This filing relates solely to the following series of the Registrant:
Accessor Income Allocation Fund
Accessor Income and Growth Allocation Fund
Accessor Balanced Allocation Fund
Accessor Growth and Income Allocation Fund
Accessor Growth Allocation Fund
Accessor Aggressive Growth Allocation Fund
<PAGE>
PART A:
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The Accessor Allocation Funds Advisor Class Prospectus dated December 22, 2000
and the Accessor Allocation Funds Investor Class Prospectus dated December 22,
2000 are incorporated herein by reference as filed electronically on December
22, 2000 (Accession Number 0000876603-00-000026).
PART B:
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ACCESSOR(R) FUNDS, INC.
ACCESSOR ALLOCATION FUNDS
1420 Fifth Avenue, Suite 3600
Seattle, WA 98101
(206) 224-7420/(800) 759-3504
www.accessor.com
Statement of Additional Information
Dated December 22, 2000
ACCESSOR(R) FUNDS, INC. ("Accessor Funds") is a multi-managed, no-load, open-end
management investment company, known as a mutual fund. Accessor Funds currently
consists of nine diversified investment portfolios (collectively, the
"Underlying Funds"), and six diversified funds of funds investment portfolios
(called the "Accessor Allocation Funds", each a "Fund" and collectively, the
"Funds"), each with its own investment objective and policies. The six Accessor
Allocation Funds are the subject of this Statement of Additional Information.
Each Fund offers two classes of shares, the Advisor Class Shares and the
Investor Class Shares, which are offered through two prospectuses: the Advisor
Class Shares Prospectus and the Investor Class Shares Prospectus, each dated
December 22, 2000 (collectively, the "Prospectuses"). A copy of the applicable
Prospectus may be obtained free of charge by writing to or calling 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.
DESCRIPTION OF THE FUNDS
ACCESSOR INCOME ALLOCATION FUND seeks high current income and some stability of
principal.
ACCESSOR INCOME AND GROWTH ALLOCATION FUND seeks high current income and some
potential capital appreciation.
ACCESSOR BALANCED ALLOCATION FUND seeks moderate current income and some
potential capital appreciation.
ACCESSOR GROWTH AND INCOME ALLOCATION FUND seeks moderate potential capital
appreciation and some current income.
ACCESSOR GROWTH ALLOCATION FUND seeks high potential capital appreciation and
some current income.
ACCESSOR AGGRESSIVE GROWTH ALLOCATION FUND seeks high potential capital
appreciation.
<PAGE>
Table of Contents
GENERAL INFORMATION AND HISTORY................................................3
INVESTMENT RESTRICTIONS, POLICIES AND RISK.....................................3
MANAGEMENT OF THE FUNDS.......................................................22
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................24
INVESTMENT ADVISORY AND OTHER SERVICES........................................25
VALUATION.....................................................................31
FUND TRANSACTION POLICIES.....................................................32
PERFORMANCE INFORMATION.......................................................35
CODE OF ETHICS................................................................37
TAX INFORMATION...............................................................38
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................39
FINANCIAL STATEMENTS..........................................................42
<PAGE>
GENERAL INFORMATION AND HISTORY
Accessor Funds was incorporated in Maryland on June 10, 1991. Accessor Funds is
authorized to issue fifteen billion shares of common stock, $.001 par value per
share, and is currently divided into nine Underlying Funds and six Funds. The
Underlying Funds currently consist of the Growth, Value, Small to Mid Cap Funds
(the "Underlying Domestic Equity Funds") and International Equity Fund
(collectively with the Underlying Domestic Equity Funds, the "Underlying Equity
Funds") and the Intermediate Fixed-Income, Short-Intermediate Fixed-Income, High
Yield Bond and Mortgage Securities Funds (the "Underlying Bond Funds") and U.S.
Government Money Fund (collectively with the Underlying Bond Funds, the
"Underlying Fixed-Income Funds").
Each Fund offers two classes of shares, the Advisor Class Shares and the
Investor Class Shares. The Board of Directors may increase or decrease the
number of authorized shares without the approval of shareholders. Shares of
Accessor Funds, 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 Accessor Funds under certain circumstances. All shares of a Fund 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 Fund is entitled to its portion of all of the Fund's assets
after all debts and expenses of the Fund have been paid. The Funds' shares do
not have cumulative voting rights for the election of Directors. Pursuant to
Accessor Funds' 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.
Accessor Capital Management LP ("Accessor Capital"), a Washington limited
partnership, is the manager and administrator of Accessor Funds, pursuant to a
Management Agreement with Accessor Funds. Accessor Capital is also Accessor
Funds' transfer agent, registrar, dividend disbursing agent and provides record
keeping, administrative and compliance services pursuant to its Transfer Agency
and Administrative Agreement ("Transfer Agency Agreement") with Accessor Funds.
Accessor Capital provides asset allocation services to the Funds pursuant to an
Asset Allocation Agreement.
INVESTMENT RESTRICTIONS, POLICIES AND RISK
Each Fund has certain investment restrictions that are "fundamental"
and may be changed only with the approval of the holders of a majority of the
outstanding voting securities of that Fund. As defined in the Investment Company
Act of 1940, as amended (the "Investment Company Act"), a majority of the
outstanding voting securities of a Fund 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. All of each Fund's investment restrictions and policies
other than that Fund's fundamental investment restrictions may be changed
without the approval of shareholders. This section of the Statement of
Additional Information describes the Funds' investment restrictions, and other
policies and restrictions.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
-----------------------------------
Each Fund is subject to the following "fundamental" investment
restrictions. Unless otherwise noted, these restrictions apply at the time an
investment is made. The investment limitations set forth below relate only to
the Funds, and may not necessarily apply to the Underlying Funds in which the
Funds invest. The investment limitations set forth below are considered at the
time that investment securities are purchased. If a percentage restriction is
adhered to at the time the investment is made, a later increase in percentage
resulting from a change in the market value of assets will not constitute a
violation of such restrictions. Accordingly, each of the Funds may not:
1. Borrow money or issue senior securities, except as permitted by the
Investment Company Act of 1940;
2. Underwrite securities issued by others, except to the extent the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 in the disposition of restricted securities or in connection with the
investment in other investment companies;
3. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or securities of other investment companies) if, as a result, more than 25% of
the Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry;
4. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities on other instruments backed by real estate or securities
of companies engaged in the real estate business);
5. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities);
6. Lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements.
Non-Fundamental Investment Restrictions
---------------------------------------
The following are each Fund's non-fundamental investment restrictions.
These restrictions may be modified or eliminated without shareholder approval.
1. The Fund does not currently intend to purchase securities on margin,
except that the Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
2. The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
3. The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities that are
deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
4. Each Fund may invest in short-term instruments, U.S. Government
securities and money market instruments for temporary defensive purposes when
Accessor Capital believes that a more conservative approach is desirable.
INVESTMENT POLICIES AND RISK CONSIDERATIONS OF UNDERLYING FUNDS
The following pages contain more detailed information about the types of
investments in which an Underlying Fund may invest, strategies the Underlying
Funds may employ and a summary of related risks. The Funds invest primarily in
the Underlying Funds and consequently are subject to the risk considerations set
forth below.
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, similar to the mortgage pass-through structures described
above or in a pay-through structure similar to the collateralized mortgage
structure.
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage
Investment Conduits ("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. The Underlying Bond Funds
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.
A REMIC must elect to be, and must qualify for 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. The Bond Funds do not intend
to invest in residual interests. 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 and qualify for REMIC status, it will be taxed at the entity level as a
corporation.
Corporate Obligations. Corporate debt obligations 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.
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.
A Fund'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 Fund's net asset value (the "NAV") 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).
Foreign Currency Transactions. The Underlying International Fund may enter
into foreign currency transactions. The value of the assets of the Underlying
International Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and it may incur costs in connection with conversions between
various currencies. The Underlying International Fund 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 ("forward contracts"). The
Underlying International Fund 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 ("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. A forward contract generally has no deposit requirements and no
commissions are charged for such trades.
The Underlying International Fund may enter into forward contracts when the
Money Manager determines that the best interests of the Underlying International
Fund will be served, such as 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 Underlying International Fund may not use forward contracts to
generate income, although the use of such contracts may incidentally generate
income. When the Underlying International Fund 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 Underlying
International Fund 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 that might result from a possible change in the relationship
between the U.S. dollar and such foreign currency. There is no limitation on the
value of forward contracts into which the Underlying International Fund may
enter. When effecting forward foreign currency contracts, cash or liquid assets
of the Underlying International Fund 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 Underlying
International Fund's records at the trade date and maintained until the
transaction is settled.
When the 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 Underlying International Fund'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. 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 Underlying International Fund's Custodian will segregate cash,
equity or debt securities in an amount not less than the value of the Underlying
International Fund's total assets committed to forward 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 Underlying International Fund 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
Underlying International Fund 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 Underlying International Fund is obligated to
deliver.
This method of protecting the value of the Underlying International Fund'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 that 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.
Foreign Securities. Certain of the Funds may invest in certain of the
Underlying Funds that 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.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers that 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 Underlying
Fund's securities denominated in that currency. Such changes also will affect
the Underlying Fund's income and distributions to shareholders. In addition,
although the Underlying Fund will receive income in such currencies, the
Underlying Fund 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 Underlying Fund's income has been accrued and translated into U.S. dollars,
the Underlying Fund could be required to liquidate portfolio securities to make
such distributions, particularly when the amount of income the Underlying Fund
is required to distribute is not immediately reduced by the decline in such
security. Similarly, if an exchange rate declines between the time the
Underlying Fund 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.
Forward Commitments. An Underlying Fund may make contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") consistent with the Underlying Fund's ability to manage
its investment portfolio and meet redemption requests. The Underlying Fund 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 Underlying Fund 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 Underlying Fund'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.
Futures Contracts. Each Underlying Fund (other than the U.S. Government
Money Fund) is permitted to enter into financial futures contracts, stock index
futures contracts and related options thereon ("futures contracts") in
accordance with its investment objective. The Underlying International Fund 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 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. 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, an Underlying Fund is required to
deposit in a segregated account with Accessor Funds' 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. Subsequent daily payments are made between the Underlying
Fund 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 an
Underlying Fund 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
Fund 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, an Underlying Fund 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 Underlying
Fund may purchase a long position in a stock index futures contract.
The Underlying Funds 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 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 Underlying Fund to repurchase the futures contract at
a lower price to close out the position.
Financial futures contracts may be used 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 an Underlying Fund's portfolio would decline,
but the futures contract value decreases, partly offsetting the loss in value of
the fixed-income security by enabling the Underlying Fund to repurchase the
futures contract at a lower price to close out the position.
The Underlying Funds 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 an Underlying Fund to be unable to close out the futures
contract and thereby affecting an Underlying Fund's hedging strategy.
Illiquid Securities. Illiquid securities are securities that are 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.
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
Underlying Bond Funds or the Underlying International Fund 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 Accessor Capital and
the Money Managers for the Underlying Funds 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 NAV per share.
Investing in 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 Underlying Funds. The value of the
investments made by the Underlying Funds 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 Underlying Funds 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
Underlying Funds in a manner that will minimize the exposure to such risks,
there can be no assurance that adverse political changes will not cause the
Underlying Funds to suffer a loss of interest or principal on any of its
holdings. The Underlying Funds will treat investments that are subject to
repatriation restrictions of more than seven (7) days as illiquid securities.
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
Underlying Funds are uninvested and no return is earned thereon. Inability to
dispose of securities due to settlement problems could result in losses to the
Underlying Funds due to subsequent declines in value of securities or, if the
Underlying Funds 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 Underlying
Funds 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 Underlying Funds 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 an Underlying Fund 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.
Limitations on Futures and Options Transactions. Accessor Funds on behalf
of each Underlying 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) Each Underlying Fund will use commodity futures contracts and
options solely for bona fide hedging purposes within the meaning of CFTC
regulations; provided that the Underlying 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 an Underlying Fund management strategy and are incidental to the
Underlying 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) An Underlying 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 Underlying Fund has purchased,
after taking into account unrealized profits and losses on such contracts,
would exceed 5% of the Underlying Fund's total assets.
Lower-Rated Debt Securities. Debt securities rated lower than BBB by S&P or
Baa by Moody's are commonly referred to as "junk bonds". Lower rated debt
securities and comparable unrated debt securities have speculative
characteristics and are subject to greater risks than higher rated securities.
These risks include the possibility of default on principal or interest payments
and bankruptcy of the issuer. During periods of deteriorating economic or
financial conditions, the ability of issuers of lower rated debt securities to
service their debt, meet projected goals or obtain additional financing may be
impaired. In addition, the market for lower rated debt securities has in the
past been more volatile and less liquid than the market for higher rated debt
securities. These risks could adversely affect the Underlying Funds that invest
in these debts securities.
The widespread expansion of government, consumer and corporate debt within
the economy has made the corporate sector, especially cyclically sensitive
industries, more vulnerable to economic downturns or increased interest rates.
Because lower-rated debt securities involve issuers with weaker credit
fundamentals (such as debt-to-equity ratios, interest charge coverage, earnings
history and the like), an economic downturn, or increases in interest rates,
could severely disrupt the market for lower-rated debt securities and adversely
affect the value of outstanding debt securities and the ability of the issuers
to repay principal and interest.
Lower-rated debt securities possess speculative characteristics and are
subject to greater market fluctuations and risk of lost income and principal
than higher-rated debt securities for a variety of reasons. The markets for and
prices of lower-rated debt securities have been found to be less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals and to obtain additional financing. If the issuer
of a debt security owned by an Underlying Fund defaulted, the Underlying Fund
could incur additional expenses in seeking recovery with no guaranty of
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of lower-rated debt
securities and an Underlying Fund's NAV. Lower-rated debt securities also
present risks based on payment expectations. For example, lower-rated debt
securities may contain redemption or call provisions. If an issuer exercises
these provisions in a declining interest rate market, an Underlying Fund would
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. Conversely, a lower-rated debt security's value
will decrease in a rising interest rate market, as will the value of an
Underlying Fund's assets.
In addition, to the extent that there is no established retail secondary
market, there may be thin trading of lower-rated debt securities, and this may
have an impact on the ability to both value accurately lower-rated debt
securities and an Underlying Fund's assets, and to dispose of the debt
securities. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of lower-rated debt
securities, especially in a thinly traded market.
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 Underlying Bond Funds
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). 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 Underlying Fund).
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 Underlying 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.
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 an Underlying Fund 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 Underlying Funds' 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.
The Underlying Bond Funds 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 Underlying Bond Funds 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 Underlying Bond
Funds 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, an Underlying Fund may not fully recoup its initial
investment in IOs. Conversely, if the underlying mortgage assets experience less
than anticipated prepayments of principal, the yield on POs could be materially
adversely affected. The Underlying Bond Funds 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 Accessor Capital and the Money Managers for these Underlying Funds 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 NAV per share.
Municipal Securities. The Underlying Funds 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.
Options. The Underlying Funds' (other than the U.S. Government Money Fund)
may purchase put and call options and write (sell) "covered" put and "covered"
call options. The Underlying Domestic Equity Funds 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 Underlying Domestic Equity Funds 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. The Underlying International Fund may purchase and write options on
currencies. Currency options may be either listed on an exchange or traded OTC.
Options on currencies are similar to options on stocks except that there is no
transfer of a security and settlement is in cash. The Underlying International
Fund 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 Underlying International Fund may trade options on international stocks or
international stock indices in a manner similar to that described above. The
Underlying Bond Funds may purchase and write options on U.S. Government
securities. The Underlying Bond Funds 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 Underlying
Bond Funds 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.
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
Underlying Fund owns the optioned securities or the Underlying Fund maintains in
a segregated account with Accessor Funds' 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
Underlying Fund owns an offsetting call option. When an Underlying Fund 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 Underlying Fund 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 an
Underlying Fund deposits with Accessor Funds' 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 Underlying Funds 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 the Nasdaq Stock Market. 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 Underlying
Funds. 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 Underlying Funds would
lose the premium paid for the option as well as any anticipated benefit of the
transaction. Consequently, the Underlying Funds 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 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 in "Illiquid Securities."
The Underlying Funds 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 Underlying Fund exceed 25% of its net
assets other than OTC options and assets used as cover for written OTC options.
Furthermore, the Underlying Funds 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 Underlying Fund'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 Underlying
Fund 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 Underlying Fund 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 that provides a
secondary market for an option of the same series. Although the Underlying Funds
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 Underlying Fund 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 Underlying Fund 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 Underlying Funds intend to purchase and sell only those options that
are cleared by clearinghouses whose facilities are considered to be adequate to
handle the volume of options transactions.
Privately-Issued STRIP Securities. The Underlying Funds 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.
Real Estate-Related Securities. Publicly traded REITs generally engage in
acquisition, development, marketing, operating and long-term ownership of real
property. A publicly traded REIT meeting certain asset-income and distribution
requirements will generally not be subject to federal taxation on income
distributed to its shareholders.
Repurchase Agreements. A repurchase agreement is an agreement under which
an Underlying Fund purchases a fixed-income security, generally a security
issued by the U.S. Government or an agency thereof, a banker's acceptance or a
certificate of deposit, from a commercial bank, or broker or dealer, and
simultaneously agrees to sell the security back to the original seller at an
agreed upon price and date (normally, the next business day). The securities
purchased by the Underlying Fund will have a total value in excess of the value
of the repurchase agreement and will be held by Fifth Third Bank, the Underlying
Funds' custodian (the "Custodian"), either physically or in a book-entry system,
until repurchased. Repurchase agreements will at all times be fully
collateralized by U.S. Government securities or other collateral, such as cash,
in an amount at least equal to the repurchase price, including accrued interest
earned on the underlying securities, and the securities held as collateral will
be valued daily, and as the value of the securities declines, the Underlying
Fund will require additional collateral. If the party agreeing to repurchase
should default and if the value of the collateral securing the repurchase
agreements declines below the repurchase price, the Underlying Fund may incur a
loss. 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 Underlying Fund if the
counterparty to the repurchase agreement becomes bankrupt or otherwise fails to
deliver securities. Repurchase agreements assist an Underlying Fund in being
invested fully while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. Each Underlying Fund will limit repurchase agreement
transactions to counterparties who meet creditworthiness standards approved by
the Board of Directors, which include 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. See "Investment Restrictions,
Policies and Risk Considerations - Illiquid Securities."
Reverse Repurchase Agreements and Dollar Rolls. Each Underlying Fund may
enter into reverse repurchase agreements. A reverse repurchase agreement has the
characteristics of borrowing and is a transaction whereby an Underlying Fund
sells and simultaneously agrees to repurchase a portfolio security to a bank or
a broker-dealer in return for a percentage of the portfolio security's market
value. The Underlying Fund retains the right to receive interest and principal
payments. At the agreed upon future date, the Underlying Fund repurchases the
security by paying an agreed upon purchase price plus interest. The Underlying
Bond Funds may also enter into dollar rolls in which the Underlying Funds 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
Underlying Funds forego principal and interest paid on the securities. The
Underlying Funds 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 an Underlying Fund enters into reverse repurchase agreements or
dollar rolls, the Underlying Fund will establish or maintain a segregated
account with a custodian approved by the Board of Directors, containing cash or
liquid assets having an aggregate value, measured on a daily basis, at least
equal in value to the repurchase price including any accrued interest. 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 Underlying Fund has sold but is obligated to repurchase. In the
event the counterparty to a reverse repurchase agreement files for bankruptcy or
becomes insolvent, the Underlying Fund'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 Underlying Funds for purposes of the percentage limitations applicable to
borrowings.
Rights and Warrants. Warrants are instruments that 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. 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."
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 Underlying Bond Funds 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
Underlying Bond Funds 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 Underlying Bond Funds 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.
Rule 144A Securities. Each Underlying Fund may purchase securities that are
not registered under the Securities Act, but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act
("Rule 144A Securities"). In addition to an adequate trading market, the Board
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Underlying Funds to the extent that
qualified institutional buyers become uninterested for a time in purchasing Rule
144A Securities. The Board will carefully monitor any investments by the
Underlying Fund in Rule 144A Securities.
Rule 144A securities may involve a high degree of business and financial
risk and may result in substantial losses. These securities may be less liquid
than publicly traded securities, and an Underlying Fund may take longer to
liquidate these positions than would be the case for publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the price realized from these sales could be less than those originally paid by
an Underlying Fund. Further, companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection requirements
that would be applicable if their securities were publicly traded.
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).
Accessor Capital 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 Underlying Funds, however, could affect adversely the marketability of such
Underlying Funds' securities and, consequently, the Underlying Funds might be
unable to dispose of such securities promptly or at favorable prices. Accessor
Capital will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors.
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 Accessor Capital 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).
Securities Lending. Consistent with applicable regulatory requirements,
each Underlying Fund, pursuant to a securities lending agency agreement between
the lending agent and the Underlying Fund, 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 Underlying Fund's net
assets, currently 33-1/3%. Such loans must be callable at any time by the
Underlying Fund and at all times be secured by cash, U.S. Government securities,
irrevocable letters of credit or such other equivalent collateral that is at
least equal to the market value, determined daily, of the loaned securities. The
Underlying Fund will receive the collateral in an amount equal to at least 102%
(in the case of domestic securities) or 105% (in the case of foreign securities)
of the current market value of the loaned securities plus accrued interest. Cash
collateral received by the Underlying Fund will be invested in any securities in
which the Underlying Fund is authorized to invest. The advantage of such loans
is that the Underlying Fund 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 that will be invested in short-term
obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Underlying Fund at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Underlying Fund
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 and under
the general supervision of the Board of Directors, as monitored by Accessor
Capital and the lending agent. On termination of the loan, the borrower is
required to return the securities to the Underlying Fund, and any gain or loss
in the market price during the loan would be borne by the Underlying Fund.
Since voting or consent rights which accompany loaned securities pass to
the borrower, the Underlying Fund 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 Underlying Fund's
investment in the securities which are the subject of the loan. The Underlying
Fund 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.
Short Sales Against-the-Box. Short sales against-the-box are short sales of
securities that an Underlying Fund owns or has the right to obtain (equivalent
in kind and amount to the securities sold short). Each Underlying Fund (other
than the U.S. Government Money Fund) may make such sales or maintain a short
position, provided that at all times when a short position is open, the
Underlying Fund sets aside in a segregated custodial account while the short
sales remains outstanding 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.
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 an Underlying Fund 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 Underlying Fund may
leave the Underlying Fund 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.
Temporary Defensive Policies. If, in the opinion of Accessor Capital and/or
the Money Manager, as applicable, market or economic conditions warrant, the
Underlying Funds may adopt a temporary defensive strategy.
During these times, the average dollar weighted duration of the Underlying
Intermediate Fixed-Income Fund may fall below three years, or rise to as high as
fifteen years and the Underlying Short-Intermediate Fixed-Income Fund may fall
below one year, or rise to as high as fifteen years. In such event, the
Underlying Funds will be subject to greater or less risk depending on whether
average dollar weighted duration is increased or decreased. At any time that
these Underlying Funds' average dollar weighted duration is increased, the
Underlying Funds are subject to greater risk, since at higher durations an
Underlying Fund's asset value is more significantly impacted by changes in
prevailing interest rates than at lower durations. Likewise, when the Underlying
Fund's average dollar weighted duration is decreased, the Underlying Fund is
subject to less risk, since at lower durations an Underlying Fund's asset value
is less significantly impacted by changes in prevailing interest rates than at
higher durations. When Accessor Capital and/or the Money Manager determines that
a temporary defensive strategy is no longer needed, investments will be
reallocated to return the Underlying Funds to their designated average dollar
weighted duration.
U.S. Government Securities. The types of U.S. Government obligations in
which the Underlying Funds 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). In the case of securities not backed by the full faith and credit of the
United States, the Underlying Fund 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. 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
Underlying Funds may purchase U.S. Government obligations on a forward
commitment basis.
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 Fund 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 Underlying Funds may purchase floating and variable rate demand notes
and bonds, which are obligations ordinarily having stated maturities in excess
of 397 days, but which permit the holder to demand payment of principal at any
time, or at specified intervals 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 an Underlying Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Underlying Fund, 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, an Underlying Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and a portfolio
may invest in obligations that 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 Underlying Fund may invest. The
Money Manager of an Underlying Fund will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Underlying Fund.
Zero-Coupon Securities. A zero-coupon security has no cash-coupon payments.
Instead, the issuer sells the security at a substantial discount from its
maturity value. The interest equivalent received by the investor from holding
this security to maturity is the difference between the maturity value and the
purchase price. Zero-coupon securities are more volatile than cash pay
securities. The Underlying Fund accrues income on these securities prior to the
receipt of cash payments. The Underlying Fund intends to distribute
substantially all of its income to its shareholders to qualify for pass-through
treatment under the tax laws and may, therefore, need to use its cash reserves
to satisfy distribution requirements.
MANAGEMENT OF THE FUNDS
The Board of Directors is responsible for overseeing generally the
operation of Accessor Funds. The officers are responsible for the day-to-day
management and administration of Accessor Funds' 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** 57 Director, President and Director and President, Accessor
1420 Fifth Avenue Principal Executive Officer Capital Corporation, since August
Seattle, WA 2000; Executive Director, Accessor
Capital Management L.P. since April
1991; President, Accessor Capital
Management Associates, Inc. since
April 1991; Director and President,
Northwest Advisors, Inc. since 1990.
George G. Cobean, III 62 Director Partner, Martinson, Cobean &
1607 South 341st Place Associates, P.S. (certified public
Federal Way, WA accountants) since 1973.
Geoffrey C. Cross 60 Director President, Geoffrey C. Cross P.S.,
252 Broadway Inc., (general practice of law) since
Tacoma, WA 1970.
Ravindra A. Deo 37 Vice President, Director and Secretary, Accessor
1420 Fifth Avenue Treasurer and Capital Corporation, since August
Seattle, WA Principal Financial 2000; Director and Vice President,
and Accounting Officer Northwest Advisors, Inc. since July
1993; Vice President and Chief
Investment Officer, Accessor Capital
Management L.P. since January 1992.
Linda V. Whatley** 42 Vice President and Treasurer of Northwest Advisors, Inc.
1420 Fifth Avenue Assistant Secretary since July 1993; Vice President,
Accessor Capital Management LP since
April 1991; Secretary since April 1991
and Director and Treasurer since June
1992 of Bennington Capital Management
Associates, Inc.
Robert J. Harper 56 Vice President Director and Treasurer, Accessor
1420 Fifth Avenue Capital Corporation, since August
Seattle, WA 2000; Director and Vice President,
Northwest Advisers, Inc. since
November 1995; Director of Sales and
Client Service, Accessor Capital
Management L.P. since October 1993.
Christine J. Stansbery 48 Secretary Secretary, Northwest Advisers, Inc.
1420 Fifth Avenue since May, 1999; Assistant Vice
Seattle, WA President-Compliance since January 1997
Regulatory Manager from March 1996 to
December 1996, Legal Assistant from
March 1993 to March 1996 at Accessor
Capital Management LP
</TABLE>
----------
*"Interested Person" by virtue of his employment by and/or indirect interest in
Accessor Capital.
** J. Anthony Whatley, III and Linda V. Whatley are husband and wife.
The following table shows the compensation paid by Accessor Funds to the
Directors during the fiscal year ended December 31, 1999:
COMPENSATION TABLE
<TABLE>
<CAPTION> Pension or Total
Aggregate Retirement Estimated Compensation from Total
Compensation Benefits Accrued Annual Underlying Funds Compensation from
from Accessor as part of Company Benefits upon Paid to Board Funds paid to
Funds Complex* Expenses Retirement Members Board Members**
-------------- -------- ------------ --------- ----------------
Director
<S> <C> <C> <C> <C> <C>
J. Anthony Whatley III None None None None None
George G. Cobean III $17,000 None None $17,000 None
Geoffrey C. Cross $17,000 None None $17,000 None
</TABLE>
----------
*The Accessor Underlying Funds Complex consist of the nine Underlying Funds and
six Funds.
**The Funds were not in operation at December 31, 1999.
Directors who are not "interested persons" of Accessor Funds are paid fees
of $3,000 per meeting plus out-of-pocket costs associated with attending Board
meetings. Directors employed by Accessor Capital have agreed that, if their
employment with Accessor Capital is terminated for any reason, and a majority of
the remaining Directors of Accessor Funds so request, they will be deemed to
have resigned from the Board of Directors at the same time their employment with
Accessor Capital terminates. Accessor Fund's officers and employees are paid by
Accessor Capital and receive no compensation from Accessor Funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of November 27, 2000, there were no owners, of record or beneficially,
of 5% or more of the shares of the Funds.
As of November 27, 2000, none of the Directors and officers of Accessor
Funds, as a group, beneficially owned more than 1% of the shares of each Fund.
If a meeting of the shareholders were called, the owners of 5% or more of
the shares, if voting together, may, as a practical matter, have sufficient
voting power to exercise control over the business, policies and affairs of
Accessor Funds and, in general, determine certain corporate or other matters
submitted to the shareholders for approval, such as a change in the Funds'
investment policies, all of which may adversely affect the NAV of a Fund. As
with any mutual fund, certain shareholders of a Fund could control the results
of voting in certain instances. For example, a vote by certain majority
shareholders changing the Fund'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 Funds' day-to-day operations are performed by separate business
organizations under contract to Accessor Funds. The principal service providers
are:
Manager, Administrator, Transfer Agent, Accessor Capital Management LP
Registrar and Dividend Disbursing Agent
Custodian and Fund Accounting Agent The Fifth Third Bank, N.A.
Manager, Administrator, Transfer Agent, Registrar and Dividend Disbursing
Agent. Accessor Capital is the manager and administrator of the Underlying Funds
as well as the Funds, pursuant to separate Management Agreements with Accessor
Funds. Accessor Capital provides or oversees the provision of all general
management, administration, investment advisory and portfolio management
services for Accessor Funds. Accessor Capital provides Accessor Funds with
office space and equipment, and the personnel necessary to operate and
administer each Fund's 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. Accessor Capital also develops the
investment programs for the Funds, selects Money Managers of the Underlying
Funds (subject to approval by the Board of Directors), allocates assets among
Money Managers of the Underlying Funds, monitors the Money Managers' of the
Underlying Funds investment programs and results, and may exercise investment
discretion over the Underlying Funds and assets invested in the Underlying
Funds' liquidity reserves, or other assets not assigned to a Money Manager of an
Underlying Fund. Accessor Capital currently invests all the assets of the
Underlying U.S. Government Money Fund. Accessor Capital exercises investment
discretion over the Funds and the assets invested in the Funds. Accessor Capital
also acts as the Transfer Agent, Registrar and Dividend Disbursing Agent for
Accessor Funds and provides certain administrative and compliance services to
Accessor Funds.
Under the Management Agreements, Accessor Capital has agreed not to
withdraw from Accessor Funds the use of Accessor Funds' name. In addition,
Accessor Capital may not grant the use of a name similar to that of Accessor
Funds to another investment company or business enterprise without, among other
things, first obtaining the approval of Accessor Funds' shareholders.
The Management Agreement with the Funds was approved by the Board of
Directors including all of the Directors who are not "interested persons" of
Accessor Funds and who have no direct or indirect financial interest in the
Management Agreement on November 16, 2000, and by the shareholders of the Funds
on December 27, 2000.
The current Management Agreement with the Underlying Funds was approved by
the Board of Directors including all of the Directors who are not "interested
persons" of Accessor Funds and who have no direct or indirect financial interest
in the Management Agreement on June 17, 1992, by the shareholders of the
Underlying Growth Fund, Underlying Value Fund (formerly referred to as Value and
Income Portfolio), Underlying Small to Mid Cap Fund (formerly referred to as the
Small Cap Portfolio) and Underlying International Equity Fund on June 17, 1992,
and by the shareholders of the Underlying Short-Intermediate Fixed-Income Fund,
Underlying Intermediate Fixed-Income Fund, Underlying Mortgage Securities Fund
and Underlying U.S. Government Money Fund on August 3, 1992 and the sole
shareholder of the Underlying High Yield Bond Fund on May 1, 2000. The
Management Agreement with the Underlying Funds has been renewed by the Board of
Directors including all of the Directors who are not "interested persons" of
Accessor Funds and who have no direct or indirect financial interest in the
Management Agreement of the Underlying Funds each year, most recently on May 28,
1997, May 20, 1998 and May 7, 1999.
The general partners of Accessor Capital are Northwest Advisors, Inc.,
Bennington Management Associates, Inc. and Accessor Capital Corporation, all of
which are Washington corporations. The sole limited partner of Accessor Capital
Management LP is Zions Investment Management, Inc., a wholly-owned subsidiary of
Zions First National Bank, N.A. The managing general partner of Accessor Capital
Management, LP is Accessor Capital Corporation, which is controlled by J.
Anthony Whatley, III. The mailing address of Accessor Capital is 1420 Fifth
Avenue, Suite 3600, Seattle, Washington 98101.
Acceessor Capital's Fees. Each Fund pays Accessor Capital a fee equal on an
annual basis to 0.10% of the Fund's average daily net assets. In addition to the
Management Fee paid to Accessor Capital, the Funds bear their pro rata portion
of the fees and expenses of the Underlying Funds, including management fees. The
management fees paid by the Underlying Funds are described in the prospectuses
and Statement of Additional Information of the Underlying Funds. The Funds
commenced operation on or about December 20, 2000.
Custodian and Fund Accounting Agent. The Fifth Third Bank, 38 Fountain
Square Plaza, Cincinnati, Ohio 45263, ("Fifth Third") a banking company
organized under the laws of the State of Ohio, has acted as Custodian of the
Underlying Funds' assets since October, 1996, and the Funds assets beginning
with their commencement of operation on or about December 1, 2000. Through an
agreement between Fifth Third and Accessor Funds 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 each Fund and is
authorized to deposit securities in securities depositories or to use the
services of sub-custodians. Fifth Third is paid by the Funds an annual fee and
also is reimbursed by Accessor Funds for certain out-of-pocket expenses
including postage, taxes, wires, stationery and telephone. Fifth Third acts as
Custodian for investors of the Funds with respect to the individual retirement
accounts ("IRA Accounts"). Fifth Third also provides basic recordkeeping
required by each of the Funds for regulatory and financial reporting purposes.
Fifth Third is paid by the Funds an annual fee plus specified transactions costs
per Fund for these services, and is reimbursed by Accessor Funds for certain
out-of-pocket expenses including postage, taxes, wires, stationery and
telephone.
Independent Auditors. Deloitte & Touche LLP, Two World Financial Center,
New York, New York, 10281, serves as each Fund's independent auditor and in that
capacity audits the Funds' annual financial statements.
Fund Counsel. Kirkpatrick & Lockhart LLP, 75 State Street, Boston,
Massachusetts 02109.
FUND EXPENSES
Accessor Funds has applied to the Securities and Exchange Commission for an
exemptive order that will allow the Underlying Funds to pay the expenses of the
Funds other than the Funds' direct management fees to the extent that the
Underlying Funds derive financial and other benefits as a result of investments
in the Funds. To the extent these expenses are not paid by the Underlying Funds,
Accessor Capital has agreed to pay these expenses for the fiscal years ended
December 31, 2000 through 2003. As a result, the Funds do not expect to bear
directly any such expenses, although the Funds will indirectly bear such
expenses through their investments in the Underlying Funds.
Accessor Capital provides transfer agent, registrar and dividend disbursing
agent services to each Fund pursuant to a Transfer Agency Agreement between
Accessor Capital and Accessor Funds. Sub-transfer agent and compliance services
previously provided by Accessor Capital under the Sub-Administration Agreement
are provided to the Funds under the Transfer Agency Agreement. Accessor Capital
also provides certain administrative and recordkeeping services under the
Transfer Agency Agreement. For providing these services, the Underlying Funds
will pay to Accessor Capital pursuant to the Expense Agreement (i) a fee equal
to 0.13% of the average daily net assets of each Fund of Accessor Funds, and
(ii) a transaction fee of $0.50 per transaction. Accessor Capital is also
reimbursed by Accessor Funds for certain out-of-pocket expenses including
postage, taxes, wire transfer fees, stationery and telephone expenses.
The Underlying Funds pay all of their operating expenses other than those
expressly assumed by Accessor Capital. In addition, the Underlying Funds have
agreed to pay pursuant to the Expense Agreement certain operating expenses of
the Funds. Accessor Funds' 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 Fund Accounting agent; (d) expenses of obtaining quotations
for calculating the value of Accessor Funds' assets; (e) expenses of obtaining
Accessor Fund activity reports and analyses for each Accessor Fund; (f) expenses
of maintaining each Accessor Fund's tax records; (g) salaries and other
compensation of any of Accessor Funds' executive officers and employees, if any,
who are not officers, directors, shareholders or employees of Accessor Capital
or any of its partners; (h) taxes levied against the Accessor Funds; (i)
brokerage fees and commissions in connection with the purchase and sale of
portfolio securities for the Accessor Funds; (j) costs, including the interest
expense, of borrowing money; (k) costs and/or fees incident to meetings of the
Accessor Funds, the preparation and mailings of prospectuses and reports of the
Accessor Funds to their shareholders, the filing of reports with regulatory
bodies, the maintenance of Accessor Funds' 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
Accessor Funds' shares for sale; (m) costs of printing stock certificates
representing shares of the Accessor Funds; (n) Directors' fees and expenses of
Directors who are not officers, employees or shareholders of Accessor Capital 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 Accessor Funds 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 and service fees and
administration fees as described below payable with respect to Investor 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 Accessor Funds' Multi-Class Plan (as defined below) 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 a Accessor Fund's assets. The
Underlying Funds and the Funds are each responsible for paying their respective
management fee to Accessor Capital. Additionally, the Underlying Funds pay a
Basic Fee and Fund Management Fee in the first five quarters of investment
operations to the applicable Money Managers of the Underlying Funds, and a Basic
Fee and/or Performance Fee in the sixth quarter of investment operations to the
applicable Money Managers of the Underlying Funds, more fully described in the
Underlying Funds prospectuses and Statement of Additional Information. Certain
expenses attributable to particular Underlying Funds are charged to those
Underlying Funds, and other expenses are allocated among the Underlying Funds
affected based upon their relative net assets.
Dividends from net investment income with respect to Investor Class Shares
will be lower than those paid with respect to Advisor Class Shares, reflecting
the payment of administrative and/or service and/or distribution fees by the
Investor Class Shares.
MULTI-CLASS STRUCTURE
On February 19, 1998, the Board of Directors of Accessor Funds on behalf of
the Underlying Funds, adopted a Rule 18f-3 Plan and established two classes of
shares for the Funds, the Advisor Class and the Investor Class. The Board of
Directors of Accessor Funds, including a majority of the non-interested
Directors (as defined in the Investment Company Act), voted in person at the
Board meeting on February 15, 2000, to adopt an Amended Rule 18f-3 Plan (the
"Amended Multi-Class Plan") pursuant to Rule 18f-3 under the Investment Company
Act. The Directors determined that the Amended Multi-Class Plan is in the best
interests of each class individually and Accessor Funds as a whole. The Board of
Directors of Accessor Funds, including a majority of the non-interested
Directors (as defined in the Investment Company Act), voted in person at the
Board meeting on November 16, 2000, to adopt an Amended Rule 18f-3 Plan (the
"Amended Multi-Class Plan") pursuant to Rule 18f-3 under the Investment Company
Act to include the Funds. The Directors determined that the Amended Multi-Class
Plan is in the best interests of each class of the Funds individually and
Accessor Funds as a whole.
Under the Amended Multi-Class Plan, shares of each class of each Fund
represent an equal pro rata interest in such Fund 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 Amended Multi-Class Plan, Accessor Funds, on behalf of
each Fund's Investor Class Shares, has adopted a Distribution and Service Plan
and an Administrative Services Plan, each as described below. Pursuant to the
appropriate plan, Accessor Funds may enter into arrangements with financial
institutions, retirement plans, broker-dealers, depository institutions,
institutional shareholders of record, registered investment advisers and other
financial intermediaries and various brokerage firms or other industry
recognized service providers of fund supermarkets or similar programs
(collectively "Service Organizations") who may provide distribution services and
shareholder services and/or administrative and accounting services to or on
behalf of their clients or customers who beneficially own Investor Class Shares.
Investor Class Shares are intended to be offered directly from Accessor Funds
and may be offered by Service Organizations to their clients or customers, which
may impose additional transaction or account fees. Accessor Capital may enter
into separate arrangements with some Service Organizations to provide accounting
and/or other services with respect to Investor Class Shares and for which
Accessor Capital will compensate the Service Organizations from its revenue.
As described in the Amended Multi-Class Plan, Accessor Funds has not
adopted a Distribution and Service Plan or Administrative Services Plan for the
Advisor Class Shares of the Funds or the Underlying Funds. Advisor Class Shares
shall be offered by Accessor Funds at NAV with no distribution, shareholder or
administrative service fees paid by the Advisor Class Shares of the Funds or the
Underlying Funds. Advisor Class Shares are offered directly from Accessor Funds
and may be offered through Service Organizations that may impose additional or
different conditions on the purchase or redemption of Fund shares and may charge
transaction or account fees. Accessor Funds, on behalf of the Advisor Class
Shares of the Funds and the Underlying Funds, pays no compensation to Service
Organizations and receives none of the fees or transaction charges. Accessor
Capital may enter into separate arrangements with some Service Organizations to
provide administrative, accounting and/or other services with respect to Advisor
Class Shares and for which Accessor Capital will compensate the Service
Organizations from its revenue.
Distribution and Service Plan. Accessor Funds has amended its Distribution
and Service Plan (the "Distribution and Service Plan") under Rule 12b-1 ("Rule
12b-1") of the Investment Company Act to include the Investor Class Shares of
each Fund. Under the terms of the Distribution and Service Plan, Accessor Funds
is permitted, out of the assets attributable to the Investor Class Shares of
each Fund (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 distribution services, including
but not limited to (a) costs of payments made to employees that engage in the
distribution of Investor 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 Accessor Funds
to prospective holders of Investor Class Shares; (d) costs involved in
preparing, printing and distributing sales literature pertaining to Accessor
Funds and (e) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities that Accessor Funds
may, from time to time, deem advisable (the "Distribution Services"). Pursuant
to the Distribution and Service Plan, each Fund may also make payments to
Service Organizations who provide non-distribution related services, including
but not limited to: personal and/or account maintenance services. Such services
may include some or all of the following: (i) shareholder liaison services; (ii)
providing information periodically to Clients showing their positions in
Investor 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 Investor Class Shares; and (v)
providing such other similar services to Clients as Accessor Funds may
reasonably request to the extent the Service Organizations are permitted to do
so under applicable statutes, rules and regulations.
Subject to the limitations of applicable law and regulations, including
rules of NASD, the payments made directly to third parties for such distribution
and service related costs or expenses, shall be up to but not exceed 0.25% of
the average daily net assets of the Funds attributable to the Investor Class
Shares. In the event the Distribution and Service Plan is terminated, the
Investor 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 Accessor Funds
under the Distribution and Service Plan may also enter into an Administrative
Services Agreement with regard to its Investor Class Shares, which will not be
subject to the terms of the Distribution and Service Plan.
The Distribution and Service Plan may be terminated with respect to
Accessor Funds 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 and Service Plan (the "Qualified Directors") or by the vote of a
majority of the outstanding voting securities of the relevant class of Accessor
Funds. Any change in the Distribution and Service Plan that would materially
increase the cost to the class of shares of Accessor Funds to which the
Distribution Service Plan relates requires approval of the affected class of
shareholders of Accessor Funds. The Distribution and Service Plan requires the
Board to review and approve the Distribution and Service Plan annually and, at
least quarterly, to receive and review written reports of the amounts expended
under the Distribution and Service Plan and the purposes for which such
expenditures were made. The Distribution and Service Plan may be terminated at
any time upon a vote of the Qualified Directors.
Defensive Distribution Plan. The Board of Directors of Accessor Funds, on
behalf of the Funds adopted a Defensive Distribution Plan ("Defensive
Distribution Plan") pursuant to Rule 12b-1 on November 16, 2000. Under the
Defensive Distribution Plan, if the payment of management fees or administration
fees by the Funds to Accessor Capital Management is deemed to be indirect
financing by a Fund of the distribution of its shares, such payment is
authorized by the Plan. The Defensive Distribution Plan specifically recognizes
that Accessor Capital Management may use its past profits or its other
resources, including management fees paid to Accessor Capital Management by the
Funds to pay for expenses incurred in connection with providing services
intended to result in the sale of Fund shares and/or shareholder support
services. In addition, the Defensive Distribution Plan provides that Accessor
Capital Management may pay significant amounts to intermediaries, such as banks,
broker-dealers and other service-providers, that provide those services.
Currently, the Board of Directors has authorized such payments for the Funds.
Administrative Services Plan. Accessor Funds has amended its Administrative
Services Plan to include the Investor Class Shares of the Funds whereby Accessor
Funds is authorized to enter into Administrative Service Agreements (the
"Agreements"), the form of which has been approved by the Board of Directors of
Accessor Funds (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 Fund will pay an administrative services fee under the Administrative
Services Plan at an annual rate of up to 0.25% of the average daily net assets
of the Investor Class Shares of the Fund (the "Administrative Services Fee")
beneficially owned by the clients of the Service Organizations. Provided,
however, that no Fund shall directly or indirectly pay any distribution related
amounts that will be allocated under Accessor Funds' Distribution and Service
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 Investor Class Shares of
Accessor Funds, 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 Fund 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 Fund
necessary for such services; (vi) if required by law, forwarding shareholder
communications from the Fund (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 a Fund 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 and Service Plan and the
Administrative Services Plan will provide benefits to Accessor Funds and will
provide benefits to the Funds. 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 Distribution and Service Plan provides that it may not be amended to
materially increase the costs which Investor Class shareholders may bear under
the Plan without the approval of a majority of the outstanding voting securities
of Investor Class, and by vote of a majority of both (i) the Directors of
Accessor Funds and (ii) those Directors who are not "interested persons" of
Accessor Funds (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 and Distribution and Service 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 and Service Plan provides that expenses payable under the
plan shall be accrued and paid monthly, subject to the limit that not more that
0.25% of the average daily net assets attributable to the Investor Class Shares
may be used to pay distribution or service related expenses.
VALUATION OF ACCESSOR FUNDS
Valuation of Funds
------------------
The NAV per share of each class is calculated 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 Accessor Capital are open for
business. Non-business days for 2000 will be New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that classes distribution and/or servicing
fees and any other expenses specially allocated to that class are then deducted
from the classes proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that class
outstanding to produce the classes "NAV" per share. Generally, for Funds that
pay income dividends, those dividends are expected to differ over time by
approximately the amount of the expense accrual differential between a
particular Fund's classes.
Under certain circumstances, the per share NAV of the Investor Class Shares
of the Funds may be lower than the per share NAV of the Advisor Class Shares as
a result of the daily expense accruals of the service and/or distribution fees
applicable to the Investor Class Shares. Generally, for Funds that pay income
dividends, those dividends are expected to differ over time by approximately the
amount of the expense accrual differential between the classes.
The assets of each Fund consists primarily of Advisor Class Shares of the
Underlying Funds which are valued at their respective NAVs.
Valuation of Underlying Funds
-----------------------------
The NAV per share of each class is calculated 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 Accessor Capital are open for
business. Non-business days for 2000 will be New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Most equity securities for which the
primary market is the United States are valued at last sale price or, if no sale
has occurred, at the closing bid price. Most equity securities for which the
primary market is outside the United States are valued using the official
closing price or the last sale price in the principal market in which they are
traded. If the last sale price (on the local exchange) is unavailable, the last
evaluated quote or closing bid price normally is used.
Fixed-income securities and other assets for which market quotations are
readily available may be valued at market values determined by such securities'
most recent bid prices (sales prices if the principal market is an exchange) in
the principal market in which they normally are traded, as furnished by
recognized dealers in such securities or assets. Or, fixed-income securities and
convertible securities may be valued on the basis of information furnished by a
pricing service that uses a valuation matrix that incorporates both
dealer-supplied valuations and electronic data processing techniques.
The Underlying International Fund's portfolio securities trade primarily on
foreign exchanges which may trade on Saturdays and on days that the Fund does
not offer or redeem shares. The trading of portfolio securities on foreign
exchanges on such days may significantly increase or decrease the NAV of the
Fund's shares when the shareholder is not able to purchase or redeem Fund
shares.
Each Underlying Fund's liabilities are allocated among its classes. The
total of such liabilities allocated to a class plus that classes distribution
and/or servicing fees and any other expenses specially allocated to that class
are then deducted from the classes proportionate interest in the Fund's assets,
and the resulting amount for each class is divided by the number of shares of
that class outstanding to produce the classes "NAV" per share. Generally, for
Funds that pay income dividends, those dividends are expected to differ over
time by approximately the amount of the expense accrual differential between a
particular Fund's classes.
Under certain circumstances, the per share NAV of the Investor Class Shares
of the Underlying Funds may be lower than the per share NAV of the Underlying
Advisor Class Shares as a result of the daily expense accruals of the service
and/or distribution fees applicable to the Investor Class Shares. Generally, for
Funds that pay income dividends, those dividends are expected to differ over
time by approximately the amount of the expense accrual differential between the
classes.
FUND TRANSACTION POLICIES
Fund Turnover Rate. The portfolio turnover rate for each Fund 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 Fund during the year. For purposes of determining the rate, all
short-term securities are excluded. The Funds have no restrictions on portfolio
turnover. The Funds will purchase or sell securities to: (i) accommodate
purchases and sales of each fund's shares; and (ii) maintain or modify the
allocation of each fund's assets among the underlying funds within the
percentage limits described earlier. A high turnover rate may increase
transaction costs and result in higher capital gain distributions by the fund.
Trading may result in realization of net short-term capital gains that would not
otherwise be realized. Shareholders are taxed on such gains when distributed
from a Fund at ordinary income tax rates. "See "Dividends, Distributions and
Taxes."
The Funds do not incur costs of investing in underlying Funds but may if
investing in other securities. See discussion below for Underlying Funds.
Underlying Funds
----------------
Generally, securities are purchased for the Underlying Funds (other than
the U.S. Government Money Fund) for investment income and/or capital
appreciation and not for short-term trading profits. However, the Underlying
Funds 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 an Underlying Fund 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.
Underlying Fund Turnover Rate. The portfolio turnover rate for each
Underlying Fund 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 Underlying Fund during the year. For
purposes of determining the rate, all short-term securities are excluded. The
Underlying Funds have no restrictions on portfolio turnover. The Underlying
Funds will purchase or sell securities to: (i) accommodate purchases and sales
of each fund's shares; and (ii) maintain or modify the allocation of each fund's
assets among the underlying funds within the percentage limits described
earlier. A high turnover rate may increase transaction costs and result in
higher capital gain distributions by the fund. Trading may result in realization
of net short-term capital gains that would not otherwise be realized.
Shareholders are taxed on such gains when distributed from an Underlying Fund at
ordinary income tax rates. "See "Dividends, Distributions and Taxes."
The Funds invest primarily in the Underlying Funds and do not incur
commissions or sales charges in connection with investing in the Underlying
Funds, but they may incur such costs if they invest directly in other types of
securities. The following is a description of the policy of the Underlying Funds
with respect to brokerage allocation and brokerage commissions:
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 a "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 Accessor Capital, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective is to
seek the best net price and execution for the Funds. 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 Accessor Capital 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 Funds. 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). Accessor Capital 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
Accessor Funds. In certain instances, Accessor Capital 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, Accessor Capital 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 Accessor Capital or the Money Managers through brokerage commissions
generated by transactions of the Funds, while the portions of the costs
attributable to non-research usage of such products or services is paid by
Accessor Capital 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 Accessor Capital or the Money Managers
allocation of the costs of such benefits and services between those that
primarily benefit Accessor Capital or the Money Managers and those that
primarily benefit Accessor Funds.
As a general matter, each 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. Accessor Capital 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
Accessor Capital or the Money Manager exercises investment discretion.
In addition, if requested by Accessor Funds, Accessor Capital, 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 Accessor Funds or Accessor Capital so
long as the Money Manager or Accessor Capital believes in good faith that the
broker can be expected to obtain the best price on a particular transaction and
Accessor Funds determines that the commission cost is reasonable in relation to
the total quality and reliability of the brokerage and research services made
available to Accessor Funds, or to Accessor Capital for the benefit of Accessor
Funds 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.
Subject to the "best execution" obligation described above, Accessor Capital may
also, if requested by a Fund, direct all or a portion of a Fund's transactions
to brokers who pay a portion of that Fund's expenses.
Accessor Capital does not expect the Funds ordinarily to effect a
significant portion of the Funds' total brokerage business with brokers
affiliated with Accessor Capital or their Money Managers. However, a Money
Manager may effect portfolio transactions for the Fund 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
Funds 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 Funds. Certain services received by Accessor Capital 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 Fund 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 Underlying Fixed-Income Funds generally do not pay brokerage
commissions.
CALCULATION OF FUND PERFORMANCE
Information about a Fund's performance is based on that Fund'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 Funds may be included in advertisements or reports to shareholders
or prospective investors. Quotations of yield for a Fund or class will be based
on the investment income per share (as defined by the SEC) 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 the Funds may be included in advertisements or other
written material. When a Fund's total return is advertised, it will be
calculated for the past year, the past five years, and the past ten years (or if
the Fund has been offered for a period shorter than one, five or ten years, that
period will be substituted) since the establishment of the Fund. Any fees
charged by Service Organizations directly to their customers in connection with
investments in the Funds are not reflected in the Fund's total return and such
fees, if charged, will reduce the actual return received by customers on their
investment.
The Funds may advertise their performance in terms of total return, which
is computed by finding the 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 Funds may also include in advertisements data comparing
performance with the performance of published editorial comments and performance
rankings compiled by independent organizations (such as Lipper Analytical
Services, Inc. or Morningstar, Inc.) or entities or organizations which track
the performance of investment companies or investment advisers and publications
that monitor the performance of mutual funds (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). Performance information may be quoted numerically or
may be presented in a table, graph or other illustration. In addition, Fund
performance may be compared to well-known unmanaged indices of market
performance or other appropriate indices of investment securities or with data
developed by Accessor Funds or Accessor Capital derived from such indices.
Unmanaged indices (i.e., other than Lipper) generally do not reflect deductions
for administrative and management costs and expenses. Fund performance may also
be compared, on a relative basis, to other Funds of Accessor Funds. This
relative comparison, which may be based upon historical Fund performance, may be
presented numerically, graphically or in text. Fund performance may also be
combined or blended with other Accessor Funds, and that combined or blended
performance may be compared to the same Benchmark Indices to which individual
Funds are compared. In addition, Accessor Funds may from time to time compare
the expense ratio of the Funds 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
Funds may discuss relevant economic and market conditions affecting Accessor
Funds. In addition, Accessor Funds, Accessor Capital and the Money Managers may
render updates of Fund investment activity, which may include, among other
things, discussion or quantitative 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. Accessor Funds may also describe the general biography,
work experience and/or investment philosophy or style of the Money Managers of
the Accessor Funds and may include quotations attributable to the Money Managers
describing approaches taken in managing each Accessor Funds' investments,
research methodology underlying stock selection or each Accessor Funds'
investment objective. The Accessor Funds may also discuss measures of risk,
including those based on statistical or econometric analyses, the continuum of
risk and return relating to different investments and the potential impact of
foreign stocks on a portfolio otherwise composed of domestic securities.
CALCULATION OF FUND PERFORMANCE INFORMATION
Yield and Total Return Quotations. The Funds (other than the U.S.
Government Money Fund) 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 Funds, 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 Fund
are reinvested at the price stated in the Prospectuses on the reinvestment dates
during the period, and includes all recurring fees.
Yields are computed by using standardized methods of calculation required
by the SEC. Yields for the Fixed-Income Funds 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[(a-b/cd+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 U.S. Government Money Fund computes its current annualized and compound
effective yields using standardized methods required by the SEC. The annualized
yield for this Fund 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 Fund'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.
Current distribution information for the Investor Class Shares of a Fund
will be based on distributions for a specified period (i.e., total dividends
from net investment income), divided by the NAV per Investor Class share on the
last day of the period and annualized. Current distribution rates differ from
standardized yield rates in that they represent what Investor Class Shares of a
Fund 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.
CODE OF ETHICS
Accessor Funds, on behalf of the Funds, has adopted a Code of Ethics, which
establishes standards by which certain covered persons of Accessor Funds must
abide relating to personal securities trading conduct. Under the Code of Ethics,
covered persons (who include, among others, directors and officers of Accessor
Funds and employees of Accessor Funds and Accessor Capital), are generally
prohibited from engaging in personal securities transactions with certain
exceptions as set forth in the Code of Ethics. The Code of Ethics also contains
provisions relating to the reporting of any personal securities transactions,
and requires that covered persons shall place the interests of shareholders of
Accessor Funds before their own.
TAX INFORMATION
Taxation of the Funds
---------------------
Each Fund, which is treated as a separate entity for federal income tax
purposes, has elected to be, and intends to qualify for treatment as a regulated
investment company under the Code ("RIC"). That treatment relieves a Fund, but
not its shareholders, from paying federal income tax on any investment company
taxable income (generally consisting of net investment income and the excess of
net short-term capital gain over net long-term capital loss) and net capital
gain (i.e., the excess of net long-term capital gain over net short-term capital
loss), if any, that are distributed to its shareholders.
To qualify for treatment as a RIC, a Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (determined without regard to the dividends-paid deduction)
("Distribution Requirement") and must meet several additional requirements. For
each Fund, these requirements include the following: (1) at least 90% of the
Fund'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 securities or foreign currencies, or other income (including
gains from options, futures or forward contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement");
(2) at the close of each quarter of the Fund'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 RICs and other securities, with these
other securities limited, in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities; and (3)
at the close of each quarter of the Fund's taxable year, not more than 25% of
the value of its total assets may be invested in securities (other than U.S.
Government securities or securities of other RICs) of any one issuer or in two
or more issuers that the Fund controls and that are engaged in similar trades or
businesses.
If any Fund failed to qualify for treatment as a RIC for any taxable year,
(1) it would be taxed as an ordinary corporation on the full amount of its
taxable income for that year without being able to deduct the distributions it
makes to its shareholders and (2) the shareholders would treat all those
distributions, including distributions of net capital gain, as dividends (that
is, ordinary income) to the extent of the Fund's earnings and profits. In
addition, the Fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying for RIC treatment.
Each Fund will invest its assets primarily in shares of Underlying Funds,
and may also invest in cash and money market instruments. Accordingly, a Fund's
income will consist of distributions from the Underlying Funds, net gains
realized from the disposition of Underlying Fund shares and interest. If an
Underlying Fund qualifies for treatment as a RIC -- each has done so for its
past taxable years and intends to continue to do so for its current and future
taxable years -- (1) dividends paid to a Fund from the Underlying Fund's
investment company taxable income (which may include net gains from certain
foreign currency transactions) will be taxable to the Fund as ordinary income to
the extent of the Underlying Fund's earnings and profits and (2) distributions
paid to a Fund from the Underlying Fund's net capital gain will be taxable to
the Fund as long-term capital gains, regardless of how long the Fund has held
the Underlying Fund's shares. If a Fund purchases shares of an Underlying Fund
within 30 days before or after redeeming other shares of that Underlying Fund at
a loss (whether pursuant to a rebalancing of the Fund's portfolio or otherwise),
all or a part of the loss will not be deductible by the Fund and instead will
increase its basis for the newly purchased shares.
Although an Underlying Fund will be eligible to elect to "pass-through" to
its shareholders (including a Fund) the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes it pays if more than
50% of the value of its total assets at the close of any taxable year consists
of securities of foreign corporations, a Fund will not qualify to pass that
benefit through to its shareholders because of its inability to satisfy that
asset test.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year at least
98% of the sum of its ordinary income for that year and 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 a Fund in
October, November or December of any calendar year and payable to shareholders
of record on a date in one of those months will be deemed to have been paid by
the Fund and received by the shareholders on December 31 of that year if the
dividends are paid during the following January. Each Fund intends to make
sufficient distributions to avoid the Excise Tax.
Taxation of the Shareholders - General
--------------------------------------
All dividends out of a Fund's investment company taxable income will be
taxable as ordinary income to its shareholders, whether received in cash or
reinvested in additional Fund shares. Distributions of net capital gain by a
Fund will be taxable to its shareholders as long-term capital gains (i.e., as
gain from assets held for more than one year at the time of disposition),
regardless of the length of time the shareholders have held their Fund shares.
The maximum tax rate on that gain for non-corporate taxpayers generally is 20%.
A lower rate of 18% will apply after December 31, 2000, for assets that are held
for more than five years and are acquired after that date (unless the taxpayer
elects to treat an asset held on that date as having been sold for its fair
market value on January 1, 2001). In the case of a non-corporate taxpayer whose
ordinary income is taxed at a 15% rate, the 20% and 18% rates are reduced to 10%
and 8%, respectively. A corporation's net capital gain is taxed at the same rate
as its ordinary income.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received thereon. Any loss realized
by a shareholder on a sale (redemption) or exchange of shares of a Fund will be
disallowed to the extent the shareholder purchases other shares of that Fund,
regardless of class, within 30 days before or after the disposition.
A portion of the dividends from each Fund's investment company taxable
income, whether paid in cash or reinvested in additional Fund shares, may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion of any Fund may not exceed its share of the aggregate dividends
received from domestic corporations by each Underlying Fund that qualifies as a
RIC in which the Fund invests; capital gain distributions thus are not eligible
for the deduction. Dividends received by a corporate shareholder and deducted by
it pursuant to the dividends-received deduction are subject indirectly to the
federal alternative minimum tax. Corporate shareholders should consult their tax
advisers regarding other requirements applicable to the dividends-received
deduction.
Any distribution paid shortly after an investor purchases Fund shares will
reduce the NAV of those shares by the distribution amount. While such a
distribution is in effect a return of capital, it is nevertheless subject to
federal income tax. This result may be magnified with respect to a Fund that
pays dividends only once a year, such as the International Fund. Therefore,
prior to purchasing shares of any Fund, an investor should carefully consider
the impact of distributions that are expected to be or have been announced.
Foreign Shareholders
--------------------
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 a
Fund.
State and Local Taxes
---------------------
Depending on the extent of a Fund's activities in states and localities in
which it office is maintained, in which its agents are located or in which it is
otherwise deemed to be conducting business, it may be subject to the tax laws of
those states or localities. Furthermore, the state and local income tax
treatment of a Fund and its shareholders with respect to distributions by the
Fund may differ from the federal income tax treatment thereof. Distributions to
shareholders may be subject to other state and local taxes as well. Prospective
investors are advised to consult with their own tax advisors regarding the state
and local income and other tax treatment of an investment in a Fund.
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Advisor Class Shares of the Funds may be purchased directly from the Funds
with no sales charge or commission. Investors may also purchase Advisor Class
Shares or Investor Class Shares of the Funds from intermediaries, such as a
broker-dealer, bank or other financial institutions. 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 Funds. Shares of the Funds will be sold at the NAV 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. NAV is determined as set
forth above under "Valuation." All purchases must be made in U.S. dollars.
Orders are accepted on each business day. If Accessor Capital receives a
purchase order for shares of the U.S. Government Money Fund and investment
monies are wired prior to 9:00 a.m. Pacific time, the shareholder will be
entitled to receive that day's dividend. Neither the Funds nor the Transfer
Agent will be responsible for delays of wired proceeds due to heavy wire traffic
over the Federal Reserve System. Orders to purchase Fund shares must be received
by Accessor Capital prior to close of the New York Stock Exchange, normally 4:00
p.m. Eastern time, on the day shares of those Funds are offered and orders
accepted, or the orders will not be accepted and invested in the particular Fund
until the next day on which shares of that Fund are offered. Payment must be
received by 12:00 p.m. Eastern time on the next business day. Shares may be
bought or sold through financial intermediaries who are authorized to receive
purchase and redemption orders on behalf of the Funds. These financial
intermediaries are authorized to designate their agents and affiliates to
receive these orders, and a Fund will be deemed to have received a purchase or
redemption order when the order is received by the financial intermediary. The
order will be priced at the NAV next computed after the order is received.
Each Fund reserves the right to suspend the offering of shares for a period
of time. The Funds also reserve the right to reject any specific purchase order,
including certain purchases by exchange. Purchase orders may be refused if, in
Accessor Capital's opinion, they would disrupt management of a Fund. A Fund also
reserves the right to refuse exchange purchases by any person or group if, in
Accessor Capital's judgment, a Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected.
Investor Class Shares are expected to be available through industry
recognized service providers of fund supermarkets or similar programs ("Service
Organizations") that require customers to pay either no or low transaction fees
in connection with purchases or redemptions. Certain features of the Investor
Class Shares, such as the initial and subsequent investment minimums, redemption
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
Investor Class Shares are purchased directly. Therefore, a client or customer
should contract the Service Organization acting on their behalf concerning the
fees (if any) charged in connection with a purchase or redemption of Investor
Class Shares. Service Organizations are responsible for transmitting to their
customers a schedule of any such fees and conditions. Service Organizations will
be responsible for promptly transmitting client or customer purchase and
redemption orders to a Fund in accordance with their agreements with clients or
customers.
For non-distribution related administration, subaccounting, transfer agency
and/or other services, a Fund may pay Service Organizations and certain record
keeping organizations with whom they have entered into agreements pursuant to
the Distribution and Service Plan and/or the 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.
Shares may be redeemed on any business day at the NAV 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
Accessor Capital receives a redemption request in good order from a shareholder
of the U.S. Government Money Fund by 9:00 a.m. Pacific time, the shareholder
will be entitled to receive redemption proceeds by wire on the same day.
Shareholders of the U.S. Government Money Fund who elect this option should be
aware that their account will not be credited with the daily dividend on that
day. 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.
The Funds may accept certain types of securities in lieu of wired funds as
consideration for Fund shares. Under no circumstances will a Fund accept any
securities in consideration of the Fund's shares the holding or acquisition of
which would conflict with the Fund's investment objective, policies and
restrictions or which Accessor Capital or the applicable Money Manager believes
should not be included in the applicable Fund's portfolio on an indefinite
basis. Securities will not be accepted in exchange for Fund 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 the Nasdaq Stock
Market. Securities accepted in consideration for a Fund's shares will be valued
in the same manner as the Fund's portfolio securities in connection with its
determination of NAV. A transfer of securities to a Fund in consideration for
Fund 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 Fund's shares should consult their tax advisers as to the
federal, state and local tax consequences of such transfers.
Telephone Transactions. A shareholder of Accessor Funds with an aggregate
account balance of $1 million or more may request purchases, redemptions or
exchanges of shares of a Fund 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, Accessor Funds 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 Fund, all of which must match
Accessor Funds' records; requiring that a service representative of Accessor
Capital, 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 Accessor Funds 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. Accessor Funds may implement other
procedures from time to time. If reasonable procedures are not implemented,
Accessor Funds may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither Accessor Funds, the Fund nor Accessor
Capital will be responsible for authenticity of redemption or exchange
instructions received by telephone.
Market Timing Policy. The Funds are intended to be long-term investment
vehicles and are not designed to provide investors with a means of speculation
on short-term market movements. A pattern of frequent purchases and exchanges
can be disruptive to efficient portfolio management and, consequently, can be
detrimental to a Fund's performance and to its shareholders. Accordingly, if a
Fund's management determines that an investor is engaged in excessive trading,
the Fund, with or without prior notice, may temporarily or permanently terminate
the availability of Fund exchanges, or reject in whole or part any purchase or
exchange request, with respect to such investor's account. Such investors also
may be barred from purchasing other Funds in the Accessor Family of Funds.
Generally, an investor who makes more than four exchanges out of a Fund during
any calendar month or who makes exchanges that appear to coincide with an active
market-timing strategy may be deemed to be engaged in excessive trading.
Accounts under common ownership or control will be considered as one account for
purposes of determining a pattern of excessive trading. In addition, a Fund may
refuse or restrict purchase or exchange requests by any person or group if, in
the judgment of the Fund's management, the Fund would be unable to invest the
money effectively in accordance with its investment objective and policies or
could otherwise be adversely affected or if the Fund receives or anticipates
receiving simultaneous orders that may significantly affect the Fund (e.g.,
amounts equal to $250,000). If an exchange request is refused, the Fund will
take no other action with respect to the shares until it receives further
instructions from the investor. A Fund may delay forwarding redemption proceeds
for up to seven days if the investor redeeming shares is engaged in excessive
trading or if the amount of the redemption request otherwise would be disruptive
to efficient portfolio management or would adversely affect the Fund. The Funds'
policy on excessive trading applies to investors who invest in a Fund directly
or through financial intermediaries, but does not apply to a Systematic
Withdrawal Plan described in the Funds' Prospectus.
During times of drastic economic or market conditions, the Fund may suspend
exchange privileges temporarily without notice and treat exchange requests based
on their separate components - redemption orders with a simultaneous request to
purchase the other Fund's shares. In such a case, the redemption request would
be processed at the Fund's next determined NAV but the purchase order would be
effective only at the NAV next determined after the Fund being purchased
receives the proceeds of the redemption, which may result in the purchase being
delayed.
FINANCIAL STATEMENTS
The Funds are recently created mutual funds and consequently, Financial
Highlights for the Funds are not currently available.
<PAGE>
January 3, 2001
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Accessor Funds, Inc.
Definitive Material
SEC File No. 33-41245 and 811-6337
Ladies and Gentlemen:
On behalf of Accessor Funds, Inc. and pursuant to Rule 497 of the Securities Act
of 1933, as amended, we are filing the definitive Statement of Additional
Information for the Accessor Allocation Funds. The Accessor Allocation Funds'
Advisor Class and Investor Class Prospectuses were filed electronically on
December 22, 2000 (Accession No. 0000876603-00-000026), and are incorporated by
reference into this filing.
Please contact the undersigned with any questions you may have concerning this
filing at 1-800-759-3504.
Very truly yours,
ACCESSOR FUNDS, INC.
/s/Christine J. Stansbery
Christine J. Stansbery
Secretary
