the options strategies
described above, the Board of Directors has adopted the following investment
guidelines to govern the Fund's use of such strategies (which guidelines may be
modified by the Board without shareholder vote):
(1) options on equity securities and stock indexes will be purchased
or written only on those securities and stock indexes with respect to which
options are traded on recognized United States options exchanges; on debt
securities will be purchased or written only when an investment manager believes
that there exists a liquid secondary market in such options,
(2) the Fund will write only covered options, and each such option
will remain covered so long as the Fund is obligated under the option, and
(3) the Fund will not purchase put options on securities not held in
its portfolio.
Special Characteristics and Risks of Options Trading
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. If the Fund wishes to terminate
its obligation to purchase or sell securities under a put or call option it has
written, it may purchase a put or call option of the same series (i.e., an
option identical in its terms to the option previously written); this is known
as a closing purchase transaction. Conversely, in order to terminate its right
to purchase or sell specified securities under a call or put option it has
purchased, the Fund may write an option of the same series as the option held;
this is known as a closing sale transaction. Closing transactions essentially
permit the Fund to realize profits or limit losses on its options positions
prior to the exercise or expiration of the option. Whether a profit or loss is
realized from a closing transaction depends on the price movement of the
underlying security and the market value of the option.
<PAGE>
In considering the use of options to enhance income or to hedge the
Fund, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things,
the current market price of the underlying security, the time remaining until
expiration, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security and general market
conditions. For this reason, the successful use of options as a hedging or
income-enhancing strategy depends upon an investment manager's ability to
forecast the direction of price fluctuations in the underlying securities.
(2) Options normally have expiration dates of up to nine months. The
exercise price of an option may be below, equal to or above the current market
value of the underlying security. Options that expire unexercised have no value.
Unless an option purchased by the Fund is exercised or unless a closing
transaction is effected with respect to that position, a loss will be realized
in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange that provides a secondary market for identical options. Most
exchange-listed options relate to stocks. Exchange markets for options on debt
securities exist but are relatively new, and the ability to establish and close
out positions on the exchanges is subject to the maintenance of a liquid
secondary market will exist for any particular option at any specific time. In
such event, it may not be possible to effect closing transactions with respect
to certain options, with the result that the Fund would have to exercise those
options which it has purchased in order to realize any profit. With respect to
options written by the Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example, because the Fund must
maintain a covered position with respect to any call option it writes on a
security, it may not sell the underlying security during the period it is
obligated under such option. This requirement may impair the Fund's ability to
sell a portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
(4) The Fund's activities in the options market may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Fund also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation of market movements.
Futures Strategies
The Fund may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated with
ownership of the securities in which it invests. The Fund may use interest rate
futures contracts and options thereon to hedge its portfolio against changes in
the general level of interest rates.
A stock index futures contract is a bilateral agreement pursuant to
which one party agrees to accept, and the other party agrees to make, delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the stocks comprising the index is made. Generally, contracts are closed out
prior to the expiration date of the contract.
<PAGE>
An interest rate futures contract is a bilateral agreement pursuant to
which one party agrees to make, and the other party agrees to accept, delivery
of the specified type of debt security called for in the contract at a specified
future time and at a specified price. The Fund may purchase an interest rate
futures contract when it intends to purchase debt securities but has not yet
done so. This strategy may minimize the effect of all or part of an increase in
the market price of the debt security which the Fund intends to purchase in the
future. A rise in the price of the debt security prior to its purchase may
either be offset by an increase in the value of the futures contract purchased
by the Fund, or avoided by taking delivery of the debt securities under the
futures contract. Conversely, a fall in the market price of the underlying debt
security may result in a corresponding decrease in the value of the futures
position. The Fund may sell an interest rate futures contract in order to
continue to receive the income from a debt security, while endeavoring to avoid
part or all of the decline in the market value of that security which would
accompany an increase in interest rates.
Options on futures contracts are similar to options on securities,
except that an option on a futures contract gives the purchaser the right, in
return for the premium, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put),
rather than to purchase or sell a security, at a specified price at any time
during the option term. Upon exercise of the option, the delivery of the futures
position to the holder of the option will be accompanied by delivery of the
accumulated balance that represents the amount by which the market price of the
futures contact exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the future. The writer of an option,
upon exercise, will assume a short position in the case of a call and a long
position in the case of a put.
The Fund may purchase a call option on an interest rate futures
contract to hedge against a market advance in debt securities that the Fund
plans to acquire at a future date. The purchase of a call option on an interest
rate futures contract is analogous to the purchase of a call option on an
individual debt security which can be used as a temporary substitute for a
position in the security itself. The Fund also may write covered call options on
interest rate futures contracts as a partial hedge against a decline in the
price of debt securities held by the Fund or purchase put options on interest
rate futures contracts in order to hedge against a decline in the value of debt
securities held by the Fund.
Futures Guidelines
In view of the risks involved in using the futures strategies
described above, the Board of Directors has adopted the following investment
guidelines to govern the Fund's use of such strategies (which guidelines may be
modified by the board without shareholder vote):
<PAGE>
(1) the Fund will use interest rate futures contracts and options
thereon solely in bona fide hedging transactions or under other circumstances
permitted by the CFTC;
(2) the Fund will not purchase or sell futures contracts or related
options if, immediately thereafter, the sum of the amount of initial 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;
(3) in instances involving the purchase by the Fund of futures
contracts or the writing of related options, an amount of cash, United States
Government securities or other liquid, high-grade debt instruments equal to the
market value of the futures positions held (or the Fund's exposure in the case
of futures-related options) less any initial margin deposits thereon held by the
custodian will be deposited in a segregated account with the Fund's custodian to
collateralize the position and thereby insure that the use of such futures
contracts or related options is unleveraged;
(4) the value of all futures contracts sold will not exceed the total
market value of the Fund's total assets;
(5) futures contracts and related options will not be purchased if
immediately thereafter more than 25% of the Fund's total assets would be so
invested; and
(6) the Fund will not write put options on futures contracts except to
effect closing transactions.
Special Characteristics and Risks of Futures Trading
No price is paid upon entering into futures contracts. Instead, upon
entering into a futures contract, the Fund is required to deposit with the
Fund's custodian in a segregated account in the name of the futures broker
through whom the transaction is effected an amount of cash, United States
government securities or other liquid, high-grade debt instruments generally
equal to 10% or less of the contract value. This amount is known as "initial
margin." When writing a call option on a futures contract, margin also must be
deposited in accordance with applicable exchange rules. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures position varies, a process known as "marking to the
market." For example, when the Fund purchases a contract and the value of the
contract rises, the Fund receives from the broker a variation margin payment
equal to that increase in value. Conversely, if the value of the futures
position declines, the Fund is required to make a variation margin payment to
the broker equal to the decline in value. Unlike margin in securities
transactions, margin on futures contracts does not involve borrowing to finance
the futures transactions. Rather, margin on futures contracts is in the nature
of a performance bond or good faith deposit on the contract that is returned to
the Fund upon termination of the contract, assuming all contractual obligations
have been satisfied.
<PAGE>
Holders and writers of futures positions and options on futures
positions can enter into offsetting closing transactions, similar to closing
transactions on options, by selling or purchasing, respectively, a futures
position or related options position with the same terms as the position or
option held or written. Positions in future contracts may be closed only on an
exchange or board of trade providing a secondary market for such futures
contracts.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond the limit. The daily limit governs only price movements during
a particular trading day and therefore does not limit potential losses because
the limit may prevent the liquidation of unfavorable positions. Futures or
related options prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions and subject some traders to substantial losses. In such event, it may
not be possible for the Fund to close a position and in the event of adverse
price movements, the Fund would have to make daily cash payments of variation
margin (except in the case of purchased options). However, in the event futures
contracts have been used to hedge portfolio securities, such securities will not
be sold until the contracts can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price of the securities will, in fact, correlate with the price movements in the
contracts and thus provide an offset to losses on the contracts.
In considering the use of futures contracts and related options by the
Fund, particular note should be taken of the following:
(1) Successful use by the Fund of futures contracts and related
options will depend upon an investment manager's ability to predict movements in
the direction of the interest rate markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current price level of the
underlying instrument but to the anticipated levels at some point in the future.
There is, in addition, the risk that the movements in the price of the futures
contract will not correlate with the movements in prices of the securities being
hedged. For example, if the price of the securities being hedged has moved in a
favorable direction, this advantage may be partially offset by losses in the
futures position. If the price of the futures contract moves more than the price
of the underlying securities, the Fund will experience either a loss or a gain
on the future which may or may not be completely offset by movements in the
price of the securities that are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities being hedged, movements in the prices of futures
contracts may not correlate perfectly with movements in the prices of the hedged
securities due to price distortions in the futures markets. There may be several
reasons unrelated to the value of the underlying securities that cause this
<PAGE>
situation to occur. First, as noted above, all participants in the futures
market are subject to initial and variation margin requirements. If, to avoid
meeting additional margin deposit requirements or for other reasons, investors
choose to close a significant number of futures contracts through offsetting
transactions, distortions in the normal price relationship between the
securities and the futures markets may occur. Second, because the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market; such speculative activity in the futures market also may
cause temporary price distortions. As a result, correct forecast of general
market trends may not result in successful hedging through the use of futures
contracts over the short term. In addition, activities of large traders in both
the futures and securities markets involving arbitrage and other investment
strategies may result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures
contracts. Although the Fund intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract at any particular time. In
such event, it may not be possible to close a futures position, and in the event
of adverse price movements, the Fund would continue to be required to make
variation margin payments.
(4) Like options on securities, options on futures contracts have a
limited life. The ability to establish and close out options on futures will be
subject to the development and maintenance of liquid secondary markets on the
relevant exchanges or boards of trade. There can be no certainty that liquid
secondary markets for all options on futures contracts will develop. However,
the Fund will not trade options on futures contracts on any exchange or board of
trade unless and until, in an investment manager's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash
at the time of purchase. This amount and the transaction costs are all that is
at risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements. In addition, although the maximum amount
at risk when the Fund purchases an option is the premium paid for the option and
the transaction costs, there may be circumstances when the purchase of an option
on a futures contract would result in a loss to the Fund when the use of a
futures contract would not, such as when there is no movement in the value of
the securities being hedged.
(6) As is the case with options, the Fund's activities in the futures
markets may result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions; however, the Fund
also may save on commissions by using such contracts as a hedge rather than
buying or selling individual securities in anticipation or as a result of market
movements.
<PAGE>
Additional Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as Federal and state
regulatory limitations. The investment restrictions recited below are matters of
fundamental policy which cannot be changed for any Investment Fund without the
approval of the holders of a majority of the outstanding shares of the affected
Investment Fund or Funds. Each Investment Fund may not:
(1) Concentrate 25% or more of its total assets in
securities of issuers in any one industry (for this
purpose the United States Government, its agencies
and instrumentalities are not considered an
industry);
(2) With respect to 75% of its total assets, invest more
than 5% of its total assets in the securities of any
single issuer (for this purpose the United States
Government, its agencies and instrumentalities are
not considered a single issuer);
(3) Borrow money, except that the Fund may borrow from
banks as a temporary measure for extraordinary or
emergency purposes in an amount not exceeding 10% of
the value of the total assets of the Fund at the time
of such borrowing, provided that, while borrowings of
the Fund (including reverse repurchase agreements)
equaling 5% or more of its assets are outstanding,
the Fund will not purchase securities;
(4) Invest more than 10% of its total assets in illiquid
securities, including repurchase agreements with
maturities greater than seven days;
(5) Pledge, mortgage or hypothecate the assets of any
Investment Fund to any extent greater than 10% of the
value of the total assets of that Investment Fund;
(6) Issue senior securities;
(7) Act as an underwriter of securities within the
meaning of the Federal securities laws except insofar
as it might be deemed to be an underwriter upon
disposition of certain portfolio securities;
(8) Purchase or sell real estate, but this shall not
prevent investments in instruments secured by real
estate or interest therein or in marketable
securities of issuers which invest in real estate
or engage in real estate operations;
<PAGE>
(9) Make loans to other persons, except the Fund may make
time or demand deposits with banks, may purchase
bonds, debentures or similar obligations that are
publicly distributed or of a type customarily
purchased by institutional investors, may loan
portfolio securities and may enter into repurchase
and reverse repurchase agreements;
(10) Purchase securities on margin or make short sales of
securities;
(11) Purchase or sell commodities or commodity contracts
except futures contracts on financial instruments,
foreign currencies and stock indexes; or
(12) Enter into foreign currency transactions if, as a
result, more than 25% of the value of the Fund's
total assets would be committed to such contracts.
The following are investment restrictions which may changed with
respect to an Investment Fund or Funds by a vote of a majority of the Board of
Directors of the Fund. Each Investment Fund may not:
(1) Invest in companies for the purpose of exercising
control or management; or
(2) Invest in securities of other investment companies
except as part of a merger, consolidation,
reorganization or purchase of assets approved by the
Fund's shareholders.
If a percentage restriction referred to in one of the above investment
restrictions is adhered to at the time of investment, a later increase or
decrease in percentage resulting from a change in values or assets will not
constitute a violation of that restriction.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of any Investment Fund or its shareholders, and
the discussion here and in the Fund's Prospectus is not intended as a substitute
for careful tax planning.
Distribution Requirement
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
qualifying regulated investment company, each Fund will be exempt from income
tax on that part of its net investment income and capital gains that it
distributes to shareholders.
To qualify for this favorable treatment, each Fund must meet certain
requirements described below and must distribute to its shareholders an amount
equal to at least 90% of the sum of its investment company taxable income and
<PAGE>
its net excludable interest income (the "Distribution Requirement"). If, in any
taxable year, a Fund is unable to meet the Distribution Requirement because it
had previously made distributions to avoid liability for the federal excise tax
(discussed below), the Internal Revenue Service may waive the Distribution
Requirement for that year if the Fund satisfactorily establishes its inability
to meet the requirement.
Income Requirements
To qualify as a regulated investment company each Fund must derive at
least 90% of its gross income from its business of investing in stocks,
securities or currencies (The "Income Requirement"). This income may consist of
dividends, interest, payments with regard to securities loans, gain from sales
or other dispositions of stocks, securities or foreign currencies, or other
income (including but not limited to gains from options, futures or forward
contracts), derived with regard to its business of investing in such stocks,
securities or currencies.
In addition, each Fund must derive less than 30% of its gross income
from the sale or disposition of any of the following investments if held for
less than three months (the "Short-Short Gain Test"): stocks or securities,
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies), and foreign currencies (or options, futures or
forward contracts on foreign currencies) not directly related to the Fund's
principal business of investing in stock or securities (or options or futures on
stocks or securities).
The Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded.
Special Rules
If a Fund derives income from a partnership or trust, that income will
satisfy the Income Requirement only to the extent that it is attributable to
items of income of the partnership or trust that would satisfy the Income
Requirement if the Fund had realized them directly in the same manner as the
partnership or trust.
Future Treasury regulations may provide that foreign currency gains
that are not "directly related" to a Fund's principal business of investing in
stocks or securities (or in options and futures with respect to stocks or
securities) will not satisfy the Income Requirement. It is not clear how the
regulations will apply to certain currency-related transactions or whether the
regulations, when issued, will have only prospective effect. Consequently, each
Fund will attempt to operate so that the gross income from certain
currency-related transactions will be less than 10% of the Fund's gross income
in any taxable year to which these Treasury regulations could apply. Each Fund
will continue to operate in this way until the applicable Treasury regulations
are issued or the Fund receives a private letter ruling from the Internal
Revenue Service that income from such currency transactions will satisfy the
Income Requirement.
<PAGE>
Because of the Short-Short Gain Test, the Fund may have to limit the
sale of appreciated securities or currencies that it has held for less than
three months. In addition, there are presently no Treasury regulations that
indicate when the writing and purchasing of options on foreign currency or
investment in forward foreign currency exchange contracts and currencies
directly relates to a regulated investment company's principal business of
investing in stocks or securities (or options and futures with respect to stocks
or securities). Until such Treasury regulations are issued, the Fund may have to
limit (i) the sale or offsetting of forward foreign currency exchange contracts
that it has held for less than three months; (ii) the exercise or closing of
appreciated options on foreign currency that it has held for less than three
months; and (iii) certain other transactions involving foreign currencies.
Section 1256 Contracts
Certain options that a Fund may write or purchase and certain forward
foreign currency exchange contracts that a Fund enters into may be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if they are sold for their fair market value on the last business day
of the taxable year, regardless of whether the Fund's obligations (or rights)
thereunder have yet terminated (by delivery, exercise, entering into a closing
transaction or otherwise). Any gain or loss recognized as a consequence of this
year-end deemed disposition is combined with any other gain or loss that the
Fund previously recognized upon the termination of other Section 1256 contracts
during that taxable year.
In the case of certain Section 1256 contracts that are forward foreign
currency exchange contracts, the net amount of Section 1256 gain or loss for the
entire taxable year (including gain or loss arising as a consequence of the
year-end deemed sale of such forward contracts and options) is treated as
ordinary income or loss. In the case of other Section 1256 contracts, however,
net Section 1256 gain or loss is treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. Each Fund may elect not to have the
year-end deemed sale rule apply to Section 1256 contracts that are part of a
"mixed straddle" with other investments of the Fund that are not section 1256
contracts.
Asset Diversification Test
At the close of each quarter of its taxable year, at least 50% of the
value of each Fund's assets must consist of cash and cash items, United States
government securities, securities of other regulated investment companies, and
other securities. For this purpose, such other securities are limited, in
respect to any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and does not represent more than 10% of the outstanding
voting securities of the issuer. In addition, no more than 25% of the value of
the Fund's total assets may be invested in the securities of any one issuer
(other than United States government securities and securities of other
regulated investment companies), or in two or more issuers that the Fund
controls and that are engaged in the same or similar trades or businesses or
related trades or businesses.
<PAGE>
Fund Distributions
Each Fund anticipates that it will distribute substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income, regardless of whether the
distributions are paid in cash or in additional Shares. Each Fund will advise
shareholders annually as to the United States federal income tax consequences of
distributions made during the year.
Corporate shareholders will be entitled to the 70% dividends received
deduction on Fund distributions to the extent that a Fund receives qualifying
dividends each year. Generally, a dividend is a qualifying dividend if it has
been received from a domestic corporation. For purposes of the alternative
minimum tax and the environmental tax, however, corporate shareholders must
generally take the full amount of any dividend received from a Fund into account
in determining "alternative minimum taxable income."
Each Fund intends to distribute to shareholders as a capital gains
distribution the excess of its net long-term capital gain over its net
short-term capital loss ("net capital gain") for each taxable year. However,
under Subchapter M of the Code, a Fund is not required to distribute net capital
gain. If a Fund makes a capital gains distribution, it is taxable to
shareholders as long-term capital gain, regardless of how long the shareholder
has held Fund Shares and regardless of whether the distribution is paid in cash
or in Shares. The aggregate amount of a Fund's capital gains distributions may
not exceed the Fund's net capital gain for any taxable year. A Fund's net
capital gain is determined by excluding any net capital loss or net long-term
capital loss attributable to transactions occurring after October 31 of the
taxable year. Instead, any such loss is treated as if it arose on the first day
of the following taxable year.
Conversely, if a Fund elects to retain its net capital gain for any
taxable year, it will be taxed thereon (except to the extent of any available
capital loss carryovers) at the 35% corporate capital gains tax rate. In such
event, it is expected that the Fund also will elect to have shareholders treated
as having received a distribution of such gain. Shareholders must then report
their respective shares of such gain on their returns as long-term capital gains
and will receive a refundable tax credit for their allocable share of the
capital gains tax paid by the Fund on the gain. In addition, shareholders will
increase the tax basis for their Shares by an amount equal to the deemed
distribution less the tax credit.
Investors should be careful to consider the tax implications of
purchasing shares just prior to the next dividend date of any ordinary income
dividend or capital gains distribution. Investors who purchase just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the distribution received, even though the net asset value per
share on the date of purchase reflected the amount of such distribution.
<PAGE>
MISCELLANEOUS CONSIDERATIONS
Federal Excise Tax
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of "capital gain net
income" (excess of capital gains over capital losses) for the one-year period
ending on October 31 of such calendar year. The excise tax is imposed on the
undistributed part of this required distribution. In addition, the balance of
such income must be distributed during the next calendar year to avoid liability
for the excise tax in that year. For the foregoing purposes, a regulated
investment company is treated as having distributed any amount on which it is
subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company must
reduce capital gain net income by the amount of any net ordinary loss for the
calendar year, but not below the net capital gain for the one-year period ending
on October 31. In addition, a regulated investment company must exclude certain
foreign currency gains and losses incurred after October 31 of any year in
determining the amount of ordinary taxable income for the current calendar year.
Instead, such gains and losses are included in determining ordinary taxable
income for the succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary
income and capital gain net income before the end of each calendar year to avoid
liability for the excise tax. However, investors should note that a Fund may in
certain circumstances be required to liquidate Fund investments in order to make
sufficient distributions to avoid excise tax liability. Liquidation of
investments in such circumstances may affect the ability of the Fund to satisfy
the Short-Short Gain test.
Sale of Shares
Generally, gain or loss on the sale of Shares will be capital gain or
loss, which will be long-term if the Shares have been held for more than one
year. However, investors should be aware that any loss realized upon the sale,
exchange, or redemption of Shares held for six months or less will be treated as
a long-term capital loss to the extent that any capital gains distributions have
been paid with respect to such Shares (or any undistributed net capital gain of
the Fund with respect to such Shares has been included in determining the
investor's long-term capital gain). In addition, any loss realized on a sale or
other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
61-day period, beginning 30 days before and ending 30 days after the disposition
of the Shares. Investors should particularly note that this loss disallowance
rule will apply to Shares received through the reinvestment of dividends during
the 61-day period.
<PAGE>
Failure to Qualify as a Regulated Investment Company
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders.
Distributions will then be taxable as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions will
generally be eligible for the dividends received deduction in the case of
corporate shareholders.
Back-up Withholding
In certain cases, a Fund will be required to withhold and remit to the
United States Treasury 31% of distributions paid to any shareholder if (i) the
shareholder has not provided a correct tax identification number, (ii) the
shareholder is subject to back-up withholding by the Internal Revenue Service
for failure to report the receipt of interest or dividend income properly, or
(iii) the shareholder has failed to certify to the Fund that the shareholder is
not subject to back-up withholding.
Foreign Income Taxes
As described in the Prospectus, if the International Equity Fund
receives investment income from foreign sources, applicable foreign income taxes
may be withheld at the source. The United States has entered into tax treaties
with many foreign countries that entitle the Fund to a reduced rate of, or
exemption from, taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance, since the amount of the International
Equity Fund's assets to be invested in various countries is not known.
If more than 50% of the value of the International Equity Fund's total
assets at the close of its taxable year consists of the stocks or securities of
foreign corporations, the Fund may elect to "pass through" to its shareholders
the amount of foreign income taxes the Fund has paid (the "Foreign Tax
Election"). If the International Equity Fund makes the Foreign Tax Election,
shareholders would be required to include in gross income, even though not
actually received, their respective pro-rata shares of the foreign income taxes
paid by the Fund. In addition, shareholders would either have to deduct their
pro rata share of foreign taxes in computing their taxable income, or would have
to use it (subject to various Code limitations) as a foreign tax credit against
United States Federal income tax (but not both). If the Fund makes the Foreign
Tax Election, its shareholders would be required to treat their pro rata shares
of such foreign taxes and allocable portions of Fund distributions as foreign
source income for purposes of the foreign tax credit limitation rules of the
Code.
<PAGE>
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of United States Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
State and local rules of taxation of dividend and capital gain
distributions from regulated investment companies often differ from the rules of
United States Federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules regarding any investment in a Fund. Shareholders should also
consult their advisers regarding the application of the federal rules described
above to their specific circumstances.
VALUATION OF SHARES
A Fund determines its net asset value per share as of the close of
trading (currently 4:00 p.m., eastern time) on the New York Stock Exchange
("NYSE") on each Business Day, which is defined as each Monday through Friday
when the NYSE is open. Currently, the NYSE is closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving
and Christmas.
Securities which are listed on United States and foreign stock
exchanges are valued at the last sale price on the day the securities are being
valued or, lacking any sales on such day, at the last available bid price. In
cases where securities are traded on more than one exchange, the securities are
generally valued on the exchange considered by the investment manager as the
primary market. Securities traded in the OTC market and listed on the National
Association of Securities Dealers Automatic Quotation System ("NASDAQ") are
valued at the last available sale price on NASDAQ at 4:00 p.m.; other OTC
securities are valued at the last bid price available prior to valuation.
When market quotations for options and futures positions held by a
Fund are readily available, those positions are valued based upon the sale price
at the close of trading on the applicable exchange. Securities, options and
futures positions, and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors. The amortized cost method of valuation may
also be used with respect to debt obligations with remaining maturities of 60
days or less. Other securities and assets will be valued at fair value by or
under the direction of the Board of Directors of the Fund.
<PAGE>
PERFORMANCE INFORMATION
Yield
Current and effective yield are computed using standardized methods
required by the SEC. The annualized yield for the Money Market Fund is computed
by: (a) determining the net change in the value of a hypothetical account having
a balance of one share at the beginning of a seven-calendar day period; (b)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return; and (c) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and depreciation.
Compound effective yields are computed by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Funds will fluctuate, they cannot be
compared with yields on savings account or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
For the seven day period ended September 30, 1995, the yield and
compound yield for the Money Market Fund were 5.25% and 5.39%, respectively.
The yield of Funds other than the Money Market Fund is calculated by
dividing the net investment income per share (as described below) earned by the
Fund during a 30-day (or one month) period by the net asset value per share on
the last day of the period and analyzing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. The Fund's net investment
income per share earned during the period is based on the average daily number
of shares outstanding during the period entitled to receive dividends and
includes dividends and interest earned during the period minus expenses accrued
for the period, net of reimbursements. This calculation can be expressed as
follows:
<PAGE>
6
Yield = 2[(a-b +1)-1]
---
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = net asset value per share on the last day of the period
Except as noted below, for the purpose of determining net investment
income earned during the period (variable "a" in the formula), interest earned
on debt obligations held by a Fund is calculated by computing the yield to
maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, based on the purchase price (plus actual accrued interest), dividing the
result by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by a Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
The yields on certain obligations, including the money market
instruments in which the Funds invest (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's Investors
Service and Standard & Poor's Corporation represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices. In addition, subsequent to its purchase by a Fund, an issue may cease to
be rated or may have its rating reduced below the minimum required for purchase.
In such event, the investment manager will consider whether a Fund should
continue to hold the obligation.
For the 30 day period ended September 30, 1995, the yield for the Core
Equity Fund was 1.97%, the Emerging Growth Fund was -1.26% and the
Intermediate-Term Fixed-Income Fund was 5.32%.
<PAGE>
Total Return
Average annual total return quotes ("Standardized Return") used in a
Fund's performance are calculated according to the following formula:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (exponent)
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of that period.
Under the foregoing formula, the time periods used will be based on
rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication and will cover one, five
and ten year periods or a shorter period dating from the effectiveness of a
Fund's registration statement. During its first year of operations, a Fund may,
in lieu of annualizing its total return, use an aggregate total return
calculated in the same manner. Average annual total return, or "T" in the
formula above, is computed by finding the average annual change in the value of
an initial $1,000 investment over the period. In calculating the ending
redeemable value the applicable sales load, if any, is deducted and all
dividends and distributions are assumed to have been reinvested at net asset
value.
Calculated according to the SEC rules for the fiscal year ended
September 30, 1995, the ending redeemable value of a hypothetical $1,000
investment in each of the Fund's investment funds in operation during such
period, and the resulting total return for each such investment fund were as
follows:
Ending Redeemable
Value of
Investment Fund $1,000 Investment* Total Return*
- ----------------- ------------------- -------------
Core Equity Fund $1,352.40 35.24%
Emerging Growth Equity Fund $1,392.00 39.20%
Intermediate-Term Fixed-Income Fund $1,096.40 9.64%
Money Market Fund $1,052.00 5.20%
* Assumes the reinvestment of all dividends and distributions.
Calculated according to the SEC rules for the period from the
respective dates of commencement of operations, as indicated below, to September
30, 1995, the ending redeemable value of a hypothetical $1,000 investment in
each of the Fund's investment funds in operation during such period, and the
resulting average annual total return for each such investment fund were as
follows:
<PAGE>
Ending Redeemable Average
Value of Annual
Investment Fund $1,000 Investment* Total Return*
- --------------- ------------------ -------------
Core Equity Fund (5/10/91) $1,927.60 16.35%
Emerging Growth Equity Fund (5/10/91) $2,574.10 24.38%
Intermediate-Term
Fixed-Income Fund (5/10/91) $1,387.60 7.85%
Money Market Fund (2/7/91) $1,187.20 3.89%
* Assumes the reinvestment of all dividends and distributions.
Other Information
The performance of a Fund, as well as the composite performance of all
fixed-income funds and all equity funds, may be compared to data prepared by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., the Donoghue Organization, Inc. or other independent services
which monitor the performance of investment companies, and may be quoted in
advertising in terms of their rankings in each applicable universe. In addition,
a Fund may use performance data reported in financial and industry publications,
including Barron's, Business Week, Forbes, Investor's Daily, IBC/Donoghue's
Money Fund Report, Money Magazine, The Wall Street Journal and USA Today.
ADMINISTRATION OF THE FUND
The overall business affairs of the Fund are managed by its Board of
Directors. The Fund has seven members of the Board of Directors. The Fund's
officers are responsible for the operation of the Fund under the supervision of
the Board of Directors. The officers of the Fund are the President, one or more
Vice Presidents, a Secretary and a Treasurer. There may also be a Chairman.
The Fund's Board of Directors meets four times a year and currently
has two standing committees: an Audit Committee and a Nominating Committee.
These committees meet from time to time between meetings of the Board of
Directors to consider matters concerning the Fund. The Fund pays to each member
of the Board of Directors who is not an officer of the Fund a fee of $800 for
each board meeting and each committee meeting which they attend, with the
chairman of the committee, who is not an officer of the Fund, receiving an
additional $100 for each committee meeting. A fee of $400 is paid to each
non-officer Director who participates in a telephonic meeting. In addition, the
Fund pays an annual fee of $7,000 to each Director who is neither an officer of
the Fund nor a Trustee of RSI Retirement Trust.
<PAGE>
The Directors and officers are reimbursed for reasonable expenses
incurred in attending meetings or otherwise in connection with their attention
to the affairs of the Fund. For the fiscal year ended September 30, 1995, the
foregoing persons accrued total fees and expenses of $40,628.
The directors and executive officers of the Fund, their respective
ages, their principal occupations for the last five years and their
affiliations, if any, with the Fund are set forth below. An asterisk (*)
indicates officers and/or directors who are "interested persons" of the Fund as
defined in the Investment Company Act.
Principal Occupation
Positions For Last Five Years and
Name With Fund Age Affiliation With Fund
William Dannecker* President 56 President and Chief Executive Officer of
and Director Retirement System Group Inc. since
January 1990 and Director since March
1989; President of Retirement System
Consultants Inc. since January 1990 and
Director since March 1989; Director of
Retirement System Investors Inc. since
March 1989; President of Retirement
System Distributors Inc. since December
1990 and Director since July 1989;
President of RSI Retirement Trust since
May 1986.
Edward J. Brown* Director 63 Consultant since December 1993;
President and Chief Operating Officer of
Apple Bank for Savings and Apple
Bancorp, Inc., New York, New York, from
January 1987 to November 30, 1993; Chief
Executive Officer from October 1990 to
February 1991. Also, Director of
Retirement System Group Inc.
<PAGE>
Principal Occupation
Positions For Last Five Years and
Name With Fund Age Affiliation With Fund
Candace Cox Director 44 President and Chief Investment Officer,
NYNEX Asset Management Company, New
York, New York; since November 1995,
Vice President, Public Markets
Investments, NYNEX Asset Management Co.,
from July 1994 to October 1995; ,
Managing Director, Public Markets
Investments, NYNEX Asset Management Co.,
from September, 1992 to October 1995;
Principal Investment Officer, New York
City Controller's Office, New York, New
York from July 1989 to August 1992.
Eugene.C. Ecker Director 71 Consultant since January 1988, Pension
and Group Insurance; formerly Pension
Investment Officer, Primerica
Corporation (formerly American Can Co.),
Greenwich, CT. Also Trustee of RSI
Retirement Trust.
Joseph P. Gemmell* Director 60 Chairman of the Board of Bankers
Savings, Perth Amboy, New Jersey since
1989; President and Chief Executive
Officer of Bankers Savings since 1983.
Also, Director or Trustee of Retirement
System Group Inc., New Jersey Community
and Savings Banks, Middlesex County
College Foundation, Middlesex County
Blue Badge Association #1, and Garden
State Hospitalization Plan.
Covington Hardee Director 76 Chairman of the Board Emeritus from 1984
to April 1990, The Lincoln Savings Bank,
FSB, New York, NY. Also Trustee of RSI
Retirement Trust.
<PAGE>
Principal Occupation
Positions For Last Five Years and
Name With Fund Age Affiliation With Fund
Raymond L. Willis Director 60 Private investments since March 1989;
formerly Chairman, U.T. Pension Trust
Ltd., London England, President, U.T.
Insurance Co., Bermuda, V.I. and
Corporate Director, Risk and Benefits
Management, United Technologies
Corporation, Hartford, CT. Also Trustee
of RSI Retirement Trust.
James P. Coughlin* Executive 59 Executive Vice President of Retirement
Vice President System Group Inc. since January 1993,
Senior Vice President-Investments from
January 1990 to December 1992, Chief
Investment Officer since January 1991,
and Director since May 1990; President
of Retirement System Investors Inc.
since February 1990; Registered
Principal of Retirement System
Distributors Inc. since February 1990
and President from February 1990 to
December 1990.
Stephen P. Pollak* Executive 50 Executive Vice President, Counsel and
Vice President Secretary of Retirement System Group Inc
Counsel and since January 1993; Senior Vice
Secretary President, Counsel and Secretary from
January 1990 through December 1992 and
Director since March 1989; Vice
President, and Secretary of Retirement
System Consultants Inc. since January
1990 and Director since March 1989; Vice
President and Secretary of Retirement
System Distributors Inc. since February
1990 and Director since July 1989; Vice
President and Secretary of Retirement
System Investors Inc. since February
1990 and Director since March 1989.
<PAGE>
Principal Occupation
Positions For Last Five Years and
Name With Fund Age Affiliation With Fund
John F. Meuser* Vice 60 Senior Vice President of Retirement
President System Group Inc. since January 1996,
and Treasurer Vice President from January 1993 to
December 1995, First Vice President from
August 1990 to December 1992; Financial
and Operations Principal since October
1993 and Registered Representative since
February 1990 of Retirement System
Distributors Inc.; Vice President of
Retirement System Investors Inc. since
February 1990; Vice President and
Treasurer of RSI Retirement Trust since
October 1992.
The Directors of the Fund received the compensation shown below for
services to the Fund during the fiscal year ended September 30, 1995. Fund
officers received no compensation from the Fund during the fiscal year ended
September 30, 1995:
Pension or Retirement
Benefits Accrued
As Part of Fund
Aggregate Compensation Expenses
Name of Trustee From the Fund
William Dannecker $- 0 - $- 0 -
Edward J. Brown 9,116.67 - 0 -
Candance Cox 5,600.00 - 0 -
Eugene.C. Ecker 2,400.00 - 0 -
Joseph P. Gemmell 9,616.00 - 0 -
Covington Hardee 5,600.00 - 0 -
Raymond L. Willis 5,900.00 - 0 -
The Fund does not provide Directors or officers, directly or
indirectly, with any pension or retirement benefits for their services to the
Fund. William Dannecker, the President of the Fund, is an officer of Group,
Retirement System Distributors Inc. ("Distributor") and Retirement System
Consultants Inc. ("Service Company"), and receives compensation in such
capacities. James P. Coughlin, Executive Vice President of the Fund, is an
officer of the Group and the Investment Advisor, and receives compensation in
such capacities. Stephen P. Pollak, Executive Vice President, Counsel and
Secretary of the Fund, is an officer of Group, the Service Company the
Investment Advisor and the Distributor, and receives compensation in such
capacities. John F. Meuser, Vice President and Treasurer of the Fund, is an
officer of Group and the Investment Advisor, and receives compensation in such
capacities.
<PAGE>
The Distributor is wholly-owned by Retirement System Group Inc., P.O.
Box 2064, Grand Central Station, New York, New York 10163-2064, a holding
company organized under the laws of the State of Delaware. The Investment
Advisor and administrator are also wholly-owned subsidiaries of Retirement
System Group Inc.
ADVISORY AND OTHER SERVICES
The Investment Advisor, a wholly-owned subsidiary of Retirement System
Group Inc., acts as the investment advisor to each Investment Fund. Certain
Investment Funds have engaged independent investment managers to make and effect
decisions on buying and selling portfolio securities. The Investment Advisor
acts as investment manager to the remaining Funds and in the case of all
Investment Funds, exercises general oversight with respect to portfolio
management and reports to the Board of Directors with respect thereto. The fees
which the Investment Advisor and each investment manager is entitled to receive
for services on behalf of the Fund is set forth in the Prospectus.
For investment advisory services to the Money Market Fund, the Core
Equity Fund, the Emerging Growth Equity Fund and the Intermediate-Term
Fixed-Income Fund, respectively, for the fiscal year ended September 30, 1993,
the Investment Advisor received fees (net of fee waivers) of $0, $0, $10,028 and
$0, respectively, and waived fees of $2,568, $11,205, $0 and $5,292,
respectively. For the fiscal year ended September 30, 1994, the Investment
Advisor received fees (net of fee waivers) of $0, $0, $14,681 and $0,
respectively, and waived fees of $3,444, $20,124, $0 and $11,099, respectively.
For the fiscal year ended September 30, 1995, the Investment Advisor received
fees (net of fee waivers) of $0, $0, $27,019, and $0, respectively, and waived
fees of $2,885, $26,842, $0, and $18,262, respectively.
For the fiscal years ended September 30, 1993, September 30, 1994, and
September 30, 1995, the Investment Advisor paid all of the fees it received for
advisory services for the Emerging Growth Equity Fund to the Putnam Advisory
Company, Inc., for its services as an independent investment manager to such
Fund.
The Fund's agreements with the Investment Advisor and with each
investment manager had an initial term of two years and were approved by the
initial shareholder of the Fund on February 28, 1991. These agreements may be
continued from year to year after the initial term provided each annual
continuance is approved in the manner provided in the Investment Company Act.
Any such agreement will automatically terminate if "assigned" (as defined by the
<PAGE>
Investment Company Act), and may be terminated without penalty at any time (a)
either by vote of the Board of Directors, or by vote of a majority of the
outstanding shares of the Fund, on not more than 60 nor less than 30 days'
written notice to the Investment Advisor or the investment manager, as the case
may be, unless a shorter period is otherwise agreed to, or (b) by the Investment
Advisor or the investment manager, as the case may be, upon not more than 60 nor
less than 30 days' written notice to the Fund, unless a shorter period is
otherwise agreed to.
Pursuant to a Service Agreement, as amended effective January 28,
1995, Retirement System Consultants Inc. (the "Service Company") will perform
general administrative and related services, including transfer agent and
registrar services, to each Investment Fund. The Service Company is a
wholly-owned subsidiary of Retirement System Group Inc.
For the fiscal years ended September 30, 1993, September 30, 1994, and
September 30, 1995, the Service Company waived all fees due it under the Service
Agreement.
In addition, the Service Company has voluntarily agreed to reimburse
each Investment Fund to the extent required so that "Total Annual Operating
Expenses" do not exceed the following ratios of each Investment Fund's average
daily net assets:
Core Equity Fund..................................... 1.00%
Emerging Growth Equity Fund.......................... 2.00%
Value Equity Fund.................................... 1.42%
International Equity Fund............................ 2.21%
Actively Managed Fixed-Income Fund................... .74%
Intermediate-Term Fixed Income Fund.................. 1.00%
Money Market Fund.................................... .50%
For the period ended September 30, 1993, such reimbursement for the
Core Equity Fund, Emerging Growth Equity Fund, Intermediate-Term Fixed-Income
Fund and Money Market Fund was $45,300, $65,599, $44,132 and $45,142,
respectively. For the period ended September 30, 1994, such reimbursement for
the Core Equity Fund, Emerging Growth Equity Fund, Intermediate-Term
Fixed-Income Fund and Money Market Fund was $44,692, $60,887, $46,119, and
$47,866, respectively. For the period ended September 30, 1995, such
reimbursement for the Core Equity Fund, Emerging Growth Equity Fund,
Intermediate-Term Fixed-Income Fund and Money Market Fund was $58,183, $74,265,
$49,727, and $42,954, respectively. See "Fee Table" in the Prospectus for
additional information with respect to fee waivers.
<PAGE>
DISTRIBUTION AGREEMENT
Pursuant to the Distribution Agreement, the Distributor will
distribute and promote the sale of shares in the Fund's Investment Funds in
accordance with the Fund's Rule 12b-1 Plan. The maximum amount payable under the
Plan is equal to .25% of the average daily net assets of a Fund but the Board of
Directors currently limits such expenditures to .20% of average daily net
assets. The Plan does not provide for any charges to a Fund for excess amounts
expended by the Distributor and, if the Plan is terminated, the obligation of
the Fund to make payments to the Distributor will cease and the Fund will not be
required to make any payments thereafter. If the Distributor's costs in
connection with its distribution services to a Fund are less than .20% of net
assets, the Distributor may nevertheless retain the difference. If the
Distributor's costs exceed .20% of net assets, the Distributor will assume the
difference and will not be reimbursed therefor. Pursuant to the Distribution
Agreement, the Distributor will prepare and furnish to the Board of Directors
for its review quarterly, a written report of the amounts expended under the
Distribution Agreement and the purposes for which such expenditures were made.
As compensation for providing distribution services for the Money
Market Fund, the Core Equity Fund, the Emerging Growth Equity Fund and the
Intermediate-Term Fixed-Income Fund, respectively, for the fiscal year ended
September 30, 1993, the Distributor received from the Fund aggregate fees and
commissions of $2,054, $3,735, $2,044 and $2,646, respectively and waived fees
of $514, $934, $512 and $662. For the fiscal year ended September 30, 1994, the
Distributor received from the Fund aggregate fees and commissions of $2,755,
$6,708, $2,964, and $5,550, and waived fees of $689, $1,677, $741, and $1,388.
For the fiscal year ended September 30, 1995, the Distributor received from the
Fund aggregate fees and commissions of $2,308, $8,947, $4,504, and $9,131, and
waived fees of $577, $2,237, $1,126, and $2,283. From the fees it received
during such periods, the Distributor paid no fees or commissions either to its
representatives or to outside broker-dealers.
The Distribution Agreement, which had an initial two-year term, may be
continued from year to year after its initial term if such continuance is
approved in the manner required by Rule 12b-1 under the Investment Company Act.
The Distribution Agreement may be terminated by the Fund or the Distributor
without penalty, on not more than 60 days' nor less than 30 days' written
notice. The Distribution Agreement will also terminate automatically in the
event of its "assignment" (as defined in the Investment Company Act). The
Distribution Plan does not have an initial two-year term and must be approved
annually in the manner required by Rule 12b-1 under the Investment Company Act.
The Plan and Distribution Agreement were most recently approved in the foregoing
manner by the Board of Directors on July 27, 1995.
<PAGE>
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER
Each investment manager determines the broker to be used, if any, in
each specific securities transaction executed on behalf of the Fund with the
objective of negotiating a combination of the most favorable commission and the
best price obtainable on each transaction, taking into consideration the quality
of execution (generally defined as best execution). When consistent with the
objective of obtaining best execution, brokerage may be directed to persons or
firms supplying information to an investment manager. The investment information
provided to an investment manager is of the type described in Section 28(e) of
the Securities Exchange Act of 1934 and is designed to augment the manager's own
internal research and investment strategy capabilities. Research services
furnished by brokers through which the Fund effects securities transactions are
used by those investment managers to whom such services are furnished in
carrying out their investment management responsibilities with respect to all
their client accounts and not all such services may be used by such investment
managers in connection with the Fund. There may be occasions where the
transaction costs charged by a broker may be greater than those which another
broker may charge if the investment manager determines in good faith that the
amount of such transaction cost is reasonable in relationship to the value of
the brokerage and research services provided by the executing broker. No
investment manager has entered into agreements with any brokers regarding the
placement of securities transactions because of research services they provide.
The Fund's investment managers deal in some instances in securities
which are not listed on a national securities exchange but are traded in the
over-the-counter market or the third market. Investment managers may also
purchase listed securities through the third market (i.e., transactions effected
off the exchange with brokers). Where securities transactions are executed in
the over-the-counter market or third market, each investment manager seeks to
deal with primary market makers except in those circumstances where, in their
opinion, better prices and executions may be available elsewhere.
During the fiscal years ended September 30, 1994 and September 30,
1995, the Investment Managers directed no transactions to broker-dealers and
paid no commissions to broker-dealers for research services. During the same
period, the Fund paid no brokerage commissions to the Distributor.
The Fund is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the Investment Company Act)
which the Fund has acquired during its most recent fiscal year. As of September
30, 1995, the Core Equity Fund held a 6.30% repurchase agreement issued by Bear,
Stearns & Co. Inc. valued at $210,000, the Emerging Growth Equity Fund held a
6.30% repurchase agreement issued by Bear, Stearns & Co. Inc. valued at
$108,000, and the Intermediate-Term Fixed-Income Fund held a repurchase
agreement issued by Bear, Stearns & Co. Inc. valued at $7,150. Bear, Stearns &
Co. Inc. is a "regular broker or dealer" of the Fund.
<PAGE>
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of Directors
to issue up to two billion full and fractional shares of common stock. The Fund
presently offers three classes of common stock, as defined in the Prospectus.
The Board of Directors may classify or reclassify any authorized but
unissued shares of the Fund into one or more additional classes by setting or
changing in any one or more respects their respective preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or pre-emptive rights and only such
conversion or exchange rights as the Board of Directors may grant in its
discretion. When issued for payment as described in the Fund's Prospectus and
this Statement of Additional Information, the Fund's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of an
Investment Fund, shares are entitled to receive the assets available for
distribution belonging to that Investment Fund, and a proportionate
distribution, based upon the relative asset value of the Investment Fund and the
Fund's other Investment Funds, of any general assets not belonging to any
particular Investment Fund which are available for distribution. A meeting of
shareholders may be called for any purpose on the written request of the holders
of at least 10% of the outstanding shares of the Fund. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate
number of shares of the Fund may elect all of the directors if they choose to do
so and, in such event, the holders of the remaining shares would not be able to
elect any person or persons to the Board of Directors. Under Maryland law, a
director may be removed by the affirmative vote of the holders of more than 50%
of the aggregate number of shares of the Fund.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Fund shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Investment Fund affected by the matter. An Investment
<PAGE>
Fund is affected by a matter unless it is clear that the interests of each
Investment Fund in the matter are identical, or that the matter does not affect
any interest of the Investment Fund. Under Rule 18f-2, the approval of an
investment advisory agreement or Rule 12b-1 Plan or any change in a fundamental
investment policy would be effectively acted upon with respect to an Investment
Fund only if approved by a majority of the outstanding shares of such Fund.
However, Rule 18f-2 also provides that the ratification of independent auditors,
the approval of principal underwriting contracts, and the election of directors
may be effectively acted upon by shareholders of the Fund voting together
without regard to class.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Fund's shares (or of any class voting as a class) in connection with any
corporate action, unless otherwise provided by law or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of the outstanding common stock of the Fund
(voting together without regard to class).
COUNSEL AND AUDITORS
Morgan, Lewis & Bockius, LLP, 2000 One Logan Square, Philadelphia,
Pennsylvania 19103-6993 acts as counsel for the Fund and has rendered its
opinion as to certain legal matters regarding the validity of shares offered by
the Prospectus. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York
10017, has been selected as auditors of the Fund.
CONTROL PERSONS
The following information is given as of December 31, 1995.
The names and addresses of the holders of 5% or more of the
outstanding shares of each of the Fund's Investment Funds in operation on
December 31, 1995 and the percentage of outstanding shares of each such
Investment Fund owned by such shareholders as of such date, to Fund Management's
knowledge, are as follows:
<PAGE>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record and of Record and Shares Owned of Owned of
Beneficial Owner Beneficially Beneficially Record Only Record Only
- ---------------- ---------------- ------------ ----------- -----------
Core Equity Fund
IBJ Schroder as Trustee -- -- 270,199.5 72.82%
for various accounts
One State Street
New York, NY 10004
Beneficial Owners:
The Dime Savings Bank
of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211 28,842.2 7.77% -- --
ALBANK, FSB 94,989.9 25.60%* -- --
Corner of State and North
Pearl Streets
Albany, NY 12207
First Fidelity Bank, NA, 137,369.9 37.02%* -- --
New York
3 Skyline Drive
Hawthorne, NY 10532
Flushing Savings Bank 18,629.7 5.02% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Emerging Growth Equity Fund
IBJ Schroder as Trustee for -- -- 94,292.2 48.03%
various accounts
One State Street
New York, NY 10004
Beneficial Owners:
ALBANK, FSB 40,096.4 20.42% -- --
Corner of State and North
Pearl Streets
Albany, NY 12207
* Total ownership is less than 25% of total Fund assets.
<PAGE>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record and of Record and Shares Owned of Owned of
Beneficial Owner Beneficially Beneficially Record Only Record Only
- ---------------- ---------------- ------------ ----------- -----------
Raritan Savings Bank 15,305.5 7.80% -- --
9 West Somerset Street
Raritan, NJ 08869-0129
First Fidelity Bank, N.A., 25,671.6 13.08% -- --
New York
3 Skyline Drive
Hawthorne, NY 10532
Ridgewood Savings Bank 38,633.7 19.68% -- --
Myrtle & Forest Avenues
Ridgewood, New York 11385
Carthage Federal Savings 11,837.5 6.03% -- --
& Loan Association
313 State Street
PO Box 150
Carthage, NY 13619
Intermediate-Term Fixed-Income Fund
IBJ Schroder as Trustee -- -- 241,051.8 46.19%
for various accounts
One State Street
New York, NY 10004
Beneficial Owners:
ALBANK, FSB 58,188.3 11.15% -- --
Corner of State and North
Pearl Streets
Albany, NY 12207
First Fidelity Bank, N.A., 77,343.2 14.82% -- --
New York
3 Skyline Drive
Hawthorne, NY 10532
<PAGE>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record and of Record and Shares Owned of Owned of
Beneficial Owner Beneficially Beneficially Record Only Record Only
- ---------------- ---------------- ------------ ----------- -----------
Carthage Federal Savings 26,233.2 5.03% -- --
& Loan Association
313 State Street
PO Box 150
Carthage, NY 13619
Institutional Securities 130,550.6 25.02%* -- --
Corp.
200 Park Avenue -
6th Floor West
New York, New York 10166
The Dime Savings Bank 40,616.5 7.78% -- --
of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
The Roslyn Savings Bank 53,944.8 10.34% -- --
1400 Old Northern Boulevard
Roslyn, NY 11576
Money Market Fund
IBJ Schroder as Trustee -- -- 681,005.3 52.15%%
for various accounts
One State Street
New York, NY 10004
Beneficial Owners:
ALBANK, FSB 662,241.8 50.71%* -- --
Corner of State and North
Pearl Streets
Albany, NY 12207
Flushing Savings Bank 197,952.4 15.16% -- --
144-51 Northern Boulevard
Flushing, NY 11354
* Total ownership is less than 25% of total Fund assets.
<PAGE>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record and of Record and Shares Owned of Owned of
Beneficial Owner Beneficially Beneficially Record Only Record Only
- ---------------- ---------------- ------------ ----------- -----------
Charter Trust Company 221,283.8 16.94% -- --
Trustee of Mid-Maine
Savings Bank
95 North Main Street
PO Box 1374
Concord, NH 03302
Carthage Federal Savings 131,842.7 10.10% -- --
& Loan Association
313 State Street
PO Box 150
Carthage, NY 13619
FINANCIAL STATEMENTS
The financial statements required to be included in this Statement
of Additional Information are incorporated herein by reference from the Fund's
Annual Report to shareholders for the fiscal year ended September 30, 1995.
Other portions of the Fund's Annual Report, including Highlights of the Year,
President's Message and Investment Performance and Asset Values, are not
incorporated by reference and therefore do not constitute a part of this
Registration Statement. A copy of the Fund's Annual Report may be obtained
without charge by writing to Retirement System Fund Inc., 317 Madison Avenue,
New York, New York 10017, Attention: Stephen P. Pollak, Esq.
<PAGE>
PART C
RETIREMENT SYSTEM FUND INC.
OTHER INFORMATION
January 29, 1996
Item 24. Financial Statements and Exhibits.
List all financial statements and exhibits filed as part of the
Registration Statement.
a) Financial Statements:
(1) Included in Part A of the Registration Statement:
- Financial Highlights for the periods from the date
operations commenced through September 30, 1995
(2) Included in Part B of the Registration Statement by
incorporation by reference from 1995 Annual Report:
- Core Equity Fund
Statement of Investments as of September 30, 1995
Statement of Assets and Liabilities as of
September 30, 1995 Statement of Operations from
October 1, 1994 through September 30, 1995
Statement of Changes in Net Assets for the year
ended September 30, 1995 and for the year ended
September 30, 1994.
- Emerging Growth Equity Fund
Statement of Investments as of September 30, 1995
Statement of Assets and Liabilities as of
September 30, 1995 Statement of Operations from
October 1, 1994 through September 30, 1995
Statement of Changes in Net Assets for the year
ended September 30, 1995 and for the year ended
September 30, 1994.
<PAGE>
- Intermediate-Term Fixed-Income Fund
Statement of Investments as of September 30, 1995
Statement of Assets and Liabilities as of
September 30, 1995 Statement of Operations from
October 1, 1994 through September 30, 1995
Statement of Changes in Net Assets for the year
ended September 30, 1995 and for the year ended
September 30, 1994.
- Money Market Fund
Statement of Investments as of September 30, 1995
Statement of Assets and Liabilities as of
September 30, 1995 Statement of Operations from
October 1, 1994 through September 30, 1995
Statement of Changes in Net Assets for the year
ended September 30, 1995 and for the year ended
September 30, 1994.
- Notes to Financial Statements.
- Report of Independent Auditors.
(3) All required financial statements relating to
registrant are included in Part B hereof. All
other financial statements and schedules are
inapplicable.
b) Exhibits:
(1)* Articles of Incorporation of Registrant.
(2)** By-Laws of Registrant.
(3) None.
(4)** Specimen Security for each of the funds listed
below:
- --------------------
* Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A (No. 33-37963) filed with the Securities and
Exchange Commission on November 21, 1990.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (No. 33-37963) filed
with the Securities and Exchange Commission on March 11, 1991.
<PAGE>
(a) Emerging Growth Equity Fund.
(b) Intermediate-Term Fixed-Income Fund
(formerly, Intermediate Term Bond Fund).
(c) Money Market Fund.
(d) Core Equity Fund.
(e) Value Equity Fund.
(f) International Equity Fund.
(g) Actively Managed Fixed-Income Fund
(formerly, Actively Managed Bond Fund).
(5)* (a) Form of Investment Advisory Agreement
between Registrant and Retirement System
Investors Inc.
** (b) Form of Investment Management Agreement
among Registrant, Retirement System
Investors Inc. and Putnam Advisory
Company together with Schedule A thereto
setting forth the terms of compensation.
(Emerging Growth Equity Fund).
* (c) Form of Investment Management Agreement
among Registrant, Retirement System
Investors Inc. and Morgan Grenfell
Investment Services Limited together
with Schedule A thereto setting forth
the terms of compensation.
(International Equity Fund).
(6)* (a) Distribution Agreement between
Registrant and Retirement System
Distributors Inc.
* (b) Form of Sub-Distribution Agreement
between Retirement System Distributors
Inc. and Participating Broker-Dealers.
--------------------
* Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (No. 33-37963) filed with the Securities and Exchange Commission
on November 21, 1990.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (No. 33-37963) filed with
the Securities and Exchange Commission on March 11, 1991.
<PAGE>
* (c) Form of Shareholder Servicing Agreement
between Registrant and Shareholder
Servicing Agents.
(7) None.
(8)** Form of Custody Agreement with Custodial Trust
Company.
(9)*** Amended Service Agreement, effective January 28,
1995.
(10)** Opinion of Counsel.
Ex-99.(B) (11) Consent of Independent Auditors.
(12) None.
(13)* Form of Subscription Agreement re: Initial
$100,000 capital.
(14) None.
(15)* Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act of 1940.
(16)**** Schedule of Computation of Performance Quotations
(unaudited).
Ex-99.(B) (17) 1995 Annual Report to Shareholders, including
Report of Independent Auditors.
Ex-(27) Financial Data Schedules.
- -------------------
* Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A (No. 33-37963) filed with the Securities and Exchange
Commission on November 21, 1990.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (No. 33-37963) filed
with the Securities and Exchange Commission on March 11, 1991.
*** Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (No. 33-37963) filed
with the Securities and Exchange Commission on January 30, 1995.
**** Incorporated, herein by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (No. 33-37963) filed
with the Securities and Exchange Commission on January 27, 1992.
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant.
Furnish a list or diagram of all persons directly or
indirectly controlled by or under common control with the Registrant and as to
each such person indicate (1) if a company, the state or other sovereign power
under the laws of which it is organized, and (2) the percentage of voting
securities owned or other basis of control by the person, if any, immediately
controlling it.
None.
Item 26. Number of Holders of Securities.
State in substantially the tabular form indicated as of a
specified date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.
The following information is given as of December 31, 1995:
Name of Investment Fund Number of Record Holders
Core Equity Fund 100
Emerging Growth Equity Fund 103
Intermediate-Term Fixed-Income Fund 71
Money Market Fund 33
Actively Managed Fixed-Income Fund 0
International Equity Fund 0
Value Equity Fund 0
Item 27. Indemnification.
State the general effect of any contract, arrangements or
statute under which any director, officer, underwriter or affiliated person of
the Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3, and 4 of Article VIII of Registrant's
Articles of Incorporation, included as Exhibit 1 to this Registration Statement
and incorporated herein by reference, provides as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of
the Corporation shall have any liability to the Corporation or
its shareholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such
person is a director or officer at the time of any proceeding
in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to
the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of
Directors may by By-Law, resolution or agreement make further
provision for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the
Maryland General Corporation Law.
Section 3. No provision of this Article shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise by subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his office.
Section 4. References to the Maryland General Corporation Law
in this Article are to the law as from time to time amended.
No further amendment to the Articles of Incorporation of the
Corporation shall decrease, but may expand, any right of any
person under this Article based on any event, omission or
proceeding prior to such amendment.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Directors, officers and controlling
persons of the registrant, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment adviser of the
Registrant, and each director or officer of the Registrant's Investment Adviser
is, or at any time during the past two (2) fiscal years has been, engaged for
his own account or in the capacity of director, officer, employee, partner or
trustee.
See, "Management of the Fund" in the Prospectus and "Advisory
and Other Services" in the Statement of Additional Information for a description
of the Investment Adviser and the Investment Managers.
Position and Other Business,
Name and Principal Offices with Profession,
Business Address Investment Adviser Vocation, Employment
RETIREMENT SYSTEM INVESTORS INC.
317 Madison Avenue
New York, New York 10017
William Dannecker Director -President and Chief Executive Officer
Retirement System Group Inc.
317 Madison Avenue
New York, NY 10017
-President and Director
Retirement System Consultants Inc.
317 Madison Avenue
New York, NY 10017
-President and Director
Retirement System Distributors Inc.
317 Madison Avenue
New York, NY 10017
-President and Trustee
RSI Retirement Trust
317 Madison Avenue
New York, NY 10017
-President and Director
Retirement System Fund Inc.
317 Madison Avenue
New York, NY 10017
<PAGE>
Position and Other Business,
Name and Principal Offices with Profession,
Business Address Investment Adviser Vocation, Employment
James P. Coughlin President -Executive Vice President, Chief
Investment Officer and Director
Retirement System Group Inc.
317 Madison Avenue
New York, NY 10017
-Registered Principal
Retirement System Distributors Inc.
317 Madison Avenue
New York, NY 10017
-Executive Vice President
RSI Retirement Trust
317 Madison Avenue
New York, NY 10017
-Executive Vice President
Retirement System Fund Inc.
317 Madison Avenue
New York, NY 10017
Stephen P. Pollak Vice -Executive Vice President, Counsel,
President, Secretary and Director
Secretary Retirement System Group Inc.
and Director 317 Madison Avenue
New York,NY 10017
-Vice President, Secretary and Director
Retirement System Consultants Inc.,
317 Madison Avenue
New York, NY 10017
-Vice President, Secretary and Director
Retirement System Distributors Inc.
317 Madison Avenue
New York, NY 10017
-Executive Vice President, Counsel and
Secretary
RSI Retirement Trust
317 Madison Avenue
New York, NY 10017
-Executive Vice President, Counsel and
Secretary
Retirement System Fund Inc.
317 Madison Avenue
New York, NY 10017
Veronica A. Fisher Treasurer -First Vice President and
Assistant Treasurer Retirement System Group Inc.
317 Madison Avenue
New York, NY 10017
-Treasurer
Retirement System Consultants Inc.
317 Madison Avenue
New York, NY 10017
-Treasurer
Retirement System Distributors Inc.
317 Madison Avenue
New York, NY 10017
-First Vice President and Assistant
Treasurer
RSI Retirement Trust
317 Madison Avenue
New York, NY 10017
-First Vice President and Assistant
Treasurer
Retirement System Fund Inc.
317 Madison Avenue
New York, NY 10017
THE PUTNAM ADVISORY COMPANY, INC.
One Post Office Square
Boston, Massachusetts 02109
Lawrence J. Lasser Director and -President, Chief Executive
President Officer and Director
Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109
-Director
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, New York 10036
-Trustee and Vice President
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
-Director
Inroads/Central New England, Inc.
99 Bedford Street
Boston, Massachusetts, 02109
Steven Spiegel Director -Director and Senior Managing
and Senior Director Managing
Director Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109
-Managing Director
Lehman Brothers, Inc.
200 Vesey Street
World Financial Center
New York, New York 10285 from
1977 to 1994
Thomas J. Lucey Director -Senior Managing Director and
and Senior Chief of Institutional Business
Managing Putnam Investments, Inc.
Director One Post Office Square
Boston, Massachusetts 02109
John C. Talanian Director -Managing Director and Director
Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109
Takehiko Watanabe Director -Managing Director and General Manager
Business Development
Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
Item 29. Principal Underwriter.
(a) Retirement System Distributors Inc. ( the
"Distributor") acts as a principal underwriter, depositor or investment adviser
for the following investment company:
RSI Retirement Trust
(b)
William Dannecker President and President and
Director Director
Stephen P. Pollak Vice President, Executive Vice
Secretary and President,
Director Counsel and
Secretary
Veronica A. Fisher Treasurer First Vice
President and
Assistant
Treasurer
(c) None.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document
required to be maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)]
and the Rule [17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the
name and address of each person maintaining physical possession of each such
account, book or other document.
(1) Custodial Trust Company, 101 Carnegie Center, Princeton,
New Jersey 08540-6231 (records relating to its functions as a custodian of the
assets of the Fund.)
(2) Retirement System Distributors Inc., 317 Madison Avenue,
New York, New York 10017-5397 (records relating to its functions as
distributor).
<PAGE>
(3) Retirement System Investors Inc., 317 Madison Avenue,
New York, New York 10017-5397 (records relating to its functions as investment
adviser).
(4) Retirement System Consultants, 317 Madison Avenue, New
York, New York 10017-5397 (records relating to its functions as administrator,
registrar and transfer agent).
(5) Morgan, Lewis & Bockius, LLP, 2000 One Logan Square,
Philadelphia, PA 19103 (Registrant's Articles of Incorporation, By-Laws and
Minute Books).
Item 31. Management Services.
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
None.
Item 32. Undertakings.
Furnish the following undertakings in substantially the
following form in all initial Registration Statements filed under the 1933 Act:
(a) Registrant undertakes to call a meeting of
Shareholders for the purpose of voting upon the
question of removal of a Director(s) when
requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares and
in connection with such meetings to comply with
the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to Shareholder
communications.
(b) Not applicable
(c) A copy of the Registrant's 1995 Annual Report to
shareholders is available upon request by
contacting the Registrant at 317 Madison Avenue,
New York, New York, 10017, or by calling
(800) 772-3615
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to the Registration Statement to be signed on its behalf by the undersigned
thereto duly authorized in the City of New York, in the State of New York on the
25th day of January, 1996.
RETIREMENT SYSTEM FUND INC.
By:/s/ William Dannecker
William Dannecker
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ William Dannecker Director January 25, 1996
William Dannecker and President Date
/s/ John F. Meuser Treasurer January 25, 1996
John F. Meuser Chief Date
Financial
Officer
/s/ Edward J. Brown Director January 25, 1996
Edward J. Brown Date
/s/ Candace Cox Director January 25, 1996
Candace Cox Date
/s/ Eugene C. Ecker Director January 25, 1996
Eugene C. Ecker Date
/s/ Joseph P. Gemmell Director January 25, 1996
Joseph P. Gemmell Date
/s/ Covington Hardee Director January 25, 1996
Covington Hardee Date
/s/ Raymond L. Willis Director January 25, 1996
Raymond L. Willis Date
<PAGE>
Exhibit Index
Exhibit
(1) Articles of Incorporation of Registrant are
incorporated herein by reference to Exhibit 1 to
Registrant's Registration Statement on Form N-1A (No.
33-37963) filed with the Securities and Exchange
Commission on November 21, 1990.
(2) By-Laws of Registrant are incorporated herein by
reference to Exhibit 2 to Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A
(No. 33-37963) filed with the Securities and Exchange
Commission on March 11, 1991.
(3) None.
(4)(a) Specimen Security for Emerging Growth Equity Fund is
incorporated herein by reference to Exhibit 4(a) to
Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (No. 33-37963)
filed with the Securities and Exchange Commission on
March 11, 1991.
(4)(b) Specimen Security for Intermediate-Term Fixed-Income
Fund is incorporated herein by reference to Exhibit
4(b) to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (No. 33-37963)
filed with the Securities and Exchange Commission on
March 11, 1991.
(4)(c) Specimen Security for Money Market Fund is incorporated
herein by reference to Exhibit 4(c) to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A (No. 33-37963) filed with the Securities
and Exchange Commission on March 11, 1991.
(4)(d) Specimen Security for Core Equity Fund is incorporated
herein by reference to Exhibit 4(d) to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A (No. 33-37963) filed with the Securities
and Exchange Commission on March 11, 1991.
(4)(e) Specimen Security for Value Equity Fund is incorporated
herein by reference to Exhibit 4(e) to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A (No. 33-37963) filed with the Securities
and Exchange Commission on March 11, 1991.
(4)(f) Specimen Security for International Equity Fund is
incorporated herein by reference to Exhibit 4(f) to
Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (No. 33-37963)
filed with the Securities and Exchange Commission on
March 11, 1991.
(4)(g) Specimen Security for Actively Managed Fixed-Income
Fund is incorporated herein by reference to Exhibit
4(g) to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (No. 33-37963)
filed with the Securities and Exchange Commission on
March 11, 1991.
<PAGE>
Exhibit
(5)(a) Form of Investment Advisory Agreement between
Registrant and Retirement System Investors Inc. is
incorporated herein by reference to Exhibit 5(a) to
Registrant's Registration Statement on Form N-1A (No.
33-37963) filed with the Securities and Exchange
Commission on November 21, 1990.
(5)(b) Form of Investment Management Agreement among
Registrant, Retirement System Investors Inc. and Putnam
Advisory Company together with Schedule A thereto
setting forth the terms of compensation (Emerging
Growth Equity Fund) is incorporated herein by reference
to Exhibit 5(b) to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (No.
33-37963) filed with the Securities and Exchange
Commission on March 11, 1991.
(5)(c) Form of Investment Management Agreement among
Registrant, Retirement System Investors Inc. and Morgan
Grenfell Investment Services Limited together with
Schedule A thereto setting forth the terms of
compensation (International Equity Fund) is
incorporated herein by reference to Exhibit 5(d) to
Registrant's Registration Statement on Form N-1A (No.
33-37963) filed with the Securities and Exchange
Commission on November 21, 1990.
(6)(a) Distribution Agreement between Registrant and
Retirement System Distributors Inc. is incorporated
herein by reference to Exhibit 6(a) to Registrant's
Registration Statement on Form N-1A (No. 33-37963)
filed with the Securities and Exchange Commission on
November 21, 1990.
(6)(b) Form of Sub-Distribution Agreement between Retirement
System Distributors Inc. and Participating
Broker-Dealers is incorporated herein by reference to
Exhibit 6(b) to Registrant's Registration Statement on
Form N-1A (No. 33-37963) filed with the Securities and
Exchange Commission on November 21, 1990.
(6)(c) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents is
incorporated herein by reference to Exhibit 6(c) to
Registrant's Registration Statement on Form N-1A (No.
33-37963) filed with the Securities and Exchange
Commission on November 21, 1990.
(7) None.
(8) Form of Custody Agreement with Custodial Trust Company
is incorporated herein by reference to Exhibit 8(b) to
Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (No. 33-37963)
filed with the Securities and Exchange Commission on
March 11, 1991.
(9) Amended Service Agreement, effective January 28, 1995,
is incorporated herein by reference to Exhibit to
Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (No. 33-37963)
filed with the Securities and Exchange Commission on
January 30, 1995.
<PAGE>
Exhibit
(10) Opinion of Counsel is incorporated herein by reference
to Exhibit 10 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (No.
33-37963) filed with the Securities and Exchange
Commission on March 11, 1991.
EX-99.(B)(11) Consent of Independent Auditors.
EX-99.(B)(12) 1995 Annual Report to Shareholders, including report of
Independent Auditors.
(13) Form of Subscription Agreement re: Initial $100,000
capital is incorporated herein by reference to Exhibit
13 to Registrant's Registration Statement on Form N-1A
(No. 33-37963) filed with the Securities and Exchange
Commission on November 21, 1990.
(14) None.
(15) Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 is incorporated herein
by reference to Exhibit 15 to Registrant's Registration
Statement on Form N-1A (No. 33-37963) filed with the
Securities and Exchange Commission on November 21,
1990.
(16) Schedule of Computation of Performance Quotations
(unaudited) is incorporated herein by reference to
Exhibit 16 to Registrant's Registration Statement on
Form N-1A (No. 33-37963) filed with the Securities and
Exchange Commission on January 27, 1992.
EX-99.(B)(17) Financial Data Schedule. (Filed as Exhibit 27 on
EDGAR.)
(18) Not Applicable
EX-(27).1 Financial Data Schedule.
EX-(27).2 Financial Data Schedule.
EX-(27).3 Financial Data Schedule.
EX-(27).4 Financial Data Schedule.
<PAGE>
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference of our report
dated November 15, 1995 on the financial statements of Core Equity Fund,
Emerging Growth Equity Fund, Value Managed Bond Fund, Intermediate-Term Bond
Fund, International Equity Fund, Actively Managed Bond Fund, Short-Term
Investment Fund and Dedicated Bond Fund, series of RSI Retirement Trust,
referred to therein in Post-Effective Amendment No. 14 to the Registration
Statement on Form N-1A, File No. 2-95074, as filed with the Securities and
Exchange Commission.
We also consent to the reference to our firm in the Prospectus under
the caption "Financial Highlights" and in the Prospectus and Statement of
Additional Information under the caption "Counsel and Auditors."
/s/McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
January 23, 1996
ANNUAL REPORT
LOGO
Retirement System
Fund Inc.
Core Equity Fund
Emerging Growth Equity Fund
Intermediate-Term Fixed-Income Fund
Money Market Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
1995
Broker/Dealer
LOGO
Retirement System
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
*Not yet available for sale to investors
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
President's Message .................................................... 1
Investment Review ...................................................... 3
Financial Statements of Investment Funds ............................... 9
Core Equity Fund ................................................... 9
Emerging Growth Equity Fund ........................................ 13
Intermediate-Term Fixed-Income Fund ................................ 18
Money Market Fund .................................................. 21
Notes to Financial Statements .......................................... 24
Independent Auditor's Report ........................................... 34
Officers, Consultants, Investment Managers and Custodians .............. 35
Board of Directors ..................................................... 36
-------------------
Note: Investors currently may purchase shares of the Core Equity Fund, the
Emerging Growth Equity Fund, the Intermediate-Term Fixed-Income Fund and the
Money Market Fund. Shares of the Value Equity Fund, the International Equity
Fund and the Actively Managed Fixed-Income Fund, as described in Retirement
System Fund Inc.'s Prospectus, are not yet available for sale to investors.
<PAGE>
PRESIDENT'S MESSAGE
To Our Shareholders:
Setting savings goals, whether long-term or short-term, is the first step an
individual should take in deciding the appropriate investment mix for his or her
portfolio. It is then that the value of asset allocation, an important component
in investment education programs, comes into play. Different models exist to
assist in determining a suitable investment mix to achieve savings goals. It is
key, however, that an individual periodically review the status of his or her
portfolio to ensure that accumulated balances are in keeping with the desired
asset allocation.
The past two-year period is a prime example of another topic of investment
education--the volatility of returns that can arise within a market cycle. In
1994, investors experienced a situation in which the domestic equity markets
were slightly positive; however, the bond markets finished the year showing
negative results (the worst in many years). Thus far in 1995, both stocks and
bonds are showing double digit results for the nine months ended September 30,
1995.
It is important to remember that individuals should review their savings
goals and reassess their investment strategies periodically. By examining their
accumulated account balances, individuals may determine that a reallocation of
funds among the different investment vehicles is necessary to stay on track.
On behalf of the Board of Directors, I would like to thank you for choosing
Retirement System Fund Inc. to help meet your investment needs.
Sincerely,
[INSERT SIGNATURE]
William Dannecker
President and Director
November 27, 1995
1
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Equity Funds
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Core Equity Fund
The Core Equity Fund is a stock fund that invests in a broadly diversified group
of high-quality, medium to large companies that exhibit sustainable growth in
earnings, and that appear attractively valued. It offers investors the potential
for long-term capital appreciation, with income as a secondary goal.
Managed by Retirement System Investors Inc.
Emerging Growth Equity Fund
The Emerging Growth Equity Fund is a growth stock fund that seeks capital
appreciation by investing primarily in smaller, relatively new companies that,
in the view of the investment manager, have higher than average potential for
earnings growth and attractive stock market valuations.
Managed by The Putnam Advisory Company, Inc.
Fixed-Income Funds
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Intermediate-Term Fixed-Income Fund
The Intermediate-Term Fixed-Income Fund invests in high-quality, fixed-income
securities that mature within ten years, or have expected average lives of ten
years or less. At least 65% of the investments in this Fund are in U.S.
Government or U.S. Government Agency issues which have the highest credit
rating. At the time of purchase at least 75% of the holdings must have a quality
rating of "AA" or better, with a minimum quality rating of "A" for other
holdings. This investment Fund's goal is to achieve income and price
appreciation.
Managed by Retirement System Investors Inc.
Money Market Fund
The Money Market Fund seeks to achieve as high a level of current interest
income as possible while maintaining liquidity, stability of principal and
high-quality holdings. This investment Fund invests in money market instruments
of U.S. dollar denominations with maturities of one year or less. Holdings focus
on a broad range of U.S. Government, bank and commercial obligations available
in money markets. The average maturity of the Fund will not exceed 90 days.
Managed by Retirement System Investors Inc.
2
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INVESTMENT REVIEW
Core Equity Fund
The Core Equity Fund seeks capital appreciation over the long term. The Fund
invests in a broadly diversified group of high-quality, medium to large
companies which the manager, Retirement System Investors Inc., believes are
valued at a reasonable price and offer attractive earnings potential.
The Core Fund's results (see below) over the past fiscal year benefited
from meaningful positions in large multi-national growth companies, led by
technology (33% of total fund assets), capital goods producers (16% of total)
and consumer staple companies (14% of total). An under-exposure to the financial
sector (7% of total), which also had good returns, was a missed opportunity.
Market Environment
Expanding world markets, the continued miniaturization of electronics, and the
drive to enhance productivity continue to sustain robust demand for technology
and communications products holdings. Consumer staples--particularly health
care--benefited from cost reductions, dollar weakness, resumption of unit growth
and a modest return of pricing power. The portfolio's fiscal 1995 results were
also helped by below-average positions in the relatively weak consumer cyclicals
and raw material areas, which suffered from weak unit growth and limited pricing
flexibility.
Performance Results
The Core Equity Fund continued its strong performance in fiscal year 1995. For
the one-year period ended September 30, 1995, the fund posted a return of
35.24%, outpacing by a wide margin the 29.72% return of the S&P 500 (an
unmanaged representative index of the broad equity market; all market index
results that appear in this report represent gross returns, since expenses are
not applicable) and the 23.08% return of the Lipper Growth & Income Funds
Average for the same period. This result placed the Core Equity Fund in the top
1% of Lipper's Growth and Income Funds grouping of mutual funds. The Fund ranked
third out of 395 funds.
The Core Equity Fund also outperformed its Lipper benchmark and the S&P 500
for all periods shown in this report. For the three-year period ended September
30, 1995, the Core Fund achieved an annual return of 20.17%, placing it among
the top 4% of the Lipper Universe of Growth & Income Mutual Funds (8th out of
241 funds), which reflected an
Core Equity Fund vs S&P 500
CHART
Growth of $10,000
Core Equity S&P 500
----------- --------
1 year $13,524 $12,972
4 1/3 year $19,276 $16,976
Cumulative Returns
1 year 35.24% 29.72%
4 1/3 year 92.76% 69.76%
Average Annual Returns
1 year 35.24% 29.72%
4 1/3 year 16.35% 12.99%
3
<PAGE>
average return of 13.73% per year for the same period. For this same period, the
Core Fund outperformed the S&P 500 by 519 basis points, with a return of 20.17%
versus 14.98% for the S&P 500. For the period since inception (June 1, 1991
through September 30, 1995), the Core Fund provided a return of 16.35% per year,
versus 12.99% for the S&P 500 and 12.15% for its Lipper benchmark for the same
period--a top 7% ranking in the Lipper Growth and Income Funds grouping (13th
out of 207 funds; this ranking is based on total return). Past performance is
not a guarantee of future results.
Core Equity Fund vs Lipper Growth and Income Funds Average
For periods ended September 30, 1995
- --------------------------------------------------------------------------------
Annualized
------------------------
Since
1 Year 3 Years Inception
------ ------- ---------
CORE EQUITY FUND(1) 35.24% 20.17% 16.35%(2)
Lipper Growth & Income Funds Avg.(3) 23.08 13.73 12.15
(1) All performance results shown are net of management fees and all related
expenses.
(2) Covers the period from 6/1/91 through 9/30/95.
(3) Lipper Analytical Services is an independent reporting service that measures
the performance of most U.S. mutual funds. The performance results reflect
an unmanaged index and are net of all expenses other than sales charges and
redemption fees.
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Emerging Growth Equity Fund
The Emerging Growth Equity Fund seeks capital appreciation through investment in
quality emerging growth companies with superior growth and financial
characteristics and attractive stock market valuations. Managed by The Putnam
Advisory Company, Inc., the Fund acquires growth stocks of smaller
companies--those with market capitalizations generally between $50 million and
$500 million (at time of purchase). Companies are evaluated according to a
number of fundamental criteria such as above-average earnings growth,
above-average return on equity, and low debt total capitalization, in order to
identify super-achieving companies. These companies are then screened using
valuation measures such as price/earnings, price/book and market
capitalization/revenues, to determine those stocks that are attractively priced.
A rigorous buy, hold and sell discipline is then applied.
Emerging Growth Equity Fund vs Russell 2000
CHART
Growth of $10,000
Emerging Growth Russell
Equity 2000
------- -------
1 year $13,920 $12,336
4 1/3 year $25,741 $18,723
Cumulative Returns
1 year 39.20% 23.36%
4 1/3 year 157.41% 87.23%
Average Annual Returns
1 year 39.20% 23.36%
4 1/3 year 24.38% 15.57%
4
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Market Environment
For the one-year period ended September 30, 1995, the equity markets were
influenced by improving economic growth, strong corporate earnings, declining
interest rates and stable inflation. Early in the year, a weaker dollar and
healthy economy favored larger capitalization multi-national and
cyclically-oriented issues. As investor confidence grew on the strength of the
economy (in early 1995), and the dollar rebounded, small to medium
capitalization stocks, which continued to record very strong earnings gains,
performed particularly well. For fiscal 1995, the Russell 2000, a representative
index for this sector, produced a return of 23.36% (with over 85% of this result
arising in the last two quarters of fiscal year 1995). Although strong in
nominal terms, this index result was 636 basis points under the 29.72% return of
the S&P 500, the broad U.S. equity market index. (For fiscal 1994, the Russell
2000 return of 2.67% was more in line with the S&P 500, which returned 3.68%.)
The manager's diversified approach and large number of holdings (152 at
September 30, 1995) aided the portfolio, as many of the stocks held, met or
exceeded earnings and growth expectations. While technology was the best
performing sector throughout the year, specialty apparel companies, consumer
services issues and radio, television and cable-related beneficiaries of pending
telecommunications legislation were also meaningful contributors to Putnam's
performance, as noted below. At September 30, 1995, the top three sector
weightings were in consumer staples, consumer cyclicals and technology, with an
aggregate portfolio weighting of 82%.
Performance Results
For the one-year period ended September 30, 1995, the Emerging Growth Equity
Fund posted a return of 39.20%, exceeding the 23.36% return of the Russell 2000
by more than 15 percentage points, and exceeding the 28.93% return of the Lipper
Small Company Growth Funds Average (a representative benchmark) by more than ten
percentage points. This one-year return placed the Emerging Growth Fund among
the top 24% of mutual funds in the Lipper Small Company Growth Funds grouping
(68th out of 288 funds; this ranking is based on total return).
Emerging Growth Equity Fund vs Lipper Small Company Growth Funds Average
For periods ended September 30, 1995
- --------------------------------------------------------------------------------
Annualized
---------------------
Since
1 Year 3 Years Inception
------ ------- ---------
EMERGING GROWTH EQUITY FUND(1) 39.20% 29.07% 24.38%(2)
Lipper Small Company Growth Funds Avg.(3) 28.93 20.38% 16.97
(1) All performance results shown are net of management fees and all related
expenses.
(2) Covers the period from 6/1/91 through 9/30/95.
(3) Lipper Analytical Services is an independent reporting service that measures
the performance of most U.S. mutual funds. The performance results reflect
an unmanaged index and are net of all expenses other than sales charges and
redemption fees.
- --------------------------------------------------------------------------------
5
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For the three-year period ended September 30, 1995, the Fund's average return
per year was 29.07%, well above the 20.38% return of its Lipper benchmark. This
performance placed the Fund in the top 11% (14th out of 134 funds) of the Lipper
Universe of Small Company Growth Mutual Funds. For the period since inception
(June 1, 1991 through September 30, 1995) the Emerging Growth Fund achieved an
annualized return of 24.38%, versus the 16.97% return by the Lipper Small
Company Growth Funds Average, and the 15.57% return of the Russell 2000. For
this period, the Fund ranked in the top 6% of its Lipper grouping (5th out of 87
funds). Past performance is not a guarantee of future results.
Intermediate-Term Fixed-Income Fund
The Intermediate-Term Fixed-Income Fund invests in high-quality, fixed-income
securities that mature within ten years or have expected average lives of ten
years or less. At least 65% of the holdings in the Fund are in U.S. Government
or agency issues.
Market Environment
The environment for fixed-income investors turned positive during the fiscal
year ended September 30, 1995, as interest rates declined in the intermediate
and longer sectors of the yield curve. The bond market rally started in November
1994, as investors perceived that the economy was slowing and inflation would be
contained. The rally further strengthened during fiscal 1995 as a more
conservative Congress promised to cut government spending and reduce or
eliminate the budget deficit, money growth remained low, and foreign economies
slowed. Consequently, the 30-year Treasury declined from 7.8% to 6.5% during the
fiscal year, the ten-year Treasury from 7.6% to 6.2%, the five year from 7.3% to
6.0%, and the two year from 6.6% to 5.8%.
The performance of fixed-income investments varied substantially with
duration in fiscal 1995. Longer durations and a flattening yield curve raised
prices and total return as investors extended out the curve. The yield spread
between the three-month Treasury bill and the 30-year bond narrowed to 109 basis
points at the end of fiscal 1995, from 305 basis points the year before. Short
interest rates moved higher late in 1994 and early 1995 before drifting lower,
while the rest of the yield curve declined more sharply this year. Within
fixed-income sectors, long duration Governments and non-callable corporates
outperformed mortgages and other callable issues in fiscal 1995.
The Intermediate-Term Fixed-Income Fund received meaningful inflows of cash
during the early months of fiscal 1995 and this was principally invested in cash
equivalent-type securities as the manager waited to see a sustained trend in the
movement of interest rates. The Fund's performance (as noted below) was
adversely influenced by a less than average market duration for part of the
year--the Fund's average duration began the year at 2.9 years and dropped to 2.0
years (when cash investments reached 43% of the portfolio), and then was
gradually raised to 3.5 years by May, before drifting back to 2.8 years at
September 30, 1995. The Lehman Brothers Government-Intermediate Bond Index, a
representative market benchmark, had a modified duration of 3.0 years at the end
of fiscal 1995, which was the case for most of the year. Investment changes
during the year primarily consisted of buying discount callable Federal agency
issues maturing in five to ten years, at yields of 55 to 70 basis points over
the comparable Treasury.
6
<PAGE>
The Fund maintained its emphasis on high-quality fixed-income investments
in fiscal year 1995. At the end of the year, 100% of holdings were in "AAA"
securities consisting of U.S. Treasury and Federal agency notes and agency
mortgage issues. All holdings must have a quality rating of "A" or better.
Performance Results
The Fund's return of 9.64% for the one-year period ended September 30, 1995
trailed the return of the Lehman Brothers Government-Intermediate Bond Index of
10.61% and the Lipper Intermediate (5 to 10 years maturity) U.S. Government
Funds Average of 11.34% for the same period. Over the longer period of three
years ended September 30, 1995, the Fund posted an annualized return of 4.88%,
versus the market benchmark's return of 5.46% per year. For this period the
Lipper benchmark achieved an annualized return of 5.12%.
Intermediate-Term Fixed-Income Fund vs Lehman
Brothers Government-Intermediate Bond Index
CHART
Growth of $10,000
Intermediate-Term LB Gov't-Inter.
Fixed-Income Bond Index
------------ ----------
1 year $10,964 $11,061
4 1/3 year $13,876 $13,827
Cumulative Returns
1 year 9.64% 10.61%
4 1/3 year 38.76% 38.27%
Average Annual Returns
1 year 9.64% 10.61%
4 1/3 year 7.85% 7.77%
Intermediate-Term Fixed-Income Fund vs Lipper Intermediate (5 to 10 years
maturity) U.S. Government Funds Average
For periods ended September 30, 1995
- --------------------------------------------------------------------------------
Annualized
---------------------
Since
1 Year 3 Years Inception
------ ------- ---------
INTERMEDIATE-TERM FIXED-
INCOME FUND(1) 9.64% 4.88% 7.85%(2)
Lipper Intermediate (5 to 10 yrs.
maturity) U.S. Government Funds Avg.(3) 11.34 5.12 7.50
(1) All performance results shown are net of management fees and all related
expenses.
(2) Covers the period from 6/1/91 through 9/30/95.
(3) Lipper Analytical Services is an independent reporting service that measures
the performance of most U.S. mutual funds. The performance results reflect
an unmanaged index and are net of all expenses other than sales charges and
redemption fees.
- --------------------------------------------------------------------------------
7
<PAGE>
For the period since inception (June 1, 1991 through September 30, 1995),
the Fund outpaced its Lipper benchmark--the Lipper Intermediate (5 to 10 years
maturity) U.S. Government Funds Average--by 35 basis points per year with an
annualized return of 7.85%, compared to a return of 7.50%, respectively. Past
performance is not a guarantee of future results.
Money Market Fund
The objective of the Money Market Fund is to achieve high current interest
income while maintaining liquidity, stability of principal and high-quality
holdings. Average maturity of portfolio holdings may not exceed 90 days. As a
money market fund, it strives to maintain a stable unit value of $1.00, while
the yield fluctuates with the market.
The Fund continued to maintain a conservative posture in fiscal 1995 and
was primarily invested in discount Federal agency notes of short maturities.
Average maturity began the fiscal year at 35 days, extended to 48 days in July,
1995, then declined to 26 days at the end of September, 1995. The Fund's
maturity benchmark, the Donoghue All-Taxable Money Funds Average, began the
fiscal year at 41 days and ended at 54 days.
Performance Results
For the one-year period ended September 30, 1995, the Money Market Fund posted a
return of 5.20%, compared to the Lipper Retail Money Market Funds Average of
5.25% and the Donoghue All-Taxable Money Funds Average of 5.35% for the same
period. The 90-Day U.S. Treasury Bills Index (an unmanaged index which provides
a representative proxy for short-term money market instruments) returned 5.60%
for this period.
The Fund achieved respectable three-year average returns of 3.74%, which
compared favorably to the Lipper Average of 3.69% per annum and is in line with
the Donoghue Average annual return of 3.76%. (The 90-Day U.S. Treasury Bills
returned 4.16% per year for the period.)
Since inception (April 1, 1991 through September 30, 1995), the Fund has
achieved a return of 3.91% per year versus 3.92% per year for the Lipper Average
and a 4.00% annualized return for the Donoghue Average. For this same period,
the market result, as measured by the 90-Day U.S. Treasury Bills, was 4.27%.
Past performance is not a guarantee of future results.
Money Market Fund vs Donoghue All Taxable Money Funds Average
For periods ended September 30, 1995
- --------------------------------------------------------------------------------
Annualized
---------------------
Since
1 Year 3 Years Inception
------ ------- ---------
MONEY MARKET FUND(1) 5.20% 3.74 3.91%(2)
Donoghue All Taxable Money Fund Avg.(3) 5.35 3.76 4.00
Lipper Retail Money Market Funds Average(4) 5.25 3.69 3.92
(1) All performance results shown are net of management fees and all related
expenses. Investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. Government and there is no assurance that the Fund
will maintain a steady net asset value of $1.00 per share.
(2) Covers the period from 4/1/91 through 9/30/95.
(3) Reported by the Donoghue Money Fund Reporting Service. The performance
results reflect an unmanaged index and are net, since expenses are
applicable.
(4) Lipper Analytical Services is an independent reporting service that measures
performance of most U.S. mutual funds. The performance results reflect an
unmanaged index and are net of all expenses other than sales charges and
redemption fees.
- --------------------------------------------------------------------------------
8
<PAGE>
FINANCIAL STATEMENTS OF INVESTMENT FUNDS
Core Equity Fund
Statement of Investments September 30, 1995
- --------------------------------------------------------------------------------
Shares Value
- ------ ------
COMMON STOCKS 89.7%
AEROSPACE 1.2%
1,000 Lockheed Martin Corp. $ 67,125
--------
AUTOMOTIVE & PARTS 1.9%
2,600 Arvin Industries Inc. 55,575
1,020 Chrysler Corp. 54,060
--------
109,635
--------
BANKS 2.4%
1,600 Chase Manhattan Corp. 97,800
500 Citicorp 35,375
--------
133,175
--------
BASIC MATERIALS 3.2%
1,900 E.I. Du Pont de Nemours & Company 130,625
900 Phelps Dodge Corp. 56,363
--------
186,988
--------
BROADCASTING AND PUBLISHING 0.7%
1,850 Comcast Corp Special-CL A 37,000
--------
BUILDING PRODUCTS 3.3%
2,500 Armstrong World Industries Inc. 138,750
2,500 Martin Marrietta Materials 49,063
--------
187,813
--------
DATA PROCESSING SERVICES 4.4%
1,200 Cisco Systems Inc.* 82,800
200 FORE Systems Inc.* 7,350
4,200 Oracle Systems Corp.* 161,175
--------
251,325
--------
DRUG AND HEALTH CARE 7.0%
2,900 Johnson & Johnson 214,963
3,400 Pfizer Inc. 181,475
--------
396,438
--------
ELECTRONICS AND ELECTRICAL
EQUIPMENT 14.2%
2,900 Emerson Electric Company 207,350
4,600 General Electric Company 293,250
2,600 Hewlett Packard Company 216,775
1,400 Intel Corp. 84,175
--------
801,550
--------
ENERGY 4.1%
2,500 Dresser Industries Inc. 59,688
1,300 Exxon Corp. 93,925
200 Royal Dutch Petroleum Company 24,550
800 Texaco Inc. 51,700
--------
229,863
--------
See Notes to Financial Statements
9
<PAGE>
Core Equity Fund (Continued)
Statement of Investments September 30, 1995
- --------------------------------------------------------------------------------
Shares Value
- ------ ------
ENGINEERING AND CONSTRUCTION 3.6%
3,600 Fluor Corp. $ 201,600
----------
FINANCE 5.7%
2,300 Federal National Mortgage Association 238,050
1,100 Morgan (J.P.) & Company Inc. 85,112
----------
323,162
----------
HOUSEHOLD PRODUCTS 1.0%
700 Procter & Gamble Company 53,900
----------
MACHINERY 1.2%
400 Ingersoll-Rand Company 15,000
1,600 Cincinnati Milacron Inc. 50,400
----------
65,400
----------
OFFICE AND BUSINESS EQUIPMENT 3.3%
1,400 Xerox Corp. 188,125
----------
OTHER 7.4%
2,500 Allied Signal Inc. 110,312
3,700 Philip Morris Companies Inc. 308,950
----------
419,262
----------
PAPER PRODUCTS 0.1%
200 International Paper Company 8,400
----------
SOFTWARE PRODUCTS 8.4%
200 Broderbund Software Inc.* 15,225
9,900 Informix Corp.* 321,750
1,500 Microsoft Corp.* 135,750
----------
472,725
----------
TELECOMMUNICATIONS 16.6%
5,300 American Telephone & Telegraph Corp. 348,475
4,400 DSC Communications Corp.* 260,700
1,000 Motorola Inc. 76,374
6,000 Tellabs Inc.* 252,750
----------
938,299
----------
Total Common Stocks (Cost $3,244,843) $5,071,785
----------
* Denotes non-income producing security
Principal
Amount Value
------ -----
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 3.7%
210,000 Bear, Stearns & Co. Inc. Dated
9/29/1995, 6.20% Due 10/2/1995 col-
lateralized by 1,050,000 United States
Treasury Strips Due 2/15/2019 (Value
$214,599) $ 210,000
----------
Total Investments (Cost $3,454,843) 93.4% $5,281,785
Other Assets, Less Liabilities 6.6% 375,653
----- ----------
Net Assets 100.0% $5,657,438
===== ==========
See Notes to Financial Statements
10
<PAGE>
Core Equity Fund (Continued)
Statement of Assets and Liabilities September 30, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at value
(Cost $3,454,843) - Note 2 $5,281,785
Cash 306,594
Receivable for investments sold 56,310
Receivable for shares sold 3,758
Dividends and interest receivable 14,320
Deferred organizational costs 9,760
Other assets 7,392
----------
$5,679,919
LIABILITIES:
Accrued expenses and other 22,481
----------
NET ASSETS at value, applicable to
338,972 outstanding shares - Note 5 $5,657,438
==========
NET ASSET VALUE, offering and redemption
price per share ($5,657,438 divided by
338,972 shares) $ 16.69
==========
Statement of Operations Year Ended September 30, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest $ 23,542
Dividends 84,854
---------
Total income $ 108,396
Expenses:
Investment manager's fees - Note 3 26,842
Shareholder servicing fees and expenses - Note 3 21,663
Distribution fee - Note 3 8,947
Custodian fees and expenses 5,981
Legal and auditing fees 6,885
Directors' fees and expenses 11,533
Other 16,587
---------
Total expenses 98,438
Less expense reimbursement - Note 3 (58,183)
---------
Net expenses 40,255
----------
INVESTMENT INCOME--NET 68,141
REALIZED AND UNREALIZED GAIN ON INVESTMENTS - Note 4:
Net realized gain (loss) on investments (18,467)
Unrealized appreciation on investments 1,388,101
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,369,634
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,437,775
==========
See Notes to Financial Statements
11
<PAGE>
Core Equity Fund (Continued)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
9/30/95 9/30/94
---------- ----------
OPERATIONS:
Investment income -- net $ 68,141 $ 39,121
Net realized gain (loss) on investments (18,467) 57,531
Unrealized appreciation on investments 1,388,101 141,680
---------- ----------
Increase in net assets resulting from operations 1,437,775 238,332
---------- ----------
DIVIDEND DISTRIBUTION -- Note 2:
Investment income -- net (77,331) (36,190)
Realized gain on investments (37,144) (28,435)
---------- ----------
(114,475) (64,625)
---------- ----------
CAPITAL TRANSACTIONS -- Note 5:
Value of shares sold 912,546 792,456
Value of shares redeemed (332,203) (485,591)
Value of shares issued in reinvestment of dividend
distribution 114,475 64,624
---------- ----------
Net increase in net assets resulting from capital
transactions 694,818 371,489
---------- ----------
Net increase 2,018,118 545,196
NET ASSETS at beginning of year 3,639,320 3,094,124
---------- ----------
NET ASSETS at end of year $5,657,438 $3,639,320
========== ==========
See Notes to Financial Statements
12
<PAGE>
Emerging Growth Equity Fund
Statement of Investments September 30, 1995
- --------------------------------------------------------------------------------
Shares Value
- ------ -----
COMMON STOCKS 93.1%
APPAREL AND TEXTILE 7.1%
1,125 Authentic Fitness Corp. $ 25,313
900 Kenneth Cole Productions - CL A* 31,613
989 Nautica Enterprises Inc.* 33,873
945 St. John Knits Inc. 46,068
1,000 Tommy Hilfiger Corp.* 32,500
1,507 Wolverine World Wide 41,254
--------
210,621
--------
AUTOMOTIVE PRODUCTS 1.3%
1 Corporate Express Inc.* 12
650 Custom Chrome, Inc.* 14,463
650 Edelbrock Corp.* 9,425
630 On Assignment Inc.* 15,908
--------
39,808
--------
BROADCASTING AND PUBLISHING 3.3%
425 Lin Television Corp.* 12,963
300 Mecklermedia Corp.* 5,474
240 Renaissance Communications Corp.* 8,400
1,125 Saga Communications Inc. - CL A* 17,858
600 SFX Broadcasting Inc. - CL A* 16,799
400 Sinclair Broadcast Group Inc.* 11,100
800 Young Broadcasting Corp. - CL A* 24,400
--------
96,994
--------
BUILDING & CONSTRUCTION 1.7%
275 Brady, W.H. Compay - CL A 19,800
810 Fastenal Company 29,565
--------
49,365
--------
BUSINESS AND PUBLIC SERVICES 0.7%
575 Accustaff Inc.* 21,130
--------
BUSINESS AND EQUIPMENT SERVICES 10.5%
600 Alternative Resources Corp.* 19,200
615 America Online Inc.* 42,280
500 Analysts International Corp. 16,000
580 Cambridge Technology Partners Inc.* 29,290
1,655 Computer Horizons Corp.* 33,099
720 Concord EFS, Inc.* 21,420
775 Fiserv Inc.* 22,378
510 Keane Inc.* 14,726
550 National Data Corp. 14,780
660 Peak Technologies Group Inc.* 16,995
100 PMT Services Inc.* 2,388
500 Renaissance Solutions Inc.* 12,125
820 Robert Half International Inc.* 27,983
200 Romac International Inc.* 3,250
700 SOS Staffing Services* 5,774
1,025 Transaction Network Services* 26,778
--------
308,466
--------
Shares Value
- ------ -----
CONSUMER GOODS AND SERVICES 8.4%
1,825 Benson Eyecare Corp.* $ 18,022
525 Blyth Industries Inc.* 24,544
610 Cannondale Corp.* 9,608
250 Catalina Marketing Corp.* 15,500
685 Department 56* 32,024
1,025 Loewen Group Inc. 42,281
600 Rexall Sundown Inc.* 9,975
710 Scientific Games Holdings Corp.* 26,270
1,160 Sola International Inc.* 25,665
600 Speedway Motorsports Inc.* 15,600
755 Stewart Enterprises Inc. - CL A 26,991
--------
246,480
--------
DRUGS & MEDICAL SUPPLIES 2.7%
500 Daig Corp.* 11,750
800 Idexx Laboratories Inc.* 29,200
950 Igen Inc.* 6,056
540 I-Stat Corp.* 20,115
485 Medisense Inc.* 11,640
--------
78,761
--------
ELECTRONICS & ELECTRICAL 12.0%
625 Cognex Corp.* 29,688
1,003 Credence Systems Corp.* 36,108
100 Cyberoptics Corp.* 3,350
800 C.P. Clare Corp.* 20,400
400 Eltron International Inc.* 11,100
1,102 Exar Corp.* 38,570
700 Flextronics International Ltd.* 18,025
509 Harman International Industries Inc. 24,941
1,025 ITI Technologies Inc.* 27,675
515 Maxim Integrated Products Inc.* 38,110
755 Oak Industries Inc.* 22,744
200 Plasma & Materials Technologies Inc.* 3,399
700 Sanmina Corp.* 33,425
500 Smart Flex Systems Inc.* 8,375
1,100 Telecom Semiconductor Inc.* 12,100
155 Ultratech Stepper Inc.* 6,510
495 Zilog Inc.* 20,604
--------
355,124
--------
FOOD AND BEVERAGES 0.2%
300 Ben & Jerry's Home-made Inc. - CL A* 5,550
--------
FOOD AND SERVICES 1.0%
1,025 Apple South Inc. 23,191
450 O'Charleys Inc.* 6,413
--------
29,604
--------
INSURANCE 2.8%
942 HCC Insurance Holdings Inc.* 31,204
720 Reinsurance Group of America Inc. 25,380
480 Trenwick Group Inc. 25,440
--------
82,024
--------
See Notes to Financial Statements
13
<PAGE>
Emerging Growth Equity Fund
(Continued)
Statement of Investments September 30, 1995
- --------------------------------------------------------------------------------
Shares Value
- ------ -----
LODGING - MOTELS 1.4%
825 Doubletree Corp.* $18,150
1,040 Studio Plus Hotels Inc.* 23,920
-------
42,070
-------
MACHINERY - GENERAL 2.0%
1,035 American Business Information* 20,959
1,279 Baldor Electric Company 32,135
300 Computational Systems Inc.* 4,800
-------
57,894
-------
MEDICAL EQUIPMENT & SERVICES 0.2%
300 Bio-Vascular Inc.* 5,400
-------
MEDICAL PRODUCTS 2.6%
1,160 Avecor Cardiovascular Inc.* 15,660
550 ICU Medical Inc.* 7,219
550 Instent Inc.* 8,938
300 Lunar Corp.* 9,675
800 Minntech Corp. 12,800
450 Research Industries Corp.* 13,050
150 Target Therapeutics Inc.* 10,388
-------
77,730
-------
MEDICAL SERVICES 10.6%
100 Access Health Inc.* 2,800
890 Advantage Health Corp.* 30,260
600 American Homepatient Inc.* 15,000
650 Community Health Systems* 26,244
675 Compdent Corp.* 19,744
535 CRA Managed Care Inc.* 11,369
785 Genesis Health Ventures Inc.* 28,064
797 Health Management Associates New - CL A* 25,604
800 Healthcare Services Group Inc.* 8,600
435 Healthwise Of America Inc.* 12,180
300 HPR Inc.* 6,750
550 Imnet Systems Inc.* 14,025
605 Lincare Holdings Inc.* 15,579
725 Living Centers Of America* 24,106
900 Owen Healthcare Inc.* 14,625
100 Pediatrix Medical Group Inc.* 2,038
465 Sierra Health Services* 11,625
400 United Dental Care Inc.* 12,000
527 Vencor Inc.* 16,864
635 Wellcare Management Group Inc.* 14,764
-------
312,241
-------
MERCHANDISING 0.9%
506 Zebra Technologies Corp. - CL A* 26,945
-------
PHARMACEUTICALS 1.6%
1,475 Dura Pharmaceuticals Inc.* 43,513
200 Gilead Sciences Inc.* 4,350
-------
47,863
-------
Shares Value
- ------ -----
POLLUTION CONTROLS 0.7%
485 United Waste Systems, Inc.* $20,249
-------
RESTAURANTS 1.0%
600 Quantum Restaurant Group Inc.* 8,025
1,160 Landry's Seafood Restaurants* 20,880
-------
28,905
-------
RETAIL TRADE 2.7%
1,620 Hollywood Entertainment Corp.* 34,628
850 Moovies Inc.* 16,575
100 Novadigm Inc.* 1,675
400 Sunglass Hut International* 20,000
200 West Marine Inc.* 6,200
-------
79,078
-------
SOFTWARE PRODUCTS 8.3%
550 Bisys Group Inc.* 13,750
325 Business Objects SA ADR* 13,813
575 Datalogix International Inc.* 8,194
370 Inso Corp.* 11,748
510 McAfee Associates Inc.* 26,265
705 Mercury Interactive Corp.* 19,388
900 Network Express Inc.* 14,175
1,250 Platinum Software Corp.* 14,531
425 Project Software and Development Inc.* 10,891
300 Security Dynamics Tech Inc.* 14,250
300 Shiva Corp.* 18,375
950 Sierra On-Line Inc.* 37,050
319 Softkey International Inc.* 14,116
500 Spectrum Holobyte Inc.* 6,249
200 Spyglass Inc.* 9,150
400 Unison Software Inc.* 5,800
500 Vantive Corp.* 7,750
-------
245,495
-------
TELECOMMUNICATIONS 7.1%
900 Cai Wireless Systems Inc.* 9,225
800 Centennial Cellular Corp.* 15,400
1,223 Century Communications Corp.* 12,383
390 Clear Channel Communications* 29,543
750 Colonial Data Technologies Corp.* 13,875
440 Commnet Cellular Inc.* 12,704
900 Evergreen Media Corp. CL A* 25,200
1,175 EZ Communications Inc. CL A* 22,619
575 Heartland Wireless Communications Inc.* 14,519
450 Midcom Communication Inc.* 6,638
800 Pairgain Technologies Inc.* 27,600
450 P-Com Inc.* 19,688
100 Tel-Save Holdings Inc.* 1,525
-------
210,919
-------
See Notes to Financial Statements
14
<PAGE>
Emerging Growth Equity Fund
(Continued)
Statement of Investments September 30, 1995
- --------------------------------------------------------------------------------
Shares Value
- ------ -----
TRANSPORTATION 2.3%
925 Expeditors Int'l Of Washington Inc. $ 24,975
350 Fritz Companies Inc.* 25,724
600 U.S. Delivery Systems Inc.* 17,250
----------
67,949
----------
Total Common Stocks (Cost $1,859,189) $2,746,665
----------
Principal
Amount Value
- --------- -----
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT 3.7%
108,000 Bear, Stearns & Co. Inc. Dated 9/29/1995
6.20% Due 10/2/1995 collateralized by
540,000 United States Treasury Strips Due
2/15/2019 (Value $110,365) $ 108,000
----------
Total Investments (Cost $1,967,189) 96.8% $2,854,665
Other Assets, Less Liabilities 3.2% 95,801
----- ----------
Net Assets 100.0% $2,950,466
===== ==========
* Denotes Non-Income Producing Security
See Notes to Financial Statements
15
<PAGE>
Emerging Growth Equity Fund (Continued)
Statement of Assets and Liabilities September 30, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at value
(Cost $1,967,189) - Note 2 $2,854,665
Cash 101,735
Receivable for investments sold 17,621
Receivable for shares sold 3,475
Dividends and interest receivable 1,220
Deferred organizational costs 9,749
Other assets 5,772
----------
2,994,237
LIABILITIES:
Payable for investments purchased $ 18,986
Accrued expenses and other 24,785 43,771
-------- ----------
NET ASSETS at value, applicable to 154,859
outstanding shares - Note 5 $2,950,466
==========
NET ASSET VALUE, offering and redemption
price per share ($2,950,466
divided by 154,859 shares) $ 19.05
==========
Statement of Operations Year Ended September 30, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 9,444
Dividends 2,261
--------
Total income $ 11,705
Expenses:
Investment manager's fees - Note 3 27,019
Shareholder servicing fees and expenses - Note 3 13,386
Distribution fee - Note 3 4,504
Custodian fees and expenses 36,388
Legal and auditing fees 7,305
Directors' fees and expenses 10,980
Other 16,281
--------
Total expenses 115,863
Less expense reimbursement - Note 3 (74,265)
--------
Net expenses 41,598
----------
INVESTMENT (LOSS) - NET (29,893)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS - Note 4:
Net realized gain on investments 272,274
Unrealized appreciation on investments 547,848
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 820,122
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 790,229
==========
See Notes to Financial Statements
16
<PAGE>
Emerging Growth Equity Fund (Continued)
Statements Of Changes In Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
9/30/95 9/30/94
---------- ----------
OPERATIONS:
Investment (loss) - net $ (29,893) $ (20,272)
Net realized gain on investments 272,274 102,116
Unrealized appreciation on investments 547,848 84,947
----------- -----------
Increase in net assets resulting from operations 790,229 166,791
----------- -----------
DIVIDEND DISTRIBUTION - Note 2:
Realized gain on investments (45,582) (186,026)
----------- -----------
(45,582) (186,026)
----------- -----------
CAPITAL TRANSACTIONS - Note 5:
Value of shares sold 527,430 582,005
Value of shares redemmed (191,700) (276,661)
Value of shares issued in reinvestment
of dividend distribution 45,582 186,026
----------- -----------
Net increase in net assets resulting
from capital transactions 381,312 491,370
----------- -----------
Net increase 1,125,959 472,135
NET ASSETS at beginning of year 1,824,507 1,352,372
----------- -----------
NET ASSETS at end of year $ 2,950,466 $ 1,824,507
=========== ===========
See Notes to Financial Statements
17
<PAGE>
Intermediate-Term Fixed Income Fund
Statement of Investments September 30, 1995
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------- -----
UNITED STATES GOVERNMENT
AND AGENCY OBLIGATIONS 92.3%
$245,000 Federal Home Loan Bank Note
7.00% Due 7/5/2000 $ 244,182
300,000 Federal Home Loan Bank Structured Note
5.75% Due 4/25/1997 300,121
300,000 Federal Home Loan Bank Structured Note
7.20% Due 4/28/2004 300,145
250,000 Federal Home Loan Mortgage Corp.
CMO 1489 G
5.85% Due 10/15/2006 242,010
620,000 Federal Home Loan Mortgage Corp. Note
7.05% Due 1/29/2003 620,000
250,000 Federal National Mortgage Association
CMO G93-8PG
6.50% Due 7/25/2018 243,265
390,000 Federal National Mortgage Association
Medium Term Note
7.46% Due 9/30/1999 400,818
250,000 Federal National Mortgage Association
Medium Term Note
6.25% Due 1/14/2004 239,077
250,000 Federal National Mortgage Association
CMO 1992-9G
7.00% Due 7/25/2005 251,492
250,000 Federal National Mortgage Association
CMO G93-3G
6.00% Due 6/25/2018 237,722
250,000 Federal National Mortgage Association
CMO 1993-54E
6.25% Due 6/25/2019 240,040
221,307 Federal National Mortgage Association
Pool#050987
6.50% Due 2/1/2009 218,250
380,000 United States Treasury Note
8.875% Due 5/15/2000 423,581
250,000 United States Treasury Note
6.00% Due 6/30/1996 250,547
200,000 United States Treasury Note
3.875% Due 10/31/1995 199,750
Principal
Amount Value
- --------- -----
$175,000 United States Treasury Note
8.875% Due 11/15/1997 $ 185,336
65,000 United States Treasury Note
0.0% Due 2/15/1998 Stripped Principal 56,634
100,000 United States Treasury Note
0.0% Due 2/15/1998 Stripped Coupon 87,168
----------
Total United States Government and Agency
Obligations (Cost $4,701,465) $4,740,138
----------
SHORT TERM INVESTMENTS 6.2%
UNITED STATES GOVERNMENT
AND AGENCY OBLIGATIONS
$310,000 Federal Home Loan Bank
Discount Note
5.70% Due 10/2/1995 $ 309,935
REPURCHASE AGREEMENT
$7,150 Bear Stearns & Co., Inc. Dated 9/29/1995
6.20% Due 10/2/1995 collateralized by
40,000 United States Treasury Strips Due
2/15/2019 (Value $8,115) 7,150
----------
Total Short Term Obligations (Cost $317,085) $ 317,085
----------
Total Investments (Cost $5,018,550) 98.5% $5,057,223
Other Assets, Less Liabilities 1.5% 78,512
----- -----------
Net Assets 100.0% $5,135,735
===== ==========
See Notes to Financial Statements
18
<PAGE>
Intermediate-Term Fixed-Income Fund (Continued)
Statement of Assets and Liabilities September 30, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at value
(Cost $5,018,550) - Note 2 $5,057,223
Receivable for shares sold 2,406
Interest receivable 79,681
Deferred organizational costs 9,767
Other assets 7,350
----------
5,156,427
LIABILITIES:
Accrued expenses and other 20,692
----------
NET ASSETS at value, applicable to 475,143 outstanding
shares - Note 5 $5,135,735
==========
NET ASSET VALUE, offering and redemption price per share
($5,135,735 divided by 475,143 shares) $ 10.81
==========
Statement of Operations Year Ended September 30, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest $301,566
--------
Total income $ 301,566
Expenses:
Investment manager's fees - Note 3 18,262
Shareholder servicing fees and expenses
- Note 3 24,312
Distribution fee - Note 3 9,131
Custodian fees and expenses 4,274
Legal and auditing fees 7,305
Directors' fees and expenses 10,980
Other 16,542
--------
Total expenses 90,806
Less expense reimbursement--Note 3 (49,727)
--------
Net expenses 41,079
----------
INVESTMENT INCOME - NET 260,487
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT - Note 4:
Net realized gain (loss) on investments (273)
Unrealized appreciation on investments 185,270
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 184,997
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 445,484
==========
See Notes to Financial Statements
19
<PAGE>
Intermediate-Term Fixed-Income Fund (Continued)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
9/30/95 9/30/94
----------- -----------
OPERATIONS:
Investment income - net $ 260,487 $ 135,028
Net realized gain (loss) on investments (273) 21,282
Unrealized appreciation (depreciation)
on investments 185,270 (245,223)
----------- -----------
Increase (decrease) in net assets resulting
from operations 445,484 (88,913)
----------- -----------
DIVIDEND DISTRIBUTION - Note 2:
Investment income - net (246,044) (136,838)
Realized gain on investments (19,238) (17,663)
----------- -----------
(265,282) (154,501)
----------- -----------
CAPITAL TRANSACTIONS - Note 5:
Value of shares sold 1,578,988 1,478,522
Value of shares redeemed (258,804) (174,870)
Value of shares issued in reinvestment of
dividend distribution 263,537 152,700
----------- -----------
Net increase in net assets resulting from
capital transactions 1,583,721 1,456,352
----------- -----------
Net increase 1,763,923 1,212,938
NET ASSETS at beginning of year 3,371,812 2,158,874
----------- -----------
NET ASSETS at end of year $ 5,135,735 $ 3,371,812
=========== ===========
See Notes to Financial Statements
20
<PAGE>
Money Market Fund
Statement of Investments September 30, 1995
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------- -----
UNITED STATES GOVERNMENT
AND AGENCY OBLIGATIONS 94.9%
$280,000 F.H.L.B. Discount Note
5.57% Due 11/13/95 $ 278,137
200,000 Fed Home Loan Mortgage
Discount Note
5.62% Due 10/27/95 199,188
300,000 Federal National Mortgage Association
Discount Note
5.58% Due 10/11/95 299,535
200,000 Federal National Mortgage Association
Discount Note
5.61% Due 11/06/95 198,878
170,000 Federal National Mortgage Association
Discount Note
5.57% Due 10/10/95 169,763
----------
Total United States Government and Agency
Obligations (Cost $1,145,501) $1,145,501
----------
REPURCHASE AGREEMENT 1.3%
$16,443 Bear Stearns & Co., Inc. Dated 9/29/1995
6.20% Due 10/2/1995 Collateralized by
85,000 United States Treasury Strips Due
2/15/2019 (Value $17,372) 16,443
----------
Total Investments (Cost $1,161,944) 96.2% $1,161,944
Other Assets, Less Liabilities 3.8% 45,426
----- ----------
Net Assets 100.0% $1,207,370
===== ==========
See Notes to Financial Statements
21
<PAGE>
Money Market Fund (Continued)
Statement of Assets and Liabilities September 30, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at value
(Cost $1,161,944) - Note 2 $1,161,944
Receivable for investments sold 50,573
Receivable for shares sold 2,641
Interest receivable 75
Deferred organizational costs 8,211
Other assets 5,914
----------
$1,229,358
LIABILITIES:
Dividends payable $ 5,233
Accrued expenses and other 16,755 21,988
-------- ----------
NET ASSETS at value, applicable to 1,207,382
outstanding shares - Note 5 $1,207,370
==========
NET ASSET VALUE, offering and redemption price
per share ($1,207,370 divided by 1,207,382 shares) $ 1.00
==========
Statement of Operations Year Ended September 30, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest $ 65,165
--------
Total Income $ 65,165
Expenses:
Investment manager's fees - Note 3 2,885
Shareholder servicing fees and expenses - Note 3 5,574
Distribution fee - Note 3 2,308
Custodian fees and expenses 1,988
Legal and auditing fees 8,305
Directors' fees and expenses 10,947
Other 16,718
--------
Total expenses 48,725
Less expense reimbursement - Note 3 (42,954)
--------
Net expenses 5,771
---------
INVESTMENT INCOME - NET 59,394
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS --
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 59,394
=========
See Notes to Financial Statements
22
<PAGE>
Money Market Fund (Continued)
Statement of Changes in Net Assets September 30, 1995
- --------------------------------------------------------------------------------
Year Ended Year Ended
9/30/95 9/30/94
---------- ----------
OPERATIONS:
Investment income - net $ 59,394 $ 43,748
Net realized (loss) on investments -- (681)
---------- ----------
Increase in net assets resulting
from operations 59,394 43,067
---------- ----------
DIVIDEND DISTRIBUTION - Note 2:
Investment income - net (59,394) (43,748)
---------- ----------
CAPITAL TRANSACTIONS - Note 5:
Value of shares sold 160,847 343,769
Value of shares redeemed (119,753) (734,260)
Value of shares issued in reinvestment
of dividend distribution 53,877 36,477
---------- ----------
Net increase (decrease) in net assets
resulting from capital transactions 94,971 (354,014)
---------- ----------
Contribution of capital from investment
manager (Note 3) -- 681
---------- ----------
Net increase (decrease) 94,971 (354,014)
---------- ----------
NET ASSETS at beginning of year 1,112,399 1,466,413
---------- ----------
NET ASSETS at end of year $1,207,370 $1,112,399
========== ==========
See Notes to Financial Statements
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
Retirement System Fund Inc. ("Fund") is a no-load, open-end diversified
management investment company, registered under the Investment Company Act of
1940, as amended, designed to provide professional investment management and
diversification of risk to investors by offering shares in separate investment
funds ("Investment Funds"), each with a different investment objective.
Currently investors may purchase shares of Money Market Fund, Emerging Growth
Equity Fund, Intermediate-Term Fixed-Income Fund and Core Equity Fund. In the
future, the Fund expects to offer shares of Value Equity Fund, International
Equity Fund and Actively Managed Fixed-Income Fund.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Investment Funds in the preparation of the financial statements.
(A) Securities Valuation: Except for debt securities with remaining maturities
of 60 days or less, investments for which market prices are available are
valued as follows:
(1) each listed security is valued at its closing price obtained from the
respective exchange on which the security is listed, or, if there were
no sales on that day, at its last reported closing or bid price.
(2) each unlisted security quoted on the NASDAQ is valued at the last
current bid price obtained from the NASDAQ;
(3) United States Government and agency obligations and certain other debt
obligations are valued based upon bid quotations from various market
makers for identical or similar obligations.
(4) Mortgage-backed securities and asset-backed securities are valued with
a cash flow model based on both the pre-payment assumptions (Public
Securities Association median) and the price-yield spreads over
comparable United States Treasury Securities.
(5) short-term money market instruments (such as certificates of deposit,
bankers' acceptances and commercial paper) are valued by bid
quotations or by reference to bid quotations of available yields for
similar instruments of issuers with similar credit rating.
Debt securities with remaining maturities of 60 days or less are valued on
the basis of amortized cost. In the absence of an ascertainable market value,
investments are valued at their fair value as determined by the officers of the
Investors using methods and procedures reviewed and approved by the Fund's
Directors.
(B) Securities Transactions and Investment Income: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on a specific cost basis. Dividend income is
recognized on the ex-dividend date or when the dividend information is
known; interest income, including, where applicable, amortization of
discount and premium on investments and zero coupon bonds, is recognized on
an accrual basis.
24
<PAGE>
The Investment Funds may enter into repurchase agreements with
financial institutions, deemed to be creditworthy by the Investment Funds'
Manager, subject to the sellers' agreement to repurchase and the Funds'
agreement to resell such securities at a mutually agreed upon price.
Securities purchased subject to repurchase agreements are deposited with
the Investment Funds' custodian and, pursuant to the terms of the
repurchase agreement, must have an aggregate market value greater than or
equal to the repurchase price plus accrued interest at all times. If the
value of the underlying securities falls below the value of the repurchase
price plus accrued interest, the Investment Funds will require the seller
to deposit additional collateral by the next business day. If the request
for additional collateral is not met, or the seller defaults on its
repurchase obligation, the Investment Funds maintain the right to sell the
underlying securities at market value and may claim any resulting loss
against the seller.
(C) Dividends to Shareholders: Dividends and capital gain distributions to
shareholders, which are determined in accordance with income tax
regulations, are recorded on the ex-dividend date. However, the Money
Market Fund declares dividends daily and automatically reinvests such
dividends in additional Fund shares at net asset value, unless the
shareholder elects otherwise. Dividends are declared from the total of net
investment income and net realized gain on investments.
(D) Federal Income Taxes: Each Investment Fund is treated as a separate entity
for Federal Income tax purposes and is not combined with other Investment
Funds. Each of the Investment Funds intends to comply with the provisions
of the Internal Revenue Code applicable to "regulated investment companies"
and to distribute all of its taxable income to its shareholders. Therefore,
no provision has been made for Federal income taxes for these Investment
Funds.
(E) Other: Costs incurred in connection with the organization of the Investment
Funds have been deferred and are being amortized on a straight-line basis
over five years from the date of commencement of operations of each
portfolio. Expenses directly attributed to each Investment Fund are charged
to that Investment Fund's operations; expenses which are applicable to all
Investment Funds are allocated among them.
Certain reclassifications are made each year amongst the components of each
Investment Fund's net assets which relate to different classifications of
income and distributions for financial reporting and tax purposes.
The Investment Funds may enter into financial futures contracts which
require initial margin deposits of cash or U.S. Government securities equal
to approximately 10% of the value of the contract. During the period the
financial futures are open, changes in the value of the contracts are
recognized by "marking to market" on a daily basis to reflect the market
value of the contracts at the close of each day's trading. Accordingly,
variation margin payments are made or received to reflect daily unrealized
gains or losses. The Investment Fund is exposed to market risk as a result
of movements in securities, values and interest rates.
25
<PAGE>
NOTE 3--INVESTMENT MANAGERS' FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
Retirement System Investors Inc. ("Investors") is the investment advisor
for each Investment Fund. The Emerging Growth Equity Fund has engaged Putnam
Advisory Company, Inc. ("Putnam"), an independent investment manager to make and
effect decisions on buying and selling portfolio securities. Investors acts as
investment manager to the remaining investment funds and, in the case of all
Investment Funds, exercises general oversight with respect to portfolio
management and reports to the Board of Directors with respect thereto. For their
services, the investment managers are entitled to receive an annual fee,
calculated daily and paid monthly, (calculated and paid quarterly in the case of
Putnam), based upon a percentage of the average net assets of the respective
Investment Funds. The specific percentages for the Investment Funds are set
forth in the following table.
Investment Fund Annual Fee
- --------------- ----------
Core Equity Fund First $50 million 0.60
Next $150 million 0.50
Over $200 million 0.40
Emerging Growth Equity Fund First $25 million 1.00
Over $25 million 0.75
Intermediate-Term Fixed-Income Fund First $50 million 0.40
Next $100 million 0.30
Over $150 million 0.20
Money Market Fund First $50 million 0.25
Over $50 million 0.20
In addition, Investors is entitled to receive an annual fee based upon a
percentage of average net assets of the respective Investment Funds (or portion
thereof) for which it does not act as investment manager, which fee shall be an
amount equal to the sum of (i) .20% of total net assets of the applicable
Investment Funds, and (ii) the fee to which the investment manager of the
applicable Investment Funds is entitled, calculated in the manner described
above with respect to the investment manager's fees for each such Investment
Fund. Investors, in turn, remits such portion of its fee to the investment
manager of such Investment Fund. With respect to the Investment Funds for which
Investors does not act as investment manager, Investors has agreed to waive
payment of the portion of the investment advisory fees in an amount equal to
.20% of the total assets of the Investment Fund's operations, and intends to
waive payment of such amount going forward if necessary to maintain a
competitive expense ratio or to assure that the Investment Fund's expense ratios
comply with regulations in various states where Fund shares are qualified for
sale.
Pursuant to a Distribution Agreement ("Plan") each Investment Fund pays
Retirement System Distributors Inc. ("Distributor") an affiliate of Investors, a
monthly fee determined as follows. The maximum amount payable under the Plan is
equal to .25% of the average daily net assets of an Investment Fund but the
Board of Directors currently limits such expenditures to .20% of average daily
net assets. The Plan does not provide for any charges to an Investment Fund for
excess amounts expended by the Distributor and, if the Plan is terminated, the
obligation of the Investment Fund to make payments to the Distributor will cease
and the
26
<PAGE>
Investment Fund will not be required to make any payments thereafter. If
the Distributor's costs in connection with its distribution services to an
Investment Fund are less than .20% of net assets, the Distributor may
nevertheless retain the difference. If the Distributor's costs exceed .20% of
net assets, the Distributor will assume the difference and will not be
reimbursed therefore.
Retirement System Consultants Inc. ("Service Company") an affiliate of
Investors, has entered into a Service Agreement with the Fund to provide each
Investment Fund with the general administrative and related services necessary
to carry on the affairs of the Investment Funds, including transfer agent and
registrar services.
For its services, the Service Company is entitled to receive a fee,
calculated daily and paid monthly, based upon the percentage of the average
daily net assets of the respective Investment Funds. The specific percentages,
applicable for the period ended January 27, 1995, are set forth in the following
table.
Investment Fund Fee
-------------- ----
Core Equity Fund 0.181%
Emerging Growth Equity Fund 0.580
Intermediate-Term Fixed-Income Fund 0.354
Money Market Fund 0.234
The Board of Directors approved a revised Service Agreement which took
effect on January 28, 1995 which provides for a sliding scale fee based on
average daily net assets. The fee arrangement applicable for each of the
investment funds is as follows:
Average Net Assets Fee
------------------ ---
First $25 million .60%
Next $25 million .50%
Next $25 million .40%
Next $25 million .30%
Over $100 million .20%
For the period ended September 30, 1995 Investors and its affiliates waived
fees and reimbursed expenses of the Core Equity Fund, Emerging Growth Equity
Fund, Intermediate-Term Fixed-Income Fund, and Money Market Fund amounting to
$58,183, $74,265, $49,727 and $42,954, respectively.
Each Director who is not an officer of the Investment Funds or a Trustee of
Investors Retirement Trust receives an annual fee of $7,000. Each Director
receives a fee of $800 per meeting attended, except that such fee is $400 for a
telephonic meeting. (Committee chairs receive an additional $100 per meeting.) A
Director and several officers of the Fund are also officers of Investors and its
affiliates.
On July 28, 1994, in order to maintain the net asset value of the Money
Market Fund at $1.00, Service Company purchased a United States Treasury Bill,
maturity on 1/12/1995 with a maturity value of $100,000, from the Money Market
Fund for $98,450 which was equal to the Money Market Fund's amortized cost or
carrying value on that date. The security had a fair value of $97,768 on this
date. The excess over fair value ($681) that was paid by Service Company has
been classified by the Money Market Fund as a realized loss in the Statement of
Operations and a capital contribution in the Statement of Changes in Net Assets.
27
<PAGE>
NOTE 4--SECURITIES TRANSACTIONS
The following summarizes the securities transactions, other than short term
securities, by the various Investment Funds for the period ended September 30,
1995:
Investment Fund Purchases Sales
--------------- --------- -----
Core Equity Fund $1,266,309 $1,037,956
Emerging Growth Equity Fund 1,994,434 1,800,471
Intermediate-Term Fixed-Income Fund 2,583,356 319,559
The cost basis of investments for tax purposes is substantially the same as
the cost basis for book purposes. Net unrealized appreciation consisting of
gross unrealized appreciation and gross unrealized (depreciation) at September
30, 1995 for each of the Investment Funds was as follows:
Net Unrealized Gross Gross
Appreciation Unrealized Unrealized
Investment Fund (Depreciation) Appreciation Depreciation
- --------------- ------------- ------------ ------------
Core Equity Fund $1,826,942 $1,853,416 $(26,474)
Emerging Growth Equity Fund 887,476 916,696 (29,220)
Intermediate-Term Fixed-Income Fund 38,673 73,952 (35,279)
The following summarizes the value of securities that were on loan to
brokers and the value of securities held as collateral for these loans at
September 30, 1995:
Value of
Securities Vaue of
Investment Fund Loaned Collateral
--------------- ---------- ----------
Core Equity Fund $ 64,736 $ 69,489
Emerging Growth Equity Fund 357,616 377,081
NOTE 5--CAPITAL TRANSACTIONS
The Investment Funds were organized under the laws of the State of Maryland
in November 1990. The Investment Fund is authorized to issue two billion shares
of capital stock, par value $.001 per share. The Board of Directors of the
Investment Funds is authorized to establish multiple series of shares of capital
stock, each evidencing interest in a separate Investment Fund.
28
<PAGE>
Transactions in the shares of capital stock of each Investment Fund for the
years ended September 30, 1995 and September 30, 1994 were as follows:
Core Equity Emerging Growth
Fund Equity Fund
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
Fund shares sold 67,933 63,904 34,324 43,337
Dividends reinvested 9,247 5,323 3,282 14,522
Fund shares redeemed (24,411) (39,055) (12,944) (19,407)
------ ------ ------ ------
Net increase 52,769 30,172 24,662 38,452
====== ====== ====== ======
Intermediate-Term
Fixed-Income Fund
-------------------
1995 1994
---- ----
Fund shares sold 152,183 135,467
Dividends reinvested 25,145 14,169
Fund shares redeemed (24,467) (16,157)
------- -------
Net increase 152,861 133,479
======= =======
Net Assets at September 30, 1995 are as follows:
Core Equity Emerging Growth
Fund Equity Fund
---------- ----------------
Paid-in capital $3,812,577 $1,839,118
Accumulated undistributed
investment income (loss)--net 45,040 (24,013)
Undistributed realized gain (loss) (27,121) 247,885
Unrealized appreciation 1,826,942 887,476
---------- ----------
$5,657,438 $2,950,466
========== ==========
Intermediate-Term Money Market
Fixed-Income Fund Fund
----------------- ------------
Paid-in capital $5,045,228 $1,182,439
Accumulated undistributed
investment income--net 52,107 24,931
Undistributed realized gain (loss) (273) --
Unrealized appreciation 38,673 --
---------- ----------
$5,135,735 $1,207,370
========== ==========
29
<PAGE>
NOTE 6--FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CORE EQUITY FUND
----------------
From 5/10/91
(Commencement
Year Year Year Year of Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $12.72 $12.08 $10.98 $10.45 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Investment income--net 0.13 0.15 0.18 0.23 0.14
Net realized and unrealized gain on investments 4.22 0.74 1.84 0.60 0.31
------ ------ ------ ------ ------
Total from Investment Operations 4.35 0.89 2.02 0.83 0.45
------ ------ ------ ------ ------
Distributions:
Distributions from capital gains (0.22) (0.11) (0.64) (0.08) --
Distributions from investment income (0.16) (0.14) (0.28) (0.22) --
------ ------ ------ ------ ------
Total Distributions (0.38) (0.25) (0.92) (0.30) --
------ ------ ------ ------ ------
Net increase 3.97 0.64 1.10 0.53 0.45
------ ------ ------ ------ ------
Net Asset Value, end of year $16.69 $12.72 $12.08 $10.98 $10.45
====== ====== ====== ====== ======
Total Return*** 35.24% 7.47% 19.39% 8.11% 4.50%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income--net 1.52% 1.17% 1.31% 1.86% 3.31%**
Decrease reflected in above expense ratio
due to expense waivers and reimbursement 1.30% 1.33% 2.43% 2.46% 1.80%**
Portfolio turnover rate 25.49% 9.64% 21.79% 61.27% 12.49%
Net Assets at end of year ($1,000's) $5,657 $3,639 $3,094 $1,049 $1,560
<FN>
*Using average share basis.
**Annualized.
***The total return calculation reflects dividend reinvestment.
</FN>
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH
EQUITY FUND
---------------
From 5/10/91
(Commencement
Year Year Year Year of Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $14.01 $14.74 $11.83 $10.54 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Investment income (loss)--net (0.12) (0.04) (0.13) (0.17) (0.02)
Net realized and unrealized gain on investments 5.49 1.58 4.36 1.49 0.56
------ ------ ------ ------ ------
Total from Investment Operations 5.37 1.54 4.23 1.32 0.54
------ ------ ------ ------ ------
Distributions:
Distributions from capital gains (0.33) (2.27) (1.21) (0.01) --
Distributions from investment income -- -- (0.11) -- --
Return of capital -- -- -- (0.02) --
------ ------ ------ ------ ------
Total Distributions (0.33) (2.27) (1.32) (0.03) --
------ ------ ------ ------ ------
Net increase (decrease) 5.04 (0.73) 2.91 1.29 0.54
------ ------ ------ ------ ------
Net Asset Value, end of year $19.05 $14.01 $14.74 $11.83 $10.54
====== ====== ====== ====== ======
Total Return *** 39.20% 11.89% 38.05% 13.80% 5.40%
Ratios/Supplemental Data:
Ratios to average net assets
Expenses 1.85% 1.85% 1.85% 1.86% 1.85%**
Investment income (loss)--net (1.33)% (1.37)% (1.34)% (1.10)% (0.46)%**
Decrease reflected in above expense ratio
due to expense waivers and reimbursement 3.30% 4.11% 6.41% 7.90% 0.85%**
Portfolio turnover rate 84.05% 72.59% 144.49% 138.46% 25.38%
Net Assets at end of year ($1,000's) $2,950 $1,825 $1,352 $684 $602
<FN>
*Using average share basis.
**Annualized.
***The total return calculation reflects dividend reinvestment.
</FN>
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM FIXED-INCOME FUND
-------------------------------------------------
From 5/10/91
(Commencement
Year Year Year Year of Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $10.46 $11.43 $11.00 $10.46 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Investment income--net 0.59 0.52 0.54 0.80 0.25
Net realized and unrealized gain (loss) on
investments 0.38 (0.85) 0.36 0.73 0.40
------ ------ ------ ------ ------
Total from Investment Operations 0.97 (0.33) 0.90 1.53 0.65
------ ------ ------ ------ ------
Distributions:
Distributions from capital gains (0.05) (0.08) -- (0.15) --
Distributions from investment income (0.57) (0.56) (0.47) (0.84) (0.19)
------ ------ ------ ------ ------
Total Distributions (0.62) (0.64) (0.47) (0.99) (0.19)
------ ------ ------ ------ ------
Net increase (decrease) 0.35 (0.97) 0.43 0.54 0.46
------ ------ ------ ------ ------
Net Asset Value, end of year $10.81 $10.46 $11.43 $11.00 $10.46
====== ====== ====== ====== ======
Total Return *** 9.64% (2.99)% 8.47% 13.86% 6.58%
Ratios/Supplemental Data:
Ratios to average net assets
Expenses 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income - net 5.71% 5.76% 4.90% 5.59% 6.27%**
Decrease reflected in above expense ratio
due to expense waivers and reimbursement 1.09% 1.66% 3.33% 5.56% 1.80%**
Portfolio turnover rate 8.50% 8.68% 27.62% 8.66% 85.85%
Net Assets at end of year ($1,000's) $5,136 $3,372 $2,159 $881 $423
<FN>
- ----------
* Using average share basis.
** Annualized.
*** The total return calculation reflects dividend reinvestment.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------------------
From 2/7/91
(Commencement
Year Year Year Year of Operations)
Ended Ended Ended Ended Through
9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income from investment operations:
Investment income--net 0.05 0.03 0.03 0.04 0.03
----- ----- ----- ----- -----
Total from Investment Operations 0.05 0.03 0.03 0.04 0.03
----- ----- ----- ----- -----
Distributions:
Distributions from investment income (0.05) (0.03) (0.03) (0.04) (0.03)
----- ----- ----- ----- -----
Total Distributions (0.05) (0.03) (0.03) (0.04) (0.03)
----- ----- ----- ----- -----
Net increase (decrease) 0.00 0.00 0.00 0.00 (0.00)
----- ----- ----- ----- -----
Net Asset Value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return *** 5.20% 3.27%+ 2.77% 3.73% 3.30%
Ratios/Supplemental Data:
Ratios to average net assets
Expenses 0.50% 0.42% 0.25% 0.44% 0.75%**
Investment income--net 5.15% 3.18% 2.94% 3.68% 4.60%**
Decrease reflected in above expense ratio
due to expense waivers and reimbursement 3.72% 3.47% 4.39% 5.19% 1.95%**
Net Assets at end of year ($1,000's) $1,207 $1,112 $1,466 $664 $857
<FN>
- ----------
+ Had an affiliate of the advisor not contributed capital to the fund to
reimburse a realized loss, the total return would have been 3.22%.
* Using average share basis.
** Annualized.
*** The total return calculation reflects dividend reinvestment.
</FN>
</TABLE>
33
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Retirement System Fund Inc.
We have audited the statements of assets and liabilities, including the
statements of investments, of the Core Equity Fund, Emerging Growth Equity Fund,
Intermediate-Term Fixed-Income Fund and Money Market Fund (the "Investment
Funds") of the Retirement System Fund Inc. as of September 30, 1995, and the
related statements of operations for the year then ended, statements of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the four years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Investment Funds of Retirement System Fund Inc. at September 30, 1995, the
results of their operations, the changes in their net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.
[INSERT SIGNATURE]
New York, New York
November 15, 1995
34
<PAGE>
OFFICERS
- --------------------------------------------------------------------------------
William Dannecker, President
James P. Coughlin, C.F.A., Executive Vice President and Chief Investment Officer
Stephen P. Pollak, Esq., Executive Vice President, Counsel and Secretary
John F. Meuser, Vice President and Treasurer
Veronica A. Fisher, First Vice President and Assistant Treasurer
Herbert Kuhl, Jr., C.F.A., First Vice President
Deborah A. Modzelewski, Second Vice President
Heidi Viceconte, Second Vice President
INVESTMENT MANAGERS
- --------------------------------------------------------------------------------
The Putnam Advisory Company, Inc.
Retirement System Investors Inc.
CUSTODIAN
- --------------------------------------------------------------------------------
Custodial Trust Company
DISTRIBUTOR
- --------------------------------------------------------------------------------
Retirement System Distributors Inc.
CONSULTANT
- --------------------------------------------------------------------------------
Retirement System Consultants Inc.
TRANSFER AGENT
- --------------------------------------------------------------------------------
Retirement System Consultants Inc.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
McGladrey & Pullen, LLP
COUNSEL
- --------------------------------------------------------------------------------
Morgan, Lewis & Bockius LLP
35
<PAGE>
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
Edward J. Brown
Retired President and
Chief Operating Officer
Apple Bank for Savings
and Apple Bancorp, Inc., NY
Candace Cox
President
NYNEX Asset Management Co., NY
William Dannecker
President and Chief Executive Officer
Retirement System Group Inc., NY
Eugene C. Ecker
Pension and Group Insurance
Consultant
Joseph P. Gemmell
Chairman of the Board,
President and Chief Executive Officer
Bankers Savings, NJ
Covington Hardee
Retired Chairman
The Lincoln Savings Bank, FSB, NY
Raymond L. Willis
Private Investments
36
<PAGE>
For more complete information about Retirement System Fund Inc., including
charges and expenses, call 1-800-772-3615 for a prospectus or write to
Retirement System Distributors Inc., Customer Service, P.O. Box 2064, Grand
Central Station, New York, NY 10163-2064. Read the prospectus carefully before
you invest or send money. Retirement System Fund is distributed exclusively by
Retirement System Distributors Inc. Total returns are based on historical
results and are not intended to indicate future performance. Future performance
and unit asset value will fluctuate so that units, if redeemed, may be worth
more or less than their original cost. This material must be preceded or
accompanied by a prospectus.
<PAGE>
ANNUAL REPORT
LOGO
Retirement System
Fund Inc.
Core Equity Fund
Emerging Growth Equity Fund
Intermediate-Term Fixed-Income Fund
Money Market Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
1995
Broker/Dealer
LOGO
Retirement System
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
*Not yet available for sale to investors
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869964
<NAME> Retirement System Fund Inc.
<SERIES>
<NAME> MONEY MARKET FUND
<NUMBER> 1
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 1,161,944
<INVESTMENTS-AT-VALUE> 1,161,944
<RECEIVABLES> 53,289
<ASSETS-OTHER> 14,125
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,229,358
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,988
<TOTAL-LIABILITIES> 21,988
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,182,439
<SHARES-COMMON-STOCK> 1,207,382
<SHARES-COMMON-PRIOR> 1,112,411
<ACCUMULATED-NII-CURRENT> 24,931
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,207,370
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 65,165
<OTHER-INCOME> 0
<EXPENSES-NET> 5,771
<NET-INVESTMENT-INCOME> 59,394
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 59,394
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59,394
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,578,988
<NUMBER-OF-SHARES-REDEEMED> 258,804
<SHARES-REINVESTED> 263,537
<NET-CHANGE-IN-ASSETS> 94,971
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (13)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,885
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48,725
<AVERAGE-NET-ASSETS> 1,153,860
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869964
<NAME> Retirement System Fund Inc.
<SERIES>
<NAME> EMERGING GROWTH EQUITY FUND
<NUMBER> 2
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 1,967,189
<INVESTMENTS-AT-VALUE> 2,854,665
<RECEIVABLES> 22,316
<ASSETS-OTHER> 117,256
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,994,237
<PAYABLE-FOR-SECURITIES> 18,986
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,785
<TOTAL-LIABILITIES> 43,771
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,839,118
<SHARES-COMMON-STOCK> 154,859
<SHARES-COMMON-PRIOR> 130,198
<ACCUMULATED-NII-CURRENT> (24,013)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 247,885
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 887,476
<NET-ASSETS> 2,950,466
<DIVIDEND-INCOME> 2,261
<INTEREST-INCOME> 9,444
<OTHER-INCOME> 0
<EXPENSES-NET> 41,598
<NET-INVESTMENT-INCOME> (29,893)
<REALIZED-GAINS-CURRENT> 272,274
<APPREC-INCREASE-CURRENT> 547,848
<NET-CHANGE-FROM-OPS> 790,229
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (45,582)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,324
<NUMBER-OF-SHARES-REDEEMED> 12,944
<SHARES-REINVESTED> 3,282
<NET-CHANGE-IN-ASSETS> 1,824,507
<ACCUMULATED-NII-PRIOR> (56,982)
<ACCUMULATED-GAINS-PRIOR> 59,869
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27,019
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,863
<AVERAGE-NET-ASSETS> 2,259,616
<PER-SHARE-NAV-BEGIN> 14.01
<PER-SHARE-NII> (112)
<PER-SHARE-GAIN-APPREC> 5.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.33)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.05
<EXPENSE-RATIO> 1.85
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<NAME> Retirement System Fund Inc.
<SERIES>
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