<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1997.
Registration 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. 8 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 9 [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, 1996 was filed with the Commission on November 26,
1996.
<PAGE>
RETIREMENT SYSTEM FUND INC.
January 28, 1997
Cross Reference Sheet
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
<S> <C>
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 1996 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.
</TABLE>
<PAGE>
PROSPECTUS
Core Equity Fund
Emerging Growth Equity Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
Intermediate-Term Fixed-Income Fund
Money Market Fund
January 28, 1997
1997
BROKER/DEALER
[logo]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
1-800-772-3615
*not yet available for sale to investors
<PAGE>
TABLE OF CONTENTS
Introduction.........................................................1
Fee Table............................................................2
Financial Highlights.................................................3
Prospectus Summary...................................................7
The Fund.............................................................8
Core Equity Fund...................................................8
Portfolio Manager................................................9
Value Equity Fund..................................................9
Emerging Growth Equity Fund.......................................10
Portfolio Manager...............................................10
International Equity Fund.........................................11
Actively Managed Fixed-Income Fund................................12
Intermediate-Term Fixed-Income Fund...............................14
Portfolio Manager...............................................16
Money Market Fund.................................................17
Other Investment Policies and Risk Considerations...................18
Cash Equivalents..................................................18
Options on Securities and Indices of Securities...................18
Futures Transactions..............................................19
Foreign Securities................................................19
Foreign Currency Transactions.....................................20
Repurchase Agreements.............................................21
Reverse Repurchase Agreements.....................................21
When-Issued Securities............................................21
Lending Fund Securities...........................................21
Investment Restrictions.............................................22
Performance Information.............................................22
How to Invest in the Fund...........................................23
Purchase of Fund Shares...........................................23
Periodic Purchases................................................24
Payroll Deductions................................................24
Exchanges.........................................................25
Redemption of Shares................................................25
Distributions and Taxes.............................................26
Dividends and Distributions.......................................26
Tax Treatment of Dividends and Distributions......................26
Tax Status of the Funds...........................................26
Management of the Fund..............................................28
Investment Advisory Services......................................28
Distributor.........................................................31
Administrator.......................................................32
General Information.................................................33
Description of Shares.............................................33
Annual Meetings...................................................33
Reports...........................................................33
Shareholder Inquiries.............................................33
Custodian.........................................................33
Counsel and Auditors..............................................34
Appendix..........................................................34
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
DATED JANUARY 28, 1997
Retirement System Fund Inc. ("Fund") is a mutual fund designed
to provide professional investment
INTRODUCTION
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 23 of this
Prospectus.
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 28, 1997 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
GUARANTEED OR ENDORSED BY, ANY BANK. THE SHARES ARE NOT
FEDERALLY INSURED 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 28, 1997
<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>
INTER-
ACTIVELY MEDIATE-
CORE VALUE EMERGING INTER- MANAGED TERM FIXED-
EQUITY EQUITY GROWTH NATIONAL FIXED- INCOME
FUND FUND EQUITY FUND EQUITY FUND INCOME FUND FUND
--------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
I. SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases............ None None None None None None
Sales Load on Reinvested
Dividends.......................... None None None None None None
Deferred Sales Load................ None None None None None None
Redemption Fees.................... None None None None None None
Exchange Fees...................... 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
12b-1 Fees (after fee waivers)(C).... .20 .20 .20 .20 .20 .20
Other Expenses
(after fee waivers)(D)............. .20 .62 .80 1.41 .24 .40
Total Annual Fund Operating
Expenses(E).......................... 1.00 1.42 2.00 2.21 .74 1.00
(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
3 years.............................. $31.85 $44.95 $62.78 $69.15 $23.66 $31.85
5 years.............................. $55.31 $77.75 $107.97 $118.68 $41.19 $55.31
10 years............................. $123.15 $171.41 $234.71 $256.66 $92.24 $123.15
(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,
1996, 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 Conduct Rules of the 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 1996 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 1.45% of average
net assets of the Core Equity Fund, 2.55% 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, 1.58% of average net assets of the
Intermediate-Term Fixed-Income Fund and 3.89% of average net assets of the Money Market Fund.
(E) Absent voluntary fee waivers, total annual Fund operating expenses would be 2.05% of average net assets of the
Core Equity Fund, 3.46% 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, 1.97% of average net assets of the Intermediate-Term
Fixed-Income Fund and 4.14% of average net assets of the Money Market Fund.
<CAPTION>
MONEY
MARKET
FUND
---------
<S> <C>
I.
None
None
None
None
None
II.
.00
.20
.30
.50
III.
$5.11
$16.04
$27.97
$63.02
(A)
(B)
(C)
(D)
(E)
</TABLE>
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.
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.
2
<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, 1996. The following information for the
years ended September 30, 1992, 1993, 1994, 1995 and 1996 has
been audited by McGladrey & Pullen, LLP, independent auditors,
whose report thereon, which is incorporated by reference,
appears in the Fund's 1996 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
1996 Annual 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 YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
----------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout each
period)
Net Asset Value, beginning of
year $ 16.69 $ 12.72 $ 12.08 $ 10.98 $ 10.45 $ 10.00
----------- ----------- ----------- ----------- ----------- ------
Income from investment
operations:
Investment income-net 0.21 0.13 0.15 0.18 0.23 0.14
Net realized and unrealized
gain on investments 3.45 4.22 0.74 1.84 0.60 0.31
----------- ----------- ----------- ----------- ----------- ------
Total from Investment
Operations 3.66 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 (0.24) (0.16) (0.14) (0.08) (0.22) --
----------- ----------- ----------- ----------- ----------- ------
Total distributions (0.24) (0.38) (0.25) (0.92) (0.30) --
----------- ----------- ----------- ----------- ----------- ------
Net increase 3.42 3.97 0.64 1.10 0.53 0.45
----------- ----------- ----------- ----------- ----------- ------
Net Asset Value, end of year $ 20.11 $ 16.69 $ 12.72 $ 12.08 $ 10.98 $ 10.45
----------- ----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ----------- ------
TOTAL RETURN*** 22.21% 35.24% 7.47% 19.39% 8.11% 4.50%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 0.97% 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income-net 1.23% 1.52% 1.17% 1.31% 1.86% 3.31%**
Decrease reflected in above
expense ratio due to expense
reimbursement 1.08% 1.30% 1.33% 2.43% 2.46% 1.80%**
Portfolio turnover rate 18.08% 25.49% 9.64% 21.79% 61.27% 12.49%
Average commission rate paid (per
share)+ $ .05 -- -- -- -- --
Net Assets at End of Year
($1,000's) $ 8,865 $ 5,657 $ 3,639 $ 3,094 $ 1,049 $ 1,560
</TABLE>
----------------------------------
* using average share basis
** Annualized
*** The total return calculation reflects dividend
reinvestment.
+ Required by regulations issued in 1995.
3
<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 YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
---------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding throughout
each period)
Net Asset Value, beginning of year $ 19.05 $14.01 $14.74 $ 11.83 $ 10.54 $10.00
---------- ------- ------- ------- ------- ------
Income from Investment Operations:
Investment (loss)-net (0.17) (0.12 ) (0.04 ) (0.13) (0.17) (0.02)
Net realized and unrealized gain on
investments 7.62 5.49 1.58 4.36 1.49 0.56
---------- ------- ------- ------- ------- ------
Total from Investment Operations 7.45 5.37 1.54 4.23 1.32 0.54
---------- ------- ------- ------- ------- ------
Distributions:
Distributions from capital gains (1.42) (0.33 ) (2.27 ) (1.21) (0.01) --
Distributions from investment income -- -- -- (0.11) -- --
Return of capital -- -- -- -- (0.02) --
---------- ------- ------- ------- ------- ------
Total distributions (1.42) (0.33 ) (2.27 ) (1.32) (0.03) --
---------- ------- ------- ------- ------- ------
Net increase (decrease) 6.03 5.04 (0.73 ) 2.91 1.29 0.54
---------- ------- ------- ------- ------- ------
Net Asset Value, end of year $ 25.08 $19.05 $14.01 $ 14.74 $ 11.83 $10.54
---------- ------- ------- ------- ------- ------
---------- ------- ------- ------- ------- ------
TOTAL RETURN*** 42.07% 39.20% 11.89% 38.05% 13.80% 5.40%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.96% 1.85% 1.85% 1.85% 1.86% 1.85%**
Investment (loss)-net (1.43)% (1.33 )% (1.37 )% (1.34)% (1.10)% (0.46)%**
Decrease reflected in above expense ratio
due to expense reimbursement 1.49% 3.30% 4.11% 6.41% 7.90% 0.85%**
Portfolio turnover rate 77.94% 84.05% 72.59% 144.49% 138.46% 25.38%
Average commission rate paid (per share)+ $ .01 -- -- -- -- --
Net Assets at End of Year ($1,000's) $6,609 $2,950 $1,825 $1,352 $684 $602
</TABLE>
----------------------------------
* using average share basis
** Annualized
*** The total return calculation reflects dividend reinvestment
+ Required by regulations issued in 1995.
4
<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 YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
----------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout each
year)
Net Asset Value, beginning of
year $ 10.81 $ 10.46 $ 11.43 $ 11.00 $ 10.46 $ 10.00
----------- ----------- ----------- ----------- ----------- ------
Income from Investment
Operations:
Investment income-net 0.66 0.59 0.52 0.54 0.80 0.25
Net realized and unrealized
gain (loss) on investments (0.26) 0.38 (0.85) 0.36 0.73 0.40
----------- ----------- ----------- ----------- ----------- ------
Total from Investment
Operations 0.40 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 (0.72) (0.57) (0.56) (0.47) (0.84) (0.19)
----------- ----------- ----------- ----------- ----------- ------
Total distributions (0.72) (0.62) (0.64) (0.47) (0.99) (0.19)
----------- ----------- ----------- ----------- ----------- ------
Net increase (decrease) 0.32 0.35 (0.97) 0.43 0.54 0.46
----------- ----------- ----------- ----------- ----------- ------
Net Asset Value, end of year $ 10.49 $ 10.81 $ 10.46 $ 11.43 $ 11.00 $ 10.46
----------- ----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ----------- ------
TOTAL RETURN*** 3.82% 9.64% (2.99)% 8.47% 13.86% 6.58%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.97% 0.90% 0.90% 0.90% 0.90% 0.90%**
Investment income-net 6.27% 5.71% 5.76% 4.90% 5.59% 6.27%**
Decrease reflected in above
expense ratio due to expense
reimbursement 1.00% 1.09% 1.66% 3.33% 5.56% 1.80%**
Portfolio turnover rate 39.69% 8.50% 8.68% 27.62% 8.66% 85.85%
Net Assets at End of Year
($1,000's) $5,885 $5,136 $3,372 $2,159 $881 $423
</TABLE>
----------------------------------
* using average share basis
** Annualized
*** The total return calculation reflects dividend
reinvestment.
5
<PAGE>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FROM 2/7/91
(COMMENCEMENT OF
YEAR YEAR YEAR YEAR YEAR OPERATIONS)
ENDED ENDED ENDED ENDED ENDED THROUGH
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91*
----------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- ------
Income from Investment
Operations:
Investment income-net 0.05 0.05 0.03 0.03 0.04 0.03
----------- ----------- ----------- ----------- ----------- ------
Total from Investment
Operations 0.05 0.05 0.03 0.03 0.04 0.03
----------- ----------- ----------- ----------- ----------- ------
Distributions:
Distributions from investment
income-net (0.05) (0.05) (0.03) (0.03) (0.04) (0.03)
----------- ----------- ----------- ----------- ----------- ------
Total distributions (0.05) (0.05) (0.03) (0.03) (0.04) (0.03)
----------- ----------- ----------- ----------- ----------- ------
Net increase 0.00 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 $ 1.00
----------- ----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ----------- ------
TOTAL RETURN*** 5.19% 5.20% 3.27%+ 2.77% 3.73% 3.30%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses 0.50% 0.50% 0.42% 0.25% 0.44% 0.75%**
Investment income-net 5.06% 5.15% 3.18% 2.94% 3.68% 4.60%**
Decrease reflected in above
expense ratio due to expense
reimbursement 3.64% 3.72% 3.47% 4.39% 5.19% 1.95%**
Net Assets at End of Year
($1,000's) $1,463 $1,207 $1,112 $1,466 $664 $857
</TABLE>
----------------------------------
* 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%.
6
<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 $2,500 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."
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
7
<PAGE>
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.
Under normal circumstances, the Core Equity Fund
expects to be as fully invested as practicable in equity-based
securities, primarily common stocks, including American
Depository Receipts -- ADRs (U.S. traded dollar-denominated
securities that represent an interest in the share of a
foreign company) 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).
8
<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;
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.
Under normal circumstances, the Fund expects to be as
fully invested as practicable in equity-based securities,
primarily common stock, including American Depository Receipts
-- ADRs (U.S. traded dollar-denominated securities that
represent an interest in the share of a foreign company) 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
9
<PAGE>
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, including American Depository Receipts -- ADRs (U.S.
traded dollar-denominated securities that represent an
interest in the share of a foreign company) and will be at
least 65% so invested. Equity-based securities may include
securities convertible into common stocks and warrants to
purchase common stocks.
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.
10
<PAGE>
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 into common stocks
and warrants to purchase common stocks), but the Fund may have
up to 10% 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
11
<PAGE>
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.
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;
12
<PAGE>
(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.
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.
Non-income producing securities to be held in the
Actively Managed 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.) 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"), real estate mortgage investment
conduits ("REMICs") 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.
13
<PAGE>
REMICs are offerings of multiple class real estate
mortgage-backed securities which qualify and elect treatment
as such under provisions of the Internal Revenue Code of 1986,
as amended ("Code"). Issuers of REMICs may take several forms,
such as trusts, partnerships, corporations, associations or a
segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is
taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates,
and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be
in assets directly or indirectly secured principally by real
property.
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 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
14
<PAGE>
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.) 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.
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From time to time the Fund may invest in collateralized
mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") 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.
REMICs are offerings of multiple class real estate
mortgage-backed securities which qualify and elect treatment
as such under provisions of the Code. Issuers of REMICs may
take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of mortgages.
Once REMIC status is elected and obtained, the entity is not
subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who
hold interests in the REMIC. A REMIC interest must consist of
one or more classes of "regular interests," some of which may
offer adjustable rates, and a single class of "residual
interests." To qualify as a REMIC, substantially all of the
assets of the entity must be in assets directly or indirectly
secured principally by real property.
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
The Intermediate-Term Fixed-Income Fund is co-managed
by Herbert Kuhl, Jr. and Deborah A. Modzelewski, Vice
President of Retirement System Investors Inc. ("Investors"),
who each play an important 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. Kuhl, Jr. has been co-manager of the
Investment Fund since its May 1991 inception, except during a
period of retirement between November 1995 and March 1996. Ms.
Modzelewski has been a co-manager since November 1995. Mr.
Kuhl, Jr. joined Retirement System for Savings Institutions
(predecessor to Investors) in April, 1986, with over 20 years
of experience in managing credit research and fixed-income
investments. Prior thereto, he was an investment officer at
Savings Bank Trust Company, with responsibility for managing
various banks' fixed-income investments. He is a graduate of
Rhode Island University with a Bachelor of Science degree in
Industrial Engineering and received a Master of Science degree
in Finance
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from Columbia University. Mr. Kuhl, Jr. 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 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.
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).
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.
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<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
Growth Equity and Value Equity Funds may each invest up to 20%
of their total assets in foreign securities, while the
Actively Managed Fixed-Income, Intermediate-Term Fixed-Income
and Money Market Funds are limited to 10%. 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.
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.
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<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 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.
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<PAGE>
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.
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."
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<PAGE>
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, 1995 and September 30, 1996, the portfolio
turnover rate for the Core Equity Fund was 25.49% and 18.08%,
respectively, the Emerging Growth Equity Fund was 84.05% and
77.94%, respectively, and the Intermediate-Term Fixed-Income
Fund was 8.50% and 39.69%, respectively. The Fund anticipates
that the annual portfolio turnover rate of each of the Value
Equity Fund and International Equity 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, 1997.
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
institution's 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. The minimum initial
investment is
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<PAGE>
$2,500 and the minimum subsequent investment in the Fund is
$250, except as provided below for "Periodic Purchases" and
"Payroll Deductions." 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. Otherwise, such purchase
order will be based on the next determined net asset value.
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.
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 if their employer has made
arrangements with the Distributor. Employers who have made
payroll deduction arrangements available will 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.
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<PAGE>
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.
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 if the redemption exceeds
$25,000. 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.
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.
25
<PAGE>
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.
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 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,
regardless of how long a shareholder has held such shares. 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.
26
<PAGE>
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. Shareholders will be
advised annually of the federal income tax status of
distributions made during the year.
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 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.
The Fund may be required to withhold and remit to the
U.S. Treasury, 31% of any taxable dividends, capital gain
distributions and redemption proceeds paid to any individual
or certain other non-corporate shareholder (1) who has failed
to provide a correct taxpayer identification number (generally
an individual's social security number or non-individual's
employer identification number) on the purchase application,
(2) who is subject to backup withholding by the Internal
Revenue Service, or (3) who has not certified to the Fund that
such shareholder is not subject to backup withholding. This
backup withholding is not an additional tax, and any amounts
withheld may be credited against the shareholder's ultimate
U.S. tax liability.
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.
27
<PAGE>
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.
The Board of Directors of the Fund met and unanimously
approved a proposed tax free reorganization (the
"Reorganization") between the Fund and The Enterprise Group of
Funds, Inc. ("Enterprise"). As a result of the Reorganization,
the Fund will transfer the assets of its portfolios to
corresponding Enterprise portfolios in return for assumption
by each such Enterprise portfolio of the stated liabilities of
the corresponding Fund portfolio and issuance of shares of the
Enterprise portfolio. The portfolios of the Fund will then
distribute the Enterprise shares received. A Special Meeting
of shareholders will be called so that they will have an
opportunity to vote upon the proposed reorganization.
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 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, 1996, the Investment Advisor managed
assets of $558,252,410.
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.
28
<PAGE>
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.
<TABLE>
<CAPTION>
FEE (% OF
INVESTMENT FUND AVERAGE NET ASSETS)
- -------------------------------------------------------- ---------------------
<S> <C>
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
</TABLE>
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 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,
1996, the Investment Advisor waived all fees due it under its
investment advisory agreement with the Fund. In
29
<PAGE>
addition, the Investment Advisor together with the Distributor
and Service Company reimbursed expenses in the amount of
$75,067, $56,361 and $47,155, respectively, for the foregoing
three Investment Funds, and $64,413 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, 1996, 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.
<TABLE>
<S> <C>
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 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%)
</TABLE>
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
30
<PAGE>
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, 1996, the Investment Advisor
paid Putnam a fee equal to 1% of the Emerging Growth Equity
Fund average asset value.
Putnam has resigned as investment manager to the
Emerging Growth Equity Fund effective March 31, 1997. The
Board of Directors of the Fund has not finalized the selection
of a successor investment manager.
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.
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, 1996, the Distributor received from the Fund
(net of fee waivers) a fee equal to .20% of average daily net
assets.
31
<PAGE>
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."
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:
<TABLE>
<CAPTION>
FEE (% OF AVERAGE
NET ASSETS OF INVESTMENT FUND DAILY NET ASSETS)
- --------------------------------------------------- --------------------
<S> <C>
First $25 million.................................. .60%
Next $25 million................................... .50%
Next $25 million................................... .40%
Next $25 million................................... .30%
Over $100 Million.................................. .20%
</TABLE>
The Service Company has agreed to waive payment of its
fee and to reimburse the Fund during the fiscal year ended
September 30, 1997 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, 1996, 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 $75,067, $64,413, $56,361 and
$47,155, 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.
32
<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, 1996 are as follows: ALBANK, FSB, 10 North Pearl
Street, Albany, New York 12207, 27.05%. ALBANK, FSB has voting
power with respect to such shares. Consequently, under the
Investment Company Act of 1940, the shareholder may be deemed
to be a controlling person of the Fund. 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.
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.
33
<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.
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 foreseeable 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.
34
<PAGE>
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 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.
35
<PAGE>
PROSPECTUS
Core Equity Fund
Emerging Growth Equity Fund
Value Equity Fund*
International Equity Fund*
Actively Managed Fixed-Income Fund*
Intermediate-Term Fixed-Income Fund
Money Market Fund
January 28, 1997
1997
BROKER/DEALER
[logo]
RETIREMENT SYSTEM
Distributors Inc.
P.O. Box 2064
Grand Central Station
New York, NY 10163-2064
1-800-772-3615
*not yet available for sale to investors
<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 28, 1997. 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 28, 1997
TABLE OF CONTENTS
Page
----
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Information About Investment Policies and Restrictions. . . . 2
Federal Tax Treatment of Dividends and Distributions . . . . . . . . . . 14
Miscellaneous Considerations . . . . . . . . . . . . . . . . . . . . . . 18
Valuation of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . 22
Administration of the Fund . . . . . . . . . . . . . . . . . . . . . . . 26
Advisory and Other Services. . . . . . . . . . . . . . . . . . . . . . . 31
Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 33
Brokerage Allocation and Portfolio Turnover. . . . . . . . . . . . . . . 34
Description of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Counsel and Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Control Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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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 its repurchase obligation. In the event of a
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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.
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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
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,
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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
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
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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
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
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(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.
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
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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.
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.
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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 contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the
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):
(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
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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,
options premium 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.
Holders and writers of futures positions and options on futures
positions can enter into offsetting closing transactions, 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.
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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 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
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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.
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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
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securities of issuers which invest in real estate or engage in
real estate operations;
(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 be 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
14
<PAGE>
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
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.
15
<PAGE>
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.
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
16
<PAGE>
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.
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 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."
17
<PAGE>
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.
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.
18
<PAGE>
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.
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.
19
<PAGE>
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.
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.
20
<PAGE>
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.
21
<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 accounts 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, 1996, the yield and
compound yield for the Money Market Fund were 4.77% and 4.88%, 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:
22
<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.
23
<PAGE>
For the 30 day period ended September 30, 1996, the yield for the Core
Equity Fund was 1.26%, the Emerging Growth Fund was -0.81% and the Intermediate-
Term Fixed-Income Fund was 5.06%.
TOTAL RETURN
Average annual total return quotes ("Standardized Return") used in a
Fund's performance are calculated according to the following formula:
n
P(1 + T) = 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, 1996, 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:
24
<PAGE>
Ending Redeemable
Investment Fund Value of
Return* $1,000 Investment* Total
- --------------- ------------------ ------
Core Equity Fund $1,222.06 22.21%
Emerging Growth Equity Fund $1,420.74 42.07%
Intermediate-Term Fixed-Income Fund $1,038.18 3.82%
Money Market Fund $1,051.93 5.19%
* Assumes the reinvestment of all dividends and distributions.
Calculated according to the SEC rules for the 5-year period ended
September 30, 1996, 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:
Average
Investment Fund Ending Redeemable Value Annual
Return* of $1,000 Investment* Total
- --------------- ----------------------- -----
Core Equity Fund $2,292.55 18.05%
Emerging Growth Equity Fund $3,476.68 28.30%
Intermediate-Term Fixed-Income Fund $1,363.70 6.40%
Money Market Fund $1,217.28 4.01%
* 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, 1996, 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:
Ending Redeemable Average
Investment Fund Value of Annual
Return* $1,000 Investment* Total
- --------------- ------------------ -------------
Core Equity Fund (5/10/91) $2,395.71 17.80%
Emerging Growth Equity Fund (5/10/91) $3,664.42 27.57%
Intermediate-Term
Fixed-Income Fund (5/10/91) $1,453.47 7.26%
Money Market Fund (2/7/91) $1,257.47 4.19%
* 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
25
<PAGE>
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 not an officer of the
Fund, a Director of Retirement System Group Inc., or a Trustee of RSI
Retirement Trust.
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, 1996, the
foregoing persons accrued total fees and expenses of $36,399.
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.
26
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITIONS FOR LAST FIVE YEARS AND
NAME AGE WITH FUND AFFILIATION WITH FUND
---- --- --------- ---------------------
<S> <C> <C> <C>
William Dannecker* 57 President and Director President and Chief Executive Officer of 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; Director of RSG
Insurance Agency Inc. since March 1996; President of
RSI Retirement Trust since May 1986.
Edward J. Brown* 64 Director 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.
Candace Cox 45 Director President and Chief Investment Officer, NYNEX Asset
Management Company, New York, New York; since
November 1995, Vice President, Public Markets
Strategy, 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. Also Trustee of RSI Retirement Trust.
27
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITIONS FOR LAST FIVE YEARS AND
NAME AGE WITH FUND AFFILIATION WITH FUND
---- --- --------- ---------------------
<S> <C> <C> <C>
Eugene.C. Ecker 72 Director Consultant since January 1988, Pension and Group
Insurance. Also Trustee of RSI Retirement Trust.
Joseph P. Gemmell* 61 Director 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 League of Community and Savings
Banks, Middlesex County College Foundation,
Middlesex County Blue Badge Association #1, Garden
State Hospitalization Plan, Federal Reserve Bank of
New York Thrift Advisory Board, New Jersey Chairman
of Conference of State Bank Supervisors, and Vice
Chairman, Woodbridge Economic Development Corp.
Covington Hardee 77 Director Chairman of the Board Emeritus from 1984 to April
1990, The Lincoln Savings Bank, FSB, New York, NY.
Also Trustee of RSI Retirement Trust.
Raymond L. Willis 61 Director Private investments since March 1989. Also Trustee
of RSI Retirement Trust.
28
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITIONS FOR LAST FIVE YEARS AND
NAME AGE WITH FUND AFFILIATION WITH FUND
---- --- --------- ---------------------
<S> <C> <C> <C>
James P. Coughlin* 60 Executive Vice President Executive Vice President of Retirement 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* 51 Executive Vice President Counsel and Secretary Executive Vice President, Counsel and Secretary of
Retirement System Group Inc. since January 1993;
Senior Vice President, Counsel and Secretary from
January 1990 through December 1992 and Director
since March 1989; President and Director of RSG
Insurance Agency Inc. since March 1996; 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.
29
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITIONS FOR LAST FIVE YEARS AND
NAME AGE WITH FUND AFFILIATION WITH FUND
---- --- --------- ---------------------
<S> <C> <C> <C>
John F. Meuser* 61 Vice President and Treasurer Senior Vice President of Retirement System Group
Inc. since January 1996, 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.
</TABLE>
The Directors of the Fund received the compensation shown below for
services to the Fund during the fiscal year ended September 30, 1996. Fund
officers received no compensation from the Fund during the fiscal year ended
September 30, 1996. The Fund Complex consists of the Fund and another mutual
fund advised by the Investment Advisor.
AGGREGATE PENSION OR
COMPENSATION RETIREMENT
AGGREGATE FROM THE FUND BENEFITS ACCRUED
COMPENSATION AND THE AS PART OF FUND
NAME OF TRUSTEE FROM THE FUND COMPLEX FUND EXPENSES
- --------------- ------------- ------------ ----------------
William Dannecker $- 0 - $- 0 - $- 0 -
Edward J. Brown 6,450.00 6,450.00 - 0 -
Candace Cox 4,800.00 20,475.00* - 0 -
Eugene C. Ecker 2,400.00 15,125.00* - 0 -
Joseph P. Gemmell 7,650.00 7,650.00 - 0 -
Covington Hardee 4,800.00 19,875.00* - 0 -
Raymond L. Willis 5,000.00 24,375.00* - 0 -
- -------------
* Ms. Cox and Messrs. Ecker, Hardee and Willis receive compensation for
services to the Fund and one other mutual fund.
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
30
<PAGE>
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, the Distributor and RSG Insurance Agency Inc., 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.
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,
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 year ended September 30, 1996, the Investment
Advisor received fees (net of fee waivers) of $0, $0, $39,330 and $0,
respectively, and waived fees of $3,245, $41,833, $0 and $22,308, respectively
For the fiscal years ended September 30, 1994, September 30, 1995, and
September 30, 1996, the Investment Advisor paid all of the fees it received for
advisory services for the Emerging Growth Equity Fund to the Putnam
31
<PAGE>
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
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, 1994, September 30, 1995, and
September 30, 1996, 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, 1994, such reimbursement for the
Core Equity Fund,
32
<PAGE>
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.
For the period ended September 30, 1996, such reimbursement for the Core
Equity Fund, Emerging Growth Equity Fund, Intermediate-Term Fixed-Income Fund
and Money Market Fund was $75,067, $64,413, $56,361 and $47,155,
respectively. See "Fee Table" in the Prospectus for additional information
with respect to fee waivers.
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, 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. For the fiscal year ended September 30, 1996, the Distributor
received from the Fund aggregate fees and commissions of $2,596, $13,944,
$8,041 and $11,154, respectively and waived fees of $649, $3,486, $2,010 and
$2,789. From the fees it received during such periods, the Distributor paid
no fees or commissions either to its representatives or to outside
broker-dealers. Registered Representatives employed by the Distributor
received commissions of $639.
33
<PAGE>
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 25, 1996.
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
34
<PAGE>
circumstances where, in their opinion, better prices and executions may be
available elsewhere.
During the fiscal years ended September 30, 1995 and September 30,
1996, 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, 1996, the Core Equity Fund held a 5.60% repurchase agreement
issued by Bear, Stearns & Co. Inc. valued at $340,000, the Emerging Growth
Equity Fund held a 5.60% repurchase agreement issued by Bear, Stearns & Co.
Inc. valued at $242,494, and the Intermediate-Term Fixed-Income Fund held a
5.60% repurchase agreement issued by Bear, Stearns & Co. Inc. valued at
$47,022. Bear, Stearns & Co. Inc. is a "regular broker or dealer" of the Fund.
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%
35
<PAGE>
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 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).
36
<PAGE>
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, 1996.
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, 1996 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:
<TABLE>
<CAPTION>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record of Record and Shares Owned Owned of
Beneficial Owner and Beneficially Beneficially of Record Only Record Only
- ---------------- ---------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Core Equity Fund
- ----------------
IBJ Schroder as Trustee for -- -- 191,529 37.5%
various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 62,679 12.3%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
The Dime Savings Bank 30,105 5.9% -- --
of Williamsburgh
209 Havemeyer Street
Brooklyn, NY 11211
Independence Savings Bank 27,399 5.4% -- --
195 Montague Street
Brooklyn, NY 11201
ALBANK, FSB 102,492 20.01% -- --
10 North
Pearl Street
Albany, NY 12207
37
<PAGE>
<CAPTION>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record of Record and Shares Owned Owned of
Beneficial Owner and Beneficially Beneficially of Record Only Record Only
- ---------------- ---------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
First Union National 136,331 26.7%* -- --
Bank
301 South College Street
Charlotte, NC 28288
Flushing Savings Bank 43,155 8.4% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Emerging Growth Equity Fund
- ---------------------------
IBJ Schroder as Trustee for -- -- 112,952 28.1%
various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 41,563 10.4%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 46,225 11.5% -- --
10 North
Pearl Street
Albany, NY 12207
Flushing Savings Bank 25,761 6.4% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Raritan Savings Bank 21,391 5.3% -- --
9 West Somerset Street
Raritan, NJ 08869-0129
Independence Savings Bank 23,222 5.8% -- --
195 Montague Street
Brooklyn, NY 11201
First Union National Bank 27,068 6.7% -- --
301 South College Street
Charlotte, NC 28288
* Total ownership is less than 25% of total Fund assets.
38
<PAGE>
<CAPTION>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record of Record and Shares Owned Owned of
Beneficial Owner and Beneficially Beneficially of Record Only Record Only
- ---------------- ---------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Ridgewood Savings Bank 42,981 10.7% -- --
Myrtle & Forest Avenues
Ridgewood, New York 11385
Intermediate-Term Fixed-Income Fund
- -----------------------------------
IBJ Schroder as Trustee -- -- 196,359 31.9%
for various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 83,762 13.6%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 58,797 9.5% -- --
10 North
Pearl Street
Albany, NY 12207
First Union National Bank 75,689 12.3% -- --
301 South College Street
Charlotte, NC 28288
Flushing Savings Bank 49,677 8.1% -- --
144-51 Northern Boulevard
Flushing, NY 11354
39
<PAGE>
<CAPTION>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record of Record and Shares Owned Owned of
Beneficial Owner and Beneficially Beneficially of Record Only Record Only
- ---------------- ---------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Institutional Securities Corp. 128,900 20.9% -- --
200 Park Avenue -
6th Floor West
New York, New York 10166
The Dime Savings Bank 43,132 7.0% -- --
of Williamsburg
209 Havemeyer Street
Brooklyn, NY 11211
The Roslyn Savings Bank 57,477 9.3% -- --
1400 Old Northern Boulevard
Roslyn, NY 11576
Money Market Fund
- -----------------
IBJ Schroder as Trustee -- -- 714,638 42.8%
for various accounts
One State Street
New York, NY 10004
Marine Midland as Trustee -- -- 284,954 17.1%
for various accounts
P.O. Box 1329
Buffalo, NY 14240
Beneficial Owners:
ALBANK, FSB 657,633 39.4%* -- --
10 North
Pearl Street
Albany, NY 12207
Marianne C. Hansen 100,149 6.0% -- --
949 S. Ogden Street
Denver, CO 80209
- -------------------
* Total ownership is less than 25% of total Fund assets.
40
<PAGE>
<CAPTION>
Title of Fund and
Name and Address Number of Shares Percent Owned Number of Percent
of Record or owned of Record of Record and Shares Owned Owned of
Beneficial Owner and Beneficially Beneficially of Record Only Record Only
- ---------------- ---------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Flushing Savings Bank 135,478 8.1% -- --
144-51 Northern Boulevard
Flushing, NY 11354
Charter Trust Company 228,241 13.7% -- --
Trustee of Mid-Maine
Savings Bank
95 North Main Street
PO Box 1374
Concord, NH 03302
North Fork Bank 90,629 5.4% -- --
275 Broad Hollow Road
Melville, NY 11747
Poughkeepsie Savings Bank 149,476 9.0% -- --
249 Main Mall
Poughkeepsie, NY 12602
</TABLE>
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, 1996.
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 must accompany this
Statement of Additional Information.
41
<PAGE>
PART C
RETIREMENT SYSTEM FUND INC.
OTHER INFORMATION
JANUARY 28, 1997
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, 1996
(2) Incorporated by reference to Part B of the Registration
Statement as filed with the Securities and Exchange Commission
on Form N-30D via Edgar (accession No. 0000912057-96-027652) on
November 25, 1996:
- Core Equity Fund
Statement of Investments as of September 30, 1996
Statement of Assets and Liabilities as of September 30, 1996
Statement of Operations from October 1, 1995 through
September 30, 1996
Statement of Changes in Net Assets for the year ended
September 30, 1996 and for the year ended September 30,
1995.
- Emerging Growth Equity Fund
Statement of Investments as of September 30, 1996
Statement of Assets and Liabilities as of September 30, 1996
Statement of Operations from October 1, 1995 through
September 30, 1996
Statement of Changes in Net Assets for the year ended
September 30, 1996 and for the year ended September 30,
1995.
1
<PAGE>
- Intermediate-Term Fixed-Income Fund
Statement of Investments as of September 30, 1996
Statement of Assets and Liabilities as of September 30, 1996
Statement of Operations from October 1, 1995 through
September 30, 1996
Statement of Changes in Net Assets for the year ended
September 30, 1996 and for the year ended September 30,
1995.
- Money Market Fund
Statement of Investments as of September 30, 1996
Statement of Assets and Liabilities as of September 30, 1996
Statement of Operations from October 1, 1995 through
September 30, 1996
Statement of Changes in Net Assets for the year ended
September 30, 1996 and for the year ended September 30,
1995.
- 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.
2
<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.
3
<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)***** 1996 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.
***** Incorporated, herein by reference to Form N-30D as filed with the
Securites and Exchange Commission on Form N-30D via Edgar (accession No.
0000912057-96-027652) on November 26, 1996.
4
<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, 1996:
Name of Investment Fund Number of Record Holders
Core Equity Fund 215
Emerging Growth Equity Fund 513
Intermediate-Term Fixed-Income Fund 79
Money Market Fund 46
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
5
<PAGE>
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.
6
<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
Name and Principal Offices with Other Business, 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
-Director
RSG Insurance Agency Inc.
317 Madison Avenue
New York, NY 10017
7
<PAGE>
Position
Name and Principal Offices with Other Business, Profession,
Business Address Investment Adviser Vocation, Employment
- ------------------ ------------------ ---------------------------
William Dannecker -President and Trustee
(Cont'd) RSI Retirement Trust
317 Madison Avenue
New York, NY 10017
-President and Director
Retirement System Fund Inc.
317 Madison Avenue
New York, NY 10017
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 President, -Executive Vice President, Counsel,
Secretary and Secretary and Director
Director Retirement System Group Inc.
317 Madison Avenue
New York, NY 10017
8
<PAGE>
Position
Name and Principal Offices with Other Business, Profession,
Business Address Investment Adviser Vocation, Employment
- ------------------ ------------------ ---------------------------
Stephen P. Pollak -President and Director
(Cont'd) RSG Insurance Agency Inc.
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 -Vice President and
Treasurer
Retirement System Group Inc.
317 Madison Avenue
New York, NY 10017
9
<PAGE>
Position
Name and Principal Offices with Other Business, Profession,
Business Address Investment Adviser Vocation, Employment
- ------------------ ------------------ ---------------------------
Veronica A. Fisher -Treasurer
(Cont'd) Retirement System
Consultant Inc.
317 Madison Avenue
New York, NY 10017
-Treasurer
Retirement System
Distributors Inc.
317 Madison Avenue
New York, NY 10017
-Treasurer
RSG Insurance Agency 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
10
<PAGE>
THE PUTNAM ADVISORY COMPANY, INC.
One Post Office Square
Boston, Massachuestts 02109
- ---------------------------------
Position
Name and Principal Offices with Other Business, Profession,
Business Address Investment Adviser Vocation, Employment
- ------------------ ------------------ ---------------------------
Lawrence J. Lasser Director and
President -President, Chief Executive
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, NY 10036
-Trustee and Vice President
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
-Board Member
Artery Business Committee
One Beacon Street
Boston, Massachusetts 02108
-Board of Managers
Investment and Finance Committees
Beth Israel Hospital
330 Brookline Avenue
Boston, Massachusetts 02215
-Board of Governors
Executive Committee
Investment Company Institute
1401 H St., N.W., Suite 1200
Washington, D.C. 20005
11
<PAGE>
Position
Name and Principal Offices with Other Business, Profession,
Business Address Investment Adviser Vocation, Employment
- ------------------ ------------------ ---------------------------
-Board of Overseers
Museum of Fine Arts
465 Huntington Avenue
Boston, Massachusetts 02115
-Board Member
Trust For City Hall Plaza
Three Center Plaza
Boston, Massachusetts 02108
-The Vault Coordinating Committee
c/o John Hancock Mutual
Life Insurance Company
Law Sector, T-55
P.O. Box 111
Boston, Massachusetts 02117
Steven Spiegel Director and Senior
Managing Director -Director and Senior Managing
Director
Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109
-Managing Director
Lehman Brothers, Inc.
World Financial Center
New York, NY 10285 from 1977
to 1994
12
<PAGE>
Position
Name and Principal Offices with Other Business, Profession,
Business Address Investment Adviser Vocation, Employment
- ------------------ ------------------ ---------------------------
Thomas J. Lucey Director and Senior -Senior Managing Director and
Managing Director Chief of Institutional Business
Putnam Investments, Inc.
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
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
13
<PAGE>
(b)
Position and
Name and Principal Position and Offices with Offices with
Business Address* Principal Underwriter Registrant
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.
- ---------------
* 317 Madison Avenue, New York, NY 10017
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).
(3) Retirement System Investors Inc., 317 Madison Avenue, New York,
New York 10017-5397 (records relating to its functions as investment adviser).
14
<PAGE>
(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 1996 Annual Report to shareholders is
available upon request by contacting the Registrant at 317
Madison Avenue, New York, New York, or by calling (800) 772-3615
15
<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
23rd day of January, 1997.
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 23, 1997
- --------------------- and President ----------------
William Dannecker Date
/s/ John F. Meuser Treasurer January 23, 1997
- ------------------ Chief ----------------
John F. Meuser Financial Date
Officer
/s/ Edward J. Brown Director January 23, 1997
- ------------------- ----------------
Edward J. Brown Date
/s/ Candace Cox Director January 23, 1997
- --------------- ----------------
Candace Cox Date
/s/ Eugene C. Ecker Director January 23, 1997
- ------------------- ----------------
Eugene C. Ecker Date
/s/ Joseph P. Gemmell Director January 23, 1997
- --------------------- ----------------
Joseph P. Gemmell Date
/s/ Covington Hardee Director January 23, 1997
- -------------------- ----------------
Covington Hardee Date
/s/ Raymond L. Willis Director January 23, 1997
- --------------------- ----------------
Raymond L. Willis Date
16
<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.
17
<PAGE>
Exhibit
(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.
(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.
18
<PAGE>
Exhibit
(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.
(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.
(12) 1996 Annual Report to Shareholders, including report of
Independent Auditors, is incorporated herein by reference
to Form N-30D as filed with the Securities and Exchange
Commission via Edgar (accession No. 0000912057-96-027652)
on November 26, 1996.
(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.
19
<PAGE>
[LOGO]
555 Fifth Avenue
New York, NY 10017
McGLADREY & PULLEN, LLP
--------------------------------------------
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated November 15, 1996, on
the financial statements referred to therein, in Post-Effective Amendment No. 8
to the Registration Statement on Form N-1A File No. 33-37963 of Retirement
System Fund Inc. as filed with the Securities and Exchange Commission.
We also consent to the reference to our Firm in the Statement of
Additional Information under the caption "Counsel and Auditors" and in the
Prospectus under the captions "Financial Highlights" and "Counsel and Auditors."
/s/McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
January 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND IN THE COMPANY'S ANNUAL REPORT, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> CORE EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 5310892
<INVESTMENTS-AT-VALUE> 8118092
<RECEIVABLES> 32990
<ASSETS-OTHER> 828960
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8980042
<PAYABLE-FOR-SECURITIES> 71536
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43490
<TOTAL-LIABILITIES> 115026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5675248
<SHARES-COMMON-STOCK> 440844
<SHARES-COMMON-PRIOR> 338972
<ACCUMULATED-NII-CURRENT> 44834
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 337734
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2807200
<NET-ASSETS> 8865016
<DIVIDEND-INCOME> 114807
<INTEREST-INCOME> 38808
<OTHER-INCOME> 0
<EXPENSES-NET> 67762
<NET-INVESTMENT-INCOME> 85853
<REALIZED-GAINS-CURRENT> 364855
<APPREC-INCREASE-CURRENT> 980258
<NET-CHANGE-FROM-OPS> 1430966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 86059
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 138929
<NUMBER-OF-SHARES-REDEEMED> 42161
<SHARES-REINVESTED> 5104
<NET-CHANGE-IN-ASSETS> 3207578
<ACCUMULATED-NII-PRIOR> 45040
<ACCUMULATED-GAINS-PRIOR> 1799821
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41833
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 142829
<AVERAGE-NET-ASSETS> 6973618
<PER-SHARE-NAV-BEGIN> 16.69
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 3.45
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.11
<EXPENSE-RATIO> 0.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND IN THE COMPANY'S ANNUAL REPORT, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> EMERGING GROWTH EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 4699341
<INVESTMENTS-AT-VALUE> 6513704
<RECEIVABLES> 172870
<ASSETS-OTHER> 13956
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6700530
<PAYABLE-FOR-SECURITIES> 59900
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31736
<TOTAL-LIABILITIES> 91636
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4187065
<SHARES-COMMON-STOCK> 263504
<SHARES-COMMON-PRIOR> 154859
<ACCUMULATED-NII-CURRENT> (61578)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 669044
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1814363
<NET-ASSETS> 6608894
<DIVIDEND-INCOME> 3307
<INTEREST-INCOME> 19772
<OTHER-INCOME> 0
<EXPENSES-NET> 84657
<NET-INVESTMENT-INCOME> (61578)
<REALIZED-GAINS-CURRENT> 697630
<APPREC-INCREASE-CURRENT> 926887
<NET-CHANGE-FROM-OPS> 1562939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 252458
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 125953
<NUMBER-OF-SHARES-REDEEMED> 31299
<SHARES-REINVESTED> 13991
<NET-CHANGE-IN-ASSETS> 3658428
<ACCUMULATED-NII-PRIOR> (24013)
<ACCUMULATED-GAINS-PRIOR> 1135361
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39330
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 149070
<AVERAGE-NET-ASSETS> 4321557
<PER-SHARE-NAV-BEGIN> 19.05
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> 7.62
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.08
<EXPENSE-RATIO> 0.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND IN THE COMPANY'S ANNUAL REPORT, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> INTERMEDIATE-TERM FIXED-INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 5966507
<INVESTMENTS-AT-VALUE> 5861575
<RECEIVABLES> 48186
<ASSETS-OTHER> 9404
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<TOTAL-ASSETS> 5919165
<PAYABLE-FOR-SECURITIES> 10347
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24228
<TOTAL-LIABILITIES> 34575
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5961225
<SHARES-COMMON-STOCK> 561002
<SHARES-COMMON-PRIOR> 475143
<ACCUMULATED-NII-CURRENT> 26214
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2083
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (104932)
<NET-ASSETS> 5884590
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 403284
<OTHER-INCOME> 0
<EXPENSES-NET> 53978
<NET-INVESTMENT-INCOME> 349306
<REALIZED-GAINS-CURRENT> 2356
<APPREC-INCREASE-CURRENT> (143605)
<NET-CHANGE-FROM-OPS> 208057
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 375199
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 131098
<NUMBER-OF-SHARES-REDEEMED> 82620
<SHARES-REINVESTED> 37381
<NET-CHANGE-IN-ASSETS> 748855
<ACCUMULATED-NII-PRIOR> 52107
<ACCUMULATED-GAINS-PRIOR> 38400
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22308
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 110339
<AVERAGE-NET-ASSETS> 5576083
<PER-SHARE-NAV-BEGIN> 10.81
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> (0.26)
<PER-SHARE-DIVIDEND> 0.72
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 0.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND IN THE COMPANY'S ANNUAL REPORT, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 1472345
<INVESTMENTS-AT-VALUE> 1472345
<RECEIVABLES> 16921
<ASSETS-OTHER> 8220
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1497486
<PAYABLE-FOR-SECURITIES> 9777
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24448
<TOTAL-LIABILITIES> 34225
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1434573
<SHARES-COMMON-STOCK> 1463276
<SHARES-COMMON-PRIOR> 1207382
<ACCUMULATED-NII-CURRENT> 28688
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1463261
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 72152
<OTHER-INCOME> 0
<EXPENSES-NET> 6491
<NET-INVESTMENT-INCOME> 65661
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 65661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 65661
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 560439
<NUMBER-OF-SHARES-REDEEMED> 369464
<SHARES-REINVESTED> 64916
<NET-CHANGE-IN-ASSETS> 255891
<ACCUMULATED-NII-PRIOR> 24931
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3245
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53646
<AVERAGE-NET-ASSETS> 1297256
<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>