As filed with the Securities and Exchange Commission on February 27, 1998
Registration No. 33-41245
811-6337
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES [X]
ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 12 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 17 [X]
(Check appropriate box or boxes)
ACCESSOR FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1420 Fifth Avenue
Suite 3130
Seattle, Washington 98101
(206) 224-7420
(Address, including zip code, and telephone number,
including area code, of Principal Executive Offices)
--------------------------------
J. ANTHONY WHATLEY III
1420 Fifth Avenue
Suite 3130
Seattle, Washington 98101
(Name and Address of Agent for Service)
--------------------------------
Copies of all communications, including all communications sent to the
agent for service, should be sent to:
BETH R. KRAMER, ESQ.
Mayer, Brown & Platt
1675 Broadway
New York, NY 10019
--------------------------------
Approximate date of proposed public offering: As soon as practicable after the
effective date of the registration statement. It is proposed that this filing
will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[_] on pursuant to paragraph (b)
[X] 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.
<PAGE>
Registrant has elected, pursuant to Rule 24f-2 under the Investment Company Act
of 1940, to register an indefinite number of shares by this Registration
Statement. Registrant filed the Rule 24f-2 notice for its fiscal year ended
December 31, 1996 on February 28, 1997.
<PAGE>
ACCESSOR FUNDS, INC.
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
- ---- -------- --------
Part A
<S> <C> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Information Summary - Financial Highlights
Item 4. General Description of Registrant Additional Information; Description
of the Portfolios
Item 5. Management of the Fund General Management of the
Portfolios; The Money Managers;
Money Manager Profiles;
Additional Information; Expenses of
the Portfolios
Item 5A. Management's Discussion of Fund Annual Report for the Fiscal Year
Performance Ended December 31, 1996
Item 6. Capital Stock and Other Securities Additional Information; Dividends
and Distributions; Taxes
Item 7. Purchase of Securities Being Offered Purchase of Portfolio Shares
Item 8. Redemption or Repurchase Redemption of Portfolio Shares
Item 9. Legal Proceedings Not Applicable
-1-
<PAGE>
Part B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information and History
Item 13. Investment Objectives and Policies Investment Restrictions, Policies
and Risk Considerations
Item 14. Management of the Registrant Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities Control Persons and Principal
Holders of Securities
Item 16. Investment Advisory and Other Investment Advisory and Other
Services Services; Money Managers
Item 17. Brokerage Allocation Portfolio Transaction Policies
Item 18. Capital Stock and Other Securities General Information and History
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Valuation of Portfolio Shares
Item 20. Tax Status Taxes
Item 21. Underwriters Plan of Distribution
Item 22. Calculations of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
-2-
<PAGE>
- --------------------------------------------------------------------------------
ACCESSOR7 FUNDS, INC. 1420 Fifth Avenue
Suite 3130
EQUITY PORTFOLIOS, Advisor Class Shares Seattle, WA 98101
PROSPECTUS - April __, 1998 1-800-759-3504
- --------------------------------------------------------------------------------
New Account Information and Shareholder Services 206-224-7420
- --------------------------------------------------------------------------------
ACCESSOR(R) FUNDS, INC. (the "Fund"), is a multi-managed, no-load, open-end
management investment company, known as a mutual fund. The Fund currently
consists of eight diversified investment portfolios, each with its own
investment objective and policies. Each portfolio offers two classes of shares,
Institutional Class Shares and Advisor Class Shares. This Prospectus pertains
only to the Advisor Class Shares of the following four equity portfolios of the
Fund (individually, a "Portfolio" and collectively, the "Portfolios"):
GROWTH PORTFOLIO
VALUE AND INCOME PORTFOLIO
SMALL TO MID CAP PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
and sets forth concisely the information about the Portfolios that a prospective
investor should know before investing. Through a separate prospectus, the Fund
offers an additional class of shares, the Institutional Class Shares, for the
four equity portfolios. Through separate prospectuses, the Fund offers Advisor
Class Shares and Institutional Class Shares for the four fixed-income portfolios
of the Fund. See "Description of the Fund --Multiple Classes of Shares."
The Fund has filed a Statement of Additional Information, dated April 30, 1998,
with the Securities and Exchange Commission (the "SEC"). The Statement of
Additional Information, containing further information about the portfolios and
the Fund that may be of interest to investors, is incorporated herein by
reference in its entirety. A free copy may be obtained by writing or calling the
Fund at the address or phone number shown above. The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
INVESTMENTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK. FURTHER, INVESTMENTS IN THE PORTFOLIOS ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. AN INVESTMENT IN THE PORTFOLIOS ENTAILS RISK OF LOSS, INCLUDING
THE POSSIBLE LOSS OF THE PRINICIPAL AMOUNT INVESTED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH STATE.
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.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY...................................................................4
FEES AND PORTFOLIO EXPENSES...............................................6
PORTFOLIO MANAGEMENT......................................................9
DESCRIPTION OF THE PORTFOLIOS.............................................9
GENERAL...................................................................9
RISK FACTORS AND SPECIAL CONSIDERATIONS..................................10
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES............................10
INVESTMENT POLICIES......................................................12
INVESTMENT RESTRICTIONS..................................................19
GENERAL MANAGEMENT OF THE PORTFOLIOS.....................................19
THE MONEY MANAGERS.......................................................23
EXPENSES OF THE PORTFOLIOS...............................................26
PORTFOLIO TRANSACTION POLICIES...........................................27
DIVIDENDS AND DISTRIBUTIONS..............................................27
TAXES....................................................................28
[TAXES MUST BE UPDATED]..................................................28
CALCULATION OF PORTFOLIO PERFORMANCE.....................................29
VALUATION OF PORTFOLIO SHARES............................................31
PURCHASE OF PORTFOLIO SHARES.............................................33
REDEMPTION OF PORTFOLIO SHARES...........................................36
ADDITIONAL INFORMATION...................................................37
SERVICE PROVIDERS........................................................37
SIGNATURE GUARANTEES.....................................................38
ORGANIZATION, CAPITALIZATION AND VOTING..................................38
SHAREHOLDER INQUIRIES AND REPORTS TO SHAREHOLDERS........................39
GLASS-STEAGALL ACT.......................................................39
MONEY MANAGER PROFILES...................................................39
GROWTH PORTFOLIO.........................................................39
VALUE AND INCOME PORTFOLIO...............................................40
SMALL TO MID CAP PORTFOLIO...............................................40
INTERNATIONAL PORTFOLIO..................................................40
DESCRIPTION OF INDICES....................................................1
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX.........................1
S&P/BARRA GROWTH INDEX....................................................1
S&P/BARRA VALUE INDEX.....................................................1
WILSHIRE 4500 INDEX.......................................................2
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE + EMF INDEX.....................2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.
The Fund. The Fund is a multi-managed, no-load, open-end, management
investment company, known as a mutual fund. The Fund currently consists of eight
diversified investment portfolios, each with its own investment objective and
policies. Each portfolio offers two classes of shares, the Institutional Class
Shares and the Advisor Class Shares. This Prospectus pertains only to the
Advisor Class Shares of the Fund's Growth Portfolio, Value and Income Portfolio,
Small to Mid Cap Portfolio (collectively, the "Domestic Equity Portfolios") and
the International Equity Portfolio (the "International Portfolio"). See
"--Investment Objectives and Investment Policies " and "Multi-Class Structure."
Each Portfolio seeks to achieve its investment objective by using
investment policies and strategies which are distinct from investment policies
and strategies of other portfolios of the Fund. The investment objective and the
name of the investment management organization (individually, the "Money
Manager" and collectively, the "Money Managers") for each of the Portfolios are
described below:
GROWTH PORTFOLIO -- Geewax, Terker & Co(1)-- seeks capital growth through
investing primarily in equity securities with greater than average growth
characteristics selected from the 500 U.S. issuers which make up the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500").
VALUE AND INCOME PORTFOLIO -- Martingale Asset Management, L.P. -- seeks
generation of current income and capital growth by investing primarily in
income-producing equity securities selected from the 500 U.S. issuers which
make up the S&P 500.
SMALL TO MID CAP PORTFOLIO(1) --Symphony Asset Management, Inc. -- seeks capital
growth through investing primarily in equity securities of small to medium
capitalization issuers.
INTERNATIONAL EQUITY PORTFOLIO -- Nicholas-Applegate Capital Management -- seeks
capital growth by investing primarily in equity securities of companies
domiciled in countries other than the United States and traded on foreign
stock exchanges.
Management. Bennington Capital Management L.P., a Washington limited
partnership ("Bennington"), is the manager and administrator of the Fund
pursuant to its Management Agreement with the Fund. As such, Bennington provides
or oversees the provision of all general management, administration, investment
advisory and portfolio management services for the Fund. See "GENERAL MANAGEMENT
OF THE PORTFOLIOS".
Purchase and Redemption of Shares. Advisor Class Shares offered by this
Prospectus are purchased and redeemed by shareholders either directly from the
Portfolios, through various brokerage firms including Charles Schwab & Company,
Inc. Mutual Fund One Source tm program; Fidelity Brokerage Services, Inc.,
FundsNetworktm Program, Jack White & Company, Inc. and Waterhouse Securities,
Inc. or such other industry recognized service providers (collectively, the
"Fund Supermarkets") or through financial institutions, retirement plans,
broker-dealers, depository institutions, institutional shareholders of record,
registered investment advisers, and other financial intermediaries
(collectively, "Service Organizations") at net asset value next determined after
an order for purchase or redemption has been received, without any sales or
redemption charges.
- --------
(1) Formerly managed by State Street Bank and Trust Company. See Statement of
Additional Information for more detailed information.
(2) Formerly the "Small Cap Portfolio." See Statement of Additional Information
for more detailed information.
<PAGE>
The minimum investment for Advisor Class Shares of the Portfolios is $5,000. See
"PURCHASE OF PORTFOLIO SHARES" and "REDEMPTION OF PORTFOLIO SHARES".
Risk Factors and Special Considerations. The Fund is designed to
provide diverse opportunities in equity and debt securities. There can be no
assurance that the investment objective for any Portfolio will be achieved. See
"DESCRIPTION OF THE PORTFOLIO -- Risk Factors and Special Considerations".
Investing in a mutual fund that purchases securities of companies and
governments of foreign countries, particularly developing countries, involves
risks that go beyond the usual risks inherent in a mutual fund limiting its
holdings to domestic investments. Up to 20% of the net assets of the Growth,
Value and Income and Small to Mid Cap Portfolios and up to 100% of the net
assets of the International Portfolio may be held in securities denominated in
one or more foreign currencies, which will result in that Portfolio bearing the
risk that those currencies may lose value in relation to the U.S. dollar.
Certain Portfolios also may be subject to certain risks in using investment
techniques and strategies such as entering into forward currency contracts and
repurchase agreements and trading futures contracts and options on futures
contracts. In particular, emerging markets are associated with substantial
investment risks. These risks include market volatility, investment illiquidity,
currency risk, political instability and unexpected changes in economic policy
including capital controls, expropriation, taxes and hyper-inflation. Emerging
markets may exhibit substantially greater volatility than the U.S. and more
developed foreign markets. See "DESCRIPTION OF THE PORTFOLIOS -- and Investment
Policies", Investment Policies--Risks of Investing in Foreign Securities.
Special Risks of Investing in Foreign Securities of Emerging Countries and
"Investment Restrictions; Policies and Risk Considerations--Investment Policies
and Restrictions in the Statement of Additional Information.***
Dividends and Distributions. Each Portfolio intends to distribute at
least annually to its shareholders substantially all of its net investment
income and its net realized long- and short-term capital gains. Dividends from
the net investment income of the Domestic Equity Portfolios will be declared and
paid quarterly. Dividends from the net investment income of the International
Portfolio will be declared and paid annually. See "DIVIDENDS AND DISTRIBUTIONS".
Taxation. Each Portfolio has elected to qualify and intends to remain
qualified as a regulated investment company for federal income tax purposes. As
such, the Fund anticipates that no Portfolio will be subject to federal income
tax on income and gains that are distributed to shareholders. See "TAXES."
Service Providers.
Bennington is the manager and administrator of the Fund, as described
above. Bennington provides or oversees the provision of all general management,
administration, investment advisory and portfolio management services for the
Fund. Bennington provides transfer agent, registrar, dividend disbursing agent,
recordkeeping, administrative and compliance services to the Fund, pursuant to
its Transfer Agency and Administrative Agreement (the "Transfer Agent
Agreement") with the Fund.
The Fifth Third Bank, an Ohio banking corporation ("Fifth Third"), acts
as custodian (the "Custodian") of the Portfolios' assets, including accounts
established under the Fund's Individual Retirement Custodial Account Plan ("IRA
Accounts"). Fifth Third may employ sub-custodians outside the United States
which have been approved by the Fund's Board of Directors (the "Board of
Directors"). Fifth Third also performs accounting, recordkeeping, and other
services for the Fund (the "Fund Accounting Agent").
Deloitte & Touche LLP are the Fund's independent auditors.
Mayer, Brown & Platt serves as the Fund's outside legal counsel. See
"ADDITIONAL INFORMATION--Service Providers."
<PAGE>
FEES AND PORTFOLIO EXPENSES
The following table lists the fees and expenses that an investor should
expect to incur as a shareholder of Advisor Class Shares of each of the
Portfolios based on projected annual operating expenses.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION Portfolios(b)
EXPENSES(a)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Small to
Growth and Income Mid Cap International
------ ---------- ------- -------------
Sales Load on Purchases None None None None
Sales Load on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees/Exchange Fees(c) None None None None
</TABLE>
(a) Shares of the Portfolios are expected to be sold primarily through
Service Organizations, which may charge shareholders a fee. See
"GENERAL MANAGEMENT OF THE PORTFOLIOS--Distribution."
(b) An annual maintenance fee of $25.00 may be charged by the Transfer
Agent to each IRA Account with an aggregate balance of less than
$10,000 on December 31 of each year.
(c) The Transfer Agent may charge a processing fee of $10.00 for each
redemption check requested by a shareholder. See "Redemption of
Portfolio Shares"
<TABLE>
<CAPTION>
ANNUAL PORTFOLIO OPERATING Portfolios
EXPENSES(a) --------------------------------------------------------------------
(as a percentage of average net assets) Value Small to
Growth and Income Mid Cap International
------ ---------- ------- -------------
<S> <C> <C> <C> <C>
Management Fees(b) 0.65% 0.77% 1.00% 1.15%
12b-1 Fees(c) 0.25% 0.25% 0.25% 0.25%
Other Expenses
Administrative Fee(d) .25% .25% .25% .25%
------ ------ ------ -----
Total Other Expenses
Total Portfolio Operating Expenses [ ] [ ] [ ] [ ]
</TABLE>
(a) The table data reflects fees and expenses expected to be incurred during
the fiscal year ended December 31, 1998, not actual expenses. For actual
expenses of the Portfolios prior to establishing the Advisor Class Shares
incurred during the fiscal year ended December 31, 1997, see "Fees and
Portfolio Expenses" in the Equity Portfolios - Institutional Class Shares
Prospectus or the Annual Report for the period ended December 31, 1997.
(b) Management fees consist of the management fee paid to Bennington and the
Money Manager fee paid to each Portfolio's Money Manager. See "--Fund
Manager Services and Fees" and "--Money Manager Fees."
(c) The Distribution Plan for Advisor Class Shares has been adopted in
conformity with the requirements set forth under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "Investment Company Act").
In addition, a Shareholder Service Plan has been adopted for the Advisor
Class Shares. The combination of the fees paid pursuant to the Distribution
Plan and the Shareholder Service Plan, may be no more than .25% per annum.
See GENERAL MANAGEMENT OF THE PORTFOLIOS-- Distribution Plan.
(d) An Administrative Services Plan has been adopted for Advisor Class Shares.
Pursuant to such Administrative Services Plan, the Fund may pay Service
Organizations who have entered into such arrangements with the Fund up to
0.25% of the average daily net assets of their clients who may from time to
time beneficially own Advisor Shares of the Portfolios. The Administrative
Service Fee is not for distribution related activities.
<PAGE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
Portfolios [To Be Updated]
-----------------------------------------------------------
Value Small to
Growth and Income Mid Cap International
------ ---------- ------- -------------
One Year
Three Years
Five Years
Ten Years
The example assumes Money Manager and other fees are paid at the rates
provided in the Annual Portfolio Operating Expenses table above. For a
discussion of certain management and Money Manager fees, see footnote (b) to the
Annual Portfolio Operating Expenses table.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Investors should be aware that long term shareholders of Advisor Class Shares of
the Fund may pay more in 12b-1 and other distribution related fees than the
economic equivalent of the maximum front-end sales charges permitted under the
rules of the National Association of Securities Dealers, Inc. (the "NASD").
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Advisor Class Shares
of the Portfolios will bear directly or indirectly. The information is
based upon each Portfolio's current fees and expenses. For a more
complete description of the various costs and expenses, see "EXPENSES
OF THE PORTFOLIOS" in the Statement of Additional Information.
<PAGE>
PORTFOLIO MANAGEMENT
Bennington is responsible for evaluating, selecting, and recommending
Money Managers needed to manage all or part of the assets of the Portfolios.
Bennington is also responsible for allocating the assets within a Portfolio
among any Money Managers selected. Bennington, in conjunction with the Board of
Directors, reviews Money Managers' performance. Bennington may add or terminate
a Money Manager at any time, subject to approval by the Board of Directors and
prompt notification of the applicable Portfolio's shareholders. A separate Money
Manager currently manages the assets of each Portfolio. See "MONEY MANAGER
PROFILES" and "THE MONEY MANAGERS."
Although Bennington's activities are subject to general oversight by
the Board of Directors and the officers of the Fund, neither the Board nor the
officers evaluate the investment merits of Bennington's or any Money Manager's
individual security selections. The Board of Directors will review regularly the
Portfolios' performance compared to the applicable indices and also will review
the Portfolios' compliance with their investment objectives and policies. See
"GENERAL MANAGEMENT OF THE PORTFOLIOS"
DESCRIPTION OF THE PORTFOLIOS
General
The Fund is a Maryland corporation and was organized in June 1991 as a
multi-managed, no load, open-end management investment company, known as a
mutual fund. The Fund currently consists of eight diversified investment
portfolios, each with its own investment objective and policies. Each portfolio
issues two classes of shares, Institutional Class Shares and Advisor Class
Shares. This Prospectus covers only the Advisor Class Shares of the four equity
Portfolios of the Fund. The Institutional Class Shares of the four equity
Portfolios of the Fund as well as the Institutional Class Shares and Advisor
Class Shares of the Fund's other four portfolios, which are designed for
investment in fixed-income securities, are offered through separate
prospectuses. Each Portfolio's assets are invested by Bennington and/or a Money
Manager that has been analyzed, evaluated and recommended by Bennington.
Bennington also operates and administers the Fund and monitors the performance
of the Money Managers. Each Portfolio's investment objective and investment
restrictions are "fundamental" and may be changed only with the approval of the
holders of a majority of the outstanding voting securities of that Portfolio, as
defined in the Investment Company Act. Other policies reflect current practices
of the Portfolios, and may be changed by the Portfolios without the approval of
shareholders. This section of the Prospectus describes each Portfolio's
investment objective, policies and restrictions. A more detailed discussion
appears in the Statement of Additional Information and includes a list of the
Portfolios' investment restrictions.
Under normal circumstances, each Portfolio will invest more than 80% of
its total assets in the types of securities identified in its statement of
objective as principal investments. Bennington will attempt to have each
Portfolio managed so that the Portfolio's investment performance equals or
exceeds the total return performance of a relevant index. See Appendix A for a
description of the current indices. Each Portfolio may have up to 20% of its
total assets invested in money market instruments to provide liquidity. If, in
the opinion of Bennington or a Money Manager, market or economic conditions
warrant, any Portfolio may adopt a temporary defensive strategy. In that event,
a Portfolio may hold assets as cash reserves without limit. See "Investment
Policies-Liquidity Reserves." There can be no assurance that the investment
objective for any Portfolio will be realized.
No Portfolio will invest in fixed-income securities, including
convertible securities, rated less than A by Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's"), or in unrated securities
judged by Bennington or a Money Manager to be of a lesser credit quality than
those designations. The Portfolios will sell securities which they have
purchased in a prudent and orderly fashion when ratings drop below these minimum
ratings. See Appendix A in the Statement of Additional Information for a
description of securities ratings.
<PAGE>
Risk Factors and Special Considerations
The Fund is designed to provide diverse opportunities in equity and
debt securities. No assurance can be given that the Portfolios will achieve
their investment objectives.
Investing in a mutual fund that purchases securities of companies and
governments of foreign countries, particularly developing countries, involves
risks that go beyond the usual risks inherent in a mutual fund limiting its
holdings to domestic investments. See "Investment Policies - Risks of Investing
in Foreign Securities" and "Special Risks of Investing in Foreign Securities of
Emerging Countries." Up to 20% of the net assets of the Domestic Equity
Portfolios and up to 100% of the net assets of the International Portfolio may
be held in securities denominated in one or more foreign currencies, which will
result in that Portfolio bearing the risk that those currencies may lose value
in relation to the U.S. dollar. Certain Portfolios also may be subject to
certain risks in using investment techniques and strategies such as entering
into forward currency contracts and repurchase agreements and trading futures
contracts and options on futures contracts. See "Description of the
Portfolios-Investment Policies." The use of options and futures transactions by
a Portfolio entails certain risks, including the risk that to the extent the
Money Manager's views as to certain market movements are incorrect, the use of
such instruments could result in losses greater than if they had not been used.
Such instruments may also force sales or purchases of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
the Portfolio could realize on its investments or cause the Portfolio to hold a
security it might otherwise sell. Also, when used for hedging existing
positions, the variable degree of correlation between price movements of futures
contracts and price movements in the related portfolio position of the Portfolio
could create the possibility that losses on the hedging instrument will be
greater than gains in the value of the Portfolio's position, thereby reducing
the Portfolio's net asset value. See "Description of the Portfolios-Investment
Policies" and "Investment Restrictions, Policies and Risk
Considerations--Investment Restrictions" in the Statement of Additional
Information.
The use of multiple Money Managers in any given Portfolio or the
replacement of a Portfolio's Money Manager may increase a Portfolio's portfolio
turnover rate, realization of gains or losses, and brokerage commissions. High
portfolio turnover may involve correspondingly greater brokerage commissions and
transaction costs, which will be borne by the Portfolios and may result in
increased short-term capital gains which, when distributed to shareholders, are
treated as ordinary income. See "Portfolio Transaction Policies" and "Taxes."
Investment Objectives and Investment Policies
The investment objective of each Portfolio is fundamental and cannot be
changed without the approval of the holders of a majority of the Portfolio's
outstanding voting securities, as defined in the Statement of Additional
Information. The other investment policies and practices of each Portfolio,
unless otherwise noted, are not fundamental and may therefore be changed by a
vote of the Board of Directors without shareholder approval. For a more detailed
discussion regarding the benchmark indices, see Appendix A.
The GROWTH PORTFOLIO seeks capital growth through investing primarily
in equity securities with greater than average growth characteristics selected
from the S&P 500.
The Portfolio seeks to achieve this objective by investing principally
in common and preferred stocks, securities convertible into common stocks, and
rights and warrants of such issuers. The Money Manager will attempt to equal or
exceed the total return performance of the S&P/BARRA Growth Index over a market
cycle of five years by investing primarily in stocks of companies that are
expected to experience higher than average growth of earnings or growth of stock
price. Current income will not be a primary objective. Since the prices of
growth stocks tend to be more volatile and more sensitive to economic and market
swings than those of average stocks, Bennington expects that the Portfolio will
<PAGE>
underperform the overall U.S. stock market during periods of general market
weakness, although this is not inconsistent with the goal of outperforming the
S&P/BARRA Growth Index over a market cycle. Under normal circumstances, up to
20% of the Portfolio's net assets may be invested in common stocks of foreign
issuers with large market capitalizations whose securities have greater than
average growth characteristics. The Portfolio may engage in various portfolio
strategies to reduce certain risks of its investments and may thereby enhance
income, but not for speculation. See "Investment Policies-Options" and
"--Futures Contracts."
The VALUE AND INCOME PORTFOLIO seeks generation of current income and
capital growth by investing primarily in income-producing equity securities
selected from the S&P 500.
The Portfolio seeks to achieve this objective by investing principally
in common and preferred stocks, convertible securities, and rights and warrants
of companies whose stocks have higher than average dividend yield relative to
other stocks of issuers in the same industry, or whose stocks have lower price
multiples (either price/earnings or price/book value) than others in their
industries, or which, in the opinion of the Money Manager, have improving
fundamentals (such as growth of earnings and dividends). The Money Manager will
attempt to equal or exceed the total return performance of the S&P/BARRA Value
Index over a market cycle of five years. Because the prices of value stocks tend
to be less volatile and less sensitive to economic and market swings than those
of average stocks, Bennington expects that the Value and Income Portfolio will
underperform the overall U.S. stock market during periods of general market
strength and will lose less value than the overall U.S. stock market during
times of general market decline, although this is not inconsistent with the goal
of outperforming the S&P/BARRA Value Index over a market cycle. Under normal
circumstances, up to 20% of the Portfolio's net assets may be invested in
income-producing equity securities of foreign issuers with large market
capitalizations. The Portfolio may engage in various portfolio strategies to
reduce certain risks of its investments and to enhance income, but not for
speculation. See "Investment Policies--Options" and "--Futures Contracts."
The SMALL TO MID CAP PORTFOLIO seeks capital growth through investing
primarily in equity securities of small to medium capitalization issuers.
Under normal market conditions, the Portfolio seeks to achieve this
objective by investing at least 65% of the value of its total assets in equity
securities of small and medium capitalization issuers. Small capitalization
issuers are issuers which have a capitalization of $1 billion or less at the
time of investment whereas medium capitalization issuers have a capitalization
ranging from $1 billion to $5 billion at the time of investment. The Portfolio
invests principally in common and preferred stocks, securities convertible into
common stocks, and rights and warrants of such issuers. The Money Manager will
attempt to equal or exceed the total return performance of the Wilshire 4500
Index over a market cycle of five years by investing primarily in stocks of
companies that are expected to experience higher than average growth of earnings
or growth of stock price. Current income will not be a primary objective. Since
the prices of small to medium capitalization growth stocks tend to be more
volatile and more sensitive to economic and market swings than those of stocks
comprising the S&P 500, Bennington expects that the Small to Mid Cap Portfolio
will underperform the S&P 500 during periods of general market weakness,
although this is not inconsistent with the goal of outperforming the Wilshire
4500 Index over a market cycle. Under normal circumstances, up to 20% of the
Portfolio's net assets may be invested in common stocks of foreign issuers with
small market capitalizations. The Portfolio may engage in various portfolio
strategies to reduce certain risks of its investments and may thereby enhance
income, but not for speculation. See "Investment Policies--Options" and
"--Futures Contracts."
The INTERNATIONAL EQUITY PORTFOLIO seeks capital growth by investing
primarily in equity securities of companies domiciled in countries other than
the United States and traded on foreign stock exchanges.
The Portfolio seeks to achieve this objective by investing at least 65%
of its total assets principally in equity securities issued by companies
domiciled in Europe (including Austria, Belgium, Denmark, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden,
<PAGE>
Switzerland and the United Kingdom) and the Pacific Rim (including Australia,
Hong Kong, Japan, Malaysia, New Zealand and Singapore). The Portfolio may also
invest in securities of countries generally considered to be emerging or
developing countries by the World Bank, the International Finance Corporation,
the United Nations or its authorities ("Emerging Countries"). The International
Portfolio considers an issuer to be located in an Emerging Country if (i) the
issuer derives 50% or more of its total revenues from either goods produced,
sales made or services performed in Emerging Countries or (ii) the issuer is
organized under the laws of, and has a principal office in, an Emerging Country.
See "Investment Policies--Special Risks of Investing in Foreign Securities of
Emerging Countries." The Portfolio intends to maintain investments in at least
three different countries outside the United States. The Portfolio will treat
securities issued by any one foreign government, its agencies and
instrumentalities as if they are securities having their principal business
activities in the same industry. The Portfolio will not purchase securities
issued by any one foreign government if as a result 25% or more of the
Portfolio's total assets would be invested in securities issued by that one
foreign government. The Portfolio may invest up to 20% of its net assets in
fixed-income securities, including instruments issued by foreign governments and
their agencies, and in securities of U.S. companies which derive, or are
expected to derive, a significant portion of their revenues from their foreign
operations. The Money Manager will attempt to equal or exceed the net yield
(after withholding taxes) of the Morgan Stanley Capital International ("MSCI")
EAFE(R) + EMF Index. See "The Money Managers--Benchmark Indices." The Portfolio
may invest in securities denominated in currencies other than U.S. dollars.
The securities markets of most countries the International Portfolio can invest
in have substantially less trading volume than the securities markets of the
United States and Japan, and the securities traded in those countries are less
liquid and more volatile than securities of comparable U.S. companies. As a
result, these markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is the case in the United States. In addition, these
securities markets generally are not as highly regulated as U.S. markets.
Consequently, there may be limited liquidity for certain securities and the
prices at which the Portfolio may acquire investments may be affected by the
trading of others on material non-public information. Some countries impose
substantial restrictions on investments in their capital markets by foreign
entities such as the Portfolio, but this is not anticipated to limit the Money
Manager's ability to make suitable investments for the Portfolio. See
"Investment Policies-Risks of Investing Foreign Securities" and "Special Risks
of Investing in Foreign Securities of Emerging Countries." The Portfolio may use
options on stocks and currencies, forward foreign currency exchange contracts
and financial futures contracts to reduce certain risks of its investments and
may thereby enhance income, but not for speculation. See "Investment
Portfolio--Forward Foreign Currency Exchange Contracts," "--Options" and
"--Futures Contracts."
Investment Policies
Liquidity Reserves. Each Portfolio is authorized to invest its cash
reserves (funds awaiting investment in the specific types of securities to be
acquired by a Portfolio or cash to provide for payment of the Portfolio's
expenses or to permit the Portfolio to meet redemption requests) in money market
instruments and in debt securities which are at least comparable in quality to
the Portfolio's permitted investments. Under normal circumstances, no more than
20% of a Portfolio's net assets will be comprised of these instruments. The
Portfolios also may enter into financial futures contracts in accordance with
their investment objectives to minimize the impact of cash balances. See
"General Management of the Portfolios" and "Investment Policies--Liquidity
Reserves" in the Statement of Additional Information.
<PAGE>
Money Market Instruments. Each Portfolio may invest up to 20% of its
net assets in:
(i) Obligations (including certificates of deposit and
bankers' acceptances) of (a) banks organized under the laws of the
United States or any state thereof (including foreign branches of such
banks) or (b) U.S. branches of foreign banks or (c) foreign banks and
foreign branches thereof; provided that such banks have, at the time of
acquisition by the Portfolio of such obligations, total assets of not
less than $1 billion or its equivalent. The term "certificates of
deposit" includes both Eurodollar certificates of deposit, for which
there is generally a market, and Eurodollar time deposits, for which
there is generally not a market. "Eurodollars" are dollars deposited in
banks outside the United States; the Portfolios may invest in
Eurodollar instruments of foreign and domestic banks; and
(ii) Commercial paper, variable amount demand master notes,
bills, notes and other obligations issued by a U.S. company, a foreign
company or a foreign government, its agencies or instrumentalities,
maturing in 13 months or less, denominated in U.S. dollars, and of
"eligible quality" as described below. If such obligations are
guaranteed or supported by a letter of credit issued by a bank, such
bank (including a foreign bank) must meet the requirements set forth in
paragraph (i) above. If such obligations are guaranteed or insured by
an insurance company or other non-bank entity, such insurance company
or other non-bank entity must represent a credit of high quality, as
determined by the Portfolio's Money Manager under the supervision of
Bennington and the Board of Directors.
"Eligible quality," for this purpose, means (i) a security rated (or
issued by an issuer that is rated with respect to a class of short-term debt
obligations, or any security within that class, that is comparable in priority
and security with the security) in the highest short-term rating category (e.g.,
A-1/P-1) or one of the two highest long-term rating categories (e.g., AAA/Aaa or
AA/Aa) by at least two major rating agencies assigning a rating to the security
or issuer (or, if only one agency assigned a rating, that agency) or (ii) an
unrated security deemed of comparable quality by the Portfolio's Money Manager
or Bennington under the general supervision of the Board of Directors. The
purchase by the Portfolio of a security of eligible quality that is rated by
only one rating agency or is unrated must be approved or ratified by the Board
of Directors.
In selecting commercial paper and other corporate obligations for
investment by a Portfolio, the Money Manager also considers information
concerning the financial history and condition of the issuer and its revenue and
expense prospects. Bennington monitors, and the Board of Directors reviews on a
quarterly basis, the credit quality of securities purchased for the Portfolio.
If commercial paper or another corporate obligation held by a Portfolio is
assigned a lower rating or ceases to be rated, the Money Manager under the
supervision of Bennington and the Board of Directors will promptly reassess
whether that security presents minimal credit risks and whether the Portfolio
should continue to hold the security in its portfolio. If a portfolio security
no longer presents minimal credit risks or is in default, the Portfolio will
dispose of the security as soon as reasonably practicable unless Bennington and
the Board of Directors determine that to do so is not in the best interests of
the Portfolio and its shareholders. Variable amount demand master notes with
demand periods of greater than seven days will be deemed to be liquid only if
they are determined to be so in compliance with procedures approved by the Board
of Directors.
U.S. Government Securities. Each Portfolio may invest in United States
Treasury securities, including bills, notes, bonds and other debt securities
issued by the United States Treasury. These instruments are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and credit"
of the United States. They differ primarily in their interest rates, the lengths
of their maturities and their issue dates.
The Portfolios may invest in securities issued by agencies or
instrumentalities of the U.S. Government. These obligations, including those
which are guaranteed by federal agencies or instrumentalities, may or may not be
backed by the "full faith and credit" of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
Portfolio must look principally
<PAGE>
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments.
Obligations of the Government National Mortgage Association ("GNMA"),
the Farmers Home Administration and the Export-Import Bank are backed by the
full faith and credit of the United States. Securities in which the Portfolios
may invest that are not backed by the full faith and credit of the United States
include obligations issued by (i) the Tennessee Valley Authority, the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") and the United States Postal Service (each of these
issuers has the right to borrow from the United States Treasury to meet its
obligations) and (ii) the Federal Farm Credit Bank and the Federal Home Loan
Bank (each of these issuers may rely only on the individual credit of the
issuing agency to satisfy its obligations). No assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, since it is not obligated to do so by law.
Obligations issued or guaranteed as to principal and interest by the U.
S. Government may be acquired by a Portfolio in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain United States Treasury notes or bonds. These custodial receipts are
commonly referred to as U.S. Treasury STRIPS.
Repurchase Agreements. Each Portfolio may enter into repurchase
agreements with a bank or broker-dealer that agrees to repurchase the securities
at the Portfolio's cost plus interest within a specified time (ordinarily a week
or less). If the party agreeing to repurchase should default and if the value of
the securities held by the Portfolio should fall below the repurchase price, the
Portfolio could incur a loss. Subject to the limitation on investing no more
than 15% of a Portfolios net assets in illiquid securities, no Portfolio will
invest more than 15% of its net assets (taken at current market value) in
repurchase agreements maturing in more than seven days. See "Investment
Policies--Illiquid Securities."
Repurchase agreements will at all times be fully collateralized by U.S.
Government obligations or other collateral in an amount at least equal to the
repurchase price, including accrued interest earned on the underlying
securities. Such collateral will be held by the Fund's Custodian, either
physically or in a book-entry account.
Repurchase agreements carry certain risks associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Portfolio if the other
party to the repurchase agreement becomes bankrupt or otherwise fails to deliver
the securities.
A Portfolio will enter into repurchase transactions only with parties
who meet creditworthiness standards approved by the Board of Directors.
Bennington or the Money Managers monitor the creditworthiness of such parties
under the general supervision of the Board of Directors. See "Investment
Policies--Repurchase Agreements" in the Statement of Additional Information.
Rights and Warrants. Each Portfolio may acquire up to 5% of its net
assets in rights and warrants in securities of issuers that meet each
Portfolio's investment objective and policies. See "Investment Restrictions" and
"Investment Policies--Rights and Warrants" in the Statement of Additional
Information.
Privately-Issued STRIP Securities. The Portfolios may invest up to 5%
of their net assets in privately-issued STRIP securities. See "Investment
Policies--Privately-Issued STRIP Securities" in the Statement of Additional
Information.
Reverse Repurchase Agreements. Each Portfolio's entry into reverse
repurchase agreements, together with its other borrowings, is limited to 5% of
its net assets. See "Investment Policies--Reverse Repurchase Agreements" in the
Statement of Additional Information.
<PAGE>
Lending of Portfolio Securities. Each Portfolio may lend portfolio
securities with a value of up to the maximum allowable amount of its total
assets according to applicable law. Such loans may be terminated at any time.
The Portfolio will receive cash, U.S. Government or U.S. Government agency
securities as collateral in an amount equal to at least 100% of the current
market value of the loaned securities plus accrued interest. Cash collateral
received by the Portfolio will be invested in short-term debt securities. A loan
may be terminated by the borrower on one business day's notice or by the
Portfolio at any time. As with any extensions of credit, there are risks of
delay in recovery and in some cases loss of right in the collateral should the
borrower of the securities fail financially. See "Investment Policies--Lending
of Portfolio Securities" in the Statement of Additional Information.
Illiquid Securities. No Portfolio may invest more than 15% of its net
assets in illiquid securities. Securities which are illiquid include repurchase
agreements of more than seven days duration, securities which lack a readily
available market or have legal or contractual restrictions on resale, certain
interest only/principal only strips and over-the-counter ("OTC") options.
Restricted securities issued pursuant to Rule 144A under the Securities Act of
1933, as amended, that have a readily available market are not deemed illiquid
for purposes of this limitation, pursuant to liquidity procedures that have been
adopted by the Board of Directors. Investing in Rule 144A securities could
result in increasing the level of a Portfolio's illiquidity if qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. The International Portfolio will treat investments of the
International Portfolio that are subject to repatriation restrictions of more
than seven (7) days as illiquid securities. See "Investment Policies--Special
Risks of Investing in Foreign Securities of Emerging Countries--Political and
Economic Factors." Each Money Manager will monitor the liquidity of such
restricted securities under the supervision of Bennington and the Board of
Directors. See "Investment Policies--Illiquid Securities" in the Statement of
Additional Information.
Forward Foreign Currency Exchange Contracts. The International
Portfolio may enter into forward foreign currency exchange contracts for hedging
purposes. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market directly
between currency traders (typically large commercial banks) and their customers.
A forward contract generally has no deposit requirements and no commissions are
charged for such trades.
When the International Portfolio invests in foreign securities, it may
enter into forward foreign currency exchange contracts in several circumstances
to protect its value against a decline in exchange rates, or to protect against
a rise in exchange rates for securities it intends to purchase, but it will not
use such contracts for speculation. The International Portfolio may not use
forward contracts to generate income, although the use of such contracts may
incidentally generate income. There is no limitation on the value of forward
contracts into which the International Portfolio may enter. When effecting
forward foreign currency contracts, cash or liquid assets of the International
Portfolio of a dollar amount having an aggregate value, measured on a daily
basis, at least sufficient to make payment for the portfolio securities to be
purchased will be segregated on the International Portfolio's records at the
trade date and maintained until the transaction is settled.
Options. Each Portfolio may purchase put and call options and write
(sell) "covered" put and "covered" call options. The Domestic Equity Portfolios
may purchase and write options on stocks and stock indices. These options may be
traded on national securities exchanges or in the OTC market. Options on a stock
index are similar to options on stocks except that there is no transfer of a
security and settlement is in cash. The Domestic Equity Portfolios may write
covered put and call options to generate additional income through the receipt
of premiums, purchase put options in an effort to protect the value of a
security that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
it intends to purchase.
<PAGE>
The International Portfolio may purchase and write options on
currencies. Currency options may be either listed on an exchange or traded OTC.
OTC options are privately negotiated with the counterparty to such contract and
are purchased from and sold to dealers, financial institutions or other
counterparties which have entered into direct agreements with the Portfolios. If
the counterparty fails to take delivery of the securities underlying an option
it has written, the Portfolios must rely on the credit quality of the
counterparty. The staff of the SEC has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities subject to the 15% limitation described above in "Illiquid
Securities." Options on currencies are similar to options on stocks except that
there is no transfer of a security and settlement is in cash. The International
Portfolio may write covered put and call options on currencies to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a currency that it owns against a decline in
value and purchase call options in an effort to protect against an increase in
the price of currencies it intends to purchase. The currency options are traded
on national currency exchanges, the OTC market and by large international banks.
The International Portfolio may trade options on international stocks or
international stock indices in a manner similar to that described above.
A call option is a contract whereby a purchaser pays a premium in
exchange for the right to buy the security on which the option is written at a
specified price during the term of the option. A written call option is
"covered" if the Portfolio owns the optioned securities or the Portfolio
maintains in a segregated account with the Fund's Custodian, cash, U.S.
Government securities or other liquid assets with an aggregate value, measured
on a daily basis, at least sufficient to meet its obligations under the call
option, or if the Portfolio owns an offsetting call option. When a Portfolio
writes a call option, it receives a premium and gives the purchaser the right to
buy the underlying security at any time during the call period, at a fixed
exercise price regardless of market price changes during the call period. If the
call is exercised, the Portfolio foregoes any gain from an increase in the
market price of the underlying security over the exercise price.
The purchaser of a put option pays a premium and receives the right to
sell the underlying security at a specified price during the term of the option.
The writer of a put option, receives a premium and in return, has the
obligation, upon exercise of the option, to acquire the securities or currency
underlying the option at the exercise price. A written put option is "covered"
if a Portfolio deposits with the Fund's Custodian, cash, U.S. Government
securities or other liquid assets with an aggregate value, measured on a daily
basis, at least equal to the exercise price of the put option.
The Portfolios will not write covered put or covered call options on
securities if the obligations underlying the put options and the securities
underlying the call options written by the Portfolio exceed 25% of its net
assets other than OTC options and the assets used as cover for written OTC
options. The SEC has taken the position that purchased OTC options and the
assets used as cover for written OTC options are illiquid securities subject to
the 15% limitation described above in "Illiquid Securities." Furthermore, the
Portfolios will not purchase or write put or call options on securities, stock
index futures or financial futures if the aggregate premiums paid on all such
options exceed 20% of the Portfolio's total net assets, subject to the foregoing
limitations.
When a Portfolio writes either a put or call option, the Portfolio is
required to deposit an initial margin with the Fund's Custodian for the benefit
of the options broker. The initial margin serves as a "good faith" deposit that
the Portfolio will honor its option commitment. When the Portfolio writes
options and an adverse price movement occurs, the Portfolio may be called upon
to deposit an additional or variation margin. Both the initial and additional or
variation margin must be made in cash or U.S. Government securities. The
required margin amount is subject to change by the appropriate exchange or
regulatory authority.
Futures Contracts. Each Portfolio is permitted to enter into financial
futures contracts, stock index futures contracts and related options ("futures
contracts") in accordance with its investment objective. The International
Portfolio also may purchase and write futures contracts on foreign currencies.
Futures contracts will be limited to hedging transactions to minimize the impact
of cash balances and for return
<PAGE>
enhancement and risk management purposes in accordance with regulations of the
Commodity Futures Trading Commission.
A "financial futures contract" is a contract to buy or sell a specified
quantity of financial instruments such as United States Treasury bonds, notes
and bills, commercial paper, bank certificates of deposit, an agreed amount of
currencies, or the cash value of a financial instrument index at a specified
future date at a price agreed upon when the contract is made. Substantially all
futures contracts are closed out before settlement date or called for cash
settlement. A futures contract is closed out by buying or selling an identical
offsetting contract which cancels the original contract to make or take
delivery.
The Portfolios may purchase and write options on futures contracts as
an alternative or in addition to buying or selling futures contracts for hedging
purposes. Options on futures contracts are similar to options on the security
upon which the futures contracts are written except that options on stock index
futures contracts give the purchaser the right to assume a position at a
specified price in a stock index futures contract at any time during the life of
the option.
Upon entering into a futures contract, a Portfolio is required to
deposit in a segregated account with the Fund's Custodian in the name of the
futures broker through whom the transaction was effected, initial margin
consisting of cash, U.S. government securities or other liquid assets having an
aggregate value, measured on a daily basis, at least equal to the amount of the
covered obligations. The initial margin serves as a "good faith" deposit that
the Portfolio will honor its futures commitment. The initial margin amount is
subject to change by the appropriate exchange or regulatory authority. The
Portfolio will also be required to settle any gains or losses on a daily basis
in cash (variation margin). If the Portfolio is unable to meet an additional
margin requirement, the Portfolio may be forced to close out its position at a
price that may be detrimental to the Portfolio. When trading futures contracts,
a Portfolio will not commit more than 5% of the market value of its total assets
as initial margins. See "Investment Policies--Futures Contracts" in the
Statement of Additional Information.
Special Risks of Hedging and Income Enhancement Strategies.
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which a
Portfolio would not be subject absent the use of these strategies. If the Money
Manager's predictions of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Portfolio may leave the Portfolio in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign currency
and futures contracts and options on futures contracts include: (1) dependence
on the Money Manager's ability to predict correctly movements in the direction
of interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (3) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; (5) the possible need to raise
additional initial margin; (6) in the case of futures, the need to meet daily
margin in cash; and (7) the possible need to defer closing out certain hedged
positions to avoid adverse tax consequences. See "Taxes" in the Statement of
Additional Information.
Risks of Investing in Foreign Securities. The Portfolios may invest in
foreign securities. Foreign securities involve certain risks. These risks
include political or economic instability in the country of the issuer, the
difficulty of predicting international trade patterns, the possibility of
imposition of exchange controls and the risk of currency fluctuations. Such
securities may be subject to greater fluctuations in price than securities
issued by U.S. corporations or issued or guaranteed by the U.S. Government, its
instrumentalities or agencies. Generally, outside the United States there is
less government regulation of securities exchanges, brokers and listed companies
and, with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investments within such countries.
<PAGE>
In many instances, foreign debt securities may provide higher yields
than securities of domestic issuers which have similar maturities and quality.
However, under certain market conditions, these investments may be less liquid
than investments in the securities of U.S. corporations and are certainly less
liquid than securities issued or guaranteed by the U.S. Government, its
instrumentalities or agencies.
If a security is denominated in a foreign currency, such security will
be affected by changes in currency exchange rates and in exchange control
regulations, and costs will be incurred in connection with conversions between
currencies. A change in the value of any such currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the
Portfolio's securities denominated in that currency. Such changes also will
affect the Portfolio's income and distributions to shareholders. In addition,
although the Portfolio will receive income in such currencies, the Portfolio
will be required to compute and distribute its income in U.S. dollars.
Therefore, if the exchange rate for any such currency declines after the
Portfolio's income has been accrued and translated into U.S. dollars, the
Portfolio could be required to liquidate portfolio securities to make such
distributions, particularly when the amount of income the Portfolio is required
to distribute is not immediately reduced by the decline in such security.
Similarly, if an exchange rate declines between the time the Portfolio incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such
currency which must be converted into U.S. dollars to pay such expenses in U.S.
dollars will be greater than the equivalent amount in any such currency of such
expenses at the time they were incurred.
Special Risks of Investing in Foreign Securities of Emerging Countries.
Political and Economic Factors. Investing in Emerging Countries
involves potential risks relating to political and economic developments abroad.
Governments of many Emerging Countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. Accordingly,
government actions in the future could have a significant effect on economic
conditions in Emerging Countries, which could affect the value of securities in
the Portfolios. The value of the investments made by the Portfolios will be
affected by commodity prices, inflation, interest rates, taxation, social
instability, and other political, economic or diplomatic developments in or
affecting the Emerging Countries in which the Portfolios have invested. In
addition, there is a possibility of expropriation or confiscatory taxation,
imposition of withholding taxes on dividend or interest payments, or other
similar developments which could affect investments in those countries. While
the Money Managers intend to manage the Portfolios in a manner that will
minimize the exposure to such risks, there can be no assurance that adverse
political changes will not cause the Portfolios to suffer a loss of interest or
principal on any of its holdings. The Portfolios will treat investments of the
Portfolios that are subject to repatriation restrictions of more than seven (7)
days as illiquid securities.
Foreign Exchange Risk. The value of non-U.S. dollar denominated
securities of issuers in Emerging Countries is affected by changes in currency
exchange rates or exchange control regulations. Foreign currency exchange rates
are determined by forces of supply and demand on the foreign exchange markets.
These forces are affected by the international balance of payments, economic and
financial conditions, government intervention, speculation and other factors.
Many of the currencies of Emerging Countries have experienced significant
devaluations relative to the U.S. dollar and major adjustments have been made in
certain of them at times.
<PAGE>
Investing in Securities Markets of Emerging Countries. Certain of the
risks associated with investments generally are heightened for investments in
Emerging Countries. For example, securities markets in Emerging Countries may be
less liquid, more volatile and less subject to governmental regulation than U.S.
securities markets. There may be less publicly available information about
issuers in Emerging Countries than about domestic issuers. Emerging Country
issuers are not generally subject to accounting, auditing and financial
reporting standards comparable to those applicable to domestic issuers. Markets
in Emerging Countries also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when a portion of the assets of the Portfolios are uninvested and no
return is earned thereon. Inability to dispose of securities due to settlement
problems could result in losses to the Portfolios due to subsequent declines in
value of securities or, if the Portfolios have entered into a contract to sell
securities, could result in possible liability to the purchaser.
Certain Emerging Countries require prior governmental approval of
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain Emerging Countries
may also restrict investment opportunities in issuers in industries deemed
important to national interests.
Certain Emerging Countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
Emerging Country's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Portfolios
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Portfolios of any restrictions on investments.
Costs associated with transactions in securities of companies in
Emerging Countries are generally higher than costs associated with transactions
in U.S. securities. There are three basic components to such transaction costs,
which include brokerage fees, market impact costs (i.e., the increase or
decrease in market prices which may result when a Portfolio purchases or sells
thinly traded securities), and the difference between the bid-ask spread. Each
one of these components may be significantly more expensive in Emerging
Countries than in the U.S. or other developed markets because of less
competition among brokers, lower utilization of technology by exchanges and
brokers, the lack of derivative instruments and less liquid markets. In addition
to these transaction costs, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for U.S. securities.
Throughout the last decade many Emerging Countries have experienced and
continue to experience high rates of inflation. In certain countries, inflation
has at times accelerated rapidly to hyperinflationary levels, creating a
negative interest rate environment and sharply eroding the value of outstanding
financial assets in those countries. See "REDEMPTION OF PORTFOLIO SHARES."
Investment Restrictions
Each Portfolio is subject to investment restrictions which, as
described in more detail in the Statement of Additional Information, have been
adopted by the Fund on behalf of the Portfolios as fundamental policies that
cannot be changed with respect to a Portfolio without the approval of the
holders of a majority of such Portfolio's outstanding voting securities, as
defined in the Investment Company Act. Among other restrictions, the Portfolios
will not purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result (i) with respect to 75% of a
Portfolio's total assets, more than 5% of a Portfolio's total assets would then
be invested in securities of a single issuer, or (ii) 25% or more of a
Portfolio's total assets would be invested in one or more issuers having their
principal business activities in the same industry. See "Investment
Restrictions, Policies and Risk Considerations--Investment Restrictions" in the
Statement of Additional Information.
<PAGE>
GENERAL MANAGEMENT OF THE PORTFOLIOS
The Board of Directors is responsible for overseeing generally the
operation of the Fund, including reviewing and approving the Fund's service
contracts with Bennington and the Money Managers. The Fund's officers, all of
whom are employed by Bennington, are responsible for the day-to-day management
and administration of the Fund's operations. The Money Managers are responsible
for the selection of individual portfolio securities for the assets assigned to
them by Bennington.
Bennington, 1420 Fifth Avenue, Seattle, Washington 98101, was organized
as a Washington general partnership on April 25, 1991 and restructured into a
Washington limited partnership on August 17, 1993. Bennington and its partners
were formed for the purpose of providing investment advisory services to the
Fund and acting as the Fund's manager. Bennington's general partners are
Northwest Advisors, Inc., Bennington Management Associates, Inc. and Bennington
Capital Management Investment Corp., all of which are Washington corporations.
The sole limited partner is Zions Investment Management, Inc., a wholly-owned
subsidiary of Zions First National Bank, N.A. Bennington Management Associates,
Inc., which is controlled by J. Anthony Whatley, III, is the managing general
partner of Bennington. Mr. Whatley, the Executive Director of Bennington Capital
Management and the Chairman of the Board and Principal Executive Officer of the
Fund, has had over 20 years of experience in the securities industry. Ravindra
A. Deo, Vice President and Chief Investment Officer of Bennington, is primarily
responsible for the day-to-day management of the Portfolios through interaction
with each Portfolio's Money Manager and Mr. Deo is responsible for managing the
liquidity reserves of each Portfolio. Mr. Deo has served Bennington in such
capacity since January 1992. Prior thereto, he was Senior Vice President at
Leland O'Brien Rubenstein Associates Incorporated, an investment manager, where
he was employed from 1986 to 1991. See "Statement of Additional Information -
Management of the Fund."
Fund Manager Services and Fees. Pursuant to the Management Agreement
with the Fund, Bennington provides the following services: (i) provides or
oversees the provision of all general management, investment advisory and
portfolio management services for the Fund, including the transfer agent,
custodian, portfolio accounting and shareholder recordkeeping services for the
Fund; (ii) provides the Fund with office space, equipment and personnel
necessary to operate and administer the Fund's business; (iii) develops the
investment programs, selects Money Managers, allocates assets among Money
Managers, and monitors the Money Managers' investment programs and results; and
(iv) invests the Portfolios' liquidity reserves and all or any portion of the
Portfolios' other assets. For providing these services, Bennington is paid by
each Portfolio a fee equal on an annual basis to the following percentage of the
Portfolio's average daily net assets:
Management Fee
(as a percentage of
Portfolio average daily net assets)
--------- -------------------------
Growth 0.45%
Value and Income 0.45%
Small to Mid Cap 0.60%
International 0.55%
Pursuant to the Transfer Agent Agreement effective December 1, 1995, between
Bennington and the Fund, Bennington provides transfer agent, registrar and
dividend disbursing agent services as well as certain other administrative,
compliance and recordkeeping services to the Fund. For providing these services,
Bennington receives (i) a fee equal to 0.13% of the average daily net assets of
each Portfolio of the Fund, subject to a minimum annual fee of $40,000 per
Portfolio and (ii) a transaction fee of $.50 per transaction.
Bennington may, out of its own resources, provide marketing and
promotional support on behalf of the Portfolios. Services provided by Bennington
are in addition to, and not duplicative of, the services provided by Service
Organizations to their clients.
<PAGE>
Custodian and Fund Accounting Services and Fees. The Fund, Bennington
and Fifth Third entered into a Fund Accounting and Other Services Agreement on
October 4, 1996, effective November 18, 1996, under which Fifth Third provides
certain portfolio accounting and other services, including maintenance of the
books and records of the Portfolios required under the Investment Company Act.
As compensation for these services, the Fund will pay Fifth Third on behalf of
the Advisor Shares of the Portfolios an annual fund accounting and service fee
(the "Fee"), to be calculated daily and paid monthly. The annual Fee for each
Portfolio shall be the greater of a monthly minimum or an asset based fee, as
follows:
Monthly First Next Assets over
Portfolio Minimum OR $100,000,000 $150,000,000 $250,000,000
- --------- ------- -- ------------ ------------ ------------
Growth $1,500 .03% .02% .01%
Value and Income $1,500 .03% .02% .01%
Small to Mid Cap $1,500 .03% .02% .01%
International Equity $3,500 .04% .03% .02%
The Fund pays an additional annual Fee of $2,000 per Portfolio for
other administrative services rendered, to be charged monthly. In addition,
there will be an annual charge of $7,000 per Portfolio for the Advisor Class
Shares, also to be charged monthly. Finally, the Fund reimburses Fifth Third for
its out-of-pocket expenses incurred in performing its services under this
Agreement, including, but not limited to: postage and mailing, telephone,
facsimile, overnight courier services and outside independent pricing service
charges, and record retention/storage. The total costs for these administrative
fees are borne by the Advisor Shares of each Portfolio based on the
proportionate net assets of the Advisor shares of each Portfolio.
The Fund and Fifth Third entered into a Custodian Agreement on October
4, 1996, effective November 18, 1996, under which Fifth Third acts as Custodian
of the Portfolios' assets. As compensation for its services rendered, the Fund
pays Fifth Third an annual domestic custody fee of: .0025% of the average gross
assets and an annual global custody fee of .08% of the average gross assets,
exclusive of transaction charges. The total costs for the custodial fees are
borne by each Portfolio based on the proportionate net assets of each Portfolio.
Year 2000 Preparedness. The management and money management services
provided to the Fund by Bennington and the Money Managers and the services
provided by Fifth Third to the Fund, in part, depend on the reasonably
consistent operations of their computer systems. Many software programs and, to
a lesser extent, computer hardware in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. This
design flaw may have a negative impact on the handling of securities trades,
pricing and accounting services. Bennington and the Money Managers and Fifth
Third have been actively working on necessary changes to their computer systems
to deal with the year 2000 and reasonably believe that their systems will be
year 2000 compliant in time for that event.
The Multi-Class Structure. The Fund has adopted a Rule 18f-3 Plan (the
"Multi-Class Plan") pursuant to Rule 18f-3 under the Investment Company Act.
Under the Multi-Class Plan, shares of each class of each Portfolio represent an
equal pro rata interest in such Portfolio and, generally, have identical voting,
dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a) each
class has a different designation; (b) each class of shares bears any
class-specific expenses allocated to it; and (c) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution or service arrangements, and each class has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class.
As described in the Multi-Class Plan, the Fund, on behalf of each
Portfolio's Advisor Shares, has adopted a Shareholder Service Plan, a
Distribution Plan and an Administrative Services Plan, all as described below.
Pursuant to the appropriate plan, the Fund may enter into arrangements with
Service Organizations who may provide distribution services, shareholder
services and/or administrative and accounting services to or on behalf of their
clients or customers who beneficially own Advisor Class Shares.
Distribution. Investment advisors, banks, insurance companies and other
entities that sell shares of the Fund may enter into a license agreement with
Bennington which permits them to use Bennington's proprietary asset allocation
software program, Alloset(R), pursuant to which such entities may recommend an
allocation of their clients' assets over a broad range of asset classes, which
may include the various
<PAGE>
portfolios of the Fund. The Alloset(R) Model was developed by Bennington.
Investment advisors, banks, insurance companies and other licensed entities may
charge a fee, not for providing access to the Fund, but for providing to their
clients services such as Alloset(R), performance reporting, fund selection and
account monitoring. The Fund does not receive any portion of such fees and has
no control over whether and in what amount such fees are charged. Investors also
may purchase shares of the Fund directly if they do not wish to use any of the
above services, in which case no service fees or additional fees, beyond those
borne by the shareholders of the Fund generally, would be incurred.
The Fund bears no cost associated with the use of Alloset(R). Using
Alloset(R), assets may be allocated among the Fund's portfolios in a manner
intended to achieve the investment objectives and desired investment returns of
such entities' clients based upon the individual client's situation and
tolerance for risk and desire for return on investment. There can be no
assurance that the allocation recommended by the entities that use Alloset7 will
meet any of the clients' investment objectives. The Money Managers engaged by
the Fund do not use Alloset7 in investing any of the Portfolio's assets under
management.
Distribution Plan. The Fund has adopted a Distribution Plan (the
"Distribution Plan") under Rule 12b-1 ("Rule 12b-1") of the Investment Company
Act with respect to the Advisor Class Shares of each Portfolio. Under the terms
of the Distribution Plan, the Fund is permitted, out of the assets attributable
to the Advisor Class Shares of each Portfolio (i) to make directly or cause to
be made, payments for costs and expenses to third parties or (ii) to reimburse
third parties for costs and expenses incurred in connection with providing
services. Such distribution services, include but are not limited to (a) costs
of payments made to employees that engage in the distribution of Advisor Class
Shares; (b) costs relating to the formulation and implementation of marketing
and promotional activities, including but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (c)
costs of printing and distributing prospectuses, statements of additional
information and reports of the Fund to prospective holders of Advisor Class
Shares; (d) costs involved in preparing, printing and distributing sales
literature pertaining to the Fund and (e) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Fund may, from time to time, deem advisable (the
"Distribution Services"). The Fund may enter into arrangements with Service
Organizations primarily intended to result in the sale of Advisor Class Shares.
Subject to the limitations of applicable law and regulations, including rules of
NASD, the payments made directly to third parties or the reimbursements for such
distribution related costs or expenses, shall be in combination with the service
fee pursuant to the Shareholder Service Plan. The total annual rate shall be up
to but not more than 0.25% of the average daily net assets of the Fund
attributable to the Advisor Class Shares. Any expense payable hereunder may be
carried forward for reimbursement for up to twelve months beyond the date in
which it is incurred, subject always to the limit (in combination with the
service fee pursuant to the Shareholder Service Plan) that not more than 0.25%
of the average daily net assets of the Fund shall be attributable to Advisor
Class Shares. Advisor Class Shares shall incur no interest or carrying charges
for expenses carried forward. In the event the Distribution Plan is terminated,
the Advisor Class Shares shall have no liability for expenses that were not
reimbursed as of the date of termination.
<PAGE>
Any Service Organization entering into an agreement with the Fund under the
Distribution Plan may also enter into Shareholder Service Agreement or an
Administrative Services Agreement with regard to its Advisor Class Shares, which
will not be subject to the terms of this Distribution Plan. The total
combination of fees paid to any Service Organization pursuant to the
Distribution Plan and Shareholder Service Plan shall not be more than 0.25% of
the average daily net assets of the Fund attributable to Advisor Class Shares.
The Fund under this Distribution Plan may enter into more than one agreement for
its Advisor Class Shares, with different Service Organizations providing
services to different groups of shareholders.
The Distribution Plan may be terminated with respect to the Fund by a
vote of a majority of the "non-interested" Directors who have no direct or
indirect financial interest in the operation of the Distribution Plan (the
"Qualified Directors") or by the vote of a majority of the outstanding voting
securities of the relevant class of the Fund. Any change in the Distribution
Plan that would materially increase the cost to the class of shares of the Fund
to which the Distribution Plan relates requires approval of the affected class
of shareholders of the Fund. The Distribution Plan requires the Board to review
and approve the Distribution Plan annually and, at least quarterly, to receive
and review written reports of the amounts expended under the Distribution Plan
and the purposes for which such expenditures were made. The Distribution Plan
may be terminated at any time upon a vote of the Qualified Directors.
Shareholder Service Plan. The Fund has adopted a Shareholder Service
Plan with respect to Advisor Class Shares of each Portfolio. Under the
Shareholder Service Plan the Fund is authorized to enter into Shareholder
Service Agreements with Service Organizations who provide personal and/or
account maintenance services to their clients (the "Clients") who may from time
to time beneficially own Advisor Shares of the Portfolios. Each Portfolio will
pay directly to Service Organizations a non-distribution related shareholder
service fee under the Shareholder Service Plan at an annual rate of up to 0.25%
of the average daily net assets of the Portfolio attributable to the Advisor
Class Shares beneficially owned by the clients of the Service Organizations (the
"Shareholder Service Fee"), which in combination with amounts paid for
distribution related services pursuant to the Distribution Plan. By way of
example, such services may include some or all of the following: (i) shareholder
liaison services; (ii) providing information periodically to Clients showing
their positions in New Class Shares and integrating such statements with those
of other transactions and balances in Clients' other accounts serviced by the
Service Organizations; (iii) responding to Client inquiries relating to the
services performed by the Service Organizations; (iv) responding to routine
inquiries from Clients concerning their investments in Advisor Shares; and (v)
providing such other similar services to Clients as the Fund may reasonably
request to the extent the Service Organizations are permitted to do so under
applicable statutes, rules and regulations. The Shareholder Service Plan will
continue from year to year provided that it is reviewed and approved by the
Board of Directors of the Fund annually. In addition, the Board of Directors
will ratify all agreements entered into pursuant to this Shareholder Service
Plan and shall review at each quarterly meeting of the Directors the amounts
expended under the Shareholder Service Plan and the purposes for which those
expenditures were made. The Shareholder Service Plan may be terminated at any
time by a vote of the Qualified Directors.
Administrative Services Plan. The Fund has adopted an Administrative
Services Plan whereby the Fund is authorized to enter into Administrative
Service Agreements on behalf of the Advisor Class
<PAGE>
Shares of the Portfolios (the "Agreements"), the form of which has been approved
by the Board of Directors of the Fund (the "Board") and each Agreement will be
ratified by the Board of Directors at the next quarterly meeting after the
arrangement has been entered into. Each Portfolio will pay an administrative
services fee under the Administrative Services Plan at an annual rate of up to
.25% of the average daily net assets of the Advisor Class Shares of the
Portfolio (the "Administrative Services Fee") beneficially owned by the clients
of the Service Organizations. Provided, however, that no Portfolio shall
directly or indirectly pay any distribution related amounts that will be
allocated under the Fund's Distribution Plan. Administrative Services Fees may
be used for payments to Service Organizations who provide administrative and
support servicing to their customers who may from time to time beneficially own
Advisor Class Shares of the Fund, which, by way of example, may include: (i)
establishing and maintaining accounts and records relating to shareholders; (ii)
processing dividend and distribution payments from the Portfolio on behalf of
shareholders; (iii) providing information periodically to shareholders showing
their positions in shares and integrating such statements with those of other
transactions and balances in shareholders, other accounts serviced by such
financial institution; (iv) arranging for bank wires; (v) providing transfer
agent or sub-transfer agent services, recordkeeping, custodian or subaccounting
services with respect to shares beneficially owned by shareholders, or the
information to the Portfolio necessary for such services; (vi) if required by
law, forwarding shareholder communications from the Portfolio (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to shareholders; (vii) assisting in processing
purchase, exchange and redemption requests from shareholders and in placing such
orders with our service contractors; or (viii) providing such other similar
services, which are not considered "service fees" as defined in the NASD Rule
2830(b)(9), as the Portfolio may reasonably request to the extent the Service
Organization is permitted to do so under applicable laws, statutes, rules and
regulations. The Administrative Services Plan may be terminated at any time by a
vote of the Qualified Directors. The Directors shall review and approve the
Administrative Services Plan annually and quarterly shall receive a report with
respect to the amounts expended under the Administrative Services Plan and the
purposes for which those expenditures were made.
THE MONEY MANAGERS
Bennington is responsible for evaluating, selecting, and recommending
Money Managers needed to manage all or part of the assets of the Portfolios of
the Fund. Bennington is also responsible for allocating the assets within a
Portfolio among any Money Managers selected. Such allocation is reflected in the
Money Manager Agreement among the Fund, Bennington and any Money Manager, and
can be changed at any time by Bennington. The Board of Directors reviews and
approves selections of Money Managers and allocations of assets among any Money
Managers. Money Managers may be added or terminated by Bennington subject to the
approval of the Board of Directors of the Fund and appropriate notice to the
shareholders of the applicable Portfolio, as discussed below.
Money Managers are selected based on such factors as their experience,
the continuity of their portfolio management team, their security selection
process, the consistency and rigor with which they apply that process and their
demonstrated ability to add value to investment decisions. Short-term investment
performance is not a controlling factor in selecting or terminating Money
Managers. Bennington, in conjunction with the Board of Directors, reviews Money
Managers' performance. A separate Money Manager currently manages the assets of
each Portfolio. See "MONEY MANAGER PROFILES."
The Fund was issued an exemptive order by the Securities and Exchange
Commission on September 4, 1996 for an exemption (the "Exemption") from certain
provisions of the Investment Company Act, which would otherwise require
Bennington to obtain formal shareholder approval prior to engaging and entering
into money manager agreements with Money Managers. The relief is based on the
conditions set forth in the Exemption that, among other things: (1) Bennington
will select, monitor, evaluate and allocate assets to the Money Managers and
oversee Money Managers compliance with the relevant Portfolio's investment
objective, policies and restrictions; (2) before a Portfolio may rely on the
Exemption, the Exemption must be approved by the shareholders of the Portfolios
operating under the Exemption; (3)
<PAGE>
the Fund will provide to shareholders certain information about a new Money
Manager and its money manager agreement within 60 days of the engagement of a
new Money Manager; (4) the Fund will disclose in this Prospectus the existence,
substance and effect of the Exemption; and (5) the Directors, including the
Qualified Directors must approve each money manager agreement in the manner
required under the Investment Company Act. Any changes to the Management
Agreement between the Fund and Bennington would still require shareholder
approval. As required by the Exemption, the shareholders of each Portfolio
determined, at a shareholders' meeting held on August 15, 1995, to permit the
Fund to replace or add Money Managers and to enter into money manager agreements
with Money Managers upon approval of the Board of Directors but without formal
shareholder approval.
Neither the Board of Directors nor the officers evaluate the investment
merits of any Money Manager's individual security selections. However, the Board
of Directors will review regularly each Portfolio's performance compared to the
applicable indices and also will review each Portfolio's compliance with its
investment objective and policies.
Money Manager Fees. The fees paid to the Money Manager of a Portfolio
are based on the assets of the Portfolio and on the number of complete calendar
quarters of management by the Money Manager. During the first five calendar
quarters, the Money Manager fee has two components, the basic fee (the "Basic
Fee") and the portfolio management fee (the "Portfolio Management Fee"). See
"Money Manager Fees--Money Manager Fee Schedule For a Manager's First Five
Calendar Quarters of Management" in the Statement of Additional Information. The
Money Manager for the Growth Portfolio has not completed five complete calendars
and will receive a Basic Fee of 0.10% and a Portfolio Management Fee of 0.10%.
Commencing with the sixth calendar quarter of management by a Money
Manager of an operating Portfolio, such Portfolio will pay its Money Manager
based on the "Money Manager Fee Schedule For A Manager From the Sixth Calendar
Quarter of Management Forward." The Money Manager Fee commencing with the sixth
quarter consists of two components, the Basic Fee and the performance fee (the
"Performance Fee"), which varies with a Portfolio's performance. The Money
Managers for the Value and Income, Small to Mid Cap and International Equity
Portfolios, have completed the first five calendar quarters of management of
their respective Accounts, as defined below, and the Performance Fee is in
effect. If at any time a Money Manager should be replaced, the new Money Manager
for the applicable Portfolio will receive the fee set forth in the table "Money
Manager Fee Schedule For a Manager's First Five Calendar Quarters of Management"
during the first five calendar quarters of such new Money Manager's management
of the relevant Portfolio. See "Money Manager Fees--Money Manager Fee Schedule
For a Manager's First Five Calendar Quarters of Management" in the Statement of
Additional Information.
MONEY MANAGER FEE SCHEDULE FOR A MANAGER FROM THE
SIXTH CALENDAR QUARTER OF MANAGEMENT FORWARD
<TABLE>
<CAPTION>
Average Annualized
Performance Differential
vs. Annualized
Portfolio Basic Fee The Applicable Index Performance Fee
- --------- --------- -------------------- ---------------
<S> <C> <C> <C>
Domestic Equity Portfolios 0.10% Greater than or equal to $2.00% 0.22%
Greater than or equal to $1.00% and less than 2.00% 0.20%
Greater than or equal to $0.50% and less than 1.00% 0.15%
Greater than or equal to $0.00% and less than 0.50% 0.10%
Less than or equal to -0.50% 0%
International Portfolio 0.20% Greater than or equal to $4.00% 0.40%
Greater than or equal to $2.00% and less than 4.00% 0.30%
$0.00% and less than 2.00% 0.20%
$-2.00% and less than 0.00% 0.10%
Less than -2.00% 0%
</TABLE>
<PAGE>
The Performance Fee component will be adjusted each quarter and paid quarterly
based on the annualized investment performance of each Money Manager relative to
the annualized investment performance of the "Benchmark Indices" set forth
below. A description of each benchmark index is contained in Appendix A. A
change in an index may be effected with the approval of only the Board of
Directors and does not require the approval of shareholders. As long as a
Domestic Equity Portfolio's performance either exceeds the index, or trails the
index by no more than .50%, a Performance Fee will be paid to the Money Manager.
As long as the International Portfolio's performance either exceeds the index,
or trails the index by no more than 2%, a Performance Fee will be paid to the
Money Manager. A Money Manager's performance is measured on the portion of the
assets of its respective Portfolio managed by it (the "Account"), which excludes
assets held by Bennington for circumstances such as redemptions or other
administrative purposes.
BENCHMARK INDICES
Portfolio Index
- --------- -----
Growth S&P/BARRA Growth Index
Value and Income S&P/BARRA Value Index
Small to Mid Cap Wilshire 4500 Index
International Morgan Stanley Capital International
EAFE(R) + EMF Index
From the sixth to the 14th calendar quarter of investment operations,
each Money Manager's performance differential versus the applicable index is
recalculated at the end of each calendar quarter based on the Money Manager's
performance during all calendar quarters since commencement of investment
operations except that of the immediately preceding quarter. Commencing with the
14th calendar quarter of investment operations, the Money Manager's average
annual performance differential will be recalculated based on the Money
Manager's performance during the preceding 12 calendar quarters (other than the
immediately preceding quarter) on a rolling basis. A Money Manager's performance
will be calculated by Bennington in the same manner in which the total return
performance of the Portfolio's index is calculated, which is not the same method
used for calculating the Portfolios' performance for advertising purposes as
described under "Calculation of Portfolio Performance." See Appendix B to the
Statement of Additional Information for a discussion of how performance fees are
calculated.
The "performance differential" is the percentage amount by which the
Account's performance is greater or less than that of the relevant index. For
example, if an index has an average annual performance of 10%, a Domestic Equity
Portfolio Account's average annual performance would have to be equal to or
greater than 12% for the Money Manager to receive an annual Performance Fee of
0.22%
<PAGE>
(i.e., the difference in performance between the Account and the index must be
equal to or greater than 2% for the Portfolios' Money Managers to receive the
maximum Performance Fee.) Because the maximum Performance Fee for the Domestic
Equity Portfolios applies whenever a Money Manager's performance exceeds the
index by 2.00% or more, the Money Managers for those Portfolios could receive a
maximum Performance Fee even if the performance of the Account is negative.
Also, because the maximum Performance Fee for the International Portfolio
applies whenever a Money Manager's performance exceeds the index by 4.00% or
more, the Money Manager for the International Portfolio could receive a maximum
Performance Fee even if the performance of the Account is negative. A more
detailed description of the operation of each Performance Fee is contained in
Appendix B to the Statement of Additional Information.
The Money Managers have agreed to the foregoing fees, which are
generally lower than they charge to institutional accounts for which they serve
as investment adviser and perform all administrative functions associated with
serving in that capacity. These lower fees are in recognition of the reduced
administrative and client service responsibilities the Money Managers have
undertaken with respect to the Portfolios.
The combined fees payable to Bennington and the Money Managers for the
Small to Mid Cap Portfolio and the International Portfolio may at times be
higher than those paid by other mutual funds. The Board of Directors believes
that the fees payable by the Small to Mid Cap Portfolio and International
Portfolio are appropriate, in light of their investment objective and policies
and the nature of the securities in which they invest. The following table lists
the fees earned by the Money Managers of the Portfolios for the current period.
MONEY MANAGER FEES EARNED DURING CURRENT PERIOD
-----------------------------------------------
<TABLE>
<CAPTION>
Number
Of Portfolio Performance
Quarters Basic Management Fee
Managed Fee Fee (6th
By Money (All (1st 5 Quarter Total
Portfolio Manager Period Quarters) Quarters) Forward) Fee
--------- ------- ------ --------- --------- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Growth 15 2nd Quarter 1996 0.10% N/A 0.22% 0.32%
16 3rd Quarter 1996 0.10% N/A 0.22% 0.32%
17 4th Quarter 1996 0.10% N/A 0.20% 0.30%
18 1st Quarter 1997 0.10% N/A 0.15% 0.25%
19 2nd Quarter 1997 0.10% N/A 0.05% 0.15%
3rd Quarter 1997 0.10%
4th Quarter 1997 0.10% 0.10% 0% 0.20%
1st Quarter 1997 0.10% 0.10% 0% 0.20%
2nd Quarter 1998 0.10% 0.10% 0% 0.30%
Value 15 2nd Quarter 1996 0.10% N/A 0.15% 0.25%
and Income 16 3rd Quarter 1996 0.10% N/A 0.10% 0.20%
17 4th Quarter 1996 0.10% N/A 0.15% 0.25%
18 1st Quarter 1997 0.10% N/A 0.15% 0.25%
19 2nd Quarter 1997 0.10% N/A 0.20% 0.30%
20 3rd Quarter 1997
<PAGE>
Number
Of Portfolio Performance
Quarters Basic Management Fee
Managed Fee Fee (6th
By Money (All (1st 5 Quarter Total
Portfolio Manager Period Quarters) Quarters) Forward) Fee
--------- ------- ------ --------- --------- -------- ---
21 4th Quarter 1997
22 1st Quarter 1998
23 2nd Quarter 1998
Small to Mid 4 2nd Quarter 1996 0.10% 0.10% N/A 0.20%
Cap 5 3rd Quarter 1996 0.10% 0.10% N/A 0.20%
6 4th Quarter 1996 0.10% N/A N/A 0.20%
7 1st Quarter 1997 0.10% N/A 0.22% 0.32%
8 2nd Quarter 1997 0.10% N/A 0.22% 0.32%
9 3rd Quarter 1997
10 4th Quarter 1997
11 1st Quarter 1998
12 2nd Quarter 1998
International 6 2nd Quarter 1996 0.20% N/A 0.00% 0.20%
7 3rd Quarter 1996 0.20% N/A 0.20% 0.40%
8 4th Quarter 1996 0.20% N/A 0.30% 0.50%
9 1st Quarter 1997 0.20% N/A 0.30% 0.50%
10 2nd Quarter 1997 0.10% N/A 0.30% 0.50%
11 3rd Quarter 1997
12 4th Quarter 1997
13 1st Quarter 1998
14 2nd Quarter 1998
</TABLE>
EXPENSES OF THE PORTFOLIOS
The Portfolios will pay all of their expenses except for those
expressly assumed by Bennington, including, without limitation, Directors' fees
and fees for auditing, legal, custodian and shareholder services. All general
expenses of the Portfolios are allocated among and charged to the assets of the
respective Portfolios and between the classes of each Portfolio on a basis that
the Directors deem fair and equitable, which may be based on the relative net
assets of each Portfolio and class of shares, or the nature of the services
performed and relative applicability to each Portfolio and class of shares.
Class-specific expenses include distribution and service fees payable with
respect to the Advisor Class Shares and administrative fees as described in
"Administrative Plan" and may include certain other expenses as permitted by the
Fund's Multi-Class Plan adopted pursuant to Rule 18f-3 under the Investment
Company Act and subject to review and approval by the Directors. See "FINANCIAL
HIGHLIGHTS" in the Equity Portfolio's Institutional Class Shares Prospectus, the
Statement of Additional Information, or the Annual Report for the period ended
December 31, 1997, for expense information related to the Fund's most recently
completed fiscal year. The Board of Directors has determined that it is
appropriate to allocate certain expenses attributable to more than one Portfolio
among the Portfolios affected based on their relative net assets. See "GENERAL
MANAGEMENT OF THE PORTFOLIOS."
<PAGE>
PORTFOLIO TRANSACTION POLICIES
Decisions to buy and sell securities are made by the Money Managers for
the assets assigned to them and by Bennington for assets not assigned to a Money
Manager. Currently, each Portfolio has one Money Manager. Bennington invests the
Portfolios liquidity reserves and all or any portion of the Portfolios assets
not assigned to a Money Manager.
Each Money Manager makes decisions to buy or sell securities
independently from other Money Managers. Thus, if there is more than one Money
Manager for a Portfolio, one Money Manager could be selling a security when
another Money Manager for the same Portfolio is purchasing the same security. In
addition, when a Money Manager's services are terminated and another retained,
the new Money Manager may significantly restructure the Portfolio. These
practices may increase the Portfolios' portfolio turnover rates, realization of
gains or losses, and brokerage commissions. The portfolio turnover rates for the
Portfolios may vary greatly from year to year as well as within a year and may
be affected by sales of investments necessary to meet cash requirements for
redemptions of shares. Historical portfolio turnover rates for the Portfolios
are listed under "Financial Highlights." It is expected that the annual
portfolio turnover rate for each Portfolio, under normal market conditions, will
not exceed 100%. These rates should not be considered as limiting factors. A
high rate of turnover involves correspondingly greater expenses, increased
brokerage commissions and other transaction costs, which must be borne by the
Portfolios and their shareholders. See "Investment Advisory and Other
Services--Portfolio Transaction Policies" in the Statement of Additional
Information. In addition, high portfolio turnover may result in increased
short-term capital gains, which, when distributed to shareholders, are treated
as ordinary income. See "TAXES."
Each Portfolio may effect portfolio transactions with or through
affiliates of the Fund, Bennington or any Money Manager or its affiliates, when
Bennington or the Money Manager, as appropriate, determines that the Portfolio
will receive the best net price and execution. This standard would allow
affiliates of Bennington and the Money Managers to receive no more than the
remuneration that would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction.
DIVIDENDS AND DISTRIBUTIONS
Income Dividends. The Board of Directors presently intends to declare
dividends from net investment income for payment on the following schedule:
Portfolio Declared Payable
- --------- -------- -------
Growth Quarterly, on last 1st business day
Value and Income business day of following end of
Small to Mid Cap quarter calendar quarter
International Annually, end of year 1st business day
following end of year
The Portfolios determine net investment income immediately prior to the
determination of a Portfolio's net asset value on the dividend declaration day.
The income will be credited to the shareholders of record prior to the net asset
value calculation and paid on the next business day.
Capital Gains Distribution. The Board of Directors intends to declare
distributions from net capital gains annually, generally in mid-December. In
addition, in order to satisfy certain distribution requirements, a Portfolio may
declare special year-end dividend and capital gains distributions during
October, November or December. Such distributions, if received by shareholders
by January 31, are deemed to have been paid by a Portfolio and received by
shareholders on December 31 of the prior year.
Automatic Reinvestment. All dividends and distributions will be
automatically reinvested, at the net asset value per share at the close of
business on the record date, in additional shares of the same
<PAGE>
class of the Portfolio paying the dividend or making the distribution unless a
shareholder elects to have dividends or distributions paid in cash. Shareholders
may elect to invest dividends and/or distributions paid by any portfolio in
shares of the same class of any other portfolio of the Fund at net asset value.
The shareholder must have an account existing in the portfolio selected and must
elect this option on the Account Application or on a form provided for that
purpose. For further information on this option, contact your broker or call
Bennington at 1-800-759-3504. Any election may be changed by electronic
instruction if received by Bennington no later than the close of the New York
Stock Exchange, normally 4:00 p.m. Eastern time on the record date.
TAXES
[Taxes must be updated]
Each Portfolio is treated as a separate taxable entity for federal
income tax purposes and shareholders of each Portfolio will be entitled to the
amount of net investment income and net realized capital gains (if any) earned
by their Portfolio. The Board of Directors intends to distribute each year
substantially all of each Portfolio's net investment income and net realized
capital gains (if any), thereby eliminating virtually all federal income taxes
to each Portfolio (but not to its investors). The Portfolios may be subject to
nominal, if any, state and local taxes.
Dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholders, whether or not reinvested, and paid in cash or in additional
shares. Capital gain distributions declared by the Board of Directors and
distributed to the shareholders are taxed as long-term capital gains regardless
of the length of time a shareholder has held such shares. Dividends and
distributions may otherwise also be subject to state or local taxes.
Shareholders 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 any capital gain dividends have been paid with
respect to such shares.
The International Portfolio will receive dividends and interest paid by
non-U.S. issuers which will frequently be subject to withholding taxes by
non-U.S. governments. Bennington expects that at the end of each taxable year
the International Portfolio will hold more than 50% of the value of its total
assets in non-U.S. securities and will file specified elections with the
Internal Revenue Service which will permit its shareholders either to deduct
such foreign taxes in computing taxable income, or to use these withheld foreign
taxes as credits against U.S. income taxes. If the International Portfolio
elects to "pass-through" the foreign taxes, shareholders will be required to:
(i) include in gross income (in addition to taxable dividends actually received)
their pro rata share of the foreign income taxes paid by the International
Portfolio; and (ii) treat their pro rata share of foreign income taxes as paid
by them. However, shareholders may be able to treat their pro rata share of
foreign taxes as either an itemized deduction or a foreign tax credit against
U.S. income taxes (but not both) on their federal income tax return.
The sale of shares of a Portfolio is a taxable event and may result in
capital gain or loss. A capital gain or loss may be realized from an ordinary
redemption of shares or an exchange of shares between two mutual funds (or two
series or portfolios of a mutual fund). Any gain or loss realized upon a sale,
exchange or redemption of shares of a Portfolio by a shareholder who is not a
dealer in securities will be treated generally as long-term capital gain or loss
if the shares have been held for more than one year and otherwise as short-term
capital gain or loss. Any such loss, however, on shares that are held for six
months or less will be treated as long-term capital loss to the extent of any
capital gain distributions received by the shareholder.
However, all or a portion of this capital gain will be recharacterized
as ordinary income if the shareholder enters into a "conversion transaction." A
conversion transaction is a transaction, generally consisting of two or more
positions taken with regard to the same or similar property, where substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in the transaction and certain other criteria are satisfied. A
conversion transaction also includes a transaction which is marketed or sold as
producing a capital gain if substantially all of a taxpayer's expected return
from the transaction is "attributable to the time value of the taxpayer's net
investment in such transaction."
<PAGE>
The Secretary of the Treasury also is authorized to promulgate regulations
(which would apply only after they are issued) which specify other transactions
to be included in the definition of a conversion transaction. Section 1258 of
the Internal Revenue Code of 1986, as amended (the "Code") contains many
ambiguities and its scope is unclear; it may be clarified or refined in future
regulations or other official pronouncements. Until further guidance is issued,
it is unclear whether a purchase and subsequent disposition of Portfolio shares
would be treated as a conversion transaction under Section 1258. Shareholders
should consult their own tax advisors concerning whether or not Section 1258 may
apply to their transactions in Portfolio shares.
Gains or losses on sales of securities by a Portfolio generally will be
treated as long-term capital gains or losses if the securities have been held by
it for more than one year except in certain cases where the Portfolio acquires a
put or writes a call thereon or the transaction is treated as a "conversion
transaction." Other gains or losses on the sale of securities generally will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will generally be treated as gains and
losses from the sale of securities (assuming they do not qualify as "Section
1256 contracts" defined below). If an option written by a Portfolio on
securities lapses or is terminated through a closing transaction, such as a
repurchase by the Portfolio of the option from its holder, the Portfolio will
generally realize a capital gain or loss. If securities are sold by the
Portfolio pursuant to the exercise of a call option written by it, the Portfolio
will include the premium received in the sale proceeds of the securities
delivered in determining the amount of gain or loss on the sale. Certain of the
Portfolios' transactions may be subject to wash sale and short sale provisions
of the Code. In addition, debt securities acquired by the Portfolios may be
subject to original issue discount and market discount rules.
Under the Code, special rules apply to the treatment of certain options
and future contracts (Section 1256 contracts). At the end of each year, such
investments held by the Portfolio will be required to be "marked to market" for
federal income tax purposes; that is, treated as having been sold at market
value. Sixty percent of any gain or loss recognized on these "deemed sales" and
on actual dispositions will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss. See "Taxes" in
the Statement of Additional Information.
Shareholders of the appropriate Portfolios will be notified after each
calendar year of the amounts of ordinary income and long-term capital gains
distributions, including any amounts which are deemed paid on December 31 of the
prior year; of the dividends which qualify for the 70% dividends-received
deduction available to corporations and of the foreign taxes withheld and
foreign source income per country of the International Portfolio.
Under United States Treasury Regulations, a Portfolio currently is
required to withhold and remit to the United States Treasury 31% of all taxable
dividends, distributions and redemption proceeds payable to any non-corporate
shareholder which does not provide the Fund with the shareholder's taxpayer
identification number on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) or required certification or which is subject to backup
withholding.
The tax discussion set forth above is included for general information
only and is based upon the current law as of the date of this Prospectus.
Shareholders are urged to consult their tax advisers for further information
regarding the federal, state and local tax consequences of an investment in the
shares of the Fund. See "Taxes" in the Statement of Additional Information.
<PAGE>
CALCULATION OF PORTFOLIO PERFORMANCE
From time to time the Fund may make available certain information about
the performance of the Advisor Class Shares of some or all of the Portfolios.
Information about a Portfolio's performance is based on that Portfolio's (or its
predecessor's) record to a recent date and is not intended to indicate future
performance. From time to time, the yield and total return for each class of
shares of the Portfolios may be included in advertisements or reports to
shareholders or prospective investors. Quotations of yield for a Portfolio or
class will be based on the investment income per share (as defined by the
Securities and Exchange Commission) during a particular 30-day (or one-month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and will be computed by dividing net
investment income by the maximum public offering price per share on the last day
of the period.
The total return of Advisor Class Shares of all Portfolios may be
included in advertisements or other written material. When a Portfolio's total
return is advertised with respect to its Advisor Class Shares, it will be
calculated for the past year, the past five years, and the past ten years (or if
the Portfolio has been offered for a period shorter than one, five or ten years,
that period will be substituted) since the establishment of the Portfolio as
more fully described in the Statement of Additional Information. Consistent with
Securities and Exchange Commission rules and informal guidance, for periods
prior to the initial offering date of Advisor Class Shares (April __, 1998),
total return presentations for the Advisor Class Shares will be based on the
historical performance of an older class of the Portfolio (the older class to be
used in each case is set forth in the Statement of Additional Information)
restated, as necessary, to reflect that there are no sales charges associated
with Advisor Class Shares, but not reflecting any different operating expenses
(such as administrative fee charges) associated with Advisor Class Shares. All
other things being equal, any higher expenses of Advisor Class Shares would have
adversely affected (i.e., reduced) total return for Advisor Class Shares (i.e.,
if the Advisor Class Shares had been issued since the inception of the
Portfolio) by the amount of such higher expenses, compounded over the relevant
period. Total return is measured by comparing the value of an investment in
Advisor Class Shares of the Portfolio at the beginning of the relevant period to
the redemption value of the investment in the Portfolio at the end of the period
(assuming immediate reinvestment of any dividends or capital gains distributions
at net asset value). Total return may be advertised using alternative methods
that reflect all elements of return, but that may be adjusted to reflect the
cumulative impact of alternative fee and expense structures, such as the
currently effective advisory and administrative fees for Advisor Class Shares of
the Portfolios.
The Portfolios may also provide current distribution information to its
shareholders in shareholder reports or other shareholder communications, or in
certain types of sales literature provided to prospective investors. Current
distribution information for a Advisor Class Shares of a Portfolio will be based
on distributions for a specified period (i.e., total dividends from net
investment income), divided by the net asset value per Advisor Class share on
the last day of the period and annualized. The rate of current distributions
does not reflect deductions for unrealized losses from transactions in
derivative instruments such as options and futures, which may reduce total
return. Current distribution rates differ from standardized yield rates in that
they represent what Advisor Class Shares of a Portfolio have declared and paid
to shareholders as of the end of a specified period rather than the Fund's
actual net investment income for that period.
In reports or other communications to investors or in advertising
material, the Fund may describe general economic and market conditions affecting
the Fund. The Fund may compare its performance (i) with that of other mutual
funds as listed in the rankings prepared by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar") or similar investment services
that monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) with various unmanaged indexes, such as the benchmark indices
for the portfolios of the Fund: S&P/BARRA Growth Index, S&P/BARRA Value Index,
Wilshire 4500 Index(1), Morgan Stanley Capital International EAFE(R) + EMF
Index2, Lehman Brothers Government/Corporate Index, Lehman Brothers
Government/Corporate 1-5 Year Index, Lehman Brothers Mortgage-Backed Securities
Index, and the S&P 500 Index; (iii) with other appropriate indices of investment
securities or with data developed by the Fund or Bennington derived from such
indices ; and (iv) other entities or organizations which track the performance
of investment companies or investment
<PAGE>
advisers. Unmanaged indexes (i.e., other than Lipper) generally do not reflect
deductions for administrative and management costs and expenses. The Fund may
include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Barron's, Business Week, Financial Times, Forbes, Fortune, Inc., Institutional
Investor, Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund
Magazine, Smart Money and The Wall Street Journal. Morningstar, Inc. rates funds
in broad categories based on risk/reward analyses over various time periods. In
addition, the Fund may from time to time compare the expense ratio of its
Advisor Class Shares to that of investment companies with similar objectives and
policies, based on data generated by Lipper or similar investment services that
monitor mutual funds.
In reports or other communications to investors or in advertising, the
Fund may discuss relevant economic and market conditions affecting the Fund. In
addition, the Fund, Bennington and the Money Managers may render updates of Fund
investment activity, which may include, among other things, discussion or
quantitive statistical or comparative analysis of portfolio composition and
significant portfolio holdings including analysis of holdings by sector,
industry, country or geographic region, credit quality and other
characteristics. The Fund may also describe the general biography, work
experience and/or investment philosophy or style of the Money Managers of the
Fund and may include quotations attributable to the Money Managers describing
approaches taken in managing the Fund's investments, research metholodogy
underlying stock selection or the Fund's investment objectives. The Fund may
also discuss measures of risk, including those based on statistical or
econometric analyses, the continum of risk and return relating to different
investments and the potential impact of foreign stocks on a portfolio otherwise
composed of domestic securities.
Any performance information related to the Portfolios, should be
considered in light of the Portfolios' investment objectives and policies,
characteristics and quality of the portfolio, and the market conditions during
the time period indicated, and should not be considered to be representative of
what may be achieved in the future. For a description of the methods used to
determine yield and total return for the Portfolios, see the Statement of
Additional Information. Investment results of the Portfolios will fluctuate over
time, and any presentation of the Portfolios' total return or yield for any
prior period should not be considered as a representation of what an investor's
total return or yield may be in any future period.
From time to time, the Portfolios may advertise their performance in
terms of average annual total return, which is computed by finding the average
annual compounded rates of return over a period that would equate the initial
amount invested to the ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested on the reinvestment dates during the
relevant time period and accounts for all recurring fees. The Portfolios may
also include in advertisements data comparing performance with the performance
of non-related investment media, published editorial comments and performance
rankings compiled by independent organizations and publications that monitor the
performance of mutual funds. Performance information may be quoted numerically
or may be presented in a table, graph or other illustration. In addition,
Portfolio performance may be compared to well-known indices of market
performance. Portfolio performance may also be compared, on a relative basis, to
other Portfolios of the Fund. This relative comparison, which may be based upon
historical or expected Portfolio performance, may be presented numerically,
graphically or in text. Portfolio performance may also be combined or blended
with other Portfolios of the Fund, and that combined or blended performance may
be compared to the same indices to which individual Portfolios are compared.
It is important to note that total return figures are based on
historical earnings and are not intended to indicate future performance. The
value of Fund shares when redeemed may be more or less than their original cost.
The Statement of Additional Information describes the method used to determine a
Portfolio's total return. In reports or other communications to shareholders or
in advertising material, a Portfolio may quote total return figures that do not
reflect recurring fees (provided that these figures are accompanied by
standardized total return figures calculated as described above), as well as
compare its performance with that of other mutual funds as listed in the
rankings prepared by Morningstar, Inc. or similar independent services that
monitor the performance of mutual funds or with other appropriate indices of
investment securities or other industry publications.
<PAGE>
VALUATION OF PORTFOLIO SHARES
Net Asset Value Per Share. The net asset value per share of each class
of the Portfolios is calculated on each business day on which shares are offered
or orders to redeem are tendered by dividing the value of the Portfolio's net
assets represented by such class (i.e., the value of its assets less
liabilities) by the total number of shares of such class outstanding. See
STATEMENT OF ADDITIONAL INFORMATION--Valuation of Portfolio Shares. A business
day is one on which the New York Stock Exchange, Fifth Third and Bennington are
open for business. Non-business days in 1997 will be: New Year's Day,
Presidents' Day, Martin Luther King Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is
computed for a Portfolio by dividing the current value of the Portfolio's assets
and other assets attributable to that class, less its liabilities, by the number
of shares of the class of the Portfolio outstanding, and rounding to the nearest
cent. All Portfolios determine net asset value as of the close of the New York
Stock Exchange, normally 4:00 p.m. Eastern time.
Valuation of Portfolio Securities. With the exceptions noted below, the
Portfolios value portfolio securities at "fair market value." This generally
means that equity securities and fixed-income securities listed and traded
principally on any national securities exchange are valued on the basis of the
last sale price or, lacking any sales, at the closing bid price on the exchange
on which the security is primarily traded. United States equity and fixed-income
securities traded principally OTC, options and futures contracts are valued on
the basis of the closing bid price.
Because many fixed-income securities do not trade each day, last sale
or bid prices are frequently not available. Fixed-income securities therefore
may be valued based on prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
International equity securities traded on a securities exchange are
valued on the basis of the last sale price. International securities traded
over-the-counter are valued on the basis of the mean of bid and asked prices. In
the absence of a last sale or mean bid and asked price, respectively, such
securities may be valued on the basis of prices provided by a pricing service if
those prices are believed to reflect the fair value of such securities. The risk
also exists that an emergency situation may arise in one or more Emerging
Countries as a result of which trading of securities may cease or may be
substantially curtailed and prices for the International Portfolio's securities
in such markets may not be readily available. The Fund may suspend or postpone
redemption of the shares of the International Portfolio for any period during
which an emergency exists, as determined by the SEC. Accordingly, if the
International Portfolio believes that appropriate circumstances exist, the Board
of Directors or Bennington will promptly apply to the SEC for a determination
that an emergency is present. During the period commencing from the
International Portfolio's identification of such condition until the date of the
SEC action, the International Portfolio's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Board of Directors. See "INVESTMENT POLICIES--Special Risks of Investing
in Foreign Securities of Emerging Countries."
Money market instruments maturing within 60 days of the valuation date
held by Portfolios are valued at "amortized cost" unless the Board of Directors
determines that amortized cost does not represent fair value. The "amortized
cost" valuation procedure initially prices an instrument at its cost and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if it sold the
instrument.
The Portfolios value securities for which market quotations are not
readily available at "fair value," as determined in good faith pursuant to
procedures established by the Board of Directors.
<PAGE>
PURCHASE OF PORTFOLIO SHARES
Shares of the Portfolios may be purchased directly from the Portfolios
with no sales charge or commission. Investors may also purchase shares of the
Portfolios from intermediaries, such as a broker-dealer, bank or other financial
institution. Such intermediaries may be required to register as a dealer
pursuant to certain states' securities laws and may charge the investor a
reasonable service fee, no part of which will be paid to the Portfolios. Shares
of the Portfolios will be sold at the net asset value next determined after an
order is received and accepted, provided that payment has been received by 12:00
p.m. Eastern Time on the following business day. Net asset value is determined
as set forth above under "Valuation of Portfolio Shares." All purchases must be
made in U.S. dollars. The minimum and subsequent investment requirements for
Advisor Class Shares of each Portfolio are $5,000. The minimum initial
investment requirement for an IRA Account is an aggregate amount of $1,000 in
the Portfolios. The subsequent investment requirement for an IRA Account is an
aggregate amount of $100 in the Portfolios. The Fund reserves the right to
accept smaller purchases or reject any purchase order in its sole discretion.
Orders are accepted on each business day. Orders to purchase Portfolio
shares must be received by Bennington prior to close of the New York Stock
Exchange, normally 4:00 p.m. Eastern time, on the day shares of those Portfolios
are offered and orders accepted, or the orders will not be accepted and invested
in the particular Portfolio until the next day on which shares of that Portfolio
are offered. Payment must be received by 12:00 noon Eastern time the next
business day. Purchases by telephone may only be made as described in the
telephone transaction procedures set forth in "Purchase of Portfolio
Shares--Telephone Transactions." No fees are currently charged shareholders by
the Fund directly in connection with purchases.
Purchases through intermediaries. Advisor Class Shares of the
Portfolios are available through Fund Supermarkets. Generally these programs
require customers to pay either no or low transaction fees in connection with
purchases or redemptions. Advisor Class Shares of the Portfolios are also
available through certain Service Organizations. Certain features of the Advisor
Class Shares, such as the initial and subsequent investment minimums,
redemptions fees and certain trading restrictions, may be modified or waived by
Service Organizations. Service Organizations may impose transaction or
administrative charges or other direct charges, which charges or fees would not
be imposed if Advisor Class Shares are purchased directly from the Fund.
Therefore, a client or customer should contact the Service Organization acting
on their behalf concerning the fees (if any) charged in connection with a
purchase or redemption of Advisor Class Shares and should read this prospectus
in light of the terms governing their accounts with the Service Organization.
Service Organizations will be responsible for promptly transmitting client or
customer purchase and redemption orders to the Fund in accordance with their
agreements with clients or customers.
Service Organizations or, if applicable, their designees may enter
confirmed purchase or redemption orders on behalf of clients and customers, with
payment to follow no later than the Fund's pricing on the following business
day. If payment is not received by such time, the Service Organization could be
held liable for resulting fees or losses. The Fund will be deemed to have
received a purchase or redemption order when a Service Organization, or, if
applicable, its authorized designee, accepts the order. Orders received by the
Fund in proper form will be priced at the Fund's net asset value next computed
after they are accepted by the Service Organization or its authorized designee.
For non-distribution related administration, subaccounting, transfer
agency and/or other services, the Fund may pay Service Organizations and certain
recordkeeping organizations with whom they have entered into agreements pursuant
to the Shareholder Service Plan and/or the Administrative Services Plan. See
"Distribution--Shareholder Service Plan", "Distribution--Administrative Services
Plan". The fees payable to any one Service Organization or recordkeeper is
determined based upon a number of factors, including the nature and quality of
services provided, the operations processing requirements of the relationship
and the fee schedule of the Service Organization or recordkeeper.
<PAGE>
Order and Payment Procedures. Investments in the Portfolios may be made
as follows:
Federal Funds Wire. Purchases may be made on any business day
by wiring federal funds to Seattle First National Bank, Seattle, WA.
Checks. Purchases may be made by check (except that a check
drawn on a foreign bank will not be accepted) only in amounts greater
than $1,000; except that checks will be accepted for IRA Accounts in
any amount. If an investor has purchased Portfolio shares by check and
subsequently submits a redemption request, the redemption request will
be honored at the net asset value next calculated after receipt of the
request, however, the redemption proceeds will not be transmitted until
the check used for investment has cleared, which may take up to 15
days.
See "REDEMPTION OF PORTFOLIO SHARES."
Please call the Fund for further information at (800)
759-3504.
Purchases in Kind. The Portfolios may accept certain types of
securities in lieu of wired funds as consideration for Portfolio
shares. Under no circumstances will a Portfolio accept any securities
the holding or acquisition of which conflicts with the Portfolio's
investment objective, policies and restrictions or which Bennington or
the applicable Money Manager believes should not be included in the
applicable Portfolio's portfolio on an indefinite basis. Securities
accepted in consideration for a Portfolio's shares will be valued in
the same manner as the Portfolio's portfolio securities in connection
with its determination of net asset value. A transfer of securities to
a Portfolio in consideration for Portfolio shares will be treated as a
sale or exchange of such securities for federal income tax purposes. A
shareholder will recognize gain or loss on the transfer in an amount
equal to the difference between the value of the securities and the
shareholder's tax basis in such securities. Shareholders who transfer
securities in consideration for a Portfolio's shares should consult
their tax advisers as to the federal, state and local tax consequences
of such transfers. See "Purchases in Kind" in the Statement of
Additional Information.
IRA Accounts. The Fund has established an Individual
Retirement Custodial Account Plan under which investors may set up IRA
Accounts that invest in the Fund. Fifth Third serves as Custodian for
the IRA Accounts. The Transfer Agent charges an annual account fee of
$25 to each IRA Account with an aggregate balance of less than $10,000
on December 31. The minimum initial investment requirement for an IRA
Account is an aggregate amount of $1,000 in the Portfolios. The
subsequent investment requirement for an IRA Account is an aggregate
amount of $100 in the Portfolios. Please refer to the IRA Account plan
documents: the IRA Disclosure Statement, IRA Custodial Account
Agreement and IRA Application and Adoption Agreement Form for
additional information, copies of which may be obtained from Bennington
free of charge at 1-800-759-3504.
Exchange Privilege. Shares of any class of any Portfolio of the Fund
may be exchanged for shares of any other class of any of the other portfolios
offered by the Fund to the extent the shareholder meets the investment
requirements of such shares and such shares are offered for sale in the
investor's state of residence, on the basis of current net asset values per
share at the time of the exchange. Other
<PAGE>
than the Advisor Class Shares of the Portfolios offered by this Prospectus, the
portfolios of the Fund also include Institutional Class Shares of the Portfolios
and Institutional Class and Advisor Class Shares of the Intermediate
Fixed-Income Portfolio, Short-Intermediate Fixed-Income Portfolio, Mortgage
Securities Portfolio and the U.S. Government Money Portfolio. Institutional
Class Shares are available to qualified investors as described in the applicable
prospectus and are offered primarily for direct investment by investors such as
pension and profit sharing plans, employee benefit trusts, endowments,
foundations, corporations, and high net worth individuals (Institutional Class
Shares may also be offered through certain financial intermediaries that charge
their customers transaction or other fees with respect to the customers'
investments in the Funds). The initial investment in Institutional Class Shares
is $250,000 for institutional investors or $100,000 for individuals.
If the exchanging shareholder does not currently own shares of the
portfolio whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gain options and authorized
dealer of record as the account from which shares are exchanged, unless
otherwise specified in writing by the shareholder with all signatures guaranteed
by an eligible guarantor institution as defined below under "REDEMPTION OF
PORTFOLIO SHARES" and in "Shareholder Servicing Arrangements."
To establish an automatic withdrawal for the new account, however, an
exchanging shareholder must file a specific written request. For additional
information, contact the Fund. A shareholder should obtain and read the
prospectus relating to any other portfolio of the Fund before making an
exchange.
An exchange other than between classes in the same portfolio is a
redemption of the shares and is treated as a sale for federal income tax
purposes, and a short- or long-term capital gain or loss may be realized. The
exchange privilege may be modified or terminated at any time on 60 days' notice
to shareholders. Exchanges are available only in states where exchanges may
legally be made. Exchanges may be made by faxing instructions to Bennington at
(206) 224-4274 or by mailing instructions to Bennington at P. O. Box 1748,
Seattle, WA 98111-9865. Exchanges may only be made by telephone as set out in
the telephone transaction procedures set forth in " SHARES--Telephone
Transactions" and "CShareholder Servicing Arrangements." No fees are currently
charged shareholders by the Fund directly in connection with exchanges.
Telephone Transactions. A shareholder of the Fund with an aggregate
account balance of $1 million or more may request purchases, redemptions or
exchanges of shares of a Portfolio by telephone at the appropriate toll free
number provided in this Prospectus. It may be difficult to implement redemptions
or exchanges by telephone in times of drastic economic or market changes. In an
effort to prevent unauthorized or fraudulent redemption or exchange requests by
telephone, the Fund employs reasonable procedures specified by the Board of
Directors to confirm that such instructions are genuine. Telephone transaction
procedures include the following measures: requiring the appropriate telephone
transaction election be made on the telephone transaction authorization form
sent to shareholders upon request; requiring the caller to provide the names of
the account owners, the account owner's social security number or tax
identification number and name of Portfolio, all of which must match the Fund's
records; requiring that a service representative of Bennington, acting as
Transfer Agent complete a telephone transaction form listing all of the above
caller identification information; requiring that redemption proceeds be sent by
wire only to the owners of record at the bank account of record or by check to
the address of record; sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
business days of the call; and maintaining tapes of telephone transactions for
six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by a broker-dealer, trustee, custodian or
an attorney-in-fact (under a power of attorney), additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. The Fund may implement other
procedures from time to time. If reasonable procedures are not implemented, the
Fund may be liable for any loss due to unauthorized or fraudulent
<PAGE>
transactions. In all other cases, neither the Fund, the Portfolio nor Bennington
will be responsible for authenticity of redemption or exchange instructions
received by telephone.
REDEMPTION OF PORTFOLIO SHARES
Portfolio shares may be redeemed on any business day at the net asset
value next determined after the receipt of a redemption request in proper form.
Payment will ordinarily be made within seven days and will be wire-transferred
by automatic clearing house funds or other bank wire to the account designated
for the shareholder at a domestic commercial bank that is a member of the
Federal Reserve System. If requested in writing, payment will be made by check
to the account owners of record at the address of record. The Transfer Agent
charges a processing fee of $10.00 for each redemption check requested by a
shareholder, which processing fee may be waived by the Transfer Agent at its
discretion. If an investor has purchased Portfolio shares by check and
subsequently submits a redemption request, the redemption request will be
honored at the net asset value next calculated after receipt of the request,
however, the redemption proceeds will not be transmitted until the check used
for investment has cleared, which may take up to 15 days. This procedure does
not apply to shares purchased by wire transfer.
If a shareholder requests a redemption check or wire made payable to
someone other than the registered owner of the shares and/or sent to an address
other than the address of record, the request to redeem must (1) be made in
writing; (2) include an instruction to make the redemption proceeds payable to
someone other than the registered owner of the shares and/or send them to an
address other than the address of record; and (3) be signed by all registered
owners with their signatures guaranteed. See "ADDITIONAL INFORMATION."
Portfolio shares may be redeemed by faxing instructions to Bennington
at (206) 224-4274 or by mailing instructions to Bennington at P. O. Box 1748,
Seattle, WA 98111-9865. Redemptions of the Portfolios' shares may be effected on
any business day on which the New York Stock Exchange, Fifth Third and
Bennington are open, as long as instructions are received by Bennington by the
close of business of the New York Stock Exchange, normally 4:00 p.m. Eastern
time. In periods of severe market or economic conditions, the electronic
redemption of shares may be difficult due to an increase in the amount of
electronic transmissions. Use of the mail may result in the redemption request
being processed at a later time than it would have been if a instructions had
been sent by facsimile transmission. During the delay, the Portfolios' net asset
value may fluctuate.
Portfolio shares also may be redeemed through registered broker-dealers
who have made arrangements with the Fund permitting them to redeem such shares
by telephone or facsimile transmission and who may charge a fee for this
service. Advisor Class Shares of the Portfolios are available through the Fund
Supermarkets and Service Organizations. Generally these programs or
organizations require customers to pay either no or low transaction fees in
connection with purchases or redemptions.
If the Board of Directors determines that it would be detrimental to
the best interests of the remaining shareholders of a Portfolio to make payment
wholly or partly in cash, the Portfolio may pay the redemption price in whole or
in part by a distribution in kind of securities from the investment portfolio of
the Portfolio, in lieu of cash, in conformity with any applicable rules of the
SEC. Securities will be readily marketable and will be valued in the same manner
as in a regular redemption. See "VALUATION OF PORTFOLIO SHARES." If shares are
redeemed in kind, the redeeming shareholders would incur transaction costs in
converting the assets into cash. The Fund, however, has elected to be governed
by Rule 18f-1 under the Investment Company Act, pursuant to which a Portfolio is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Portfolio during any 90-day period for any one
shareholder.
The Fund reserves the right to redeem the shares of any shareholder
whose account balance is less than $500 per portfolio or whose aggregate account
is less than $2,000, and who is not part of an Automatic Investment Plan. The
Fund, however, will not redeem shares based solely on market reductions
<PAGE>
in net asset value. The Fund will give sixty (60) days prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption.
The Fund reserves the right to suspend the right of redemption or
postpone the date of payment for the Portfolios if the unlikely emergency
conditions which are specified in the Investment Company Act or determined by
the SEC should exist. Shareholders uncertain of requirements for redemption
should telephone the Fund at (206) 224-7420 or (800) 759-3504. Redemptions by
telephone may only be made as set out in the telephone transaction procedures
set forth in "Purchase of Portfolio Shares--Telephone Transactions."
Systematic Withdrawal Plan. Automatic withdrawal permits investors to
request withdrawal of a specified dollar amount (the minimum monthly withdrawal
on the Systematic Withdrawal Plan is $500.00 in aggregate) on a monthly basis on
the 15th (or the first business day before the 15th) and/or on the last business
day of each month. An application for automatic withdrawal can be obtained from
Bennington or the Fund and must be received by Bennington ten calendar days
before the first scheduled withdrawal date. Automatic withdrawal may be ended at
any time by the investor or the Fund. The Systematic Withdrawal Plan may be
discontinued at any time by the Fund or Bennington. The Fund reserves the right
to reject any Systematic Withdrawal Plan application. Purchases of additional
shares concurrently with withdrawals generally are undesirable. Funds will be
disbursed according to the shareholder's standing redemption instructions.
ADDITIONAL INFORMATION
Service Providers
Manager, Administrator, Transfer Agent, Registrar and Dividend
Disbursing Agent
Bennington, 1420 Fifth Avenue, Suite 3130, Seattle, Washington 98101,
is the manager and administrator of the Fund pursuant to a Management Agreement
with the Fund. Bennington is also the transfer agent, registrar and dividend
disbursing agent for the Portfolios and provides other administrative,
recordkeeping and compliance services to the Fund pursuant to a Transfer Agent
Agreement between Bennington and the Fund.
Custodian and Fund Accounting Agent
Fifth Third, 38 Fountain Square Plaza, Cincinnati, Ohio 45264, acts as
Custodian of the Portfolios' assets and may employ sub-custodians outside the
United States, which have been approved by the Board of Directors. Fifth Third
acts as Custodian for investors of the Portfolios with respect to IRA Accounts.
Fifth Third holds all portfolio securities and cash assets of the Portfolios and
is authorized to deposit securities in securities depositories or to use the
services of sub-custodians. Fifth Third also provides portfolio accounting and
recordkeeping services to the Fund.
Auditors
Deloitte & Touche LLP, 1700 Courthouse Plaza, Dayton, Ohio 45402 are
the Fund's independent auditors. Shareholders will receive semi-annual and
annual financial statements; the annual statement is audited by Deloitte &
Touche LLP.
Fund Counsel
Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019 serves as
the Fund's outside counsel.
<PAGE>
Signature Guarantees
A signature guarantee is designed to protect the shareholders and the
Portfolios against fraudulent transactions by unauthorized persons. In certain
instances, such as transfer of ownership or when the registered shareholder(s)
requests that redemption proceeds be sent to a different name or address than
the registered name and address of record on the shareholder account, the Fund
will require that the shareholder's signature be guaranteed. When a signature
guarantee is required, each signature must be guaranteed by a domestic bank or
trust company, credit union, broker, dealer, national securities exchange,
registered securities association, clearing agency or savings association as
defined by federal law. The institution providing the guarantee must use a
signature ink stamp or medallion which states "Signature(s) Guaranteed" and be
signed in the name of the guarantor by an authorized person with that person's
title and the date. The Fund may reject a signature guarantee if the guarantor
is not a member of or participant in a signature guarantee program. Please note
that a notary public stamp or seal is not acceptable. The Fund reserves the
right to amend or discontinue its signature guarantee policy at any time and,
with regard to a particular transaction, to require a signature guarantee at its
discretion.
Organization, Capitalization and Voting
The Fund was incorporated in Maryland on June 10, 1991. The Fund is
authorized to issue 15 billion shares of common stock of $0.001 par value per
share, currently divided into eight Portfolios, each with two classes of shares,
the Institutional Class Shares and the Advisor Class Shares. Advisor Class
Shares may have different distribution and other expenses, which may affect
performance. The Institutional Class Shares are not subject to sales charges,
12b-1 fees, and/or levels of operating expenses as are the Advisor Class Shares.
As a result, the other class is expected to achieve different investment returns
than the Advisor Class Shares. Please contact your sales representative, or the
Fund at (800) 759-3504, for additional information about the Institutional Class
Shares for the Portfolios or the Institutional Class Shares and Advisor Class
Shares of the Fixed-Income Portfolios. The Board of Directors may increase or
decrease the number of authorized shares without approval by shareholders.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. All shares of
a Portfolio are equal as to earnings, assets and voting privileges. There are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of a Portfolio is entitled to its
portion of all of the Portfolio's assets after all debts and expenses of the
Portfolio have been paid. The Portfolios' shares do not have cumulative voting
rights for the election of Directors. Pursuant to the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board of Directors
may determine. Shareholders of a class of shares or Portfolio have separate
voting rights with respect to matters that only that affect that class or
Portfolio. See "Other Information--Voting Rights" in the Statement of Additional
Information.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold annual meetings
of shareholders unless the election of Directors is required to be acted on by
shareholders under the Investment Company Act. Shareholders have certain rights,
including the right to call a meeting upon a vote of 10% of the Fund's
outstanding shares for the purpose of voting on the removal of one or more
Directors or to transact any other business. Any proposals by shareholders to be
presented at an annual meeting must be received by the Fund for
<PAGE>
inclusion in its proxy statement and form of proxy relating to that meeting at
least 120 calendar days in advance of the date of the Fund's proxy statement
released in connection with the previous year's annual meeting, if any. If there
was no annual meeting held in the previous year or the date of the annual
meeting has changed by more than 30 days, a shareholder proposal shall have been
received by the Fund a reasonable time before the solicitation is made. See
"Multi-Class Plan".
As of March 31, 1998, the following persons were owners of record of
25% or more of the shares of the Portfolios of the Fund:
Value
and Small to
Beneficial Owner Growth Income Mid Cap International
- ---------------- ------ ------ ------- -------------
As of March 31, 1998, the directors and officers of the Fund, as a
group, beneficially owned less than 1% of the shares of each Portfolio. The
fiscal year end for each Portfolio is December 31.
Shareholder Inquiries and Reports to Shareholders
To reduce the volume of mail shareholders receive, it is anticipated
that only one copy of most Fund reports, such as the Fund's annual report, will
be mailed to a shareholder's household (same surname, same address). A
shareholder may call (800) 759-3504 if additional shareholder reports are
desired. The Fund's Annual Report to Shareholders, containing further
information about performance, is available without charge from the Fund.
Inquiries regarding the Portfolios and requests for Annual Reports should be
addressed to the Fund at 1420 Fifth Avenue, Suite 3130, Seattle, Washington
98101, or by telephone at (206) 224-7420 or (800) 759-3504.
Glass-Steagall Act
The Glass-Steagall Act and other applicable laws generally prohibit
banks that are members of the Federal Reserve System from engaging in the
business of underwriting, selling, distributing securities or engaging in
investment advisory activities. To the extent that banks or subsidiaries of
banks are deemed to be performing any such activities, the Fund believes such
entities may engage in such activities for the Portfolios without violation of
the Glass-Steagall Act or other applicable banking laws or regulations. However,
it is possible that future changes in either Federal or state statutes and
regulations concerning the permissible activities of banks or trust companies,
as well as further judicial or administrative decisions and interpretations of
present and future statutes and regulations, might prevent such entities from
continuing to engage in such activities for the Portfolios. If such entities
were prohibited from acting in such capacities as a result of such future
changes, changes in the operation of the Fund might occur or a shareholder
serviced by such entity might no longer be able to avail itself of any services
then being provided. The Board of Directors does not expect that shareholders of
the Fund would suffer any adverse financial consequences as a result of these
occurrences but if such consequences result, it is expected that the Board of
Directors would direct the Fund to make other arrangements for the Fund or the
shareholders of the Fund.
<PAGE>
MONEY MANAGER PROFILES
The following information as to each Money Manager has been supplied by
the respective Money Managers. The Statement of Additional Information contains
further information concerning each Money Manager, including a description of
its business history and identification of its controlling persons.
Growth Portfolio
Geewax, Terker & Company, 99 Starr Street, Phoenixville, PA 19460, is a
Pennsylvania partnership and registered investment adviser whose general
partners are John J. Geewax and Bruce E. Terker. John J. Geewax, MBA, JD, is
primarily responsible for the day-to-day management and investment decisions for
the Growth Portfolio and is supported by Christopher P. Ouimet who assists in
the management of the Growth Portfolio. Mr. Geewax founded Geewax Terker in
1982. Mr. Ouimet joined Geewax Terker in 1994. Prior to that, Mr. Ouimet was at
The Vanguard Group as a quantitative analyst from 1992 to 1994 and as a
marketing analyst from 1990 to 1992.
Value and Income Portfolio
Martingale Asset Management, L.P., 222 Berkeley Street, Boston, MA
02116 ("Martingale"), is the Money Manager of the Value and Income Portfolio.
Martingale is a Delaware limited partnership, which consists of two general
partners, Martingale Asset Management Corp. ("Martingale Corp."), a
Massachusetts corporation, and Commerz Asset Management USA Corporation ("CAM"),
a Delaware corporation, and four limited partners. Arnold S. Wood and William E.
Jacques each own 32.26% of Martingale Corp. CAM is a wholly-owned subsidiary of
Commerz International Capital Management GmbH ("CICM") headquartered in
Frankfurt, Germany. Commerzbank AG is the parent company of CICM. William E.
Jacques, CFA, Executive Vice President and Chief Investment Officer of
Martingale, is primarily responsible for the investment decisions for the Value
and Income Portfolio. Mr. Jacques joined Martingale in 1987. Douglas E. Stark,
CFA, Vice President and Director of US Equity Management and Research is
primarily responsible for the day-to-day management of the Value and Income
Portfolio. Mr. Stark joined Martingale in 1996. Prior to joining Martingale, Mr.
Stark was Senior Vice President and Portfolio Manager at InterCoast Capital
Company from 1994 to 1996. Prior to that, he was Vice President and managed
international stock portfolios at State Street Global Advisors, an area of State
Street Bank and Trust Company, from 1990 until 1994.
Small to Mid Cap Portfolio
Symphony Asset Management, Inc., 555 California Street, San Francisco,
CA 94104 ("Symphony"), is the Money Manager of the Small to Mid Cap Portfolio.
Symphony is a California corporation founded in March, 1994. Symphony is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Investment Advisers Act"), and the California Department of
Corporations. Symphony is a wholly-owned subsidiary of BARRA, Inc. ("BARRA"), a
California corporation and registered investment adviser under the Investment
Advisers Act and the California Department of Corporations, and as a publicly
traded corporation under Section 12(g) of the Securities Exchange Act of 1934,
as amended. BARRA is one of the world's leading suppliers of analytical
financial software and has pioneered many of the techniques used in systematic
investment management, including active management based on so-called factor
return predictions. Praveen K. Gottipalli, Director of Investments of Symphony,
is primarily responsible for the day-to-day management and investment decisions
for the Small to Mid Cap Portfolio. Mr. Gottipalli has been Director of
<PAGE>
Investments with Symphony since March, 1994. From 1985 to 1994, he was with
BARRA, Inc., where, prior to joining Symphony, he was Director of the Active
Strategies Group for BARRA, Inc. Mr. Gottipalli has worked on a number of
different investment management strategies including valuation models for global
equities, global tilt funds and aggressive market neutral strategies that
combine quantitative and qualitative analysis. He has been actively involved
with design, analysis, implementation and enhancement of these strategies.
International Portfolio
Nicholas-Applegate Capital Management, ("Nicholas-Applegate"), 600 West
Broadway, 29th Floor, San Diego, CA 92101, is the Money Manager for the
International Portfolio. Nicholas-Applegate is a California limited partnership
and registered investment adviser whose general partner is Nicholas- Applegate
Capital Management Holdings, L.P., a California limited partnership controlled
by Arthur E. Nicholas. Senior members of the seven member international
portfolio team include: Catherine Somhegyi, Lawrence S. Speidell and Loretta J.
Morris. The senior members are primarily responsible for making the day-to-day
management and investment decisions for the International Portfolio. Mr.
Nicholas, Managing Partner, founded Nicholas-Applegate in 1984. Catherine
Somhegyi, Chief Investment Officer, Global Equity Management, joined
Nicholas-Applegate in 1987. Mr. Speidell, Partner and Director of Global and
Systematic Portfolio Management, joined Nicholas-Applegate in 1994. From 1983 to
1994, Mr. Speidell was a portfolio manager for Batterymarch Financial
Management. Ms. Morris, Senior Portfolio Manager, International, joined
Nicholas-Applegate in 1990. From 1981 to 1989, Ms. Morris was responsible for
research, client service and operations at Collins Associates, a pension
consulting firm.
<PAGE>
APPENDIX A
DESCRIPTION OF INDICES
The following information as to each index has been supplied by the
respective preparer of the index or has been obtained from other
publicly-available information.
Standard & Poor's 500 Composite Stock Price Index (1)
The purpose of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500") is to portray the pattern of common stock price movement.
Construction of the index proceeds from industry groups to the whole. Currently
there are four groups: 400 Industrials, 40 Utilities, 20 Transportation and 40
Financial. Since some industries are characterized by companies of relatively
small stock capitalization, the index does not comprise the 500 largest
companies listed on the New York Stock Exchange.
Component stocks are chosen solely with the aim of achieving a
distribution by broad industry groupings that approximates the distribution of
these groupings in the New York Stock Exchange common stock population, taken as
the assumed model for the composition of the total market. Each stock added to
the index must represent a viable enterprise and must be representative of the
industry group to which it is assigned. Its market price movements must in
general be responsive to changes in industry affairs.
The formula adopted by S&P is generally defined as a "base-weighted
aggregative" expressed in relatives with the average value for the base period
(1941-1943) equal to 10. Each component stock is weighted so that it will
influence the index in proportion to its respective market importance. The most
suitable weighting factor for this purpose is the number of shares outstanding.
The price of any stock multiplied by number of shares outstanding gives the
current market value for that particular issue. This market value determines the
relative importance of the security.
Market values for individual stocks are added together to obtain their
particular group market value. These group values are expressed as a relative,
or index number, to the base period (1941-1943) market value. As the base period
market value is relatively constant, the index number reflects only fluctuations
in current market values.
S&P/BARRA Growth Index
S&P/BARRA Value Index
BARRA, in collaboration with Standard and Poor's Corporation, has
constructed the S&P/BARRA Growth Index (the "Growth Index") and S&P/BARRA Value
Index (the "Value Index") to separate the S&P 500 into value stocks and growth
stocks.
The Growth and Value Indices are constructed by dividing the stocks in
the S&P 500 according to their price-to-book ratios. The Value Index contains
firms with lower price-to-book ratios and has 50 percent of the capitalization
of the S&P 500. The Growth Index contains the remaining members of the S&P 500.
Each of the indices is capitalization-weighted and is rebalanced semi-annually
on January 1 and July 1 of each year.
Although the Value Index is created based on price-to-book ratios, the
companies in the index generally have other characteristics associated with
"value" stocks: low price-to-earnings ratios, high dividend yields, and low
historical and predicted earnings growth. Because of these characteristics, the
Value Index historically has had higher weights in the Energy, Utility, and
Financial sectors than the S&P 500.
Companies in the Growth Index tend to have opposite characteristics
from those in the Value Index: high ea rnings-to-price ratios, low dividend
yields, and high earnings growth. Historically, the
- ----------
(1) "Standards & Poor's," "S&P" and "S&P 500" are trademarks of Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. The Growth and
Value and Income Portfolios are not sponsored, endorsed, sold or
promoted by Standards & Poor's.
A-3
<PAGE>
APPENDIX A
Growth Index has been more concentrated in Electronics, Computers, Health Care
and Drugs than the S&P 500.
As of December 31, 1996 there were 339 companies in the Value Index;
consequently there are 161 companies in the Growth Index.
Wilshire 4500 Index (2)
The purpose of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500") is to portray the pattern of common stock price movement.
Construction of the index proceeds from industry groups to the whole. Currently
there are four groups: 400 Industrials, 40 Utilities, 20 Transportation and 40
Financial. Since some industries are characterized by companies of relatively
small stock capitalization, the index does not comprise the 500 largest
companies listed on the New York Stock Exchange.
Component stocks are chosen solely with the aim of achieving a
distribution by broad industry groupings that approximates the distribution of
these groupings in the New York Stock Exchange common stock population, taken as
the assumed model for the composition of the total market. Each stock added to
the index must represent a viable enterprise and must be representative of the
industry group to which it is assigned. Its market price movements must in
general be responsive to changes in industry affairs.
The formula adopted by S&P is generally defined as a "base-weighted
aggregative" expressed in relatives with the average value for the base period
(1941-1943) equal to 10. Each component stock is weighted so that it will
influence the index in proportion to its respective market importance. The most
suitable weighting factor for this purpose is the number of shares outstanding.
The price of any stock multiplied by number of shares outstanding gives the
current market value for that particular issue. This market value determines the
relative importance of the security.
Market values for individual stocks are added together to obtain their
particular group market value. These group values are expressed as a relative,
or index number, to the base period (1941-1943) market value. As the base period
market value is relatively constant, the index number reflects only fluctuations
in current market values.
S&P/BARRA Growth Index
S&P/BARRA Value Index
BARRA, in collaboration with Standard and Poor's Corporation, has
constructed the S&P/BARRA Growth Index (the "Growth Index") and S&P/BARRA Value
Index (the "Value Index") to separate the S&P 500 into value stocks and growth
stocks.
The Growth and Value Indices are constructed by dividing the stocks in
the S&P 500 according to their price-to-book ratios. The Value Index contains
firms with lower price-to-book ratios and has 50 percent of the capitalization
of the S&P 500. The Growth Index contains the remaining members of the S&P 500.
Each of the indices is capitalization-weighted and is rebalanced semi-annually
on January 1 and July 1 of each year.
Although the Value Index is created based on price-to-book ratios, the
companies in the index generally have other characteristics associated with
"value" stocks: low price-to-earnings ratios, high dividend yields, and low
historical and predicted earnings growth. Because of these characteristics, the
Value Index historically has had higher weights in the Energy, Utility, and
Financial sectors than the S&P 500.
Companies in the Growth Index tend to have opposite characteristics
from those in the Value Index: high earnings-to-price ratios, low dividend
yields, and high earnings growth. Historically, the
- ----------
(2) "Wilshire 4500" and "Wilshire 5000" are registered trademarks of
Wilshire Associates. The Small to Mid Cap Portfolio is not sponsored,
endorsed, sold or promoted by Wilshire Associates.
A-3
<PAGE>
APPENDIX A
Growth Index has been more concentrated in Electronics, Computers, Health Care
and Drugs than the S&P 500.
As of December 31, 1996 there were 339 companies in the Value Index;
consequently there are 161 companies in the Growth Index.
Wilshire 4500 Index (2)
While the S&P 500 Index includes the preponderance of large market
capitalization stocks, it excludes most of the medium and small size companies
which comprise the remaining 33% of the capitalization of the U.S. stock market.
The Wilshire 4500 Index (an unmanaged index) consists of all U.S. stocks that
are not in the S&P 500 and that trade regularly on the New York and American
Stock Exchanges as well as in the NASDAQ over-the-counter market. The Wilshire
4500 Index is constructed from the Wilshire 5000 Equity Index, which measures
the performance of all U.S. headquartered equity securities with readily
available price data. Approximately 6500 capitalization weighted security
returns are used to adjust the Wilshire 5000 Equity Index. The Wilshire 5000
Equity Index was created by Wilshire Associates in 1974 to aid in performance
measurement. The Wilshire 4500 Index consists of the Wilshire 5000 Equity Index
after excluding the companies in the S&P 500.
Wilshire Associates view the performance of the Wilshire 5000's
securities several ways. Price and total return indices using both capital and
equal weightings are computed. The unit value of these four indices was set to
1.0 on December 31, 1970.
Morgan Stanley Capital International EAFE(R) + EMF Index2 (2)
While the S&P 500 Index includes the preponderance of large market
capitalization stocks, it excludes most of the medium and small size companies
which comprise the remaining 33% of the capitalization of the U.S. stock market.
The Wilshire 4500 Index (an unmanaged index) consists of all U.S. stocks that
are not in the S&P 500 and that trade regularly on the New York and American
Stock Exchanges as well as in the NASDAQ over-the-counter market. The Wilshire
4500 Index is constructed from the Wilshire 5000 Equity Index, which measures
the performance of all U.S. headquartered equity securities with readily
available price data. Approximately 6500 capitalization weighted security
returns are used to adjust the Wilshire 5000 Equity Index. The Wilshire 5000
Equity Index was created by Wilshire Associates in 1974 to aid in performance
measurement. The Wilshire 4500 Index consists of the Wilshire 5000 Equity Index
after excluding the companies in the S&P 500.
Wilshire Associates view the performance of the Wilshire 5000's
securities several ways. Price and total return indices using both capital and
equal weightings are computed. The unit value of these four indices was set to
1.0 on December 31, 1970.
Morgan Stanley Capital International EAFE(R) + EMF Index (3)
The Morgan Stanley Capital International ("MSCI") EAFE7 + EMF Index is
a market capitalization weighted index composed of companies representative of
the market structure of 41 Developed and Emerging Market countries. The index is
calculated without dividends or with gross dividends reinvested, in both U.S.
Dollars and local currencies.
MSCI EAFE7 Index is a market capitalization weighted index composed of
companies representative of the market structure of 19 Developed Market
countries in Europe, Australasia and the Far East. The index is calculated
without dividends, with net or with gross dividends reinvested, in both U.S.
Dollars and local currencies.
- ----------
(3) "EAFE" is a registered trademark of Morgan Stanley Capital International.
The International Portfolio is not sponsored, endorsed, sold or promoted by
Morgan Stanley Capital International.
A-3
<PAGE>
APPENDIX A
MSCI Emerging Markets Free ("EMF") Index is a market capitalization
weighted index composed of companies representative of the market structure of
26 Emerging Market countries in Europe, Latin America and the Pacific Basin. The
MSCI EMF Index excludes closed markets and those shares in otherwise free
markets which are not purchasable by foreigners.
The MSCI indices reflect stock market trends by representing the
evolution of an unmanaged portfolio containing a broad selection of domestically
listed companies. A dynamic optimization process which involves maximizing float
and liquidity, reflecting accurately the market's size and industry profiles,
and minimizing cross ownership is used to determine index constituents. Stock
selection also takes into consideration the trading capabilities of foreigners
in emerging market countries.
As of March 31, 1997, the MSCI EAFE(R) + EMF Index consisted of 2,032 companies
traded on stock markets in 45 countries . The weighting of the MSCI EAFE(R) +
EMF Index by country was as follows:
Developed Markets: Australia 2.60%, Austria 0.36%, Belgium 1.12%, Denmark 0.84%,
Finland 0.63%, France 6.48%, Germany 8.07%, Hong Kong 3.11%, Ireland 0.30%,
Italy 2.78%, Japan 25.28%, Netherlands 4.44%, New Zealand 0.33%, Norway 0.51%,
Singapore 1.43%, Spain 1.97%, Sweden 2.33%, Switzerland 5.43%, United Kingdom
16.94%.
Emerging Markets: Argentina 0.51%, Brazil 2.08%, Chile 0.56%, China Free 0.08%,
Colombia 0.12%, Czech Republic 0.17%, Greece 0.22%, Hungary 0.07%, India 0.07%,
Indonesia 0.80%, Israel 0.77%, Jordan 0.31%, Korea Free 0.58%, Malaysia 2.32%,
Mexico Free 1.20%, Pakistan 0.10%, Peru 0.16%, Philippines Free 0.49%, Poland
0.07%, Portugal 0.31%, South Africa 1.73%, Sri Lanka 0.01%, Taiwan 1.36%,
Thailand 0.57%, Turkey 0.28%, Venezuela Free 0.15%.
Unlike other broad-based indices, the number of stocks included in MSCI
EAFE(R) + EMF Index is not fixed and may vary to enable the Index to continue to
reflect the primary home markets of the constituent countries. Changes in the
Index will be announced when made. MSCI EAFE(R) + EMF Index is a
capitalization-weighted index calculated by Morgan Stanley Capital International
based on the official closing prices for each stock in its primary local or home
market. The base value of the MSCI EAFE7 + EMF Index was equal to 100.0 on
January 1, 1988. As of March month-end 1997, the current value of the MSCI
EAFE(R) + EMF Index was 188.5 (with gross dividends reinvested).
A-3
<PAGE>
BENNINGTON CAPITAL MANAGEMENT L. P.
U.S. Bank Centre
1420 Fifth Avenue, Suite 3130
Seattle, Washington 98101
Telephone: 206/224-7420
800/759-3504
Facsimile: 206/224-4274
No dealer, sales person or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information and representations must not
be relied upon. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
state to any person to whom it is unlawful to make such an offer. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Portfolios, Bennington or the Money Managers since the date
hereof; however, if any material change occurs while this Prospectus is required
by law to be delivered, this Prospectus will be amended or supplemented
accordingly.
Accessor(R) and Alloset(R) are registered trademarks of Bennington Capital
Management L.P.
<PAGE>
ACCESSOR(R) FUNDS, INC. 1420 Fifth Avenue
Suite 3130
FIXED-INCOME PORTFOLIOS, Advisor Class Shares Seattle, WA 98101
PROSPECTUS - April __, 1998 1-800-759-3504
- ----------------------------------------------------------------------------
New Account Information and Shareholder Services 206-224-7420
- ----------------------------------------------------------------------------
ACCESSOR(R) FUNDS, INC. (the "Fund"), is a multi-managed, no-load, open-end
management investment company, known as a mutual fund. The Fund currently
consists of eight diversified investment portfolios, each with its own
investment objective and policies. Each portfolio offers two classes of shares,
Institutional Class Shares and Advisor Class Shares. This Prospectus pertains
only to the Advisor Class Shares following four fixed-income portfolios of the
Fund (individually, a "Portfolio" and collectively, the "Portfolios"):
INTERMEDIATE FIXED-INCOME PORTFOLIO
SHORT-INTERMEDIATE FIXED-INCOME PORTFOLIO
MORTGAGE SECURITIES PORTFOLIO
U.S. GOVERNMENT MONEY PORTFOLIO
and sets forth concisely the information about the Portfolios that a prospective
investor should know before investing. Through a separate prospectus, the Fund
offers an additional class of shares, the Institutional Class Shares, for the
four equity portfolios. Through separate prospectuses, the Fund offers Advisor
Class Shares and Institutional Class Shares for the four fixed-income portfolios
of the Fund. See "Description of the Fund --Multiple Classes of Shares."
The Fund has filed a Statement of Additional Information, dated April __, 1998,
with the Securities and Exchange Commission (the "SEC"). The Statement of
Additional Information, containing further information about the portfolios and
the Fund that may be of interest to investors, is incorporated herein by
reference in its entirety. A free copy may be obtained by writing or calling the
Fund at the address or phone number shown above. The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
INVESTMENTS IN THE U.S. GOVERNMENT MONEY PORTFOLIO ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. WHILE THE U.S. GOVERNMENT MONEY PORTFOLIO
INTENDS TO MAINTAIN ITS NET ASSET VALUE AT $1.00 PER SHARE, THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO DO SO. SEE "VALUATION OF PORTFOLIO
SHARES."
INVESTMENTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK. FURTHER, INVESTMENTS IN THE PORTFOLIOS ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. AN INVESTMENT IN THE PORTFOLIOS ENTAILS RISK OF LOSS, INCLUDING
THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH STATE.
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.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY.... 3
FEES AND PORTFOLIO EXPENSES.. 5
FINANCIAL HIGHLIGHTS 7
INTERMEDIATE FIXED-INCOME PORTFOLIO... 7
SHORT-INTERMEDIATE FIXED-INCOME PORTFOLIO...... 8
MORTGAGE SECURITIES PORTFOLIO 9
U.S. GOVERNMENT MONEY PORTFOLIO...... 10
PORTFOLIO MANAGEMENT........ 11
DESCRIPTION OF THE PORTFOLIOS........ 11
GENERAL... 11
RISK FACTORS AND SPECIAL CONSIDERATIONS....... 12
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES. 12
INVESTMENT POLICIES 14
INVESTMENT RESTRICTIONS..... 22
GENERAL MANAGEMENT OF THE PORTFOLIOS. 22
THE MONEY MANAGERS. 26
EXPENSES OF THE PORTFOLIOS.. 29
PORTFOLIO TRANSACTION POLICIES....... 30
DIVIDENDS AND DISTRIBUTIONS. 30
TAXES..... 31
CALCULATION OF PORTFOLIO PERFORMANCE. 32
VALUATION OF PORTFOLIO SHARES........ 35
PURCHASE OF PORTFOLIO SHARES 36
REDEMPTION OF PORTFOLIO SHARES....... 39
ADDITIONAL INFORMATION...... 40
SERVICE PROVIDERS.. 40
SHAREHOLDER SERVICING ARRANGEMENTS... 41
SIGNATURE GUARANTEES........ 41
ORGANIZATION, CAPITALIZATION AND VOTING....... 41
SHAREHOLDER INQUIRIES AND REPORTS TO SHAREHOLDERS...... 42
GLASS-STEAGALL ACT. 42
MONEY MANAGER PROFILES...... 43
INTERMEDIATE FIXED-INCOME PORTFOLIO.. 43
SHORT-INTERMEDIATE FIXED-INCOME PORTFOLIO..... 43
MORTGAGE SECURITIES PORTFOLIO........ 43
DESCRIPTION OF INDICES..... A-1
LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX... A-1
LEHMAN BROTHERS GOVERNMENT/CORPORATE 1-5 YEAR INDEX... A-1
LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX...... A-1
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.
The Fund. The Fund is a multi-managed, no-load, open-end management
investment company, known as a mutual fund. The Fund currently consists of eight
diversified investment portfolios, each with its own investment objective and
policies. Each portfolio offers two classes of shares, the Institutional Class
Shares and the Advisor Class Shares. This Prospectus pertains only to the
Advisor Class Shares of Fund's Intermediate Fixed-Income Portfolio,
Short-Intermediate Fixed-Income Portfolio, Mortgage Securities Portfolio
(collectively, the "Bond Portfolios") and the U.S. Government Money Portfolio.
See "DESCRIPTION OF THE PORTFOLIOS--General" and "--Investment Objectives and
Investment Policies" And "Multi-Class Structure".
Each Portfolio seeks to achieve its investment objective by using
investment policies and strategies which are distinct from investment policies
and strategies of other portfolios of the Fund. The investment objective and the
name of the investment management organization (individually, the "Money
Manager" and collectively, the "Money Managers") for each of the Portfolios are
described below:
o INTERMEDIATE FIXED-INCOME PORTFOLIO -- Bennington Capital Management L.P.--
seeks generation of current income by investing primarily in fixed-income
securities with durations of between three and ten years. Under normal
market conditions, the Portfolio will have a dollar weighted average
duration of not less than three years nor more than ten years.
o SHORT-INTERMEDIATE FIXED-INCOME PORTFOLIO -- Bennington Capital Management
L.P. -- seeks preservation of capital and generation of current income by
investing primarily in fixed-income securities with durations of between
one and five years. Under normal market conditions, the Portfolio will have
a dollar weighted average duration of not less than two years nor more than
five years.
o MORTGAGE SECURITIES PORTFOLIO -- BlackRock Financial Management, Inc. --
seeks generation of current income by investing primarily in
mortgage-related securities.
o U. S. GOVERNMENT MONEY PORTFOLIO -- Bennington Capital Management L.P. --
seeks maximum current income consistent with the preservation of principal
and liquidity by investing primarily in short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Management. Bennington Capital Management L.P., a Washington limited
partnership ("Bennington"), is the manager and administrator of the Fund
pursuant to its Management Agreement with the Fund. As such, Bennington provides
or oversees the provision of all general management, administration, investment
advisory and portfolio management services for the Fund. See "GENERAL MANAGEMENT
OF THE PORTFOLIOS."
Purchase and Redemption of Shares. Advisor Class Shares offered by this
Prospectus are purchased and redeemed by shareholders either directly from the
Portfolios, through various brokerage firms including Charles Schwab & Company,
Inc. Mutual Fund One Source(TM) program; Fidelity Brokerage Services, Inc.,
FundsNetwork(TM) Program, Jack White & Company, Inc. and Waterhouse Securities,
Inc. or such other industry recognized service providers (collectively, the
"Fund Supermarkets") or through financial institutions, retirement plans,
broker-dealers, depository institutions, institutional shareholders of record,
registered investment advisers, and other financial intermediaries
(collectively, "Service Organizations") at net asset value next determined after
an order for purchase or redemption has been received, without any sales or
redemption charges. The minimum investment for Advisor Class Shares of the
Portfolios is $5,000.See "PURCHASE OF PORTFOLIO SHARES" and "REDEMPTION OF
PORTFOLIO SHARES."
Risk Factors and Special Considerations. The Fund is designed to provide
diverse opportunities in equity and debt securities. There can be no assurance
that the investment objective for any Portfolio will be achieved. See
"DESCRIPTION OF THE PORTFOLIOS--Risk Factors and Special Considerations."
Investing in a mutual fund that purchases securities of companies and
governments of foreign countries, involves risks that go beyond the usual risks
inherent in a mutual fund limiting its holdings to domestic investments. Certain
Portfolios also may be subject to certain risks in using investment techniques
and strategies such as entering into repurchase agreements and trading futures
contracts and options on futures contracts. DESCRIPTION OF THE
PORTFOLIOS--Investment Objectives and Investment Policies" and "Investment
Restrictions, Policies and Risk Considerations--Investment Restrictions" in the
Statement of Additional Information. With respect to the Intermediate
Fixed-Income and the Short-Intermediate Fixed Income Portfolios, Bennington or a
Money Manager may adopt a temporary defensive strategy under abnormal market or
economic conditions. During these times, one or more Portfolios may make
investments which result in the Portfolios' average dollar weighted duration
rising above their designated ranges. Such a strategy differs from other
defensive strategies in that it involves greater rather than less risk to the
Portfolios. See "DESCRIPTION OF THE PORTFOLIOS--Investment Objectives and
Investment Policies--Intermediate Fixed-Income Portfolio," and
"--Short-Intermediate Fixed-Income Portfolio."
Dividends and Distributions. Each Portfolio intends to distribute at least
annually to its shareholders substantially all of its net investment income and
its net realized long- and short-term capital gains. Dividends from the net
investment income of the U.S. Government Money Portfolio will be declared daily
and paid monthly. Dividends from the net investment income of the Bond
Portfolios will be declared and paid monthly. See "DIVIDENDS AND DISTRIBUTIONS."
Taxation. Each Portfolio has elected to qualify and intends to remain
qualified as a regulated investment company for federal income tax purposes. As
such, the Fund anticipates that no Portfolio will be subject to federal income
tax on income and gains that are distributed to shareholders. See "TAXES."
Service Providers.
Bennington is the manager and administrator of the Fund, as described
above. Bennington provides or oversees the provision of all general management,
administration, investment advisory and portfolio management services for the
Fund. Bennington also provides transfer agent, registrar, dividend disbursing
agent, recordkeeping, administrative and compliance services to the Fund,
pursuant to its Transfer Agency and Administrative Agreement (the "Transfer
Agent Agreement") with the Fund.
The Fifth Third Bank, an Ohio banking corporation ("Fifth Third"), acts as
custodian (the "Custodian") of the Portfolios' assets, including accounts
established under the Fund's Individual Retirement Custodial Account Plan (the
"IRA Accounts"). Fifth Third may employ sub-custodians outside the United States
which have been approved by the Fund's Board of Directors (the "Board of
Directors"). Fifth Third also performs accounting, recordkeeping, and other
services for the Fund (the "Fund Accounting Agent").
Deloitte & Touche LLP are the Fund's independent auditors.
Mayer, Brown & Platt serves as the Fund's outside legal counsel. See
"ADDITIONAL INFORMATION--Service Providers."
<PAGE>
FEES AND PORTFOLIO EXPENSES
The following table lists the fees and expenses that an investor should
expect to incur as a shareholder of Advisor Class Shares of each of the
Portfolios based on projected annual operating expenses.
SHAREHOLDER TRANSACTION EXPENSES(a) PORTFOLIOS(b)
----------------------------------------------------
SHORT- U.S.
INTERMEDIATE INTERMEDIATE MORTGAGE GOVERNMENT
FIXED-INCOME FIXED-INCOME SECURITIES MONEY
------------ ------------ ---------- -----
Sales Load on Purchases None None None None
Sales Load on Reinvested
Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees/Exchange
Fees(c) None None None None
- -------------------------------------
(a) Shares of the Portfolios are expected to be sold primarily through Service
Organizations, which may charge shareholders a fee. See "GENERAL MANAGEMENT
OF THE PORTFOLIOS--Distribution."
(b) An annual maintenance fee of $25.00 may be charged by the Transfer Agent to
each IRA Account with an aggregate balance of less than $10,000 on December
31 of each year.
(c) The Transfer Agent may charge a processing fee of $10.00 for each
redemption check requested by a shareholder. See "REDEMPTION OF PORTFOLIO
SHARES."
ANNUAL PORTFOLIO OPERATING EXPENSES(a) Portfolios
(as a percentage of average net assets)
----------------------------------------------------
SHORT- U.S.
INTERMEDIATE INTERMEDIATE MORTGAGE GOVERNMENT
FIXED-INCOME FIXED-INCOME SECURITIES MONEY
------------ ------------ ---------- -----
Management Fees (b) 0.36% 0.36% 0.59% 0.25%
12b-1 Fees(c) 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.33% 0.35% 0.27% 0.29%
Administrative Fee(d) 0.25% 0.25% 0.25% 0.25%
Total Other Expenses (e) 0.58% 0.60% 0.52% 0.54%
Total Portfolio Operating
Expenses 1.19% 1.21% 1.36% 1.04%
==== ==== ==== ====
- -------------------------------------------------
(a) The table data reflects fees and expenses expected to be incurred during
the fiscal year ended December 31, 1998, not actual expenses. For actual
expenses of the Portfolios prior to establishing the Advisor Class Shares
incurred during the fiscal year ended December 31, 1997, see "Fees and
Portfolio Expenses" in the Equity Portfolios - Institutional Class Shares
Prospectus or the Annual Report for the period ended December 31, 1997.
(b) Management fees consist of the management fee paid to Bennington and the
Money Manager fee paid to each Portfolio's Money Manager. See "GENERAL
MANAGEMENT OF THE PORTFOLIOS--Fund Manager Services and Fees" and "THE
MONEY MANAGERS--Money Manager Fees."
(c) The Distribution Plan for Advisor Class Shares has been adopted in
conformity with the requirements set forth under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "Investment Company Act").
In addition, a Shareholder Service Plan has been adopted for the Advisor
Class Shares. The combination of the fees paid pursuant to the Distribution
Plan and the Shareholder Service Plan, may be no more than 0.25% of the
annual net assets attributable to Advisor Class Shares. See "GENERAL
MANAGEMENT OF THE PORTFOLIOS--Distribution Plan."
(d) An Administrative Services Plan has been adopted for Advisor Class Shares.
Pursuant to such Administrative Services Plan, the Fund may pay Service
Organizations who have entered into such arrangements with the Fund up to
0.25% of the average daily net assets of their clients who may from time to
time beneficially own Advisor Shares of the Portfolios. The Administrative
Service Fee is not for distribution related activities.
(e) "Other Expenses" are based on estimated amounts for the current fiscal year.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
Portfolios
---------------------------------------------------------------------
Intermediate Short-Intermediate Mortgage U.S. Government
Fixed-Income Fixed-Income Securities Money
One Year $12 $12 $14 $11
Three Years $38 $38 $43 $33
Five Years $65 $67 $74 $57
Ten Years $144 $147 $164 $127
The example assumes Money Manager and other fees are paid at the rates
provided in the Annual Portfolio Operating Expenses table above. For a
discussion of certain management and Money Manager fees, see footnote (b) to the
Annual Portfolio Operating Expenses table.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Investors should be aware that long term shareholders of Advisor Class Shares of
the Fund may pay more in 12b-1 and distribution related fees than the economic
equivalent of the maximum front-end sales charges permitted under the rules of
the National Association of Securities Dealers, Inc. (the "NASD").
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Advisor Class Shares of the
Portfolios will bear directly or indirectly. For a more complete description of
the various costs and expenses, see "EXPENSES OF THE PORTFOLIOS" in the
Statement of Additional Information.
<PAGE>
PORTFOLIO MANAGEMENT
Bennington is responsible for evaluating, selecting, and recommending Money
Managers needed to manage all or part of the assets of the Portfolios.
Bennington is also responsible for allocating the assets within a Portfolio
among any Money Managers selected. Bennington, in conjunction with the Board of
Directors, reviews Money Managers' performance. Bennington may add or terminate
a Money Manager at any time, subject to approval by the Board of Directors and
prompt notification of the applicable Portfolio's shareholders. Bennington is
responsible for the selection of individual portfolio securities for all of the
assets of the U.S. Government Money Portfolio. A separate Money Manager
currently manages the assets of each other Portfolio. See "MONEY MANAGER
PROFILES" and "THE MONEY MANAGERS."
Although Bennington's activities are subject to general oversight by the
Board of Directors and the officers of the Fund, neither the Board nor the
officers evaluate the investment merits of Bennington's or any Money Manager's
individual security selections. The Board of Directors will review regularly the
Portfolios' performance compared to the applicable indices and also will review
the Portfolios' compliance with their investment objectives and policies. See
"GENERAL MANAGEMENT OF THE PORTFOLIOS."
DESCRIPTION OF THE PORTFOLIOS
General
The Fund is a Maryland corporation and was organized in June 1991 as a
multi-managed, no-load, open-end management investment company, known as a
mutual fund. The Fund currently consists of eight diversified investment
portfolios, each with its own investment objective and policies. Each portfolio
issues two classes of shares, Institutional Class Shares and Advisor Class
Shares. This Prospectus covers only the Advisor Class Shares of the four
fixed-income Portfolios of the Fund. The Institutional Class Shares of the four
fixed-income Portfolios of the Fund as well as the Institutional Class Shares
and Advisors Class Shares of the Fund's other four portfolios, which are
designed for investment in equity securities, are offered through separate
prospectuses. Each Portfolio's assets are invested by Bennington and/or a Money
Manager that has been analyzed, evaluated and recommended by Bennington.
Bennington also operates and administers the Fund and monitors the performance
of the Money Managers. Each Portfolio's investment objective and investment
restrictions are "fundamental" and may be changed only with the approval of the
holders of a majority of the outstanding voting securities of that Portfolio, as
defined in the Investment Company Act. Other policies reflect current practices
of the Portfolios, and may be changed by the Portfolios without the approval of
shareholders. This section of the Prospectus describes each Portfolio's
investment objective, policies and restrictions. A more detailed discussion
appears in the Statement of Additional Information and includes a list of the
Portfolios' investment restrictions.
Under normal circumstances, each Portfolio will invest at least 65% and
generally more than 80% of its total assets in the types of securities
identified in its statement of objective as principal investments. Bennington
will attempt to have each Portfolio (other than the U.S. Government Money
Portfolio) managed so that the Portfolio's investment performance equals or
exceeds the total return performance of a relevant index. See Appendix A for a
description of the current indices. Each Portfolio (other than the U.S.
Government Money Portfolio) may have up to 20% of its total assets invested in
money market instruments to provide liquidity. If, in the opinion of Bennington
or a Money Manager, market or economic conditions warrant, the Portfolio may
adopt a temporary defensive strategy. In that event, the Portfolio may hold
assets as cash reserves without limit. See "Investment Policies--Liquidity
Reserves." Also, under these economic or market conditions, the Intermediate
Fixed-Income Portfolio and Short-Intermediate Fixed-Income Portfolio may deviate
from their designated average dollar weighted duration ranges. "Investment
Objectives and Investment Policies --Intermediate Fixed-Income Portfolio," and
"--Short-Intermediate Fixed-Income Portfolio." There can be no assurance that
the investment objective for any Portfolio will be realized.
No Portfolio will invest in fixed-income securities, including convertible
securities, rated less than A by Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), or in unrated securities judged by
Bennington or a Money Manager to be of a lesser credit quality than those
designations. The Portfolios will sell securities which they have purchased in a
prudent and orderly fashion when ratings drop below these minimum ratings. See
Appendix A in the Statement of Additional Information for a description of
securities ratings.
Risk Factors and Special Considerations
The Fund is designed to provide diverse opportunities in equity and debt
securities. No assurance can be given that the Portfolios will achieve their
investment objectives.
Investing in a mutual fund that purchases securities of companies and
governments of foreign countries, particularly developing countries, involves
risks that go beyond the usual risks inherent in a mutual fund limiting its
holdings to domestic investments. See "Investment Policies--Risks of Investing
in Foreign Securities." Certain Portfolios also may be subject to certain risks
in using investment techniques and strategies such as entering into repurchase
agreements and trading futures contracts and options on futures contracts. See
"DESCRIPTION OF THE PORTFOLIOS--Investment Policies". The use of options and
futures by a Portfolio entails certain risks, including the risk that to the
extent the Money Manager's views as to certain market movements are incorrect,
the use of such instruments could result in losses greater than if they had not
been used. Such instruments may also force sales or purchases of Portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount the Portfolio could realize on its investments or cause the
Portfolio to hold a security it might otherwise sell. Also, when used for
hedging existing positions, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Portfolio could create the possibility that losses on the
hedging instrument will be greater than gains in the value of the Portfolio's
position, thereby reducing the Portfolio's net asset value. In addition, the
Bond Portfolios will invest in U.S. Government stripped mortgage-related
securities which, due to changes in interest rates, may be more speculative and
subject to greater fluctuations in value than securities that pay interest
currently. See "DESCRIPTION OF THE PORTFOLIOS--Investment Policies" and
"Investment Restrictions, Policies and Risk Considerations--Investment
Restrictions" in the Statement of Additional Information.
The use of multiple Money Managers in any given Portfolio or the
replacement of a Portfolio's Money Managers may increase a Portfolio's portfolio
turnover rate, realization of gains or losses, and brokerage commissions. High
portfolio turnover may involve correspondingly greater brokerage commissions and
transaction costs, which will be borne by the Portfolios and may result in
increased short-term capital gains which, when distributed to shareholders, are
treated as ordinary income. See "PORTFOLIO TRANSACTION POLICIES" and "TAXES."
With respect to the Intermediate Fixed-Income and Short-Intermediate
Fixed-Income Portfolios, Bennington or a Money Manager may adopt a temporary
defensive strategy under abnormal market or economic conditions. During these
times, one or more Portfolios may make investments which result in the
Portfolios' average dollar weighted duration rising above their designated
ranges. Such a strategy differs from other defensive strategies in that it
involves greater rather than less risk to the Portfolios. See "Investment
Objectives and Investment Policies --Intermediate Fixed-Income Portfolio," and
"--Short-Intermediate Fixed-Income Portfolio."
Investment Objectives and Investment Policies
The investment objective of each Portfolio is fundamental and cannot be
changed without the approval of the holders of a majority of the Portfolio's
outstanding voting securities, as defined in the Statement of Additional
Information. The other investment policies and practices of each Portfolio,
unless otherwise noted, are not fundamental and may therefore be changed by a
vote of the Board of Directors without shareholder approval. For a more detailed
discussion regarding the benchmark indices, see Appendix A.
The INTERMEDIATE FIXED-INCOME PORTFOLIO seeks generation of current income
by investing primarily in fixed-income securities with durations of between
three and ten years and a dollar weighted average portfolio duration that does
not vary more or less than 20% from that of the Lehman Brothers
Government/Corporate Index or another relevant index approved by the Board of
Directors.
Under normal market conditions, the Portfolio seeks to achieve its
objective by investing at least 65% and generally more than 80% of its total
assets in fixed-income securities and will have a dollar weighted average
duration of between three and ten years. The Portfolio invests principally in
bonds, debentures and other fixed-income securities with durations of between
three and ten years, including: obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; U.S. dollar-denominated corporate
debt securities of domestic or foreign issuers; mortgage- and other asset-backed
securities including stripped mortgage-backed securities; variable and floating
rate debt securities; U.S. dollar-denominated obligations of foreign governments
and foreign governmental agencies; and convertible securities. See "Investment
Policies--Risks of Investing in Foreign Securities."
Investment selections will be based on fundamental economic, market and
other factors leading to variation by sector, maturity, quality and such other
criteria as are appropriate to meet the stated objectives. Bennington and/or the
Money Manager will attempt to equal or exceed the total return performance of
the Lehman Brothers Government/Corporate Index (the "LBGC Index"). In approving
the LBGC Index, the Board of Directors took into consideration the substantial
similarity between the securities expected to be held by the Portfolio and the
LBGC Index securities with respect to the following factors, among others: the
duration, credit ratings and volatility risk. The Portfolio may utilize options
on U.S. Government securities, interest rate futures contracts and options on
interest rate futures contracts to reduce certain risks of its investments and
to attempt to enhance income, but not for speculation. See "Investment
Policies--Options" and "--Futures Contracts."
The SHORT-INTERMEDIATE FIXED-INCOME PORTFOLIO seeks preservation of capital
and generation of current income by investing primarily in fixed-income
securities with durations of between one and five years and a dollar weighted
average portfolio duration that does not vary more or less than 20% from that of
the Lehman Brothers 1-5 Year Government/Corporate Index or another relevant
index approved by the Board of Directors.
Under normal market conditions, the Portfolio seeks to achieve its
objective by investing at least 65% and generally more than 80% of its total
assets in fixed-income securities and will have a dollar weighted average
duration of not less than two years nor more than five years.
The Portfolio invests principally in fixed-income securities of the type
permitted for investment by the Intermediate Fixed-Income Portfolio but with a
shorter dollar weighted average portfolio duration. Bennington and/or the Money
Manager will attempt to equal or exceed the total return performance of the
Lehman Brothers Government/Corporate 1-5 Year Index (the "LBGC5 Index"). In
approving the LBGC5 Index, the Board of Directors took into consideration the
substantial similarities between the securities expected to be held by the
Portfolio and the LBGC5 Index securities, among others: the duration, credit
ratings and volatility risk. The Portfolio may utilize options on U.S.
Government securities, interest rate futures contracts and options on interest
rate futures contracts to reduce certain risks of its investments and to attempt
to enhance income, but not for speculation. See "Investment Policies--Options"
and "--Futures Contracts."
The MORTGAGE SECURITIES PORTFOLIO seeks generation of current income by
investing primarily in mortgage-related securities with an aggregate dollar
weighted average portfolio duration that does not vary outside of a band of plus
or minus 20% from that of the Lehman Brothers Mortgage-Backed Securities Index
(the "LBM Index") or another relevant index approved by the Board of Directors.
The market value of these securities can and will fluctuate as interest
rates and market conditions change. Fixed-rate mortgages decline in value during
periods of rising interest rates. Adjustable rate mortgage securities allow the
Portfolio to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages. See "Investment
Policies--Mortgage-Related Securities." Under normal market conditions, the
Portfolio seeks to achieve this objective by investing at least 65% and
generally more than 80% of its total assets in mortgage related securities, and
the Portfolio's principal investments will be mortgage-related securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. Up to
50% of the Portfolio's net assets may be invested in collateralized mortgage
obligations ("CMOs"), real estate mortgage investment conduits ("REMICs") or
asset-backed securities. See "Investment Policies--Asset-Backed Securities" and
"--Risks of Investing in Asset-Backed and Mortgage-Related Securities" in this
Prospectus and "Investment Restrictions, Policies and Risk
Considerations--Investment Policies--Collateralized Mortgage Obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs")" in the
Statement of Additional Information. Bennington and/or the Money Manager will
attempt to equal or exceed the total return performance of the LBM Index. In
approving the LBM Index, the Board of Directors took into consideration factors
such as the substantial similarity between the securities expected to be held by
the Portfolio and those in the LBM Index and that the index would have a risk
level appropriate to the objective of this Portfolio. The Portfolio also may
utilize options on U.S. Government securities, interest rate futures and options
thereon for hedging purposes and to attempt to enhance income, but not for
speculation. See "Investment Policies--Options" and "--Futures Contracts."
The U.S. GOVERNMENT MONEY PORTFOLIO seeks maximum current income consistent
with the preservation of principal and liquidity by investing primarily in
short-term obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. See "Investment Policies--U.S. Government Securities."
The dollar weighted average portfolio maturity of the Portfolio will not
exceed 90 days. Under normal market conditions, the Portfolio seeks to achieve
this objective by investing at least 65% and generally more than 80% of a
Portfolio's total assets in fixed-income securities. The Portfolio limits its
Portfolio investments to those which mature in 13 months or less from the date
of purchase, present minimal credit risks and are of "eligible quality" as
determined by the Portfolio's manager under the supervision of the Board of
Directors. See "Investment Policies--Money Market Instruments." The Portfolio
may enter into repurchase agreements collateralized by U.S. Government
securities. See "Investment Policies--Repurchase Agreements." While the U.S.
Government Money Portfolio intends to maintain its net asset value at $1.00 per
share, an investment in this Portfolio is neither insured nor guaranteed by the
U.S. Government, and there can be no assurance that the Portfolio will be able
to maintain a stable net asset value of $1.00 per share. See "VALUATION OF
PORTFOLIO SHARES."
Investment Policies
Duration. Duration is used by Bennington and/or the Money Manager of the
Bond Portfolios in security selection. Duration, which is one of the fundamental
tools used by Money Managers in security selection, is a measure of the price
sensitivity of a security or a portfolio to relative changes in interest rates.
For instance, a duration of "one" means that a portfolio's or security's price
would be expected to change by approximately one percent with a one percent
change in interest rates. Assumptions generally accepted by the industry
concerning the probability of early payment and other factors may be used in the
calculation of duration for debt securities that contain put or call provisions,
sometimes resulting in a duration different from the stated maturity of the
security.
With respect to certain mortgage-backed securities, duration is likely to
be substantially less than the stated maturity of the mortgages in the
underlying pools. The maturity of a security measures only the time until final
payment is due and, in the case of a mortgage-backed security, does not take
into account the factors included in duration. Under normal market conditions
(in the opinion of Bennington or the Money Manager of the applicable Portfolio),
the average dollar-weighted maturity of the Intermediate Fixed-Income Portfolio
will be between three and 10 years and the average dollar-weighted maturity of
the Short-Intermediate Fixed-Income Portfolio will be between two and five
years.
A Portfolio's duration directly impacts the degree to which asset values
fluctuate with changes in interest rates. For every one percent change in
interest rate, a Portfolio's net asset value is expected to change inversely by
approximately one percent for each year of duration. For example, a one percent
increase in interest rate would be expected to cause a fixed-income portfolio
with an average dollar weighted duration of five years, to decrease in value by
approximately five percent (one percent interest rate increase multiplied by the
five year duration). Since the Portfolios' objective is to provide high current
income, the Portfolios will invest in obligations with an emphasis on income
rather than stability of the Portfolios' net asset value.
If, in the opinion of Bennington and/or the Money Manager, market or
economic conditions warrant, these Portfolios may adopt a temporary defensive
strategy. During these times, the average dollar weighted duration of the
Intermediate Fixed-Income Portfolio may fall below three years, or rise to as
high as fifteen years and the Short-Intermediate Fixed-Income Portfolio may fall
below one year, or rise to as high as fifteen years. In such event, the
Portfolios will be subject to greater or less risk depending on whether average
dollar weighted duration is increased or decreased. At any time that these
Portfolios' average dollar weighted duration is increased, the Portfolios are
subject to greater risk, since at higher durations a Portfolio's asset value is
more significantly impacted by changes in prevailing interest rates than at
lower durations. Likewise, when the Portfolio's average dollar weighted duration
is decreased, the Portfolio is subject to less risk, since at lower durations a
Portfolio's asset value is less significantly impacted by changes in prevailing
interest rates than at higher durations. When Bennington and/or the Money
Manager determines that a temporary defensive strategy is no longer needed,
investments will be reallocated to return the Portfolios to their designated
average dollar weighted duration. Such reallocations are not expected to be
sudden, but will be made gradually over time.
Liquidity Reserves. Each Portfolio (other than the U.S. Government Money
Portfolio) is authorized to invest its cash reserves (funds awaiting investment
in the specific types of securities to be acquired by a Portfolio or cash to
provide for payment of the Portfolio's expenses or to permit the Portfolio to
meet redemption requests) in money market instruments and in debt securities
which are at least comparable in quality to the Portfolio's permitted
investments. Under normal circumstances, no more than 20% of a Portfolio's net
assets will be comprised of these instruments. The Portfolios (other than the U.
S. Government Money Portfolio) also may enter into financial futures contracts
in accordance with their investment objectives to minimize the impact of cash
balances. "GENERAL MANAGEMENT OF THE PORTFOLIOS" and "Investment
Policies--Liquidity Reserves" in the Statement of Additional Information.
Money Market Instruments. Each Portfolio (other than the U. S. Government
Money Portfolio) may invest up to 20% of its net assets in:
(i) Obligations (including certificates of deposit and
bankers' acceptances) of (a) banks organized under the laws of the
United States or any state thereof (including foreign branches of such
banks) or (b) U.S. branches of foreign banks or (c) foreign banks and
foreign branches thereof; provided that such banks have, at the time of
acquisition by the Portfolio of such obligations, total assets of not
less than $1 billion or its equivalent. The term "certificates of
deposit" includes both Eurodollar certificates of deposit, for which
there is generally a market, and Eurodollar time deposits, for which
there is generally not a market. "Eurodollars" are dollars deposited in
banks outside the United States; the Portfolios may invest in
Eurodollar instruments of foreign and domestic banks; and
(ii) Commercial paper, variable amount demand master notes,
bills, notes and other obligations issued by a U.S. company, a foreign
company or a foreign government, its agencies or instrumentalities,
maturing in 13 months or less, denominated in U.S. dollars, and of
"eligible quality" as described below. If such obligations are
guaranteed or supported by a letter of credit issued by a bank, such
bank (including a foreign bank) must meet the requirements set forth in
paragraph (i) above. If such obligations are guaranteed or insured by
an insurance company or other non-bank entity, such insurance company
or other non-bank entity must represent a credit of high quality, as
determined by the Portfolio's Money Manager under the supervision of
Bennington and the Board of Directors.
"Eligible quality," for this purpose, means (i) a security rated (or issued
by an issuer that is rated with respect to a class of short-term debt
obligations, or any security within that class, that is comparable in priority
and security with the security) in the highest short-term rating category (e.g.,
A-1/P-1) or one of the two highest long-term rating categories (e.g., AAA/Aaa or
AA/Aa) by at least two major rating agencies assigning a rating to the security
or issuer (or, if only one agency assigned a rating, that agency) or (ii) an
unrated security deemed of comparable quality by the Portfolio's Money Manager
or Bennington under the general supervision of the Board of Directors. The
purchase by the Portfolio of a security of eligible quality that is rated by
only one rating agency or is unrated must be approved or ratified by the Board
of Directors.
In selecting commercial paper and other corporate obligations for
investment by a Portfolio, the Money Manager also considers information
concerning the financial history and condition of the issuer and its revenue and
expense prospects. Bennington monitors, and the Board of Directors reviews on a
quarterly basis, the credit quality of securities purchased for the Portfolio.
If commercial paper or another corporate obligation held by a Portfolio is
assigned a lower rating or ceases to be rated, the Money Manager under the
supervision of Bennington and the Board of Directors will promptly reassess
whether that security presents minimal credit risks and whether the Portfolio
should continue to hold the security in its portfolio. If a portfolio security
no longer presents minimal credit risks or is in default, the Portfolio will
dispose of the security as soon as reasonably practicable unless Bennington and
the Board of Directors determine that to do so is not in the best interests of
the Portfolio and its shareholders. Variable amount demand master notes with
demand periods of greater than seven days will be deemed to be liquid only if
they are determined to be so in compliance with procedures approved by the Board
of Directors.
U.S. Government Securities. Each Portfolio (including, in particular, the
U. S. Government Money Portfolio) may invest in United States Treasury
securities, including bills, notes, bonds and other debt securities issued by
the United States Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and their issue dates.
The Portfolios may invest in securities issued by agencies or
instrumentalities of the U.S. Government. These obligations, including those
which are guaranteed by federal agencies or instrumentalities, may or may not be
backed by the "full faith and credit" of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
Portfolio must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States if the agency or instrumentality does not meet its
commitments.
Obligations of the Government National Mortgage Association ("GNMA"), the
Farmers Home Administration and the Export-Import Bank are backed by the full
faith and credit of the United States. Securities in which the Portfolios may
invest that are not backed by the full faith and credit of the United States
include obligations issued by (i) the Tennessee Valley Authority, the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") and the United States Postal Service (each of these
issuers has the right to borrow from the United States Treasury to meet its
obligations) and (ii) the Federal Farm Credit Bank and the Federal Home Loan
Bank (each of these issuers may rely only on the individual credit of the
issuing agency to satisfy its obligations). No assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, since it is not obligated to do so by law.
Obligations issued or guaranteed as to principal and interest by the U. S.
Government may be acquired by a Portfolio in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain United States Treasury notes or bonds. These custodial receipts are
commonly referred to as U.S. Treasury STRIPS.
The U. S. Government Money Portfolio utilizes the amortized cost method of
valuation in accordance with regulations issued by the SEC. See "VALUATION OF
PORTFOLIO SHARES--Valuation of Portfolio Securities." Accordingly, the U. S.
Government Money Portfolio will limit its Portfolio investments to those
instruments with a maturity of 397 days or less, and which are issued by the
U.S. Government, its agencies and instrumentalities.
Types of Corporate Obligations. Debt obligations of corporations in which
the Portfolios may invest include (i) corporate debt securities, including
bonds, debentures, and notes; (ii) commercial paper (including variable-amount
master demand notes); (iii) repurchase agreements involving investment-grade
debt obligations; and (iv) convertible securities-debt obligations of
corporations convertible into or exchangeable for equity securities.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements
with a bank or broker-dealer that agrees to repurchase the securities at the
Portfolio's cost plus interest within a specified time (ordinarily a week or
less). If the party agreeing to repurchase should default and if the value of
the securities held by the Portfolio should fall below the repurchase price, the
Portfolio could incur a loss. Subject to the limitation on investing no more
than 15% of a Portfolio's net assets in illiquid securities, no Portfolio will
invest more than 15% of its net assets (taken at current market value) in
repurchase agreements maturing in more than seven days; provided, however, the
U.S. Government Money Portfolio will not invest more than 10% of its net assets
in illiquid securities (including repurchase agreements maturing in more than
seven days). See "Investment Policies--Illiquid Securities."
Repurchase agreements will at all times be fully collateralized by U.S.
Government obligations or other collateral in an amount at least equal to the
repurchase price, including accrued interest earned on the underlying
securities. Such collateral will be held by the Fund's Custodian, either
physically or in a book-entry account.
Repurchase agreements carry certain risks associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to the Portfolio if the other
party to the repurchase agreement becomes bankrupt or otherwise fails to deliver
the securities.
A Portfolio will enter into repurchase transactions only with parties who
meet creditworthiness standards approved by the Board of Directors. Bennington
or the Money Managers monitor the creditworthiness of such parties under the
general supervision of the Board of Directors. See "Investment
Policies--Repurchase Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements and Dollar Rolls. Each Portfolio's entry into
reverse repurchase agreements and dollar rolls (except the U.S. Government Money
Portfolio), together with its other borrowings, is limited to 5% of its net
assets. See "Investment Policies--Reverse Repurchase Agreements and Dollar
Rolls" in the Statement of Additional Information.
Rights and Warrants. Each Portfolio (except the U.S. Government Money
Portfolio) may acquire up to 5% of its net assets in rights and warrants in
securities of issuers that meet the Portfolio's investment objective and
policies. See "Investment Restrictions" and "Investment Policies--Rights and
Warrants" in the Statement of Additional Information.
Privately-Issued STRIP Securities. The Portfolios may invest up to 5% of
their net assets in privately-issued STRIP securities. See "Investment
Policies--Privately-Issued STRIP Securities" in the Statement of Additional
Information.
Mortgage-Related Securities. The Bond Portfolios may invest in
mortgage-related securities. Mortgage loans made by banks, savings and loan
institutions and other lenders are often assembled into pools, the interests in
which are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Interests in such pools are called "mortgage-related
securities" or "mortgage-backed securities."
Most mortgage-related securities are pass-through securities, which means
that they provide investors with payments consisting of both principal and
interest as mortgages in the underlying mortgage pool are paid off by the
borrower. The dominant issuers or guarantors of mortgage-related securities
today are GNMA, FNMA and FHLMC. GNMA creates mortgage-related securities from
pools of Government-guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers, commercial banks and
savings and loan associations. FNMA and FHLMC issue mortgage-related securities
from pools of conventional and federally insured or guaranteed residential
mortgages obtained from various entities, including savings and loan
associations, savings banks, commercial banks, credit unions and mortgage
bankers.
The mortgage-related securities either issued or guaranteed by GNMA, FHLMC
or FNMA ("Certificates") are called pass-through Certificates because a pro rata
share of both regular interest and principal payments (less GNMA's, FHLMC's or
FNMA's fees and any applicable loan servicing fees), as well as unscheduled
early prepayments on the underlying mortgage pool, are passed through monthly to
the holder of the Certificate (i.e., the Portfolio). The principal and interest
on GNMA securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. FNMA guarantees full and timely payment of all
interest and principal, while FHLMC guarantees timely payment of interest and
ultimate collection of principal. Mortgage-related securities from FNMA and
FHLMC are not backed by the full faith and credit of the United States; however,
in the Fund's opinion, their close relationship with the U.S. Government makes
them high quality securities with minimal credit risks. The yields provided by
these mortgage-related securities have historically exceeded the yields on other
types of U.S. Government securities with comparable maturities; however, these
securities generally have the potential for greater fluctuations in yields as
their prices will not generally fluctuate as much as more traditional fixed-rate
debt securities.
The Bond Portfolios may invest in pass-through mortgage-related securities,
such as fixed-rate mortgage-related securities ("FRMs") and adjustable rate
mortgage-related securities ("ARMs"), which are collateralized by fixed rate
mortgages and adjustable rate mortgages, respectively. ARMs have a specified
maturity date and amortize principal much in the fashion of a fixed-rate
mortgage. As a result, in periods of declining interest rates there is a
reasonable likelihood that ARMs will behave like FRMs in that current levels of
prepayments of principal on the underlying mortgages could accelerate. One
difference between ARMs and FRMs is that, for certain types of ARMs, the rate of
amortization of principal, as well as interest payments, can and does change in
accordance with movements in a particular, pre-specified, published interest
rate index. The amount of interest due to an ARM security holder is calculated
by adding a specified additional amount, the "margin," to the index, subject to
limitations or "caps" on the maximum and minimum interest that is charged to the
mortgagor during the life of the mortgage or to maximum and minimum changes to
that interest rate during a given period.
In addition to GNMA, FNMA or FHLMC Certificates, through which the holder
receives a share of all interest and principal payments from the mortgages
underlying the Certificate, the Bond Portfolios also may invest in pass-through
mortgage-related securities where all interest payments go to one class of
holders ("Interest Only Securities" or "IOs") and all principal payments go to a
second class of holders ("Principal Only Securities" or "POs"). These securities
are commonly referred to as mortgage-backed security strips or MBS strips.
Stripped mortgage-related securities have greater market volatility than other
types of mortgage-related securities in which the Bond Portfolios may invest.
The yields to maturity on IOs and POs are sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets and
principal payments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Portfolio may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially adversely
affected. The Bond Portfolios will treat IOs and POs as illiquid securities
except for (i) IOs and POs issued by U.S. Government agencies and
instrumentalities backed by fixed-rate mortgages, whose liquidity is monitored
by Bennington and the Money Managers for these Portfolios subject to the
supervision of the Board of Directors or (ii) where such securities can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share. See
"Investment Policies--Illiquid Securities."
Asset-Backed Securities. Each Portfolio (other than the U. S. Government
Money Portfolio) may invest in asset-backed securities offered through trusts
and special purpose subsidiaries in which various types of assets, primarily
home equity loans and automobile and credit card receivables, are securitized in
pass-through structures, which means that they provide investors with payments
consisting of both principal and interest as the loans in the underlying asset
pool are paid off by the borrowers. The Bond Portfolios may invest in these and
other types of asset-backed securities which may be developed in the future.
Risks of Investing in Asset-Backed and Mortgage-Related Securities. The
yield characteristics of mortgage-related securities (including CMOs and REMICs)
and asset-backed securities differ from traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if a Portfolio purchases such a security at a premium,
a prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Alternatively, if the Portfolio
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Although the extent of prepayments in a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed-rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Portfolio are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates. Asset-backed
securities, although less likely to experience the same prepayment rates as
mortgage-related securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors will
predominate. Mortgage-related securities and asset-backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed-income securities from declining interest rates because of
the risk of prepayment.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, because asset-backed securities do not usually have
the type of security interest in the related collateral that mortgage-related
securities have. For example, credit card receivables generally are unsecured
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, some of which may reduce a creditor's ability to realize
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
Municipal Securities. The Portfolios may invest up to 5% of their net
assets in fixed-income securities issued by states, counties and other local
governmental jurisdictions, including agencies of such governmental
jurisdictions, within the United States. See "Investment Policies--Municipal
Securities" in the Statement of Additional Information.
Lending of Portfolio Securities. Each Portfolio may lend portfolio
securities with a value of up to the maximum allowable amount of its total
assets according to applicable law. Such loans may be terminated at any time.
The Portfolio will receive cash, U.S. Government or U.S. Government agency
securities as collateral in an amount equal to at least 100% of the current
market value of the loaned securities plus accrued interest. Cash collateral
received by the Portfolio will be invested in short-term debt securities. A loan
may be terminated by the borrower on one business day's notice or by the
Portfolio at any time. As with any extensions of credit, there are risks of
delay in recovery and in some cases loss of right in the collateral should the
borrower of the securities fail financially. See "Investment Policies--Lending
of Portfolio Securities" in the Statement of Additional Information.
Illiquid Securities. No Portfolio may invest more than 15% of its net
assets in illiquid securities; provided, however, the U.S. Government Money
Portfolio will not invest more than 10% of its net assets in illiquid
securities. Securities which are illiquid include repurchase agreements of more
than seven days duration, securities which lack a readily available market or
have legal or contractual restrictions on resale, certain IO/PO strips and
over-the-counter ("OTC") options. Restricted securities issued pursuant to Rule
144A under the Securities Act of 1933, as amended, that have a readily available
market are not deemed illiquid for purposes of this limitation, pursuant to
liquidity procedures that have been adopted by the Board of Directors. Investing
in Rule 144A securities could result in increasing the level of a Portfolio's
illiquidity if qualified institutional buyers become, for a time, uninterested
in purchasing these securities. Each Money Manager will monitor the liquidity of
such restricted securities under the supervision of Bennington and the Board of
Directors. See "Investment Policies--Illiquid Securities" in the Statement of
Additional Information.
Options. Each Portfolio (other than the U.S. Government Money Portfolio)
may purchase put and call options and may write (sell) "covered" put and
"covered" call options. The Bond Portfolios may purchase and write options on
U.S. Government securities. The Bond Portfolios may write covered put and call
options to generate additional income through the receipt of premiums, may
purchase put options in an effort to protect the value of securities in their
portfolios against a decline in market value and purchase call options in an
effort to protect against an increase in the price of securities they intend to
purchase. All options on U.S. Government securities purchased or sold by the
Bond Portfolios will be traded on U.S. securities exchanges or will result from
separate, privately negotiated transactions with a primary government securities
dealer recognized by the Board of Governors of the Federal Reserve System.
OTC options are privately negotiated with the counterparty to such contract
and are purchased from and sold to dealers, financial institutions or other
counterparties which have entered into direct agreements with the Portfolios. If
the counterparty fails to take delivery of the securities underlying an option
it has written, the Portfolios would lose the premium paid for the option as
well as any anticipated benefit of the transaction. Consequently, the Portfolios
must rely on the credit quality of the counterparty. The staff of the SEC has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities subject to the 15% limitation
described above in "Illiquid Securities." Options on currencies are similar to
options on stocks except that there is no transfer of a security and settlement
is in cash.
A call option is a contract whereby a purchaser pays a premium in exchange
for the right to buy the security on which the option is written at a specified
price during the term of the option. A written call option is "covered" if the
Portfolio owns the optioned securities or the Portfolio maintains in a
segregated account with the Fund's Custodian, cash, U.S. Government securities
or other liquid assets with an aggregate value, measured on a daily basis, at
least sufficient to meet its obligations under the call option, or if the
Portfolio owns an offsetting call option. When a Portfolio writes a call option,
it receives a premium and gives the purchaser the right to buy the underlying
security at any time during the call period, at a fixed exercise price
regardless of market price changes during the call period. If the call is
exercised, the Portfolio forgoes any gain from an increase in the market price
of the underlying security over the exercise price.
The purchaser of a put option pays a premium and receives the right to sell
the underlying security at a specified price during the term of the option. The
writer of a put option, receives a premium and in return, has the obligation,
upon exercise of the option, to acquire the securities underlying the option at
the exercise price. A written put option is "covered" if a Portfolio deposits
with the Fund's Custodian, cash, U.S. Government securities or other liquid
assets with an aggregate value, measured on a daily basis, at least equal to the
exercise price of the put option.
The Portfolios will not write covered put or covered call options on
securities if the obligations underlying the put options and the securities
underlying the call options written by the Portfolio exceed 25% of its net
assets other than OTC options and the assets used as cover for written OTC
options. The SEC has taken the position that purchased OTC options and the
assets used as cover for written OTC options are illiquid securities subject to
the 15% limitation described above in "Illiquid Securities." The U.S. Government
Money Portfolio will not invest more than 10% of its net assets in illiquid
securities. Furthermore, a Portfolio will not purchase or write put or call
options on securities or financial futures if the aggregate premiums paid on all
such options exceed 20% of the Portfolio's total net assets, subject to the
foregoing limitations.
When a Portfolio writes either a put or call option, the Portfolio is
required to deposit an initial margin with the Fund's Custodian for the benefit
of the options broker. The initial margin serves as a "good faith" deposit that
the Portfolio will honor its option commitment. When the Portfolio writes
options and an adverse price movement occurs, the Portfolio may be called upon
to deposit an additional or variation margin. Both the initial and additional or
variation margin must be made in cash or U.S. Government securities. The
required margin amount is subject to change by the appropriate exchange or
regulatory authority.
Futures Contracts. Each Portfolio (other than the U. S. Government Money
Portfolio) is permitted to enter into financial futures contracts and related
options ("futures contracts") in accordance with its investment objective.
Futures contracts will be limited to hedging transactions to minimize the impact
of cash balances and for return enhancement and risk management purposes in
accordance with regulations of the Commodity Futures Trading Commission.
A "financial futures contract" is a contract to buy or sell a specified
quantity of financial instruments such as United States Treasury bonds, notes
and bills, commercial paper, bank certificates of deposit, an agreed amount of
currencies, or the cash value of a financial instrument index at a specified
future date at a price agreed upon when the contract is made. Substantially all
futures contracts are closed out before settlement date or called for cash
settlement. A futures contract is closed out by buying or selling an identical
offsetting contract which cancels the original contract to make or take
delivery.
The Portfolios may purchase and write options on futures contracts as an
alternative or in addition to buying or selling futures contracts for hedging
purposes. Options on futures contracts are similar to options on the security
upon which the futures contracts are written except that options on financial
futures contracts give the purchaser the right to assume a position at a
specified price in a financial futures contract at any time during the life of
the option.
Upon entering into a futures contract, a Portfolio is required to deposit
in a segregated account with the Fund's Custodian in the name of the futures
broker through whom the transaction was effected, initial margin consisting of
cash, U.S. government securities or other liquid assets having an aggregate
value, measured on a daily basis, at least equal to the amount of the covered
obligations. The initial margin serves as a "good faith" deposit that the
Portfolio will honor its futures commitment. The initial margin amount is
subject to change by the appropriate exchange or regulatory authority. The
Portfolio will also be required to settle any gains or losses on a daily basis
in cash (variation margin). If the Portfolio is unable to meet an additional
margin requirement, the Portfolio may be forced to close out its position at a
price that may be detrimental to the Portfolio. When trading futures contracts,
a Portfolio will not commit more than 5% of the market value of its total assets
as initial margins. See "Investment Policies--Futures Contracts" in the
Statement of Additional Information.
Special Risks of Hedging and Income Enhancement Strategies. Participation
in the options or futures markets involves investment risks and transaction
costs to which a Portfolio would not be subject absent the use of these
strategies. If the Money Manager's predictions of movements in the direction of
the securities and interest rate markets are inaccurate, the adverse
consequences to the Portfolio may leave the Portfolio in a worse position than
if such strategies were not used. Risks inherent in the use of options and
futures contracts and options on futures contracts include: (1) dependence on
the Money Manager's ability to predict correctly movements in the direction of
interest rates and securities prices; (2) imperfect correlation between the
price of options and futures contracts and options thereon and movements in the
prices of the securities being hedged; (3) the fact that skills needed to use
these strategies are different from those needed to select portfolio securities;
(4) the possible absence of a liquid secondary market for any particular
instrument at any time; (5) the possible need to raise additional initial
margin; (6) in the case of futures, the need to meet daily margin in cash; and
(7) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. See "Taxes" in the Statement of Additional
Information.
Risks of Investing in Foreign Securities. The Bond Portfolios may invest in
foreign securities. Foreign securities involve certain risks. These risks
include political or economic instability in the country of the issuer, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such secu
****
<PAGE>
ACCESSOR(R) FUNDS, INC.
1420 Fifth Avenue, Suite 3130
Seattle, WA 98101
(206) 224-7420/(800) 759-3504
Statement of Additional Information
Dated April 30, 1998
ACCESSOR(R) FUNDS, INC. (the "Fund") is a multi-managed, no-load, open-end
management investment company, known as a mutual fund. The Fund currently
consists of eight diversified investment portfolios (individually, a "Portfolio"
and collectively, the "Portfolios"), each with its own investment objective and
policies. The eight portfolios are the Growth, Value and Income, Small to Mid
Cap and International Equity Portfolios (the "Equity Portfolios") and the
Intermediate Fixed-Income, Short-Intermediate Fixed-Income, Mortgage Securities
and U.S. Government Money Portfolios (the "Fixed-Income Portfolios"). Each
Portfolio offers two classes of shares, the Institutional Class Shares and the
Advisor Class Shares, offered through four prospectuses: the "Equity Portfolios
Institutional Class Shares Prospectus," the "Fixed-Income Portfolios
Institutional Class Prospectus", the "Equity Portfolios Advisor Class
Prospectus" and the "Fixed-Income Portfolios Advisor Class Prospectus" each
dated April__, 1998 (collectively, the "Prospectuses"). A copy of the applicable
Prospectus may be obtained free of charge by writing or calling at the address
or telephone number listed above.This Statement of Additional Information is not
a prospectus and should be read in conjunction with the appropriate
Prospectuses. The Fund currently includes the following Portfolios:
GROWTH PORTFOLIO -- seeks capital growth through investing primarily in equity
securities with greater than average growth characteristics selected from the
500 U.S. issuers which make up the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500").
VALUE AND INCOME PORTFOLIO -- seeks generation of current income and capital
growth by investing primarily in income-producing equity securities selected
from the 500 U.S. issuers which make up the S&P 500.
SMALL TO MID CAP PORTFOLIO(1) -- seeks capital growth through investing
primarily in equity securities of small to medium capitalization issuers.
INTERNATIONAL EQUITY PORTFOLIO -- seeks capital growth by investing primarily in
equity securities of companies domiciled in countries other than the United
States and traded on foreign stock exchanges.
INTERMEDIATE FIXED-INCOME PORTFOLIO -- seeks generation of current income by
investing primarily in fixed-income securities with durations of between three
and ten years and, under normal market conditions, will have a dollar weighted
average duration of not less than three years nor more than ten years which does
not vary more or less than 20% from that of the Lehman Brothers
Government/Corporate Index or another relevant index approved by the Fund's
Board of Directors (the "Board of Directors").
SHORT-INTERMEDIATE FIXED-INCOME PORTFOLIO -- seeks preservation of capital and
generation of current income by investing primarily in fixed-income securities
with durations of between one and five years and, under normal market
conditions, will have a dollar weighted average duration of not less than two
years nor more than five years which does not vary more or less than 20% from
that of the Lehman Brothers 1-5 Year Government/Corporate Index or another
relevant index approved by the Board of Directors.
MORTGAGE SECURITIES PORTFOLIO -- seeks generation of current income by investing
primarily in mortgage-related securities with an aggregate dollar weighted
average duration that does not vary outside of a band of plus or minus 20% from
the Lehman Brothers Mortgage-Backed Securities Index or another relevant index
approved by the Board of Directors.
U.S. GOVERNMENT MONEY PORTFOLIO -- seeks maximum current income consistent with
the preservation of principal and liquidity by investing primarily in short-term
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
- --------
(1) Formerly the "Small Cap Portfolio." Prior to September 15, 1995, the Small
Cap Portfolio sought to achieve its investment objective through investing
primarily in small capitalization issuers (selected from the 2,000 U.S.
issuers with the next largest market capitalization after (and excluding)
the 1,000 U.S. issuers with the largest market capitalization). On August
15, 1995, the shareholders of the Small Cap Portfolio approved a change in
the investment objective of the Small Cap Portfolio effective September 15,
1995, to permit the Small Cap Portfolio to also invest in medium
capitalization issuers. This change in investment objective coincided with
the change of the name of the Small Cap Portfolio to Small to Mid Cap
Portfolio and the commencement of management by a new Money Manager for the
Small to Mid Cap Portfolio.
B-1
<PAGE>
TABLE OF CONTENTS
Form N-1A
Item No.
- --------
<TABLE>
<CAPTION>
Cross reference to Cross reference to
page in Equity page in Fixed-
Portfolios' Income Portfolios'
Page Prospectus Prospectus
<S> <C> <C> <C> <C>
10. Cover Page B-1 1 1
11. Table of Contents B-3 2 2
12. General Information and History B-4 3, 20 3, 21
13. Investment Restrictions, Policies
and Risk Considerations B-4 11 11
Investment Restrictions B-4 20 21
Investment Policies B-5 13 13
14. Management of the Fund B-17 20 21
15. Control Persons and Principal
Holders of Securities B-18 35 37
16. Investment Advisory and Other
Services B-21
Service Providers B-21 4, 34 4, 35
Valuation of Portfolio Shares B-35 29 30
Portfolio Transaction Policies B-35 26 27
17. Brokerage Allocation and Other
Practices B-36 -- --
18. Capital Stock and Other B-4 35 36
Securities
19. Purchase, Redemption and
Pricing of Securities Being B-35 30-32 31-34
Offered
20. Code of Ethics B-39 -- --
21. Taxes B-40 27 28
22. Underwriters B-31 -- --
23. Calculation of Performance Data B-37 28 29
24. Financial Statements B-43 -- --
Appendix A - Ratings of Debt
Instruments A-1 -- --
Appendix B - Calculation of
Performance Fees B-1 -- --
</TABLE>
B-2
<PAGE>
GENERAL INFORMATION AND HISTORY
The Fund was incorporated in Maryland on June 10, 1991, as World
Investment Network Fund, Inc. On August 27, 1991, the Fund amended its Articles
of Incorporation to change its name to Accessor Funds, Inc. The Fund is
authorized to issue 15 billion shares of common stock, $.001 par value per
share, and is currently divided into eight Portfolios. The Board of Directors
may increase or decrease the number of authorized shares without the approval of
shareholders. Shares of the Fund, when issued, are fully paid, non-assessable,
fully transferable and redeemable at the option of the holder. Shares also are
redeemable at the option of the Fund under certain circumstances. All shares of
a Portfolio are equal as to earnings, assets and voting privileges. There are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of a Portfolio is entitled to its
portion of all of the Portfolio's assets after all debts and expenses of the
Portfolio have been paid. The Portfolios' shares do not have cumulative voting
rights for the election of Directors. Pursuant to the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board of Directors
may determine. ave ave Bennington Capital Management L.P. ("Bennington"), a
Washington limited partnership, is the manager and administrator of the Fund,
pursuant to a Management Agreement with the Fund. Bennington is also the
transfer agent, registrar, dividend disbursing agent and provides recordkeeping,
administrative and compliance services pursuant to its Transfer Agency and
Administrative Agreement ("Transfer Agent Agreement") with the Fund.
INVESTMENT RESTRICTIONS, POLICIES AND RISK CONSIDERATIONS
Each Portfolio's investment objective and investment restrictions are
"fundamental" and may be changed only with the approval of the holders of a
majority of the outstanding voting securities of that Portfolio. As defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act"), a
majority of the outstanding voting securities of a Portfolio means the lesser of
(i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are present in person or represented by proxy or (ii) more
than 50% of the outstanding shares.
INVESTMENT RESTRICTIONS
Each Portfolio is subject to the following "fundamental" investment
restrictions. Unless otherwise noted, these restrictions apply on a
Portfolio-by-Portfolio basis at the time an investment is being made. No
Portfolio will:
1. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a result (i) with respect
to 75% of the Portfolio's total assets, more than 5% of the Portfolio's total
assets would then be invested in securities of a single issuer, or (ii) 25% or
more of the Portfolio's total assets would be invested in one or more issuers
having their principal business activities in the same industry. The U.S.
Government Money Portfolio may not purchase any security (other than obligations
of the U.S. Government, its agencies or instrumentalities) if as a result: (a)
more than 5% of the Portfolio's total assets would then be invested in
securities of a single issuer, or (b) 25% or more of the Portfolio's total
assets would be invested in one or more issuers having their principal business
activities in the same industry.
2. Issue senior securities, borrow money or pledge its assets, except
that a Portfolio may borrow up to 5% of the value of its total assets from banks
for temporary, extraordinary or emergency purposes and may pledge up to 10% of
the value of its total assets to secure such borrowings. In the event that the
asset coverage for the Portfolio's borrowings falls below 300%, the Portfolio
will reduce within three days the amount of its borrowings in order to provide
for 300% asset coverage. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options, and, if applicable, futures
contracts, and collateral arrangements with respect to initial or variation
margin are not deemed to be a pledge of assets and neither such arrangements nor
the purchase or sale of futures is deemed to be the issuance of a senior
security).
3. Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, although it may purchase and sell financial futures
contracts, stock index futures contracts and related options, securities which
are secured by real estate, securities of companies which invest or deal in real
estate and publicly traded securities of real estate investment trusts. No
Portfolio may purchase interests in real estate limited partnerships. The U.S.
Government Money Portfolio may not buy or sell commodities or commodity
contracts, or real estate or interests in real estate, except that the Portfolio
may purchase and sell securities which are secured by real estate and securities
of companies which invest or deal in real estate, other than securities of real
estate investment trusts and real estate limited partnerships.
4. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal and state securities laws.
5. Invest in interests in oil, gas or other mineral exploration or
development programs.
6. Make loans, except through repurchase agreements (repurchase
agreements with a maturity of longer than seven days together with other
illiquid securities being limited to 15% of the net assets of the Portfolio) and
except through the lending of its portfolio securities as described below under
"Investment Policies--Lending of Portfolio Securities."
7. Make investments for the purpose of exercising control of
management.
8. Acquire more than 5% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer. The U.S. Government Money Portfolio
may not purchase common stock or other voting securities, preferred stock,
warrants or other equity securities, except as may be permitted by restriction
number 11.
9. Effect short sales (other than short sales against-the-box) or
purchase securities on margin (except that a Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities, may trade in futures and related options, and may make margin
payments in connection with transactions in futures contracts and related
options).
10. Invest in securities, other than mortgage-related securities,
asset-backed securities or obligations of any U.S. Government agency or
instrumentality, of an issuer which, together with any predecessor, has been in
operation for less than three years if, as a result, more than 5% of the
Portfolio's total assets would then be invested in such securities.
11. Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets would
be invested in such securities, or as part of a merger, consolidation or other
acquisition, or as set forth under "Investment Policies -- Collateralized
Mortgage Obligations ("CMOs") and Real Estate Mortgage Investment Conduits
("REMICs")."
12. Purchase warrants if as a result the Portfolio would have more than
5% of its total assets invested in warrants or more than 2% of its total assets
invested in warrants not listed on the New York or American Stock Exchanges.
Warrants attached to other securities are not subject to this limitation. The
U.S. Government Money Portfolio may not purchase warrants.
INVESTMENT POLICIES
Liquidity Reserves. Each Portfolio (other than the U.S. Government
Money Portfolio) may have up to 20% of its assets in cash or cash equivalents to
meet redemption requests, and each Portfolio may hold cash reserves in an
unlimited amount for temporary defensive purposes when its Money Manager
believes that a more conservative approach is desirable. In addition, Bennington
or a Money Manager may create an equity or fixed-income exposure for cash
reserves through the use of options or futures contracts. This will enable the
Portfolios to hold cash while receiving a return on the cash which is similar to
holding equity or fixed-income securities.
Repurchase Agreements. Each Portfolio may enter into repurchase
agreements with a seller who agrees to repurchase the securities at the
Portfolio's cost plus interest within a specified time (ordinarily a week or
less). The securities purchased by the Portfolio have a total value in excess of
the value of the repurchase agreement and are held by Fifth Third Bank, the
Portfolios' custodian (the "Custodian") until repurchased. The Portfolios'
repurchase agreements will at all times be fully collateralized by U.S.
Government securities or other collateral, such as cash, and the securities held
as collateral will be valued daily, and as the value of the securities declines,
the Portfolio will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreements declines, the
Portfolio may incur a loss. Repurchase agreements assist a Portfolio in being
invested fully while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. Each Portfolio will limit repurchase transactions to
commercial banks having at least $1 billion in total assets and broker-dealers
having a net worth of at least $5 million or total assets of at least $50
million, and will limit repurchase transactions to entities whose
creditworthiness is continually monitored and found satisfactory by Bennington
or the Portfolio's Money Manager under the supervision of the Board of
Directors. Subject to the limitation on investing not more than 15% of a
Portfolio's net assets in illiquid securities, no Portfolio will invest more
than 15% of its net assets (taken at current market value) in repurchase
agreements maturing in more than seven days; provided, however, the U.S.
Government Money Portfolio will not invest more than 10% of its net assets in
illiquid securities (including repurchase agreements maturing in more than seven
days). See "Investment Restrictions, Policies and Risk Considerations - Illiquid
Securities."
Reverse Repurchase Agreements and Dollar Rolls. Each Portfolio may
enter into reverse repurchase agreements to meet redemption requests where the
liquidation of portfolio securities is deemed by the Portfolio's Money Manager
to be inconvenient or disadvantageous. A reverse repurchase agreement has the
characteristics of borrowing and is a transaction whereby a Portfolio transfers
possession of a portfolio security to a bank or a broker-dealer in return for a
percentage of the portfolio security's market value. The Portfolio retains
record ownership of the security involved, including the right to receive
interest and principal payments. At an agreed upon future date, the Portfolio
repurchases the security by paying an agreed upon purchase price plus interest.
The Intermediate Fixed-Income Portfolio, the Short-Intermediate Fixed-Income
Portfolio and the Mortgage Securities Portfolio (collectively, the "Bond
Portfolios"), may also enter into dollar rolls in which the Portfolios sell
securities for delivery in the current month and simultaneously contract to
repurchase substantially similar (same type and coupon) securities on a
specified future date from the same party. During the roll period, the
Portfolios forego principal and interest paid on the securities. The Portfolios
are compensated by the difference between the current sales price and the
forward price for the future purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sale.
At the time a Portfolio enters into reverse repurchase agreements or
dollar rolls, the Portfolio will establish or maintain a segregated account with
a custodian approved by the Board of Directors, containing cash or liquid assets
of the Portfolio having an aggregate value, measured on a daily basis, at least
equal in value to the repurchase price including any accrued interest. Each
Portfolio's entry into reverse repurchase agreements and dollar rolls, together
with its other borrowings, is limited to 5% of its net assets. Reverse
repurchase agreements and dollar rolls involve the risk that the market value of
securities retained in lieu of sale may decline below the price of the
securities the Portfolio has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decisions.
Reverse repurchase agreements and dollar rolls are considered
borrowings by the Portfolios for purposes of the percentage limitations
applicable to borrowings.
Real Estate-Related Securities. Each Portfolio may invest up to 5% of
its net assets in publicly-traded real estate investment trusts. Publicly-traded
real estate investment trusts generally engage in acquisition, development,
marketing, operating and long-term ownership of real property. Publicly-traded
real estate investment trust meeting certain asset income and distribution
requirements will generally not be subject to federal taxation on income
distributed to its shareholders.
Short Sales Against-the-Box. Although to date the Portfolios have made
no short sales against the box, and no Money Manager anticipates making short
sales against the box in the future, each Portfolio (other than the U.S.
Government Money Portfolio) may make short sales of securities against-the-box
or maintain a short position, provided that at all times when a short position
is open, the Portfolio owns an equal amount of such securities or securities
convertible or exchangeable for such securities without the payment of any
further consideration for the securities sold short. Not more than 25% of a
Portfolio's net assets (determined at the time of the short sale) may be subject
to such sales. Short sales against-the-box will be made primarily to defer
realization of gain or loss for federal income tax purposes.
Rights and Warrants. The Portfolios (except for the U.S. Government
Money Portfolio) may acquire up to 5% of their net assets in rights and warrants
in securities of issuers that meet the Portfolios' investment objective and
policies. Warrants are instruments which give the holder the right to purchase
the issuer's securities at a stated price during a stated term. Rights are
short-term warrants issued to shareholders in conjunction with new stock issues.
The prices of warrants do not necessarily move parallel to the prices of the
underlying securities. No Portfolio may purchase warrants (other than warrants
attached to other securities) if as a result the Portfolio would have more than
5% of its total assets invested in warrants or more than 2% of its total assets
invested in warrants not listed on the New York or American Stock Exchanges.
Warrants involve a risk of loss if the market price of the underlying securities
subject to the warrants never exceeds the exercise price of the warrants. See
"Investment Restrictions."
Mortgage-Related Securities. The Bond Portfolios may invest in
mortgage-related securities, and, in particular, mortgage pass-through
securities, Government National Mortgage Association ("GNMA") Certificates,
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") mortgage-backed obligations and mortgage-backed securities
of other issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers, and other secondary
market issuers). Some mortgage-related securities may be guaranteed by the U.S.
Government or an agency or instrumentality thereof; others are issued by
financial institutions such as commercial banks, savings and loan associations,
mortgage banks and securities broker-dealers (or affiliates of such institutions
established to issue these securities) in the form of mortgage-backed bonds and
are not guaranteed. Thus, credit risk among these instruments may vary. Payments
of principal and interest on Certificates issued by GNMA (but not the market
value of the Certificates themselves) are guaranteed by the full faith and
credit of the U.S. Government. Securities guaranteed by agencies or
instrumentalities of the U.S. Government, such as the FNMA or FHLMC, are
supported only by the discretionary authority of the U.S. Government to purchase
the agency's obligations. Mortgage-backed bonds are not guaranteed, although the
mortgage-related securities securing these obligations may be subject to U.S.
Government guarantee or third-party support. If the collateral securing the
privately issued obligation is insufficient to make payment on the obligation, a
holder could sustain a loss.
In the case of mortgage pass-through securities, such as GNMA
Certificates or FNMA and FHLMC mortgage-backed obligations, early repayment of
principal arising from prepayments of principal on the underlying mortgage loans
(due to the sale of the underlying property, the refinancing of the loan, or
foreclosure) may expose a Portfolio to a lower rate of return upon reinvestment
of the principal. For example, with respect to GNMA Certificates, although
mortgage loans in the pool will have maturities of up to 30 years, the actual
average life of a GNMA Certificate typically will be substantially less because
the mortgages will be subject to normal principal amortization and may be
prepaid prior to maturity. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of the
mortgage-backed security. Reinvestment of prepayments may occur at higher or
lower rates than the original yield on the Certificates.
In addition, tracking the "pass-through" payments on GNMA Certificates
and other mortgage-related and asset-backed securities may, at times, be
difficult. Expected payments may be delayed due to the delays in registering
newly traded paper securities. The Portfolios' Custodian's policies for
crediting missed payments while errant receipts are tracked down may vary. Some
mortgage-backed securities such as those of FHLMC and FNMA trade in book-entry
form and should not be subject to this risk of delays in timely payment of
income.
Asset-Backed Securities. The Bond Portfolios may invest in asset-backed
securities offered through trusts and special purpose subsidiaries in which
various types of assets, primarily home equity loans and automobile and credit
card receivables, are securitized in pass-through structures similar to the
mortgage pass-through structures described above or in a pay-through structure
similar to the collateralized mortgage structure. The Bond Portfolios may invest
in these and other types of asset-backed securities which may be developed in
the future.
Risks of Investing in Asset-Backed and Mortgage-Related Securities. The
yield characteristics of mortgage-related securities (including CMOs and REMICs)
and asset-backed securities differ from traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if the Bond Portfolios purchase such a security at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Alternatively, if the Bond
Portfolios purchase these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity.
Although the extent of prepayments in a pool of mortgage loans depends
on various economic and other factors, as a general rule prepayments on
fixed-rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Accordingly,
amounts available for reinvestment by the Bond Portfolios are likely to be
greater during a period of declining interest rates and, as a result, likely to
be reinvested at lower interest rates than during a period of rising interest
rates. Asset-backed securities, although less likely to experience the same
prepayment rates as mortgage-related securities, may respond to certain of the
same factors influencing prepayments, while at other times different factors
will predominate. Mortgage-related securities and asset-backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed-income securities from declining interest rates because of
the risk of prepayment.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, because asset-backed securities do not usually have
the type of security interest in the related collateral that mortgage-related
securities have. For example, credit card receivables generally are unsecured
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, some of which may reduce a creditor's ability to realize
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage
Investment Conduits ("REMICs"). The Bond Portfolios may invest in CMOs and
REMICs. A CMO is a debt security that is backed by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs generally are partitioned into several classes
with a ranked priority as to the time that principal payments will be made with
respect to each of the classes. These Portfolios may invest only in
privately-issued CMOs that are collateralized by mortgage-backed securities
issued or guaranteed by GNMA, FHLMC or FNMA and in CMOs issued by FHLMC.
Currently, approximately 95% of all CMOs are issued by FHLMC.
The Bond Portfolios also may invest in REMICs. An issuer of REMICs may
be a trust, partnership, corporation, association or a segregated pool of
mortgages, or may be an agency of the U.S. Government and, in each case, must
qualify and elect treatment as such under the Internal Revenue Code of 1986, as
amended (the "Code"). A REMIC must consist of one or more classes of "regular
interests," some of which may be adjustable rate, and a single class of
"residual interests." To qualify as a REMIC, substantially all the assets of the
entity must be in assets directly or indirectly secured, principally by real
property. These Portfolios do not intend to invest in residual interests. The
United States Congress intended for REMICs to ultimately become the exclusive
vehicle for the issuance of multi-class securities backed by real estate
mortgages. If a trust or partnership that issues CMOs does not elect or qualify
for REMIC status, it will be taxed at the entity level as a corporation.
In reliance on a Securities and Exchange Commission (the "SEC") rule,
the Bond Portfolios' investments in certain qualifying CMOs, including CMOs that
have elected to be treated as REMICs, are not subject to the Investment Company
Act's limitation on acquiring interests in other investment companies. In
addition, in reliance on an earlier SEC interpretation, the Fund's investments
in certain other CMOs which cannot or do not rely on the rule, are also not
subject to the Investment Company Act's limitation on acquiring interests in
other investment companies. In order to be able to rely on the SEC's
interpretation, the CMOs and REMICs must be unmanaged, fixed-asset issuers that
(a) invest primarily in mortgage-backed securities, (b) do not issue redeemable
securities, (c) operate under general exemptive orders exempting them from all
provisions of the Investment Company Act, and (d) are not registered or
regulated under the Investment Company Act as investment companies. To the
extent that these Portfolios select CMOs or REMICs that do not satisfy the
requirements of the rule or meet the above requirements, the Portfolio may not
invest more than 10% of its assets in all such entities and may not acquire more
than 3% of the voting securities of any single such entity.
Municipal Securities. The Portfolios may invest in fixed-income
securities issued by states, counties and other local governmental
jurisdictions, including agencies of such governmental jurisdictions, within the
United States. Investments in municipal securities entail certain risks,
including adverse income and principal value fluctuation associated with general
economic conditions affecting the municipal securities markets, the issuers and
guarantors of municipal securities and the facilities financed by municipal
securities. The yields of municipal securities depend on, among other things,
conditions in the municipal bond market and fixed income markets generally, the
size of a particular offering, the maturity of the obligation, and the rating of
the issue. A general decline in interest rates will increase their market value
while a rise in interest rates tends to have the opposite effect.
A reduction in the federal income tax rates would reduce the tax
equivalent yield received by shareholders and would tend to reduce the value of
municipal securities. In addition, changes in federal law could adversely affect
the tax-exempt status of income derived from municipal securities which could
significantly affect the ability to acquire and dispose of municipal securities
at desirable yield and price levels. The value of municipal securities will
change in response to fluctuations in interest rates.
Illiquid Securities. No Portfolio may invest more than 15% of its net
assets in illiquid securities; provided, however, the U.S. Government Money
Portfolio will not invest more than 10% of its net assets in illiquid
securities. Securities which are illiquid include securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable, repurchase agreements
having a maturity of longer than seven days, certain interest only
("IO")/principal only ("PO") strips and over-the-counter ("OTC") options.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities, and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public by establishing a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers (as such term is defined under Rule 144A).
Bennington anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc. (the "NASD"). An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the Portfolios, however, could affect adversely the marketability of such
Portfolios' securities and, consequently, the Portfolios might be unable to
dispose of such securities promptly or at favorable prices. Bennington will
monitor the liquidity of such restricted securities under the supervision of the
Board of Directors.
Restricted securities issued pursuant to Rule 144A are not deemed to be
illiquid. The Money Manager will monitor the liquidity of such restricted
securities subject to the supervision of Bennington and the Board of Directors.
In reaching liquidity decisions, the Money Manager will consider, among other
things, the following factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; (4) the number of other potential purchasers; and (5)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, each Portfolio may lend its portfolio securities to brokers,
dealers and financial institutions, provided that outstanding loans do not
exceed in the aggregate the maximum allowable percentage under the applicable
laws and regulations of the value of the Portfolio's net assets and provided
that such loans are callable at any time by the Portfolio and are at all times
secured by cash or equivalent collateral that is at least equal to the market
value, determined daily, of the loaned securities. The advantage of such loans
is that the Portfolio continues to receive interest and dividends on the loaned
securities, while at the same time earning interest either directly from the
borrower or on the collateral which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice
or by the Portfolio at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Portfolio could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Board of Directors. On
termination of the loan, the borrower is required to return the securities to
the Portfolio, and any gain or loss in the market price during the loan would be
borne by the Portfolio.
Since voting or consent rights which accompany loaned securities pass
to the borrower, the Portfolio will follow the policy of calling the loan, in
whole or in part as may be appropriate, to permit the exercise of such rights if
the matters involved would have a material effect on the Portfolio's investment
in the securities which are the subject of the loan. The Portfolio will pay
reasonable finders', administrative and custodial fees in connection with a loan
of its securities or may share the interest earned on collateral with the
borrower.
Forward Commitments. A Portfolio may make contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") consistent with the Portfolio's ability to manage its
investment portfolio and meet redemption requests. The Portfolio may dispose of
a commitment prior to settlement if it is appropriate to do so and realize
short-term profits or losses upon such sale. When effecting such transactions,
cash or liquid assets of the Portfolio of a dollar amount sufficient to make
payment for the portfolio securities to be purchased, measured on a daily basis,
will be segregated on the Portfolio's records at the trade date and maintained
until the transaction is settled, so that the purchase of securities on a
forward commitment basis is not deemed to be the issuance of a senior security.
Forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date.
Options. The Portfolios' investment policies permit the Portfolios
(other than the U.S. Government Money Portfolio) to purchase put and call
options and write (sell) "covered" put and "covered" call options.
A call option is a contract whereby a purchaser pays a premium in
exchange for the right to buy the security on which the option is written at a
specified price during the term of the option. A written call option is
"covered" if the Portfolio owns the optioned securities or the Portfolio
maintains in a segregated account with the Fund's Custodian, cash, U.S.
Government securities or other liquid assets with a value sufficient to meet its
obligations under the call option, measured on a daily basis, or if the
Portfolio owns an offsetting call option. When a Portfolio writes a call option,
it receives a premium and gives the purchaser the right to buy the underlying
security at any time during the call period, at a fixed exercise price
regardless of market price changes during the call period. If the call is
exercised, the Portfolio forgoes any gain from an increase in the market price
of the underlying security over the exercise price.
The purchaser of a put option pays a premium and receives the right to
sell the underlying security at a specified price during the term of the option.
The writer of a put option, receives a premium and in return, has the
obligation, upon exercise of the option, to acquire the securities or currency
underlying the option at the exercise price. A written put option is "covered"
if a Portfolio deposits with the Fund's Custodian, cash, U.S. Government
securities or other liquid assets with an aggregate value, measured on a daily
basis, at least equal to the exercised price of the put option.
The Portfolios may purchase and write covered put and covered call
options that are traded on United States or foreign securities exchanges or that
are listed on NASDAQ. Currency options may be either listed on an exchange or
traded OTC. Options on financial futures and stock indices are generally settled
in cash as opposed to the underlying securities.
Listed options are third-party contracts (i.e., performance of the
obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation) and have standardized strike prices and expiration dates.
OTC options are privately negotiated with the counterparty to such contract and
are purchased from and sold to dealers, financial institutions or other
counterparties which have entered into direct agreements with the Portfolios.
OTC options differ from exchange-traded options in that OTC options are
transacted with the counterparty directly and not through a clearing corporation
(which guarantees performance). If the counterparty fails to take delivery of
the securities underlying an option it has written, the Portfolios would lose
the premium paid for the option as well as any anticipated benefit of the
transaction. Consequently, the Portfolios must rely on the credit quality of the
counterparty and there can be no assurance that a liquid secondary market will
exist for any particular OTC options at any specific time. The SEC has taken the
position that purchased OTC options and the assets used as cover for written OTC
options are illiquid securities subject to the 15% limitation described in
"Illiquid Securities."
The Portfolios will not write covered put or covered call options on
securities if the obligations underlying the put options and the securities
underlying the call options written by the Portfolio exceed 25% of its net
assets other than OTC options and assets used as cover for written OTC options.
Furthermore, the Portfolios will not purchase or write put or call options on
securities, stock index futures or financial futures if the aggregate premiums
paid on all such options exceed 20% of the Portfolio's total net assets, subject
to the foregoing limitations.
If the writer of an option wishes to terminate the obligation, he or
she may effect a "closing purchase transaction." This is accomplished by buying
an option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she has been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. Each Portfolio
will realize a profit from a closing transaction if the price of the transaction
is less than the premium received from writing the option or is more than the
premium paid to purchase the option; the Portfolio will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected. To secure the obligation to deliver the underlying
security in the case of a call option, the writer of the option is generally
required to pledge for the benefit of the broker the underlying security or
other assets in accordance with the rules of the relevant exchange or
clearinghouse, such as The Options Clearing Corporation, an institution created
to interpose itself between buyers and sellers of options in the United States.
Technically, the clearinghouse assumes the other side of every purchase and sale
transaction on an exchange and, by doing so, guarantees the transaction.
Risks of Transactions in Options. An option position may be closed out
only on an exchange, board of trade or other trading facility which provides a
secondary market for an option of the same series. Although the Portfolios will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise may exist. In
such event it might not be possible to effect closing transactions in particular
options, with the result that the Portfolio would have to exercise its options
in order to realize any profit and would incur brokerage commissions upon the
exercise of call options and upon the subsequent disposition of underlying
securities acquired through the exercise of call options or upon the purchase of
underlying securities for the exercise of put options. If the Portfolio as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. The Portfolios intend to purchase and sell only those options which are
cleared by clearinghouses whose facilities are considered to be adequate to
handle the volume of options transactions.
Futures Contracts. Each Portfolio (other than the U.S. Government Money
Portfolio) is permitted to enter into financial futures contracts, stock index
futures contracts and related options thereon ("futures contracts") in
accordance with its investment objective.
A futures contract is the contractual obligation to acquire or sell the
securities called for by the contract at a specified price on a specified date.
Futures contracts are traded on "contract markets" designated by the Commodity
Futures Trading Commission. Trading is similar to the manner stock is traded on
an exchange, except that all contracts are cleared through and guaranteed to be
performed by a clearing corporation associated with the commodity exchange on
which the futures contract is traded.
Upon entering into a futures contract, a Portfolio is required to
deposit in a segregated account with the Fund's Custodian in the name of the
futures broker through whom the transaction was effected, initial margin
consisting of cash, U.S. government securities or other liquid assets having an
aggregate value, measured on a daily basis, at least equal to the amount of the
covered obligations. The initial margin is in the amount of cash or short-term
securities equal to a specified percentage of the futures amount (approximately
5% or more of the futures contract amount). Subsequent daily payments are made
between the Portfolio and futures broker to maintain the initial margin at the
specified percentage. The purchase and sale of futures contracts and collateral
arrangements with respect thereto are not deemed to be a pledge of assets and
such arrangements are not deemed to be a senior security.
A "short hedge" is taking a short position in the futures market (that
is, selling a financial instrument or a stock index futures contract for future
delivery on the contract market) as a temporary substitute for sale of the
financial instrument or common stock, respectively, in the cash market, when a
Portfolio holds and continues to hold the financial instrument necessary to make
delivery under the financial futures contract or holds common stocks in an
amount at least equal in value to the stock index futures contract.
A "long hedge" is taking a long position in the futures market (that
is, purchasing a financial instrument or a stock index futures contract for
future delivery on a contract market) as a temporary substitute for purchase of
the financial instrument or common stock, respectively, in the cash market when
the Portfolio holds and continues to hold segregated liquid assets sufficient to
take delivery of the financial instrument under the futures contract.
A "stock index futures contract" is a contract to buy or sell specified
units of a stock index at a specified future date at a price agreed upon when
the contract is made. A unit is the current value of the contract index. The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Upon the termination of the contract,
settlement is the difference between the contract price and the actual level of
the stock index at the contract expiration and is paid in cash.
A "financial futures contract" (or an "interest rate futures contract")
is a contract to buy or sell a specified quantity of financial instruments such
as United States Treasury bonds, notes, bills, commercial paper and bank
certificates of deposit, an agreed amount of currencies, or the cash value of a
financial instrument index at a specified future date at a price agreed upon
when the contract is made. Substantially all futures contracts are closed out
before settlement date or call for cash settlement. A futures contract is closed
out by buying or selling an identical offsetting futures contract which cancels
the original contract to make or take delivery.
It is anticipated that the primary use of stock index futures contracts
will be for a long hedge in order to minimize the impact of cash balances. For
example, a Portfolio may sell stock when a Money Manager determines that it no
longer is a favorable investment, anticipating to invest the proceeds in
different stocks. Until the proceeds are reinvested in stocks, the Portfolio may
purchase a long position in a stock index futures contract.
The Portfolios may purchase options on futures contracts as an
alternative or in addition to buying or selling futures contracts for hedging
purposes. Options on futures are similar to options on the security upon which
the futures contracts are written except that options on stock index futures
contracts give the purchaser the right, in return for a premium paid, to assume
a position in a stock index futures contract at any time during the life of the
option at a specified price and options on financial futures contracts give the
purchaser the right, in return for a premium paid, to assume a position in a
financial futures contract at any time during the life of the option at a
specified price.
Stock index futures contracts may be used by the Equity Portfolios as a
hedge during or in anticipation of market decline. For example, if the market
was anticipated to decline, stock index futures contracts in a stock index with
a value that correlates with the declining stock value would be sold (short
hedge) which would have a similar effect as selling the stock. As the market
value declines, the stock index future's value decreases, partly offsetting the
loss in value on the stock by enabling the Portfolio to repurchase the futures
contract at a lower price to close out the position.
Financial futures contracts may be used by the Bond Portfolios as a
hedge during or in anticipation of interest rate changes. For example, if
interest rates were anticipated to rise, financial futures contracts would be
sold (short hedge) which have a similar effect as selling bonds. Once interest
rates increase, fixed-income securities held in a Portfolio's portfolio would
decline, but the futures contract value decreases, partly offsetting the loss in
value of the fixed-income security by enabling the Portfolio to repurchase the
futures contract at a lower price to close out the position.
The Portfolios may purchase a put option on a stock index futures
contract instead of selling a futures contract in anticipation of market
decline. Purchasing a call option on a stock index futures contract is used
instead of buying a futures contract in anticipation of a market advance, or to
temporarily create an equity exposure for cash balances until those balances are
invested in equities. Options on financial futures are used in similar manner in
order to hedge portfolio securities against anticipated changes in interest
rates.
There are certain investment risks in using futures contracts as a
hedging technique. One risk is the imperfect correlation between the price
movement of the futures contracts and the price movement of the portfolio
securities that are the subject of the hedge. The degree of imperfection of
correlation depends upon circumstances such as: variations in speculative market
demand for futures and for debt securities and currencies, and differences
between the financial instruments being hedged and the instruments underlying
the futures contracts available for trading with respect to interest rate levels
and maturities. Another risk is that a liquid secondary market may not exist for
a futures contract, causing a Portfolio to be unable to close out the futures
contract and thereby affecting a Portfolio's hedging strategy.
Limitations on Futures and Options Transactions. The Fund has filed a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission ("CFTC") and the
National Futures Association, which regulate trading in the futures markets.
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act, the
notice of eligibility includes the following representations:
(a) The Fund will use commodity futures contracts and options solely
for bona fide hedging purposes within the meaning of CFTC regulations; provided
that the Fund may hold long positions in commodity futures contracts or options
that do not fall within the definition of bona fide hedging transactions if the
positions are used as part of the Fund management strategy and are incidental to
the Fund's activities in the underlying cash market, and the underlying
commodity value of the positions at all times will not exceed the sum of (i)
cash or U.S. dollar-denominated high quality short-term money market instruments
set aside in an identifiable manner, plus margin deposits, (ii) cash proceeds
from existing investments due in 30 days, and (iii) accrued profits on the
positions held by a futures commission merchant; and
(b) The Fund will not enter into any commodity futures contract or
options if, as a result, the sum of initial margin deposits on commodity futures
contracts or options the Fund has purchased, after taking into account
unrealized profits and losses on such contracts, would exceed 5% of the Fund's
total assets.
Foreign Currency Transactions. The International Equity Portfolio (the
"International Portfolio") may enter into foreign currency transactions. The
value of the assets of the International Portfolio as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the International Portfolio may
incur costs in connection with conversions between various currencies. The
International Portfolio will conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days ("term") from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded directly between currency traders (usually large commercial banks) and
their customers.
The International Portfolio may enter into forward foreign currency
exchange contracts when the Money Manager determines that the best interests of
the International Portfolio will be served. When the International Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to establish the U.S. dollar costs or proceeds.
By entering into a forward contract in U.S. dollars for the purchase or sale of
the amount of foreign currency involved in an underlying security transaction,
the International Portfolio will be able to protect against possible losses
between trade and settlement dates resulting from an adverse change in the
relationship between the U.S. dollar and such foreign currency. Such contracts
may limit potential gains which might result from a possible change in the
relationship between the U.S. dollar and such foreign currency.
When a Money Manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the International Portfolio's portfolio securities
denominated in such foreign currency. The forecasting of short-term currency
market movement is extremely difficult and the successful execution of a
short-term hedging strategy is highly uncertain. The International Portfolio
will not enter into such forward contracts on a regular basis or continuous
basis if the International Portfolio would have more than 25% of its gross
assets denominated in the currency of the contract or 10% of the value of its
total assets committed to such contracts, where the International Portfolio
would be obligated to deliver an amount of foreign currency in excess of the
value of the International Portfolio's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies. The
International Portfolio's Custodian will segregate cash, equity or debt
securities in an amount not less than the value of the International Portfolio's
total assets committed to foreign currency exchange contracts entered into under
this second type of transaction.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the contract. Accordingly, it may
be necessary for the International Portfolio to purchase additional foreign
currency on the spot market (and bear the expense of such purchases) if the
market value of the security is less than the amount of foreign currency the
International Portfolio are obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security if its market value exceeds the amount
of foreign currency the International Portfolio are obligated to deliver.
This method of protecting the value of the International Portfolio's
portfolio securities against a decline in the value of the currency does not
eliminate fluctuations in the underlying prices of the securities. It
establishes a rate of exchange which one can achieve at some future point in
time. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
U.S. Government Obligations. The types of U.S. Government obligations
in which the Portfolios may at times invest include: (1) a variety of United
States Treasury obligations, which differ only in their interest rates,
maturities and times of issuance, i.e., United States Treasury bills having a
maturity of one year or less, United States Treasury notes having maturities of
one to ten years, and United States Treasury bonds generally having maturities
of greater than ten years; (2) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities which are supported by any of the
following: (a) the full faith and credit of the United States Treasury (such as
GNMA Participation Certificates), (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the United States Treasury, (c)
discretionary authority of the U.S. Government agency or instrumentality, or (d)
the credit of the instrumentality (examples of agencies and instrumentalities
are: Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks and
FNMA). No assurance can be given that the U.S. Government will provide financial
support to such U.S. Government agencies or instrumentalities described in
(2)(b), (2)(c) and (2)(d) in the future, other than as set forth above, since it
is not obligated to do so by law. The Portfolios may purchase U.S. Government
obligations on a forward commitment basis.
Obligations issued or guaranteed as to principal and interest by the U.
S. Government may be acquired by a Portfolio in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain United States Treasury notes or bonds. These custodial receipts are
commonly referred to as U.S. Treasury STRIPS.
Variable and Floating Rate Securities. A floating rate security is one
whose terms provide for the automatic adjustment of interest rate whenever a
specified interest rate changes. A variable rate security is one whose terms
provide for the automatic establishment of a new interest rate on set dates. The
interest rate on floating rate securities is ordinarily tied to and is a
percentage of the prime rate of a specified bank or some similar objective
standard, such as the 90-day United States Treasury bill rate, and may change as
often as twice daily. Generally, changes in interest rates on floating rate
securities will reduce changes in the security's market value from the original
purchase price, resulting in the potential for capital appreciation or capital
depreciation being less than for fixed-income obligations with a fixed interest
rate.
The U.S. Government Money Portfolio may purchase variable rate U.S.
Government obligations which are instruments issued or guaranteed by the U.S.
Government, or any agency or instrumentality thereof, which have a rate of
interest subject to adjustment at regular intervals but less frequently than
annually. Variable rate U.S. Government obligations on which interest is
readjusted no less frequently than annually will be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate.
The Portfolios may purchase floating and variable rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess of
397 days, but which permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding 397 days, in each case upon not
more than 30 days' notice. Variable rate demand notes include master demand
notes which are obligations that permit a Portfolio to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
collateralized by letters of credit or other credit support arrangements
provided by banks. Because these obligations are direct lending arrangements
between the lender and borrower it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary market
for these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, a Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and a portfolio may invest in
obligations which are not so rated only if its Money Manager determines that at
the time of investment the obligations are of comparable quality to the other
obligations in which the Portfolio may invest. The Money Manager of a Portfolio
will consider on an ongoing basis the creditworthiness of the issuers of the
floating and variable rate demand obligations held by the Portfolio.
Inverse Floaters. Although to date the Portfolios have not invested in
inverse floaters, and no Money Manager anticipates investing in inverse
floaters, the Bond Portfolios and the International Portfolio may invest up to
5% of their net assets in inverse floaters. Inverse floaters are securities with
a variable interest rate that varies in inverse proportion to the direction of
an interest rate, or interest rate index. Inverse floaters have significantly
greater risk than conventional fixed-income instruments. When interest rates are
declining, coupon payments will rise at periodic intervals. This rise in coupon
payments causes rapid dramatic increases in prices compared to those expected
from conventional fixed-income instruments of similar maturity. Conversely,
during times of rising interest rates, the coupon payments will fall at periodic
intervals. This fall in coupon payments causes rapid dramatic decreases in
prices compared to those expected from conventional fixed-income instruments of
similar maturity. If the Bond Portfolios or the International Portfolio invest
in inverse floaters, they will treat inverse floaters as illiquid securities
except for (i) inverse floaters issued by U.S. Government agencies and
instrumentalities backed by fixed-rate mortgages, whose liquidity is monitored
by Bennington and the Money Managers for the Portfolios subject to the
supervision of the Board of Directors or (ii) where such securities can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share.
Privately-Issued STRIP Securities. The Portfolios may invest in
principal portions or coupon portions of U.S. Government Securities that have
been separated (stripped) by banks, brokerage firms, or other entities
("privately-issued STRIPS"). Stripped securities are usually sold separately in
the form of receipts or certificates representing undivided interests in the
stripped portion and are not considered to be issued or guaranteed by the U.S.
Government. Stripped securities may be more volatile than non-stripped
securities. No Portfolio will invest more than 5% of its net assets in
privately-issued STRIPS.
MANAGEMENT OF THE FUND
The Board of Directors is responsible for overseeing generally the
operation of the Fund. The officers are responsible for the day-to-day
management and administration of the Fund's operations.
<TABLE>
<CAPTION>
Name and Position with Principal Occupations
Address Age the Fund During Past Five Years
------- --- -------- ----------------------
<S> <C> <C> <C>
* J. Anthony Whatley, III** 54 Director, President and Executive Director, Bennington Capital
1420 Fifth Avenue Principal Executive Management L.P. since April 1991; President,
Seattle, WA Officer Bennington Management Associates, Inc. since
April 1991; President, Northwest Advisors,
Inc. since 1990; Senior Vice President and
Director of Sales and Marketing, Frank
Russell Company (asset strategy consultant)
from 1986 to 1990.
George G. Cobean, III 59 Director Partner, Martinson, Cobean & Associates,
1607 South 341st Place P.S. (certified public accountants) since
Federal Way, WA 1973.
Geoffrey C. Cross 57 Director President, Geoffrey C. Cross P.S., Inc.,
252 Broadway (general practice of law) since 1970.
Tacoma, WA
Ravindra A. Deo 34 Vice President, Director and Vice President, Northwest
1420 Fifth Avenue Treasurer and Advisors, Inc. since July 1993; Vice
Seattle, WA Principal Financial President and Chief Investment Officer,
and Accounting Officer Bennington Capital Management L.P. since
January 1992; Senior Vice President, Leland
O'Brien Rubenstein Associates Incorporated
(investment adviser) from 1986 to 1991.
Linda V. Whatley** 39 Vice President and Director, Secretary and Treasurer of
1420 Fifth Avenue Assistant Secretary Northwest Advisors, Inc. since July 1993;
Seattle, WA Vice President, Bennington Capital
Management L.P. since April 1991; Secretary
since April 1991 and Director and Treasurer
since June 1992 of Bennington Management
Associates, Inc.; Student, University of
Washington MBA Program from 1987 to 1990;
Vice President, Russell Analytical Services,
Frank Russell Company (asset strategy
consultant) from 1984 to 1987.
Robert J. Harper 53 Vice President Director and Vice President, Northwest
1420 Fifth Avenue Advisers, Inc. since November 1995; Director
Seattle, WA of Sales and Client Service, Bennington
Capital Management L.P. since October 1993;
President, National Training Program since
January 1980.
Christine J. Stansbery 45 Secretary Assistant Vice President-Compliance since
1420 Fifth Avenue January 1997, Regulatory Manager from March
Seattle, WA 1996 to December 1996, Legal Assistant from
March 1993 to March 1996 at Bennington
Capital Management L.P.; Assistant to
Administrator, Bailey Boushay House,
Virginia Mason Hospital, from 1990 to 1992
(health care).
</TABLE>
- ------------
* This Director is an "Interested Party by virtue of his employment by and/or
indirect interest in Bennington.
** J. Anthony Whatley, III and Linda V. Whatley are husband and wife.
The following table shows the compensation paid by the Fund to the
Directors during the fiscal year ended December 31, 1997:
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Benefits Estimated Annual Compensation
Compensation Accrued as part of Benefits upon from Fund Paid to
Director from the Fund Fund Expenses Retirement Board Members
-------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
J. Anthony Whatley III None None None None
George G. Cobean III None None
Geoffrey C. Cross None None
</TABLE>
[Fees paid to Directors will be updated with 485(b) filing on April 28, 1998.]
Directors who are not "interested persons" of the Fund are paid fees of
$2,500 per meeting plus out-of-pocket costs associated with attending Board
meetings. Directors employed by Bennington have agreed that, if their employment
with Bennington is terminated for any reason, and a majority of the remaining
Directors of the Fund so request, they will be deemed to have resigned from the
Board of Directors upon being informed of such vote. The Fund's officers and
employees are paid by Bennington and receive no compensation from the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1998, the following persons were the owners of record
of 5% or more of the shares of the Portfolios of the Fund:
[Control Persons will be updated with 485(b) filing on April 28, 1998.]
Equity Portfolios
Value and Small to Mid International
Beneficial Owner Growth Income Cap Equity
- ---------------- ------ ------ --- ------
Fixed-Income Portfolios
Short- U.S.
Intermediate Intermediate Mortgage Government
Beneficial Owner Fixed-Income Fixed-Income Securities Money
- ---------------- ------------ ------------ ---------- -----
As of March 31, 1998, none of the Directors and officers of the Fund,
as a group, beneficially owned more than 1% of the shares of each Portfolio.
If a meeting of the shareholders were called, the above-listed
shareholders, if voting together, may, as a practical matter, have sufficient
voting power to exercise control over the business, policies and affairs of the
Fund and, in general, determine certain corporate or other matters submitted to
the shareholders for approval, such as a change in the Portfolios' investment
policies or Money Manager, all of which may adversely affect the net asset value
of the Fund. As with any mutual fund, certain shareholders of a Portfolio could
control the results of voting in certain instances. For example, a vote by
certain majority shareholders changing the Portfolio's investment objective
could result in dissenting minority shareholders withdrawing their investments
and a corresponding increase in costs and expenses for the remaining
shareholders.
INVESTMENT ADVISORY AND OTHER SERVICES
SERVICE PROVIDERS
The Portfolios' necessary day-to-day operations are performed by
separate business organizations under contract to the Fund. The principal
service providers are:
Manager, Administrator, Transfer Agent Bennington Capital Management L.P.
Registrar and Dividend Disbursing Agent
Custodian and Fund Accounting Agent Fifth Third Bank
Money Managers Seven professional discretionary
investment management organizations
and Bennington Capital Management L.P.
Manager, Administrator, Transfer Agent, Registrar and Dividend
Disbursing Agent. Bennington is the manager and administrator of the Fund,
pursuant to a Management Agreement with the Fund. Bennington provides or
oversees the provision of all general management, administration, investment
advisory and portfolio management services for the Fund. Bennington provides the
Fund with office space and equipment, and the personnel necessary to operate and
administer the Portfolios' business and to supervise the provision of services
by third parties such as the Money Managers and Fifth Third Bank that serves as
the Custodian and Fund Accounting Agent. Bennington also develops the investment
programs for the Portfolios, selects Money Managers for certain Portfolios
(subject to approval by the Board of Directors), allocates assets among Money
Managers, monitors the Money Managers' investment programs and results, and may
exercise investment discretion over Portfolios and assets invested in the
Portfolios' liquidity reserves, or other assets not assigned to a Money Manager.
Bennington currently invests all the assets of the U.S. Government Money
Portfolio. Bennington also acts as the Transfer Agent, Registrar and Dividend
Disbursing Agent for the Fund and provides certain administrative and compliance
services to the Fund. See "Investment Restrictions, Policies and Risk
Considerations -- Investment Policies -- Liquidity Reserves."
Under the Management Agreement, Bennington has agreed not to withdraw
from the Fund the use of the Fund's name. In addition, Bennington may not grant
the use of a name similar to that of the Fund to another investment company or
business enterprise without, among other things, first obtaining the approval of
the Fund's shareholders.
A Management Agreement containing the same provisions as the initial
contract but also providing for payment to Bennington by the Portfolios of a
management fee was approved by the Board of Directors including all of the
Directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the Management Agreement on June 17, 1992, by the
shareholder of the Growth, Value and Income, Small to Mid Cap (formerly referred
to as the Small Cap Portfolio) and International Equity Portfolios on June 17,
1992, and by the shareholders of the Short-Intermediate Fixed-Income,
Intermediate Fixed-Income, Mortgage Securities and U.S. Government Money
Portfolios on August 3, 1992. The Management Agreement was renewed by the Board
of Directors including all of the Directors who are not "interested persons" of
the Fund and who have no direct or indirect financial interest in the Management
Agreement on May 24, 1994, May 16, 1995, May 29, 1996 and May 28, 1997.
The general partners of Bennington are Northwest Advisors, Inc.,
Bennington Management Associates, Inc. and Bennington Capital Management
Investment Corp., all of which are Washington corporations. The sole limited
partner of Bennington Capital Management L.P. is Zions Investment Management,
Inc., a wholly-owned subsidiary of Zions First National Bank, N.A. The managing
general partner of Bennington Capital Management, L.P. is Bennington Management
Associates, Inc., which is controlled by J. Anthony Whatley, III. The mailing
address of Bennington is 1420 Fifth Avenue, Suite 3130, Seattle, Washington
98101.
Bennington's Fees. The schedule below shows fees payable to Bennington
as manager and administrator of the Fund, pursuant to a Management Agreement
between Bennington and the Fund. Each Portfolio pays Bennington a fee equal on
an annual basis to the following percentage of the Portfolio's average daily net
assets.
FEE SCHEDULE FOR PAYMENTS TO BENNINGTON UNDER MANAGEMENT AGREEMENT
Management Fee (as a
percentage of average
Portfolio daily net assets)
--------- -----------------
Growth 0.45%
Value and Income 0.45%
Small to Mid Cap 0.60%
International 0.55%
Intermediate Fixed-Income 0.36%
Short-Intermediate Fixed-Income 0.36%
Mortgage Securities 0.36%
U.S. Government Money 0.25%
Bennington has received the following fees under its Management
Agreement with the Fund, since inception:
FEES PAID TO DATE TO BENNINGTON UNDER MANAGEMENT AGREEMENT
[Fees paid to Bennington will be updated with 485(b) filing on April 28, 1998.]
1/1/95- 1/1/96- 1/1/97-
Portfolio 12/31/95 12/31/96 12/31/97
- --------- -------- -------- --------
Growth $143,280 $266,304
Value and Income $105,099 $139,463
Small to Mid Cap1 $222,426 $344,080
International $132,843 $305,524
Intermediate Fixed-Income $124,073 $168,696
Short-Intermediate Fixed-Income $120,579 $127,117
Mortgage Securities $133,615 $226,073
Municipal Intermediate Fixed-Income2 $43,032 $0
U.S. Government Money $60,535 $122,068
Institutional Investor Fixed-Income3 $61,473 $0
- ----------
(1) Until September 15, 1995, referred to as the Small Cap Portfolio.
(3) Municipal Portfolio was closed on December 4, 1995.
(4) Institutional Investor Fixed-Income Portfolio was closed on August 28, 1995.
Bennington provides transfer agent, registrar and dividend disbursing
agent services to the Fund pursuant to a Transfer Agency and Administration
Agreement between Bennington and the Fund (the "Transfer Agency Agreement").
Sub-transfer agent and compliance services previously provided by Bennington
under the Sub-Administration Agreement are provided to the Fund under the
Transfer Agency Agreement. Bennington also provides certain administrative and
recordkeeping services under the Transfer Agency Agreement. For providing these
services, Bennington receives (i) a fee equal to 0.13% of the average daily net
assets of each Portfolio of the Fund, subject to a minimum annual fee of $40,000
per Portfolio and (ii) a transaction fee of $0.50 per transaction. Bennington is
also reimbursed by the Fund for certain out-of-pocket expenses including
postage, taxes, wire transfer fees, stationery and telephone expenses.
FEES PAID TO BENNINGTON UNDER
TRANSFER AGENT AGREEMENT
[Fees paid to Bennington will be updated with 485(b) filing on April 28, 1998.]
Period from
12/1/95- 1/1/96- 1/1/96-
Portfolio 12/31/95 12/31/96 12/31/97
- --------- -------- -------- --------
Growth $4,251 $71,198
Value and Income $3,397 $41,055
Small to Mid Cap $4,743 $68,977
International $3,505 $66,815
Intermediate Fixed-Income $3,733 $56,981
Short-Intermediate Fixed-Income $3,552 $42,994
Mortgage Securities $4,868 $75,564
U.S. Government Money $4,252 $60,098
Custodian and Fund Accounting Agent. The Fifth Third Bank, 38 Fountain
Square Plaza, Cincinnati, Ohio 45263, a banking company organized under the laws
of the State of Ohio, has acted as Custodian of the Portfolios' assets since
October, 1996, and through an agreement between Fifth Third and the Fund may
employ sub-custodians outside the United States which have been approved by the
Board of Directors. Fifth Third holds all portfolio securities and cash assets
of the Portfolio and is authorized to deposit securities in securities
depositories or to use the services of sub-custodians. Fifth Third is paid by
the Portfolios an annual fee and also is reimbursed by the Fund for certain
out-of-pocket expenses including postage, taxes, wires, stationery and
telephone. Fifth Third acts as Custodian for investors of the Portfolios with
respect to the individual retirement accounts ("IRA Accounts"). Fifth Third also
provides basic recordkeeping required by each of the Portfolios for regulatory
and financial reporting purposes. Fifth Third is paid by the Portfolios an
annual fee plus specified transactions costs per Portfolio for these services,
and is reimbursed by the Fund for certain out-of-pocket expenses including
postage, taxes, wires, stationery and telephone.
Independent Auditors. Deloitte & Touche LLP, 1700 Courthouse Plaza NE,
Dayton, Ohio 45402, serves as the Fund's independent auditors and in that
capacity audits the Fund's annual financial statements.
Fund Counsel. Mayer, Brown & Platt, 1675 Broadway, New York, New York
10019, serves as the Fund's outside legal counsel.
Money Managers. The Money Manager for the U.S. Government Money
Portfolio was terminated on September 7, 1994. Currently, Bennington invests all
of the assets of the U.S. Government Money Portfolio. Each other Portfolio of
the Fund currently has one Money Manager investing all or part of its assets.
Bennington also invests each Portfolio's liquidity reserves, and all or any
portion of the Portfolio's other assets not assigned to a Money Manager.
The Money Managers selected by Bennington have no affiliation with or
relationship to the Fund or Bennington other than as discretionary managers for
each Portfolio's assets. In addition, some Money Managers and their affiliates
may effect brokerage transactions for the Portfolios. See "Portfolio Transaction
Policies--Brokerage Allocations."
Revised Money Manager Agreements for the Growth, Value and Income,
Intermediate Fixed Income, Short-Intermediate Fixed-Income and Mortgage
Securities Portfolios containing the same terms and conditions as the former
agreements for those portfolios, except for a change in the method of
calculating the fees paid to the Money Managers, were approved by the Board of
Directors, including all the Directors who are not "interested persons" of the
Fund and who have no direct or indirect interest in the Money Manager
Agreements, on May 17, 1993 and by the shareholders of those portfolios on
September 1, 1993. The Revised Money Manager Agreement for the International
Portfolio was approved by the Board of Directors, including all Directors who
are not "interested persons" and who have no direct or indirect interest in the
Money Manager Agreements, on May 17, 1993. The Money Manager Agreement for the
International Portfolio was approved by the sole shareholder as of September 30,
1994. A new Money Manager Agreement for the Mortgage Securities Portfolio
providing for the change of ownership of BlackRock was approved by the Board of
Directors, including all the Directors who are not "interested persons" of the
Fund and who have no direct or indirect interest in the Money Manager Agreement,
on November 10, 1994, and by the shareholders of the Mortgage Securities
Portfolio at a Special Meeting of Shareholders held on January 27, 1995, and
reviewed annually by the Board of Directors most recently at a meeting on
February 19, 1998, and renewed for the forthcoming year. A new Money Manager
Agreement for the Small to Mid Cap Portfolio in connection with a change in
Money Manager to Symphony Asset Management, Inc. was approved by the Board of
Directors, including all the Directors who are not "interested persons" of the
Fund and who have no direct or indirect interest in the Money Manager Agreement,
on June 15, 1995, and by the shareholders of the Small to Mid Cap Portfolio at a
Special Meeting of Shareholders held on August 15, 1995. A new Money Manager
Agreement for the Value and Income Portfolio in connection with the proposed
change of ownership of Martingale Asset Management L.P. ("Martingale") was
approved by the Board of Directors, including all the Directors who are not
"interested persons" of the Fund and who have no direct or indirect interest in
the Money Manager Agreement, on June 15, 1995, and by the shareholders of the
Value and Income Portfolio at a Special Meeting of Shareholders held on August
15, 1995. A new Money Manager Agreement for the Growth Portfolio in connection
with a change in Money Manager to Geewax, Terker & Company was approved by the
Board of Directors at a special meeting of the Board of Directors called for
that purpose, including all the Directors who are not "interested persons" of
the Fund and who have no direct or indirect interest in the Money Manager
Agreement, on June 7, 1997. The Money Manager Agreements for the Value and
Income, Small to Mid Cap, Intermediate Fixed-Income, Short-Intermediate
Fixed-Income and International Portfolios are reviewed annually by the Board of
Directors most recently at a meeting on August 20, 1997, and renewed for the
forthcoming year.
Listed below are the Money Managers selected by Bennington to invest
certain of the Portfolios' assets:
o Geewax, Terker & Company ("Geewax Terker"), a Pennsylvania
general partnership whose general partners are John J. Geewax
and Bruce Terker, is the Money Manager for the Growth
Portfolio. The Money Manager expects to maintain a
well-diversified portfolio of stocks in the Growth Portfolio,
holding market representation in all major economic sectors.
Geewax Terker capitalizes on the overly optimistic
expectations of most growth stock investors by avoiding
holdings with potential problems. Specifically, stocks with
poor financial quality, questionable ability to finance future
growth and/or high downside price volatility are avoided.
Portfolios are constructed through a disciplined process that
identifies potential risks and systematically eliminates the
riskiest of growth stocks from consideration. Large
capitalization growth stocks that pass the screens are
purchased. Benchmark-relative risk is controlled by owning a
core group of the very largest stocks in the benchmark, and by
capitalization-weighting portfolio holdings. As of December
31, 1997, Geewax Terker managed assets of approximately $___
billion.
o Martingale Asset Management, L.P. ("Martingale") is the Money
Manager for the Value and Income Portfolio. Martingale is a
Delaware limited partnership which consists of two general
partners, Martingale Asset Management Corporation ("MAMC"), a
Massachusetts corporation and Commerz Asset Management USA
Corporation ("CAM"), and four limited partners. CAM, a
Delaware Corporation, is a wholly-owned subsidiary of Commerz
International Capital Management GmbH ("CICM") headquartered
in Frankfurt, Germany. Commerzbank AG ("Commerzbank") is the
parent company of CICM. Arnold S. Wood and William E. Jacques
each own 32.26% of MAMC and are active in the management of
the firm. Martingale emphasizes diversified individual stocks
which it believes will eventually produce smooth results. The
portfolio created has a combination of value characteristics
and growth opportunities. The portfolio does not attempt to
produce returns through market timing, sector or industry
selection. The firm uses a proprietary valuation process which
appraises stocks based on each stock's earnings, dividends,
book value, growth and risk. Industry and risk characteristics
are controlled through rigorous portfolio construction. As of
December 31, 1997, Martingale managed assets of approximately
$____ million.
o Symphony Asset Management, Inc. ("Symphony") is the Money
Manager of the Small to Mid Cap Portfolio. Until September 15,
1995, Wells Fargo Nikko Investment Advisors ("WFNIA") was the
Money Manager for the Small Cap Portfolio. On June 15, 1995,
WFNIA resigned as Money Manager for the Small Cap Portfolio.
The Board of Directors approved the appointment of Symphony
Asset Management, Inc. ("Symphony") as the new Money Manager
for the Small to Mid Cap Portfolio and the shareholders of the
Small Cap Portfolio approved the Money Manager Agreement among
the Fund, Bennington and Symphony at a Special Meeting of
Shareholders held on August 15, 1995. Symphony began
management of the Small to Mid Cap Portfolio on September 15,
1995. Symphony is a California corporation founded in March,
1994. Symphony is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and is
registered with the State of California. Symphony is a
wholly-owned subsidiary of BARRA, Inc. ("BARRA"), a California
corporation, which is registered as an investment adviser with
the Securities and Exchange Commission and the California
Department of Corporations, and as a publicly traded
corporation under Section 12(g) of the Securities Exchange Act
of 1934, as amended. BARRA is one of the world's leading
suppliers of analytical financial software and has pioneered
many of the techniques used in systematic investment
management, including active management based on so-called
factor return predictions. Symphony is an investment
management firm dedicated to exploiting information
inefficiencies in global financial markets. Symphony has
developed an approach to investing that combines the qualities
of both systematic and traditional investment management.
Symphony's process begins with a factor-return-based valuation
model identifying securities that are relatively under- or
over-valued. Symphony's factor model is the product of a
decade of work by BARRA's active strategies group and has been
used as the basis for much of BARRA's successful subadvisory
business. As of December 31, 1997, Symphony managed assets of
approximately $___ million and subadvised assets of
approximately $___ million.
o Nicholas-Applegate Capital Management ("Nicholas-Applegate")
is the Money Manager for the International Portfolio.
Nicholas-Applegate is a California limited partnership and is
a registered investment adviser whose sole general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a
California limited partnership controlled by Arthur E.
Nicholas. Nicholas-Applegate's investment approach reflects a
focus on individual security selection. Nicholas-Applegate
integrates fundamental and quantitative analysis to exploit
the inefficiencies within international markets. The firm's
bottom-up approach drives the portfolio toward issues
demonstrating positive fundamental change, evidence of
sustainability and timeliness. These criteria are defined
differently in each country to adjust for accounting, economic
and cultural differences, and varying reporting requirements.
As of December 31, 1997, Nicholas-Applegate managed assets of
approximately $____ billion.
o BlackRock Financial Management, Inc. ("BlackRock") is the
Money Manager of the Mortgage Securities Portfolio. BlackRock
(formerly BlackRock Financial Management L.P.) is a Delaware
corporation which is a wholly-owned subsidiary of PNC Asset
Management Group, Inc., which is a wholly-owned indirect
subsidiary of PNC Bank, N.A. ("PNC"). PNC is a commercial bank
whose principal office is in Pittsburgh, PA and is
wholly-owned by PNC Bank Corp., a bank holding company.
BlackRock's philosophy is centered around two fundamental
concepts: (i) duration targeting and (ii) relative value
sector and security selection. Portfolios are managed in a
narrow band around a duration target determined by the client.
Specific investment decisions are made using a relative value
approach that encompasses both fundamental and technical
analysis. In implementing its strategy, BlackRock utilizes
macroeconomic trends, supply/demand analysis, yield curve
structure and trends, volatility analysis, and security
specific option-adjusted spreads (OAS). BlackRock's Investment
Strategy Group has primary responsibility for setting the
broad investment strategy and for overseeing the ongoing
management of all client portfolios. BlackRock serves as
investment adviser to fixed income investors in the United
States and overseas through funds and institutional accounts
with combined total assets at December 31, 1997, of
approximately $__ billion.
MONEY MANAGERS' FEES
The Money Managers have received the following fees pursuant to their
Money Manager Agreements, since inception:
FEES PAID TO MONEY MANAGERS SINCE INCEPTION
[Fees paid to Money Managers will be updated with 485(b) filing
on April 28, 1998.]
<TABLE>
<CAPTION>
1/1/95 - 1/1/96 - 1/1/97 -
Portfolio Money Manager 12/31/95 12/31/96 12/31/97
- --------- ------------- -------- -------- --------
<S> <C> <C> <C> <C>
Growth (1) State Street $101,767 $188,312
Geewax, Terker NA NA
Value and Income Martingale $70,037 $78,232
Small to Mid Cap (2) WFNIA/Symphony $78,335 $114,693
International Nicholas Applegate $96,625 $204,067
Intermediate Fixed-Income Smith Barney $51,705 $70,290
Short-Intermediate Fixed-Income Bankers Trust $50,323 $52,966
Mortgage Securities BlackRock $85,091 $144,435
Municipal Intermediate Fixed-Income (3) Lazard Freres $14,370 $0
Institutional Investor Fixed-Income (4) Smith Barney $0 $0
U.S. Government Money State Street6 $0 $0
</TABLE>
(1) Until July 21, 1997, State Street Bank and Trust Company was the Money
Manager for the Growth Portfolio and received fees until that date.
Beginning on July 22, 1997, Geewax, Terker & Company became the Money
Manager for the Growth Portfolio and received pro-rated fees from that
date.
(2) Until September 15, 1995, referred to as the Small Cap Portfolio, whose
money manager, Wells Fargo Nikko Investment Advisors ("WFNIA"), was paid
fees through that date. Beginning September 15, 1996, Symphony received
fees as the money manager.
(2) The Municipal Portfolio was closed on December 4, 1995.
(3) Institutional Investor Fixed-Income Money Manager was terminated on January
1, 1995, and the Portfolio was closed on August 28, 1995.
(4) State Street was terminated as the money manager of the U.S. Government
Money Portfolio on September 7, 1994. Prior to that, the money manager fee
was paid by Bennington.
Money Manager Fees. The fees paid to the Money Manager of a Portfolio
are based on the assets of the Portfolio and the number of complete calendar
quarters of management by the Money Manager. For the first five complete
calendar quarters managed by a Money Manager of an operating Portfolio (other
than the U.S. Government Money Portfolio, the Intermediate Fixed-Income
Portfolio and Short-Intermediate Fixed-Income Portfolio that are all managed by
Bennington), such Portfolio will pay its respective Money Manager on a monthly
basis the following annual fee set forth below in "Money Manager Fee Schedule
For A Manager's First Five Calendar Quarters of Management" based on the average
daily net assets of the Portfolio managed by such Money Manager. With the
exception of the Growth Portfolio, whose money manager commenced investment
operations on July 21, 1997, the Money Managers for the Portfolios have
completed five calendar quarters. During the first five calendar quarters of
management, the Money Manager Fee has two components, the Basic Fee and
Portfolio Management Fee.
MONEY MANAGER FEE SCHEDULE FOR PORTFOLIOS
MANAGED LESS THAN FIVE COMPLETE CALENDAR QUARTERS BY MANAGER
<TABLE>
<CAPTION>
Portfolio
Management
Portfolio Basic Fee Fee Total
- --------- --------- --- -----
<S> <C> <C> <C>
Growth 0.10% 0.10% 0.20%
Value and Income 0.10% 0.10% 0.20%
International 0.20% 0.20% 0.40%
Small to Mid Cap 0.10% 0.10% 0.20%
Intermediate Fixed-Income 0.07% 0.08% 0.15%
Short-Intermediate Fixed-Income 0.07% 0.08% 0.15%
Mortgage Securities 0.07% 0.08% 0.15%
</TABLE>
Commencing with the sixth calendar quarter of management by a Money
Manager of an operating Portfolio, such Portfolio will pay its Money Manager
based on the "Money Manager Fee Schedule For A Money Manager From The Sixth
Calendar Quarter Of Management Forward." The Money Manager Fee commencing with
the sixth quarter consists of two components, the "Basic Fee" and "Performance
Fee."
MONEY MANAGER FEE SCHEDULE FROM A MANAGER'S
SIXTH CALENDAR QUARTER OF MANAGEMENT FORWARD
<TABLE>
<CAPTION>
Average Annualized Annualized
Basic Performance Diffential Performance
Portfolio Fee vs. The Applicable Index Fee
- --------- --- ------------------------ ------------
<S> <C> <C> <C>
Equity Portfolios 0.10% Greater than or equal to 2.00% 0.22%
Greater than or equal to 1.00% and less than 2.00% 0.20%
Greater than or equal to 0.50% and less than 1.00% 0.15%
Greater than or equal to 0.00% and less than 0.50% 0.10%
Greater than or equal to -0.50% and less than 0.00% 0.05%
Greater than or equal to -0.50% 0%
International Portfolio 0.20% Greater than or equal to 4.00% 0.40%
Greater than or equal to 2.00% and less than 4.00% 0.30%
Greater than or equal to 0.00% and less than 2.00% 0.20%
Greater than or equal to -2.00% and less than 0.00% 0.10%
Greater than or equal to -2.00% 0%
Mortgage Securities 0.07% Greater than or equal to 2.00% 0.18%
Portfolio
Greater than or equal to =0.50% and less than 2.00% 0.16%
Greater than or equal to =0.25% and less than 0.50% 0.12%
Greater than or equal to =-0.25% and less than 0.25% 0.08%
Greater than or equal to =-0.50% and less than -0.25% 0.04%
less than -0.50% 0%
</TABLE>
The fee based on annualized performance will be adjusted each quarter and paid
monthly based on the annualized investment performance of each Money Manager
relative to the annualized investment performance of the "Benchmark Indices" set
forth below, which may be changed only with the approval of the Board of
Directors (shareholder approval is not required). A description of each
benchmark index is contained in Appendix A to the Equity Portfolios' Prospectus
and the Fixed-Income Portfolios' Prospectus. As long as the Domestic Equity and
Bond Portfolios' performance either exceeds the index, or trails the index by no
more than .50%, a Performance Fee will be paid to the applicable Money Manager.
As long as the International Portfolio's performance either exceeds the index,
or trails the index by no more than 2%, a Performance Fee will be paid to the
Money Manager. A Money Manager's performance is measured on the portion of the
assets of its respective Portfolio managed by it (the "Account"), which excludes
assets held by Bennington for circumstances such as redemptions or other
administrative purposes.
<TABLE>
<CAPTION>
BENCHMARK INDICES
Portfolio Index
- --------- -----
<S> <C>
Growth S&P/BARRA Growth Index
Value and Income S&P/BARRA Value Index
Small to Mid Cap Wilshire 4500 Index1
International Morgan Stanley Capital International EAFE(R) + EMF Index2
Intermediate Fixed-Income Lehman Brothers Government/Corporate Index
Short-Intermediate Fixed-Income Lehman Brothers Government/Corporate 1-5 Year Index
Mortgage Securities Lehman Brothers Mortgage-Backed Securities Index
</TABLE>
- ----------------
(1) Effective October 1, 1995, the benchmark index was changed from the BARRA
Institutional Small Index to the Wilshire 4500 Index.
(2) Through the close of business on April 30, 1996, the benchmark index used
for the International Portfolio was the Morgan Stanley Capital
International EAFE(R)Index. Effective May 1, 1996, the benchmark index is
the Morgan Stanley Capital International EAFE(R)+ EMF Index. See Appendix A
to the Equity Portfolios Prospectus for additional information.
From the sixth to the 14th calendar quarter of investment operations,
each Money Manager's performance differential versus the applicable index is
recalculated at the end of each calendar quarter based on the Money Manager's
performance during all calendar quarters since commencement of investment
operations except that of the immediately preceding quarter. Commencing with the
14th calendar quarter of investment operations, a Money Manager's average annual
performance differential will be recalculated based on the Money Manager's
performance during the preceding 12 calendar quarters (other than the
immediately preceding quarter) on a rolling basis. A Money Manager's performance
will be calculated by Bennington in the same manner that the total return
performance of the Portfolio's index is calculated, which is not the same method
used for calculating the Portfolio's performance for advertising purposes as
described under "Calculation of Portfolio Performance." See Appendix B to this
Statement of Additional Information for a discussion of how performance fees are
calculated.
The "performance differential" is the percentage amount by which the
Account's performance is greater than or less than that of the relevant index.
For example, if an index has an average annual performance of 10%, an Equity
Portfolio Account's average annual performance would have to be equal to or
greater than 12% for the Money Manager to receive an annual performance fee of
.22% (i.e., the difference in performance between the Account and the index must
be equal to or greater than 2% for an equity portfolio Money Manager to receive
the maximum performance fee.) Because the maximum Performance Fee for the
Domestic Equity and Bond Portfolios applies whenever a Money Manager's
performance exceeds the index by 2.00% or more, the Money Managers for those
Portfolios could receive a maximum Performance Fee even if the performance of
the Account is negative. Also, because the maximum Performance Fee for the
International Portfolio applies whenever a Money Manager's performance exceeds
the index by 4.00% or more, the Money Manager for the International Portfolio
could receive a maximum Performance Fee even if the performance of the Account
is negative. In April 1972, the SEC issued Release No. 7113 under the Investment
Company Act (the "Release") to call the attention of directors and investment
advisers to certain factors which must be considered in connection with
investment company incentive fee arrangements. One of these factors is to "avoid
basing significant fee adjustments upon random or insignificant differences"
between the investment performance of a fund and that of the particular index
with which it is being compared. The Release provides that "preliminary studies
(of the SEC staff) indicate that as a 'rule of thumb' the performance difference
should be at least +/-10 percentage points" annually before the maximum
performance adjustment may be made. However, the Release also states that
"because of the preliminary nature of these studies, the Commission is not
recommending, at this time, that any particular performance difference exist
before the maximum fee adjustment may be made." The Release concludes that the
directors of a fund "should satisfy themselves that the maximum performance
adjustment will be made only for performance differences that can reasonably be
considered significant." The Board of Directors has fully considered the Release
and believes that the performance adjustments are entirely appropriate although
not within the +/-10 percentage points per year range suggested by the Release.
PORTFOLIO EXPENSES
The Portfolios will pay all their expenses other than those expressly assumed by
Bennington. Fund expenses include: (a) expenses of all audits and other services
by independent public accountants; (b) expenses of the transfer agent, registrar
and dividend disbursing agent; (c) expenses of the Custodian, administrator and
sub-administrator; (d) expenses of obtaining quotations for calculating the
value of the Portfolios' net assets; (e) expenses of obtaining Portfolio
activity reports and analyses for each Portfolio; (f) expenses of maintaining
each Portfolio's tax records; (g) salaries and other compensation of any of the
Fund's executive officers and employees, if any, who are not officers,
directors, shareholders or employees of Bennington or any of its partners; (h)
taxes levied against the Portfolios; (i) brokerage fees and commissions in
connection with the purchase and sale of portfolio securities for the
Portfolios; (j) costs, including the interest expense, of borrowing money; (k)
costs and/or fees incident to meetings of the Portfolios, the preparation and
mailings of prospectuses and reports of the Portfolios to their shareholders,
the filing of reports with regulatory bodies, the maintenance of the Fund's
existence, and the registration of shares with federal and state securities
authorities; (l) legal fees, including the legal fees related to the
registration and continued qualification of the Portfolios' shares for sale; (m)
costs of printing stock certificates representing shares of the Portfolios; (n)
Directors' fees and expenses of Directors who are not officers, employees or
shareholders of Bennington or any of its partners; (o) the fidelity bond
required by Section 17(g) of the Investment Company Act, and other insurance
premiums; (p) association membership dues; (q) organizational expenses; (r)
extraordinary expenses as may arise, including expenses incurred in connection
with litigation, proceedings, other claims, and the legal obligations of the
Fund to indemnify its Directors, officers, employees and agents with respect
thereto; and (s) any expenses allocated or allocable to a specific class of
shares ("Class-specific expenses"). Class-specific expenses include
distribution, service fees and administration fees as described below payable
with respect to Advisor Class Shares, and may include certain other expenses if
these expenses are actually incurred in a different amount by that class or if
the class receives services of a different kind or to a different degree than
the other class, as permitted by the Fund's Multi-Class Plan adopted pursuant to
Rule 18f-3 under the Investment Company Act and subject to review and approval
by the Directors. Class-specific expenses do not include advisory or custodial
fees or other expenses related to the management of the Fund's assets. The
Portfolios are also responsible for paying a management fee to Bennington.
Additionally, they pay a Basic Fee and Portfolio Management Fee in the first
five quarters of investment operations to the applicable Money Managers, and a
Basic Fee and Performance Fee in the sixth quarter of investment operations to
the applicable Money Managers, as described below. Certain expenses attributable
to particular Portfolios are charged to those Portfolios, and other expenses are
allocated among the Portfolios affected based upon their relative net assets.
Dividends from net investment income with respect to Advisor Class Shares will
be lower than those paid with respect to Institutional Class Shares, reflecting
the payment of administrative and/or service and/or distribution fees by that
class.
Bennington subsidized operating expenses other than Bennington's and
Money Managers' fees ("Other Expenses") above certain levels for certain of the
Portfolios. By December 31, 1995, Bennington had discontinued all such subsidies
for all Portfolios. These subsidies caused the yield and total return of the
Portfolios to be higher than would otherwise be the case.
EXPENSES SUBSIDIZED BY BENNINGTON
[Expenses subsidized by Bennington will be updated with
the 485(b) filing on April 28, 1998]
1/1/94- 1/1/95-
Portfolio 12/31/94 12/31/95
--------- -------- --------
Growth $13,345 $0
Value and Income $15,523 $0
Small to Mid Cap1 $60,093 $18
International $27,257 $23,738
Intermediate Fixed-Income $10,351 $0
Short-Intermediate Fixed-Income $12,152 $0
Mortgage Securities $12,956 $0
U.S. Government Money $142,836 $60,112
Municipal Intermediate Fixed-Income (2) $110,224 $56,252
Institutional Investor Fixed-Income (3) $3,275 $0
- --------
(1) Until September 15, 1995, referred to as the Small Cap Portfolio.
(2) Municipal Portfolio was closed on December 4, 1995.
(3) Institutional Investor Fixed-Income Portfolio was closed on August 28, 1995.
Multi-Class Structure
The Board of Directors of the Fund, including a majority of the non-interested
Directors (as defined in the Investment Company Act), voted at the Board meeting
on February 19, 1998, to adopt a Rule 18f-3 Plan (the "Multi-Class Plan")
pursuant to Rule 18f-3 under the Investment Company Act. The Directors
determined that the Multi-Class Plan is in the best interests of each class
individually and the Fund as a whole. The Directors established two classes, the
Institutional Class and the Advisor Class. The existing shares of the Fund have
been designated as "Institutional Class" shares.
Under the Multi-Class Plan, shares of each class of each Portfolio represent an
equal pro rata interest in such Portfolio and, generally, have identical voting,
dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a) each
class has a different designation; (b) each class of shares bears any
class-specific expenses allocated to it; and (c) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution or service arrangements, and each class has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class.
As described in the Multi-Class Plan, the Fund, on behalf of each Portfolio's
Advisor Shares, has adopted a Shareholder Service Plan, a Distribution Plan and
an Administrative Services Plan, all as described below. Pursuant to the
appropriate plan, the Fund may enter into arrangements with Service
Organizations who may provide distribution services, shareholder services and/or
administrative and accounting services to or on behalf of their clients or
customers who beneficially own Advisor Class Shares.
Distribution Plan. The Fund has adopted a Distribution Plan (the
"Distribution Plan") under Rule 12b-1 ("Rule 12b-1") of the Investment Company
Act with respect to the Advisor Class Shares of each Portfolio. Under the terms
of the Distribution Plan, the Fund is permitted, out of the assets attributable
to the Advisor Class Shares of each Portfolio (i) to make directly or cause to
be made, payments for costs and expenses to third parties or (ii) to reimburse
third parties for costs and expenses incurred in connection with providing
services. Such distribution services, include but are not limited to (a) costs
of payments made to employees that engage in the distribution of Advisor Class
Shares; (b) costs relating to the formulation and implementation of marketing
and promotional activities, including but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (c)
costs of printing and distributing prospectuses, statements of additional
information and reports of the Fund to prospective holders of Advisor Class
Shares; (d) costs involved in preparing, printing and distributing sales
literature pertaining to the Fund and (e) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Fund may, from time to time, deem advisable (the
"Distribution Services"). The Fund may enter into arrangements with Service
Organizations primarily intended to result in the sale of Advisor Class Shares.
Subject to the limitations of applicable law and regulations, including rules of
NASD, the payments made directly to third parties or the reimbursements for such
distribution related costs or expenses, shall be in combination with the service
fee pursuant to the Shareholder Service Plan. The total annual rate shall be up
to but not more than 0.25% of the average daily net assets of the Fund
attributable to the Advisor Class Shares. Any expense payable hereunder may be
carried forward for reimbursement for up to twelve months beyond the date in
which it is incurred, subject always to the limit (in combination with the
service fee pursuant to the Shareholder Service Plan) that not more than 0.25%
of the average daily net assets of the Fund shall be attributable to Advisor
Class Shares. Advisor Class Shares shall incur no interest or carrying charges
for expenses carried forward. In the event the Distribution Plan is terminated,
the Advisor Class Shares shall have no liability for expenses that were not
reimbursed as of the date of termination.
Any Service Organization entering into an agreement with the Fund under
the Distribution Plan may also enter into a Shareholder Service Agreement or an
Administrative Services Agreement with regard to its Advisor Class Shares, which
will not be subject to the terms of this Distribution Plan. The total
combination of fees paid to any Service Organization pursuant to the
Distribution Plan and Shareholder Service Plan shall not be more than 0.25% of
the average daily net assets of the Fund attributable to Advisor Class Shares.
The Fund under this Distribution Plan may enter into more than one agreement for
its Advisor Class Shares, with different Service Organizations providing
services to different groups of shareholders.
The Distribution Plan may be terminated with respect to the Fund by a
vote of a majority of the "non-interested" Directors who have no direct or
indirect financial interest in the operation of the Distribution Plan (the
"Qualified Directors") or by the vote of a majority of the outstanding voting
securities of the relevant class of the Fund. Any change in the Distribution
Plan that would materially increase the cost to the class of shares of the Fund
to which the Distribution Plan relates requires approval of the affected class
of shareholders of the Fund. The Distribution Plan requires the Board to review
and approve the Distribution Plan annually and, at least quarterly, to receive
and review written reports of the amounts expended under the Distribution Plan
and the purposes for which such expenditures were made. The Distribution Plan
may be terminated at any time upon a vote of the Qualified Directors.
Shareholder Service Plan. The Fund has adopted a Shareholder Service
Plan with respect to Advisor Class Shares of each Portfolio. Under the
Shareholder Service Plan the Fund is authorized to enter into Shareholder
Service Agreements with Service Organizations who provide personal and/or
account maintenance services to their clients (the "Clients") who may from time
to time beneficially own Advisor Shares of the Portfolios. Each Portfolio will
pay directly to Service Organizations a nondistribution related shareholder
service fee under the Shareholder Service Plan at an annual rate of up to 0.25%
of the average daily net assets of the Portfolio attributable to the Advisor
Class Shares beneficially owned by the clients of the Service Organizations (the
"Shareholder Service Fee"), which in combination with amounts paid for
distribution related services pursuant to the Distribution Plan. By way of
example, such services may include some or all of the following: (i) shareholder
liaison services; (ii) providing information periodically to Clients showing
their positions in New Class Shares and integrating such statements with those
of other transactions and balances in Clients' other accounts serviced by the
Service Organizations; (iii) responding to Client inquiries relating to the
services performed by the Service Organizations; (iv) responding to routine
inquiries from Clients concerning their investments in Advisor Shares; and (v)
providing such other similar services to Clients as the Fund may reasonably
request to the extent the Service Organizations are permitted to do so under
applicable statutes, rules and regulations. The Shareholder Service Plan will
continue from year to year provided that it is reviewed and approved by the
Board of Directors of the Fund annually. In addition, the Board of Directors
will ratify all agreements entered into pursuant to this Shareholder Service
Plan and shall review at each quarterly meeting of the Directors the amounts
expended under the Shareholder Service Plan and the purposes for which those
expenditures were made. The Shareholder Service Plan may be terminated at any
time by a vote of the Qualified Directors.
Administrative Services Plan. The Fund has adopted an Administrative
Services Plan whereby the Fund is authorized to enter into Administrative
Service Agreements on behalf of the Advisor Class Shares of the Portfolios (the
"Agreements"), the form of which has been approved by the Board of Directors of
the Fund (the "Board") and each Agreement will be ratified by the Board of
Directors at the next quarterly meeting after the arrangement has been entered
into. Each Portfolio will pay an administrative services fee under the
Administrative Services Plan at an annual rate of up to .25% of the average
daily net assets of the Advisor Class Shares of the Portfolio (the
"Administrative Services Fee") beneficially owned by the clients of the Service
Organizations. Provided, however, that no Portfolio shall directly or indirectly
pay any distribution related amounts that will be allocated under the Fund's
Distribution Plan. Administrative Services Fees may be used for payments to
Service Organizations who provide administrative and support servicing to their
customers who may from time to time beneficially own Advisor Class Shares of the
Fund, which, by way of example, may include: (i) establishing and maintaining
accounts and records relating to shareholders; (ii) processing dividend and
distribution payments from the Portfolio on behalf of shareholders; (iii)
providing information periodically to shareholders showing their positions in
shares and integrating such statements with those of other transactions and
balances in shareholders other accounts serviced by such financial institution;
(iv) arranging for bank wires; (v) providing transfer agent or sub-transfer
agent services, recordkeeping, custodian or subaccounting services with respect
to shares beneficially owned by shareholders, or the information to the
Portfolio necessary for such services; (vi) if required by law, forwarding
shareholder communications from the Portfolio (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to shareholders; (vii) assisting in processing purchase,
exchange and redemption requests from shareholders and in placing such orders
with our service contractors; or (viii) providing such other similar services,
which are not considered "service fees" as defined in the NASD Rule 2830(b)(9),
as the Portfolio may reasonably request to the extent the Service Organization
is permitted to do so under applicable laws, statutes, rules and regulations.
The Administrative Services Plan may be terminated at any time by a vote of the
Qualified Directors. The Directors shall review and approve the Administrative
Services Plan annually and quarterly shall receive a report with respect to the
amounts expended under the Administrative Services Plan and the purposes for
which those expenditures were made
The Directors believe that the Distribution Plan, Shareholder Service Plan and
Administrative Services Plan will provide benefits to the Fund. The Directors
believe that the multi-class structure may increase investor choice, result in
efficiencies in the distribution of Fund shares and allow Fund sponsors to
tailor products more closely to different investor markets. The Directors
further believe that multiple classes avoid the need to create clone funds,
which require duplicative portfolio and fund management expenses.
The Institutional Class Shares will generally be offered to (a) clients of
financial service firms, such as broker-dealers or registered investment
advisors for the use of the Portfolios in a particular investment product,
program or account, for which a fee may be charged; (b) participants investing
through accounts known as "wrap accounts" established with brokers or dealers
where such brokers or dealers are paid a single, inclusive fee for brokerage and
investment management services by their clients; (c) current or retired
officers, trustees, directors or employees of the Fund or the Advisor, a parent,
brother or sister of any such officer, trustee, director or employee, or a
spouse or child of any of the foregoing persons; (d) trustees or other
fiduciaries purchasing shares for certain employer-sponsored plans; (e) any
other person if the Fund anticipates that there will be minimal sales expenses
associated with the sale; and (f) for direct investment by investors such as
pension and profit sharing plans, employee benefit trusts, endowments,
foundations, corporations and high net individuals. Institutional Class Shares
may also be offered through certain financial intermediaries that charge their
customers transaction or other fees with respect to the customer's investment in
the Funds.
The Distribution Plan provides that it may not be amended to materially increase
the costs which Advisor Class shareholders may bear under the Plan without the
approval of a majority of the outstanding voting securities of Advisor Class,
and by vote of a majority of both (i) the Directors of the Fund and (ii) those
Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to it (the "Qualified
Directors"), cast in person at a meeting called for the purpose of voting on the
plans and any related amendments.
The Administrative Services Plan, Shareholder Service Plan and Distribution Plan
provide that each shall continue in effect so long as such continuance is
specifically approved at least annually by the Directors and the Qualified
Directors defined above, and that the Directors shall review at least quarterly,
a written report of the amounts expended pursuant to each plan and the purposes
for which such expenditures were made.
The Distribution Plan and Shareholder Service Plan provide that expenses payable
under each plan may be carried forward for reimbursement for up to twelve months
beyond the date in which the expense is incurred, subject to the combined limit
that not more that 0.25% of the average daily net assets attributable to the
Advisor Class Shares may be used to pay distribution expenses and/or service
fees under each plan.
DEFENSIVE DISTRIBUTION PLAN - Institutional Class Shares
Prior to the approval by the Board of the Multi-Class structure, the
Fund had adopted a defensive distribution plan (the "Defensive Distribution
Plan") pursuant to Rule 12b-1 ("Rule 12b-1") under the Investment Company Act.
Rule 12b-1 provides in substance that an investment company may not engage
directly or indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a plan adopted under Rule
12b-1. The Defensive Distribution Plan is designed to protect against any claim
involving the Fund that any portion of the management fee and some of the
expenses which the Fund pays or may pay come within the purview of Rule 12b-1.
The Fund believes it is not financing any such activity and does not consider
such fee or any payment enumerated in the Distribution Plan as financing any
such activity. However, it might be claimed that a portion of such fee and some
of the expenses the Fund pays come within the purview of Rule 12b-1. If and to
the extent that any payments (including fees) specifically listed in the
Defensive Distribution Plan are considered to be primarily intended to result in
or are indirect financing of any activity which is primarily intended to result
in the sale of Fund shares, these payments are authorized under the Defensive
Distribution Plan. The Board of Directors is reviewing the Defensive
Distribution Plan to determine whether it is appropriate to maintain for the
Institutional Class Shares, for which the Fund will not be adopting a
Distribution Plan, Shareholder Service Plan or Administrative Services Plan.
As used in the Defensive Distribution Plan, "Qualified Recipients"
means broker-dealers or others selected by Bennington, including but not limited
to any principal underwriter or underwriters of the Fund (other than a principal
underwriter which is an affiliated person, or an affiliated person of an
affiliated person, of Bennington) with which it has entered into written
agreements ("Related Agreements") contemplated by Rule 12b-1 and which have
rendered assistance (whether direct, administrative or both) in the distribution
and/or retention of the Fund's shares or servicing of shareholder accounts.
"Qualified Holdings" means, as to any Qualified Recipient, all Fund shares
beneficially owned by such Qualified Recipient, or beneficially owned by its
customers (brokerage or other) or other contacts and/or its investment advisory
or other clients, if the Qualified Recipient was, in the sole judgment of
Bennington, instrumental in the purchase and/or retention of such Fund shares
and/or in providing administrative assistance in relation thereto.
The Defensive Distribution Plan permits Bennington to make payments
("Permitted Payments") to Qualified Recipients. These Permitted Payments are
made by Bennington and are not reimbursed by the Fund to Bennington. Permitted
Payments may not exceed, for any fiscal year of the Fund (pro-rated for any
fiscal year which is not a full fiscal year), the following amounts:
Maximum Permitted Payments
(as a percentage of
Portfolio average daily net assets)
--------- -------------------------
Growth 0.45%
Value and Income 0.45%
Small to Mid Cap 0.60%
International 0.55%
Intermediate Fixed-Income 0.36%
Short-Intermediate Fixed-Income 0.36%
Mortgage Securities 0.36%
U.S. Government Money 0.25%
Bennington shall have sole authority (i) as to the selection of any
Qualified Recipient or Recipients; (ii) not to select any Qualified Recipient;
and (iii) to determine the amount of Permitted Payments, if any, to each
Qualified Recipient, provided that the total Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. Bennington is authorized,
but not directed, to take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area, including without
limitation, any or all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and maintain
shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated accounts; furnishing
(either alone or together with other reports sent to a shareholder by such
person) monthly and year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Fund, proxy statements, annual
reports, updating prospectuses and other communications from the Fund to its
shareholders; receiving, tabulating and transmitting to the Fund proxies
executed by shareholders with respect to meetings of shareholders of the Fund;
and providing such other related services as Bennington or a shareholder may
request from time to time; and (c) the possibility that the Qualified Holdings
of the Qualified Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the foregoing two
sentences, a majority of the Independent Directors (as defined below) may remove
any person as a Qualified Recipient.
The Defensive Distribution Plan recognizes that, in view of the
Permitted Payments and bearing by Bennington of certain distribution expenses,
the profits, if any, of Bennington are dependent primarily on the management
fees paid by the Fund to Bennington and that its profits, if any, would be less,
or losses, if any, would be increased due to such Permitted Payments and the
bearing by it of such expenses. If and to the extent that any such management
fees paid by the Fund might, in view of the foregoing, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by the Fund, the payment of such fees is authorized by the
Defensive Distribution Plan.
The Defensive Distribution Plan also states that if and to the extent
that any of the payments listed below are considered to be "primarily intended
to result in the sale of" shares issued by the Fund within the meaning of Rule
12b-1, such payments are authorized under the Defensive Distribution Plan: (i)
the costs of the preparation of all reports and notices to shareholders and the
costs of printing and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are accompanied by
material intended to result in the sale of shares of the Fund or other funds or
other investments; (ii) the costs of the preparation and setting in type of all
prospectuses and statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional information to
existing shareholders; (iii) the costs of preparation, printing and mailing of
any proxy statements and proxies, irrespective of whether any such proxy
statement includes any item relating to, or directed toward, the sale of the
Fund's shares; (iv) all legal and accounting fees relating to the preparation of
any such reports, prospectuses, statements of additional information, proxies
and proxy statements; (v) all fees and expenses relating to the registration or
qualification of the Fund and/or its shares under the securities or "Blue Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act and the
Investment Company Act, including fees in connection with any application for
exemption relating to or directed toward the sale of the Fund's shares; (vii)
all fees and assessments of the Investment Company Institute or any successor
organization, irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and mailing of
confirmations of shares sold or redeemed or stock certificates, and reports of
share balances; and (ix) all costs of responding to telephone or mail inquiries
of investors or prospective investors.
The Defensive Distribution Plan states that while it is in effect, the
selection and nomination of those Directors of the Fund who are not "interested
persons" of the Fund shall be committed to the discretion of such disinterested
Directors but that nothing in the Defensive Distribution Plan shall prevent the
involvement of others in such selection and nomination if the final decision on
any such selection and nomination is approved by a majority of such
disinterested Directors.
The Defensive Distribution Plan states that while it is in effect,
Bennington shall report at least quarterly to the Board of Directors in writing
for its review on the following matters: (i) all Permitted Payments made to
Qualified Recipients, the identity of the Qualified Recipient of each Payment
and the purpose for which the amounts were expended; (ii) all costs of each item
specified in the second preceding paragraph (making estimates of such costs
where necessary or desirable) during the preceding calendar or fiscal quarter;
and (iii) all fees of the Fund to Bennington paid or accrued during such
quarter. In addition if any such Qualified Recipient is an affiliate as that
term is defined in the Investment Company Act, of the Fund, Bennington or a
Money Manager, such person shall agree to furnish to Bennington for transmission
to the Board of Directors an accounting, in form and detail satisfactory to the
Board of Directors, to enable the Board of Directors to make the determinations
of the fairness of the compensation paid to such affiliated person, not less
often than annually.
The Defensive Distribution Plan defines as the Fund's Independent
Directors those Directors who are not "interested persons" of the Fund as
defined in the Investment Company Act and who have no direct or indirect
financial interest in the operation of the Defensive Distribution Plan or in any
agreements related to the Defensive Distribution Plan. The Defensive
Distribution Plan, unless terminated as hereinafter provided, continues in
effect from year to year only so long as such continuance is specifically
approved at least annually by the Board of Directors and its Independent
Directors with votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or continuance of
the Defensive Distribution Plan, those Directors who vote in favor of such
implementation or continuance must conclude that there is a reasonable
likelihood that the Defensive Distribution Plan will benefit the Fund and its
shareholders. The Defensive Distribution Plan may be terminated at any time by
vote of a majority of the Independent Directors or by the vote of the holders of
a "majority" (as defined in the Investment Company Act) of the outstanding
voting securities of the Fund. The Defensive Distribution Plan may not be
amended to increase materially the amount of payments to be made without
shareholder approval, and all amendments must be approved in the manner set
forth above as to continuance of the Defensive Distribution Plan.
VALUATION OF PORTFOLIO SHARES
The net asset value per share is calculated for each Portfolio on each
business day on which shares are offered or orders to redeem may be tendered. A
business day is one on which the New York Stock Exchange, Fifth Third and
Bennington are open for business. Non-business days for 1998 will be New Year's
Day, Presidents' Day, Martin Luther King Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The International Portfolio's portfolio securities trade primarily on
foreign exchanges which may trade on Saturdays and on days that the Portfolio
does not offer or redeem shares. The trading of portfolio securities on foreign
exchanges on such days may significantly increase or decrease the net asset
value of the Portfolio's shares when the shareholder is not able to purchase or
redeem Portfolio shares.
Each Portfolio's liabilities are allocated among its classes. The total
of such liabilities allocated to a class plus that class's distribution and/or
servicing fees and any other expenses specially allocated to that class are then
deducted from the class's proportionate interest in the Portfolio's assets, and
the resulting amount for each class is divided by the number of shares of that
class outstanding to produce the class's "net asset value" per share. Generally,
for Portfolios that pay income dividends, those dividends are expected to differ
over time by approximately the amount of the expense accrual differential
between a particular Portfolio's classes.
Under certain circumstances, the per share net asset value of the
Advisor Class Shares of the Portfolios may be lower than the per share net asset
value of the Institutional Class Shares as a result of the daily expense
accruals of the service and/or distribution fees applicable to the Advisor Class
Shares. Generally, for Portfolios that pay income dividends, those dividends are
expected to differ over time by approximately the amount of the expense accrual
differential between the classes. ]
PORTFOLIO TRANSACTION POLICIES
Generally, securities are purchased for the Portfolios (other than the
U.S. Government Money Portfolio) for investment income and/or capital
appreciation and not for short-term trading profits. However, the Portfolios may
dispose of securities without regard to the time they have been held when such
action, for defensive or other purposes, appears advisable to their Money
Managers.
If a Portfolio changes Money Managers, it may result in a significant
number of portfolio sales and purchases as the new Money Manager restructures
the former Money Manager's portfolio.
Portfolio Turnover Rate. The portfolio turnover rate for each Portfolio
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular year, by the monthly average value of the
portfolio securities owned by the Portfolio during the year. For purposes of
determining the rate, all short-term securities are excluded.
Brokerage Allocations. Transactions on United States stock exchanges
involve the payment of negotiated brokerage commissions; on non-United States
exchanges, commissions are generally fixed. There is generally no stated
commission in the case of securities traded in the over-the-counter markets,
including most debt securities and money market instruments, but the price
includes an undisclosed "commission" in the form of a mark-up or mark-down. The
cost of securities purchased from underwriters includes an underwriting
commission or concession.
Subject to the arrangements and provisions described below, the
selection of a broker or dealer to execute portfolio transactions is usually
made by the Money Manager. The Management Agreement and the Money Manager
Agreements provide, in substance and subject to specific directions from the
Board of Directors and officers of Bennington, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective is to
seek the best net price and execution for the Portfolios. Securities will
ordinarily be purchased from the markets where they are primarily traded, and
the Money Manager will consider all factors it deems relevant in assessing the
best net price and execution for any transaction, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any (for the specific transaction and on a continuing basis).
In addition, the Management Agreement and the Money Manager Agreements
authorize Bennington and the Money Managers, to consider the "brokerage and
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended) in selecting brokers to execute a
particular transaction and in evaluating the best net price and execution,
provided to the Portfolios. Brokerage and research services include (a)
furnishing advice as to the value of securities, the advisability of investing,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
monetary and fiscal policy, portfolio strategy, and the performance of accounts;
and (c) effecting securities transactions and performing functions incidental
thereto (such as clearance, settlement, and custody). Bennington or a Money
Manager may select a broker or dealer that has provided research products or
services such as reports, subscriptions to financial publications and
compilations, compilations of securities prices, earnings, dividends and similar
data, and computer databases, quotation equipment and services,
research-oriented computer software and services, consulting services and
services of economic benefit to the Fund. In certain instances, Bennington or
the Money Manager may receive from brokers or dealers products or services which
are used both as investment research and for administrative, marketing, or other
non-research purposes. In such instances, Bennington or the Money Managers will
make a good faith effort to determine the relative proportions of such products
or services which may be considered as investment research. The portion of the
costs of such products or services attributable to research usage may be
defrayed by Bennington or the Money Managers through brokerage commissions
generated by transactions of the Portfolios, while the portions of the costs
attributable to non-research usage of such products or services is paid by
Bennington or the Money Managers in cash. In making good faith allocations
between administrative benefits and research and brokerage services, a conflict
of interest may exist by reason of Bennington or the Money Managers allocation
of the costs of such benefits and services between those that primarily benefit
Bennington or the Money Managers and those that primarily benefit the Fund.
As a general matter, the Fund does not intend to pay commissions to
brokers who provide such brokerage and research services for executing a
portfolio transaction, which are in excess of the amount of commissions another
broker would charge for effecting the same transaction. Nevertheless, occasional
transactions may fall under these circumstances. Bennington or the Money Manager
must determine in good faith that the commission was reasonable in relation to
the value of the brokerage and research services provided in terms of that
particular transaction or in terms of all the accounts over which Bennington or
the Money Manager exercises investment discretion.
In addition, if requested by the Fund, Bennington, when exercising
investment discretion, and the Money Managers may enter into transactions giving
rise to brokerage commissions with brokers who provide brokerage, research or
other services to the Fund or Bennington so long as the Money Manager or
Bennington believes in good faith that the broker can be expected to obtain the
best price on a particular transaction and the Fund determines that the
commission cost is reasonable in relation to the total quality and reliability
of the brokerage and research services made available to the Fund, or to
Bennington for the benefit of the Fund for which it exercises investment
discretion, notwithstanding that another account may be a beneficiary of such
service or that another broker may be willing to charge the Fund a lower
commission on the particular transaction.
Bennington does not expect the Portfolios ordinarily to effect a
significant portion of the Portfolios' total brokerage business with brokers
affiliated with Bennington or their Money Managers. However, a Money Manager may
effect portfolio transactions for the Portfolio assigned to the Money Manager
with a broker affiliated with the Money Manager, as well as with brokers
affiliated with other Money Managers, subject to the above considerations
regarding obtaining the best net price and execution. Any transactions will
comply with Rule 17e-1 of the Investment Company Act.
Brokerage Commissions. The Board of Directors will review, at least
annually, the allocation of orders among brokers and the commissions paid by the
Portfolios to evaluate whether the commissions paid over representative periods
of time were reasonable in relation to commissions being charged by other
brokers and the benefits to the Portfolios. Certain services received by
Bennington or Money Managers attributable to a particular transaction may
benefit one or more other accounts for which investment discretion is exercised
by the Money Manager, or a Portfolio other than that for which the particular
portfolio transaction was effected. The fees of the Money Managers are not
reduced by reason of their receipt of such brokerage and research services.
The Bond Portfolios and the U.S. Government Money Portfolio do not pay
a stated brokerage commission.
BROKERAGE COMMISSIONS PAID BY EQUITY PORTFOLIOS
[Brokerage Commission will be updated with the 485(b) filing on April 28, 1998]
1/1/94- 1/1/95- 1/1/96- 1/1/96-
Portfolio 12/31/94 12/31/95 12/31/95 12/31/96
--------- -------- -------- -------- --------
Growth $20,960 $66,971 $57,658
Value and Income $34,411 $52,424 $47,418
Small to Mid Cap1 $18,095 $90,974 $120,336
International $20,997 $131,316 $467,230
- -----------
(1) Until September 15, 1995, referred to as the Small Cap Portfolio.
The amount of commission dollars paid to affiliated brokers will be updated with
the 485(b) filing on April 28, 1998.
Disclosure of the amount of directed brokerage during 1997 will be updated with
the 485(b) filing on April 28, 1998.
PERFORMANCE INFORMATION
Yield and Total Return Quotations. The Portfolios (other than the U.S.
Government Money Portfolio) compute their average annual total return by using a
standardized method of calculation required by the SEC. Average annual total
return is computed by finding the average annual compounded rates of return on a
hypothetical initial investment of $1,000 over the one, five and ten year
periods (or life of the Portfolios, as appropriate), that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
one, five or ten year period at the end of
the one, five or ten year period (or
fractional portion thereof)
The calculation assumes that all dividends and distributions of each
Portfolio are reinvested at the price stated in the Prospectuses on the
reinvestment dates during the period, and includes all recurring fees.
The average annual total returns, calculated using the above method:
[Average annual total returns will be updated with the 485(b)
filing on April 28, 1998]
1/1/95- 1/1/96- 1/1/97-
12/31/95 12/31/96 12/31/97
-------- -------- --------
Growth 34.32% 19.83%
Value and Income 33.25% 23.94%
Small to Mid Cap1 31.98% 24.85%
International 7.63% 13.78%
Intermediate Fixed-Income 18.26% 2.56%
Short-Intermediate Fixed-Income 11.42% 3.63%
Mortgage Securities 16.03% 4.95%
Municipal Intermediate Fixed-Income2 N/A N/A
- ---------
(1) Until September 15, 1995, referred to as the Small Cap Portfolio.
(2) The Municipal Portfolio was closed on December 4, 1995.
Yields are computed by using standardized methods of calculation
required by the SEC. Yields for the Bond Portfolios are calculated by dividing
the net investment income per share earned during a 30-day (or one month) period
by the maximum offering price per share on the last day of the period, according
to the following formula:
YIELD = 2[(+1)6-1]
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last
day of the period.
The annualized yields for the Bond Portfolios, calculated using the above
method:
[Annualized yields will be updated with the 485(b) filing on April 28, 1998]
As of As of As of
Portfolio 12/31/95 12/31/96 12/31/97
--------- -------- -------- --------
Intermediate Fixed-Income 5.36% 6.04%
Short-Intermediate Fixed-Income 4.74% 5.39%
Mortgage Securities 5.77% 5.90%
Municipal Intermediate Fixed-Income1 N/A N/A
Institutional Investor Fixed-Income2 N/A N/A
- ----------
(1) Municipal Portfolio was closed on December 4, 1995.
(2) Institutional Investor Fixed-Income Portfolio was closed on
August 28, 1995.
The U.S. Government Money Portfolio computes its current annualized and
compound effective yields using standardized methods required by the SEC. The
annualized yield for this Portfolio is computed by (a) determining the net
change, exclusive of capital changes, 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 difference 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 from
the original share and dividends declared on both the original share and any
such additional shares, and all fees, other than nonrecurring account or sales
charges, that are charged to all shareholder accounts in proportion to the
length of the base period, but does not include realized gains and losses from
the sale of securities or unrealized appreciation and depreciation. Compound
effective yields are computed by adding 1 to the base period return (calculated
as described above), raising that 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 U.S. Government Money Portfolio's yield fluctuates,
its yield 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, length of
maturities of portfolio securities, the methods used by each fund to compute the
yield (methods may differ) and whether there are any special account charges
which may reduce effective yield.
The annualized yield for the U.S. Government Money Portfolio:
7-day Compounded
As of December 31 Annualized Yield Effective Yield
- ----------------- ---------------- ---------------
1994 4.91% 5.03%
1995 4.86% 4.90%
1996 4.79% 5.06%
1997
CODE OF ETHICS
The Fund, on behalf of the Portfolios, has adopted a second amended and
restated Code of Ethics (the "Code of Ethics"), which established standards by
which certain covered persons of the Fund must abide relating to personal
securities trading conduct. Under the Code of Ethics, covered persons which
include, among others, directors and officers of the Fund and employees of the
Fund and Bennington, are prohibited from engaging in certain conduct, including
(1) the purchase or sale of any security being purchased or sold, or being
considered for purchase or sale, by a Portfolio, without prior approval by the
Fund or without the applicability of certain exemptions; (2) the recommendation
of a securities transaction without disclosing his or her interest in the
security or issuer of the security; (3) the commission of fraud in connection
with the purchase or sale of a security held by or to be acquired by a
Portfolio; (4) the purchase of any securities in an initial public offering or
private placement transaction eligible for purchase or sale by a Portfolio
without prior approval by the Fund; and (5) the acceptance of gifts of more than
a de minimus value from those doing business with or on behalf of the Fund or a
Portfolio. Certain transactions are exempt from item (1) of the previous
sentence, including: (1) purchases or sales on the account of a covered person
that are not under the control of or that are non-volitional with respect to
that person; (2) purchases or sales of securities not eligible for purchase or
sale by a Portfolio; (3) purchases or sales relating to rights issued by an
issuer pro rata to all holders of class of its securities; and (4) any
securities transaction, or series of related transactions, involving 500 or
fewer shares of an issuer having a market capitalization greater than $1
billion.
The Code of Ethics specifies that covered persons shall place the
interests of the shareholders of the Fund first, shall avoid potential or actual
conflicts of interest with the Fund first, and shall not take unfair advantage
of their relationship with any Portfolio. Covered persons are required by the
Code of Ethics to file quarterly reports of personal securities investment
transactions. However, a covered person is not required to report a transaction
over which he or she had no control. Furthermore, a director of the Fund who is
not an "interested person" (as defined in the Investment Company Act) of the
Fund is not required to report a transaction if such person did not know or, in
the ordinary course of his duties as a director of the Fund, should have known,
at the time of the transaction, that, within a 15 day period before or after
such transaction, the security that such person purchased or sold was either
purchased or sold, or was being considered for purchase or sale, by a Portfolio.
The Code of Ethics specifies that a designated supervisory person shall
supervise implementation and enforcement of the Code of Ethics and shall, at his
sole discretion, grant or deny approval of transactions required by the Code of
Ethics.
TAXES
Under the Code, each Portfolio is required to be treated as a separate
entity for federal income tax purposes. Each Portfolio has elected to qualify
and intends to remain qualified as a regulated investment company under
Subchapter M of the Code. This relieves each Portfolio (but not its
shareholders) from paying federal income tax on any net investment income and
capital gains, if any, realized during the taxable year which are distributed to
shareholders, provided that it distributes annually to its shareholders at least
90% of its investment company taxable income (the sum of the net taxable
investment income and the excess of net short term capital gain over net long
term capital loss) ("Distribution Requirement"). To qualify as a regulated
investment company, each Portfolio must meet several additional requirements.
Among these requirements are the following: (i) at least 90% of a Portfolio's
gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
("Income Requirement"); (ii) less than 30% of a Portfolio's gross income each
taxable year may be derived from the sale or other disposition of stock or
securities held for less than three months (the "Short-Short Gain Test") (the
Short-Short Gain Test is eliminated for tax years beginning after August 5,
1997); (iii) at the close of each quarter of a Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other regulated investment
companies and other securities, with such other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Portfolio and that does not represent more than 10% of the outstanding voting
securities of such issuer; and (iv) at the close of each quarter of the
Portfolio's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or in two or more issuers which the Portfolio
controls and which are engaged in similar trades or businesses (the "Asset
Diversification Requirement").
Notwithstanding the Distribution Requirement described above, which
only requires each Portfolio to distribute at least 90% of its annual investment
company taxable income and does not require any minimum distribution of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), each Portfolio will be subject to a nondeductible 4% excise tax
to the extent it fails to distribute by the end of any calendar year at least
98% of its ordinary income for that year and 98% of its capital gain net income
for the one-year period ending on October 31 of that year, plus certain other
amounts. For this and other purposes, dividends declared by each Portfolio in
October, November or December of any calendar year and payable to shareholders
of record on a date in such a month will be deemed to have been paid by such
Portfolio and received by shareholders on December 31 of such year if the
dividends are paid by such Portfolio at any time through the end of the
following January. Each Portfolio intends to make distributions so as to avoid
this excise tax.
All dividends out of net investment income, together with distributions
of net short-term capital gains, will be taxable as ordinary income to
shareholders whether or not reinvested. Distributions of net capital gains by a
Portfolio are taxable to shareholders as long-term capital gains at a maximum
rate of 20% or 28% (see discussion below), regardless of the length of time the
shares of the Portfolio have been held by such shareholders. The recently
enacted Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act") made certain
changes to the Code with respect to the taxation of long term capital gains
earned by taxpayers other than a corporation. In general and subject to certain
transition rules, the maximum tax rate for individual taxpayers on net long-term
capital gains (i.e., the excess of net long-term capital gain over net
short-term capital loss) is lowered to 20% for most assets held for more than 18
months at the time of disposition. Capital gains on the disposition of assets
held for more than one year and up to 18 months at the time of disposition will
be taxed as "mid-term gain" at a maximum rate of 28%. A lower rate of 18% will
apply after December 31, 2000 for assets held for more than 5 years. However,
the 18% rate applies only to assets acquired after December 31, 2000 unless the
taxpayer elects to treat an asset held prior to such date as sold for fair
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate for assets held for more than 18
months is reduced to 10% and the 10% rate for assets held for more than 5 years
is reduced to 8%. According to a recently issued Internal Revenue Notice, the
Portfolio is entitled to designate which portion of a capital gain dividend will
be taxed at a maximum rate of 20% and which portion will be taxed at a maximum
rate of 28%. If the Portfolio does not make such a designation, the capital gain
distribution will be taxed at a maximum rate of 28%.
To the extent that a Portfolio recognizes income from "conversion
transactions," as defined in Section 1258 of the Code, all or part of the
capital gain from the disposition or other termination of a position held as
part of such conversion transaction may be recharacterized as ordinary income. A
conversion transaction is a transaction, generally consisting of two or more
positions taken with regard to the same or similar property, where substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in the transaction. A transaction, however, is not a conversion
transaction unless it also satisfies one of the following four criteria: (1) the
transaction consists of the acquisition of property by the taxpayer and a
substantially contemporaneous agreement to sell the same or substantially
identical property in the future; (2) the transaction is a straddle, within the
meaning of Section 1092 (treating stock as personal property); (3) the
transaction is one that was marketed or sold to the taxpayer on the basis that
it would have the economic characteristics of a loan but the interest-like
return would be taxed as capital gain; or (4) the transaction is described as a
conversion transaction in regulations to be promulgated on a prospective basis
by the Secretary of the Treasury.
"Regulated futures contracts" and certain listed options which are not
"equity options" constitute "Section 1256 contracts" and will be required to be
"marked to market" for federal income tax purposes at the end of the Portfolios'
taxable year; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on such "deemed sales" and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. Gain or loss on
the sale, lapse or other termination of options on narrowly-based stock indexes
will be capital gain or loss and will be long-term or short-term depending on
the holding period of the option. Certain of the Portfolio's transactions,
including positions which are part of a "straddle" may be subject to rules which
apply certain wash sale and short sale provisions of the Code. In the case of a
straddle, a Portfolio may be required to defer the recognition of losses on
positions it holds to the extent of any unrecognized gain on offsetting
positions held by the Portfolio.
Gains or losses attributable to fluctuations in exchange rates which
occur between the time a Portfolio accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Portfolio actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains,
referred to under the Code as "Section 988" gains or losses, increase or
decrease the amount of the Portfolio investment company taxable income available
to be distributed to its shareholders as ordinary income, rather than increasing
or decreasing the amount of the Portfolio's net capital gain, as was the case
prior to 1987. If Section 988 losses exceed other investment company taxable
income during a taxable year, the Portfolio would not be able to make any
ordinary dividend distributions, or distributions made before the losses were
realized would be recharacterized as a return of capital to shareholders, rather
than as an ordinary dividend, reducing each shareholder's basis in his or her
Portfolio shares. The Portfolios' ability to enter into forward foreign currency
exchange contracts, stock index futures contracts, options thereon and options
on stocks and stock indices may be affected by a limitation under the Code that
each Portfolio derive less than 30% of its gross income from gains from the sale
or other disposition of securities or options thereon held less than three
months.
Any loss realized on a sale, redemption or exchange of shares of a
Portfolio by a shareholder will be disallowed to the extent the shares are
replaced within a 61-day period (beginning 30 days before the disposition of
shares). Shares purchased pursuant to the reinvestment of a dividend will
constitute a replacement of shares. A shareholder who acquires shares of a
Portfolio and sells or otherwise disposes of such shares within 90 days of
acquisition may not be allowed to include certain sales charges incurred in
acquiring such shares for purposes of calculating gain or loss realized upon a
sale or exchange of shares of the Portfolio.
Dividends received by corporate shareholders of a Portfolio are
eligible for a dividends received deduction of 70% to the extent such
Portfolio's income is derived from qualified dividends received by the Portfolio
from domestic corporations. Capital gains distributions are not eligible for the
corporate dividends received deduction. Corporate shareholders should consult
their tax advisers regarding other requirements applicable to the dividends
received deduction.
Income received by the International Portfolio from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Income tax treaties between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to determine in advance the
effective rate of foreign tax to which the International Portfolio will be
subject, since the amount of the International Portfolio's assets to be invested
in various countries is not known.
If the International Portfolio is liable for foreign income taxes, the
International Portfolio expects to meet the requirement of the Code for
"passing-through" to its shareholders foreign income taxes paid, but there can
be no assurance that the International Portfolio will be able to do so. If the
International Portfolio elects to "pass-through" the foreign taxes, shareholders
will be required to: (i) include in gross income (in addition to taxable
dividends actually received) their pro rata share of the foreign income taxes
paid by the International Portfolio; and (ii) treat their pro rata share of
foreign income taxes as paid by them. Shareholders are then permitted either to
deduct their pro rata share of foreign income taxes in computing their taxable
income or use it as a foreign tax credit against United States income taxes. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Foreign shareholders may not deduct or claim a credit for foreign
tax in determining their U.S. income tax liability unless the dividends paid to
them by the Fund are effectively connected with a United States trade or
business.
The amount of foreign taxes for which a shareholder may claim a credit
in any year will generally be subject to a separate limitation for "passive
income," which includes, among other things, dividends, interest and certain
foreign currency gains. Gain or loss from the sale of a security or from a
Section 988 transaction which is treated as ordinary income or loss (or would
have been so treated absent an election by the Fund) will be treated as derived
from sources within the United States, potentially reducing the amount allowable
as a credit under the limitation.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in the Fund.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by the
per share amount of the dividends. Furthermore, such dividends, although in
effect a return of capital, are subject to federal income tax. This may be
magnified in the Portfolio that pay dividends annually-- such as the
International Portfolio. Therefore, prior to purchasing shares of the Fund, the
investor should carefully consider the impact of dividends, including capital
gains distributions, which are expected to be or have been announced.
On February 6, 1997, President Clinton proposed legislation that would
change several of the tax consequences described above. Under the proposed
legislation, for purposes of measuring gain or loss on the disposition of
Portfolio shares, the tax basis of the Portfolio shares would be determined on
an average basis. In addition, the dividends-received deduction available to
corporations would be reduced from 70 percent to 50 percent. It is impossible to
determine at this time whether or when such proposed legislation will be enacted
or whether the legislation will be revised before it is enacted. Shareholders
are urged to consult their own tax advisors regarding the effect of the proposed
legislation on them.
State and Local Taxes. Depending upon the extent of a Portfolio's
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, a Portfolio may be subject to the
tax laws of such states or localities. Further, in those states which have
income tax laws, the tax treatment of a Portfolio and of shareholders of the
Portfolio with respect to distributions by the Portfolio may differ from federal
tax treatment. Distributions to shareholders may be subject to additional state
and local taxes.
PURCHASES IN KIND
The Portfolios may accept certain types of securities in lieu of wired
funds as consideration for Portfolio shares. Under no circumstances will a
Portfolio accept any securities in consideration of the Portfolio's shares the
holding or acquisition of which would conflict with the Portfolio's investment
objective, policies and restrictions or which Bennington or the applicable Money
Manager believes should not be included in the applicable Portfolio's portfolio
on an indefinite basis. Securities will not be accepted in exchange for
Portfolio shares if the securities are not liquid or are restricted as to
transfer either by law or liquidity of market; or have a value which is not
readily ascertainable (and not established only by evaluation procedures) as
evidenced by a listing on the American Stock Exchange, the New York Stock
Exchange, or NASDAQ. Securities accepted in consideration for a Portfolio's
shares will be valued in the same manner as the Portfolio's portfolio securities
in connection with its determination of net asset value. A transfer of
securities to a Portfolio in consideration for Portfolio shares will be treated
as a sale or exchange of such securities for federal income tax purposes. A
shareholder will recognize gain or loss on the transfer in an amount equal to
the difference between the value of the securities and the shareholder's tax
basis in such securities. Shareholders who transfer securities in consideration
for a Portfolio's shares should consult their tax advisers as to the federal,
state and local tax consequences of such transfers.
FINANCIAL STATEMENTS
[Financial statements will be updated with 485(b) filing on April 28,
1998]
The Fund's audited financial statements for the fiscal years ended
December 31, 1993 and December 31, 1994, and the reports thereon of Deloitte &
Touche LLP, independent auditors, are included in the Fund's Annual Reports to
Shareholders dated December 31, 1993, December 31, 1994, December 31, 1995, and
December 31, 1996, respectively. The Fund's audited financial statements for the
fiscal year ended December 31, 1997, are contained in the Fund's Annual Report
to Shareholders for the fiscal year ended December 31, 1997, which is
incorporated herein by this reference and, unless previously provided, will be
delivered together herewith.
B-3
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APPENDIX A
RATINGS OF DEBT INSTRUMENTS
Corporate Bond Ratings
Moody's Investors Service ("Moody's")
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or 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 risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Those bonds in the Aa and A group which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa1 and A1.
Standard & Poor's Corporation ("S&P")
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay principal.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay interest and repay principal is very strong, and they differ
from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than issues in higher-rated
categories.
The AA and A ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the AA or A rating category,
respectively.
Note Ratings
Moody's
Moody's rating for short-term obligations will be designated Moody's
Investment Grade ("MIG"). This distinction is in recognition of the differences
between short-term credit risk and long-term risk. Factors affecting the
liquidity of the borrower are uppermost in importance in short-term borrowing,
while various factors of the first importance in bond risk are of lesser
importance in the short run. Symbols used are as follows:
MIG-1 - Notes bearing this designation are of the best quality,
enjoying strong protection from established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG-2 - Notes bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
S&P
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment.
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
SP-1 - This designation denotes strong or very strong capacity to pay
interest and repay principal. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) sign designation.
SP-2 - This designation denotes satisfactory capacity to pay interest
and repay principal.
Commercial paper rated A by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated A or better. The issuer has access to at least two additional channels
of borrowing. Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances. Typically, the issuer's industry is well
established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determine whether the issuer's commercial paper is
rated A-1, A-2 or A-3.
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 - This designation indicates the capacity for timely payment on
issues with this designation is strong. However, the relative degree of safety
is not as high as for issues designated A-1.
A-3 - This designation indicates a satisfactory capacity for timely
payment. Obligations carrying this designation are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations.
A-1
<PAGE>
APPENDIX B
CALCULATION OF PERFORMANCE FEES
Bennington and the Board of Directors have carefully considered Release No.
IC-7113, issued by the SEC in April 1972, which addresses the factors which must
be considered by directors and investment advisers in connection with
performance fees payable by investment companies. In particular, they have
considered the statement that "[e]lementary fiduciary standards require that
performance compensation be based only upon results obtained after [performance
fee] contracts take effect." Bennington and the Board of Directors believe that
the Portfolios' performance fee arrangement is consistent with the position of
the SEC articulated in Release No. IC-7113. No performance fees may be paid if
the Board of Directors determines that to do so would be unfair to the
Portfolios' shareholders.
For purposes of calculating the performance differential versus the applicable
index, the investment performance of each Portfolio (or Account) for any day
expressed as a percentage of its net assets at the beginning of such day, is
equal to the sum of: (i) the change in the net assets of each Portfolio (or
Account) during such day and (ii) the value of the Portfolio's (or Account's)
cash distributions accumulated to the end of such day. The return over any
period is the compounded return for all days over the period, i.e., one plus the
daily return multiplied together, minus one. The investment record of each index
for any period shall mean the sum of: (i) the change in the level of the index
during such period; and (ii) the value, computed consistently with the index, of
cash distributions made by companies whose securities comprise the index
accumulated to the end of such period; expressed as a percentage of the index
level at the beginning of such period. For this purpose cash distributions on
the securities which comprise the index shall be treated as reinvested in the
index at least as frequently as the end of each calendar quarter following the
payment of the dividend. For purposes of determining the fee adjustment for
investment performance, the net assets of the Portfolio (or Account) are
averaged over the same period as the investment performance of the Portfolio (or
Account) and the investment record of the applicable index are computed.
B-1
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
(1) Financial Statements included in Part A of
this Registration Statement:
Financial Highlights (Per Share Data and
Ratios/Supplemental Data).*
(2)(A) The following audited Financial Statements
for the years ended December 31, 1993,
December 31, 1994 and December 31, 1995, are
incorporated into Part B of this
Registration Statement by reference to the
relevant sections of the Fund's Annual
Reports dated December 31, 1993, December
31, 1994, and December 31, 1995
respectively:
Schedule of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
(2)(B) The following Audited Financial Statements
for the period ended December 31, 1997 are
incorporated into Part B of this
Registration Statement by reference to the
relevant sections of the Fund's Annual
Report to Shareholders for the period ended
December 31, 1997*:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
(b) Exhibits
(1)(a) Articles of Incorporation of the Registrant.
Incorporated by reference to Exhibit No. 1
to the Registration Statement on Form N-1A
filed on June 24, 1991 (File No. 33-41245).
(1)(b) Articles of Amendment to Articles of
Incorporation. Incorporated by reference to
Exhibit No. (1)(b) to Pre-Effective
Amendment
<PAGE>
No. 1 to the Registration Statement on
Form N-1A filed on August 28, 1991
(File No. 33-41245).
(1)(c) Articles of Amendment to Articles of
Incorporation. Incorporated by reference to
Exhibit No. (1)(c) to Pre-Effective
Amendment No. 2 to the Registration
Statement on Form N-1A filed on October 22,
1991 (File No. 33-41245).
(1)(d) Articles of Amendment to Articles of
Incorporation dated October 18, 1993 of the
Registrant. Incorporated by reference to
Exhibit No. (1)(d) to Post-Effective
Amendment No. 5 to the Registration
Statement on Form N-1A filed on February 25,
1994 (File No. 33-41245).
(2) Amended By-Laws of the Registrant.
Incorporated by reference to Exhibit No. (2)
to Pre-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed on
March 11, 1992 (File No. 33-41245).
(3) Not applicable.
(4) Specimen stock certificates. Incorporated by
reference to Exhibit No. (4) to
Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
October 22, 1991 (File No.
33-41245).
(5)(a) Management Agreement with Bennington Capital
Management. Incorporated by reference to
Exhibit No. 5(a) to Post-Effective Amendment
No. 1 to the Registration Statement on Form
N-1A filed on June 29, 1992 (File No.
33-41245).
(5)(b) Revised Form of Money Manager Agreements
among the Registrant, Money Managers and
Bennington Capital Management. Incorporated
by reference to Exhibit No. (5)(b) to
Pre-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed on
March 11, 1992 (File No. 33-41245).
(5)(c) New Management Agreement with Bennington
Capital Management. Incorporated by
reference to Exhibit 5(c) to Post-Effective
Amendment No. 2 to the Registration
Statement on Form N-1A filed on September 1,
1992 (File No. 33-41245).
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<PAGE>
(5)(c)(1) First Amendment to Management Agreement with
Bennington Capital Management L. P. dated
May 24, 1994. Incorporated by reference to
Exhibit (5)(c)(1) of Post-Effective
Amendment No. 6 to the Registration
Statement on Form N-1A filed on July 7, 1994
(File No. 33-41245).
(5)(d) New Form of Money Manager Agreements among
the Registrant, Money Managers and
Bennington Capital Management. Incorporated
by reference to Exhibit No. 5(d) to
Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on
June 29, 1992 (File No. 33-41245).
(5)(e) Revised Money Manager Agreement among the
Registrant, Bennington Capital Management
and Parametric Portfolio Associates, Inc.
Incorporated by reference to Exhibit A to
Proxy Statement For Special Meeting of
Shareholders to be Held September 1, 1993
and filed on May 24, 1993 (File No.
33-41245).
(5)(f) Revised Money Manager Agreement among the
Registrant, Bennington Capital Management
and State Street Bank and Trust Company.
Incorporated by reference to Exhibit B to
Proxy Statement For Special Meeting of
Shareholders to be Held September 1, 1993
and filed on May 24, 1993 (File No.
33-41245).
(5)(g) Revised Money Manager Agreement among the
Registrant, Bennington Capital Management
and Martingale Asset Management L. P.
Incorporated by reference to Exhibit C to
Proxy Statement For Special Meeting of
Shareholders to be Held September 1, 1993
and filed on May 24, 1993 (File No.
33-41245).
(5)(g)(1) Form of New Money Manager Agreement among
the Registrant, Bennington Capital
Management L.P. and Martingale Asset
Management L.P. Incorporated by reference to
Exhibit A to Proxy Statement for Special
Meeting of Shareholders to be Held August
15, 1995, and filed on July 17, 1995 (File
No. 33-41245).
(5)(h) Revised Money Manager Agreement among the
Registrant, Bennington Capital Management
and BlackRock Financial Management, L. P.
Incorporated by reference to Exhibit D to
Proxy Statement For Special Meeting of
Shareholders to be Held September 1, 1993
and filed on May 24, 1993 (File No.
33-41245).
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<PAGE>
(5)(h)(1) New Form of Money Manager Agreement among
the Registrant, Bennington Capital
Management L.P. and BlackRock Financial
Management, Inc. the money manager of the
Mortgage Securities Portfolio. Incorporated
by reference to Exhibit No. 1 to the Proxy
Statement For Special Meeting of
Shareholders Held on January 27, 1995 and
filed on January 6, 1995 (File No.
33-41245).
(5)(i) Revised Money Manager Agreement among the
Registrant, Bennington Capital Management
and Bankers Trust Company. Incorporated by
reference to Exhibit E to Proxy Statement
For Special Meeting of Shareholders to be
Held September 1, 1993 and filed on May 24,
1993 (File No. 33-41245).
(5)(j) Revised Money Manager Agreement among the
Registrant, Bennington Capital Management
and Smith Barney Capital Management.
Incorporated by reference to Exhibit F to
Proxy Statement For Special Meeting of
Shareholders to be Held September 1, 1993
and filed on May 24, 1993 (File No.
33-41245).
(5)(k) Revised Money Manager Agreement among the
Registrant, Bennington Capital Management
and Wells Fargo Nikko Investment Advisors.
Incorporated by reference to Exhibit G to
Proxy Statement For Special Meeting of
Shareholders to be Held September 1, 1993
and filed on May 24, 1993 (File No.
33-41245).
(5)(l) New Form of Revised Money Manager Agreement
among the Registrant, Bennington Capital
Management L. P. and the money managers of
the International Equity Portfolio,
International Fixed-Income Portfolio,
Municipal Intermediate Fixed-Income
Portfolio and Institutional Investor Fixed
Income Portfolio. Incorporated by reference
to Exhibit No. 5(l) to Post-Effective
Amendment No. 4 to the Registration
Statement on Form N-1A filed on September
15, 1993 (File No. 33-41245).
(5)(m) New Form of Money Manager Agreement among
the Registrant (on behalf of the Small Cap
Portfolio), Bennington Capital Management
L.P. and Symphony Asset Management, Inc.
Incorporated by reference to Exhibit B to
Proxy Statement For Special Meeting of
Shareholder to be Held August 15, 1995, and
filed on July 17, 1995 (File No. 33-41245).
-4-
<PAGE>
(6) Not applicable.
(7) Not applicable.
(8)(a) Custodian Contract with State Street Bank
and Trust Company. Incorporated by reference
to Exhibit No. 8 to Post-Effective Amendment
No. 1 to the Registration Statement on Form
N-1A filed on June 29, 1992 (File No.
33-41245).
(8)(b) Form of Custodian Services Agreement with
PNC Bank, National Association. Incorporated
by reference to Exhibit (8)(b) of Post-
Effective Amendment No. 6 to the
Registration Statement on Form N-1A filed on
July 7, 1994 (File No. 33-41245).
(8)(b)(1) Custodian Services Agreement with PNC Bank,
National Association effective August 20,
1994. Incorporated by reference to Exhibit
(8)(b)(1) to Post-Effective Amendment No. 8
to the Registration Statement on Form N-1A
filed on March 6, 1995 (File No. 33-41245).
(8)(c) Global Custody Agreement dated as of October
28, 1992 between Barclays Bank PLC and
Provident National Bank and investment
companies signatory thereto, effective for
Registrant August 20, 1994. Incorporated by
reference to Exhibit (8)(c) to
Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A filed on
March 6, 1995 (File No. 33-41245).
(8)(d) Agreement among Registrant, Bennington and
The Fifth Third Bank effective December 1,
1995. Incorporated by reference to Exhibit
(8)(d) to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A
filed on April 29, 1996 (File No. 33-41245).
(8)(e) Custody Agreement with Fifth Third Bank
dated October 4, 1996.
(9)(a) Transfer Agency and Registrar Agreement with
The Shareholder Services Group, Inc.
Incorporated by reference to Exhibit No.
9(a) to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A
filed on June 29, 1992 (File No. 33-41245).
(9)(a)(1) Transfer Agency and Subtransfer Agency
Agreement among the Registrant, Bennington
Capital Management and State Street Bank
-5-
<PAGE>
and Trust Company. Incorporated by reference
to Exhibit No. 9(a)(1) to Post-Effective
Amendment No. 4 to the Registration
Statement on Form N-1A filed on September
15, 1993 (File No. 33-41245).
(9)(a)(2) Transfer Agency Agreement among the
Registrant, Bennington Capital Management L.
P. and State Street Bank and Trust Company
dated February 28, 1995. Incorporated by
reference to Exhibit (8)(c) to
Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A filed on
March 6, 1995 (File No. 33-41245).
(9)(a)(3) Transfer Agency and Administrative Agreement
among the Registrant and Bennington dated
December 1, 1995. Incorporated by reference
to Exhibit (9)(a)(3) to Post-Effective
Amendment No. 10 to the Registration
Statement on Form N-1A filed on April 29,
1996 (File No. 33-41245).
(9)(b) Remote Access and Related Services Agreement
among Bennington Capital Management, the
Registrant and The Shareholder Services
Group, Inc. Incorporated by reference to
Exhibit No. 9(a) to Post-Effective Amendment
No. 1 to the Registration Statement on Form
N-1A filed on June 29, 1992 (File
No. 33-41245).
(9)(c) Reporting and Accounting Agreement among
Bennington Capital Management, State Street
Bank and Trust Company and the Registrant.
Incorporated by reference to Exhibit No.
9(c) to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A
filed on June 29, 1992 (File No. 33-41245).
(9)(c)(1) Administration Agreement for Reporting and
Accounting Services among the Registrant,
Bennington Capital Management and State
Street Bank and Trust Company. Incorporated
by reference to Exhibit No. 9(c)(1) to
Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on
September 15, 1993 (File No. 33-41245).
(9)(c)(2) Form of Sub-Administration and Accounting
Services Agreement with PFPC Inc.
Incorporated by reference to Exhibit No.
(9)(c)(2) to Post-Effective Amendment No. 6
to the Registration Statement on Form N-1A
filed on July 7, 1994 (File No. 33-41245).
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<PAGE>
(9)(c)(2)(A) Sub-Administration and Accounting Services
Agreement with PFPC Inc. effective August
20, 1994. Incorporated by reference to
Exhibit (8)(c) to Post-Effective Amendment
No. 8 to the Registration Statement on Form
N-1A filed on March 6, 1995 (File No.
33-41245).
(9)(c)(3) Form of Administration Agreement with
Bennington Capital Management L. P.
Incorporated by reference to Exhibit No.
(9)(c)(3) to Post-Effective Amendment No. 6
to the Registration Statement on Form N-1A
filed on July 7, 1994 (File No. 33-41245).
(9)(c)(3)(A) Sub-Administration Agreement with Bennington
Capital Management L.P. effective September
7, 1994. Incorporated by reference to
Exhibit (8)(c) to Post-Effective Amendment
No. 8 to the Registration Statement on Form
N-1A filed on March 6, 1995 (File No.
33-41245).
(9)(c)(4) Fund Accounting and Other Services Agreement
with Fifth Third Bank and Bennington Capital
Management L.P. dated October 4, 1996.*
(10) Opinion and Consent of Counsel. Incorporated
by reference to Exhibit No. 10 to
Pre-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on
February 4, 1992
(File No. 33-41245).
(11) Consent of Independent Public Auditors.*
(12) Not applicable.
(13) Agreement related to initial capital.
Incorporated by reference to Exhibit No. 13
to Pre-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on
February 4, 1992 (File No. 33-41245).
(14) Accessor Funds, Inc. Individual Retirement
Custodial Account Plan dated as of December
1, 1995, including:
Instructions for Opening Your IRA
IRA Disclosure Statement
IRA Custodial Account Agreement
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<PAGE>
IRA Application and Adoption Agreement Form
IRA Transfer Request/Direct Rollover
Request Form
Incorporated by reference to Exhibit (14) to
Post-Effective Amendment No. 10 to the
Registration Statement filed on April 29,
1996 (File No. 33-41245).
(14)(a) Accessor Funds, Inc. Individual Retirement
Custodial Account Plan dated as of December
16, 1996, including:
Instructions for Opening Your IRA
IRA Disclosure Statement
IRA Custodial Account Agreement
IRA Application and Adoption
Agreement Form
IRA Transfer Request/Direct
Rollover Request Form
IRA Withdrawal Form
(15)(a) Form of Distribution Plan. Incorporated by
reference to Exhibit No. 15 to
Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on
June 29, 1992 (File No. 33-41245).
(15)(b) Distribution Plan revised February 10, 1994.
Incorporated by reference to Exhibit No.
15(b) to Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A
filed on February 25, 1994 (File No.
33-41245).
(15)(c) Distribution Plan revised February 16, 1995.
Incorporated by reference to Exhibit No.
(15)(c) to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A
filed on March 6, 1995.
(15)(d) Distribution Plan revised February 6, 1996.
Incorporated by reference to Exhibit No.
(15)(d) to Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A
filed on April 29, 1996.
(15)(e) Distribution Plan revised February 22,
1997.
(16) Schedule of Computation of Performance
Calculation.
(17) Financial Data Schedules.*
-8-
<PAGE>
(18) N/A
- ---------------
* To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
Not applicable.
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<PAGE>
Item 26. Number of Holders of Securities as of February 26, 1998
Number of
Record
Title of Class Holders
- -------------- -------
Shares of Common Stock, $.001 Par
Value
Per Share:
Growth Portfolio 432
Value and Income Portfolio 360
Small to Mid Cap Portfolio 407
International Equity Portfolio 373
Intermediate Fixed-Income Portfolio 220
Short-Intermediate Fixed-Income 125
Portfolio
Mortgage Securities Portfolio 196
U.S. Government Money Portfolio 89
Item 27. Indemnification
---------------
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (the "1940 Act"), and pursuant to Article VI of the
Registrant's Articles of Incorporation, as amended (incorporated by reference to
Exhibit Nos. 1(a), 1(b), 1(c) to the Registration Statement on Form N-1A, filed
on June 24, 1991 (File No. 33-41245), Pre-Effective Amendment No. 1 thereto,
filed on August 28, 1991, Pre-Effective Amendment No. 2 thereto, filed on
October 22, 1991 and 1(d) to Post-Effective Amendment No. 5 thereto, filed on
February 25, 1994, respectively). Section 2-418 of the Maryland General
Corporation Law and Section 7 of the Management Agreement (incorporated by
reference to Exhibit Nos. 5(a) and 5(c) of the Registration Statement on Form
N-1A, filed on June 24, 1991 (File No. 33-41245) and Post-Effective Amendment
No. 2 thereto, filed on September 1, 1992, respectively) (the "Management
Agreement"), officers, directors, employees and agents of the Registrant will
not be liable to the Registrant, any stockholder, officer, director, employee,
agent or other person for any action or failure to act, except for bad faith,
willful misfeasance, gross negligence or reckless disregard of duties, and those
individuals may be indemnified against liabilities in connection with the
Registrant, subject to the same exceptions. Section 2-418 of Maryland General
Corporation Law permits indemnification of directors who acted in good faith and
reasonably believed that the conduct was in the best interests of the
Registrant.
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<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities 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 connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares 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 Securities Act and will be governed by
the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 7 of the Management Agreement and Section 12 of the Money
Manager Agreements (Exhibits 5(a) - 5(m), incorporated by reference to this
Registration Statement) limit the liability of Bennington Capital Management L.
P. ("Bennington") and the money managers, respectively, to liabilities arising
from willful misfeasance, bad faith or gross negligence in the performance of
their respective duties or from reckless disregard by them of their respective
obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its Articles of Incorporation, By-Laws, Management Agreement,
Transfer Agent Agreement and Money Manager Agreements in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretations of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
See Registrant's Prospectuses sections "General Management of the
Portfolios", "The Money Managers" and "Money Manager Profiles", and the
Statement of Additional Information section "Investment Advisory and Other
Services" and "Money Managers".
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<PAGE>
Item 29. Principal Underwriters
----------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
All accounts and records required to be maintained by section 31(a) of
the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained in the following
locations:
Manager, Administrator
and Transfer Agent Custodian and Fund Accounting Agent
------------------ -----------------------------------
Bennington Capital Management L. P. Fifth Third Bank
1420 Fifth Avenue, Suite 3130 38 Fountain Square Plaza
Seattle, WA 98101 Cincinnati, OH 45263
Money Managers Custodian of IRA Accounts
-------------- -------------------------
See sections of the The Fifth Third Bank
prospectuses entitled "Money Manager 38 Fountain Square Plaza
Profiles" for names and addresses. Cincinnati, OH 45263
Item 31. Management Services
-------------------
None except as described in Parts A and B.
Item 32. Undertakings
------------
(a) The information called for by Item 5A of Form N-1A is
contained in the Fund's annual report to shareholders;
accordingly, the Fund hereby undertakes to furnish each
person to whom prospectuses are delivered with a copy of
the Fund's latest annual report, upon request and without
charge.
(b) Registrant undertakes to call, if requested by the holders
of at least 10% of the Registrant's outstanding shares, a
meeting of shareholders for the purpose of voting upon the
question of removal of a director or directors and to
assist in communications with shareholders as required by
Section 16(c).
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